<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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)
<TABLE>
<CAPTION>
DELAWARE 04-3218510
<S> <C>
(State or other jurisdiction or (IRS Employer Identification
incorporation or organization) Number)
</TABLE>
TWO INTERNATIONAL PLACE, BOSTON, MASSACHUSETTS, 02110
(Address of principal executive offices)
(617) 747-3300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
Common Stock ($.01 par value) New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of the voting and non-voting common stock held by
non-affiliates of the Registrant, based upon the closing price of $37.125 on
March 13, 1998 on the New York Stock Exchange was $314,705,766. Calculation of
holdings by non-affiliates is based upon the assumption, for these purposes
only, that executive officers, directors, and persons holding 10% or more of the
Registrant's Common Stock (including the Registrant's Common Stock, $.01 par
value per share and the Registrant's Class B Non-Voting Common Stock, $.01 par
value per share, as if they were a single class) are affiliates. Number of
shares of the Registrant's Common Stock outstanding at March 13, 1998:
17,703,617 including 2,636,800 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.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this report on Form 10-K is
incorporated by reference to certain portions of the Proxy Statement of the
Registrant to be filed pursuant to Regulation 14A and sent to stockholders in
connection with the Annual Meeting of Stockholders to be held on May 20, 1998.
Such Proxy Statement, except for the parts therein which have been specifically
incorporated herein by reference, shall not be deemed "filed" as part of this
report on Form 10-K.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I................................................................................. 3
ITEM 1. BUSINESS..................................................................... 3
ITEM 2. PROPERTIES................................................................... 16
ITEM 3. LEGAL PROCEEDINGS............................................................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................... 16
PART II................................................................................ 17
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........ 17
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA........................................... 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.................................................................... 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................. 32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................... 51
PART III............................................................................... 51
</TABLE>
INCORPORATED BY REFERENCE FROM THE COMPANY'S PROXY STATEMENT FOR
THE ANNUAL MEETING OF SHAREHOLDERS CURRENTLY SCHEDULED TO BE HELD
ON MAY 20, 1998, TO BE FILED PURSUANT TO REGULATION 14A
<TABLE>
<S> <C>
PART IV................................................................................ 52
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.............. 52
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Affiliated Managers Group, Inc. ("AMG" or the "Company") is an asset
management holding company which acquires majority interests in mid-sized
investment management firms. The Company's strategy is to generate growth
through investments in new affiliates, as well as through the internal growth of
existing affiliated firms. With the completion of its investment in Essex
Investment Management Company, LLC ("Essex"), the Company's most recent
investment, AMG has grown since its founding in December 1993, to eleven
investment management firms (the "Affiliates") with approximately $50 billion in
assets under management.
AMG has developed an innovative transaction structure (the "AMG Structure"),
which it believes addresses the succession planning needs of growing mid-sized
investment management firms. The Company believes that the AMG Structure appeals
to target firms for both financial and operational reasons:
- The AMG Structure allows owners of mid-sized investment management firms
to sell a portion of their interest, while ongoing management retains a
significant ownership interest with the opportunity to realize value for
that interest in the future.
- The AMG Structure provides management owners of each Affiliate with
autonomy over the day-to-day operations of their firm, and includes a
revenue sharing arrangement which provides that a specified percentage of
revenues are retained to pay operating expenses at the discretion of the
Affiliate's management.
The Company believes that the AMG Structure distinguishes AMG from most
other acquirers of investment management firms which generally seek to own 100%
of their target firms and, in many cases, seek to participate in the day-to-day
management of such firms. AMG believes that the opportunity for managers of each
Affiliate to realize the value of their retained equity interest makes the AMG
Structure particularly appealing to managers of firms who anticipate strong
future growth and provides those managers with an ongoing incentive to continue
to grow their firm.
AMG's Affiliates manage assets across a diverse range of investment styles,
asset classes and client types, with significant participation in fast-growing
segments such as equities, global investments and mutual funds. On a pro forma
basis(1), for the year ended December 31, 1997, investments in equity securities
represented 84% of EBITDA Contribution(2), while global investments represented
38% of EBITDA Contribution. For the same period, mutual fund assets represented
31% of EBITDA Contribution on a pro forma basis. Other asset classes, including
fixed income, represented 16% of EBITDA Contribution; domestic investments
represented 62% of EBITDA Contribution; and institutional, high net worth and
other client types represented 69% of EBITDA Contribution for the same period
and on the same basis.
- ------------------------
(1) Throughout this document, the use of the term "pro forma" assumes that the
Company's investment in each Affiliate (other than Essex, in which the
Company invested on March 20, 1998) occurred on January 1, 1997.
(2) EBITDA Contribution represents the portion of an Affiliate's revenues that
is allocated to the Company, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate.
EBITDA Contribution does not include holding company expenses. The Company
believes that EBITDA Contribution may be useful to investors as an indicator
of each Affiliate's contribution to the Company's ability to service debt,
to make new investments and to meet working capital requirements. EBITDA
Contribution is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. EBITDA Contribution and
EBITDA, as calculated by the Company, may not be consistent with comparable
computations by other companies.
3
<PAGE>
THE INDUSTRY
ASSETS UNDER MANAGEMENT
The investment management sector is one of the fastest growing sectors in
the financial services industry. According to U.S. Federal Reserve "Flow of
Funds Account" data, from 1992-1997, mutual fund assets under management
(excluding money market funds) grew at a compound annual growth rate of
approximately 21.9%, while the aggregate assets managed on behalf of pension
funds increased at a compound annual growth rate of approximately 12.1%. These
assets, which totaled over $9.5 trillion in 1997, represent only a portion of
the funds available for investment management. In addition, substantial assets
are managed on behalf of individuals in separate accounts, for foundations and
endowments, as a portion of certain insurance contracts such as variable annuity
plans and on behalf of corporations and other financial intermediaries. The
Company believes that demographic trends and the ongoing disintermediation of
bank deposits and life insurance reserves will result in continued growth of the
investment management industry.
INVESTMENT ADVISERS
The growth in industry assets under management has resulted in a significant
increase in the number of investment management firms within AMG's principal
targeted size range of $500 million to $10 billion of assets under management.
Within this size range, the Company has identified over 1,000 investment
management firms in the United States, and over 200 additional investment
management firms in Canada, the United Kingdom and in other European and Asian
countries. AMG believes that, in the coming years, a substantial number of
investment opportunities will arise as founders of such firms approach
retirement age and begin to plan for succession. The Company also anticipates
that there will be significant additional investment opportunities among firms
which are currently wholly-owned by larger entities. AMG believes that it is
well positioned to take advantage of these investment opportunities because it
has a management team with substantial industry experience and expertise in
structuring and negotiating transactions, as well as a highly organized process
for identifying and contacting investment prospects.
HOLDING COMPANY OPERATIONS
AMG's management performs two primary functions: (i) implementing the
Company's strategy of growth through acquisitions of interests in prospective
affiliates; and (ii) supporting, enhancing, and monitoring the activities of the
existing Affiliates.
ACQUISITION OF INTERESTS IN PROSPECTIVE AFFILIATES
The acquisition of interests in new affiliates is a primary element of AMG's
growth strategy. AMG's management is responsible for each step in the new
investment process, including identification and contact of potential
affiliates, and the valuation, structuring and negotiation of transactions. In
general, the Company seeks to initiate its contacts with potential affiliates on
an exclusive basis and does not actively seek to participate in competitive
auction processes or employ investment bankers or finders. The Company and the
AMG Structure have been competitive, however, in processes where investment
bankers are employed. Of the Company's eleven Affiliates, four were represented
by investment bankers while the remaining seven were transactions initiated by
AMG's management.
AMG's management identifies and develops relationships with promising
potential affiliates based on a thorough understanding of its principal target
universe, mid-sized investment management firms. Using its proprietary
database--comprised of data from third party vendors, public and industry
sources, and AMG research--AMG screens and prioritizes prospects within its
target universe. AMG also utilizes the database to monitor the level and
frequency of interaction with potential affiliates. AMG's database and contact
management system enhances the Company's ability to identify promising potential
affiliates and to develop and maintain relationships with these firms.
4
<PAGE>
AMG's management seeks to increase awareness of AMG's approach to investing
by sending periodic mailings to up to 5,000 individuals involved in the industry
and by participating in conferences and seminars related to succession planning
for investment management firms. Such activities lead to a number of unsolicited
calls to AMG by firms which are considering succession planning issues. In
addition, AMG's management maintains an active calling program in order to
develop relationships with prospective affiliates. The Company believes that it
has established ongoing relationships with a substantial number of firms which
will be considering succession planning alternatives in the future.
Once discussions with a target firm lead to transaction negotiations, AMG's
management team performs all of the functions related to the valuation,
structuring, and negotiation of the transaction. The Company's management team
includes professionals with substantial experience in mergers and acquisitions
of investment management firms.
Upon the negotiation and execution of definitive agreements, the firm
contacts its clients to notify them and seek their consent to the transaction
(which constitutes an assignment of the firm's investment advisory contracts) as
required by the Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act") and, with respect to mutual fund clients, seeks new contracts (as
required by the Investment Company Act of 1940, as amended (the "1940 Act"))
through a proxy process.
During 1997 the Company invested in three affiliates: Gofen and Glossberg,
L.L.C., GeoCapital, LLC and Tweedy, Browne Company LLC. In addition, in March,
1998 the Company completed its investment in Essex.
GOFEN AND GLOSSBERG
Gofen and Glossberg, L.L.C. is an investment counseling firm which, as of
December 31, 1997, had $3.86 billion in assets under management. With its
predecessor having been founded in 1932, the firm has a long history of managing
assets for prominent individuals, families, retirement plans, foundations and
endowments. Based in Chicago, the firm is led by its President, William H.
Gofen, and its Executive Vice President, Joseph B. Glossberg.
GEOCAPITAL
GeoCapital, LLC invests in domestic small-capitalization growth and special
situation equities on behalf of corporations, retirement programs, foundations,
high net worth individuals and private partnerships. As of December 31, 1997,
GeoCapital, LLC had $2.39 billion in assets under management. With principal
offices in New York, the firm is led by its Chairman and Chief Investment
Officer, Irwin Lieber, and its President, Barry K. Fingerhut.
TWEEDY, BROWNE
Tweedy, Browne Company LLC is recognized as a leading practitioner of the
value-oriented investment approach first advocated by Benjamin Graham. Tweedy,
Browne Company LLC manages domestic, international and global equity portfolios
for institutions, individuals, partnerships, and mutual funds and, as of
December 31, 1997, had $5.34 billion in assets under management. The firm, which
is the successor to Tweedy & Co., a brokerage firm founded in 1920, is led by
Christopher H. Browne, William H. Browne and John D. Spears. Based in New York,
the firm also maintains a research office in London.
RECENT INVESTMENT: ESSEX
On March 20, 1998, the Company completed its investment (the "Essex
Investment") in Essex Investment Management Company, LLC. Essex is a
Boston-based manager which specializes in investing in growth equities, using a
fundamental research driven approach. As of December 31, 1997, Essex
5
<PAGE>
Investment Management Company, Inc. (Essex's predecessor) had $4.3 billion in
assets under management. Essex is led by its Chairman Joseph C. McNay, its
President Stephen D. Cutler and its Executive Vice President Stephen R. Clark.
In the Essex Investment, AMG paid $69.6 million in cash and the assumption of
debt and 1,750,942 shares of its Class C Convertible Non-Voting Stock, $.01 par
value per share (the "Class C Stock"), for an indirect 68.0% interest in the
Owner's Allocation (as defined below) of Essex. The Class C Stock is non-voting
stock and carries no preferences with respect to dividends or liquidation;
however, each share of Class C Stock converts into one share of Common Stock
upon the earlier of March 20, 1999 or certain extraordinary events.
AFFILIATE SUPPORT
In addition to its new investment efforts, AMG seeks to support and enhance
the growth and operations of its Affiliates. AMG believes that the management of
each Affiliate is in the best position to assess its firm's needs and
opportunities, and that the autonomy and culture of each Affiliate should be
preserved. However, when requested by Affiliate management, AMG provides
strategic, marketing, and operational assistance. The Company believes that
these support services are attractive to the Affiliates because such services
otherwise may not be as accessible or as affordable to mid-sized investment
management firms.
In addition to the diverse industry experience and knowledge of AMG's senior
management, AMG maintains relationships with numerous consultants whose specific
expertise enhances AMG's ability to offer a wide range of assistance. Specific
Affiliate support initiatives have included: new product development, marketing
material development, institutional sales assistance, recruiting, compensation
evaluation, regulatory compliance audits, and client satisfaction surveys. The
Company also endeavors to negotiate discounted pricing on products and services
useful to the operations of the Affiliates. For example, AMG has arranged
discounts on services such as sales training seminars, public relations
services, insurance, and retirement benefits.
AMG STRUCTURE AND RELATIONSHIP WITH AFFILIATES
As part of AMG's investment structure, each of the Affiliates is organized
as a separate and largely autonomous limited liability company or partnership.
Each Affiliate operates under its own limited liability company agreement or
partnership agreement (such Affiliate's "organizational document") which
includes provisions regarding the use of the Affiliate's revenues and the
management of the Affiliate. The organizational document of each Affiliate also
gives management owners the ability to realize the value of their retained
equity interests in the future. While the organizational document of each
Affiliate is agreed upon at the time of AMG's investment, from time to time
amendments are made to such organizational documents to accommodate business
needs of the Affiliate or AMG.
OPERATIONAL AUTONOMY OF AFFILIATES
The management provisions in each organizational document are jointly
developed by AMG and the Affiliate's senior management at the time AMG makes its
investment. These provisions, while varying among Affiliates, provide for
delegation to the Affiliate's management team of the power and authority to
carry on the day-to-day operation and management of the Affiliate, including
matters relating to personnel, investment management policies and fee
structures, product development, client relationships and employee compensation
programs. AMG does, however, retain the authority to prevent certain specified
types of actions which AMG believes could adversely affect cash distributions to
AMG. For example, none of the Affiliates may incur material indebtedness without
the consent of AMG. AMG itself does not manage investments for clients, does not
provide any investment management services and is not registered as an
investment adviser under federal or state law.
6
<PAGE>
REVENUE SHARING ARRANGEMENTS
AMG has a revenue sharing arrangement with each Affiliate which is contained
in the organizational document of that Affiliate. Each such arrangement
allocates a portion 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 percentage of revenues included in
each Affiliate's Operating Allocation is determined by AMG and the managers of
the Affiliate at the time of AMG's investment, based on the Affiliate's
historical and projected operating margins. The remaining portion of revenues of
the Affiliate (typically 30-50%) is allocated to the owners of that Affiliate
(including AMG), generally in proportion to their ownership of the Affiliate.
AMG defines the portion of revenues that is allocated to the owners of each
Affiliate as the "Owners' Allocation" because it is the portion of both revenues
and cash flow which the Affiliate's management is prohibited from spending on
operating expenses (under the Affiliate's organizational document) without the
prior consent of AMG.
When AMG makes an investment in an Affiliate, the organizational document of
the Affiliate includes allocation provisions that divide the revenues of the
firm into the Owners' Allocation and the Operating Allocation. Before agreeing
to these allocations, AMG examines the revenue and expense base of the firm and
only agrees to a specific division of revenues if AMG believes that the
allocation to the Operating Allocation both (i) is sufficient to provide for the
payment of all operating expenses of the Affiliate, including salaries and
bonuses, and (ii) includes some Excess Operating Allocation (as defined below)
to provide a cushion against an increase in expenses or a decrease in revenues
which is not accompanied by a corresponding decrease in operating expenses.
While AMG and its management have significant experience in the asset management
industry, there can be no assurance that AMG will successfully anticipate
changes in the revenue and expense base of any firm and, therefore, there can be
no assurance that the agreed-upon allocation of revenues to the Operating
Allocation will be sufficient to pay for all operating expenses, including
salaries and bonuses of the Affiliate.
One of the purposes of the revenue sharing arrangements is to provide
ongoing incentives for the managers of the Affiliates. The revenue sharing
arrangements are designed to allow each Affiliate's managers to participate in
their firm's growth (through their compensation from the Operating Allocation
and their ownership of a portion of the Owners' Allocation) and to make
operating expenditures freely within the limits of the Operating Allocation. The
portion of the Operating Allocation that is not used to pay salaries and other
operating expenses (the "Excess Operating Allocation") is generally available to
be used at the discretion of management of the Affiliate, including for the
payment of bonuses or distributions to management. The managers of each
Affiliate thus have an incentive to both increase revenues (thereby increasing
the Operating Allocation) and to control expenses (thereby increasing the Excess
Operating Allocation). The ownership by an Affiliate's management of a portion
of the Affiliate, which entitles them to a portion of the Owners' Allocation,
provides an important additional incentive to managers of each Affiliate to
increase revenues.
The revenue sharing arrangements allow AMG to participate in the growth of
revenues of each Affiliate, because as revenues increase, the Owners' Allocation
also increases. However, AMG participates in that growth to a lesser extent than
the managers of the Affiliate, because AMG does not participate in the growth of
the Operating Allocation. In addition, according to the organizational documents
of the Affiliates, the allocations and distributions to AMG generally take
priority over the allocations and distributions to the management owners of the
Affiliates, to further protect AMG if there are any expenses in excess of the
Operating Allocation of the Affiliate. Thus, if an Affiliate's expenses exceed
its Operating Allocation, the excess expenses first reduce the portion of the
Owners' Allocation allocated to the Affiliate's management owners, until that
portion is eliminated, and then reduce the portion allocated to AMG.
7
<PAGE>
CAPITALIZATION OF RETAINED INTEREST
The incentive effect of retained equity ownership is an integral part of the
AMG Structure. In order to maximize this incentive effect, the organizational
documents of each Affiliate (other than Paradigm Asset Management Company,
L.L.C.) include various provisions for the management owners of that Affiliate
to periodically realize the equity value they have created, by requiring the
Company to purchase portions of their interests in the Affiliate ("Puts"). In
addition, the organizational documents of certain of the Affiliates provide AMG
with the ability to require the management owners to sell portions of their
interests in the Affiliate to AMG ("Calls"). Finally, the organizational
documents of each Affiliate include provisions obligating each such owner to
sell his or her remaining interests at a point in the future, generally after
the termination of his or her employment with the Affiliate. Underlying all of
these provisions is AMG's basic philosophy that management owners of each
Affiliate should maintain an ownership level in that Affiliate within a range
that the Company believes offers them sufficient incentives to grow and improve
their business.
The Puts are designed to let the management owners of an Affiliate realize
portions of the equity value they have created prior to their retirement. In
addition, as an alternative to simply purchasing all of a management owner's
interest in the Affiliate following the termination of his or her employment,
the Puts enable AMG to purchase additional interests in the Affiliates at a more
gradual rate. The Company believes that a more gradual purchase of interests in
Affiliates will make it easier for AMG to keep its ownership of each Affiliate
within a desired range, by transferring purchased interests in the Affiliate to
more junior members of that Affiliate's management. In most cases, the Puts do
not become exercisable for a period of several years from the date of AMG's
investment in an Affiliate, and once exercisable, are generally limited in the
aggregate to a percentage of a given management owner's ownership interests. The
most common formulation among all the Affiliates is that a management owner's
Puts (i) do not commence for five years from the date of AMG's investment (or,
if later, the date he or she purchased his or her interest in the Affiliate),
(ii) are limited, in the aggregate, to fifty percent of the interests he or she
held in the Affiliate, and (iii) are limited, in any twelve-month period, to ten
percent of the greatest interest he or she held in the Affiliate. In addition,
the organizational documents of the Affiliates generally contain a limitation on
the maximum aggregate amount that management owners of any Affiliate may require
AMG to purchase pursuant to their Puts in any given twelve-month period. The
purchase price for Puts to AMG is paid either in cash, AMG stock, or a
combination of cash and AMG stock. If paid in cash, the purchase price for Puts
is generally based on a multiple of the Owners' Allocation of the Affiliate at
the time the Put is exercised, with the multiple generally having been
determined at the time AMG made its initial investment (the "Fair Value Purchase
Price"). If paid in stock, the most common formulation is as follows: AMG will
exchange a number of shares of Common Stock equal in value to seventy-five
percent of the trailing Owners' Allocation purchased in the transaction,
multiplied by the multiple of trailing EBITDA at which AMG Common Stock is then
trading in the public market.
The Calls are designed to provide the Company and management members of
certain Affiliates with the assurance that a mechanism exists for AMG to
facilitate a degree of transition within the senior management team after an
agreed-upon period of time. While the Calls vary in each specific instance, in
all cases, the timing, mechanism and price are agreed upon when AMG makes its
investment, with the price payable in cash or AMG stock and if paid in cash,
with the price generally being the Fair Value Purchase Price.
The organizational documents of each Affiliate provide that the management
owners will realize the remaining equity value they have created generally
following the termination of their employment with the Affiliate. In general,
upon a management owner's retirement after an agreed-upon number of years, or
upon his earlier death, permanent incapacity or termination without cause (but
with AMG's consent), that management owner (or his estate) is required to sell
to AMG (and AMG is required to purchase from the management owner) his or her
remaining interests. The purchase price in these cases is paid either in cash,
AMG stock or a combination of cash and AMG stock. If paid in cash, the purchase
price is generally the
8
<PAGE>
Fair Value Purchase Price, and if paid in stock, the most common formulation is
identical to that used in the payment of a purchase price for Puts in shares of
AMG stock. In general, if a management owner quits early or is terminated for
cause, his or her interests will be purchased by AMG at a reduced multiple which
represents a substantial discount to the Fair Value Purchase Price, and, in
general, if he or she quits or is terminated for cause within the first several
years following AMG's investment (or, if later, the date he or she purchased his
or her interest in the Affiliate) he or she generally receives nothing for his
or her retained interest.
THE AFFILIATES
In general, the Affiliates derive revenues by charging fees to their clients
that are typically based on the market value of assets under management. In some
instances, however, the Affiliates may derive revenues from fees based on
investment performance.
AMG's Affiliates are listed below in alphabetical order and include Essex,
in which AMG invested in March 1998. Unless otherwise indicated, AMG holds a
majority ownership interest in each such Affiliate.
<TABLE>
<CAPTION>
PRO FORMA
AMG'S EQUITY ASSETS UNDER
OWNERSHIP MANAGEMENT
PERCENTAGE AS OF
AS OF DECEMBER 31,
PRINCIPAL DATE OF DECEMBER 31, 1997
AFFILIATE LOCATION(S) INVESTMENT 1997(1) (IN MILLIONS)
- -------------------------------------------------------- ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
The Burridge Group LLC ("Burridge")..................... Chicago December 1996 55.0% $ 1,353
Essex Investment Management Company, LLC ("Essex")...... Boston March 1998 68.0 4,310
First Quadrant, L.P.; First Quadrant Limited Pasadena, CA; March 1996 66.1 26,735(2)
(collectively, "First Quadrant")...................... London
GeoCapital, LLC ("GeoCapital").......................... New York September 1997 60.0 2,391
Gofen and Glossberg, L.L.C. ("Gofen and Glossberg")..... Chicago May 1997 55.0 3,857
J.M. Hartwell Limited Partnership ("Hartwell").......... New York May 1994 74.9 334
Paradigm Asset Management Company, L.L.C. ("Paradigm").. New York May 1995 30.0 1,925
Renaissance Investment Management ("Renaissance")....... Cincinnati November 1995 66.7 1,373
Skyline Asset Management, L.P. ("Skyline").............. Chicago August 1995 62.5 1,214
Systematic Financial Management, L.P. ("Systematic").... Teaneck, NJ May 1995 90.7 1,148
Tweedy, Browne Company LLC ("Tweedy, Browne")........... New York; October 1997 71.2 5,343
London
-------------
Total................................................... $ 49,983
-------------
-------------
</TABLE>
- ------------------------
(1) Except for Essex, in which AMG invested in March 1998.
(2) Includes directly managed assets of $9.2 billion and $17.5 billion of assets
indirectly managed using overlay strategies ("overlay strategies") which
employ futures, options or other derivative securities to achieve a
particular investment objective. These overlay strategies are intended to
add incremental value to the underlying portfolios, which may or may not be
directly managed by First Quadrant, and generate advisory fees which are
generally at the lower end of the range of those generated by First
Quadrant's directly managed portfolios.
The following table provides the pro forma composition of the Company's
assets under management and relative EBITDA Contribution of the Affiliates for
the year ended December 31, 1997.
All amounts below are pro forma for the inclusion of the investments in
Gofen and Glossberg, GeoCapital and Tweedy, Browne as if such transactions
occurred on January 1, 1997 and excludes the Essex Investment. In addition,
EBITDA Contribution and other unaudited pro forma financial data reflect the
Company's Recent Financing (with interest expense adjusted for the terms of the
New Credit Facility) (as such terms are defined in "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources"), the sale of Common Stock sold in the Company's initial public
offering ("IPO") and the application of the net proceeds therefrom, the
conversion of convertible preferred stock into Common Stock, the 50-for-1 split
of each share of Common Stock outstanding prior to the IPO, and the issuance of
shares of Common Stock to the shareholders of an Affiliate in exchange for an
additional ownership interest in that Affiliate, all effected in connection with
the initial public offering.
9
<PAGE>
UNAUDITED PRO FORMA
ASSETS UNDER MANAGEMENT AND EBITDA CONTRIBUTION(1)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------
PERCENTAGE PERCENTAGE
OF TOTAL EBITDA OF TOTAL
--------- CONTRIBUTION ---------
--------------
ASSETS UNDER (IN THOUSANDS)
MANAGEMENT
--------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
CLIENT TYPE:
Institutional................. $ 36,401 80% $ 24,945 47%
Mutual fund................... 3,376 7 16,599 31
High net worth................ 5,276 12 8,555 16
Other......................... 620 1 3,322 6
------- --- -------------- ---
Total....................... $ 45,673 100% $ 53,421 100%
------- --- -------------- ---
------- --- -------------- ---
ASSET CLASS:
Equity........................ $ 25,345 56% $ 44,953 84%
Fixed income.................. 2,829 6 2,072 4
Tactical asset allocation..... 17,499 38 6,396 12
------- --- -------------- ---
Total....................... $ 45,673 100% $ 53,421 100%
------- --- -------------- ---
------- --- -------------- ---
GEOGRAPHY:
Domestic investments.......... $ 23,425 51% $ 33,130 62%
Global investments............ 22,248 49 20,291 38
------- --- -------------- ---
Total....................... $ 45,673 100% $ 53,421 100%
------- --- -------------- ---
------- --- -------------- ---
OTHER PRO FORMA FINANCIAL
DATA:
RECONCILIATION OF EBITDA
CONTRIBUTION TO EBITDA:
Total EBITDA Contribution
(as above)................ $ 53,421
Less holding company
expenses.................. (8,411)
--------------
EBITDA (2).................... $ 45,010
--------------
EBITDA as adjusted (3)........ $ 26,695
OTHER HISTORICAL CASH FLOW
DATA:
Cash flow from operating
activities................ $ 16,205
Cash flow used in investing
activities................ (327,275)
Cash flow from financing
activities................ 327,112
EBITDA (2).................... $ 20,044
EBITDA as adjusted (3)........ $ 10,201
</TABLE>
- ------------------------
(1) As defined by Note (2) on page 3.
(2) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary item. The Company believes EBITDA may be
useful to investors as an indicator of the Company's ability to service
debt, to make new investments and to meet working capital requirements.
EBITDA, as calculated by the Company, may not be consistent with
computations of EBITDA by other companies. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.
(3) EBITDA as adjusted represents earnings after interest expense and income
taxes but before depreciation, amortization and extraordinary item. The
Company believes that this measure may be useful to investors as another
indicator of funds available to the Company, which may be used to make new
investments, repay debt obligations, repurchase shares of Common Stock or
pay dividends on Common Stock. EBITDA as adjusted, as calculated by the
Company, may not be consistent with computations of EBITDA as adjusted by
other companies. EBITDA as adjusted is not a measure of financial
performance under generally
10
<PAGE>
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.
COMPETITION
The Company operates as an asset management holding company organized to
invest in mid-sized asset management firms. The Company believes that the market
for investments in asset management companies is, and will continue to remain,
highly competitive. The Company competes with many purchasers of investment
management firms, including other investment management holding companies,
insurance companies, broker-dealers, banks and private equity firms. Many of
these companies, both privately and publicly held, have longer operating
histories and greater resources than the Company, which may make them more
attractive to the owners of firms in which AMG is considering an investment and
may enable them to offer greater consideration to such owners. The Company is
aware of several other holding companies that have been organized to invest in
or acquire less than 100% of investment management firms and the Company views
these firms as among its competitors. Certain of the Company's principal
stockholders also pursue investments in, and acquisitions of, investment
management firms, and the Company may, from time to time, encounter competition
from such principal stockholders with respect to certain investments. The
Company believes that important factors affecting its ability to compete for
future investments are (i) the degree to which target firms view the AMG
Structure as preferable, financially and operationally, to acquisition or
investment arrangements offered by other potential purchasers, (ii) the
attractiveness of AMG's Common Stock as a form of consideration in acquisitions,
and (iii) the reputation and performance of the existing Affiliates and future
affiliates, by which target firms will judge AMG and its future prospects.
The Affiliates compete with a large number of domestic and foreign
investment management firms, including public companies, subsidiaries of
commercial banks, and insurance companies. Many of these firms have greater
resources and assets under management than any of the Affiliates, and offer a
broader array of investment products and services than any of the Affiliates.
From time to time, Affiliates may also compete with other Affiliates for
clients. In addition, there are relatively few barriers to entry by new
investment management firms, especially in the institutional managed accounts
business. AMG believes that the most important factors affecting its Affiliates'
ability to compete for clients are (i) the products offered, (ii) the abilities,
performance records and reputation of its Affiliates and their management teams,
(iii) the management fees charged, (iv) the level of client service offered, and
(v) the development of new investment strategies and marketing. The importance
of these factors can vary depending on the type of investment management service
involved. Each Affiliate's ability to retain and increase assets under
management would be adversely affected if client managed accounts underperform
in comparison to relevant benchmarks, or if key management or employees leave
the Affiliate. The ability of each Affiliate to compete with other investment
management firms is also dependent, in part, on the relative attractiveness of
their respective investment philosophies and methods under then prevailing
market conditions.
GOVERNMENT REGULATION
Virtually all aspects of the Affiliates' businesses are subject to extensive
regulation. Each Affiliate (other than First Quadrant Limited) is registered
with the Securities and Exchange Commission (the "Commission") as an investment
adviser under the Investment Advisers Act. As an investment adviser, each such
Affiliate is subject to the provisions of the Investment Advisers Act and the
Commission's regulations promulgated thereunder. The Investment Advisers Act
imposes numerous obligations on registered investment advisers, including
fiduciary, recordkeeping, operational, and disclosure obligations. Each of the
Affiliates (other than First Quadrant Limited) is, as an investment adviser,
also subject to regulation under the securities laws and fiduciary laws of
certain states. Each of the mutual funds for which Tweedy, Browne and Skyline
are advisors is registered with the Commission under the 1940 Act, shares of
each such fund are registered with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), and the shares of each such fund are
qualified for sale (or exempt from such
11
<PAGE>
qualification) under the laws of each state and the District of Columbia to the
extent such shares are sold in any of such jurisdictions. In addition, each of
Renaissance, Systematic and Essex are subadvisors for one or more mutual funds.
As an adviser or subadviser to a registered investment company, each such
Affiliate is subject to requirements under the 1940 Act and the Commission's
regulations promulgated thereunder. The Affiliates are also subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"), and to regulations
promulgated thereunder, insofar as they are "fiduciaries" under ERISA with
respect to certain of their clients. ERISA and the applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code") impose certain duties on
persons who are fiduciaries under ERISA, and prohibit certain transactions
involving the assets of each ERISA plan which is a client of an Affiliate, as
well as certain transactions by the fiduciaries (and certain other related
parties) to such plans. Each of First Quadrant, L.P. and Renaissance is also
registered with the Commodity Futures Trading Commission as a Commodity Trading
Advisor and each is a member of the National Futures Association. Tweedy, Browne
is registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended and is subject to regulation by the Commission, the National Association
of Securities Dealers, Inc. and other federal and state agencies. As a
registered broker-dealer, Tweedy, Browne is subject to the Commission's net
capital rules. Under certain circumstances, these rules may limit the ability of
Tweedy, Browne to make distributions to the Company.
A number of the Affiliates are subject to the laws of non-U.S. jurisdictions
and non-U.S. regulatory agencies or bodies. For example, First Quadrant Limited,
located in London, is a member of the Investment Management Regulatory
Organisation of the United Kingdom, and Tweedy, Browne and other Affiliates are
investment advisers to certain funds which are organized under non-U.S.
jurisdictions, including Luxembourg (where they are regulated by the Institute
Monetaire Luxembourgeois) and Bermuda (where they are regulated by the Bermuda
Monetary Authority).
Under the Investment Advisers Act, every investment advisory contract
between a registered investment adviser and its clients must provide that it may
not be assigned by the investment adviser without the consent of the client. In
addition, under the 1940 Act, each contract with a registered investment company
must provide that it terminates upon its assignment. Under both the Investment
Advisers Act and the 1940 Act, an investment advisory contract is deemed to have
been assigned in the case of a direct "assignment" of the contract as well as in
the case of a sale, directly or indirectly, of a "controlling block" of the
adviser's voting securities. Such an assignment may be deemed to take place when
a firm is acquired by AMG. Prior to AMG's investment, each Affiliate sought to
obtain the consent of its clients to the assignment of the advisory contracts
which results from the acquisition (and, in the case of mutual fund clients,
sought to obtain new advisory contracts on substantially the same terms). Each
investment consummated thus far has been, and the Company expects that each
future investment will be, conditioned on the obtaining of such consents (and,
to the extent applicable, new contracts) from substantially all of the clients
of the acquired firm. Because the reduction or dilution of the interests in AMG
of certain of AMG's stockholders could be considered to constitute a deemed
"assignment" of AMG's Affiliates' contracts with their clients, each of AMG's
Affiliates will solicit their clients' consents to such a reduction or dilution.
The foregoing laws and regulations generally grant supervisory agencies and
bodies broad administrative powers, including the power to limit or restrict any
of the Affiliates from conducting their business in the event that they fail to
comply with such laws and regulations. Possible sanctions that may be imposed in
the event of such noncompliance include the suspension of individual employees,
limitations on the Affiliate's business activities for specified periods of
time, revocation of the Affiliate's registration as an investment adviser,
commodity trading adviser and/or other registrations, and other censures and
fines. Changes in these laws or regulations could have a material adverse impact
on the profitability and mode of operations of the Company and each of its
Affiliates.
The officers, directors and employees of AMG and each of the Affiliates may,
from time to time, own securities that are also owned by one or more of the
Affiliates' clients. Each Affiliate and AMG has
12
<PAGE>
internal policies with respect to individual investments and requires reports of
securities transactions and restricts certain transactions so as to minimize
possible conflicts of interest.
EMPLOYEES
As of December 31, 1997, the Company and its Affiliates employed
approximately 311 persons, approximately 293 of which are full-time employees.
The Company and its Affiliates are not subject to any collective bargaining
agreements and the Company believes that its labor relations are good.
CORPORATE LIABILITY AND INSURANCE
The businesses of the Affiliates entail the inherent risk of liability
related to litigation from clients and actions taken by regulatory agencies. In
addition, the Company faces liability both directly as a control person, and
indirectly as a direct or indirect general partner of certain of the Affiliates.
To protect its overall operations from such potential liabilities, the Company
and each of its Affiliates maintains errors and omissions and general liability
insurance in amounts which the Company and its Affiliates' management consider
appropriate. There can be no assurance, however, that a claim or claims will not
exceed the limits of available insurance coverage, that any insurer will remain
solvent and will meet its obligations to provide coverage, or that such coverage
will continue to be available with sufficient limits or at a reasonable cost. A
judgment against one of the Affiliates or the Company in excess of available
coverage could have a material adverse effect on the Company.
CAUTIONARY STATEMENTS
The Company's growth strategy includes acquiring ownership interests in
investment management firms. To date, AMG has invested in eleven such firms and
intends to continue this investment program in the future, subject to its
ability to locate suitable investment management firms in which to invest and
its ability to negotiate agreements with such firms on acceptable terms. There
can be no assurance that AMG will be successful in locating or investing in such
firms or that any of such firms will have favorable operating results.
The Company's acquisitions of interests in investment management firms
require substantial capital investments. Although the Company believes that its
existing cash resources and cash flow from operations will be sufficient to meet
the Company's working capital needs for normal operations for the foreseeable
future, these sources of capital are not expected to be sufficient to fund
anticipated investments. Therefore, the Company will need to raise capital
through the incurrence of additional long-term or short-term indebtedness or the
issuance of additional equity securities in private or public transactions in
order to complete further investments. This could result in dilution of existing
equity positions, increased interest expense or decreased net income. There can
be no assurance that acceptable financing for future investments can be obtained
on suitable terms, if at all.
The Company has outstanding indebtedness of $222.3 million under its New
Credit Facility (as defined in "Management's Discussion and Analysis of
Financial Condition and Results of Operation-- Liquidity and Capital Resources")
as of March 20, 1998, and anticipates that it will incur additional indebtedness
in the future in connection with investments in investment management firms and
to fund working capital. The Company will be subject to risks normally
associated with debt financing. Accordingly, the Company will be subject to the
risk that a substantial portion of the Company's cash flow may be required to be
dedicated to the payment of the Company's debt service obligations or even that
its cash flow will be insufficient to meet required payments of principal and
interest. The failure to make any required debt service payments or to comply
with any restrictive or financial covenants contained in any debt instrument
could give rise to a default permitting acceleration of the debt under such
instrument as well as debt under other instruments that contain
cross-acceleration or cross-default provisions, which could have an adverse
effect on the Company's financial condition and prospects. The New Credit
Facility
13
<PAGE>
contains, and future debt instruments may contain, restrictive covenants that
could limit the Company's ability to obtain additional debt financing and could
adversely affect the Company's ability to make future investments in investment
management firms. The New Credit Facility prohibits the payment of dividends and
other distributions to stockholders of the Company and restricts the Company,
the Affiliates and the Company's other subsidiaries from incurring indebtedness,
incurring liens, disposing of assets and engaging in extraordinary transactions.
The Company is also required to comply with certain financial covenants on an
ongoing basis. The Company's ability to borrow under the New Credit Facility is
conditioned upon its compliance with the requirements of the New Credit
Facility, and any non-compliance with those requirements could give rise to a
default entitling the lenders to accelerate all outstanding borrowings under the
New Credit Facility. In addition, the New Credit Facility bears interest at
variable rates and future indebtedness may also bear interest at variable rates.
An increase in interest rates on such indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and
ability to meet its debt service obligations. Although the Company has entered
into interest rate hedging contracts designed to offset a portion of the
Company's exposure to interest rate fluctuations above certain levels, there can
be no assurance that this objective will be achieved, and, if prevailing
interest rates drop below a given point, the Company may be obligated to pay a
higher interest rate under the hedging contracts than would otherwise apply
under the actual indebtedness.
At December 31, 1997, the Company's total assets were approximately $457
million, of which approximately $393 million were intangible assets consisting
of acquired client relationships and goodwill. There can be no assurance that
the value of such intangible assets will ever be realized by the Company. In
addition, the Company intends to invest in additional investment management
firms in the future. While these firms may contribute additional revenue to the
Company, such investments will also result in the recognition of additional
intangible assets which will cause further increases in amortization expense.
The loss of key management personnel or an inability to attract, retain and
motivate sufficient numbers of qualified management personnel on the part of the
Company or any of its Affiliates would adversely affect the Company's business.
The market for investment managers is extremely competitive and is increasingly
characterized by frequent movement by investment managers among different firms.
In addition, individual investment managers at the Affiliates often have regular
direct contact with particular clients, which can lead to a strong client
relationship based on the client's trust in that individual manager. The loss of
a key investment manager of certain of the Affiliates could jeopardize the
Affiliate's relationships with its clients and lead to the loss of the client
accounts at such Affiliate. Losses of such accounts could have a material
adverse effect on the results of operations and financial condition of the
Affiliate and, in the case of certain of the Affiliates, the Company. Although
the Company uses a combination of economic incentives, vesting provisions, and,
in some instances, non-solicitation agreements and employment agreements as a
means of seeking to retain key management personnel at the Company and each of
the Affiliates, there can be no assurance that key management personnel will
remain with their respective firms.
The Company's Affiliates offer a broad range of investment management
services and styles to institutional and retail investors. Across all the
Affiliates, the Company operates in a number of sectors within the investment
management industry, both with respect to products and distribution channels.
Consequently, the Company's performance is directly affected by conditions in
the financial and securities markets. The financial markets and the investment
management industry in general have experienced record performance and record
growth in recent years. The financial markets and businesses operating in the
securities industry, however, are highly volatile and are directly affected by,
among other factors, domestic and foreign economic conditions and general trends
in business and finance, all of which are beyond the control of the Company.
There can be no assurance that broader market performance will be favorable in
the future. Any decline in the financial markets or a lack of sustained growth
may result in a corresponding decline in performance by the Affiliates and may
adversely affect assets under management and/or fees at the Affiliate level,
which would reduce cash flow distributable to the Company.
14
<PAGE>
Substantially all of the Affiliates' revenues are derived from investment
management contracts which are typically terminable, without the payment of a
penalty, in the case of contracts with mutual fund clients, upon 60 days'
notice, and, in the case of institutional contracts, upon 30 days' notice.
Because of this, clients of the Affiliates may withdraw funds from accounts
under management by the Affiliates generally in their sole discretion. In
addition, the Affiliates' contracts generally provide for fees payable for
investment management services based on the market value of assets under
management, although a portion also provide for the payment of fees based on
investment performance. Because most contracts provide for a fee based on market
values of securities, fluctuations in securities prices may have an adverse
effect on the Company's consolidated results of operations and financial
condition. Changes in the investment patterns of clients will also affect the
total assets under management. In addition, in the case of contracts which
provide for the payment of performance-based fees, the investment performance of
the Affiliates will affect the Company's consolidated results of operations and
financial condition. Some of the Affiliates' fees are higher than those of other
investment managers for similar types of investment services. Each Affiliate's
ability to maintain its fee structure in a competitive environment is dependent
on the ability of the Affiliate to provide clients with investment returns and
service that will cause clients to be willing to pay those fees. There can be no
assurance that any given Affiliate will be able to retain its fee structure or,
with such fee structure, retain its clients in the future.
While AMG's agreements with the Affiliates contain provisions pursuant to
which each Affiliate has agreed to pay to AMG a specified percentage of such
Affiliate's gross revenues, there can be no assurance that distributions will
always be made by the Affiliates to AMG or as to the amounts of any
distributions. In the organizational documents of each Affiliate, the
distributions to AMG represent only a portion of the revenues of the Affiliate,
with the remainder being retained by the Affiliate for the payment of expenses
or distributed to its management team as bonuses or distributions. In addition,
the payment of distributions to AMG may be subject to limitations under the laws
of the jurisdiction of organization of each of the Affiliates, regulatory
requirements, claims of creditors of each such Affiliate and applicable
bankruptcy and insolvency laws.
In connection with its investments in each of its Affiliates, AMG has agreed
to purchase ownership interests retained by the Affiliate's management team in
certain amounts, at certain times and at certain prices. Consequently, AMG may
be required to pay cash (which may require the incurrence of additional
indebtedness) or issue new shares of Common Stock to its Affiliates' managers.
As set forth above, such transactions could result in increased interest
expense, dilution of existing equity positions and decreased net income. In
addition, these transactions will result in the Company's ownership interests in
its Affiliates changing from time to time, which may have an adverse affect on
the Company's cash flow and liquidity.
Although AMG retains both the authority to prevent and cause certain types
of activities by the Affiliates and has voting and veto rights regarding
significant decisions pursuant to its agreements with the Affiliates, the
Affiliates are authorized to manage and conduct their own day-to-day operations,
including matters relating to employees who are not also owners, investment
management policies and fee structures, product development, client
relationships, compensation programs and compliance activities. Accordingly,
under these agreements, AMG generally does not alter Affiliate day-to-day
decisions, policies and strategies. Similarly, an Affiliate's non-compliance
with regulatory requirements that AMG might detect if it operated the business
of the Affiliates itself may not be detected by AMG as quickly, if at all, which
may adversely affect the Company's financial condition and results of
operations.
Certain of the Company's existing Affiliates are organized as partnerships
that include the Company as a general partner. Consequently, to the extent any
such Affiliate incurs liabilities or expenses which exceed its ability to pay or
fulfill such liabilities or expenses, the Company would be liable for their
payment.
In addition, in the context of certain liabilities, the Company could be
held liable, as a control person, for acts of Affiliates or their employees. The
Company and its Affiliates maintain errors and omissions and
15
<PAGE>
general liability insurance in amounts which the Company and its Affiliates'
management consider appropriate. There can be no assurance, however, that a
claim or claims will not exceed the limits of available insurance coverage, that
any insurer will remain solvent and will meet its obligations to provide
coverage, or that such coverage will continue to be available with sufficient
limits or at a reasonable cost. A judgment against any of the Affiliates or the
Company in excess of available coverage could have a material adverse effect on
the Company.
ITEM 2. PROPERTIES
AMG's executive offices are located at Two International Place, 23rd Floor,
Boston, Massachusetts 02110. In Boston, AMG currently occupies 8,047 square feet
under a lease that expires in March 2003. Each of the Affiliates also leases
office space in the cities in which they conduct business.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company and its Affiliates may be parties to various
claims, suits and complaints. Currently, there are no such claims, suits or
complaints that, in the opinion of management, would have a material adverse
effect on the Company's financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 4, 1997, the Company submitted the following matters to the
stockholders of the Company in connection with the Company's initial public
offering of Common Stock: (i) approval of an Amended and Restated Certificate of
Incorporation of the Company (the "Amended Certificate") to be effective on the
date the Securities and Exchange Commission declared the Company's registration
statement for its initial public offering effective, (ii) approval of a further
Amended and Restated Certificate of Incorporation of the Company to be effective
immediately upon the closing of the Company's initial public offering of its
Common Stock, (iii) approval of Amended and Restated By-laws of the Company to
be effective upon the effectiveness of the Amended Certificate, and (iv)
approval of the Affiliated Managers Group, Inc. 1997 Stock Option and Incentive
Plan, which provides for the issuance of up to 1,750,000 shares of Common Stock.
Each of these matters was approved by the unanimous written consent of the
Company's stockholders on November 14, 1997.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange (symbol:
AMG). The following table sets forth the high and low closing prices as reported
on the New York Stock Exchange composite tape since the Company's initial public
offering on November 21, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
1997 HIGH LOW
- ----------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Fourth Quarter (from November 21, 1997 through December 31, 1997)........................ $ 29.875 $ 24.00
</TABLE>
The closing price for the shares on the New York Stock Exchange on March 13,
1998 was $37.125.
As of December 31, 1997 there were 57 stockholders of record. As of March
13, there were 63 stockholders of record.
The Company has not declared a dividend with respect to the periods
presented. The Company intends to retain earnings to repay debt and to finance
the growth and development of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The New Credit Facility
(as defined herein) also prohibits the Company from making dividend payments to
its stockholders. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources."
SALES OF UNREGISTERED SECURITIES DURING 1997
During 1997, the Company issued unregistered securities to a limited number
of persons, as described below. No underwriters or underwriting discounts or
commissions were involved. There was no public offering in any such transaction,
and the Company believes that each transaction was exempt from the registration
requirements of the Securities Act, by reason of Section 4(2) thereof, based on
the private nature of the transactions and the financial sophistication of the
purchasers, all of whom had access to complete information concerning the
Company and acquired the securities for investment and not with a view to the
distribution thereof.
(1) On January 2, 1997, the Company issued an aggregate of 1,715 shares
of Series B-1 Voting Convertible Preferred Stock (convertible into 85,750
shares of Common Stock) with a value of approximately $1.5 million as
consideration for shares of capital stock of The Burridge Group Inc. in
connection with the Company's investment in Burridge. The shares of Series
B-1 Voting Convertible Preferred Stock were converted into Common Stock in
connection with the Company's initial public offering in November 1997.
(2) On September 30, 1997, the Company issued an aggregate of 10,667
shares of Class D Convertible Preferred Stock (convertible into 533,350
shares of Common Stock) with a value of approximately $9.6 million to the
stockholders of GeoCapital Corporation in connection with the Company's
investment in GeoCapital. The shares of Class D Convertible Preferred Stock
were converted into Common Stock in connection with the Company's initial
public offering in November 1997.
(3) On October 9, 1997, the Company issued (i) an aggregate of 5,333
shares of Series C-2 Non-Voting Convertible Preferred Stock and warrants to
purchase 28,000 shares of Series C-2 Non-Voting Convertible Preferred Stock
(the "Series C-2 Warrants") (convertible into 266,650 and 1,400,000 shares
of Common Stock, respectively) to Chase Equity Associates for an aggregate
purchase price of $30 million; (ii) senior subordinated notes (the
"Subordinated Notes") to Chase Equity Associates for $60 million; and (iii)
warrants to purchase Class B Common Stock (the "Class B Warrants") of the
Company into an escrow, to be issued to the holders of the Subordinated
Notes if such Subordinated
17
<PAGE>
Notes were not paid on or prior to April 7, 1998. In connection with the
Company's initial public offering in November 1997, the shares of Series C-2
Non-Voting Convertible Preferred Stock (including those issued upon
conversion of the Series C-2 Warrants) were converted into Common Stock, the
Subordinated Notes were repaid and the Class B Warrants were extinguished.
REPORT OF USE OF PROCEEDS OF INITIAL PUBLIC OFFERING
The Company completed the initial public offering of its Common Stock in
November 1997. The initial public offering was made pursuant to (i) a
Registration Statement on Form S-1, originally filed with the Commission on
August 29, 1997, as amended (Commission File No. 333-34679), and (ii) a
Registration Statement on Form S-1, filed with the Commission pursuant to Rule
462(b) under the Securities Act on November 20, 1997 (Commission File No.
333-40699), both of which registration statements became effective on November
20, 1997. The initial public offering commenced on November 21, 1997 and
terminated shortly thereafter after the sale into the public market of all of
the registered shares of Common Stock.
The shares of Common Stock sold in the initial public offering were offered
for sale in the United States by a syndicate of U.S. underwriters represented by
Goldman, Sachs & Co., BT Alex. Brown Incorporated, Merrill Lynch, Pierce Fenner
& Smith Incorporated and Schroder & Co., Inc., and outside the United States by
a syndicate of international underwriters represented by Goldman Sachs
International, BT Alex. Brown International, a division of Bankers Trust
International PLC, Merrill Lynch International and J. Henry Schroder & Co.
Limited.
The Company registered an aggregate of 8,625,000 shares of Common Stock
(including 1,125,000 shares issued upon the exercise of the underwriters'
overallotment options) for sale in the initial public offering at a per share
price of $23.50, for an aggregate offering price of approximately $202.7
million. All of such shares were registered for the Company's account. As stated
above, all of such shares were sold shortly after the commencement of the
offering.
The Company incurred the following expenses in connection with the initial
public offering (in millions):
<TABLE>
<S> <C>
Underwriting discounts and commissions............................... $ 13.1
Other expenses....................................................... 2.6
---------
Total expenses....................................................... $ 15.7
</TABLE>
After deducting the expenses set forth above, the Company received
approximately $187.0 million in net proceeds of the initial public offering. The
Company used $60.0 million of the proceeds to repay the Subordinated Notes
issued to Chase Equity Associates and approximately $125.8 million of the
proceeds to repay borrowings under the Company's then existing senior credit
facility with a syndicate of banks led by The Chase Manhattan Bank and an
additional $1.2 million to pay accrued interest.
Chase Equity Associates is a limited partnership whose sole limited partner
is an affiliate of Chase Manhattan Corporation (the parent company of The Chase
Manhattan Bank) and whose sole general partner has as its partners certain
employees of The Chase Manhattan Bank (including John M.B. O'Connor, a director
of the Company) and an affiliate of Chase Manhattan Corporation. Chase
Securities Inc., also an affiliate of Chase Equity Associates, was a participant
in the underwriting syndicate of the U.S. portion of the initial public
offering.
18
<PAGE>
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected financial data for the Company for the four
years since inception, December 29, 1993. This data should be read in
conjunction with, and is qualified in its entirety by reference to, the
financial statements and accompanying notes included elsewhere in this Form
10-K.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT AS INDICATED
AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Revenues.............................................................. $ 5,374 $ 14,182 $ 50,384 $ 95,287
Operating expenses:
Compensation and related expenses................................... 3,591 6,018 21,113 41,619
Amortization of intangible assets................................... 774 4,174 8,053 6,643
Depreciation and other amortization................................. 19 133 932 1,915
Other operating expenses............................................ 1,000 2,567 13,115 22,549
--------- --------- --------- ---------
Total operating expenses.......................................... 5,384 12,892 43,213 72,726
--------- --------- --------- ---------
Operating income (loss)............................................... (10) 1,290 7,171 22,561
Non-operating (income) and expenses:
Investment and other income....................................... (966) (265) (337) (1,174)
Interest expense.................................................. 158 1,244 2,747 8,479
--------- --------- --------- ---------
(808) 979 2,410 7,305
--------- --------- --------- ---------
Income before minority interest, income taxes and extraordinary
item................................................................ 798 311 4,761 15,256
Minority interest(1).................................................. (305) (2,541) (5,969) (12,249)
--------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item.............. 493 (2,230) (1,208) 3,007
Income taxes.......................................................... 699 706 181 1,364
--------- --------- --------- ---------
Income (loss) before extraordinary item............................... (206) (2,936) (1,389) 1,643
--------- --------- --------- ---------
Extraordinary item.................................................... -- -- (983) (10,011)
--------- --------- --------- ---------
Net (loss)............................................................ $ (206) $ (2,936) $ (2,372) $ (8,368)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) per share(2)--basic........................................ $ (0.07) $ (2.95) $ (5.49) $ (3.69)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net (loss) per share(2)--diluted...................................... $ (0.07) $ (2.95) $ (5.49) $ (1.02)
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding--basic..................................... 3,030,548 996,144 431,908 2,270,684
Average shares outstanding--diluted................................... 3,030,548 996,144 431,908 8,235,529
OTHER FINANCIAL DATA
Assets under management (at period end, in millions).................. $ 755 $ 4,615 $ 19,051 $ 45,673
EBITDA(3)............................................................. 1,444 3,321 10,524 20,044
EBITDA as adjusted(4)................................................. 587 1,371 7,596 10,201
Cash flow from operating activities................................... 818 1,292 6,185 16,205
Cash flow used in investing activities................................ (6,156) (37,781) (29,210) (327,275)
Cash flow from financing activities................................... 9,509 46,414 15,650 327,112
BALANCE SHEET DATA
Current assets........................................................ $ 4,791 $ 16,847 $ 23,064 $ 52,058
Acquired client relationships, net.................................... 3,482 18,192 30,663 142,875
Goodwill, net......................................................... 5,417 26,293 40,809 249,698
Total assets.......................................................... 13,808 64,699 101,335 456,990
Current liabilities................................................... 2,021 4,111 23,591 18,815
Senior debt........................................................... -- 18,400 33,400 159,500
Total liabilities..................................................... 3,925 26,620 60,856 180,771
Minority interest(1).................................................. 80 1,212 3,490 16,479
Preferred stock....................................................... 10,004 40,008 42,476 --
Stockholders' equity.................................................. 9,803 36,867 36,989 259,740
</TABLE>
19
<PAGE>
- ------------------------
(1) All but one of the Company's Affiliates are majority-owned subsidiaries (the
Company owns less than a 50% interest in Paradigm which is accounted for
under the equity method of accounting). The portion of each Affiliate's
operating results and net assets that are owned by minority owners of each
Affiliate is accounted for as minority interest.
(2) The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). This
standard became effective for financial statements issued for periods ending
after December 15, 1997. The Company has adopted FAS 128 for its fiscal year
ending December 31, 1997 and has restated prior-period EPS data to conform
to the new standard. 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. Because the computation of diluted EPS shall not assume exercise
of securities that would have an anti-dilutive effect on earnings per share,
as is the case in a loss year before extraordinary item, the effect of
outstanding convertible preferred stock and unvested restricted common stock
was excluded from the diluted calculation in 1994, 1995 and 1996.
(3) As defined by Note(2) on page 10.
(4) As defined by Note(3) on page 10.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-K AND IN FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION, IN THE COMPANY'S PRESS RELEASES AND IN ORAL
STATEMENTS MADE WITH THE APPROVAL OF AN AUTHORIZED EXECUTIVE OFFICER, THE WORDS
OR PHRASES "WILL LIKELY RESULT", "ARE EXPECTED TO", "WILL CONTINUE", "IS
ANTICIPATED", "BELIEVES", "ESTIMATE", "PROJECT" OR SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED UNDER THE CAPTION
"BUSINESS--CAUTIONARY STATEMENTS", THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR
PROJECTED. 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. THE
COMPANY WISHES TO ADVISE READERS THAT THE FACTORS DISCUSSED IN
"BUSINESS--CAUTIONARY STATEMENTS", AS WELL AS OTHER FACTORS, COULD AFFECT THE
COMPANY'S FINANCIAL PERFORMANCE AND COULD CAUSE THE COMPANY'S ACTUAL RESULTS FOR
FUTURE PERIODS TO DIFFER MATERIALLY FROM ANY OPINIONS OR STATEMENTS EXPRESSED
WITH RESPECT TO FUTURE PERIODS IN ANY CURRENT STATEMENTS.
THE COMPANY WILL NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY OBLIGATION TO
RELEASE PUBLICLY THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY
FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF
SUCH STATEMENTS OR TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED
EVENTS.
OVERVIEW
The Company acquires equity positions in mid-sized investment management
firms, and derives its revenues from such firms. AMG has a revenue sharing
arrangement with each Affiliate which is contained in the organizational
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 the Company), generally in proportion to
their ownership of the Affiliate.
One of the purposes of the revenue sharing arrangements is to provide
ongoing incentives for the managers of the Affiliates. The revenue sharing
arrangements are designed to allow each Affiliate's managers to participate in
that firm's growth (through their compensation paid out of the Operating
Allocation and their ownership of a portion of the Owners' Allocation) and to
make operating expenditures freely within the limits of the Operating
Allocation. The portion of the Operating Allocation that is not used to pay
salaries and other operating expenses (the "Excess Operating Allocation") is
generally available to be used at the discretion of management of such
Affiliate, including for the payment of
20
<PAGE>
bonuses or distributions to management. The managers of each Affiliate thus have
an incentive to increase revenues (thereby increasing the Operating Allocation)
and control expenses (thereby increasing the Excess Operating Allocation). The
ownership by an Affiliate's management of a portion of the Affiliate, which
entitles them to a portion of the Owners' Allocation, provides an important
additional incentive to managers of each Affiliate to increase revenues.
The revenue sharing arrangements allow AMG to participate in the growth of
revenues of each Affiliate, because as revenues increase, the Owners' Allocation
also increases. However, the Company participates in that growth to a lesser
extent than the managers of the Affiliate, because AMG does not participate in
the growth of the Operating Allocation.
The portion of each Affiliate's revenues which is included in its Operating
Allocation and used to pay salaries, bonuses and other operating expenses, as
well as the portion of each Affiliate's revenues which is included in its
Owners' Allocation and distributed to AMG and the other owners of the Affiliate,
are both included as "revenues" on the Company's Consolidated Statements of
Operations. The expenses of each Affiliate which are paid out of the Operating
Allocation, as well as the holding company expenses of AMG which are paid by the
Company out of the Owners' Allocation which AMG receives from the Affiliates,
are both included in "operating expenses" on the Company's Consolidated
Statements of Operations. The portion of each Affiliate's Owners' Allocation
which is allocated to owners of the Affiliates other than the Company is
included in "minority interest" on the Company's Consolidated Statements of
Operations.
The EBITDA Contribution of an Affiliate represents the Owners' Allocation of
that Affiliate allocated to AMG before interest, income taxes, depreciation and
amortization of that Affiliate. EBITDA Contribution does not include holding
company expenses of AMG.
The Affiliates' revenues are derived from the provision of investment
management services for fees. Investment management fees are usually determined
as a percentage fee charged on periodic values of a client's assets under
management. Certain of the Affiliates bill advisory fees for all or a portion of
their clients based upon assets under management valued at the beginning of a
billing period ("in advance"). Other Affiliates bill advisory fees for all or a
portion of their clients based upon assets under management valued at the end of
the billing period ("in arrears"). Advisory fees billed in advance will not
reflect subsequent changes in the market value of assets under management for
that period. Conversely, advisory fees billed in arrears will reflect changes in
the market value of assets under management for that period. In addition,
several of the Affiliates charge performance-based fees to certain of their
clients which result in payments to the applicable Affiliate if specified levels
of investment performance are achieved. All references to "assets under
management" include assets directly managed as well as assets underlying overlay
strategies which employ futures, options or other derivative securities to
achieve a particular investment objective.
The Company's level of profitability will depend on a variety of factors
including principally: (i) the level of Affiliate revenues, which is dependent
on the ability of the Affiliates and future affiliates to maintain or increase
assets under management by maintaining their existing investment advisory
relationships and fee structures, marketing their services successfully to new
clients, and obtaining favorable investment results; (ii) the receipt of Owners'
Allocation, which is dependent on the ability of the Affiliates and future
affiliates to maintain certain levels of operating profit margins; (iii) the
availability and cost of the capital with which AMG finances its investments;
(iv) the Company's success in attracting new investments and the terms upon
which such transactions are completed; (v) the level of intangible assets and
the associated amortization resulting from the Company's investments; (vi) the
level of expenses incurred by AMG for holding company operations, including
compensation for its employees; and (vii) the level of taxation to which the
Company is subject, all of which are, to some extent, dependent on factors which
are not in the Company's control, such as general securities market conditions.
Since its founding in December 1993, the Company has completed 11
investments in Affiliates. The most recent investment, in Essex, was completed
in March 1998 and is not included in pro forma operating
21
<PAGE>
results except where indicated. In May, September and October 1997, the Company
completed investments in Gofen and Glossberg, GeoCapital and Tweedy, Browne,
respectively. The Company also made investments during March and December 1996,
in First Quadrant and Burridge, respectively. The Tweedy, Browne investment is
the Company's largest to date, representing 54% of the Affiliates' pro forma
EBITDA Contribution (which does not include Essex) for the year ended December
31, 1997.
The Company's investments have been 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 (goodwill and acquired client relationships) constitute a substantial
percentage of the assets of the Company and the Company's results of operations
have included increased charges for amortization of those intangible assets. As
of December 31, 1997, the Company's total assets were approximately $457.0
million, of which approximately $142.9 million consisted of "acquired client
relationships" and $249.7 million consisted of "goodwill" (collectively,
acquired client relationships and goodwill are referred to as "intangible
assets"). 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 26 years in the case of acquired client
relationships and 15 to 35 years in the case of goodwill. In determining the
amortization period for intangible assets acquired, the Company considers a
number of factors including: the firm's historical and potential future
operating performance; the firm's historical and potential future rates of
attrition among clients; the stability and longevity of existing client
relationships; the firm's recent, as well as long-term, investment performance;
the characteristics of the firm's products and investment styles; the stability
and depth of the firm's management team; and the firm's history and perceived
franchise or brand value. The Company continuously evaluates all components of
intangible assets to determine whether there has been any impairment in their
carrying value or their useful lives. The Company makes such evaluations
quarterly on an Affiliate-by-Affiliate basis to assess if facts and
circumstances exist which suggest an impairment has occurred in the value of the
intangible assets or if the amortization period needs to be shortened. If such a
condition exists, the Company will evaluate the recoverability of the intangible
asset by preparing a projection of the undiscounted future cash flows of the
Affiliate. If impairment is indicated, then the carrying amount of intangible
assets, including goodwill, will be reduced to their fair values.
While amortization of intangible assets has been charged to the results of
operations and is expected to be a continuing material component of the
Company's operating expenses, management believes it is important to distinguish
this expense from other operating expenses since such amortization does not
require the use of cash. Because of this, and because the Company's
distributions from its Affiliates are based on their Owners' Allocation,
management has provided additional supplemental information in this annual
report for "cash-related" earnings, as an addition to, but not as a substitute
for, measures related to net income. Such measures are (i) EBITDA, which the
Company believes is useful to investors as an indicator of the Company's ability
to service debt, make new investments and meet working capital requirements, and
(ii) EBITDA as adjusted, which the Company believes is useful to investors as
another indicator of funds available to the Company, which may be used to make
new investments, repay debt obligations, repurchase shares of Common Stock or
pay dividends on Common Stock.
RESULTS OF OPERATIONS
SUPPLEMENTAL PRO FORMA INFORMATION
Affiliate operations are included in the Company's historical financial
statements from their respective dates of acquisition. The Company consolidates
Affiliates when it owns a controlling interest and includes in minority interest
the portion of capital and Owners' Allocation owned by persons other than the
Company. One of the Company's Affiliates, Paradigm, is not controlled by the
Company and is accounted for under the equity method of accounting.
22
<PAGE>
Because the Company has made investments during each of the periods for
which financial statements are presented, the Company believes that the
historical operating results for these periods are not directly comparable.
Substantially all of the changes in the Company's income, expense and balance
sheet categories result from the inclusion of the acquired businesses from the
dates of their investment.
All amounts in the table which follows are pro forma for the inclusion of
the 1997 investments in Gofen and Glossberg, GeoCapital and Tweedy, Browne as if
such transactions occurred on January 1, 1997. In addition, EBITDA Contribution
and other pro forma financial data reflect the Company's Recent Financing (with
interest expense adjusted for the terms of the New Credit Facility) (as such
terms are defined in "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Liquidity and Capital Resources"), the
sale of Common Stock sold in the Company's IPO and the application of the net
proceeds therefrom, the conversion of preferred stock into Common Stock, the
50-for-1 split of each share of Common Stock outstanding prior to the IPO, and
the issuance of shares of Common Stock to the shareholders of an Affiliate in
exchange for an additional ownership interest in that Affiliate, all effected in
connection with the initial public offering. Such information is provided to
enhance the reader's understanding and evaluation of the effects to the Company
of Tweedy, Browne, AMG's largest affiliate by EBITDA contribution.
23
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------
(IN MILLIONS)
<S> <C>
<CAPTION>
UNAUDITED PRO FORMA SUPPLEMENTAL INFORMATION:
<S> <C>
Assets under Management--at period end:
Tweedy, Browne............................................................................... $ 5,343
Other Affiliates............................................................................. 40,330
-------
Total...................................................................................... $ 45,673
-------
-------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Revenues:
Tweedy, Browne............................................................................... $ 53,506
Other Affiliates............................................................................. 93,653
--------
Total...................................................................................... $ 147,159
--------
--------
Owners' Allocation(1):
Tweedy, Browne............................................................................... $ 36,314
Other Affiliates(2).......................................................................... 36,838
--------
Total...................................................................................... $ 73,152
--------
--------
EBITDA Contribution(3):
Tweedy, Browne............................................................................... $ 28,643
Other Affiliates(4).......................................................................... 24,778
--------
Total...................................................................................... $ 53,421
--------
--------
OTHER PRO FORMA FINANCIAL DATA:
RECONCILIATION OF EBITDA CONTRIBUTION TO EBITDA
Total EBITDA Contribution (as above)......................................................... $ 53,421
Less holding company expenses................................................................ (8,411)
--------
EBITDA(5)...................................................................................... $ 45,010
--------
EBITDA as adjusted(6).......................................................................... $ 26,695
HISTORICAL CASH FLOW AND OTHER DATA:
Cash flow from operating activities.......................................................... $ 16,205
Cash flow used in investing activities....................................................... (327,275)
Cash flow from financing activities.......................................................... 327,112
EBITDA(5).................................................................................... $ 20,044
EBITDA as adjusted(6)........................................................................ $ 10,201
</TABLE>
- ------------------------
(1) As defined in "Business--AMG Structure and Relationship with
Affiliates--Revenue Sharing Arrangements" on page 6.
(2) No Affiliate other than Tweedy, Browne accounted for more than 16% of
Owners' Allocation for the year ended December 31, 1997. No single client
relationship accounted for more than 3% of Owner's Allocation for the year
ended December 31, 1997.
(3) As defined by Note (2) on page 3.
(4) No Affiliate other than Tweedy, Browne accounted for more than 17% of EBITDA
Contribution for the yearended December 31, 1997.
(5) As defined by Note (2) on page 10.
(6) As defined by Note (3) on page 10.
24
<PAGE>
The table below depicts the pro forma change in the Company's assets under
management (assuming that all Affiliates in which the Company owned an interest
at December 31, 1997 were included for the entire year).
<TABLE>
<CAPTION>
PRO FORMA CHANGE IN ASSETS UNDER MANAGEMENT
- --------------------------------------------------------------------------------
YEAR ENDED
DECEMBER
31,
1997
-----------
(IN
MILLIONS)
<S> <C>
Assets under management--beginning.............................................. $ 27,747
Net new sales................................................................... 11,942
Market appreciation............................................................. 5,984
-----------
Assets under management--ending................................................. $ 45,673
-----------
-----------
</TABLE>
HISTORICAL
YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED DECEMBER 31, 1996
The Company had a net loss after extraordinary item of $8.4 million for the
year ended December 31, 1997 compared to a net loss after extraordinary item of
$2.4 million for the year ended December 31, 1996. The net loss for the year
ended December 31, 1997 resulted primarily from the extraordinary item of $10.0
million, net of related tax benefit, from the early extinguishment of debt.
Before extraordinary item, net income was $1.6 million for the year ended
December 31, 1997 compared to a net loss of $1.4 million for the year ended
December 31, 1996.
Assets under management on a historical basis increased by $26.6 billion to
$45.7 billion at December 31, 1997 from $19.1 billion at December 31, 1996, in
part due to the investments made in Gofen and Glossberg, GeoCapital and Tweedy,
Browne during 1997. Excluding the initial assets under management of these
Affiliates at the respective dates of the Company's investments, assets under
management increased by $15.8 billion as a result of $4.6 billion in market
appreciation and $11.2 billion from positive net client cash flows.
Total revenues for the year ended December 31, 1997 were $95.3 million, an
increase of $44.9 million or 89% over the year ended December 31, 1996. The
Company invested in Burridge in December 1996, Gofen and Glossberg in May 1997,
GeoCapital in September 1997 and Tweedy, Browne in October 1997, and included
their results from their respective purchase dates. In addition, the Company
invested in First Quadrant in March 1996 and its results were included in the
results for the year ended December 31, 1996 from its purchase date. Revenues
from these investments accounted for $43.1 million of the increase in revenues
from 1996 to 1997 while revenues from other existing Affiliates increased by
$1.8 million to $26.7 million. Performance-based fees, primarily earned by First
Quadrant, increased by $4.0 million to $17.2 million for the year ended December
31, 1997 compared to $13.2 million for the year ended December 31, 1996.
Compensation and related expenses increased by $20.5 million to $41.6
million for the year ended December 31, 1997 from $21.1 million for the year
ended December 31, 1996. The inclusion of the First Quadrant, Burridge, Gofen
and Glossberg, GeoCapital and Tweedy, Browne investments accounted for $19.3
million of this increase while the remainder of the increase was attributable to
the increased compensation costs of AMG personnel, including the cost of new
hires.
Amortization of intangible assets decreased by $1.5 million to $6.6 million
for the year ended December 31, 1997 from $8.1 million for the year ended
December 31, 1996. Amortization of intangible assets increased by $3.1 million
as a result of the inclusion of the First Quadrant, Burridge, and Gofen and
Glossberg, GeoCapital and Tweedy, Browne investments, which increase was offset
by an impairment loss of $4.6 million taken on the Systematic investment during
1996 with no similar item in 1997.
25
<PAGE>
Selling, general and administrative expenses increased by $8.0 million to
$18.9 million for the year ended December 31, 1997 from $10.9 million for the
year ended December 31, 1996. The First Quadrant, Burridge, Gofen and Glossberg,
GeoCapital and Tweedy, Browne investments accounted for $6.0 million of this
increase and the remainder was primarily due to increases in AMG's and the other
Affiliates' selling, general and administrative expenses.
Other operating expenses increased by approximately $1.3 million to $3.6
million for the year ended December 31, 1997 from $2.3 million for the year
ended December 31, 1996, primarily due to the results of operations of the new
Affiliates described above.
Minority interest increased by $6.2 million to $12.2 million for the year
ended December 31, 1997 from $6.0 million for the year ended December 31, 1996.
Of this increase, $5.4 million was as a result of the addition of new Affiliates
as described above and the remainder was due to the Owners' Allocation growth at
the Company's existing Affiliates.
Interest expense increased $5.8 million to $8.5 million for the year ended
December 31, 1997 from $2.7 million for the year ended December 31, 1996 as a
result of the increased indebtedness incurred in connection with the investments
described above. See "Liquidity and Capital Resources".
Income tax expense was $1.4 million for the year ended December 31, 1997
compared to $181,000 for the year ended December 31, 1996. The effective tax
rate for the year ended December 31, 1997 was 46% compared to 15% for the year
ended December 31, 1996. The change in effective tax rates from 1996 to 1997 is
related primarily to the change in the provision for federal taxes from 1996 to
1997. In 1996, the Company recorded a federal deferred tax benefit of $233,000
on a pretax loss of $1.2 million. In 1997, the Company recorded a deferred tax
expense of $776,000 on pretax income of $3.0 million. The deferred taxes account
for the effects of temporary differences between the recognition of deductions
for book and tax purposes primarily related to the accelerated amortization of
certain intangible assets.
EBITDA increased by $9.5 million to $20.0 million for the year ended
December 31, 1997 from $10.5 million for the year ended December 31, 1996 as a
result of the inclusion of new Affiliates as described above and revenue growth.
EBITDA as adjusted increased by $2.6 million to $10.2 million for the year
ended December 31, 1997 from $7.6 million for the year ended December 31, 1996
as a result of the factors affecting net income as described above, before
non-cash expenses such as amortization of intangible assets, depreciation and
extraordinary items of $18.6 million for the year ended December 31, 1997 and
$10.0 million for the year ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net loss was $2.4 million for the year ended December 31, 1996 compared to
$2.9 million for the year ended December 31, 1995. The change was a result of
the higher operating income from Affiliates in 1996 which was offset by an
extraordinary item of $983,000 and higher depreciation and amortization,
interest and minority interest expenses resulting from the inclusion of certain
Affiliate results for a full year in 1996 compared to partial periods in 1995
and from the inclusion of First Quadrant's results from its acquisition date in
March 1996.
Assets under management on a historical basis increased by $14.5 billion to
$19.1 billion at December 31, 1996 from $4.6 billion at December 31, 1995,
primarily as a result of the investments made in First Quadrant and Burridge
which were completed in March 1996 and December 1996, respectively. Excluding
the initial assets under management of these Affiliates at their date of
investment, assets under management increased by $2.0 billion as a result of
positive client cash flows of $495.0 million and $1.5 billion in market
appreciation.
Consolidated revenues increased $36.2 million to $50.4 million for the year
ended December 31, 1996 from $14.2 million for the year ended December 31, 1995.
Of this increase, $25.5 million was attributable
26
<PAGE>
to the investment in First Quadrant in March 1996. In addition, for the year
ended December 31, 1996, the results of Systematic, Paradigm, Skyline and
Renaissance were included for the full period. Each of those Affiliates was only
included for a portion of the year ended December 31, 1995. Performance-based
fees increased by $11.8 million to $13.2 million for the year ended December 31,
1996 primarily due to the inclusion of First Quadrant which earned performance
fees of $11.5 million for the period ended December 31, 1996. The Company
completed its investment in Burridge on December 31, 1996.
Compensation and related expenses increased $15.1 million to $21.1 million
for the year ended December 31, 1996 from $6.0 million for the year ended
December 31, 1995. Of this increase, $8.1 million was attributable to the
inclusion of First Quadrant. As noted above, for the year ended December 31,
1996, the expenses of each of Systematic, Skyline and Renaissance were included
for the full period. In addition, $1.1 million was attributable to the increased
compensation costs of AMG personnel, including the cost of new hires.
The amortization of intangible assets increased by $3.9 million to $8.1
million for the year ended December 31, 1996 from $4.2 million for the year
ended December 31, 1995. Of this increase, approximately $700,000 was
attributable to the First Quadrant investment and $1.2 million was due to the
inclusion of the other recently acquired Affiliates for the full period. In the
year ended December 31, 1996, the Company also recognized an impairment loss of
$4.6 million in connection with its investment in Systematic which is included
in amortization of intangible assets. The loss reflects the write down of
Systematic's intangible assets to its net realizable value following a period of
net client asset withdrawals. In the year ended December 31, 1995, AMG also
recognized $2.5 million of impairment loss in connection with its Hartwell
investment following a loss of client assets.
Selling, general and administrative expenses increased from $2.2 million for
the year ended December 31, 1995 to $10.9 million for the year ended December
31, 1996 for the reasons stated above related to the periods of inclusion in the
results of operations of the new Affiliates and due to $1.8 million of higher
selling, general and administrative expenses incurred by AMG relating to its
investment activities.
Other operating expenses increased from $330,000 for the year ended December
31, 1995 to $2.3 million for the year ended December 31, 1996. This $2.0 million
increase was primarily due to the inclusion of operations for the First Quadrant
investment for nine months and the Renaissance investment for a full year in
1996.
Minority interest increased by $3.5 million to $6.0 million for the year
ended December 31, 1996 from $2.5 million for the year ended December 31, 1995,
as a result of the addition of new Affiliates during the year and revenue growth
at the Company's Affiliates.
Interest expense increased from $1.2 million for the year ended December 31,
1995 to $2.7 million for the year ended December 31, 1996. The increase in the
interest expense was due to the incurrence of $16.1 million of average bank
borrowings by the Company in connection with the Systematic, Paradigm, Skyline
and Renaissance transactions and $16.0 million of average bank borrowings
incurred in connection with the 1996 investment in First Quadrant for the nine
months ended December 31, 1996.
Income tax expense was $181,000 for the year ended December 31, 1996
compared to $706,000 for the year ended December 31, 1995. The Company did not
accrue a current provision for federal income taxes in 1996 as a result of its
utilization of net operating loss carryforwards. The net operating loss
carryforwards resulted from prior periods of net losses from operations. The
Company has established a valuation allowance against the resulting net deferred
tax asset. The effective tax rate for the year ended December 31, 1996 was 15%
compared to 32% for the year ended December 31, 1995. The 1995 provision for
taxes included $445,000 for state and local income taxes and $261,000 of federal
income taxes. The federal income tax provision included $201,000 of deferred
taxes for the effects of timing differences between the recognition of
deductions for book and tax purposes primarily related to the accelerated
amortization of certain intangible assets.
27
<PAGE>
EBITDA increased $7.2 million to $10.5 million for the year ended December
31, 1996 from $3.3 million for the year ended December 31, 1995 as a result of
the inclusion of new Affiliates as described above and revenue growth.
EBITDA as adjusted increased by $6.2 million to $7.6 million for the year
ended December 31, 1996 from $1.4 million for the year ended December 31, 1995,
as a result of factors affecting net income as described above before non-cash
charges such as amortization of intangible assets, depreciation and
extraordinary items of $10.0 million for the year ended December 31, 1996 and
$4.3 million for the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements primarily through cash generated
by its operating activities, bank borrowings, the issuance by the Company of
equity and debt securities in private placement transactions and the net
proceeds from the sale of 8,625,000 shares of Common Stock in an initial public
offering in November 1997. The Company anticipates that it will use cash flow
from its operating activities to repay debt and to finance its working capital
needs and will use bank borrowings and issue equity and debt securities to
finance future investments in affiliates and working capital. The Company's
principal uses of cash have been to make investments in Affiliates, to retire
indebtedness, and to support the Company's and its Affiliates' operating
activities. The Company expects that its principal use of funds for the
foreseeable future will be for investments in additional affiliates, repayments
of debt, including interest payments on outstanding debt, distributions of the
Owners' Allocation to owners of Affiliates other than AMG, additional
investments in existing Affiliates including upon the exercise of Puts (as
defined elsewhere herein) and for working capital purposes. The Company does not
expect to make commitments for material capital expenditures.
Net cash flow from operating activities was $16.2 million, $6.2 million and
$1.3 million for the years ended December 31, 1997, 1996 and 1995, respectively.
Net cash flow used in investing activities was $327.3 million, $29.2 million
and $37.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Of these amounts, $325.9 million, $25.6 million, and $38.0
million, respectively, were used to make investments in Affiliates.
Net cash flow from financing activities was $327.1 million, $15.7 million
and $46.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. The principal sources of cash from financing activities has been
from borrowings under senior credit facilities and subordinated debt, private
placements of the Company's equity securities and the Company's IPO. The uses of
cash from financing activities during these periods were for the repayment of
bank debt, repayment of subordinated debt, repayment of notes issued as purchase
price consideration and for the payment of debt issuance costs.
At December 31, 1997, the Company had cash and cash equivalents of $22.8
million and outstanding borrowings of senior debt under its New Credit Facility,
as defined below, of $159.5 million.
During 1997, the Company made investments in three new Affiliates, Gofen and
Glossberg, GeoCapital and Tweedy, Browne, and made additional investments in two
of its existing Affiliates which required approximately $325.9 million in cash
(including transaction costs). The Company obtained the financing for these
investments pursuant to (i) borrowings under the Credit Facility, (ii)
borrowings of $60 million face amount of Subordinated Bridge Notes (the
"Subordinated Debt") and (iii) $30 million from the issuance of Class C
Convertible Preferred Stock and warrants to purchase Class C Convertible
Preferred Stock (clauses (i)--(iii) collectively, the "Recent Financing"). The
Credit Facility included $200 million in revolving credit and $50 million of
7-year Tranche A and $50 million of 8-year Tranche B term loans.
On November 21, 1997, the Company successfully completed its IPO with the
sale of 8,625,000 shares of Common Stock. The Company received net proceeds of
$187.0 million, after deducting the underwriting
28
<PAGE>
discount and expenses payable by the Company in connection with the offering.
The Company used the proceeds of the offering to retire the Subordinated Debt of
$60 million, the Tranche A term loan of $50 million, the Tranche B term loan of
$50 million, $25.8 million of the revolving credit facility and accrued interest
of $1.2 million.
The Company replaced its Credit Facility with a new credit facility ("New
Credit Facility") during December 1997. The New Credit Facility allows for
borrowings up to $300 million (which may be increased to $400 million upon the
approval of the lenders), bears interest at either LIBOR plus a margin ranging
from 0.50% to 2.25% or the Prime Rate plus a margin ranging up to 1.25% and
matures during December 2002. The Company pays a commitment fee of up to 1/2 of
1% on the daily unused portion of the facility.
The Company's borrowings under the New Credit Facility are collateralized by
pledges of all of its interests in Affiliates (including all interests in
Affiliates which are directly held by the Company, as well as all interests in
Affiliates which are indirectly held by the Company through wholly-owned
subsidiaries), representing substantially all of the Company's assets at
December 31, 1997. The credit agreement (the "Credit Agreement") evidencing the
New Credit Facility contains a number of negative covenants, including those
which prevent the Company and its Affiliates from: (i) incurring additional
indebtedness (with certain enumerated exceptions, including additional
borrowings under the New Credit Facility and borrowings which constitute
Subordinated Indebtedness (as that term is defined in the Credit Agreement)),
(ii) creating any liens or encumbrances on any of their assets (with certain
enumerated exceptions), (iii) selling assets outside the ordinary course of
business or making certain fundamental changes with respect to the Company or
any of its subsidiaries, including a restriction on the Company's ability to
transfer interests in its subsidiaries if, as a result of such transfer, the
Company would own less than 51% of such subsidiary, and (iv) declaring or paying
dividends on the Common Stock of the Company.
The Credit Agreement also requires the Company to comply with certain
financial covenants on an ongoing basis. These include a covenant requiring
minimum stockholders' equity of $36.0 million (plus 85% of net proceeds from
offerings of equity and Subordinated Indebtedness (as such term is defined in
the Credit Agreement) and 50% of quarterly net income (or minus certain
quarterly net losses) after the date of the Credit Agreement); a covenant
requiring that Consolidated EBITDA (as such term is defined in the Credit
Agreement) exceed interest expense by 2.0 to 1.0; and a covenant requiring that
senior debt not exceed adjusted EBITDA (as such term is defined in the Credit
Agreement) by more than 5.0 to 1.0. The Company remains in compliance with each
of the foregoing financial covenants. The Company's ability to borrow under the
Credit Agreement is conditioned upon its compliance with the requirements of
that agreement, and any non-compliance with those requirements could give rise
to a default entitling the lenders to accelerate all outstanding borrowings
under that agreement.
In August 1997, the Company issued to Chase Equity Associates 5,333
(pre-split) shares of Series C-2 Non-Voting Convertible Preferred Stock and
warrants to purchase at nominal cost 28,000 (pre-split) shares of Series C-2
Non-Voting Convertible Preferred Stock for aggregate cash consideration of $30.0
million. As partial consideration in the GeoCapital investment, the Company
issued 10,667 (pre-split) shares of Class D Convertible Preferred Stock valued
at $9.6 million.
On March 20, 1998, the Company acquired a majority interest in Essex
Investment Management, LLC. The Company paid $69.6 million in cash and the
assumption of debt, in addition to 1,750,942 newly-issued shares of Class C
Convertible Non-Voting Stock. The stock will automatically convert into AMG
Common Stock at a 1-for-1 exchange ratio after one year. The Company funded the
cash portion of this investment with borrowings under its New Credit Facility.
In order to provide the funds necessary for the Company to continue to
acquire interests in investment management firms, including its Affiliates upon
the exercise of Puts, it will be necessary for the Company to incur, from time
to time, additional long-term bank debt and/or issue equity or debt securities,
29
<PAGE>
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.
INTEREST RATE SENSITIVITY
The Company's revenues are derived almost exclusively from fees which are
based on the value of assets under management. Such values are affected by
changes in the broader financial markets which are, in part, affected by
changing interest rates. The Company cannot predict the effects that interest
rates or changes in interest rates may have on either the broader financial
markets or its Affiliates' assets under management and associated fees.
With respect to its debt financings, the Company is exposed to potential
fluctuations in the amount of interest expense resulting from changing interest
rates. The Company seeks to offset such exposure in part by entering into
interest rate hedging contracts. See "Interest Rate Hedging Contracts" below.
The Company's annual interest expense increases or decreases by $199,375 for
each 1/8 of 1% change in interest rates assuming LIBOR is between 5% and 6.78%
and assuming current interest rate margins on bank debt.
INTEREST RATE HEDGING CONTRACTS
The Company seeks to offset its exposure under its debt financing
arrangements to changing interest rates by entering into interest rate hedging
contracts. The Company generally borrows at a floating rate equal to LIBOR plus
a margin as described above. As of December 31, 1997, the Company is a party,
with two major commercial banks as counterparties, to $185 million notional
amount of swap contracts which are designed to limit interest rate increases on
the Company's borrowings. The swap contracts, upon quarterly reset dates, cap
interest rates on the notional amounts when LIBOR exceeds 6.67% or 6.78%. When
LIBOR is at or below 5%, the Company's floating LIBOR-based interest rate debt
is swapped for fixed rate debt at rates ranging between 6.67% and 6.78%. The
hedging contracts limit the effects of the Company's payment of interest at
equivalent LIBOR rates of 6.78% or less on up to $185 million of indebtedness.
However, there can be no assurance that the Company will continue to maintain
such hedging contracts at their existing levels of coverage or that the amount
of coverage maintained will cover all of the Company's indebtedness outstanding
at any such time. In addition, as noted above, the Company's existing hedging
contracts subject the Company to the risk of payments of higher interest rates
when prevailing LIBOR rates are at 5% or less. Therefore, there can be no
assurance that the hedging contracts will meet their overall objective of
reducing the Company's interest expense. In addition, there can be no assurance
that the Company will be successful in obtaining hedging contracts in the future
on any new indebtedness.
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.
Based on a recent assessment, the Company determined that the Year 2000
Issue will not have a significant impact on its own systems. The Company has
communicated with its Affiliates and plans to initiate a formal communication
with all of its significant vendors to determine the extent to which the Company
is vulnerable to those third parties who fail to remediate their own Year 2000
Issue.
30
<PAGE>
At this time, the Company's assessment of the impact of the Year 2000 Issue
is incomplete. The Company's assessment is expected to be completed during 1998,
when all of its Affiliates and significant vendors have completed their
individual assessments of the issue.
RECENT ACCOUNTING DEVELOPMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This standard requires that comprehensive income and its components be
reported and displayed in a financial statement with the same prominence as
other financial statements. Comprehensive income includes net income, as well as
certain items that are recorded directly in stockholders' equity, such as
foreign currency translation adjustments. This standard is effective for years
beginning after December 15, 1997, and will not have a material impact on the
Company's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This standard requires disclosure of
financial and descriptive information about an entity's reportable operating
segments. Segments are defined by the standard as components of an entity that
engage in business activities that generate revenues and expenses, and for which
separate financial information should be reported on the basis that is used
internally for senior management review. This standard is effective for
financial statements for periods beginning after December 15, 1997, with
restatement of comparative information for prior periods. The Company is
currently evaluating the impact of this standard on its disclosures.
ECONOMIC AND MARKET CONDITIONS
The financial markets and the investment management industry in general have
experienced record performance and record growth in recent years. For example,
between January 1, 1995 and December 31, 1997, the S&P 500 Index appreciated at
a compound annual rate in excess of 31.2% while, according to the Federal
Reserve Board and the Investment Company Institute, aggregate assets under
management of mutual and pension funds grew at a compound annual rate
approaching 20% for the period January 1, 1995 to December 31, 1996. The
financial markets and businesses operating in the securities industry, however,
are highly volatile and are directly affected by, among other factors, domestic
and foreign economic conditions and general trends in business and finance, all
of which are beyond the control of the Company. There can be no assurance that
broader market performance will be favorable in the future. Any decline in the
financial markets or a lack of sustained growth may result in a corresponding
decline in performance by the Affiliates and may adversely affect assets under
management and/or fees at the Affiliate level, which would reduce cash flow
distributions to the Company.
INTERNATIONAL OPERATIONS
First Quadrant Limited is organized and headquartered in London, England.
Tweedy, Browne, based in New York, also maintains a research office in London.
In the future, the Company may seek to invest in other investment management
firms which are located and/or conduct a significant part of their operations
outside of the United States. There are certain risks inherent in doing business
internationally, such as changes in applicable laws and regulatory requirements,
difficulties in staffing and managing foreign operations, longer payment cycles,
difficulties in collecting investment advisory fees receivable, political
instability, fluctuations in currency exchange rates, expatriation controls and
potential adverse tax consequences. There can be no assurance that one or more
of such factors will not have a material adverse effect on First Quadrant
Limited or other non-U.S. investment management firms in which the Company may
invest in the future and, consequently, on the Company's business, financial
condition and results of operations.
INFLATION
The Company does not believe that inflation or changing prices have had a
material impact on its results of operations.
31
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Affiliated Managers Group, Inc.:
We have audited the accompanying consolidated balance sheets of Affiliated
Managers Group, Inc. and Affiliates as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Affiliated
Managers Group, Inc. and Affiliates as of December 31, 1997 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 10, 1998
except for Note 16
for which the date is
March 20, 1998.
32
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 6,767 $ 22,766
Investment advisory fees receivable..................................................... 15,491 27,061
Other current assets.................................................................... 806 2,231
---------- ----------
Total current assets.................................................................. 23,064 52,058
Fixed assets, net......................................................................... 2,999 4,724
Equity investment in Affiliate............................................................ 1,032 1,237
Acquired client relationships, net of accumulated amortization of $2,979 in 1996 and
$6,142 in 1997.......................................................................... 30,663 142,875
Goodwill, net of accumulated amortization of $10,022 in 1996 and $13,502 in 1997.......... 40,809 249,698
Other assets.............................................................................. 2,768 6,398
---------- ----------
Total assets.......................................................................... $ 101,335 $ 456,990
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities................................................ $ 16,212 $ 18,815
Notes payable to related parties........................................................ 7,379 --
---------- ----------
Total current liabilities............................................................. 23,591 18,815
Senior bank debt.......................................................................... 33,400 159,500
Accrued affiliate liability............................................................... 3,200 --
Other long-term liabilities............................................................... 665 1,656
Subordinated debt......................................................................... -- 800
---------- ----------
Total liabilities..................................................................... 60,856 180,771
Minority interest......................................................................... 3,490 16,479
Commitments and contingencies
Stockholders' equity:
Preferred stock........................................................................... 42,476 --
Common stock.............................................................................. -- 177
Additional paid-in capital on common stock................................................ 5 273,475
Foreign translation adjustment............................................................ 22 (30)
Accumulated deficit....................................................................... (5,514) (13,882)
---------- ----------
Total stockholders' equity............................................................ 36,989 259,740
---------- ----------
Total liabilities and stockholders' equity............................................ $ 101,335 $ 456,990
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................................... $ 14,182 $ 50,384 $ 95,287
Operating expenses:
Compensation and related expenses........................................ 6,018 21,113 41,619
Amortization of intangible assets........................................ 4,174 8,053 6,643
Depreciation and other amortization...................................... 133 932 1,915
Selling, general and administrative...................................... 2,237 10,854 18,912
Other operating expenses................................................. 330 2,261 3,637
---------- ---------- ----------
12,892 43,213 72,726
---------- ---------- ----------
Operating income....................................................... 1,290 7,171 22,561
Non-operating (income) and expenses:
Investment and other income.............................................. (265) (337) (1,174)
Interest expense......................................................... 1,244 2,747 8,479
---------- ---------- ----------
979 2,410 7,305
---------- ---------- ----------
Income before minority interest, income taxes and extraordinary item....... 311 4,761 15,256
Minority interest.......................................................... (2,541) (5,969) (12,249)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item................... (2,230) (1,208) 3,007
Income taxes............................................................... 706 181 1,364
---------- ---------- ----------
Income (loss) before extraordinary item.................................... (2,936) (1,389) 1,643
---------- ---------- ----------
Extraordinary item, net.................................................... -- (983) (10,011)
---------- ---------- ----------
Net (loss)................................................................. $ (2,936) $ (2,372) $ (8,368)
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per share--basic:
Income (loss) before extraordinary item................................ $ (2.95) $ (3.22) $ 0.72
Extraordinary item, net................................................ -- (2.27) (4.41)
---------- ---------- ----------
Net (loss)............................................................. $ (2.95) $ (5.49) $ (3.69)
---------- ---------- ----------
---------- ---------- ----------
Income (loss) per share--diluted:
Income (loss) before extraordinary item................................ $ (2.95) $ (3.22) $ 0.20
Extraordinary item, net................................................ -- (2.27) (1.22)
---------- ---------- ----------
Net (loss)............................................................. $ (2.95) $ (5.49) $ (1.02)
---------- ---------- ----------
---------- ---------- ----------
Average shares outstanding--basic.......................................... 996,144 431,908 2,270,684
Average shares outstanding--diluted........................................ 996,144 431,908 8,235,529
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER
31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flow from operating activities:
Net (loss).......................................................................... $ (2,936) (2,372) $ (8,368)
Adjustments to reconcile net (loss) to net cash flow from operating activities:
Amortization of intangible assets................................................. 4,174 8,053 6,643
Extraordinary item................................................................ -- 983 10,011
Minority interest................................................................. 631 2,309 13,108
Depreciation and other amortization............................................... 133 932 1,915
Increase (decrease) in deferred income taxes...................................... 141 (215) --
Changes in assets and liabilities:
Increase in investment advisory fees receivable................................... (186) (8,473) (3,980)
Increase in other current assets.................................................. (397) (1,881) (977)
Increase (decrease) in accounts payable, accrued expenses and other liabilities... (268) 6,849 (2,147)
--------- --------- ---------
Cash flow from operating activities............................................... 1,292 6,185 16,205
--------- --------- ---------
Cash flow used in investing activities:
Purchase of fixed assets............................................................ (287) (922) (1,648)
Costs of investments, net of cash acquired.......................................... (38,031) (25,646) (325,896)
Sale of investment.................................................................. -- 642 --
Distributions received from Affiliate equity investment............................. -- 275 229
Increase (decrease) in other assets................................................. 216 (3,639) 40
Repayment on notes recorded in purchase of business................................. 321 80 --
--------- --------- ---------
Cash flow used in investing activities............................................ (37,781) (29,210) (327,275)
--------- --------- ---------
Cash flow from financing activities:
Borrowings of senior bank debt...................................................... 28,400 21,000 303,900
Repayments of senior bank debt...................................................... (10,000) (6,000) (177,800)
Repayments of notes payable......................................................... (962) (1,212) (5,878)
Borrowings of subordinated bank debt................................................ -- -- 58,800
Repayments of subordinated bank debt................................................ -- -- (60,000)
Issuances of equity securities...................................................... 20,000 2,485 217,021
Issuance of warrants................................................................ -- -- 1,200
Payment of subscription receivable.................................................. 10,000 -- --
Repurchase of preferred stock....................................................... -- (13) --
Debt issuance costs................................................................. (1,024) (610) (10,131)
--------- --------- ---------
Cash flow from financing activities............................................... 46,414 15,650 327,112
Effect of foreign exchange rate changes on cash flow.................................. -- 46 (43)
Net increase (decrease) in cash and cash equivalents.................................. 9,925 (7,329) 15,999
Cash and cash equivalents at beginning of year........................................ 4,171 14,096 6,767
--------- --------- ---------
Cash and cash equivalents at end of year.............................................. $ 14,096 $ 6,767 $ 22,766
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Interest paid....................................................................... $ 1,005 $ 2,905 $ 8,559
Income taxes paid................................................................... 696 436 256
Supplemental disclosure of non-cash investing activities:
Increase (decrease) in liabilities related to acquisitions.......................... 3,200 -- (3,200)
Supplemental disclosure of non-cash financing activities:
Preferred stock issued in acquisitions.............................................. -- -- 11,101
Common stock issued in exchange for Affiliate equity interests...................... -- -- 1,849
Notes issued in acquisitions........................................................ -- 6,686 --
Conversion of preferred stock to common stock....................................... -- -- 83,576
Exchange of common stock for preferred stock........................................ 10,004 -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN TOTAL
PREFERRED COMMON PREFERRED COMMON PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES SHARES STOCK STOCK CAPITAL ADJUSTMENTS DEFICIT EQUITY
----------- --------- ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994......... 40,000 2,550,000 $ 10,004 $ -- $ 5 $ -- $ (206) $ 9,803
Issuance of common stock.. -- 275,000 -- -- -- -- -- --
Payment of subscription
receivable.............. -- -- -- -- 10,000 -- -- 10,000
Exchange of common stock
for preferred stock..... 40,000 (2,000,000) 10,004 -- (10,004) -- -- --
Issuance of preferred
stock................... 29,851 -- 20,000 -- -- -- -- 20,000
Net loss.................. -- -- -- -- -- -- (2,936) (2,936)
----------- --------- ----------- ----- ----------- ----------- ------------ -------------
December 31, 1995......... 109,851 825,000 40,008 -- 1 -- (3,142) 36,867
Issuance of common stock.. -- 162,500 -- -- 4 -- -- 4
Issuance of preferred
stock................... 3,703 -- 2,481 -- -- -- -- 2,481
Repurchase of preferred
stock................... (20) -- (13) -- -- -- -- (13)
Net loss.................. -- -- -- -- -- -- (2,372) (2,372)
Foreign translation
adjustment.............. -- -- -- -- -- 22 -- 22
----------- --------- ----------- ----- ----------- ----------- ------------ -------------
December 31, 1996......... 113,534 987,500 42,476 -- 5 22 (5,514) 36,989
Issuance of common stock.. -- 8,753,667 -- 98 188,773 -- -- 188,871
Issuance of preferred
stock and warrants...... 45,715 -- 41,100 -- 1,200 -- -- 42,300
Conversion of preferred
stock................... (159,249) 7,962,450 (83,576) 79 83,497 -- -- --
Net loss.................. -- -- -- -- -- -- (8,368) (8,368)
Foreign translation
adjustment.............. -- -- -- -- -- (52) -- (52)
----------- --------- ----------- ----- ----------- ----------- ------------ -------------
December 31, 1997......... -- 17,703,617 $ -- $ 177 $ 273,475 $ (30) $ (13,882) $ 259,740
----------- --------- ----------- ----- ----------- ----------- ------------ -------------
----------- --------- ----------- ----- ----------- ----------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE>
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF OPERATIONS
The principal business activity of Affiliated Managers Group, Inc. ("AMG" or
the "Company") is the acquisition of equity interests in investment management
firms ("Affiliates"). AMG's Affiliates operate in one industry segment, that of
providing investment management services, primarily in the United States and
Europe, to mutual funds, partnerships and institutional and individual clients.
Affiliates are either organized as limited partnerships, general
partnerships or limited liability companies. AMG has contractual arrangements
with each Affiliate whereby a percentage of revenues is allocable to fund
Affiliate operating expenses, including compensation (the Operating Allocation),
while the remaining portion of revenues (the Owners' Allocation) is allocable to
AMG and the other partners or members, generally with a priority to AMG.
Affiliate operations are consolidated in these financial statements. The portion
of the Owners' Allocation allocated to owners other than AMG is included in
minority interest in the statement of operations. Minority interest on the
consolidated balance sheets includes undistributed Owners' Allocation and
Operating Allocation and capital owned by owners other than AMG.
CONSOLIDATION
These consolidated financial statements include the accounts of AMG and each
Affiliate in which AMG has a controlling interest. In each such instance, AMG
is, directly or indirectly, the sole general partner (in the case of Affiliates
which are limited partnerships), sole managing general partner (in the case of
the Affiliate which is a general partnership) or sole manager member (in the
case of Affiliates which are limited liability companies). Investments where AMG
does not hold a controlling interest are accounted for under the equity method
of accounting and AMG's portion of net income is included in investment and
other income. All intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
The Company's consolidated revenues represent advisory fees billed quarterly
and annually by Affiliates for managing the assets of clients. Asset-based
advisory fees are recognized monthly as services are rendered and are based upon
a percentage of the market value of client assets managed. Any fees collected in
advance are deferred and recognized as income over the period earned.
Performance-based advisory fees are recognized when earned based upon either the
positive difference between the investment returns on a client's portfolio
compared to a benchmark index or indices, or an absolute percentage of gain in
the client's account, and are accrued in amounts expected to be realized.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost, which approximates market value due to the short-term maturity of these
investments.
FIXED ASSETS
Equipment and other fixed assets are recorded at cost and depreciated using
the straight-line method over their estimated useful lives ranging from three to
five years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the lease.
ACQUIRED CLIENT RELATIONSHIPS AND GOODWILL
The purchase price for the acquisition of interests in Affiliates is
allocated based on the fair value of assets acquired, primarily acquired client
relationships. In determining the allocation of purchase price to acquired
client relationships, the Company analyzes the net present value of each
acquired Affiliate's existing client relationships based on a number of factors
including: the Affiliate's historical and potential
37
<PAGE>
future operating performance; the Affiliate's historical and potential future
rates of attrition among existing clients; the stability and longevity of
existing client relationships; the Affiliate's recent, as well as long-term,
investment performance; the characteristics of the firm's products and
investment styles; the stability and depth of the Affiliate's management team,
and the Affiliate's history and perceived franchise or brand value. The cost
assigned to acquired client relationships is amortized using the straight line
method over periods ranging from nine to 26 years. The expected useful lives of
acquired client relationships are analyzed separately for each acquired
Affiliate and determined based on an analysis of the historical and potential
future attrition rates of each Affiliate's existing clients, as well as a
consideration of the specific attributes of the business of each Affiliate.
The excess of purchase price for the acquisition of interests in Affiliates
over the fair value of net assets acquired, including acquired client
relationships, is classified as goodwill. Goodwill is amortized using the
straight-line method over periods ranging from 15 to 35 years. In determining
the amortization period for goodwill, the Company considers a number of factors
including: the firm's historical and potential future operating performance; the
characteristics of the firm's clients, products and investment styles; as well
as the firm's history and perceived franchise or brand value. Unamortized
intangible assets, including acquired client relationships and goodwill, are
periodically re-evaluated and if experience subsequent to the acquisition
indicates that there has been an impairment in value, other than temporary
fluctuations, an impairment loss is recognized. Management evaluates the
recoverability of unamortized intangible assets quarterly for each acquisition
using estimates of undiscounted cash flows factoring in known or expected
trends, future prospects and other relevant information. If impairment is
indicated, the Company measures its loss as the excess of the carrying value of
the intangible assets for each Affiliate over its fair value determined using
valuation models such as discounted cash flows and market comparables. Included
in amortization expense for 1996 and 1995 are impairment losses of $4,628 and
$2,500, respectively, relating to two of AMG's Affiliates following periods of
significant client asset withdrawals. Fair value in such cases was determined
using market comparables based on revenues, cash flow and assets under
management. No impairment loss was recorded for the year ended December 31,
1997.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in securing credit facility financing are
capitalized and subsequently amortized over the term of the credit facility.
Unamortized debt issuance costs of $983 and $10,011, net of taxes, were written
off as an extraordinary item in 1996 and 1997, respectively, as part of the
Company's replacement of its previous credit facilities with new facilities.
INTEREST-RATE HEDGING AGREEMENTS
The Company periodically enters into interest-rate hedging agreements to
hedge against potential increases in interest rates on the Company's outstanding
borrowings. The Company's policy is to accrue amounts receivable or payable
under such agreements as reductions or increases in interest expense,
respectively.
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No. 109
("FAS 109") which requires the use of the asset and liability approach for
accounting for income taxes. Under FAS 109, the Company recognizes deferred tax
assets and liabilities for the expected consequences of temporary differences
between the financial statement amount and tax basis of the Company's assets and
liabilities. A deferred tax valuation allowance is established if, in
management's opinion, it is more likely than not that all or a portion of the
Company's deferred tax assets will not be realized.
38
<PAGE>
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of non-U.S. based Affiliates are translated into
U.S. dollars at the exchange rates in effect as of the balance sheet date.
Revenues and expenses are translated at the average monthly exchange rates then
in effect.
PUTS AND CALLS
As further described in Note 11, the Company periodically purchases
additional equity interests in Affiliates from minority interest owners (prior
shareholders of acquired Affiliates). Resulting payments made to such owners are
considered purchase price for such acquired interests. The estimated cost of
purchases from equity holders who have been awarded equity interests in
connection with their employment is accrued, net of estimated forfeitures, over
the service period as equity-based compensation.
EQUITY-BASED COMPENSATION PLANS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This standard became effective January 1, 1996. The
standard encourages, but does not require, adoption of a fair value-based
accounting method for stock-based compensation arrangements which includes stock
option grants, sales of restricted stock and grants of equity-based interests in
Affiliates to certain limited partners or members. An entity may continue to
apply Accounting Principles Board Opinion No. 25 ("APB 25") and related
interpretations, provided the entity discloses its pro forma net income and
earnings per share as if the fair value based method had been applied in
measuring compensation cost. The Company continues to apply APB 25 and related
interpretations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts included in the financial
statements and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
2. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
investment advisory fees receivable. The Company maintains cash and cash
equivalents, short-term investments and certain off-balance-sheet financial
instruments with various financial institutions. These financial institutions
are located in places where AMG and its Affiliates operate. For AMG and certain
Affiliates, cash deposits at a financial institution may exceed FDIC insurance
limits.
Substantially all of the Company's revenues are derived from the investment
management operations of its Affiliates. For the year ended December 31, 1997,
one of those Affiliates accounted for approximately 33% of AMG's share of total
Owners' Allocation.
39
<PAGE>
3. FIXED ASSETS AND LEASE COMMITMENTS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Office equipment..................................................................... $ 2,614 $ 5,870
Furniture and fixtures............................................................... 1,677 3,530
Leasehold improvements............................................................... 538 2,007
Computer software.................................................................... 184 760
--------- ---------
Total fixed assets............................................................... 5,013 12,167
--------- ---------
Accumulated depreciation............................................................. (2,014) (7,443)
--------- ---------
Fixed assets, net................................................................ $ 2,999 $ 4,724
--------- ---------
--------- ---------
</TABLE>
The Company and its Affiliates lease computer equipment and office space for
their operations. At December 31, 1997, the Company's aggregate future minimal
rentals for operating leases having initial or noncancelable lease terms greater
than one year are payable as follows:
<TABLE>
<CAPTION>
REQUIRED
MINIMUM
YEAR ENDING DECEMBER 31, PAYMENTS
- --------------------------------------------------------------------------------------------- -----------
<S> <C>
1998......................................................................................... $ 3,091
1999......................................................................................... 2,735
2000......................................................................................... 2,413
2001......................................................................................... 2,094
2002......................................................................................... 2,603
Thereafter................................................................................... 4,547
</TABLE>
Consolidated rent expense for 1995, 1996 and 1997 was $493, $2,359 and
$3,637, respectively.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Accounts payable.................................................................. $ 396 $ 940
Accrued compensation.............................................................. 9,264 6,480
Accrued rent...................................................................... 3,509 2,769
Deferred revenue.................................................................. 796 1,481
Accrued professional services..................................................... 1,350 2,552
Other............................................................................. 897 4,593
--------- ---------
$ 16,212 $ 18,815
--------- ---------
--------- ---------
</TABLE>
5. RETIREMENT PLANS
AMG has a defined contribution retirement plan covering substantially all of
its full-time employees and four of its Affiliates. Six of AMG's other
Affiliates have separate defined contribution retirement plans. Under each of
the plans, AMG and each Affiliate is able to make discretionary contributions to
qualified plan participants up to IRS limits. Consolidated expenses related to
these plans in 1995, 1996 and 1997 were $222, $656 and $1,020, respectively.
40
<PAGE>
6. SENIOR BANK DEBT AND SUBORDINATED DEBT
In December 1997, the Company replaced its $300 million revolving Credit
Facility with a new $300 million revolving credit facility ("New Credit
Facility"), with principal repayment due in December 2002. Interest is payable
at rates up to 1.25% over the Prime Rate or up to 2.25% over LIBOR on amounts
borrowed. The Company pays a commitment fee of up to 1/2 of 1% on the daily
unused portion of the facility. The Company had $159.5 million outstanding on
the New Credit Facility at December 31, 1997.
The effective interest rates on the outstanding borrowings were 6.5% and
7.2% at December 31, 1996 and 1997, respectively. All borrowings under the New
Credit Facility are collateralized by pledges of all capital stock or other
equity interests in each AMG Affiliate owned or to be acquired. The credit
agreement contains certain financial covenants which require the Company to
maintain specified minimum levels of net worth and interest coverage ratios and
maximum levels of indebtedness, all as defined in the credit agreement. The
credit agreement also limits the Company's ability to pay dividends and incur
additional indebtedness.
As of December 31, 1997, the Company is a party, with two major commercial
banks as counterparties, to $185 million notional amount of swap contracts which
are designed to limit interest rate increases on the Company's LIBOR-based
borrowings. The swap contracts, upon quarterly reset dates, cap interest rates
on the notional amounts at rates ranging between 6.67% and 6.78%. When LIBOR is
at or below 5%, the Company's floating rate LIBOR debt is swapped for fixed rate
debt at rates ranging between 6.67% and 6.78%. The hedging contracts limit the
effects of the Company's payments of interest at equivalent LIBOR rates of 6.78%
or less on up to $185 million of indebtedness. The contracts mature between
March 2001 and October 2002.
One of the Company's Affiliates also operates as a broker-dealer and must
maintain specified minimum amounts of "net capital" as defined in SEC Rule
15c3-1. In connection with this requirement, the Affiliate has $800 of
subordinated indebtedness which qualifies as net capital under the net capital
rule. The subordinated indebtedness is subordinated to claims of general
creditors and is secured by notes and marketable securities of certain of the
Affiliate's management members.
7. INCOME TAXES
A summary of the provision for income taxes, before the 1997 tax benefit of
$846 related to the extraordinary item, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Federal:
Current............................................................................... $ 60 $ -- $ --
Deferred.............................................................................. 201 (233) 776
State:
Current............................................................................... 514 397 352
Deferred.............................................................................. (69) 17 236
--------- --------- ---------
Provision for income taxes.............................................................. $ 706 $ 181 $ 1,364
--------- --------- ---------
--------- --------- ---------
</TABLE>
41
<PAGE>
The effective income tax rate differs from the amount computed on "income
(loss) before extraordinary item" by applying the U.S. federal income tax rate
because of the effect of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax at U.S. federal income tax rate............................................... (35)% (35)% 35%
Nondeductible expenses, primarily amortization of intangibles..................... 54 21 15
State income taxes, net of federal benefit........................................ 13 23 13
Valuation allowance............................................................... -- 6 (17)
--- --- ---
32% 15% 46%
--- --- ---
--- --- ---
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred assets (liabilities):
Net operating loss carryforwards................................................. $ 3,481 $ 10,436
Intangible amortization.......................................................... (4,950) (9,238)
Accrued compensation............................................................. 2,004 849
Other, net....................................................................... (58) (58)
--------- ---------
477 1,989
--------- ---------
Valuation allowance................................................................ (477) (1,989)
--------- ---------
Net deferred income taxes.......................................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
At December 31, 1997, the Company had tax net operating loss ("NOL")
carryforwards of approximately $25 million which expire beginning in the year
2010. Realization is dependent on generating sufficient taxable income prior to
expiration of the tax loss carryforwards. At December 31, 1997, management
believed it was more likely than not that the Company's deferred tax asset of
$1,989, arising primarily from NOL carryforwards, would not be realized and
accordingly established a full valuation allowance against the asset. The
Company will review the valuation allowance at the end of each reporting period
and will make adjustments if it is determined that it is more likely than not
that the NOL's will be realized.
8. CONTINGENCIES
The Company and its Affiliates are subject to claims, legal proceedings and
other contingencies in the ordinary course of their business activities. Each of
these matters is subject to various uncertainties, and it is possible that some
of these matters may be resolved unfavorably to the Company or its Affiliates.
The Company and its Affiliates establish accruals for matters that are probable
and can be reasonably estimated. Management believes that any liability in
excess of these accruals upon the ultimate resolution of these matters will not
have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
9. ACQUISITIONS AND COMMITMENTS
1997
During 1997, the Company acquired in purchase transactions majority
interests in Gofen and Glossberg, GeoCapital and Tweedy, Browne. The Company
also acquired additional interests in two of its existing Affiliates.
42
<PAGE>
The Company issued 10,667 shares of Class D Convertible Preferred Stock
valued at $9.6 million as partial consideration in the GeoCapital transaction.
The preferred stock was exchanged for 533,350 shares of the Company's Common
Stock in connection with the Company's initial public offering.
The results of operations of Gofen and Glossberg, GeoCapital and Tweedy,
Browne are included in the consolidated results of operations of the Company
from their respective dates of acquisition, May 7, 1997, September 30, 1997 and
October 9, 1997.
1996
During 1996, the Company acquired in purchase transactions majority
interests in First Quadrant and Burridge. In addition, the Company acquired
additional partnership interests from limited partners of two of its existing
Affiliates.
On December 31, 1996, the Company issued notes in the amount of $6.7 million
as partial consideration in the purchase to Burridge selling shareholders who
remained as employees. On January 3, 1997, the notes were settled in cash for
$5.2 million and the issuance of 1,715 shares of Series B-1 Voting Convertible
Preferred Stock. The Convertible Preferred Stock was subsequently exchanged for
85,750 shares of Common Stock in connection with the Company's initial public
offering.
The results of operations of First Quadrant and Burridge are included in the
consolidated results of operations of the Company from their respective dates of
acquisition, March 28, 1996 and December 31, 1996.
1995
During 1995, the Company acquired in purchase transactions majority
interests in Systematic, Skyline and Renaissance. The Company also made a
minority investment in Paradigm. In connection with an Affiliate acquisition,
the Company assumed an unconditional $3.2 million purchase obligation on the
equity interests of limited partners which would be settled in either cash or
the Company's stock. During 1997, the partners in that affiliate exchanged this
unconditional right for new equity interests in this Affiliate.
The results of operations of Systematic, Skyline and Renaissance are
included in the consolidated results of operations of the Company from their
respective dates of investment, May 16, 1995, August 31, 1995, and November 9,
1995. The net income associated with the Company's minority interest in Paradigm
is included in the consolidated results of operations of the Company using the
equity method from May 22, 1995, the date of investment.
The total purchase price, including cash, notes, common and preferred stock
and capitalized transaction costs, associated with these investments, is
allocated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
Allocation of Purchase Price:
Net tangible assets................................................. $ 1,720 $ 2,198 $ 5,924
Intangible assets................................................... 39,800 35,040 331,421
Minority investment................................................. 888 -- --
--------- --------- ----------
Total purchase price.............................................. $ 42,408 $ 37,238 $ 337,345
--------- --------- ----------
--------- --------- ----------
</TABLE>
Unaudited pro forma data for the years ended December 31, 1996 and 1997 are
set forth below, giving consideration to the acquisitions occurring in the
respective two-year period, as if such transactions occurred as of the beginning
of 1996, assuming revenue sharing arrangements had been in effect for the
43
<PAGE>
entire period and after making certain other pro forma adjustments. This pro
forma data has been prepared following Accounting Principles Board Opinion No.
16 ("APB 16").
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues..................................................................... $ 120,999 $ 147,159
Income before extraordinary item............................................. 1,366 7,230
Extraordinary item, net...................................................... (584) (6,141)
Net income................................................................... 782 1,089
Income before extraordinary item per share--basic............................ $ 0.08 $ 0.41
Income before extraordinary item per share--diluted.......................... 0.08 0.41
Net income per share--basic.................................................. 0.04 0.06
Net income per share--diluted................................................ 0.04 0.06
</TABLE>
In conjunction with certain acquisitions, the Company has entered into
agreements and is contingently liable, upon achievement of specified revenue
targets over a five-year period, beginning with the date of AMG's investment, to
make additional purchase payments of up to $23 million plus interest as
applicable. These contingent payments, if achieved, will be settled for cash
with most coming due beginning January 1, 2001 and January 1, 2002 and will be
accounted for as an adjustment to the purchase price of the Affiliate. In
addition, subject to achievement of performance goals, certain key Affiliate
employees have options to receive additional equity interests in their
Affiliates.
Related to one of the Company's Affiliates, a former institutional
shareholder is entitled to redeem a cash value warrant on April 30, 1999. Using
the actual results of operations of this Affiliate to date, the cash value
warrant had no value and, therefore, no amounts have been accrued in these
financial statements.
10. EQUITY INVESTMENT
In 1995, the Company purchased a 30% equity interest in Paradigm, which is
accounted for under the equity method of accounting.
Summarized financial information for Paradigm is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Balance Sheet Data:
Current assets....................................................................... $ 756 $ 965
Non current assets................................................................... 492 513
--------- ---------
Total assets..................................................................... $ 1,248 $ 1,478
--------- ---------
--------- ---------
Current liabilities.................................................................. $ 493 $ 416
Non current liabilities.............................................................. -- --
--------- ---------
Total liabilities................................................................ $ 493 $ 416
--------- ---------
--------- ---------
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 22, 1995 FOR THE FOR THE
(DATE OF ACQUISITION) YEAR ENDED YEAR ENDED
TO DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
--------------------- ----------------- -----------------
<S> <C> <C> <C>
Statement of Earnings Data:
Total revenues.............................. $ 894 $ 2,051 $ 3,078
Operating and other expenses................ 840 1,488 2,630
----- ------ ------
Net Income.................................. $ 54 $ 563 $ 448
----- ------ ------
----- ------ ------
</TABLE>
11. PUTS AND CALLS
To ensure the availability of continued ownership participation to future
key employees, the Company has options to repurchase ("Calls") certain equity
interests in Affiliates owned by partners or members. The options were
exercisable beginning in 1997. In addition, Affiliate management owners have
options ("Puts"), exercisable beginning in the year 2000, which require the
Company to purchase certain portions of their equity interests at staged
intervals. The Company is also obligated to purchase ("Purchase") such equity
interests in Affiliates upon death, disability or termination of employment. All
of the Puts and Purchases would take place based on a multiple of the respective
Affiliate's Owners' Allocation but using reduced multiples for terminations for
cause or for voluntary terminations occurring prior to agreed upon dates, all as
defined in the general partnership, limited partnership or limited liability
company agreements of the Affiliates. Resulting payments made to former owners
of acquired Affiliates are accounted for as adjustments to the purchase price
for such Affiliates. Payments made to equity holders who have been awarded
equity interests in connection with their employment are accrued, net of
estimated forfeitures, over the service period as equity-based compensation.
The Company's contingent obligations under the Put and Purchase arrangements
at December 31, 1997 ranged from $5.3 million on the one hand, assuming all such
obligations occur due to early terminations or terminations for cause, and
$145.3 million on the other hand, assuming all such obligations occur due to
death, disability or terminations without cause. The Put and Purchase amounts
above were calculated based upon $20.1 million of average annual historical
Owners' Allocation. Assuming the closing of all such Put and Purchase
transactions, AMG would own all the prospective Owners' Allocations.
12. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company had 43,000,000 authorized shares of Common Stock (including
Class B Common Stock) with a par value of $.01 per share of which 987,500 and
17,703,617 shares were issued and outstanding at December 31, 1996 and 1997,
respectively.
INITIAL PUBLIC OFFERING
On November 21, 1997, the Company completed an initial public offering
("IPO"), issuing 8,625,000 shares of Common Stock. In November 1997, the Company
also issued 78,667 shares of Common Stock to limited partners of an Affiliate in
return for equity interests in that Affiliate.
The Company's Board of Directors authorized a 50-for-1 stock split effected
in the form of a stock dividend on the Company's authorized and outstanding
Common Stock. The stock dividend was effective immediately prior to the
Company's IPO. Where applicable, these Consolidated Financial Statements and
Notes thereto reflect the Common Stock split on a retroactive basis.
PREFERRED STOCK
At December 31, 1997, the Company had 5,000,000 authorized shares of
preferred stock ("Preferred Stock"), par value $.01, with no shares issued.
45
<PAGE>
At December 31, 1996, the Company had two classes of convertible preferred
stock ("Convertible Preferred Stock"), par value $.01. There were 80,000
authorized and issued shares of Class A Convertible Preferred Stock. The Company
also had two series of Class B Preferred Stock. There were 34,328 authorized and
14,131 issued shares of Series B-1 Voting Convertible Preferred Stock and 19,403
shares authorized and issued of Series B-2 Non-Voting Convertible Preferred
Stock. During 1997, the Company issued 1,715 shares of Series B-1 Convertible
Preferred Stock as partial consideration in the Burridge investment and 10,667
shares of Class D Convertible Preferred Stock in the GeoCapital investment. Also
during 1997, Chase Equity Associates purchased 5,333 shares of Class C
Convertible Preferred Stock and warrants to purchase 28,000 shares of Class C
Convertible Preferred Stock, which were subsequently exercised. On November 21,
1997, the date of the Company's initial public offering, all issued shares of
Convertible Preferred Stock, a total of 159,249 shares, were converted 1-for-50
into the Company's Common Stock, for a total of 7,962,450 common shares. At
December 31, 1997 there were no shares of Convertible Preferred Stock authorized
or issued.
STOCK INCENTIVE PLANS
The Company has established three incentive stock plans ("Stock Plans"),
primarily to incent key employees, under which it is authorized to grant
incentive and non-qualified stock options and to grant or sell shares of stock
which are subject to certain restrictions ("Restricted Stock"). At December 31,
1997, a total of 2,300,000 shares of Common Stock have been reserved for
issuance under these plans, with a total of 337,500 shares of Restricted Stock
sold and 682,500 stock options granted. The plans are administered by a
committee of the Board of Directors. Restricted Stock sales were made at their
then fair market value, as approved by the Board of Directors of the Company,
and generally vest over three years and are subject to significant forfeiture
provisions and other restrictions. The exercise price of the stock options is
determined by the Company's Board of Directors on the date of grant.
The 1994 Incentive Stock Plan (the "1994 Plan") provides for the issuance of
125,000 shares of Common Stock. As of December 31, 1997, the Company had sold an
aggregate of 125,000 shares of Restricted Stock under the 1994 Plan. These
shares vest over periods ranging up to four years. At December 31, 1997, 112,500
of these shares were vested.
The 1995 Incentive Stock Plan (the "1995 Plan") provides for the issuance of
425,000 shares of Common Stock. As of December 31, 1997, the Company had sold an
aggregate 212,500 shares of Restricted Stock under the 1995 Plan. In 1997, the
Company granted options to purchase 92,500 shares to officers of the Company
with an exercise price of $9.10 per share. These options vest over a three year
period ending December 31, 1999. As of December 31, 1997, none of the options
granted under the 1995 Plan had been exercised. The Company does not intend to
make any further grants under the 1995 Plan.
The 1997 Stock Option and Incentive Plan (the "1997 Plan") provides for the
issuance of 1,750,000 shares of Common Stock. In connection with the Company's
initial public offering on November 21, 1997, the Company granted options to
purchase 590,000 shares of Common Stock to officers and employees of the Company
with an exercise price of $23.50 per share. These options are exercisable over
seven years, with 15% exercisable on each of the first six anniversaries of the
date of grant and 10% exercisable on the seventh anniversary of the date of
grant. The vesting period of these options will be accelerated upon a change in
control of the Company or upon the achievement of certain financial goals. On
December 11, 1997, the Company granted an option to purchase 10,000 shares of
Common Stock, with an exercise price of $24.94 per share, to a newly elected
director of the Company. This option becomes exercisable in equal installments
of 625 shares on the first day of each calendar quarter commencing April 1,
1998. The vesting period of this option will be accelerated upon a change in
control of the Company. As of December 31, 1997, none of the options granted
under the 1997 Plan had been exercised.
46
<PAGE>
The following is a summary of outstanding and exercisable options under the
Stock Plans at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
PRICE PRICE OPTIONS EXPIRATION
SHARES ($/SHARE) ($/SHARE) EXERCISABLE DATE
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Options outstanding at December 31, 1996................ -- -- --
Options granted......................................... 92,500 $ 9.10 30,833 5/31/07
Options granted......................................... 590,000 $ 23.50 -- 11/26/07
Options granted......................................... 10,000 $ 24.94 -- 12/10/07
Options exercised....................................... -- --
Options canceled........................................ -- --
--------- ----------- -----------
Options outstanding at December 31, 1997................ 692,500 $ 21.60 30,833
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE FOR EQUITY-BASED COMPENSATION
The Company continues to apply APB 25 and related interpretations in
accounting for its sales of Restricted Stock, grants of stock options and
equity-based interests in Affiliates. FAS 123 defines a fair value method of
accounting for the above arrangements whose impact requires disclosure. Under
the fair value method, compensation cost is measured at the grant date based on
the fair value of the award and is recognized over the expected service period.
The required disclosures under FAS 123 as if the Company had applied the new
method of accounting are made below.
Had compensation cost for the Company's equity-based compensation
arrangements been determined based on the fair value at grant date for awards
subsequent to January 1, 1995, consistent with the requirements of FAS 123, the
Company's net (loss) and net (loss) per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Net (loss)--as reported................................................. $ (2,936) $ (2,372) $ (8,368)
Net (loss)--FAS 123 pro forma........................................... (3,091) (2,141) (8,837)
Net (loss) per share--basic--as reported................................ (2.95) (5.49) (3.69)
Net (loss) per share--basic--FAS 123 pro forma.......................... (3.10) (4.96) (3.89)
Net (loss) per share--diluted--as reported.............................. (2.95) (5.49) (1.02)
Net (loss) per share--diluted--FAS 123 pro forma........................ (3.10) (4.96) (1.07)
</TABLE>
Solely for purposes of providing the pro forma disclosures required by FAS
123, the fair value of each option grant was estimated on the date of grant
using the minimum value method prior to the initial public offering and the
Black-Scholes option-pricing model after the offering, with the following
weighted average assumptions used for grants of options.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1997
--------- ---------
<S> <C> <C>
Dividend yield...................................................................... 0% 0%
Volatility.......................................................................... 0% 26%
Risk-free interest rates............................................................ 6.5% 5.96%
Expected option lives in years...................................................... 11.3 6.7
Assumed forfeiture rate............................................................. 0% 29.3%
</TABLE>
The estimated fair value of grants of stock options and equity-based
interests in Affiliates was $2.9 million and $4.6 million for 1995 and 1997,
respectively. There were no grants in 1996.
47
<PAGE>
13. EARNINGS (LOSS) PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("FAS 128"). This standard
became effective for financial statements issued for periods ending after
December 15, 1997. The Company has adopted FAS 128 for its fiscal year ended
December 31, 1997 and has restated prior-period EPS data to conform to the new
standard.
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 except where the inclusion of
common equivalent shares has an anti-dilutive effect. Following is a
reconciliation of the numerators and denominators of the basic and diluted EPS
computations for "income (loss) before extraordinary item" for the three years
ended December 31, 1997.
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- ------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item................... $ (2,936,000) $ (1,389,000) $ 1,643,000
Denominator:
Average shares outstanding--basic......................... 996,144 431,908 2,270,684
Convertible preferred stock............................... -- -- 5,496,330
Stock options and unvested restricted stock............... -- -- 468,515
------------- ------------- ------------
Average shares outstanding--diluted......................... 996,144 431,908 8,235,529
------------- ------------- ------------
------------- ------------- ------------
Income (loss) before extraordinary item per share:
Basic..................................................... $ (2.95) $ (3.22) $ 0.72
Diluted................................................... $ (2.95) $ (3.22) $ 0.20
</TABLE>
Because the computation of diluted EPS shall not assume exercise of
securities that would have an anti-dilutive effect on earnings per share, as is
the case in a loss year before extraordinary items, the effect of 3,512,576 and
5,585,382 outstanding shares of convertible preferred stock and 443,034 and
510,421 of unvested shares of restricted common stock were excluded from the
diluted calculation in 1995 and 1996, respectively.
14. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("FAS 107"), requires the Company to
disclose the estimated fair values for certain of its financial instruments.
Financial instruments include items such as loans, interest rate contracts,
notes payable, and other items as defined in FAS 107.
Fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
Quoted market prices are used when available, otherwise, management
estimates fair value based on prices of financial instruments with similar
characteristics or using valuation techniques such as discounted cash flow
models. Valuation techniques involve uncertainties and require assumptions and
judgments regarding prepayments, credit risk and discount rates. Changes in
these assumptions will result in different valuation estimates. The fair value
presented would not necessarily be realized in an immediate sale; nor are there
plans to settle liabilities prior to contractual maturity. Additionally, FAS 107
allows companies to use a wide range of valuation techniques, therefore, it may
be difficult to compare the Company's fair value information to other companies'
fair value information.
48
<PAGE>
The following tables present a comparison of the carrying value and
estimated fair value of the Company's financial instruments at December 31, 1996
and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
--------- -----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents....................................................... $ 6,767 $ 6,767
Financial liabilities:
Notes payable to related parties................................................ (7,379) (7,374)
Senior bank debt................................................................ (33,400) (33,400)
Off-balance sheet financial instruments:
Interest-rate hedging agreements................................................ -- (763)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents..................................................... $ 23,046 $ 23,046
Financial liabilities:
Senior bank debt.............................................................. (159,500) (159,500)
Off-balance sheet financial instruments:
Interest-rate hedging agreements.............................................. -- (2,528)
</TABLE>
The carrying amount of cash and cash equivalents approximates fair value
because of the short-term nature of these instruments. The fair value of notes
payable to related parties was calculated with a discounted cash flow model
using existing payment terms and the prime rate. The carrying value of senior
bank debt approximates fair value because the debt is a revolving credit
facility with variable interest based on three-month LIBOR. The fair value of
interest rate hedging agreements are quoted market prices based on the estimated
amount necessary to terminate the agreements.
49
<PAGE>
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
of the Company for 1996 and 1997. The amounts are in thousands except for the
per share amounts.
<TABLE>
<CAPTION>
1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 6,756 $ 12,739 $ 12,675 $ 18,214
Operating income............................................. 1,686 2,227 2,087 1,171
Income (loss) before income taxes and extraordinary item..... 1,024 (320) 291 (2,203)
Income (loss) before extraordinary item...................... $ 1,196 $ (469) $ (25) $ (2,091)
Income (loss) before extraordinary item per share-- basic.... $ 3.50 $ (1.07) $ (0.05) $ (4.33)
Income (loss) before extraordinary item per share--
diluted.................................................... $ 0.19 $ (1.07) $ (0.05) $ (4.33)
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 16,568 $ 16,302 $ 20,410 $ 42,007
Operating income............................................ 3,561 2,141 3,270 13,589
Income (loss) before income taxes and extraordinary item.... 1,220 (419) 253 1,953
Income before extraordinary item............................ $ 674 $ 32 $ 127 $ 810
Income before extraordinary item per share--basic........... $ 1.31 $ 0.06 $ 0.21 $ 0.11
Income before extraordinary item per share--diluted......... $ 0.10 $ -- $ 0.02 $ 0.07
</TABLE>
During the fourth quarter of 1997, the Company completed its investment in
Tweedy, Browne. The Company also completed an initial public offering of its
shares of Common Stock. The Company used the net proceeds of the initial public
offering to repay outstanding indebtedness and recognized an extraordinary
write-off of $10,011, net of taxes (representing $(1.37) and $(0.81) per share
on a basic and diluted basis, respectively) from the early retirement of such
indebtedness.
16. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
On March 20, 1998, the Company completed its investment in Essex Investment
Management Company, LLC ("Essex"). The Company paid $69.6 million in cash and
the assumption of debt and 1,750,942 shares of its Class C Convertible
Non-Voting Stock, $.01 par value per share (the "Class C Stock"). Each share of
Class C Stock converts into one share of Common Stock upon the earlier of March
20, 1999, or certain extraordinary events.
The total purchase price including cash, stock and capitalized transaction
costs associated with this investment is allocated as follows:
<TABLE>
<S> <C>
Allocation of Purchase Price:
Net tangible assets............................................. $ 7,408
Intangible assets............................................... 93,386
---------
Total purchase price........................................ $ 100,794
---------
---------
</TABLE>
The amortization periods used for intangible assets related to this
investment are 28 years for acquired client relationships and 30 years for
goodwill. Unaudited pro forma data for the years ended December 31, 1996 and
1997 are set forth below, giving consideration to the Essex investment and
50
<PAGE>
investments occurring in the two years ended December 31, 1997, as if such
transactions had occurred as of the beginning of 1996, assuming revenue sharing
arrangements had been in effect for the entire period and after making certain
other pro forma adjustments. This pro forma data has been prepared following APB
16.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C>
1996 1997
---------- ----------
Revenues........................................................................ $ 153,771 $ 186,258
Income before extraordinary item................................................ 3,155 10,181
Extraordinary item, net......................................................... (584) (6,141)
Net income...................................................................... 2,571 4,040
Income before extraordinary item per share--basic............................... $ 0.16 $ 0.53
Income before extraordinary item per share--diluted............................. 0.16 0.52
Net income per share--basic..................................................... 0.13 0.21
Net income per share--diluted................................................... 0.13 0.21
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information in Part III (Items 10, 11, 12 and 13) is incorporated by
reference to the Company's definitive Proxy Statement, which will be filed not
later than 120 days after the end of the Company's fiscal year.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a)(1) Financial Statements: See Item 8
(2) Financial Statement Schedule: See Page 56
(3) Exhibits
2.1 Purchase Agreement dated August 15, 1997 by and among the Registrant, Tweedy, Browne
Company L.P. and the partners of Tweedy, Browne Company L.P. (excluding schedules
and exhibits, which the Registrant agrees to furnish supplementally to the
Commission upon request) (2)
2.2 Agreement and Plan of Reorganization dated August 15, 1997 by and among the
Registrant, AMG Merger Sub, Inc., GeoCapital Corporation, GeoCapital, LLC and the
stockholders of GeoCapital Corporation (excluding schedules and exhibits, which
the Registrant agrees to furnish supplementally to the Commission upon request)
(2)
2.3 Stock Purchase Agreement dated as of January 17, 1996 by and among the Registrant,
First Quadrant Holdings, Inc., Talegen Holdings, Inc., certain employees of First
Quadrant Corp. and the other parties identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish supplementally to the Commission
upon request) (2)
2.4 Amendment to Stock Purchase Agreement by and among the Registrant, First Quadrant
Holdings, Inc., Talegen Holdings, Inc., certain managers of First Quadrant Corp.
and the Management Corporations identified therein, effective as of March 28, 1996
(2)
2.5 Partnership Interest Purchase Agreement dated as of June 6, 1995 by and among the
Registrant, Mesirow Asset Management, Inc., Mesirow Financial Holdings, Inc.,
Skyline Asset Management, L.P., certain managers of Mesirow Asset Management, Inc.
and the Management Corporations identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish supplementally to the Commission
upon request) (2)
2.6 Amendment, made by and among Mesirow Financial Holdings, Inc. and the Registrant, to
Partnership Interest Purchase Agreement by and among the Registrant, Mesirow Asset
Management, Inc., Mesirow Financial Holdings, Inc., Skyline Asset Management,
L.P., certain managers of Mesirow Asset Management, Inc. and the Management
Corporations identified therein, effective as of August 30, 1995 (2)
2.7 Agreement and Plan of Reorganization dated January 15, 1998 by and among the
Registrant, Constitution Merger Sub, Inc., Essex Investment Management Company,
Inc. and certain of the stockholders of Essex Investment Management Company, Inc.
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)(1)
2.8 Amendment to Agreement and Plan of Reorganization dated March 19, 1998 by and among
the Registrant, Constitution Merger Sub, Inc., Essex Investment Management
Company, Inc. and certain of the stockholders of Essex Investment Management
Company, Inc. (excluding schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request)(1)
3.1 Amended and Restated Certificate of Incorporation (2)
3.2 Amended and Restated By-laws (2)
4.1 Specimen certificate for shares of Common Stock of the registrant (2)
</TABLE>
52
<PAGE>
<TABLE>
<C> <S>
4.2 Credit Agreement dated as of December 22, 1997 by and among Chase Manhattan Bank,
NationsBank, N.A. and the other lenders identified therein and the Registrant
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (1)
4.3 Stock Purchase Agreement dated November 7, 1995 by and among the Registrant, TA
Associates, NationsBank, The Hartford, and the additional parties listed on the
signature pages thereto (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request) (2)
4.4 Preferred Stock and Warrant Purchase Agreement dated August 15, 1997 between the
Registrant and Chase Equity Associates (excluding schedules and exhibits, which
the Registrant agrees to furnish supplementally to the Commission upon request)
(2)
4.5 Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement dated as of
October 9, 1997 between the Registrant and Chase Equity Associates (2)
4.6 Securities Purchase Agreement dated August 15, 1997 between the registrant and Chase
Equity Associates (excluding schedules and exhibits, which the Registrant agrees
to furnish supplementally to the Commission upon request) (2)
4.7 Securities Purchase Agreement Amendment No. 1 dated as of October 9, 1997 between
the Registrant and Chase Equity Associates (2)
10.1 Amended and Restated Stockholders' Agreement dated October 9, 1997 by and among the
Registrant and TA Associates, NationsBank, The Hartford, Chase Capital and the
additional parties listed on the signature pages thereto (2)
10.2 Tweedy, Browne Company LLC Limited Liability Company Agreement dated October 9, 1997
by and among the Registrant and the other members identified therein (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request) (2)
10.3 GeoCapital, LLC Amended and Restated Limited Liability Company Agreement dated
September 30, 1997 by and among the Registrant and the members identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
10.4 First Quadrant, L.P. Amended and Restated Limited Partnership Agreement dated March
28, 1996 by and among the Registrant and the partners identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
10.5 Amendment to First Quadrant, L.P. Amended and Restated Limited Partnership Agreement
by and among the Registrant and the partners identified therein, effective as of
October 1, 1996 (2)
10.6 Second Amendment to First Quadrant, L.P. Amended and Restated Limited Partnership
Agreement by and among the Registrant and the partners identified therein,
effective as of December 31, 1996 (2)
10.7 First Quadrant U.K., L.P. Limited Partnership Agreement dated March 28, 1996 by and
among the Registrant and the partners identified therein (excluding schedules and
exhibits, which the Registrant agrees to furnish supplementally to the Commission
upon request) (2)
</TABLE>
53
<PAGE>
<TABLE>
<C> <S>
10.8 Skyline Asset Management, L.P. Amended and Restated Limited Partnership Agreement
dated August 31, 1995 by and among the Registrant and the partners identified
therein (excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request) (2)
10.9 Amendment to Skyline Asset Management, L.P. Amended and Restated Limited Partnership
Agreement by and among the Registrant and the partners identified therein,
effective as of August 1, 1996 (2)
10.10 Second Amendment to Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of December 31, 1996 (2)
10.11 Affiliated Managers Group, Inc. 1997 Stock Option and Incentive Plan (2)
10.13 Affiliated Managers Group, Inc. 1995 Incentive Stock Plan (2)
10.14 Form of Tweedy, Browne Employment Agreement (2)
10.15 Essex Investment Management Company, LLC Amended and Restated Limited Liability
Company Agreement dated March 20, 1998 by and among the Registrant and the members
identified therein (excluding schedules and exhibits, which the Registrant agrees
to furnish supplementally to the Commission upon request) (1)
10.16 Form of Essex Employment Agreement (1)
21.1 Schedule of Subsidiaries (1)
27.1 Financial Data Schedule (1)
</TABLE>
- ------------------------
(1) Filed herewith
(2) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-34679), filed August 29, 1997, as amended
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Affiliated Managers
Group, Inc. is included in Item 8 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index in Item 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
Boston, Massachussetts
February 10, 1998
55
<PAGE>
Schedule II
Valuation and Qualifying Accounts
INCOME TAX VALUATION ALLOWANCE
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO DEDUCTIONS BALANCE
YEAR ENDING BEGINNING COSTS AND AND END OF
DECEMBER 31, OF PERIOD EXPENSES WRITE-OFFS PERIOD
- ------------------------------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1995................ $ -- $ -- $ -- $ --
1996................ -- 477 -- 477
1997................ 477 1,512 -- 1,989
</TABLE>
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AFFILIATED MANAGERS GROUP, INC.
(Registrant)
Date: March 31, 1998
By: /s/ WILLIAM J. NUTT
-----------------------------------------
William J. Nutt
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- -------------------------------------------------- -------------------
<C> <S> <C>
/s/ WILLIAM J. NUTT President, Chief Executive Officer and Chairman of
- ---------------------------------------- the Board of Directors (Principal Executive March 31, 1998
(William J. Nutt) Officer)
/s/ BRIAN J. GIRVAN Senior Vice President, Chief Financial Officer and
- ---------------------------------------- Treasurer (Principal Financial and Principal March 31, 1998
(Brian J. Girvan) Accounting Officer)
/s/ RICHARD E. FLOOR
- ---------------------------------------- Director March 31, 1998
(Richard E. Floor)
/s/ ROGER B. KAFKER
- ---------------------------------------- Director March 31, 1998
(Roger B. Kafker)
/s/ P. ANDREWS MCLANE
- ---------------------------------------- Director March 31, 1998
(P. Andrews Mclane)
/s/ JOHN M.B. O'CONNOR
- ---------------------------------------- Director March 31, 1998
(John M.B. O'Connor)
/s/ W.W. WALKER, JR.
- ---------------------------------------- Director March 31, 1998
(W.W. Walker, Jr.)
/s/ WILLIAM F. WELD
- ---------------------------------------- Director March 31, 1998
(William F. Weld)
</TABLE>
57
<PAGE>
EXHIBIT 2.7
AGREEMENT AND PLAN OF REORGANIZATION
by and among
AFFILIATED MANAGERS GROUP, INC.
as "AMG"
CONSTITUTION MERGER SUB, INC.
as "Merger Sub"
ESSEX INVESTMENT MANAGEMENT COMPANY, INC.
as the "Company"
and
The Majority Stockholders of the Company Named Herein
Dated as of January 15, 1998
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Page
----
SECTION 1. THE MERGER..................................................2
1.1 The Merger..................................................2
1.2 Effective Time..............................................2
1.3 Effects of the Merger.......................................2
1.4 Articles of Organization....................................2
1.5 By-Laws.....................................................3
1.6 Directors and Officers......................................3
1.7 Conversion of Securities of the Company.....................3
1.8 Additional Consideration....................................4
1.9 Time and Place of Closing...................................4
1.10 Further Assurances..........................................4
1.11 Transfer Taxes..............................................5
1.12 Supplemental Purchase Agreement.............................5
1.13 Redemption Agreement........................................5
SECTION 2. CONTRIBUTION OF ASSETS AND RESTATEMENT OF LLC
AGREEMENT...................................................5
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND MAJORITY STOCKHOLDERS...................................6
3.1 Making of Representations and Warranties....................6
3.2 Organization and Qualification of the Company and the LLC...6
3.3 Capital Stock of the Company; Beneficial Ownership..........7
3.4 Subsidiaries................................................7
3.5 Authority of the Company....................................8
3.6 Real and Personal Property.................................10
3.7 Assets Under Management....................................11
3.8 Financial Statements.......................................11
3.9 Taxes......................................................12
3.10 Collectibility of Accounts Receivable......................14
3.11 Absence of Certain Changes.................................14
3.12 Ordinary Course............................................16
3.13 Banking Relations..........................................16
3.14 Intellectual Property......................................16
3.15 Contracts..................................................18
3.16 Litigation.................................................19
3.17 Compliance with Laws.......................................20
3.18 Business; Registrations....................................20
3.19 Insurance..................................................22
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
3.20 Powers of Attorney.........................................22
3.21 Finder's Fee...............................................22
3.22 Corporate Records; Copies of Documents.....................22
3.23 Transactions with Interested Persons.......................22
3.24 Employee Benefit Programs..................................23
3.25 Directors, Officers and Employees..........................25
3.26 Non-Foreign Status.........................................26
3.27 Transfer of Shares.........................................26
3.28 Stock Repurchase...........................................26
3.29 Code of Ethics.............................................26
3.30 Certain Representations and Warranties as to Collective
Investment Vehicles........................................26
SECTION 4. SEVERAL REPRESENTATIONS AND WARRANTIES OF
MAJORITY STOCKHOLDERS......................................29
4.1 Company Shares.............................................29
4.2 Authority..................................................29
4.3 Ownership of LLC Interests.................................30
4.4 Finder's Fee...............................................30
4.5 Investment Advisory Representation.........................30
4.6 Agreements.................................................30
4.7 Employment Data............................................31
4.8 Good Health................................................31
SECTION 5. COVENANTS OF THE COMPANY AND THE MAJORITY
STOCKHOLDERS...............................................31
5.1 Making of Covenants and Agreements.........................31
5.2 Client Consents............................................31
5.3 Authorizations.............................................32
5.4 Authorization from Others..................................32
5.5 Status.....................................................32
5.6 Conduct of Business........................................33
5.7 Financial Statements.......................................34
5.8 Preservation of Business and Assets........................35
5.9 Observer Rights and Access.................................35
5.10 Notice of Default..........................................35
5.11 Consummation of Agreement..................................35
5.12 Cooperation of the Company and Stockholders................36
5.13 No Solicitation of Other Offers............................36
5.14 Confidentiality............................................36
5.15 Tax Returns................................................37
5.16 Policies and Procedures....................................37
5.17 No Violation of LLC Agreement..............................37
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
5.18 Subsidiaries; Investments in Other Persons.................37
5.19 LLC Interests..............................................37
5.20 Employee Programs..........................................38
5.21 Foreign Qualifications.....................................38
5.22 Liens......................................................38
SECTION 5A. COVENANTS OF THE COMPANY, THE MAJORITY
STOCKHOLDERS AND AMG WITH RESPECT TO CERTAIN TAX
MATTERS....................................................38
5A.1 Section 338(h)(10) Election................................38
5A.2. Tax Periods Ending on or Before the Closing Date...........39
5A.3. Cooperation on Tax Matters.................................40
5A.4 Tax Status.................................................40
SECTION 6. REPRESENTATIONS AND WARRANTIES OF AMG......................40
6.1 Making of Representations and Warranties...................40
6.2 Organization of AMG........................................41
6.3 Authority of AMG...........................................41
6.4 Capitalization.............................................41
6.5 Litigation.................................................42
6.6 Acquisition of Shares for Investment.......................42
6.7 Finder's Fee...............................................43
6.8 Merger Sub.................................................43
6.9 Financial Statements.......................................43
6.10 Absence of Changes.........................................43
SECTION 7. COVENANTS OF AMG...........................................44
7.1 Making of Covenants and Agreement..........................44
7.2 Confidentiality............................................44
7.3 Cooperation of AMG.........................................44
7.4 HSR Act....................................................44
7.5 Notice of Default..........................................44
7.6 Consummation of Agreement..................................45
7.7 Contribution to LLC........................................45
7.8 Transactions in AMG Shares.................................45
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF AMG.......................45
8.1 Litigation; No Opposition..................................45
8.2 Representations, Warranties and Covenants..................46
8.3 Client Consents............................................47
8.4 Transfer...................................................48
8.5 Registration as an Investment Adviser......................48
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
8.6 Other Approvals............................................48
8.7 HSR Act....................................................48
8.8 Restated LLC Agreement.....................................48
8.9 Employment Agreements......................................48
8.10 Non Solicitation/Non Disclosure Agreements.................49
8.11 Capitalization, Net Worth and Working Capital of the
Company and the LLC........................................49
8.12 Delivery...................................................49
8.13 Material Adverse Effect....................................51
SECTION 9. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
MAJORITY STOCKHOLDERS......................................51
9.1 No Litigation; No Opposition...............................51
9.2 Representations, Warranties and Covenants..................52
9.3 Client Consent.............................................52
9.5 Registration as an Investment Adviser......................53
9.6 HSR Act....................................................53
SECTION 10. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED....................54
10.1 Termination................................................54
10.2 Effect of Termination......................................54
10.3 Right to Proceed...........................................54
SECTION 11. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING...................55
11.1 Survival of Representations, Warranties and Covenants......55
11.2 Regulatory Filings.........................................55
SECTION 12. INDEMNIFICATION................................................56
12.1 Indemnification by the Majority Stockholders...............56
12.2 Limitations on Indemnification by the Majority Stockholders56
12.3 Indemnification by AMG.....................................57
12.4 Limitation on Indemnification by AMG.......................58
12.5 Notice; Defense of Claims..................................58
12.6 Satisfaction of Indemnification Obligations................59
12.7 Procedure..................................................60
12.8 Exclusive Remedy...........................................60
SECTION 13. DEFINITIONS....................................................60
13.1 Definitions................................................60
SECTION 14. MISCELLANEOUS..................................................65
14.1 Fees and Expenses..........................................65
14.2 Dispute Resolution.........................................66
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Page
----
14.3 Waivers....................................................66
14.4 Governing Law..............................................67
14.5 Notices....................................................67
14.6 Entire Agreement; Severability.............................68
14.7 Assignability; Binding Effect..............................68
14.8 Captions and Gender........................................69
14.9 Execution in Counterparts..................................69
14.10 Amendments.................................................69
14.11 Publicity and Disclosures..................................69
14.12 Consent to Jurisdiction....................................69
14.13 Guarantee..................................................69
</TABLE>
(v)
<PAGE>
EXHIBITS
Exhibit 1.2 - Form of Articles of Merger
Exhibit 1.7A - Certificate of Designations
Exhibit 1.7B - Escrow Agreement
Exhibit 1.12 - Form of Supplemental Purchase Agreement (including
exhibits)
Exhibit 1.13 - Form of Redemption Agreement (including exhibits)
Exhibit 2.1A - Form of Initial LLC Contribution Agreement
Exhibit 2.1B - Form of Final LLC Contribution Agreement
Exhibit 2.2 - Form of Restated LLC Agreement
Exhibits 5.2A, 5.2B,
5.2C and 5.2D - Forms of Client Consent Letters
Exhibit 6.9 - Financials of AMG
Exhibit 8.9 - Form of Employment Agreement
Exhibit 8.10 - Form of Non Solicitation Agreement
Exhibit 8.12(i) - Form of Opinion of Counsel to the Company, the LLC
and the Stockholders
Exhibit 8.12(j) - Form of Release of Company and LLC from certain
liabilities
Exhibit 8.12(k) - Form of Representation Certificate
Exhibit 8.12(l) - Form of Consent Certificate
Exhibit 8.12(m) - Form of Capitalization, Net Worth and Working
Capital Certificate
Exhibit 8.12(o) - Form of Supplemental Indemnification Agreement
Exhibit 8.12(p) - Form of Bermuda counsel opinion
Exhibit 8.13 - Form of Material Adverse Effect Certificate
Exhibit 9.4(f) - Form of Opinion of Counsel to AMG
SCHEDULES
Schedule 1.7 - Stockholders and Shares; Consideration
Schedule 1.13 - Redeeming Stockholders
Schedule 3.2(b) - Foreign Qualification (LLC)
Schedule 3.3 - Capital Stock; Voting Agreements
Schedule 3.4(a) - Subsidiaries
Schedule 3.4(b)(i) - LLC Capitalization pre-Closing
Schedule 3.4(b)(ii) - LLC Capitalization post-Closing and LLC Contribution
Schedule 3.5 - Approvals; Waivers
Schedule 3.6(a) - Real Property
Schedule 3.6(b) - Assets
Schedule 3.7 - Advisory Contracts; Assets Under Management
Schedule 3.8 - Financial Statements
Schedule 3.9 - Taxes
Schedule 3.10 - Accounts Receivable
Schedule 3.11 - Adverse Changes
(vi)
<PAGE>
Schedule 3.13 - Banking Relations
Schedule 3.14 - Intellectual Property
Schedule 3.15 - Contracts; Commitments
Schedule 3.18(a) - Clients
Schedule 3.18(b) - Investment Adviser Qualification
Schedule 3.19 - Insurance
Schedule 3.24 - Employee Program
Schedule 3.25(a) - Directors and Officers; Certain Employees
Schedule 3.25(b) - Employment Arrangements
Schedule 3.27 - Share Transfers
Schedule 3.28 - Repurchases
Schedule 4.5 - Charitable Organizations
Schedule 4.7 - Employment Data
Schedule 4.8 - Good Health
Schedule 6.3 - Consents
Schedule 6.4 - AMG's Capitalization
Schedule 6.10 - Adverse Changes
Schedule 12.2(a) - Stockholder Indemnification Amounts
(vii)
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT entered into as of January 15, 1998, by and among Affiliated
Managers Group, Inc., a Delaware corporation ("AMG"), Constitution Merger Sub,
Inc., a Massachusetts corporation and a wholly owned subsidiary of AMG ("Merger
Sub"), Essex Investment Management Company, Inc., a Massachusetts corporation
(the "Company"), and the holders of the Company's capital stock party hereto
collectively referred to as the "Majority Stockholders" and, each individually
as a "Majority 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 (as this and other capitalized terms are defined
in Section 13.1) own of record and beneficially all of the issued and
outstanding capital stock of the Company, consisting of thirty-one thousand five
hundred fifty (31,550) shares of the Company's Common Stock, par value $1 per
share (the "Common Stock") and fourteen thousand nine hundred fifty (14,950)
shares of the Company's Class A Non-Voting Common Stock, par value $1 per share
(the "Class A Stock") (said shares of Common Stock and Class A Stock being
referred to herein collectively as the "Company Shares");
WHEREAS, the Company and the Majority Stockholders and certain other
Persons have formed Essex Investment Management Company, LLC;
WHEREAS, the parties hereto desire, and the Boards of Directors of AMG and
the Company have each determined that it is in the best interests of their
respective stockholders, and the Majority Stockholders of the Company have
determined, to enter into this agreement and the Supplemental Purchase Agreement
providing for the acquisition by AMG, of the Company, by means of a merger of
Merger Sub with and into the Company, and further desire that, in connection
therewith, the LLC's Existing Limited Liability Company Agreement be amended and
restated into the Restated LLC Agreement;
WHEREAS, the parties hereto desire and intend that, immediately following
the Closing (as such term is defined in Section 1.8), the Company will
contribute all or substantially all of its assets to Essex Investment Management
Company, LLC, a Delaware limited liability company (the "LLC"); and
WHEREAS, to induce the parties hereto to enter into this Agreement, and to
receive the benefits that will accrue to them if Merger Sub merges with and into
the Company as contemplated hereby, the Company and the parties hereto have
agreed to make certain representations, warranties and covenants as set forth
herein.
<PAGE>
NOW, THEREFORE, in order to consummate said merger 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. THE MERGER
1.1 The Merger. Subject to the terms, provisions and conditions contained
in this Agreement, and on the basis of the representations, warranties and
covenants herein set forth, at the Effective Time (as such term is defined in
Section 1.2), in accordance with this Agreement and the provisions of the
Business Corporation Law of the Commonwealth of Massachusetts, Merger Sub hereby
agrees to and AMG hereby agrees to cause the Merger Sub to merge with and into
the Company (the "Merger"). The Company shall be the surviving corporation
(sometimes referred to herein as the "Surviving Corporation") of the Merger and
shall continue its corporate existence under the laws of the Commonwealth of
Massachusetts as a subsidiary of AMG. Upon consummation of the Merger, the
separate corporate existence of Merger Sub shall terminate.
1.2 Effective Time. The Merger shall become effective at the time the
Secretary of State of the Commonwealth of Massachusetts endorses his approval on
the articles of merger in the form attached hereto as Exhibit 1.2 (the "Articles
of Merger"), which shall be filed (accompanied by the applicable fee) with the
Secretary of State of the Commonwealth of Massachusetts on the date of the
Closing. The "Effective Time" shall be the date and time when the Merger becomes
effective. The parties hereto agree to execute, act on, make and amend (as AMG
or the Company deems necessary or appropriate) all filings or other recordings
required in connection with the Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects provided herein and set forth in the applicable
provisions of the Business Corporation Law of the Commonwealth of Massachusetts.
Without limiting the generality of the foregoing and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Merger Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation (it being
understood that (i) the Majority Stockholders shall be liable for certain
liabilities set forth in Section 12 of this Agreement and (ii) all liabilities
of the Company will be transferred to the LLC pursuant to the LLC Contribution).
1.4 Articles of Organization. The Articles of Organization of the
Surviving Corporation shall be the Articles of Organization of Merger Sub
immediately prior to the Effective Time, until thereafter amended in accordance
with applicable law and such Articles of Organization.
2
<PAGE>
1.5 By-Laws. Unless otherwise determined by AMG prior to the Effective
Time, the By-laws of the Surviving Corporation shall be the By-laws of Merger
Sub immediately prior to the Effective Time, until thereafter amended in
accordance with applicable law, the Articles of Organization of the Surviving
Corporation and such By-laws.
1.6 Directors and Officers. Unless otherwise determined by AMG prior to
the Effective Time, the initial directors and officers of the Surviving
Corporation shall be the directors and officers of Merger Sub immediately prior
to the Effective Time, each to hold office in accordance with the Articles of
Organization and By-laws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
1.7 Conversion of Securities of the Company.
(a) At the Effective Time, all of the shares of Company Common Stock
and all of the shares of Company Class A Stock issued and outstanding
immediately prior to the Effective Time and all rights attached thereto, shall,
by virtue of this Agreement and without any action on the part of the holder
thereof, be converted into the right to receive, subject to adjustment as
provided in this Section 1.7: (i) cash in the aggregate amount of sixty-nine
million six hundred thousand dollars ($69,600,000) and (ii) one million seven
hundred fifty thousand nine hundred forty two (1,750,942) shares of AMG's Series
C Non-Voting Convertible Stock, $.01 par value per share (the "AMG Shares" and,
together with such cash, the "Merger Consideration"), established and designated
under the Certificate of Designations of AMG attached hereto as Exhibit 1.7A
(the "Certificate of Designations"). At the Effective Time, the Merger
Consideration shall be allocated among the Stockholders and to the escrow agent
under the Escrow Agreement and shall be paid to the Stockholders and, in the
case of the cash portion of the Merger Consideration, to the escrow agent on
behalf of the holders of Company Shares named in, and pursuant to the terms and
conditions of, the Escrow Agreement in substance materially consistent with that
attached hereto as Exhibit 1.7B (the "Escrow Agreement") as set forth in
Schedule 1.7. In addition, pursuant to the terms of the Escrow Agreement, AMG
will, from time to time and as additional Merger Consideration, deliver to such
escrow agent the number of additional AMG Shares set forth in Schedule 1.7.
(b) If, as of the Closing, the Company shall have received Consents
from clients whose investment advisory agreements provide for the payment (based
on the Contract Value of each such investment advisory agreement) of fees
constituting less than ninety-five percent (95%) of the Base Fees, then the
Merger Consideration delivered to each Stockholder pursuant to Section 1.7(a)
shall be subject to further adjustment, as set forth in Schedule 1.7.
(c) All of the shares of Common Stock converted into the right to
receive the Merger Consideration pursuant to this Section 1.7 shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each certificate previously representing any such shares of Common Stock shall
thereafter represent only the right to receive the portion of the Merger
Consideration into which the shares of Common Stock represented by such
certificate have been converted pursuant to this Section 1.7. Certificates
previously
3
<PAGE>
representing shares of Common Stock and Class A Stock shall be surrendered at
the Closing and shall be exchanged for Merger Consideration paid in
consideration therefor, without any interest thereon.
1.8 Additional Consideration.
(a) In the event that any Client which (a) has a contract that
neither prohibits assignment by its terms nor terminates by its terms upon
consummation of the transactions contemplated hereby does not Consent at or
prior to the Closing (and AMG in its sole discretion does not elect to treat
such client as having Consented at the Closing), then (a) such Client shall be
treated, for purposes of calculating the Merger Consideration hereunder, as
having withdrawn its assets, but the Company or the LLC may continue to provide
services to such Client and (b) in the event that, as of the date that is sixty
(60) days after the date of the Closing, the Company or the LLC is able to
obtain the Consent of such Client, then the Company shall make an additional
payment to the escrow agent under the Escrow Agreement, in accordance with
Schedule 1.7, unless AMG and the Majority Stockholders agree otherwise.
(b) In the event that any Client which has a contract that prohibits
assignment by its terms or terminates by its terms upon consummation of the
transactions contemplated hereby does not Consent at or prior to the Closing
(and AMG in its sole discretion does not elect to treat such client as having
Consented at Closing), then (a) such Client shall be treated, for purposes of
calculating the Merger Consideration hereunder, as having withdrawn its assets,
but the Company or the LLC may continue to provide services to such Client and
(b) in the event that, as of or prior to the date that is sixty (60) days after
the date of the Closing, the LLC is able to enter into a contract with such
Client with substantially identical terms, then the Company shall make an
additional payment to the escrow agent under the Escrow Agreement, in accordance
with Schedule 1.7, unless AMG and the Majority Stockholders otherwise agree.
1.9 Time and Place of Closing. The closing of the Merger and the related
transactions provided for in this Agreement (herein called the "Closing") shall
be held at the offices of Goodwin, Procter & Hoar LLP at Exchange Place, Boston,
Massachusetts at 10:00 a.m. local time on the date of the Closing, which shall
be five (5) business days after the fulfillment or waiver of each of the
conditions set forth in Sections 8 (other than Section 8.12) and 9 (other than
Section 9.4) hereof (or following the extension period as contemplated by
Section 8.1 and Section 9.1) or at such other place, or an earlier or later date
or time as may be mutually agreed upon by AMG and the Company.
1.10 Further Assurances. The Majority Stockholders shall (in their
respective capacities as individuals and as officers of the Company), 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.
4
<PAGE>
1.11 Transfer Taxes. All transfer taxes, fees and duties under applicable
law incurred in connection with the Merger will be borne and paid fifty percent
(50%) by the Stockholders (pro rata in accordance with the Merger Consideration
received by them hereunder) and fifty percent (50%) by AMG, and the parties
shall promptly reimburse each other in accordance with such allocation for any
such tax, fee or duty which any of them is required to pay under applicable law.
1.12 Supplemental Purchase Agreement. Each Stockholder (including each
Majority Stockholder but excluding those Stockholders listed on Schedule 1.13)
who is not a Majority Stockholder has executed and delivered a Supplemental
Purchase Agreement.
1.13 Redemption Agreement. Each Stockholder listed on Schedule 1.13 has
executed and delivered a Redemption Agreement in the form attached as Exhibit
1.13 hereto (the "Redemption Agreement"), including the exhibits and attachments
thereto.
SECTION 2. CONTRIBUTION OF ASSETS AND RESTATEMENT OF LLC
AGREEMENT.
2.1 LLC Contribution. Prior to the Closing, the Company shall transfer
certain liabilities and obligations to the escrow agent under the Escrow
Agreement in accordance with the terms thereof. Promptly following the close of
business on the day of the Closing (and in any event prior to the end of such
day), the Surviving Corporation and the LLC shall, and the Surviving Corporation
shall cause the LLC to: (i) enter into the LLC Contribution Agreement in the
form attached hereto as Exhibit 2.1A (the "Initial LLC Contribution Agreement"),
as well as each of the other agreements, documents and instruments contemplated
thereby, and (ii) perform each of the transactions contemplated by the LLC
Contribution Agreement as well as each of the other agreements, documents and
instruments contemplated thereby. On the business day first following the day of
the Closing (but in any event prior to the commencement of business on such
first following day), the Surviving Corporation and the LLC shall, and the
Surviving Corporation shall cause the LLC to: (i) enter into the LLC
Contribution Agreement in the form attached hereto as Exhibit 2.1B (the "Final
LLC Contribution Agreement" and together with the Initial LLC Contribution
Agreement, the "LLC Contribution 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 LLC Contribution Agreement as
well as each of the other agreements, documents and instruments contemplated
thereby. (Together, such transactions are referred to herein as the "LLC
Contribution.")
2.2 LLC Agreement. Immediately following the Closing, the Surviving
Corporation and each of the Stockholders as indicated on Schedule 3.4(b)(ii)
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").
5
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
MAJORITY STOCKHOLDERS.
3.1 Making of Representations and Warranties. As a material inducement to
AMG and Merger Sub to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Majority Stockholders jointly
and severally hereby makes to AMG and Merger Sub the representations and
warranties contained in this Section 3; provided, however, that each of the
Stockholders severally and not jointly, makes the representations set forth in
Section 3.3(b) hereof on his own behalf. After the Closing, no Stockholder shall
have any right of indemnity or contribution from Merger Sub or the LLC (or any
other right against Merger Sub or the LLC) with respect to any breach of a
representation or warranty of the Majority Stockholders or the Company
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 Massachusetts, with
full corporate 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 Organization, as amended to date (the "Articles of Organization"),
certified by the Secretary of State of the Commonwealth of Massachusetts, and of
the Company's By-laws, as amended to date, certified by the Company's Clerk, 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
Organization 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.
(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 LLC Contribution, the
business currently conducted by the Company). The copies of the LLC's Existing
LLC Agreement (as such term is defined in Section 13.1), certified by the Clerk
of the Company in its capacity as Manager Member of the LLC, and of the LLC's
Certificate of Formation, as 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
6
<PAGE>
requires such qualification. 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 LLC Contribution, or the ownership or leasing of the properties it
will receive in the LLC Contribution, requires such qualification, and such
jurisdictions are listed on Schedule 3.2(b).
3.3 Capital Stock of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists only of (i)
two hundred fifty thousand (250,000) shares of Common Stock, $1.00 par value per
share, of which thirty-one thousand five hundred fifty (31,550) shares are duly
and validly authorized, issued, outstanding, fully paid and non-assessable and
of which two hundred eighteen thousand four hundred fifty (218,450) shares are
authorized but unissued, and (ii) twenty five thousand (25,000) shares of Class
A Non-Voting Common Stock, $1.00 par value per share, of which fourteen thousand
nine hundred fifty (14,950) shares are duly and validly authorized, issued,
outstanding, fully paid and non-assessable and of which ten thousand fifty
(10,050) shares are authorized but unissued. Except as set forth in Schedule
3.3, 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 or redeemed
in violation of any federal or state law. Except as set forth in Schedule 3.3,
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
dissenter's rights or rights of appraisal in the Merger with respect to the
Company's capital stock.
(b) Each Stockholder who is not a Majority 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 1.7. Such Company Shares are, to the knowledge of the Company and the
Majority Stockholders, free and clear of any Claims, except as reflected on
Schedule 3.3. The shares of capital stock shown on Schedule 1.7 opposite each
such Stockholder's name are, to the knowledge of the Company and the Majority
Stockholders, the only shares of capital stock of the Company held by such
Stockholder or with respect to which such Stockholder has any rights, to the
knowledge of the Company and the Majority Stockholders, except as referenced on
Schedule 3.3.
3.4 Subsidiaries.
(a) Other than the Company's interest in the LLC, and as otherwise
set forth on Schedule 3.4(a), the Company has no, nor has it ever had any,
subsidiaries or investments in any other Person. The LLC has no subsidiaries or
investments in any other Person.
(b) The Company, the Stockholders and the other Persons listed on
Schedule 3.4(b)(i) hereto are all of the members of the LLC, and the
capitalization of the LLC (with
7
<PAGE>
respect to capital accounts and interests in profits) is as set forth in
Schedule 3.4(b)(i), 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 on said Schedule 3.4(b)(i), in each case,
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 shall be as set forth in
Schedule 3.4(b)(ii), 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, 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 the Company will have good title to
its interest in the LLC, as shown in Schedule 3.4(b)(ii). 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) to issue,
transfer, sell or redeem any securities or interests in the LLC.
3.5 Authority of the Company.
(a) The Company has full right, authority and power to enter into
this Agreement, the Restated LLC Agreement and each agreement, document and
instrument to be executed and delivered by the Company pursuant to, or as
contemplated by, this Agreement or the Restated LLC 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 corporate
action of the Company and all necessary action of the Stockholders and no other
action on the part of the Company or the Stockholders is required in connection
therewith.
This Agreement, the Restated LLC Agreement and each agreement, document
and instrument executed and delivered by the Company pursuant to, or as
contemplated by, this Agreement or the Restated LLC Agreement constitutes, or
when executed and delivered will constitute, valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforceability may
be restricted, limited or delayed by applicable bankruptcy or other laws
affecting creditors' rights generally. The execution, delivery and performance
by the Company of this Agreement, the Restated LLC Agreement and each such other
agreement, document and instrument:
(i) does not and will not violate any provision of the
Articles of Organization or by-laws of the Company, each as amended to
date;
8
<PAGE>
(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the Company 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, which approvals, consents and waivers identified in such Schedule (as
indicated with an asterisk therein) shall have been received or made prior
to the Closing or, at any earlier time required hereunder or under
applicable laws, rules and regulations or the provisions of any agreement,
contract or instrument; and
(iii) except as reflected in Schedule 3.5, 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 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 the assets of
the LLC) or any Person's interest in the Company (including, without
limitation, the Company Shares);
provided, however, that the representations in clauses (ii) and (iii)
shall not apply to investment advisory agreements to the extent that
receipt of consents from a party to such agreement is contemplated by
Section 5.2.
(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 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, any of the Stockholders 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) does not and will not violate any provision of the
Existing LLC Agreement or the Restated LLC Agreement;
(ii) does not and will not violate any laws of the United
States, or any state or other jurisdiction applicable to the LLC or
require the LLC to obtain any
9
<PAGE>
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; and
(iii) 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 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 mortgage, pledge, lien, security interest or other
charge or encumbrance on any of the LLC's assets or of any Person's
interests in the LLC.
3.6 Real and Personal Property.
(a) Neither the Company nor the LLC owns any real property. All of
the real property leased by the Company or the LLC is identified in Schedule
3.6(a) (herein referred to as the "Leased Real Property"). All leases of Leased
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 by the Company and the LLC, as applicable, 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 knowledge, the 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. After giving effect to the Closing and the LLC
Contribution, 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 the categories
of assets of the Company and the tax basis of each such asset (or category of
assets). 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 LLC Contribution 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 except
those set forth in Schedule 3.6(b). 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 LLC
Contribution, and are suitable and in an appropriate condition for such purpose.
10
<PAGE>
3.7 Assets Under Management.
(a) The aggregate assets under management by the Company as of June
30, 1997 and September 30, 1997 and December 31, 1997, are accurately set forth
in Schedule 3.7. In addition, set forth in Schedule 3.7 is a list as of June 30,
1997 and September 30, 1997 and December 31, 1997, of all investment management,
advisory or sub-advisory contracts setting forth the name of the client under
each such contract, the amount of assets under management with respect to each
such contract, the fee schedule in effect with respect to each such contract,
the Contract Value, and any material fee adjustments or material withdrawals
from or additions to the assets under management (it being understood and agreed
that withdrawals from or additions to assets under management greater than
$500,000 are material) implemented since October 31, 1997 or, to the knowledge
of the Company or the Majority Stockholders, presently proposed to be
instituted, the consent required for the assignment by the Company of each such
contract other than those that by their terms terminate upon assignment (which
are so identified), and the country, if other than the United States of America,
of which the client is a resident. Except as set forth in Schedule 3.7 and
expressly described thereon, there are no contracts, arrangements or
understandings pursuant to which the Company has undertaken or agreed to cap,
waive or reimburse 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, no client of the Company has
expressed, to the knowledge of the Company and the Majority Stockholders, 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 LLC Contribution,
the fee to the LLC).
(b) Set forth in Schedule 3.7 is a list of each client with which as
of December 31, 1997 the Company has a fee based on performance or otherwise
provides 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,
together with a description of such fee or compensation.
(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 "plan 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.
3.8 Financial Statements.
(a) The Company has delivered to AMG the following financial
statements, copies of which are attached hereto as Schedule 3.8: audited balance
sheets of the Company at November 30, 1994, November 30, 1995 and November 30,
1996, and audited statements of
11
<PAGE>
income, stockholders' equity and cash flows for each of the three (3) years then
ended. The audited balance sheet of the Company at November 30, 1996 (including
the notes thereto) is referred to hereinafter as the "Base Balance Sheet."
Said financial statements have been prepared in accordance with GAAP,
applied consistently during the periods covered thereby, and present fairly in
all material respects 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 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 Schedules furnished to AMG hereunder as of the date hereof.
(c) As of the date hereof (including, with respect to the giving of
this representation pursuant to Section 8.2 hereof, after giving effect to the
LLC Contribution), neither the Company nor the LLC has any 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 stated or adequately reserved against on the Base
Balance Sheet or the notes thereto, (ii) liabilities reflected in Schedules
furnished to AMG hereunder on the date hereof (including, without limitation, on
the audited balance sheet of the Company at November 30, 1996, included as part
of Schedule 3.8), or (iii) immaterial liabilities incurred after the date of the
audited balance sheet of the Company at November 30, 1996 (a copy of which is
attached hereto as part of Schedule 3.8) in the ordinary course of business of
the Company or the LLC which are, in the case of liabilities incurred after the
date of this Agreement, consistent with the terms of this Agreement).
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
12
<PAGE>
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 November 30, 1996, 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 audited balance sheet of the Company at November 30, 1996 (a copy of
which is attached hereto as part of Schedule 3.8) (rather than in any notes
thereto) and (ii) do not exceed that reserve as adjusted (including to reflect
any additional current Tax accrued in accordance with the normal operation of
the Company's business, consistent with past practices) 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 and the LLC in filing their respective Tax
Returns. All Taxes required to be withheld by the Company and the LLC including,
but not limited to, Taxes arising as a result of payments to foreign persons or
to employees of the Company or the LLC, 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 or the LLC, as applicable.
(b) Each of the Company and the LLC has, in accordance with
applicable law, filed all federal, state, local and foreign tax returns required
to be filed by it, and all such returns are accurate and complete in all
material respects. A list of all federal, state, local and foreign income tax
returns filed with respect to the Company for taxable periods ended on or after
December 31, 1991, is set forth in Schedule 3.9, 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, 1991, the
Company has delivered to AMG correct and complete copies of all federal, state,
local and foreign income 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 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 Code.
(d) Except as set forth on Schedule 3.9, 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 the Company or the LLC is in force for the extension of
time for the assessment or payment of any Taxes.
13
<PAGE>
(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 any tax sharing agreement.
(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 at all times since December 1, 1984, and the Company will be an S
corporation up to and including the date of 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, commonwealth or other jurisdiction other than the Commonwealth of
Massachusetts, 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 Commonwealth of Massachusetts.
(h) 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 Section 338(h)(10) Election. The Company has not since January 1, 1988 (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 is a
qualified subchapter S subsidiary.
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 November
30, 1996, or existing at the date hereof (less the reserve for bad debts set
forth on such balance sheet, as adjusted since such date as set forth in
Schedule 3.10) 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.
3.11 Absence of Certain Changes. Except as disclosed in Schedule 3.11,
since the date of the Base Balance Sheet there has not been any:
(a) event that by itself or in conjunction with all other such
events, could reasonably be expected to have a Material Adverse Effect on the
Company, the LLC or AMG;
(b) (i) amendment which has had a Material Adverse Effect or (ii)
termination or, (iii) to the knowledge of the Company and each of the Majority
Stockholders,
14
<PAGE>
proposed or threatened amendment or termination, whether written or oral, of
any agreement listed in Schedule 3.7 hereto;
(c) material obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including, without limitation, (i) liabilities for Taxes due or to become due,
(ii) contingent or potential liabilities relating to services provided by the
Company or the conduct of the business of the Company regardless of whether
Claims in respect thereof have been asserted, or (iii) contingent liabilities
incurred by the Company or the LLC as guarantor or otherwise with respect to the
obligations of the Company or the LLC or others), incurred by the Company or the
LLC other than obligations and liabilities incurred in the ordinary course of
business consistent with the terms of this Agreement (it being understood that
liability claims in respect of services provided shall not be deemed to be
incurred in the ordinary course of business);
(d) material Claim placed on any of the properties or assets of the
Company or the LLC;
(e) cancellation of any material debt or Claim owing to, or waiver
of any material right of, the Company or the LLC;
(f) purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the material
properties or assets of the Company or the LLC other than pursuant to the LLC
Contribution or in the ordinary course of business consistent with past
practices;
(g) damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of the Company or the LLC;
(h) declaration, setting aside or payment of any dividend or
distribution by the Company or the LLC, or the making of any other distribution
in respect of the capital stock of the Company or interests in the LLC, or any
direct or indirect redemption, purchase or other acquisition by the Company or
the LLC of its own capital stock or interests, respectively, other than
distributions and dividends made in the ordinary course and consistent with past
practices and subject to satisfaction of the conditions set forth in Section
8.10;
(i) change in the compensation payable or to become payable by the
Company or the LLC to any of its officers, employees, agents or independent
contractors except (x) normal merit increases in accordance with its usual
practices, or (y) any non-recurring bonus payment or arrangement made to or with
any of such officers, employees, agents or independent contractors;
(j) change in the identities, offices or duties of the officers or
management of the Company or the LLC or any obligation or liability incurred by
the Company or the LLC
15
<PAGE>
to any of its officers, directors, stockholders, members or employees, or any
loans or advances made by the Company or the LLC to any of its officers,
directors, stockholders, members or employees, except normal compensation and
expense allowances payable to officers or employees in the ordinary course of
business consistent with past practices;
(k) payment or discharge of a material lien or liability of the
Company or the LLC other than in the ordinary course of business consistent with
the past practices of the Company;
(l) change in accounting methods or practices, or billing or
collection policies used by the Company or the LLC;
(m) other transaction entered into by the Company or the LLC other
than transactions in the ordinary course of business consistent with past
practices; or
(n) agreement or understanding, whether in writing or otherwise, for
the Company or the LLC to take any of the actions specified in paragraphs (a)
through (m) above.
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.
3.13 Banking Relations. All of the arrangements which the Company or the
LLC has with any banking institution are, in all material respects, accurately
described in Schedule 3.13, 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 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 LLC Contribution, 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
proprietary rights (including, without limitation, all rights in and to the name
"Essex Investment Management Company") (collectively, "Intellectual Property")
used in the business of the Company as presently conducted. Except as set forth
in Schedule 3.14, 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 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 thereof. The Company and, after giving effect to the Closing
and the LLC Contribution, the LLC, has the right to use, free and clear of
16
<PAGE>
any claims or rights of other persons, 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) The Company has no, nor does it license or use any patents,
patent applications, trademarks, trademark applications and registrations and
registered copyrights. All other items of Intellectual Property which are
material to the business or operations of the Company and, after giving effect
to the Closing and the LLC Contribution, the LLC, are listed in Schedule 3.14.
(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 and, after giving effect to the Closing
and the LLC Contribution, 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 any valuable proprietary or non-public
information of the Company 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. The Company has no 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 LLC Contribution 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
17
<PAGE>
employees on behalf of the Company do not violate any such agreements or
arrangements known to the Company.
3.15 Contracts. Except for contracts, commitments, plans, agreements and
licenses described in Schedule 3.3, Schedule 3.6(a), Schedule 3.7, Schedule
3.14, Schedule 3.15 or Schedule 3.24 (true and complete copies of which have
been made available or delivered to AMG), 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 agreement or any other contract or agreement for the provision of
investment management or other similar services;
(b) plan, contract or agreement 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 agreement or contract or agreement for
services which is not terminable at will by the Company (and, after giving
effect to the Closing and the LLC Contribution, the LLC) without liability for
any penalty or severance payment;
(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 contract, agreements and orders not exceeding $250,000 in the
aggregate;
(e) other contract or agreement creating any obligations of the
Company or the LLC of more than $100,000 (in the aggregate) not specifically
disclosed elsewhere under this Agreement;
(f) contract or agreement not made in the ordinary course of
business (including, without limitation, any contract 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
LLC Contribution Agreement and the agreements contemplated thereby;
(g) contract or agreement with any investment or research
consultant, solicitor or sales agent;
(h) contract or agreement 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 contract or agreement (as licensor or licensee);
18
<PAGE>
(j) contract or 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 or agreements described in Schedule 3.3, Schedule
3.6(a), Schedule 3.7, Schedule 3.14, Schedule 3.15 or Schedule 3.24 is valid and
effective in accordance with its respective terms, and there is not, under any
such contract or agreement, 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 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, Schedule 3.6(a), and Schedule 3.7 are
obtained, and after giving effect to the LLC Contribution and the Closing, each
such 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 or agreement
will have been replaced by a new contract or agreement with the same party or
parties on terms at least as favorable to the LLC as the terms of the present
contract or agreement 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 on the Company, the LLC or AMG.
3.16 Litigation. There is no litigation or legal (or other) action, suit,
proceeding or investigation 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 pending or, to
the knowledge of the Majority Stockholders, threatened, against the Company or
any action, suit, proceeding or investigation under any federal or state
securities law, rule or regulation), in which the Company or the LLC or any
Stockholder or officer, director, stockholder, member or employee thereof is
engaged, or 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 or would reasonably be expected to have a Material Adverse Effect on the
Company. There are no proceedings pending, or to the knowledge of the Company or
any of the Majority Stockholders, threatened, relating to the
19
<PAGE>
termination of, or limitation of, the rights of the Company (and, after giving
effect to the Closing and the LLC Contribution, 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 Investment Laws and Regulations.
3.17 Compliance with Laws. 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, and the Securities Act and the regulations promulgated under each of them;
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 "Investment Laws and Regulations"). None of the Company,
the LLC or any Majority 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 the business or affairs of the
Company, the LLC or the transactions contemplated hereby or which could give
rise to an affirmative answer to any of the questions in Item 11, Part I of the
Form ADV of the Company or the LLC. None of the Company or the LLC, 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,
without limitation, any Investment Laws and Regulations, relating to the
business or affairs of the Company, the LLC or the transactions contemplated
hereby or which could give rise to an affirmative answer to any of the questions
in Item 11, Part I of the Form ADV of the Company or the LLC.
3.18 Business; Registrations.
(a) The Company is and has, since its inception, been engaged solely
in the business of providing Investment Management Services. The Company does
not provide Investment Management Services to (i) any issuer that is an
investment company (within the meaning of the Investment Company Act) other than
the Mutual Funds and the Foreign Funds and the clients listed in Schedule
3.18(a), (ii) any issuer 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, other than the
Private Funds (as such term is defined in Section 13.1 hereof), or (iii) any
issuer other than the Mutual Funds and the Foreign Funds and the clients listed
in Schedule 3.18(a) that is or is required to be registered under the laws of
the appropriate securities regulatory authority in the jurisdiction in which the
20
<PAGE>
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 or the LLC. The Company is in compliance with all foreign, federal and
state laws requiring registration, licensing or qualification as an investment
adviser and has currently effective notice filings in each of the jurisdictions
listed in Schedule 3.18(b). 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 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. Neither the Company nor, to the knowledge of
the Company and the Majority Stockholders, any person "associated" (as defined
under 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 denial, suspension or
revocation of registration of an investment adviser under Section 203(e) of the
Advisers Act or would need to be disclosed pursuant to Rule 206(4)-4(b)
thereunder, 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 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 LLC Contribution, 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, the LLC or AMG. The
Company is not a "broker" or "dealer" within the meaning of the Exchange Act, or
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
described on Schedule 3.18(b), no person other than a full-time employee of the
Company renders Investment Management Services to or on behalf of, or solicits
clients with respect to, the provision of Investment Management Services by, the
Company.
21
<PAGE>
(c) The Company has no investment adviser representatives (as such
term is defined in Rule 203A-3(a) under the Advisers Act).
(d) The only place of business (within the meaning of Rule 203A-3(b)
under the Advisers Act) of the Company is its principal office in Boston,
Massachusetts.
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 to which the Company is a party, all as
listed in Schedule 3.19. The Company is not in material default under any such
insurance policy. After giving effect to the Closing and the LLC Contribution,
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.
3.20 Powers of Attorney. Except as set forth on Schedule 3.3, none of the
Company, the LLC or any Majority Stockholder or, to the knowledge of the Company
and the Majority Stockholders, any other Stockholder has any outstanding power
of attorney relating to the business or affairs or capital stock of the Company.
3.21 Finder's Fee. Except for fees to McDaniels & Co. (which fees have
been disclosed to AMG and will be paid by from the escrow established under the
Escrow Agreement), none of the Company, the LLC or any Stockholder has incurred
or become liable for any broker's commission or finder's fee relating to or in
connection with the transactions contemplated by this Agreement.
3.22 Corporate Records; Copies of Documents. The record books of the
Company accurately 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 correct 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
Stockholders, any of their respective spouses or family members, is 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 officer or director or in another similar capacity of, any
competitor or client of the Company, or any organization which has a material
22
<PAGE>
contract or arrangement with the Company or the LLC (in each case, other than as
expressly contemplated hereby).
3.24 Employee Benefit Programs. [Assumes no Defined Benefit Plans]
(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 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 would cause any such Employee Program to lose its
qualification under the applicable Code section.
(c) The Company does not know and has no reason to know, of any
failure of any party to comply in any material respect with any laws applicable
to the Employee Programs that have been maintained by the Company. With respect
to any Employee Program ever maintained by the Company, there has occurred no
"prohibited transaction," as defined in Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("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 result, directly or indirectly, in any taxes, penalties or
other liability to Merger Sub, the Company, the LLC or AMG. No litigation,
arbitration, or governmental administrative proceeding (or investigation) or
other proceeding (other than those relating to routine claims for benefits) is
pending or threatened with respect to any such Employee Program.
(d) Except as set forth on Schedule 3.24, 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
23
<PAGE>
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 stock option plans,
bonus or incentive award plans, severance pay policies or 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.
(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 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.
24
<PAGE>
3.25 Directors, Officers and Employees.
(a) Schedule 3.25(a) contains a true and complete list of all
current directors and officers of the Company. In addition, Schedule 3.25(a)
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 November
30, 1997, in excess of $75,000. In each case such Schedule includes the current
job title and AMG has been separately provided with the aggregate annual
compensation of each such individual. To the knowledge of the Company and the
Majority Stockholders, each employee listed in Schedule 3.25(a) hereto is in
good health.
(b) The Company and, after giving effect to the LLC Contribution,
the LLC, employs less than sixty (60) full-time employees and five (5) part-time
employees and generally enjoys good employer-employee relationships. Except as
set forth in Schedule 3.25(b) (or Schedule 3.24), neither the Company nor the
LLC has any obligation, contingent or otherwise, under (a) any employment,
collective bargaining or other similar 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 LLC
Contribution (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. Neither the Company nor the LLC is 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, Merger Sub, the LLC or
AMG could, by reason of the transactions contemplated by this Agreement or
anything done prior to the Closing, be liable to any of said employees for
so-called "severance pay" or any other payments except as set forth in the
Restated LLC Agreement. 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, Merger Sub, the LLC or AMG to
make any payments that would be "parachute payments" within the meaning of the
Code or would not be deductible under Section 280G of the Code. Except as
described in Schedule 3.25(b), 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 could have an adverse effect on the Company, Merger Sub, the LLC or AMG
25
<PAGE>
or the conduct of their respective businesses and that have actually been filed
against the Company under any dispute resolution procedure, and there is no
arbitration or similar proceeding pending and no claim therefor has been
asserted. The Company has in place all employee policies required by applicable
laws, rules and regulations (except to the extent failure to have such policy
would not reasonably be expected to have a Material Adverse Effect on the
Company), 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,
as amended.
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. Except as described in Schedule 3.27, 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 described in Schedule 3.28, neither the
Company nor the LLC has redeemed or repurchased any of its capital stock or
interests since the date of the Base Balance Sheet.
3.29 Code of Ethics. The Company has adopted a written policy regarding
insider trading, a Code of Ethics which complies with all applicable provisions
of Section 204A of the Advisers Act and a personal trading policy which complies
with all applicable provisions of Rule 17j-1 under the Investment Company Act,
copies of which have 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, insider trading policy and personal
trading policy. 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. There have been no material violations or
allegations of material violations of such Code of Ethics, insider trading
policy, conflicts policy or personal trading policy.
3.30 Certain Representations and Warranties as to Collective
Investment Vehicles.
(a) True, correct and complete copies of all of the current
investment advisory agreements and distribution or underwriting contracts,
administrative services and other services agreements, if any, and
organizational and offering documents, pertaining to each of the Private Funds
and the Foreign Funds: (i) have been provided to AMG prior to the date hereof
and (ii) are in full force and effect. Such offering materials as of the dates
as of which they were prepared and distributed did not contain an untrue
statement of a material fact
26
<PAGE>
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(b) Each of the Private Funds and the Foreign Funds is duly
organized, validly existing and in good standing in the jurisdiction in which it
is organized and has all requisite power and authority to conduct its business
in the manner and in the places where such business is currently conducted. Each
Private Fund and each Foreign Fund is and has, since its inception, been engaged
solely in the business of an investment company. Each Private Fund and each
Foreign Fund is and has, since its inception, been in compliance with all
foreign, federal and state laws requiring registration, licensing or
qualification as an investment company and all Investment Laws and Regulations.
(c) AMG has been furnished true, correct and complete copies of the
audited financial statements, prepared in accordance with GAAP applied
consistently during the periods covered thereby, of each Private Fund and each
Foreign Fund for the past three fiscal years (or such shorter period as such
Private Fund or Foreign Fund shall have been in existence), and unaudited
financial statements, prepared in accordance with GAAP applied consistently
during the periods covered thereby, of each Private Fund and each Foreign Fund
for the first nine months of its most recent fiscal year. Each Private Fund's
and Foreign Fund's fiscal year end and/or nine-month period financial statements
is hereinafter referred to as a "Fund Financial Statement." Each of the Fund
Financial Statements is consistent with the books and records of the applicable
Private Fund or Foreign Fund, and presents fairly in all material respects the
consolidated financial condition of such Private Fund or Foreign Fund in
accordance with GAAP applied consistently during the periods covered thereby
(except that the financial statements for the period need not include footnote
disclosure or related statements of cash flows and stockholders' equity) at the
respective date of such Fund Financial Statement and the results of operations
and cash flows for the respective periods indicated, except in the case of the
interim financial statements which are subject to normal year-end adjustments
which in the aggregate are not material. The Fund Financial Statements reflect
and disclose all material changes in accounting principles and practices adopted
by each of the Private Funds and the Foreign Funds during the periods covered by
each Fund Financial Statement. The books of account of each of the Private Funds
and the Foreign Funds fairly reflect their respective transactions. None of the
Private Funds has any direct or indirect liabilities other than: (i) liabilities
fully and adequately reflected on the balance sheets contained in the Fund
Financial Statements, and (ii) liabilities incurred since the date of the Fund
Financial Statements and incurred in the ordinary course of business consistent
with past practices.
(d) There are no restrictions imposed pursuant to any Investment
Laws and Regulations, consent judgments or orders of the SEC or any other
regulatory body on or with regard to any of the Private Funds or the Foreign
Funds. Since inception, each of the Private Funds has been excluded from the
definition of an investment company under the Investment Company Act by virtue
of Section 3(c)(1) thereof or Section 3(c)(7) thereof and none of the Foreign
Funds has been in violation of Section 7(d) under the Investment Company Act.
Since its inception, each Private Fund and Foreign Fund has been duly registered
or licensed and in
27
<PAGE>
good standing under the laws of each jurisdiction in which such qualification is
necessary, except where the failure to be duly registered and in compliance
could not reasonably be expected to have a Material Adverse Effect on the
respective Private Fund (or Foreign Fund, as applicable) or the Company.
(e) All interests of each of the Private Funds and the Foreign Funds
were sold pursuant to a valid and effective exemption from registration under
the Securities Act and have been duly authorized and are validly issued. Each of
the investments of the Private Funds and the Foreign Funds has been made in
accordance with the respective investment policies and restrictions in effect at
the time the investments were made and at all times when the investments were
held.
(f) All consent solicitation materials to be prepared for use by the
Private Funds 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 and will not contain any untrue statement of a
material fact, or omit to state any material fact (i) required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (ii) necessary to
correct any statement in any earlier communication that has become false or
misleading.
(g) There is no litigation or legal (or other) action, suit,
proceeding or investigation at law or in equity pending or, to the knowledge of
the Company and the Majority Stockholders, threatened in any court or before or
by any governmental agency or instrumentality, department, commission, board,
bureau or agency, or before any arbitrator, by or against any of the Private
Funds or the Foreign Funds, or any officer or director thereof. There are no
judgements, injunctions, orders or other judicial or administrative mandates
outstanding against or affecting any of the Private Funds or the Foreign Funds
or any officer or director thereof.
(h) Each of the Private Funds and the Foreign Funds has timely filed
all Tax returns and reports (including information returns, declarations and
reports) (collectively, "returns") required to be filed by it with any Taxing
Authorities for taxable periods ending after December 31, 1990 and has paid, or
withheld and paid over, all Taxes which were shown to be due on the such
returns. The information contained in such returns is true, correct and
complete. Each of the Private Funds has, since its inception, been classified as
a partnership for state and federal income tax purposes. None of the Foreign
Funds is engaged in the conduct of a trade or business (within the meaning of
the Code). Each Foreign Fund is a passive foreign investment company (within the
meaning of the Code) and is not a controlled foreign corporation (within the
meaning of the Code). Each of the Foreign Funds has in effect a QEF election.
28
<PAGE>
SECTION 4. SEVERAL REPRESENTATIONS AND WARRANTIES OF MAJORITY
STOCKHOLDERS.
As a material inducement to AMG and Merger Sub to enter into this
Agreement and consummate the transactions contemplated hereby, each Majority
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 Merger Sub, 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 by the
Company or the Majority Stockholders hereunder.
4.1 Company Shares. Such Majority Stockholder owns of record and
beneficially the number of the Company Shares set forth opposite such Majority
Stockholder's name in Schedule 1.7. Such Company Shares are duly authorized,
validly issued, fully paid, non-assessable and free and clear of any and all
Claims (including, without limitation, claims under Article 8 of the
Massachusetts Uniform Commercial Code). The Company Shares set forth opposite
such Majority Stockholder's name in Schedule 1.7 are, except as reflected in
Schedule 3.3, the only shares of capital stock held by such Majority Stockholder
or with respect to which such Majority Stockholder has any rights in the
Company.
4.2 Authority. Such Majority 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 Majority
Stockholder pursuant to, or as contemplated by, this Agreement and to carry out
the transactions contemplated hereby and thereby. This Agreement and each
agreement, document and instrument executed and delivered by such Majority
Stockholder pursuant to this Agreement constitutes, or when executed and
delivered will constitute, a valid and binding obligation of such Majority
Stockholder, enforceable in accordance with its respective terms, except as
enforceability may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally. Such Majority Stockholder has
full power and authority to transfer, sell and deliver the Company Shares to AMG
pursuant to this Agreement. The execution, delivery and performance of this
Agreement and each such agreement, document and instrument:
(i) does not and will not violate any laws of the United
States or any state or other jurisdiction applicable to such Majority
Stockholder, or require such Majority 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 Majority Stockholder is a
party or by which the property of such Majority Stockholder
29
<PAGE>
is bound or affected, or result in the creation or imposition of any Claim
on any assets of the Company or the LLC or on Company Shares owned by such
Majority Stockholder.
4.3 Ownership of LLC Interests. The LLC Interests shown as owned by each
Majority Stockholder in the records set forth in Schedule 3.4(b)(i) and, as of
the Closing, Schedule 3.4(b)(ii), constitute all the interests in the LLC or
rights to purchase interests in LLC which are held by such Person, directly or
indirectly.
4.4 Finder's Fee. Except as set forth in Section 3.21, such Majority
Stockholder has not incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
4.5 Investment Advisory Representation. Except for his own account and
advice given in a director or trustee capacity to a charitable organization
(which positions and organizations are set forth on Schedule 4.5) or given to
such Majority 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 advisory or
investment management services to any person or entity, other than on behalf of
the Company (and, after giving effect to the Closing and the LLC Contribution,
the LLC), pursuant to an investment advisory agreement between the Company (and,
after giving effect to the Closing and the LLC Contribution, the LLC) and a
client thereof.
4.6 Agreements.
(a) Such Majority 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 Majority Stockholder is a party relating to the business
of the Company or the LLC or to such Majority Stockholder's rights and
obligations as a stockholder, member, director, officer or employee of the
Company or the LLC.
(b) Such Majority Stockholder does not own, 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 serve as an officer or director of, any
organization which has a contract or arrangement with the Company or the LLC or
which could be considered a competitor of the Company or the LLC. 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
Majority Stockholder is a party.
30
<PAGE>
4.7 Employment Data. Such Majority Stockholder's (i) date of birth, and
(ii) date of commencement of employment with the Company are both accurately
reflected in Schedule 4.7.
4.8 Good Health. Each of the Majority Stockholders represents that he is
in good health and has provided AMG with a letter from his doctor to such
effect. Each of the Stockholders listed on Schedule 4.8 has provided
representatives of AMG's insurance broker with true and complete responses to
all questions or inquiries of such representatives.
SECTION 5. COVENANTS OF THE COMPANY AND THE MAJORITY
STOCKHOLDERS.
5.1 Making of Covenants and Agreements. The Company and the Majority
Stockholders jointly and severally hereby make the covenants and agreements set
forth in this Section 5 and the Majority Stockholders agree 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 Merger Sub,
the Company or the LLC (or any other right against Merger Sub, the Company or
the LLC) with respect to the breach of any covenant or agreement of the Company
or the Majority Stockholders hereunder.
5.2 Client Consents.
(a) As soon as reasonably practicable after the date hereof, but in
any event on or prior to January 22, 1998, the Company shall notify each of its
clients of the transactions contemplated hereby and by the other agreements,
documents and instruments contemplated hereby. 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, but in the form of Exhibit 5.2C 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.
(b) On or prior to February 22, 1998, the Company shall send to each
client who was sent, but who has not by such date returned, a notice in the form
of Exhibit 5.2B, countersigned indicating approval of the transactions
contemplated hereby, a second notice in the form of Exhibit 5.2D.
(c) With respect to the Private Funds, the Company and the Majority
Stockholders shall use all commercially reasonable efforts to obtain such
consents as may be necessary or appropriate and satisfactory to AMG to permit
consummation of the transactions contemplated hereby.
31
<PAGE>
(d) With respect to the Foreign Fund, the Company and the Majority
Stockholders shall use all commercially reasonable efforts to obtain such
Consents from regulatory authorities or investors as may be necessary or
appropriate and satisfactory to AMG to permit consummation of the transactions
contemplated hereby.
(e) With respect to the Mutual Fund, the Company and the Majority
Stockholders shall use all commercially reasonable efforts to cause the Board of
Trustees of each of the Mutual Funds to approve the investment advisory
agreement with the LLC to be in effect at and after the Closing and to provide
such information in connection therewith to the Shareholders of the Mutual Funds
as may be required under any applicable order or regulation of the SEC or any
federal or state securities laws.
(f) The Company and the Stockholders shall use commercially
reasonable efforts to, and the Stockholders shall use commercially reasonable
efforts to cause the Company to, obtain Consents from their 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 and Exhibit 5.2A, Exhibit 5.2B, Exhibit 5.2C and Exhibit 5.2D.
5.3 Authorizations.
(a) The LLC shall, and the Company and each of the Stockholders
shall cause the LLC to, (i) file, as soon as practicable after the Closing, and
in any event within three (3) business days of the Closing, 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, and (ii) make
appropriate additional filings with respect to its investment advisory status as
soon as practicable after the Closing with the Commonwealth of Massachusetts and
in each other jurisdiction listed on Schedule 3.18(b).
(b) The LLC will, and the Company and each of the Stockholders will
use commercially reasonable efforts to cause the LLC and each of its employees
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
conduct the business presently being conducted by the Company.
5.4 Authorization from Others. The Majority Stockholders, the Company and
the LLC will use commercially reasonable efforts to obtain all authorizations,
consents, approvals, permits and Licenses of others required to permit the
consummation by the Majority Stockholders, the Company and the LLC of the
transactions contemplated by this Agreement.
5.5 Status. The Company shall acquire all Company Shares held by the
Persons listed on Schedule 1.13 prior to the Effective Time.
32
<PAGE>
5.6 Conduct of Business. Between the date of this Agreement and the
Closing, except as contemplated by Schedule 3.11, without the prior written
consent of AMG:
(a) the Company will conduct its business only in the ordinary
course of business, and consistent with past practices, and the LLC will only
conduct those operations necessary for the performance of its obligations
hereunder and activities necessary in connection therewith, except that the
Company may make dividend distributions and bonus payments prior to the Closing
subject to the Company's ability to comply with the conditions to Closing set
forth in Section 8.10;
(b) neither the Company nor the LLC will (i) make (or incur any
obligation to make) any purchase, sale or disposition of any asset or property
other than as specifically provided for in the LLC Contribution Agreement, or in
the ordinary course of business consistent with past practices, or (ii) subject
to any Claim 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 change its banking
arrangements or incur any contingent or fixed obligations or liabilities
including, without limitation, any liability (contingent or fixed) as a
guarantor or otherwise with respect to the obligations of others except, with
respect to the Company, in the ordinary course of business consistent with past
practices, except that the Company may incur indebtedness on terms and
conditions (as to both form and substance) reasonably acceptable to AMG in an
amount not to exceed $5,300,000 to pay certain tax liabilities and expenses
arising in connection with the transactions contemplated hereby subject to the
Company's ability to comply with the conditions to Closing set forth in Section
8.12;
(d) the Company will not make or incur any obligation to make a
change in its Articles of Organization, By-laws or authorized or issued capital
stock (except as contemplated by Section 3.3 hereof), and the LLC will not make
or incur any obligation to make any change in the Existing LLC Agreement (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, 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, except that the Company may make dividend
distributions and bonus payments prior to the Closing subject to the Company's
ability to comply with the conditions to Closing set forth in Section 8.12;
(f) neither the Company not the LLC will make any change in the
compensation payable or to become payable to any of the Company's officers,
employees, agents or independent contractors, or enter into any collective
bargaining agreement, bonus,
33
<PAGE>
equity, option, profit sharing, compensation, welfare, retirement, or other
similar arrangement, or any employment contract;
(g) the Company will not prepay any loans (if any) from its
stockholders, officers or directors;
(h) the Company will use commercially reasonable efforts to prevent
any change with respect to its management and supervisory personnel;
(i) the Company will have in effect and maintain at all times all
insurance of the kind (including, without limitation, covering liabilities of
directors and officers), in the amount and with the insurers set forth in
Schedule 3.19 or equivalent insurance with any substitute insurers approved in
writing by AMG, and prior to the Closing, the LLC will obtain and have in effect
and thereafter maintain at all times all insurance of the kind (including,
without limitation covering liabilities of directors and officers), in the
amount and with the insurers set forth in Schedule 3.19 or equivalent insurance
with any substitute insurers approved in writing by AMG; and
(j) neither the Company nor the LLC will settle any material
litigation.
5.7 Financial Statements. Until the Closing, the Company will furnish AMG
with unaudited monthly balance sheets and statements of income of the Company
within fifteen (15) business days after each month end for each month ending
more than fifteen (15) business days prior to the Closing, which financial
statements shall be prepared in accordance with GAAP applied consistently
(except that they need not include footnotes and related statements of cash
flows and stockholders' equity and except that the statements with respect to
the month of January, 1998, need not be prepared on an accrual basis), 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 and, beginning with the first full month
following the date hereof shall be prepared using the accrual method of
accounting. Notwithstanding the foregoing, by February 15, 1998, the Company
will furnish AMG with an audited balance sheet of the Company at November 30,
1997 and audited statements of income, cash flows and stockholders' equity for
the year ended November 30, 1997 and an unaudited balance sheet of the Company
at December 31, 1997 and unaudited statements of income cash flows and
stockholders' equity for the month ended December 31, 1997, which financial
statements shall be prepared in accordance with GAAP applied consistently using
the accrual method of accounting (except that they need not include footnotes)
and shall present fairly in all material respects the financial condition of the
Company at the dates of said statements an the results of operations for the
periods covered thereby. The Company will furnish AMG with financial statements
of each Private Fund and Foreign Fund for the year ended December 31, 1997 as
soon as reasonably practicable after such financial statements are available.
34
<PAGE>
5.8 Preservation of Business and Assets. Until the Closing, each of the
Company, the LLC and each of the Majority Stockholders shall use 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 Majority
Stockholders shall take or permit to be taken 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.
5.9 Observer Rights and Access. Until the Closing: (a) within three (3)
business days after any meetings of the Company's stockholders or directors (or
a committee thereof) and in any event at or prior to the Closing, the Company
shall provide AMG with copies of detailed minutes of such meetings, including
all action taken thereof, (b) AMG shall be entitled to receive all notices and
information furnished by the Company to its stockholders and directors (or a
committee thereof), 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
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.
5.10 Notice of Default. Promptly upon the occurrence of, or promptly upon
the Company or a Majority 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 Majority Stockholder prior to the date hereof,
of any of the representations, warranties or covenants of the Company or the
Majority Stockholders contained in or referred to in this Agreement or in any
Schedule or Exhibit referred to in this Agreement, the Company and such Majority
Stockholder shall give a written description consisting of notice thereof to
AMG, and the Company and the Stockholders shall use commercially reasonable
efforts to prevent or promptly remedy the same.
5.11 Consummation of Agreement. The Company and each of the Majority
Stockholders shall use 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.
35
<PAGE>
5.12 Cooperation of the Company and Stockholders.
(a) The Company and each of the Majority Stockholders shall
cooperate with all reasonable requests of AMG 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. In addition, the Majority Stockholders shall, and shall cause
the Company and the LLC to, cooperate fully, as and to the extent requested by
AMG, in connection with the filing of tax returns and any audit, litigation or
other proceedings, whether with respect to taxes or otherwise.
(b) The Company and each of the Majority Stockholders shall for all
purposes treat the value of the AMG Shares on a basis consistent with the
Valuation and shall pay when due fifty percent (50%) of any expenses incurred in
connection with the preparation of the Valuation Report.
(c) The Company and the Majority Stockholders shall send to each
Person who is a former holder of capital stock of the Company and is entitled to
receive Merger Consideration as reflected on Schedule 1.7 (a "Former
Shareholder"), and, in the case of Former Shareholder, an Investment
Representations Letter and a Release in the form attached to the Escrow
Agreement and shall use commercially reasonable efforts to obtain executed
copies of such documents.
(d) The Company and the Majority Stockholders shall send to each
Person who is a Stockholder a Release in the form attached to the Supplemental
Purchase Agreement and shall use commercially reasonable efforts to obtain
executed copies of such document.
5.13 No Solicitation of Other Offers. Until a date which is three (3)
months after a termination of this Agreement pursuant to Section 10.1 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
Majority 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 the Company Shares, 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 the Company Shares among the Stockholders, redemptions
of Company Shares and issuances of Company Shares to new employees, in each
case, consistent with past practices.
5.14 Confidentiality. The Company and the Majority Stockholders agree
that, unless and until the Closing has been consummated, each of the Company,
the LLC, the Majority 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
36
<PAGE>
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 Majority 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 Majority Stockholders will
return, and cause their respective stockholders, 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 Majority
Stockholders (and their stockholders, officers, directors, members, agents and
representatives) in connection with the transaction.
5.15 Tax Returns. The Company and the Stockholders shall cooperate with
AMG to permit the Company, in accordance with applicable law, to promptly
prepare and file on or before the due date or any extension thereof all federal,
state and local tax returns required to be filed by the Company with respect to
taxable periods ending on or before the Closing.
5.16 Policies and Procedures. The Company, the LLC and the Majority
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 and at the expense of AMG.
5.17 No Violation of LLC Agreement. Except as otherwise expressly
permitted or contemplated by this Agreement, between the date of this Agreement
and the Closing, none of the Majority Stockholders, the Company nor the LLC will
take any action that is in violation of any term or provision of the Existing
LLC Agreement or would be in violation of any term or provision of the Restated
LLC Agreement if such Restated LLC Agreement were then in effect.
5.18 Subsidiaries; Investments in Other Persons. Between the date of this
Agreement and the Closing, none of the Majority 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 any other Person, except that the Company may form and invest in
new Private Funds consistent with past practices and on substantially the same
terms and conditions as currently in effect for the Private Funds existing as of
the date of this Agreement.
5.19 LLC Interests. 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 addition to or different from the interests
in the LLC shown in the records set forth on Schedule 3.4(b)(i), (b) the Company
and the Stockholder will not permit the LLC to take any action that will cause
the interests in the LLC set forth on Schedule 3.4(b)(i) to be revoked,
repurchased, rescinded, terminated, liquidated, transferred, amended or modified
in
37
<PAGE>
any manner and (c) 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 without the prior written consent of AMG. At 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).
5.20 Employee Programs. Between the date of this Agreement and the
Closing, the LLC will not maintain any Employee Program other than the Employee
Programs listed on Schedule 3.24.
5.21 Foreign Qualifications. The LLC shall qualify to do business as a
foreign limited liability company under the laws of each jurisdiction listed on
Schedule 3.2(a). Such states constitute all of the jurisdictions in which the
nature of the business it will conduct after giving effect to the LLC
Contribution, or the ownership or leasing of the properties it will receive in
the LLC Contribution, requires such qualification, except for those
jurisdictions where the failure to so qualify, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the LLC.
5.22 Liens. Between the date of this Agreement and the Closing, the LLC
shall not cause or permit any of the assets listed in Schedule 3.6(b) to be or
become subject to any Claim.
SECTION 5A. COVENANTS OF THE COMPANY, THE MAJORITY STOCKHOLDERS AND AMG
WITH RESPECT TO CERTAIN TAX MATTERS.
5A.1 Section 338(h)(10) Election.
(a) The Company and each of the Majority 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 Merger
(the "Elections"). Each Majority 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 permitted
by applicable law. Each Majority 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, (i) any Tax imposed under section 1374 of the Code, (ii) any Tax imposed
under Treasury Regulations Section ss.1.338(h)(10)-1(e)5, or (iii) any state,
local or foreign Tax imposed on the Company's gain.
(b) The Majority Stockholders, jointly and severally, shall
indemnify and hold harmless the AMG Indemnified Parties from and against (i)
liabilities and obligations for any Taxes (other than income taxes) in excess of
twenty five thousand dollars ($25,000) incurred by the Company with respect to
any period ending on or before the date of the
38
<PAGE>
Closing (ii) the failure of any Stockholder to pay his or her share of any Tax
attributable to the making of the Elections (iii) the breach by any Stockholder
of any provision of the Supplemental Purchase Agreement relating to or involving
Tax matters and (iv) the Company against any adverse consequences or losses
arising out of or relating to any failure to pay any such Taxes or resulting
from any such breach. Such indemnification shall be governed by the procedures
set forth in Section 12.5.
(c) The Majority Stockholders and AMG agree that MADSP (as such term
is used 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 that Section. A preliminary estimate of such allocation
shall be agreed by AMG and the Majority Stockholders as soon as practicable
after the date hereof. The final allocation as of the Closing Date (the "Asset
Allocation") shall be agreed to by the Majority Stockholders and AMG as soon as
practicable after the Closing Date. If the Majority 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 Majority
Stockholders no later than seventy-five (75) days following the Closing Date. 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 by the
thirtieth (30th) day prior to the date the Election Form in question is required
to be filed, the dispute shall be resolved by Coopers & Lybrand LLP or, a
nationally recognized form of independent auditors acceptable to both the
Majority Stockholders and AMG (the "Accounting Firm"), at least ten (10) days
prior to the time the Election Form is required to be filed. Each Majority
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 Majority
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.
5A.2. Tax Periods Ending on or Before the Closing Date. The Majority
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 Closing Date which are filed after the Closing Date. The Majority
Stockholders shall permit AMG to review and comment on each such Tax Return
described in the preceding sentence prior to filing. To the extent permitted by
applicable law, the Majority 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 Majority
Stockholders for such periods.
39
<PAGE>
5A.3. Cooperation on Tax Matters.
(d) 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
"determination" within the meaning of Section 1313 of the Code or an analogous
provision under state, local or foreign tax law.
(e) AMG, the Company and the Majority 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 its Majority 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 Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by AMG or the Majority 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
Majority Stockholders, as the case may be, shall allow the other party to take
possession of such books and records. AMG and the Majority 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).
5A.4 Tax Status. Between the date of this Agreement and the Closing, the
Company and the Majority 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 Majority
Stockholders shall take or permit any action (other than the Merger) 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 6. REPRESENTATIONS AND WARRANTIES OF AMG.
6.1 Making of Representations and Warranties. As a material inducement to
the Company and the Majority Stockholders to enter into this Agreement and
consummate the transactions contemplated hereby, AMG hereby makes the
representations and warranties contained in this Section 6, to the Company and
the Majority Stockholders.
40
<PAGE>
6.2 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.
AMG is not in violation of any term of its Certificate of Incorporation or
By-laws, each as amended and restated to the date of this Agreement.
6.3 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, the
Restated LLC Agreement and to carry out the transactions contemplated hereby and
thereby. The execution, delivery and performance by AMG of this Agreement, the
Restated LLC 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, except that as of
the date of this Agreement AMG has not yet filed with the Secretary of State of
the State of Delaware the Certificate of Designations. This Agreement, the
Restated LLC 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, except as enforceability may be
restricted, limited or delayed by applicable bankruptcy or other laws affecting
creditors' rights generally. The execution, delivery and performance by AMG of
this Agreement, the Restated LLC 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 and
restated to the date hereof;
(ii) does not and will not violate any laws of the United
States or of any state or any other jurisdiction applicable to AMG or
require AMG to obtain any approval, consent or waiver of, or make any
filing with, any Person that has not been obtained or made, except as
specifically identified in Schedule 6.3; and
(iii) assuming that the consents or approvals set forth on
Schedule 6.3 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 or by which any of its property is bound or affected, or result in
the creation or imposition of any Claim on any of AMG's assets which would
reasonably be expected to have a Material Adverse Effect on AMG and its
Affiliates on a consolidated basis.
6.4 Capitalization. As of the date of this Agreement, the duly authorized
capital stock of AMG consists of those classes, series and numbers of shares as
are set forth in Schedule 6.4. In addition, set forth in Schedule 6.4 are the
numbers of shares of each such
41
<PAGE>
class and series which are issued and outstanding or with respect to which
options have been granted as of the date of this Agreement or which have been
reserved for issuance in connection with the conversion of the Series C
Non-Voting Convertible Stock of AMG. All the outstanding shares of capital stock
of AMG have been duly authorized and validly issued and are fully paid and
nonassessable. All of the AMG Shares issuable pursuant to this Agreement in
exchange for Company Shares at the Effective Time and all shares of Common
Stock, par value $.01 per share, of AMG issuable upon conversion of the Series C
Non-Voting Convertible Stock of AMG in accordance with the Certificate of
Designations and the Amended and Restated Certificate of Incorporation of AMG,
will be, when so issued and paid for, duly authorized, validly issued, fully
paid and nonassessable. Based upon and subject to the accuracy of the
representations in the Subscription Agreement, and assuming each Person who
receives such AMG Shares pursuant to this Agreement has duly executed and
delivered and is bound by a Subscription Agreement, and subject to receipt of
consideration therefor, upon issuance pursuant to this Agreement of the AMG
Shares, such AMG Shares shall be issued in compliance with the federal
securities laws and the state securities laws of the Commonwealth of
Massachusetts.
6.5 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 or would reasonably be expected to have a Material Adverse Effect on
AMG and its Affiliates on a consolidated basis.
6.6 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 the shares of Company Shares. 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 or 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.
42
<PAGE>
6.7 Finder's Fee. AMG has not incurred or become liable for any broker's
commission or finder's fee relating to or in connection with the transactions
contemplated by this Agreement.
6.8 Merger Sub. Merger Sub is a newly formed wholly-owned subsidiary of
AMG that contains no assets or liabilities other than those incident to its
formation and the consummation of the transactions contemplated hereby.
6.9 Financial Statements.
(a) Attached hereto as Exhibit 6.9 are audited balance sheets of AMG
at December 31, 1995 and December 31, 1996, and audited statements of income,
cash flows and stockholders' equity for the years then ended, as well as an
unaudited balance sheet of AMG at September 30, 1997 and unaudited statements of
income, cash flow and stockholders equity for the nine months then ended.
(b) Said financial statements have been prepared in accordance with
generally accepted accounting principles using the accrual method of accounting,
present fairly the financial condition of AMG at the date of said statements and
the results of its operations for the period covered thereby (except that AMG's
unaudited financial statements do not include footnote disclosure or year-end
adjustments).
6.10 Absence of Changes. Except as disclosed in Schedule 6.10, since
September 30, 1997 there has not been any (a) event which either individually or
in the aggregate, could reasonably be expected to have a Material Adverse Effect
on AMG and its Affiliates on a consolidated basis, or (b) declaration, setting
aside or payment of any dividend or other distribution in respect of the capital
stock of AMG. Notwithstanding the foregoing clause (a), no representation is
given herein with respect to (i) the terms or conditions on which AMG is
negotiating, or may have negotiated, debt and/or equity financings, or (ii) the
terms or conditions on which AMG is negotiating or may have negotiated
investments in investment management companies, which investments have not
closed, or (iii) any impact on the condition (financial or otherwise)
properties, assets, liabilities, operations, business or prospects relating to
any investment of AMG, which investment may not have closed.
6.11 Compliance with Laws. AMG (with respect to AMG only, and not its
Affiliates) is, and at all times has been, in material compliance with all
Investment Laws and Regulations applicable to it, except to the extent that
noncompliance would not reasonably be expected to have a Material Adverse Effect
on AMG and its Affiliates on a consolidated basis. Neither AMG nor any officer,
director or employee thereof is in default with respect to any judgment, order,
writ, injunction, decree, demand or assessment relating to any aspect of the
business or affairs or properties or assets of AMG and issued by any court or
any federal, state, municipal or other governmental agency, board, commission,
bureau, instrumentality or department, domestic or foreign, or by any
self-regulatory authority. Neither AMG nor any officer, director or employee of
AMG, is charged or, to the knowledge of AMG, under
43
<PAGE>
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, without limitation, any Investment Laws and
Regulations, relating to any aspect of the business or affairs or properties or
assets of AMG or the transactions contemplated hereby.
SECTION 7. COVENANTS OF AMG.
7.1 Making of Covenants and Agreement. AMG hereby makes the covenants and
agreements set forth in this Section 7.
7.2 Confidentiality. AMG agrees that, unless and until the Closing has
been consummated, each of AMG, Merger Sub and their respective officers,
directors, agents and representatives will hold in strict confidence, and will
not use, any confidential or proprietary data or information obtained from the
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.
7.3 Cooperation of AMG.
(a) AMG shall cooperate (and shall cause Merger Sub to 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.
(b) AMG shall for all purposes report (and shall cause Merger Sub to
report) the value of the AMG Shares on a basis consistent with the Valuation and
shall pay when due fifty percent (50%) of any expenses incurred in connection
with the preparation of the Valuation Report.
7.4 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).
7.5 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
44
<PAGE>
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.
7.6 Consummation of Agreement. AMG shall use commercially reasonable
efforts to perform and fulfill all conditions and obligations to be fulfilled by
it under this Agreement, to the end that the transactions contemplated by this
Agreement shall be fully carried out.
7.7 Contribution to LLC. On or promptly following the Closing, AMG shall
cause Merger Sub to make an additional contribution to the capital of the LLC as
contemplated in Section 4.1 of the Restated LLC Agreement to fund contributions
by the LLC to the Private Funds as contemplated thereby, provided that such
amount shall not exceed $150,000.
7.8 Transactions in AMG Shares. In the event that AMG issues any
additional shares of its Series C Non-Voting Convertible Stock to any
Stockholder as a result of a dividend, distribution, subdivision, combination or
reclassification of shares of capital stock, it will not, from the effective
time of such issuance through the date on which such shares of Series C
Non-Voting Convertible Stock automatically convert into shares of Common Stock,
par value $.01 per share of AMG in accordance with the Certificate of
Designations, issue any additional shares of Series C Non-Voting Convertible
Stock as a result of an additional dividend, distribution, subdivision,
combination or reclassification of its shares of capital stock.
SECTION 8. CONDITIONS TO THE OBLIGATIONS OF AMG.
The obligation of AMG and Merger Sub 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:
8.1 Litigation; No Opposition. No judgment, injunction, order or decree
enjoining or prohibiting any of AMG, the Company, Merger Sub, 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 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 (with such
materiality determined as if the LLC Contribution had previously occurred) or
AMG; provided however that any threatened suit, action or proceeding for damages
or injunctive relief or any suit, action or proceeding only for damages by
Former Shareholders
45
<PAGE>
that may arise under or relate to the Amended and Restated Shareholders
Agreement dated as of August 10, 1994, a true and complete copy of which has
been provided to AMG (the "Shareholders Agreement") but not any pending suit,
action or proceeding which includes, in addition to any other relief sought, a
prayer for preliminary injunctive relief or a temporary restraining order
(collectively a "Preliminary Injunction Motion") against the Company, the
Majority Stockholders, Merger Sub, the LLC or AMG) shall be disregarded solely
for purposes of determining satisfaction of the conditions contained in this
Section 8.1 and not for determining liability under Section 12 hereof. In the
event that a Preliminary Injunction Motion is pending at any time prior to the
Closing, the parties shall cooperate and use their commercially reasonable
efforts to cause such Preliminary Injunction Motion to be denied or dismissed.
In the event that such Preliminary Injunction Motion remains pending at the time
when the Closing would otherwise occur, the Closing shall be delayed fifteen
(15) days and in the event that such Preliminary Injunction Motion remains
pending at such date that is fifteen (15) days after the originally scheduled
Closing date, the Closing shall be delayed an additional fifteen (15) days,
provided, that the Closing shall occur on the second business day following
denial or dismissal of any Preliminary Injunction Motion (or such other date as
may be agreed by the parties) and, in any event, the date set forth in Section
10.1 shall be extended through the end of any extension period contemplated
hereby.
8.2 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 correct in all material respects (except that solely for the
purposes of determining satisfaction of the condition contained in this Section
8.2(a) and not for determining liability under Section 12 hereof,
representations and warranties that are qualified by their terms as to
materiality, shall be true in all respects as so qualified and except to the
extent contemplated in Section 8.11 with respect to damages or claims arising
out of the Shareholders Agreement) 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.
(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.
46
<PAGE>
(c) The Company, the LLC and each of the Majority 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.
8.3 Client Consents. Clients of the Company whose advisory agreements
provide for the payment (based on the Contract Value of each such advisory
agreement) of annual fees constituting at least eighty-five percent (85%) of the
Base Fees shall have Consented to the transactions contemplated hereby, and
advisory agreements which (based on their Contract Values) represent eighty-five
percent (85%) of the Base Fees shall survive the Closing and the LLC
Contribution and then be in full force and effect. For purposes of this Section
8.3:
(i) "Base Fees" shall mean the annual advisory fees (other
than incentive or performance fees) payable to the Company under all its
contracts calculated based on assets under management and the fee
schedules set forth in the relevant agreements as of December 31, 1997;
(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, that the LLC shall
have entered into a new contract on substantially equivalent terms which
contract is effective after giving effect to the Closing and the LLC
Contribution, (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
LLC Contribution Agreement, that the Company shall have obtained all such
written consents as may be required under such contract or under
applicable law, and (C) with respect to a client whose contract 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 (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 LLC Contribution, the LLC) or to adjust the fee schedule with respect
to one or more of its contracts in a manner that could materially reduce
the fee to the LLC from that client or contract, from that payable to the
Company on December 31, 1997 or the date hereof.
(iii) "Contract Value" shall mean, (A) with respect to an
advisory contract which was in effect on December 31, 1997, 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 as of December 31, 1997 (adjusted for any additions
and/or withdrawals since December 31, 1997 (other than withdrawals from
the Private Funds by the Company to redeem its general partner
47
<PAGE>
interests) and for any amendments to the fee schedule since such date),
and (B) with respect to an advisory contract which is entered into by the
Company after December 31, 1997, the annual advisory fees (excluding for
these purposes 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 or
withdrawals since that date and for any amendments to the fee schedule
since such 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 a list in the form of subsection (a) of Schedule 3.7 of
all investment management or advisory contracts as of the date of calculation,
including all the categories of information set forth in subsection (a) of
Schedule 3.7.
8.4 Transfer. The Company shall have established the escrow fund to fund
certain claims, liabilities and obligations under the Escrow Agreement in
accordance with Section 1.7 and Section 2.1 hereof.
8.5 Registration as an Investment Adviser. The LLC shall be registered as
an investment adviser under the Advisers Act and the rules and regulations
promulgated thereunder and shall be entitled to rely upon the succesor
provisions of Section 203(g) under the Adviser's Act, and made appropriate
filings under the laws of each state listed on Schedule 3.18(b).
8.6 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 LLC Contribution, 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 not currently in effect which are unduly
burdensome.
8.7 HSR Act. Any applicable waiting period under the HSR Act (including
any extensions thereof) shall have expired or been terminated.
8.8 Restated LLC Agreement. Each Majority Stockholder and other Persons as
described in Schedule 3.4(b)(ii) shall have executed and delivered the Restated
LLC Agreement and such Restated LLC Agreement shall be in full force and effect.
8.9 Employment Agreements. Each Majority Stockholder shall have entered
into an Employment Agreement with the LLC and Merger Sub in the form attached
hereto as Exhibit
48
<PAGE>
8.9 (the "Employment Agreements"), and each such Employment Agreement shall be
in full force and effect.
8.10 Non Solicitation/Non Disclosure Agreements. Each Person included as a
Non-Manager Member in the Restated LLC Agreement attached hereto as Exhibit 2.2
(other than those who entered into Employment Agreements) 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
8.10, and each such Non Solicitation Agreement shall be in full force and
effect.
8.11 Capitalization, Net Worth and Working Capital of the Company and 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
1.7 and Schedule 3.3. 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). At the Closing, and after giving effect to the LLC
Contribution 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 of at least four million dollars ($4,000,000), working capital (defined as
current assets less current liabilities) of at least four million dollars
($4,000,000), which shall be not less than the amount necessary for the
operation of the business of the LLC, consistent with past practices of the
Company, and cash on hand of at least four million dollars ($4,000,000). AMG
shall be provided with a certificate from the President of the Company at the
Closing representing that the foregoing is true and correct.
8.12 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 LLC Contribution 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 Organization and By-laws of the
Company which, in the case of the Articles of Organization, is certified as of a
recent date by the Secretary of State of the Commonwealth of Massachusetts;
(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;
49
<PAGE>
(e) a copy of the Limited Liability Company 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 set forth in Schedule 8.12(f) and Schedule 3.2(b) 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 correct 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) a certificate of the Clerk 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 Organization, limited liability company 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;
(i) opinions from counsel to the Company and the Stockholders, in
substantially the forms of Exhibit 8.12(i), together with a favorable opinion
(which may be a "reasoned" opinion) reasonably acceptable in form and substance
to AMG from special counsel to the Company and the Stockholders (which counsel
shall be reasonably acceptable to AMG) with respect to the enforceability of the
non-competition and non-solicitation provisions of the Employment Agreement and
the Non-Solicitation Agreement;
(j) a release of the Company and the LLC from all liabilities other
than those arising out of the transactions or agreements contemplated hereby,
from each of the Stockholders indicated on Schedule 1.7 in the form attached
hereto as Exhibit 8.12(j).
(k) a Representation Certificate executed by the Company and each of
the Majority Stockholders in substantially the form attached hereto as Exhibit
8.12(k);
(l) a Consent Certificate executed by the Company and each of the
Majority Stockholders in substantially the form attached hereto as Exhibit
8.12(l);
(m) a Capitalization, Net Worth and Working Capital Certificate
executed by the Company and each of the Majority Stockholders in substantially
the form attached hereto as Exhibit 8.12(m);
(n) an Escrow Agreement in substantially the form attached
hereto as Exhibit 1.7;
(o) a Supplemental Indemnification Agreement in substantially the
form attached hereto as Exhibit 8.12(o) (the "Supplemental Indemnification
Agreement");
50
<PAGE>
(p) an opinion of Bermuda counsel to the Company and each of the
Majority Stockholders in substantially the form of Exhibit 8.12(p); and
(q) 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, however, that the
Company, the LLC and the Majority Stockholder and their respective
representatives and agents shall be permitted reasonable access to such books
and records during regular business hours upon their prior written request.
8.13 Material Adverse Effect. Since the date of this Agreement, there
shall have been no event which, either individually or in the aggregate, has had
or could reasonably be expected to have a Material Adverse Effect on the Company
or the LLC, and AMG shall be provided with a certificate from the President of
the Company to that effect at the Closing.
SECTION 9. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
MAJORITY STOCKHOLDERS.
The obligation of the Company and the Majority 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:
9.1 No Litigation; No Opposition. No judgment, injunction, order or decree
enjoining or prohibiting any of AMG, the Company, the LLC, the Merger Sub 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 or which could reasonably be expected to have a
Material Adverse Effect on the Company, the LLC (which such materiality
determined as if the LLC Contribution shall have previously occurred) or AMG;
provided, however, that any threatened suit, action, or proceeding for damages
or injunctive relief or suit, action or proceeding only for damages by Former
Shareholders that may arise under or relate to the Shareholders Agreement buy
not any pending suit, action or proceeding which includes, in addition to any
other relief sought, any Preliminary Injunction Motion against the Company, the
Majority Stockholders, Merger Sub, the LLC or AMG) shall be disregarded solely
for purposes of determining satisfaction of the conditions contained in this
Section 8.1 and not for determining liability under Section 12 hereof. In the
event that a Preliminary Injunction Motion is pending at any time prior to the
Closing, the parties shall cooperate and use their commercially reasonable
efforts to cause such Preliminary Injunction Motion to be denied or dismissed.
In the event that such Preliminary Injunction Motion remains pending at the time
when the
51
<PAGE>
Closing would otherwise occur, the Closing shall be delayed fifteen (15) days
and in the event that such Preliminary Injunction Motion remains pending at such
date that is fifteen (15) days after the originally scheduled Closing date, the
Closing shall be delayed an additional fifteen (15) days, provided, that the
Closing shall occur on the second business day following denial or dismissal of
any Preliminary Injunction Motion (or such other date as may be agreed by the
parties) and, in any event, the date set forth in Section 10.1 shall be extended
through the end of any extension period contemplated hereby.
9.2 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 and except to the extent contemplated in Section
8.1 with respect to damages or claims arising out of the Shareholders Agreement)
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 Majority Stockholders with a
certificate dated as of the date of the Closing to the foregoing effect.
9.3 Client Consent. The conditions set forth in Section 8.3 shall
have been met.
9.4 Delivery. AMG shall have executed and delivered to the Company, the
following:
(a) certified copies of resolutions of the board of directors of AMG
and of Merger Sub authorizing the execution of this Agreement and each of the
other agreements, documents or instruments contemplated hereby to which AMG or
Merger Sub, as applicable, is a party;
(b) a copy of the Amended and Restated Certificate of Incorporation
and by-laws of AMG and of the Articles of Organization and By-laws of Merger Sub
which, in the case of each of the Amended and Restated Certificate of
Incorporation and the Articles of
52
<PAGE>
Organization, is certified as of a recent date by the Secretary of State of the
State of Delaware or the Secretary of State of the Commonwealth of Massachusetts
as applicable;
(c) certificates issued by the Secretary of State of the State of
Delaware and the Commonwealth of Massachusetts, respectively, certifying that
each of AMG and Merger Sub is validly existing and in good standing in the State
of Delaware and the Commonwealth of Massachusetts, respectively, as of the most
recent practicable date;
(d) true and correct 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;
(e) a certificate of the Secretary of AMG and of Merger Sub
certifying that the resolutions, Amended and Restated Certificate of
Incorporation, Certificate 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 and Merger Sub, as applicable are those persons
named in the certificate; and
(f) an opinion from Goodwin, Procter & Hoar LLP in substantially the
form of Exhibit 9.4(f).
9.5 Registration as an Investment Adviser. The LLC shall have become
registered as an investment adviser under the Advisers Act and the rules and
regulations promulgated thereunder, and made appropriate filings under the laws
of each state where such filings may be necessary (in the reasonable opinion of
the Company, 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 LLC Contribution Agreement and the Closing, to conduct the business
presently conducted by the Company.
9.6 HSR Act. Any applicable waiting period under the HSR Act (including
any extensions thereof) shall have expired or been terminated.
9.7 Material Adverse Change. There shall have been no event which either
individually or in the aggregate could reasonably be expected to have a Material
Adverse Effect on AMG and its Affiliates taken as a whole on a consolidated
basis and the Company shall be provided with a certificate from the President,
Executive Vice President or any Senior Vice President of AMG to that effect at
the Closing. Notwithstanding the foregoing, this Section 9.7 shall not apply to
entrance into any letter of intent, commitment letter, contract or other
agreement with respect to, or the incurrence of any debt, claim or obligation
arising from, (i) debt and/or equity financings which AMG is negotiating, or may
have negotiated, or (ii) investments in investment management companies which
AMG is negotiating or may have negotiated, which investments have not closed, or
(iii) the properties, assets, liabilities,
53
<PAGE>
operations, business or prospects relating to any investment of AMG, which
investment may not have closed.
SECTION 10. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
10.1 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 8 of this Agreement
have not been satisfied at or prior to June 30, 1998, (as extended pursuant to
Section 8.1 and Section 9.1) or if it has become reasonably and objectively
certain that any of such conditions, will not be satisfied at or prior to June
30, 1998, such written notice to set forth such conditions which have not been
or will not be so satisfied; and
(c) by the Company, pursuant to written notice by the Company to
AMG, if any of the conditions set forth in Section 9 of this Agreement have not
been satisfied at or prior to June 30, 1998 (as extended pursuant to Section 8.1
and Section 9.1), or if it has become reasonably and objectively certain that
any of such conditions, will not be satisfied at or prior to June 30, 1998 (as
extended pursuant to Section 8.1 and Section 9.1), such written notice to set
forth such conditions which have not been or will not be so satisfied.
10.2 Effect of Termination. All obligations of the parties hereunder shall
cease upon any termination pursuant to Section 10.1; provided, however, that (a)
the provisions of this Section 10, Sections 5.13, 5.14, 7.2 and the provisions
of Section 14 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, which shall be true in all respects), (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, (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 10.3 below.
10.3 Right to Proceed.
(a) Anything in this Agreement to the contrary notwithstanding, if
any of the conditions specified in Section 8 hereof have not been satisfied, AMG
shall have the right to proceed with the transactions contemplated hereby;
provided, however, that if AMG proceeds with the transactions contemplated
hereby notwithstanding the fact that the Company and the
54
<PAGE>
Majority Stockholders have provided written notice to AMG in a Schedule or
certificate provided pursuant to this Agreement which describes the nature,
scope and extent of the failure of one or more of the conditions specified in
Section 8 hereof to be satisfied, AMG shall, by proceeding, be deemed to have
waived its rights hereunder to the extent of any such disclosure except to the
extent that such matter or claim may give rise to an indemnification right under
the Supplemental Indemnification Agreement.
(b) Anything in this Agreement to the contrary notwithstanding, if
any of the conditions specified in Section 9 hereof have not been satisfied, the
Company and the Majority Stockholders shall have the right to proceed with the
transactions contemplated hereby; provided, however, that if the Company and the
Majority Stockholders proceed with the transactions contemplated hereby
notwithstanding the fact AMG has provided written notice in a Schedule or
certificate provided pursuant to this Agreement or by written notice to the
Company and the Majority Stockholders which describes the nature, scope and
extent of the failure of one or more of the conditions specified in Section 9
hereof to be satisfied, the Company and the Majority Stockholders shall, by
proceeding, be deemed to have waived their rights hereunder to the extent of any
such disclosure.
SECTION 11. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
11.1 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 eighteen month anniversary of the date of the Closing, except for the
representations and warranties made (a) in Sections 3.9 and 3.24, (b) in Section
5A and (c) in any way affecting or relating to the Shareholders Agreement, which
shall survive until the expiration of the applicable statute of limitations, if
any. The expiration of any representation or warranty shall not affect any claim
made in reasonable detail prior to the date of such expiration. All covenants
herein not fully performed shall survive the Closing and continue thereafter
until fully performed. 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.
11.2 Regulatory Filings. Each of the Stockholders will cooperate with AMG
and Merger Sub to enable AMG and Merger Sub to make any and all regulatory
filings required by them with respect to the Company, Merger Sub, the LLC or the
transactions contemplated hereby (including, by way of example and not of
limitation, the filing of tax returns and the withdrawal of the Company as an
investment adviser).
55
<PAGE>
SECTION 12. INDEMNIFICATION.
12.1 Indemnification by the Majority Stockholders. From and after the
Closing the Majority Stockholders agree, jointly and severally, to indemnify and
hold AMG, Merger Sub and their respective subsidiaries and affiliates
(including, from and after the Closing, the Company and, to the extent the loss
is suffered by the LLC, the LLC) and persons serving as officers, directors,
partners, members, stockholders or employees thereof (individually an "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) 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 Loss
shall not include the diminution in trading value of the Common Stock, par value
$.01 per share, of AMG), net, in the case of each AMG Indemnified Party, of any
insurance proceeds actually received by that AMG Indemnified Party on account of
insurance policies the premiums on which were paid by the Company prior to the
LLC Contribution or by the LLC, less the aggregate premiums paid by the LLC for
such insurance, which may be sustained or suffered by any of them arising out of
or based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or wilful
breach by the Company or any Stockholder of 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;
(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; and
(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) other than executory
obligations to be performed after the Closing that arise pursuant to the
obligations expressly assumed by the LLC pursuant to the LLC Contribution.
12.2 Limitations on Indemnification by the Majority Stockholders.
Notwithstanding any other provision of this Agreement to the contrary, the right
of AMG Indemnified Parties to indemnification under Section 12.1 shall be
subject to the following provisions:
(a) No indemnification shall be payable to any AMG Indemnified Party
pursuant to Subsection 12.1(b) or 12.1(c) unless the total of all claims for
indemnification
56
<PAGE>
pursuant to Section 12.1 shall exceed five hundred thousand dollars ($500,000)
in the aggregate, whereupon only amounts of such claims in excess of such amount
shall be recoverable in accordance with the terms hereof provided, however, that
this limitation shall not apply to claims for indemnification (i) pursuant to
Section 5A, except to the extent that indemnification for Tax matters do not
exceed twenty five thousand dollars ($25,000), (ii) in connection with claims
arising out of the Escrow Agreement or which had been contemplated to be
transferred to the escrow agent pursuant to the Escrow Agreement and Section 2.1
hereof or (iii) subject to the Supplemental Indemnification Agreement;
(b) No indemnification shall be payable to any AMG Indemnified Party
by any individual Majority Stockholder under Section 12.1(b) or 12.1(c)
(exclusive of any claims for indemnification for Taxes or based upon or related
to breach of any representation, warranty or covenant with respect to Taxes or
Tax matters or pursuant to Section 5A hereof or any representation, warranty or
covenant with respect to Employee Programs or matters related to Employee
Programs) after the payments made by such Majority Stockholder to AMG
Indemnified Parties under this Section 12 equals or exceeds the amount set forth
opposite such Majority Stockholder's name on Schedule 12.2(a) (it being
understood that amounts payable with respect to indemnification for Taxes or
based upon or related to breach of any representation, warranty or covenant with
respect to Taxes or Tax matters or pursuant to Section 5A hereof or any
representation, warranty or covenant with respect to Employee Programs or
matters related to Employee Programs or under the Supplemental Indemnification
Agreement shall not be subject to this limitation or considered for purposes of
this calculation); and
(c) No indemnification shall be payable to an AMG Indemnified Party
with respect to claims asserted pursuant to Subsection 12.1(b) or 12.1(c) after
the eighteen month anniversary of the date of the Closing (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 12.5 hereof prior to the Indemnification Cut-Off Date and claims for
indemnification for Taxes or based upon or related to a breach of any
representation, warranty or covenant with respect to Taxes or pursuant to
Section 5A hereof or Employee Programs or Tax matters or matters related to
Employee Programs or under Supplemental Indemnification Agreement shall continue
until the expiration of all applicable statutes of limitation with respect
thereto.
12.3 Indemnification by AMG. AMG agrees to indemnify and hold the Majority
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 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
57
<PAGE>
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.
12.4 Limitation on Indemnification by AMG. Notwithstanding the foregoing,
the right of Stockholder Indemnified Parties to indemnification under Section
12.3 shall be subject to the following provisions:
(a) No indemnification pursuant to Section 12.3 shall be payable to
the Stockholder Indemnified Parties, unless the total of all claims for
indemnification pursuant to Section 12.3 shall exceed five hundred thousand
dollars ($500,000) in the aggregate, whereupon only amounts of such claims in
excess of such amount shall be recoverable in accordance with the terms hereof;
and
(b) No indemnification pursuant to Section 12.3 shall be payable to
a Stockholder Indemnified Party after the payments made by AMG to Stockholder
Indemnified parties under this Section 12 equal or exceed forty million dollars
($40,000,000); and
(c) No indemnification shall be payable to the Stockholders with
respect to claims asserted pursuant to Section 12.3 above after 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 12.5 hereof prior to the Indemnification Cut-Off Date.
12.5 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 include a reasonable summary of 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
58
<PAGE>
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 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, to
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.
12.6 Satisfaction of Indemnification Obligations.
(a) In order to satisfy the indemnification obligations of the
Majority Stockholders pursuant to Section 12.1 above, an AMG Indemnified Party
shall have the right (in addition to collecting directly from the Majority
Stockholders) to set off its indemnification claims against (i) 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 (ii) any and all amounts to be distributed to such Majority
Stockholder by the LLC, whether or not such right of set-off is specifically
provided for in the Restated LLC Agreement and/or (iii) any and all amounts owed
or which become owed to such Majority Stockholder or any Permitted Transferee
(as such term is defined in the Restated LLC Agreement) of such Majority
Stockholder by AMG, the Company or the LLC pursuant to the provisions of
Sections 3.11 or 7.1 of the Restated LLC Agreement.
(b) In connection with indemnification obligations of the Majority
Stockholders pursuant to Section 12.1 above, on the date on which any amount is
payable by a Majority Stockholder to an AMG Indemnified Party pursuant to this
Section 12, such Majority Stockholder shall pay such amount to such AMG
Indemnified Party as follows:
(i) such Majority Stockholder shall pay such AMG Indemnified
Party an amount in cash (by wire transfer of immediately available funds)
equal to the amount payable by such Majority Stockholder to such AMG
Indemnified Party on such date, multiplied by sixty percent (60%); and
(ii) such Majority Stockholder shall pay such AMG Indemnified
Party a number of AMG Shares or shares of Common Stock, $.01 par value per
share, of AMG ("AMG Common Stock"), the value of which is equal to the
amount payable by such Majority Stockholder to such AMG Indemnified Party
on such date, multiplied
59
<PAGE>
by forty percent (40%), with each such AMG Share or share of Common Stock
being free of any Claims. For purposes of the preceding sentence, each AMG
Share and each share of AMG Common Stock shall be considered to have a
value of twenty-six dollars and fifty cents ($26.50) per share (as
appropriately adjusted for stock splits, stock dividends and the like). If
a Majority Stockholder fails to deliver the number of AMG Shares or shares
of AMG Common Stock on the date and in the manner set forth in clause (ii)
above (including, without limitation, being free of any Claims) then such
Majority Stockholder shall be required to fulfill the payment obligation
in cash together with an additional payment of ten percent (10%) of such
payment obligation (which payments shall immediately be made by wire
transfer of immediately available funds) and, thereafter, such Majority
Stockholder shall be required to fulfill all payment obligations under
this Section 12 in full, in cash (by wire transfer of immediately
available funds).
12.7 Procedure. In the event that AMG makes any claim for indemnification
pursuant to this Section 12, AMG shall use commercially reasonable efforts to
pursue such claim against each of the Majority Stockholders in a single action.
The foregoing shall have no effect on the joint and several indemnification
obligations of the Majority Stockholders hereunder.
12.8 Exclusive Remedy. Except in the case of claims arising out of, based
upon or related to fraud of the Company or any Majority Stockholder, the
indemnification in this Section 12 shall be the exclusive remedy available to
any indemnified party against any indemnifying party for any Losses arising out
of or based upon the matters set forth in Section 12.1 and 12.3 of this
Agreement, provided, however, that nothing herein shall (i) limit the
non-monetary equitable remedies of any party hereto in respect of any breach of
any covenant or other agreement of any party required to be performed after the
Closing, (ii) limit the right or remedies of any party hereto under Section 5A
hereof, or (iii) limit the rights or remedies of any party hereto under the
Supplemental Indemnification Agreement. Any and all disputes between the parties
(except to the extent non-monetary equitable remedies are sought) shall be
resolved as contemplated in Section 14.2.
SECTION 13. DEFINITIONS.
13.1 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 13.1
"Adjustment Fractions" shall have the meaning specified in Section
1.7(b) hereof.
"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.
60
<PAGE>
"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 12.1
hereof.
"AMG Shares" shall have the meaning specified in Section 1.7 hereof.
"Articles of Organization" shall mean the Company's Articles of
Organization, as amended to the date of this Agreement.
"Base Balance Sheet" shall mean the audited balance sheet of the Company
of November 30, 1996.
"Base Fees" shall have the meaning specified in Section 8.3 hereof.
"Certificate of Designations" shall have the meaning specified in
Section 1.7(a) hereof.
"Claims" shall mean any restrictions, liens, claims, charges, security
interests, assignments, mortgages, deposit arrangements, pledges or encumbrances
of any kind or nature whatsoever.
"Class A Stock" shall mean the Company's Class A Non-Voting Common Stock,
par value $1.00 per share.
"Closing" shall have the meaning specified in Section 1.8 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, $.01 par value per
share.
"Company" shall mean Essex Investment Management Company, Inc., a
Massachusetts corporation.
61
<PAGE>
"Company Shares" shall have the meaning set forth in the preamble hereto,
provided that such number shall be reduced to the extent any Company Shares are
redeemed prior to the Closing pursuant to Section 5.5.
"Consent" shall have the meaning specified in Section 8.3 hereof.
"Contract Value" shall have the meaning specified in Section 8.3 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 Forms" shall have the meaning specified in Section 5A.1.
"Elections" shall have the meaning specified in Section 5A.1.
"Employment Agreement" shall have the meaning specified in Section 8.8
hereof.
"Employment Arrangement" shall have the meaning specified in Section
3.25(c) hereof.
"ERISA" means 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(b) hereof.
"Escrow Agreement" shall have the meaning specified in Section 1.7 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 January 12, 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.
"Foreign Fund" shall mean Essex High Technology Fund (Bermuda), L.P.
"Former Shareholders" shall have the meaning set forth in Section 5.12(c)
hereof.
"GAAP" shall mean United States generally accepted accounting principles
as in effect from time to time.
62
<PAGE>
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indemnification Cut-Off Date" shall have the meaning specified in Section
12.2(b) hereof.
"Intellectual Property" shall have the meaning set forth in Section
3.14(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 Laws and Regulations" shall have the meaning set forth in
Section 3.17 hereof.
"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), or (b) the giving of advice with respect to
the investment and/or reinvestment of assets or funds (or any group of assets or
funds), and activities related or incidental thereto.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" with respect to the Majority Stockholders and the Company
shall mean, in the case of the "knowledge" of the Company, the actual knowledge
of each employee of the Company, and, in the case of the knowledge of any
Majority Stockholder, the actual knowledge of each of the Stockholders, whether
or not they are a party to this Agreement.
"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 Essex Investment Management Company, LLC, a Delaware
limited liability company.
"LLC Contribution" shall have the meaning specified in Section 2.1 hereof.
"LLC Contribution Agreement" shall have the meaning specified in Section
2.1 hereof.
"Loss or Losses" shall have the meaning specified in Section 12.1 hereof.
"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 or prospects of such Person.
63
<PAGE>
"Merger" shall have the meaning specified in Section 1.1 hereof.
"Merger Consideration" shall have the meaning specified in Section 1.7
hereof.
"Merger Sub" shall have the meaning specified in the preamble hereof.
"Mutual Funds" shall mean Capital Appreciation Fund, a series of the
Managers Funds, a Massachusetts business trust, which to the knowledge of the
Company and the Majority Stockholders is duly registered under the Investment
Company Act.
"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 8.9.
"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.
"Preliminary Injunction Motion" shall have the meaning specified in
Section 8.1 hereof.
"Private Funds" shall mean Essex Flexport Fund, Limited Partnership (Small
Cap Pool, Mid Cap Pool, Large Cap Pool), Corn Hill Series Fund, Limited
Partnership (High Performance, Growth) Essex Safe Harbor Fund, Limited
Partnership, Essex Performance Fund, Limited Partnership, Essex Special Growth
Opportunities Fund, L.P., Essex High Technology Fund, L.P., Spruce Investment
Partners, L.P. and The New Discovery Fund Limited.
"Real Property" shall have the meaning specified in Section 3.6(a) hereof.
"Redemption Agreement" shall have the meaning specified in Section 1.3
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.
64
<PAGE>
"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.
"Shareholders Agreement" shall have the meaning specified in Section 8.1
hereof.
"Stockholder" shall mean a holder of the Company's capital stock listed on
Schedule 1.7 hereto.
"Stockholder Indemnified Party" shall have the meaning specified in
Section 12.3 hereof.
"Supplemental Purchase Agreement" shall mean the Purchase Agreement in the
form of Exhibit 1.12 by and between the parties hereto and each Stockholder.
"Supplemental Indemnification Agreement" shall have the meaning set forth
in Section 8.12(o) hereof.
"Surviving Corporation" shall have the meaning set forth in Section 1.1
hereof.
"Taxes" shall have the meaning specified in Section 3.9(a) hereof.
"Taxing Authority" shall have the meaning specified in Section 3.9(c)
hereof.
"Valuation" shall mean the value of the AMG Shares determined by an
independent party retained by AMG and the Company to calculate the value of the
AMG Shares for federal income tax and other purposes.
"Valuation Report" shall mean the report prepared by the independent party
pursuant to the Valuation.
SECTION 14. MISCELLANEOUS.
14.1 Fees and Expenses. The rights and obligations of the parties hereto
with respect to fees and expenses, except to the extent expressly set forth
herein, 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 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 (i) the
organizational costs of the LLC including the filing fees of the LLC the
65
<PAGE>
various states to the extent the LLC has presented AMG with an invoice therefor
at or prior to the Closing, and (ii) fifty percent (50%) any filing fees
required under the HSR Act. In addition, the Company 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 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.
14.2 Dispute Resolution. The parties agree that from and after the
Closing, any and all disputes, claims, or controversies between them arising out
of or relating to this Agreement including the Exhibits hereto (except to the
extent otherwise set forth therein) and the transactions contemplated hereby
that are not resolved by their mutual agreement shall be resolved by binding
arbitration in accordance with the applicable rules of the American Arbitration
Association. The arbitration shall be held in Massachusetts before a single
arbitrator selected in accordance with Section 12 of the American Arbitration
Association Commercial Arbitration Rules (and, if practicable shall have
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. This clause applies equally to requests for temporary,
preliminary or permanent injunctive relief, except that in the case of temporary
or preliminary injunctive relief any party may proceed in court without prior
arbitration, if they first obtain a decision from the arbitrator to so proceed.
The provisions of this Section 14.2 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 attorneys'
fees, incurred by the other party in enforcing the award. The provisions of this
Section 14.2 shall not apply from the date of this Agreement through the date of
the Closing.
14.3 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
66
<PAGE>
provision being waived and no such waiver in any instance shall 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.
14.4 Governing Law. This Agreement shall be construed under and governed
by the internal laws of the Commonwealth of Massachusetts without regard to its
conflict of laws provisions.
14.5 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 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, MA 02110
Attn: Nathaniel Dalton, Senior Vice President
Facsimile No.: (617) 747-3380
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Elizabeth Shea Fries
Facsimile No.: (617) 523-1231
TO MERGER SUB: c/o Affiliated Managers Group, Inc.
Two International Place, 23rd Floor
Boston, MA 02110
Attn: Nathaniel Dalton, Senior Vice President
Facsimile No.: (617) 747-3380
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Elizabeth Shea Fries
Facsimile No.: (617) 523-1231
67
<PAGE>
TO COMPANY: Essex Investment Management Company Inc.
125 High Street, 29th Floor
Boston, MA 02110-2702
Attn: Christopher P. McConnell
Facsimile No.: (617) 342-3392
With a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103-2793
Attn: Christopher G. Karras
Facsimile No.: (215) 994-2222
TO ANY STOCKHOLDER: To that Stockholder at the address set
forth under such Stockholder's name as Schedule
1.7.
In each case, with a copy to: Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103-2793
Attn: Christopher G. Karras
Facsimile No.: (215) 994-2222
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
14.6 Entire Agreement; Severability. 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. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
14.7 Assignability; Binding Effect. This Agreement or any of the
obligations or rights hereunder (a) may not be assigned by AMG or Merger Sub,
without the prior written consent of the Company, other than to an entity under
the control of AMG, and (b) may not be
68
<PAGE>
assigned by any of the Majority 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.
14.8 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.
14.9 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.
14.10 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 and the Majority
Stockholders, or in the case of a waiver, the party waiving compliance.
14.11 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 without the prior knowledge and
written consent of AMG and 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).
14.12 Consent to Jurisdiction. Each of the parties hereby consents to
personal jurisdiction, service of process and venue in the federal or state
courts of the Commonwealth of Massachusetts for any claim, suit or proceeding
arising under this Agreement, or in the case of a third party claim subject to
indemnification hereunder, in the court where such claim is brought and hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such state court or, to the extent permitted by law,
in such federal court. 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 14.5 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 carts of other
jurisdictions.
14.13 Guarantee. AMG shall cause Merger Sub to perform and carry out its
obligations under, and the transactions contemplated by, this Agreement.
69
<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/ William J. Nutt
----------------------------
Name: William J. Nutt
Title: President and Chief Executive
Officer
MERGER SUB:
CONSTITUTION MERGER SUB, INC..
By: /s/ Sean M. Healey
----------------------------
Name: Sean M. Healey
Title: President
COMPANY:
ESSEX INVESTMENT MANAGEMENT
COMPANY, INC.
By: /s/ Joseph C. McNay
----------------------------
Name: Joseph C. McNay
Title: Chairman
70
<PAGE>
STOCKHOLDERS:
/s/ Joseph C. McNay
-------------------------------
Joseph C. McNay
/s/ Stephen D. Cutler
-------------------------------
Stephen D. Cutler
/s/ Stephen R. Clark
-------------------------------
Stephen R. Clark
71
<PAGE>
EXHIBIT 2.8
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
AMENDMENT entered into as of March 19, 1998, by and among Affiliated
Managers Group, Inc., a Delaware corporation ("AMG"), Constitution Merger
Sub, Inc., a Massachusetts corporation and a wholly owned subsidiary of AMG
("Merger Sub"), Essex Investment Management Company, Inc., a Massachusetts
corporation (the "Company"), and the holders of the Company's capital stock
party hereto collectively referred to as the "Majority Stockholders" and,
each individually as a "Majority Stockholder").
WHEREAS, the parties hereto are parties to a certain Agreement and Plan of
Reorganization dated January 15, 1998 (the "Merger Agreement") (capitalized
terms used herein and not defined shall have the meanings ascribed to them in
the Merger Agreement); and
WHEREAS, the parties do not require an escrow of any portion of the Merger
Consideration and desire to amend the Merger Agreement to eliminate all
reference to the Escrow Agent and the Escrow Agreement and make certain
additional amendments as provided herein.
NOW THEREFORE, the parties hereto agree as follows:
1. The text of Section 1.3 of the Merger Agreement shall be amended by
adding the following at the end of the existing provision: "In furtherance of
and not in limitation of the foregoing, each of the shares of capital stock of
Merger Sub issued and outstanding immediately prior to the Effective time, and
all rights attached thereto, shall, by virtue of this Agreement and without any
action on the part of the holder thereof, be converted into one share of Common
Stock of the Surviving Corporation at the Effective Time."
2. The text of Section 1.7(a) of the Merger Agreement shall be deleted in
its entirety and replaced with the following:
"(a) At the Effective Time, all of the shares of Company Common Stock
and all of the shares of Company Class A Stock issued and outstanding
immediately prior to the Effective Time and all rights attached thereto, shall,
by virtue of this Agreement and without any action on the part of the holder
thereof, be converted into the right to receive, subject to adjustment as
provided in this Section 1.7: (i) cash in an aggregate amount equal to
sixty-nine million six hundred thousand dollars ($69,600,000); and (ii) one
million seven hundred fifty thousand nine hundred forty two (1,750,942) shares
of AMG's Series C Non-Voting Convertible Stock, $.01 par value per share (the
"AMG Shares" and, together with such cash, the "Merger Consideration"),
established and designated under the Certificate of Designations of AMG attached
hereto as Exhibit 1.7A (the "Certificate of Designations"). The aggregate
amount of cash Merger Consideration to be received by the Stockholders shall be
reduced by the amount of obligations of the Company assumed, or payments made,
on behalf of the
<PAGE>
Stockholders and the Company at the Closing, which amounts are set forth on
Schedule 1.7. At the Effective Time, the Merger Consideration shall be
allocated among and paid to the Stockholders and other Persons listed on
Schedule 1.7 in accordance with said Schedule."
3. Schedule 1.7 to the Merger Agreement shall be replaced in its entirety
by Schedule 1.7 attached hereto.
4. Exhibit 1.7 to the Merger Agreement shall be replaced in its entirety
by Exhibit 1.7 attached hereto.
5. The text of Section 1.8 of the Merger Agreement shall be deleted in
its entirety and replaced with the following:
"(a) In the event that any Client which (a) has a contract that
neither prohibits assignment by its terms nor terminates by its terms upon
consummation of the transactions contemplated hereby does not Consent at or
prior to the Closing (and AMG in its sole discretion does not elect to treat
such client as having Consented at the Closing), then (a) such Client shall be
treated, for purposes of calculating the Merger Consideration hereunder, as
having withdrawn its assets, but the Company or the LLC may continue to provide
services to such Client and (b) in the event that, as of the date that is sixty
(60) days after the date of the Closing, the Company or the LLC is able to
obtain the Consent of such Client, then the Company shall make an additional
payment to the Stockholders in accordance with Schedule 1.7.
(b) In the event that any Client which has a contract that prohibits
assignment by its terms or terminates by its terms upon consummation of the
transactions contemplated hereby does not Consent at or prior to the Closing
(and AMG in its sole discretion does not elect to treat such client as having
Consented at Closing), then (a) such Client shall be treated, for purposes of
calculating the Merger Consideration hereunder, as having withdrawn its assets,
but the Company or the LLC may continue to provide services to such Client and
(b) in the event that, as of or prior to the date that is sixty (60) days after
the date of the Closing, the LLC is able to enter into a contract with such
Client with substantially identical terms, then the Company shall make an
additional payment to the Stockholders in accordance with Schedule 1.7."
6. The first sentence of Section 2.1 of the Merger Agreement shall be
deleted in its entirety.
7. The text of Section 3.21 of the Merger Agreement shall be deleted in
its entirety and replaced with the following:
"Except for fees to McDaniels & Co. (which fees have been disclosed to AMG
and will be paid at the Closing in accordance with Schedule 1.7), none of the
Company, the LLC or any Stockholder has incurred or become liable for any
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement."
<PAGE>
8. The header to Section 3.24 of the Merger Agreement shall be deleted in
its entirety and replaced with the following: "Employee Benefit Programs."
9. Section 5.12(c) of the Merger Agreement shall be amended to delete the
words "Escrow Agreement" and replace them with the words "Release attached
hereto as Exhibit 1.7."
10. Section 6.9 of the Merger Agreement shall be amended by deleting the
words "Exhibit 6.9" and replacing them with the words "Schedule 6.9".
11. Section 7.7 of the Merger Agreement shall be deleted in its entirety
and replaced with the following: "On or promptly following the closing, AMG
shall cause Merger Sub to, or shall on behalf of Merger Sub, make an additional
contribution to the capital of the LLC as contemplated in Section 4.1 of the
Restated LLC Agreement to fund contributions by the LLC to the Private Funds as
contemplated thereby, provided that such amount shall not exceed $225,000."
12. Sections 8.4 and 8.12(n) of the Merger Agreement shall be deleted in
their entirety.
13. Section 8.11 of the Merger Agreement shall be deleted in its entirety
and replaced with the following:
"The Company's capitalization including ownership of capital stock and
options to purchase shares of capital stock shall be as set forth on Schedule
1.7 and Schedule 3.3. 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). At the Closing, and after giving effect to the
transactions contemplated by Schedule 1.7, the LLC Contribution and all
transaction costs of the Company and the LLC, the LLC shall have a tangible net
worth (determined in accordance with GAAP) of at least five million four hundred
twenty six thousand dollars ($5,426,000), working capital (defined as current
assets less current liabilities) of at least five million four hundred twenty
six thousand dollars ($5,426,000),which shall be not less than the amount
necessary for the operation of the business of the LLC, consistent with past
practices of the Company, and cash on hand of at least five million four hundred
twenty six thousand dollars ($5,426,000). AMG shall be provided with a
certificate from the Vice President and Chief Financial Officer of the Company
and at the closing representing that the foregoing is true and correct.
14. The text of Section 12.2(a) of the Merger Agreement shall be deleted
in its entirety and replaced with the following:
"No indemnification shall be payable to any AMG Indemnified Party
pursuant to Subsection 12.1(b) or 12.1(c) unless the total of all claims for
indemnification pursuant to Section 12.1 shall exceed five hundred thousand
dollars ($500,000) in the aggregate, whereupon only amounts of such claims in
excess of such amount shall be recoverable in
<PAGE>
accordance with the terms hereof provided, however, that this limitation shall
not apply to claims for indemnification (i) pursuant to Section 5A, except to
the extent that indemnification for Tax matters do not exceed twenty five
thousand dollars ($25,000), (ii) in connection with claims by any Person in
connection with the payments made in accordance with Schedule 1.7, or (iii)
subject to the Supplemental Indemnification Agreement;"
15. The parties agree that, notwithstanding any other provision of this
Agreement, the Closing shall occur on March 20, 1998.
16. Except as amended by the provisions of this Amendment, the Merger
Agreement, together with all Exhibits and Schedules thereto, shall remain in
full force and effect, without modification or waiver.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
executed as of the date set forth above by their duly authorized
representatives.
AFFILIATED MANAGERS GROUP, INC.
By: /s/ Nathaniel Dalton
---------------------------
Name: Nathaniel Dalton
Title: Senior Vice President
CONSTITUTION MERGER SUB, INC..
By: /s/ Nathaniel Dalton
---------------------------
Name: Nathaniel Dalton
Title: Clerk
ESSEX INVESTMENT MANAGEMENT
COMPANY, INC.
By: /s/ Christopher P. McConnell
---------------------------
Name: Christopher P. McConnell
Title: Vice President and
Chief Financial Officer
/s/ Joseph C. McNay
---------------------------
Joseph C. McNay
/s/ Stephen D. Cutler
---------------------------
Stephen D. Cutler
/s/ Stephen R. Clark
---------------------------
Stephen R. Clark
<PAGE>
EXECUTION COPY
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
Affiliated Managers Group, Inc.
The Several Lenders
from Time to Time Parties Hereto
NationsBank, N.A.,
as Documentation Agent
and
The Chase Manhattan Bank,
as Administrative Agent
Dated as of December 22, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
-----
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . 15
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS. . . . . . . 15
2.1 Revolving Credit Commitments. . . . . . . . . . . . . . . . . 15
2.2 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . 15
2.3 Increase of Commitments . . . . . . . . . . . . . . . . . . . 16
2.4 Commitment Fee. . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 Termination or Reduction of Commitments . . . . . . . . . . . 17
2.6 Repayment of Loans; Evidence of Debt. . . . . . . . . . . . . 17
SECTION 3. GENERAL PROVISIONS APPLICABLE TO THE LOANS. . . . . . . . . . 18
3.1 Optional Prepayments. . . . . . . . . . . . . . . . . . . . . 18
3.2 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . 18
3.3 Conversion and Continuation Options . . . . . . . . . . . . . 19
3.4 Minimum Amounts and Maximum Number of Tranches. . . . . . . . 19
3.5 Interest Rates and Payment Dates. . . . . . . . . . . . . . . 20
3.6 Computation of Interest and Fees. . . . . . . . . . . . . . . 20
3.7 Inability to Determine Interest Rate. . . . . . . . . . . . . 20
3.8 Pro Rata Treatment and Payments . . . . . . . . . . . . . . . 21
3.9 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.10 Requirements of Law . . . . . . . . . . . . . . . . . . . . . 22
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.12 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.13 Change of Lending Office. . . . . . . . . . . . . . . . . . . 25
SECTION 4. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . 25
4.1 Financial Condition . . . . . . . . . . . . . . . . . . . . . 25
4.2 No Change . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3 Corporate Existence; Compliance with Law. . . . . . . . . . . 26
4.4 Corporate Power; Authorization; Enforceable Obligations . . . 26
4.5 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . 27
4.6 No Material Litigation. . . . . . . . . . . . . . . . . . . . 27
4.7 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.8 Ownership of Property; Liens. . . . . . . . . . . . . . . . . 27
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4.10 Federal Regulations . . . . . . . . . . . . . . . . . . . . . 27
4.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.12 Investment Company Act. . . . . . . . . . . . . . . . . . . . 28
4.13 Investment Advisory Agreements. . . . . . . . . . . . . . . . 28
4.14 Subsidiaries and Other Ownership Interests. . . . . . . . . . 29
-i-
<PAGE>
4.15 Purpose of Loans. . . . . . . . . . . . . . . . . . . . . . . 29
4.16 Accuracy and Completeness of Information. . . . . . . . . . . 29
SECTION 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . 29
5.1 Conditions to Initial Loans . . . . . . . . . . . . . . . . . 29
5.2 Conditions to Each Loan . . . . . . . . . . . . . . . . . . . 32
SECTION 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 32
6.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . 32
6.2 Certificates; Other Information . . . . . . . . . . . . . . . 33
6.3 Payment of Obligations. . . . . . . . . . . . . . . . . . . . 34
6.4 Conduct of Business and Maintenance of Existence. . . . . . . 34
6.5 Maintenance of Property; Insurance. . . . . . . . . . . . . . 34
6.6 Inspection of Property; Books and Records; Discussions. . . . 35
6.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.8 Stock Pledges . . . . . . . . . . . . . . . . . . . . . . . . 36
6.9 Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 36
7.1 Financial Condition Covenants . . . . . . . . . . . . . . . . 36
7.2 Limitation on Indebtedness. . . . . . . . . . . . . . . . . . 37
7.3 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 38
7.4 Limitation on Guarantee Obligations . . . . . . . . . . . . . 39
7.5 Limitation on Fundamental Changes . . . . . . . . . . . . . . 39
7.6 Limitation on Sale of Assets. . . . . . . . . . . . . . . . . 40
7.7 Limitation on Leases. . . . . . . . . . . . . . . . . . . . . 40
7.8 Limitation on Dividends . . . . . . . . . . . . . . . . . . . 40
7.9 Limitation on Capital Expenditures. . . . . . . . . . . . . . 41
7.10 Limitation on Investments, Loans and Advances . . . . . . . . 41
7.11 Limitation on Payments of Subordinated Indebtedness . . . . . 42
7.12 Restriction on Amendments to Revenue Sharing Agreements . . . 42
7.13 Limitation on Transactions with Affiliates. . . . . . . . . . 42
7.14 Limitation on Changes in Fiscal Year. . . . . . . . . . . . . 42
SECTION 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 9. THE ADMINISTRATIVE AGENT. . . . . . . . . . . . . . . . . . . 45
9.1 Appointment . . . . . . . . . . . . . . . . . . . . . . . . . 45
9.2 Delegation of Duties. . . . . . . . . . . . . . . . . . . . . 45
9.3 Exculpatory Provisions. . . . . . . . . . . . . . . . . . . . 45
9.4 Reliance by Administrative Agent. . . . . . . . . . . . . . . 46
9.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . 46
9.6 Non-Reliance on Administrative Agent and Other Lenders. . . . 46
9.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 47
-ii-
<PAGE>
9.8 Administrative Agent in Its Individual Capacity . . . . . . . 47
9.9 Successor Administrative Agent. . . . . . . . . . . . . . . . 47
SECTION 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 48
10.1 Amendments and Waivers. . . . . . . . . . . . . . . . . . . . 48
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.3 No Waiver; Cumulative Remedies. . . . . . . . . . . . . . . . 49
10.4 Survival of Representations and Warranties. . . . . . . . . . 49
10.5 Payment of Expenses and Taxes . . . . . . . . . . . . . . . . 49
10.6 Successors and Assigns; Participations and Assignments. . . . 50
10.7 Adjustments; Set-off. . . . . . . . . . . . . . . . . . . . . 52
10.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 53
10.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 53
10.10 Integration . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . 53
10.12 Submission To Jurisdiction; Waivers . . . . . . . . . . . . . 53
10.13 Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . 54
10.14 WAIVERS OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . 54
10.15 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 54
-iii-
<PAGE>
ANNEXES
Annex I - Pricing Grid
SCHEDULES
Schedule I - Lender Commitments
Schedule 4.1 - Financial Condition
Schedule 4.2 - Changes in Capital Stock
Schedule 4.9 - Taxes
Schedule 4.10 - Federal Regulations
Schedule 4.14 - Subsidiaries and Other Ownership Interests
Schedule 7.2(g) - Existing Indebtedness
Schedule 7.3(j) - Existing Liens
Schedule 7.10 - Loans to Management
Schedule 7.13 - Transactions with Affiliates
EXHIBITS
Exhibit A - Form of Note
Exhibit B-1 - Form of Stock Pledge Agreement
Exhibit B-2 - Form of Partnership Pledge Agreement
Exhibit B-3 - Form of Limited Liability Company Pledge Agreement
Exhibit B-4 - Form of Subsidiary Pledge Agreement
Exhibit C - Form of Borrowing Certificate
Exhibit D - Form of Opinion of Borrower's Counsel
Exhibit E - Form of Assignment and Acceptance
Exhibit F - Form of Confidentiality Agreement
Exhibit G - Terms and Conditions of Subordinated Indebtedness
-iv-
<PAGE>
CREDIT AGREEMENT, dated as of December 22, 1997, among Affiliated
Managers Group, Inc., a Delaware corporation (the "BORROWER"), the several banks
and other financial institutions from time to time parties to this Agreement
(the "LENDERS"), NationsBank, N.A., a national banking association, as
documentation agent (in such capacity, the "DOCUMENTATION AGENT") and The Chase
Manhattan Bank, a New York banking corporation, as administrative agent for the
Lenders hereunder (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H :
WHEREAS, the Borrower has acquired, and intends to acquire, directly
or indirectly, majority and other equity interests, each an "ACQUISITION") in
investment management companies, each as hereinafter further defined, a
"MANAGEMENT COMPANY"), and such Management Companies intend to acquire, directly
or indirectly, majority and other equity interests (each also an "Acquisition")
in other investment management companies (each also a "MANAGEMENT COMPANY"); and
WHEREAS, the Borrower currently has loans outstanding under the
existing $300,000,000 Credit Agreement, dated as of September 30, 1997 among the
Borrower, the several lenders parties thereto and The Chase Manhattan Bank, as
administrative agent (the "EXISTING FACILITY"); and
WHEREAS, the Borrower has requested loans of up to $285,000,000 (with
such increases as may be permitted hereunder) on a revolving basis to refinance
the Existing Facility, to finance Acquisitions, to pay the related fees and
expenses of the Acquisitions, to finance certain additional costs related to the
Acquisitions and to finance the working capital and business requirements of the
Borrower and its Subsidiaries; and
WHEREAS, the Lenders are willing to make Loans to the Borrower,
subject to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in
effect on such day, (b) the Base CD Rate in effect on such day plus 1% and
(c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
For purposes hereof: "PRIME RATE" shall mean the rate of interest per
annum publicly announced from time to time by the Administrative Agent as
its prime rate in effect at its principal office in New York City (the
Prime Rate not being intended to be the lowest rate of interest charged by
The Chase Manhattan Bank in connection with extensions of credit to
debtors); "BASE CD RATE" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D
<PAGE>
2
Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall mean, for any day,
the secondary market rate for three-month certificates of deposit reported
as being in effect on such day (or, if such day shall not be a Business
Day, the next preceding Business Day) by the Board of Governors of the
Federal Reserve System (the "BOARD") through the public information
telephone line of the Federal Reserve Bank of New York (which rate will,
under the current practices of the Board, be published in Federal Reserve
Statistical Release H.15(519) during the week following such day), or, if
such rate shall not be so reported on such day or such next preceding
Business Day, the average of the secondary market quotations for
three-month certificates of deposit of major money center banks in New York
City received at approximately 10:00 A.M., New York City time, on such day
(or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Administrative Agent from three New York City
negotiable certificate of deposit dealers of recognized standing selected
by it; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three federal funds
brokers of recognized standing selected by it. Any change in the ABR due
to a change in the Prime Rate, the Three-Month Secondary CD Rate or the
Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
"ABR LOANS": Loans the rate of interest applicable to which is based
upon the ABR.
"ACQUISITION": as defined in the recitals hereto.
"ADJUSTED EBITDA": as at the end of any fiscal quarter of the
Borrower, the average of the Consolidated EBITDA of the Borrower and its
Subsidiaries (a) for such fiscal quarter (on an annualized (I.E., times
four) and consolidated basis) and (b) for the preceding four fiscal
quarters, in each case after giving effect on a PRO FORMA basis to
Acquisitions completed during such fiscal period.
"ADJUSTMENT DATE": each date that is the second Business Day
following receipt by the Administrative Agent of the financial statements
required to be delivered pursuant to subsection 6.1.
"ADMINISTRATIVE AGENT": The Chase Manhattan Bank, together with its
affiliates, as the administrative agent for the Lenders under this
Agreement and the other Loan Documents.
"AFFILIATE": as to any Person, any other Person (other than a
Subsidiary or a Management Company) which, directly or indirectly, is in
control of, is controlled by, or is under common control with, such Person.
For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person
or (b) direct or cause the direction of the management and policies of such
Person, whether by contract or otherwise.
"AGREEMENT": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
<PAGE>
3
"APPLICABLE MARGIN": with respect to Eurodollar Loans and ABR Loans,
the rate per annum, as adjusted on each Adjustment Date, set forth under
the headings "Applicable Margin for Eurodollar Loans" and "Applicable
Margin for ABR Loans," respectively, on ANNEX I hereto which corresponds to
the ratio of Senior Indebtedness to Adjusted EBITDA of the Borrower,
determined from the financial statements referred to in subsection 6.1 and
with respect to fiscal quarters ended prior to the date hereof, the
financial statements heretofore provided to the Administrative Agent;
PROVIDED that in the event that the financial statements required to be
delivered pursuant to subsection 6.1 are not delivered when due, then
(a) if such financial statements are delivered after the date required
(without giving effect to any applicable cure period) and the Applicable
Margin increases from that previously in effect as a result of the delivery
of such financial statements, then the Applicable Margin during the period
from the date upon which such financial statements were required to be
delivered (without giving effect to any applicable cure period) until the
date upon which they actually are delivered shall be, except as otherwise
provided in clause (c) below, the Applicable Margin as so increased;
(b) if such financial statements are delivered after the date required
and the Applicable Margin decreases from that previously in effect as a
result of the delivery of such financial statements, then such decrease in
the Applicable Margin shall not become applicable until the date upon which
the financial statements actually are delivered; and
(c) if such financial statements are not delivered prior to the
expiration of the applicable cure period, then, effective upon such
expiration, for the period from the date upon which such financial
statements were required to be delivered (after the expiration of the
applicable cure period) until two Business Days following the date upon
which they actually are delivered, the Applicable Margin shall be 2.25%, in
the case of Eurodollar Loans, and 1.25%, in the case of ABR Loans (it being
understood that the foregoing shall not limit the rights of the
Administrative Agent and the Lenders set forth in Section 8).
"ASSET SALE": any sale, issuance, conveyance, transfer, lease or
other disposition, including by way of merger, consolidation or sale and
leaseback transaction (any of the foregoing, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) all or
substantially all of the properties and assets (other than marketable
securities, including "margin stock" within the meaning of Regulation U,
liquid investments and other financial instruments) of the Borrower or its
Subsidiaries, or (ii) any other properties or assets of the Borrower or any
Subsidiary, other than in the ordinary course of business, to any Persons
other than the Borrower or any of its Subsidiaries. For the purposes of
this definition, the term "Asset Sale" shall not include (a) any transfer
of properties and assets to the extent that the gross proceeds from the
transfer thereof do not exceed (i) $2,000,000 in any transaction or series
of related transactions, taken as a whole, or (ii) $10,000,000
(irrespective of the size of the individual transactions) in the aggregate
for all such transactions or series of related transactions on or after the
Closing Date, and (b) any transfer of the Capital Stock of any Management
Company or any of the Subsidiaries of the Borrower to a partner, officer,
director, shareholder or member (or any entity owned or controlled by such
Person) of a Management Company which is a Subsidiary of the Borrower or in
which the Borrower or a Subsidiary has an ownership interest (any such
transfer described in this clause (b), a "SHAREHOLDER ASSET SALE"). In
addition, with regard to a Subsidiary of the Borrower, the term "Asset
Sale" shall include only that portion of the gross proceeds to such
Subsidiary from the
<PAGE>
4
transfer thereof representing the percentage of such proceeds equal to the
percentage of the Borrower's ownership interest in such Subsidiary.
"ASSIGNEE": as defined in subsection 10.6(c).
"AVAILABLE COMMITMENT": as to any Lender at any time, an amount equal
to the excess, if any, of (a) the amount of such Lender's Commitment over
(b) the aggregate principal amount of all Loans made by such Lender then
outstanding.
"BORROWER": as defined in the preamble hereto.
"BORROWING DATE": any Business Day specified in a notice pursuant to
subsection 2.2 as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"BUSINESS DAY": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law
to close.
"CAPITAL STOCK": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all equivalent ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"C/D ASSESSMENT RATE": for any day as applied to any ABR Loan based
upon the Base CD Rate the annual assessment rate in effect on such day
which is payable by a member of the Bank Insurance Fund maintained by the
Federal Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12 C.F.R.
Section 327.4 (or any successor provision) to the FDIC (or any successor)
for the FDIC's (or such successor's) insuring time deposits at offices of
such institution in the United States.
"C/D RESERVE PERCENTAGE": for any day as applied to any ABR Loan
based on the Base CD Rate, that percentage (expressed as a decimal) which
is in effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) (the "BOARD"), for determining
the maximum reserve requirement for a Depositary Institution (as defined in
Regulation D of the Board) in respect of new non-personal time deposits in
Dollars having a maturity of 30 days or more.
"CHANGE OF CONTROL": a "Change of Control" shall be deemed to occur
on any date on which any Person or "group" (within the meaning of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) other
than TA Associates, Inc. (and entities associated therewith) shall have
acquired beneficial ownership of Capital Stock having 30% or more of the
ordinary voting power in the election of directors of the Borrower.
"CHASE": The Chase Manhattan Bank, a New York banking corporation.
"CLOSING DATE": the date on which the conditions precedent set forth
in subsection 5.1 shall be satisfied.
"CODE": the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE>
5
"COLLATERAL": as defined in the Stock Pledge Agreement.
"COMMITMENT": as to any Lender, the obligation of such Lender to make
Loans to the Borrower hereunder in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's
name on Schedule I under the heading "Commitment", as such amount may be
increased or reduced from time to time in accordance with the provisions of
this Agreement.
"COMMITMENT FEE RATE": the rate per annum, as adjusted on each
Adjustment Date, set forth under the heading "Commitment Fee Rate" on ANNEX
I hereto which corresponds to the ratio of Senior Indebtedness to Adjusted
EBITDA of the Borrower, determined from the financial statements referred
to in subsection 6.1 and with respect to fiscal quarters ended prior to the
date hereof, the financial statements heretofore provided to the
Administrative Agent; PROVIDED that in the event that the financial
statements required to be delivered pursuant to subsection 6.1 are not
delivered when due, then
(a) if such financial statements are delivered after the date required
(without giving effect to any applicable cure period) and the Commitment
Fee Rate increases from that previously in effect as a result of the
delivery of such financial statements, then the Commitment Fee Rate during
the period from the date upon which such financial statements were required
to be delivered (without giving effect to any applicable cure period) until
the date upon which they actually are delivered shall be, except as
otherwise provided in clause (c) below, the Commitment Fee Rate as so
increased;
(b) if such financial statements are delivered after the date required
and the Commitment Fee Rate decreases from that previously in effect as a
result of the delivery of such financial statements, then such decrease in
the Commitment Fee Rate shall not become applicable until the date upon
which the financial statements actually are delivered; and
(c) if such financial statements are not delivered prior to the
expiration of the applicable cure period, then, effective upon such
expiration, for the period from the date upon which such financial
statements were required to be delivered (after the expiration of the
applicable cure period) until two Business Days following the date upon
which they actually are delivered, the Commitment Fee Rate shall be 0.50%
(it being understood that the foregoing shall not limit the rights of the
Administrative Agent and the Lenders set forth in Section 8).
"COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage
which such Lender's Commitment then constitutes of the aggregate
Commitments (or, at any time after the Commitments shall have expired or
terminated, the percentage which the aggregate principal amount of such
Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans then outstanding).
"COMMITMENT PERIOD": the period from and including the date hereof to
but not including the Termination Date or such earlier date on which the
Commitments shall terminate as provided herein.
"COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
<PAGE>
6
"CONSOLIDATED EBITDA": for any period the consolidated EBITDA of the
Borrower and its Subsidiaries for such period, in each case after giving
effect on a PRO FORMA basis to Acquisitions completed during such fiscal
period.
"CONSOLIDATED INTEREST EXPENSE": for any period, the amount of
interest expense, both expensed and capitalized, of the Borrower and, to
the extent payable out of Free Cash Flow (and not Operating Cash Flow)
under the relevant Revenue Sharing Agreement, its Subsidiaries on a
consolidated basis, net of the portion thereof attributable to minority
interests, for such period, as determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" (or "CONSOLIDATED NET LOSS"): for any
period, consolidated net income (or loss) by the Borrower and its
Subsidiaries for such fiscal period, determined in accordance with GAAP.
"CONSOLIDATED NET WORTH": as at any date, all amounts included under
shareholders' equity on a consolidated balance sheet of the Borrower and
its Subsidiaries as at such date, as determined on a consolidated basis in
accordance with GAAP and any Subordinated Indebtedness; PROVIDED that such
Subordinated Indebtedness shall have no scheduled payments of interest
prior to December 22, 2002 (other than payments of interest which may, at
the option of the Borrower, be made by increasing the principal and other
than payments of interest with respect to the Subordinated Contingent
Payment Notes in accordance with the terms thereof).
"CONTRACTUAL OBLIGATION": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"DEFAULT": any of the events specified in Section 8, whether or not
any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"DOLLARS" and "$": dollars in lawful currency of the United States of
America.
"EBITDA": for any Person for any period, the sum (without
duplication) of the amount for such Person for such period of (a) its net
income before taxes, (b) its interest expense (including capitalized
interest expense), (c) its depreciation expense, (d) its amortization
expense and (e) its Non-Cash Based Compensation Costs, in each case as
determined in accordance with GAAP.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"EURODOLLAR BASE RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum equal to the
rate offered by Chase for Dollar deposits at or
<PAGE>
7
about 10:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period in the interbank eurodollar market where
the eurodollar and foreign currency and exchange operations in respect of
its Eurodollar Loans are then being conducted for delivery on the first day
of such Interest Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Loan to be outstanding
during such Interest Period.
"EURODOLLAR LOANS": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"EURODOLLAR RATE": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/100th of 1%):
Eurodollar Base Rate
---------------------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT": any of the events specified in Section 8;
PROVIDED that any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied.
"EXISTING AGREEMENT": the $300,000,000 Credit Agreement, dated as of
September 30, 1997, among the Borrower, the several lenders parties thereto
and The Chase Manhattan Bank, as administrative agent.
"FINANCING LEASE": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"FREE CASH FLOW": as defined in the relevant Revenue Sharing
Agreement.
"FUNDS": the collective reference to all Investment Companies and
other investment accounts or funds (in whatever form and whether personal
or corporate) for which the Borrower or any of its Subsidiaries or
Management Companies provides advisory, management or administrative
services.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"GOVERNMENTAL AUTHORITY": any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING PERSON"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "PRIMARY OBLIGATIONS") of any other third Person
(the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not
<PAGE>
8
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation
or (2) to maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency of the primary obligor,
(iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or (iv)
otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; PROVIDED, HOWEVER that the term
Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. The amount of
any Guarantee Obligation of any guaranteeing person shall be deemed to be
the lower of (a) an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee Obligation is
made and (b) the maximum amount for which such guaranteeing person may be
liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which
such guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"INDEBTEDNESS": of any Person at any date and without duplication,
(a) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (b) any other indebtedness of such
Person which is evidenced by a note, bond, debenture or similar instrument,
(c) all obligations of such Person under Financing Leases, (d) all
obligations of such Person in respect of acceptances issued or created for
the account of such Person, (e) all obligations of such Person under
noncompetition agreements reflected as liabilities on a balance sheet of
such Person in accordance with GAAP, (f) all liabilities secured by any
Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof and (g) all net
obligations of such Person under interest rate, commodity, foreign currency
and financial markets swaps, options, futures and other hedging obligations
(valued, at such date, in accordance with the Borrower's customary
practices, as approved by its independent certified public accountants).
For purposes of the foregoing definition, with regard to a Subsidiary of
the Borrower, the term "Indebtedness" shall include only that portion of
its Indebtedness representing the percentage of its Indebtedness equal to
the percentage of the Borrower's ownership interest in such Subsidiary.
"INSOLVENCY": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"INSOLVENT": pertaining to a condition of Insolvency.
"INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is
outstanding, (b) as to any Eurodollar Loan having an Interest Period of
three months or less, the last day of such Interest Period and (c) as to
any Eurodollar Loan having an Interest Period longer than three months,
each day which is three months or a whole multiple thereof, after the first
day of such Interest Period and the last day of such Interest Period.
"INTEREST PERIOD": with respect to any Eurodollar Loan:
<PAGE>
9
(i) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
PROVIDED that the foregoing provisions relating to Interest Periods are
subject to the following:
(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) no Interest Period that would otherwise extend beyond the
Termination Date shall be selected by the Borrower; and
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month.
"INVESTMENT ADVISERS ACT": the Investment Advisers Act of 1940, and
the rules and regulations promulgated thereunder, as such may be amended
from time to time.
"INVESTMENT COMPANY": an "investment company" as such term is defined
in the Investment Company Act.
"INVESTMENT COMPANY ACT": the Investment Company Act of 1940, and the
rules and regulations promulgated thereunder, as such may be amended from
time to time.
"LENDERS": as defined in the preamble hereto.
"LIEN": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement
or preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement
and any Financing Lease having substantially the same economic effect as
any of the foregoing).
"LLC PLEDGE AGREEMENT": the Limited Liability Pledge Agreement to be
executed and delivered by the Borrower, substantially in the form of
Exhibit B-3, as the same may be amended, supplemented or otherwise modified
from time to time (including as supplemented by the execution
<PAGE>
10
and delivery of any Pledge Agreement Supplement in the form of Annex I to
said Exhibit B-3 (a "PLEDGE AGREEMENT SUPPLEMENT")).
"LOAN DOCUMENTS": this Agreement, any Notes, and the Pledge
Agreements.
"LOANS": as defined in subsection 2.1(a).
"MANAGEMENT COMPANY": any Subsidiary or other Person engaged,
directly or indirectly, primarily in the business of providing investment
advisory, management, distribution or administrative services to Funds (or
investment accounts or funds which will be included as Funds after the
Borrower acquires an interest in such other Person) and in which the
Borrower, directly or indirectly, has purchased or otherwise acquired, or
has entered into an agreement to purchase or otherwise acquire, Capital
Stock or other interests, entitling the Borrower, directly or indirectly,
to a share of the revenues, earnings or value thereof.
"MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the
business, operations, property or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole, (b) the ability of the
Borrower to perform its obligations under the Loan Documents or (c) the
validity or enforceability of this or any of the other Loan Documents or
the rights or remedies of the Administrative Agent or the Lenders hereunder
or thereunder.
"MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"NET PROCEEDS": with respect to any Asset Sale or Shareholder Asset
Sale the net amount equal to the aggregate amount received in cash
(including any cash received by way of deferred payment pursuant to a note
receivable, other non-cash consideration or otherwise, but only as and when
such cash is so received) in connection with such Asset Sale or Shareholder
Asset Sale MINUS the sum of (a) the reasonable fees, commissions and other
out-of-pocket expenses incurred by the Borrower or any of its Subsidiaries,
as applicable, in connection with such Asset Sale or Shareholder Asset Sale
(other than amounts payable to Affiliates of the Person making such
disposition) and (b) federal, state and local taxes incurred in connection
with such Asset Sale or Shareholder Asset Sale, whether or not payable at
such time. For purposes of the foregoing definition, with regard to a
Subsidiary of the Borrower, the term "Net Proceeds" shall include only that
portion of its Net Proceeds representing the percentage of its Net Proceeds
equal to the percentage of the Borrower's ownership interest in such
Subsidiary (or, if less in the case of any Asset Sale by a Subsidiary, the
portion to which the Borrower is entitled under any relevant Revenue
Sharing Agreement or other operating agreement with or with respect to such
Subsidiary).
"NON-CASH BASED COMPENSATION COSTS": for any period, the amount of
non-cash expense or costs computed under APB No. 25 and related
interpretations or FAS 123 and related interpretations, which relate to the
issuance of interests in any Subsidiary or Management Company.
"NON-EXCLUDED TAXES": as defined in subsection 3.11.
"NOTE": as defined in subsection 2.6(e).
"OPERATING CASH FLOW": as defined in the relevant Revenue Sharing
Agreement.
<PAGE>
11
"PARTICIPANT": as defined in subsection 10.6(b).
"PARTNERSHIP PLEDGE AGREEMENT": the Partnership Pledge Agreement to
be executed and delivered by the Borrower, substantially in the form of
Exhibit B-2, as the same may be amended, supplemented or otherwise modified
from time to time (including as supplemented by the execution and delivery
of any Pledge Agreement Supplement in the form of Annex I to said Exhibit
B-2 (a "PLEDGE AGREEMENT SUPPLEMENT")).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"PERSON": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"PLAN": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Parent or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PLEDGE AGREEMENTS": the collective reference to the Partnership
Pledge Agreement, the LLC Pledge Agreement, the Stock Pledge Agreement and
the Subsidiary Pledge Agreement.
"PLEDGED COLLATERAL": as defined in the Pledge Agreements other than
the Stock Pledge Agreement.
"PRO FORMA BALANCE SHEET": as defined in subsection 5.1(o).
"REGISTER": as defined in subsection 10.6(d).
"REGULATION U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"REORGANIZATION": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"REPORTABLE EVENT": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
Section 2615.
"REQUIRED LENDERS": at any time, Lenders the Commitment Percentages
of which aggregate at least 51%.
"REQUIREMENT OF LAW": as to any Person, any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its
property is subject.
<PAGE>
12
"RESPONSIBLE OFFICER": the chief executive officer, the president and
the executive vice president of the Borrower or, with respect to financial
matters, the senior financial officer of the Borrower.
"REVENUE SHARING AGREEMENT": each agreement entered into by the
Borrower or a Subsidiary with a Management Company pursuant to which a
specified percentage of the adjusted gross revenues of the partnership or
limited liability company or other similar entity organized under such
agreement or the Person to which such agreement relates is deemed "Free
Cash Flow" to be distributed among partners, shareholders or members of
such Management Company, PRO RATA, in accordance with such partners',
shareholders' or members' ownership percentages, or any similar other
agreement providing for the distribution of income, revenues or assets of a
Management Company.
"SECURITIES ACTS": The Securities Act of 1933 and the Securities
Exchange Act of 1934, and the rules and regulations promulgated thereunder,
in each case as such may be amended from time to time.
"SENIOR INDEBTEDNESS": at any time, Total Indebtedness minus
Subordinated Indebtedness.
"SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"STOCK PLEDGE AGREEMENT": the Stock Pledge Agreement to be executed
and delivered by the Borrower, substantially in the form of Exhibit B-1, as
the same may be amended, supplemented or otherwise modified from time to
time (including as supplemented by the execution and delivery of any Pledge
Agreement Supplement in the form of Annex I to said Exhibit B-1 (a "PLEDGE
AGREEMENT SUPPLEMENT")).
"SUBORDINATED CONTINGENT PAYMENT NOTES": the collective reference to
(i) the Subordinated Contingent Payment Notes issued by the Borrower
pursuant to the Partnership Interest Purchase Agreement dated March 8, 1995
among the Borrower, Systematic Financial Management, Inc., Cash Flow
Investors, Inc., Systematic Financial Management, L.P. and certain
stockholders of Systematic Financial Management, Inc., (ii) the
Subordinated Deferred Payment Note issued by the Borrower on November 9,
1995 pursuant to the Partnership Interest Purchase Agreement dated August
11,1995 among the Borrower, Renaissance Investment Management, Inc.,
Descartes, Inc., Renaissance Investment Management, the stockholders of
Renaissance Investment Management and certain stockholders of Descartes,
Inc., (iii) the Subordinated Contingent Payment Notes issued by the
Borrower pursuant to the Stock Purchase and Contribution Agreement, dated
October 11, 1996, among the Borrower, The Burridge Group Inc. and the
stockholders of The Burridge Group Inc. and (iv) the Subordinated
Contingent Payment Notes issued by the Borrower pursuant to the Limited
Liability Company Interest Purchase Agreement, dated March 5, 1997, among
the Borrower, Gofen and Glossberg, Inc., Gofen and Glossberg, L.L.C. and
the stockholders of Gofen and Glossberg, Inc.
"SUBORDINATED INDEBTEDNESS": (a) the Indebtedness of the Borrower
under the Subordinated Contingent Payment Notes and (b) any other unsecured
Indebtedness of the Borrower (i) for which the Borrower is directly or
primarily liable and in respect of which none of the Subsidiaries of the
Borrower is contingently or otherwise obligated, (ii) the payment of the
principal of and interest on which and other obligations of the Borrower in
respect of which are subordinated to the prior payment in full of the
principal of and interest (including post-petition interest whether or not
<PAGE>
13
allowed as a claim in any proceeding) on the Loans and all other
obligations and liabilities of the Borrower to the Administrative Agent and
the Lenders hereunder, and (iii) which are generally consistent with terms
and conditions set forth in Exhibit G hereof (with any variations to such
terms and conditions being subject to approval by the Administrative Agent)
or otherwise satisfactory in form and substance to the Required Lenders.
"SUBSIDIARY": as to any Person, a corporation, partnership, limited
liability company or other entity of which Capital Stock having ordinary
voting power (other than Capital Stock having such power only by reason of
the happening of a contingency) to elect a majority of the board of
directors or other managers of such corporation, partnership, limited
liability company or other entity are at the time owned, or the management
of which is otherwise controlled, directly or indirectly through one or
more intermediaries, or both, by such Person. Unless otherwise qualified,
all references to a "Subsidiary" or to "Subsidiaries" in this Agreement
shall refer to a Subsidiary or Subsidiaries of the Borrower.
"SUBSIDIARY PLEDGE AGREEMENT": the Subsidiary Pledge Agreement to be
executed and delivered by each wholly owned Subsidiary of the Borrower,
substantially in the form of Exhibit B-4, as the same may be amended,
supplemented or otherwise modified from time to time (including as
supplemented by the execution and delivery of any Pledge Agreement
Supplement in the form of Annex I to said Exhibit B-4 (a "PLEDGE AGREEMENT
SUPPLEMENT").
"TERMINATION DATE": the date which is five years after the Closing
Date or such earlier date when the Commitments hereunder are terminated.
"TOTAL INDEBTEDNESS": at any time, the aggregate principal amount
(including capitalized interest) of all Indebtedness of the Borrower and
its Subsidiaries (including without limitation, pursuant to the Loans,
purchase money obligations and amounts payable under noncompetition
agreements) reflected as liabilities on the consolidated balance sheet of
the Borrower and its Subsidiaries.
"TRANCHE": the collective reference to Eurodollar Loans having
Interest Periods that began or will begin on the same date and end on the
same later date (whether or not such Loans shall originally have been made
on the same day).
"TRANSFEREE": as defined in subsection 10.6(f).
"TYPE": as to any Loan, its nature as an ABR Loan or a Eurodollar
Loan.
1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in subsection 1.1 and accounting terms
partly defined in subsection 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
<PAGE>
14
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
2.1 REVOLVING CREDIT COMMITMENTS. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("LOANS") (PROVIDED, that any repricing or conversion of an outstanding Loan
shall not be considered a making of a Loan), to the Borrower from time to time
during the Commitment Period in an aggregate principal amount at any one time
outstanding not to exceed the amount of such Lender's Commitment. During the
Commitment Period the Borrower may use the Commitments by borrowing, prepaying
the Loans in whole or in part, and reborrowing, all in accordance with the terms
and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans, (ii) ABR
Loans or (iii) a combination thereof, as determined by the Borrower and notified
to the Administrative Agent in accordance with subsections 2.2 and 3.3; PROVIDED
that no Loan shall be made as a Eurodollar Loan after the day that is one month
prior to the Termination Date.
2.2 PROCEDURE FOR BORROWING. The Borrower may borrow under the
Commitments during the Commitment Period on any Business Day; PROVIDED that the
Borrower shall give the Administrative Agent irrevocable notice (which notice
must be received by the Administrative Agent prior to 10:00 A.M., New York City
time, (a) three Business Days prior to the requested Borrowing Date, if all or
any part of the requested Loans are to be initially Eurodollar Loans or (b) one
Business Day prior to the requested Borrowing Date, if all of the requested
Loans are to be initially ABR Loans), specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, (iii) whether the borrowing is to be of
Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing
is to be entirely or partly of Eurodollar Loans, the respective amounts of each
such Type of Loan and the respective lengths of the initial Interest Periods for
such Eurodollar Loans. Each borrowing under the Commitments shall be in an
amount equal to $1,000,000 or a whole multiple of $100,000 in excess thereof.
Upon receipt of any such notice from the Borrower, the Administrative Agent
shall promptly notify each Lender thereof. Each Lender will make the amount of
its pro rata share of each borrowing available to the Administrative Agent for
the account of the Borrower at the office of the Administrative Agent specified
in subsection 10.2 prior to 12:00 Noon, New York City time, on the Borrowing
Date requested by the Borrower in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the
Borrower by the Administrative Agent crediting the account of the Borrower on
the books of such office with the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent. The failure of any Lender to make the Loan to be made by
it as part of any borrowing shall not relieve any other Lender of its obligation
to make available its share of such borrowing.
2.3 INCREASE OF COMMITMENTS. (a) The Borrower shall have the right,
not less than 90 days prior to the Termination Date, to request in writing, from
time to time (but not more than five times), that the aggregate amount of the
Commitments then in effect be increased effective upon a specific date (the
<PAGE>
15
"INCREASE EFFECTIVE DATE") set forth in such request (the "INCREASE REQUEST");
PROVIDED that no such increase shall be permitted if, after giving effect
thereto the total aggregate Commitments would exceed $400,000,000. Any such
increase shall be in an incremental aggregate amount of not less than, in the
case of the first such increase, $15,000,000 and in the case of any subsequent
increase not less than the lesser of (i) $25,000,000 or (ii) $400,000,000 minus
the amount of the total aggregate Commitments then in effect (the "REQUESTED
AMOUNT") and shall increase permanently the amount of the total aggregate
Commitments then in effect.
(b) If on the date (the "INCREASE RESPONSE DATE") that is 30 days
after the date of any Increase Request any Lenders or prospective Lenders elect
in their sole discretion, to increase their Commitments (each an "INCREASING
LENDER") by an aggregate amount equal to the Requested Amount, then, subject to
the provisions of this subsection 2.3, on the Increase Effective Date therefor,
which shall be five Business Days after the Increase Response Date, the
Commitments of such Increasing Lenders, and correspondingly, the total aggregate
Commitments, shall be increased accordingly. Notwithstanding any provision of
this Agreement to the contrary, any notice by any Lender of its willingness to
increase its Commitment shall be revocable by such Lender in its sole and
absolute discretion at any time prior to the related Increase Effective Date.
(c) Each increase in the Commitment of an Increasing Lender shall be
evidenced by a written instrument executed by such Increasing Lender, the
Borrower and the Administrative Agent, and shall take effect on the related
Increase Effective Date.
(d) Upon the request to the Administrative Agent by any Increasing
Lender, the Borrower shall deliver to each such Increasing Lender, in exchange
for the Note held by such Increasing Lender, a new Note, in the principal amount
of such Increasing Lender's Commitment after giving effect to the adjustments
made pursuant to this subsection 2.3.
(e) If any Lenders or prospective Lenders shall have elected to
increase their Commitments as provided in this subsection 2.3, then as of the
related Increase Effective Date (i) the Commitments of each Increasing Lender
shall take effect and (ii) the Commitments of the Lenders which are not
Increasing Lenders shall remain constant. In the event any Increasing Lender is
not a Lender prior to the related Increase Effective Date, such Increasing
Lender shall be subject to approval by the Borrower and the Administrative Agent
(such approval not to be unreasonably withheld) and such Increasing Lender, the
Borrower and the Administrative Agent shall execute and deliver a joinder
agreement (a "JOINDER AGREEMENT") in form and substance reasonably satisfactory
to the Administrative Agent pursuant to which such Increasing Lender shall
become a party to this Agreement.
(f) From and after any Increase Effective Date, the Borrower and the
Administrative Agent shall cooperate in making conversions of the Eurodollar
Loans from one interest rate basis to another and in selecting Interest Periods
to be applicable thereto in order, during a reasonable period following the
Increase Effective Date, to make the Loans of each Lender ratable (based on
their respective Commitment Percentages after giving effect to the increased
Commitments hereunder) in the various Tranches.
2.4 COMMITMENT FEE. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee for the period from and
including the first day of the Commitment Period to the Termination Date,
computed at the Commitment Fee Rate on the average daily amount of the Available
Commitment of such Lender during the period for which payment is made, payable
quarterly in arrears on the last day of each March, June, September and December
and on the Termination Date or such earlier date as the
<PAGE>
16
Commitments shall terminate as provided herein, commencing on the first of such
dates to occur after the date hereof.
2.5 TERMINATION OR REDUCTION OF COMMITMENTS. The Borrower shall have
the right, upon not less than five Business Days' notice to the Administrative
Agent, to terminate the Commitments or, from time to time, to reduce the amount
of the Commitments. Any such reduction shall be in an amount equal to
$5,000,000 or a whole multiple thereof and shall reduce permanently the
Commitments then in effect.
2.6 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Lender the then unpaid principal amount of each Loan of such Lender on the
Termination Date (or such earlier date on which the Loans become due and payable
pursuant to Section 8). The Borrower hereby further agrees to pay interest on
the unpaid principal amount of the Loans from time to time outstanding from the
date hereof until payment in full thereof at the rates per annum, and on the
dates, set forth in subsection 3.5.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of the Borrower to such Lender
resulting from each Loan of such Lender from time to time, including the amounts
of principal and interest payable and paid to such Lender from time to time
under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
subsection 10.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period applicable with respect to each Eurodollar Loan, (ii) the amount
of any principal or interest due and payable or to become due and payable from
the Borrower to each Lender hereunder and (iii) both the amount of any sum
received by the Administrative Agent hereunder from the Borrower and each
Lender's share thereof.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to subsection 2.6(b) shall, to the extent permitted by
applicable law, be PRIMA FACIE evidence of the existence and amounts of the
obligations of the Borrower therein recorded; PROVIDED, HOWEVER that the failure
of any Lender or the Administrative Agent to maintain the Register or any such
account, or any error therein, shall not in any manner affect the obligation of
the Borrower to repay (with applicable interest) the Loans made to such Borrower
by such Lender in accordance with the terms of this Agreement.
(e) The Borrower agrees that, upon the request to the Administrative
Agent by any Lender, the Borrower will execute and deliver to such Lender a
promissory note of the Borrower evidencing the Loans of such Lender,
substantially in the form of Exhibit A with appropriate insertions as to date
and principal amount (a "NOTE").
SECTION 3. GENERAL PROVISIONS APPLICABLE TO THE LOANS
3.1 OPTIONAL PREPAYMENTS. The Borrower may at any time and from time
to time prepay the Loans, in whole or in part, without premium or penalty, upon
irrevocable notice to the Administrative Agent, at least four Business Days'
prior to the date of prepayment if all or any part of the Loans to be prepaid
are Eurodollar Loans, and at least one Business Day prior to the date of
prepayment if all of the Loans to be prepaid are ABR Loans, specifying the date
and amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, if of a combination thereof, the amount
allocable
<PAGE>
17
to each. Upon receipt of any such notice, the Administrative Agent shall
promptly notify each Lender thereof. If any such notice is given, the amount
specified in such notice shall be due and payable on the date specified therein,
together with any amounts payable pursuant to subsection 3.12. Partial
prepayments shall be in an aggregate principal amount of $1,000,000 or whole
multiples of $100,000 in excess thereof.
3.2 MANDATORY PREPAYMENTS. (a) In the event that the Borrower or any
of its Subsidiaries shall effect (i) an Asset Sale or (ii) a Shareholder Asset
Sale if, after giving effect to such Shareholder Asset Sale, the Borrower does
not continue to hold in excess of a 50% ownership interest in the relevant
Subsidiary or Management Company, the Borrower shall promptly notify the
Administrative Agent thereof and, unless 100% of the Lenders otherwise consent,
as promptly as possible, but in no case later than five Business Days after
receipt of the Net Proceeds of such Asset Sale or Shareholder Asset Sale, as the
case may be, shall apply an amount equal to 100% of the Net Proceeds of such
Asset Sale or Shareholder Asset Sale, as the case may be, to prepay outstanding
Loans, together with accrued interest on the principal being prepaid to the date
of prepayment and, in the case of Eurodollar Loans which are prepaid prior to
the last day of the Interest Period therefor, the amounts required by subsection
3.12. The Borrower shall, to the extent reasonably practicable, give notice to
the Administrative Agent of any prepayment required by this subsection 3.2
(which notice need not be given more than four Business Days prior to the date
of prepayment).
(b) All prepayments of Loans pursuant to this subsection 3.2 shall be
without premium or penalty, other than amounts required by subsection 3.12.
(c) The Borrower shall immediately prepay outstanding Loans, together
with accrued and unpaid interest thereon to the date of prepayment and any
amounts required by subsection 3.12, to the extent that the aggregate amount of
outstanding Loans exceeds the aggregate Commitments of the Lenders then in
effect.
(d) Prepayments of the Loans pursuant to subsection 3.2(a) shall be
applied to the prepayment of the Loans without any accompanying reduction of the
Commitments of the Lenders. Amounts to be applied pursuant to this subsection
3.2(d) to the prepayment of Loans shall be applied, as applicable, first to
reduce outstanding Loans which are ABR Loans. Any amounts remaining after each
such application shall be applied to prepay Loans which are Eurodollar Loans.
3.3 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may elect
from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent at least two Business Days' prior irrevocable notice of
such election; PROVIDED that any such conversion of Eurodollar Loans may only be
made on the last day of an Interest Period with respect thereto. The Borrower
may elect from time to time to convert ABR Loans to Eurodollar Loans by giving
the Administrative Agent at least three Business Days' prior irrevocable notice
of such election. Any such notice of conversion to Eurodollar Loans shall
specify the length of the initial Interest Period or Interest Periods therefor.
Upon receipt of any such notice the Administrative Agent shall promptly notify
each affected Lender thereof. All or any part of outstanding Eurodollar Loans
and ABR Loans may be converted as provided herein; PROVIDED that (i) no Loan may
be converted into a Eurodollar Loan when any Event of Default has occurred and
is continuing and the Administrative Agent has or the Required Lenders have
determined that such a conversion is not appropriate and (ii) no Loan may be
converted into a Eurodollar Loan after the date that is one month prior to the
Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Administrative Agent, in
<PAGE>
18
accordance with the applicable provisions of the term "Interest Period" set
forth in subsection 1.1, of the length of the next Interest Period to be
applicable to such Loans; PROVIDED that no Eurodollar Loan may be continued as
such (i) when any Event of Default has occurred and is continuing and the
Administrative Agent has or the Required Lenders have determined that such a
continuation is not appropriate or (ii) after the date that is one month prior
to the Termination Date and PROVIDED, FURTHER that if the Borrower shall fail to
give such notice or if such continuation is not permitted such Eurodollar Loans
shall be automatically converted to ABR Loans on the last day of such then
expiring Interest Period.
3.4 MINIMUM AMOUNTS AND MAXIMUM NUMBER OF TRANCHES. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than eight Eurodollar Tranches outstanding at any time.
3.5 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
(b) Each ABR Loan shall bear interest at a rate per annum equal to the
ABR plus the Applicable Margin.
(c) If all or a portion of (i) the principal amount of any Loan, (ii)
any interest payable thereon or (iii) any commitment fee or other amount payable
hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a rate
per annum which is (x) in the case of overdue principal, the rate that would
otherwise be applicable thereto pursuant to the foregoing provisions of this
subsection plus 2% or (y) in the case of overdue interest, commitment fee or
other amount, the rate described in paragraph (b) of this subsection plus 2%, in
each case from the date of such non-payment until such amount is paid in full
(as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date; PROVIDED that interest accruing pursuant to paragraph (c) of this
subsection shall be payable from time to time on demand.
3.6 COMPUTATION OF INTEREST AND FEES. (a) Whenever it is calculated
on the basis of the Prime Rate, interest shall be calculated on the basis of a
365- (or 366-, as the case may be) day year for the actual days elapsed; and,
otherwise, interest as well as commitment fees shall be calculated on the basis
of a 360-day year for the actual days elapsed. The Administrative Agent shall
as soon as practicable notify the Borrower and the Lenders of each determination
of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from
a change in the ABR, the Eurocurrency Reserve Requirements, the C/D Assessment
Rate or the C/D Reserve Percentage shall become effective as of the opening of
business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to subsection 3.5(a).
<PAGE>
19
3.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day
of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, or
(b) the Administrative Agent shall have received notice from Chase
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to the Lenders
generally (as conclusively certified by Chase) of making or maintaining
their affected Loans during such Interest Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrower and the affected Lenders as soon as practicable thereafter. If such
notice is given (x) any Eurodollar Loans requested to be made on the first day
of such Interest Period shall be made as ABR Loans, (y) any ABR Loans that were
to have been converted on the first day of such Interest Period to Eurodollar
Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans
shall be converted, on the first day of such Interest Period, to ABR Loans.
Until such notice has been withdrawn by the Administrative Agent, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrower have
the right to convert Loans to Eurodollar Loans.
3.8 PRO RATA TREATMENT AND PAYMENTS. (a) Except as provided in
subsection 2.3(f), each borrowing by the Borrower from the Lenders hereunder,
each payment by the Borrower on account of any commitment fee hereunder and any
reduction of the Commitments of the Lenders shall be made PRO RATA according to
the respective Commitment Percentages of the Lenders. Each payment (including
each prepayment) by the Borrower on account of principal of and interest on the
Loans shall be made PRO RATA according to the respective outstanding principal
amounts of the Loans then held by the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder, whether on account of
principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Administrative Agent, for the account of the Lenders at
the Administrative Agent's office specified in subsection 10.2, in Dollars and
in immediately available funds. The Administrative Agent shall distribute such
payments to the Lenders promptly upon receipt (and if such payment is received
prior to 12:00 Noon, on the same day) in like funds as received. If any payment
hereunder becomes due and payable on a day other than a Business Day, such
payment shall be extended to the next succeeding Business Day, and, with respect
to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension and such extension of time shall in such
case be included in the computation of payment of interest or fees, as the case
may be.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its portion of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error. If such Lender's portion of such
borrowing is not made available to the Administrative Agent by such Lender
within three
<PAGE>
20
Business Days of such Borrowing Date, the Administrative Agent shall also be
entitled to recover such amount with interest thereon at the rate per annum
applicable to ABR Loans hereunder, on demand, from the Borrower.
(c) In the event that a Lender fails to make available after a period
of three Business Days to the Administrative Agent its portion of a borrowing,
the Borrower may, upon not less than five Business Days prior irrevocable
written notice to the Administrative Agent, immediately terminate the Commitment
of such Lender, and designate an acceptable replacement Lender (which may be one
of the other Lenders) to purchase at par all of the Lender's interests in
accordance with the provisions of subsection 10.6(c). Any Lender being so
replaced by the Borrower agrees to transfer its interest in this Agreement and,
if applicable, its Note, to the substitute Lender pursuant to subsection
10.6(c); PROVIDED that concurrently with such transfer, such Lender so
substituted shall be paid all amounts owing to it hereunder and all costs
reasonably determined by it to be attributable to such transfer.
Notwithstanding the foregoing, the Lender being replaced shall not be deemed to
be released from any of its rights or obligations under any Loan Document
(including, without limitation, subsection 9.7) for actions taken or failed to
be taken by it prior to the date of such substitution.
3.9 ILLEGALITY. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such
Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and
convert ABR Loans to Eurodollar Loans shall forthwith be cancelled and (b) such
Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted
automatically to ABR Loans on the respective last days of the then current
Interest Periods with respect to such Loans or within such earlier period as
required by law. If any such conversion of a Eurodollar Loan occurs on a day
which is not the last day of the then current Interest Period with respect
thereto, the Borrower shall pay to such Lender such amounts, if any, as may be
required pursuant to subsection 3.12.
3.10 REQUIREMENTS OF LAW. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note or any Eurodollar Loan made by it, or
change the basis of taxation of payments to such Lender in respect thereof
(except for Non-Excluded Taxes covered by subsection 3.11 and changes in
the rate of tax on the overall net income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay
<PAGE>
21
such Lender such additional amount or amounts as will compensate such Lender for
such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, the Borrower shall promptly pay to such
Lender such additional amount or amounts as will compensate such Lender for such
reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower (with a copy
to the Administrative Agent) of the event by reason of which it has become so
entitled; PROVIDED that no additional amount shall be payable under this
subsection 3.10 for a period longer than one year prior to such notice to the
Borrower. A certificate as to any additional amounts payable pursuant to this
subsection submitted by such Lender to the Borrower (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
agreements in this subsection shall survive for a period of one year after the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
3.11 TAXES. (a) All payments made by the Borrower under this
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Administrative Agent or any Lender
as a result of a present or former connection between the Administrative Agent
or such Lender and the jurisdiction of the Governmental Authority imposing such
tax or any political subdivision or taxing authority thereof or therein (other
than any such connection arising solely from the Administrative Agent or such
Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any Note). If any such
non-excluded taxes, levies, imposts, duties, charges, fees deductions or
withholdings ("NON-EXCLUDED TAXES") are required to be withheld from any amounts
payable to the Administrative Agent or any Lender hereunder or under any Note,
the amounts so payable to the Administrative Agent or such Lender shall be
increased to the extent necessary to yield to the Administrative Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement; PROVIDED, HOWEVER that the Borrower shall not be required to increase
any such amounts payable to any Lender that is not organized under the laws of
the United States of America or a state thereof if such Lender fails to comply
with the requirements of paragraph (b) of this subsection. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If the Borrower fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Administrative Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent or any
Lender as a result of any such failure. The agreements in this subsection shall
<PAGE>
22
survive for a period of one year the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(i) deliver to the Borrower and the Administrative Agent (A) two
duly completed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be, and (B) an
Internal Revenue Service Form W-8 or W-9, or successor applicable form, as
the case may be;
(ii) deliver to the Borrower and the Administrative Agent two
further copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the
Administrative Agent. Such Lender shall certify (i) in the case of a Form 1001
or 4224, that it is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes and (ii) in
the case of a Form W-8 or W-9, that it is entitled to an exemption from United
States backup withholding tax. Each Person that shall become a Lender or a
Participant pursuant to subsection 8.6 shall, upon the effectiveness of the
related transfer, be required to provide all of the forms and statements
required pursuant to this subsection; PROVIDED that in the case of a Participant
such Participant shall furnish all such required forms and statements to the
Lender from which the related participation shall have been purchased.
3.12 INDEMNITY. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which
is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Bank on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank eurodollar market.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.
<PAGE>
23
3.13 CHANGE OF LENDING OFFICE. Each Lender agrees that if it makes
any demand for payment under subsection 3.10 or 3.11(a), or if any adoption or
change of the type described in subsection 3.9 shall occur with respect to it,
it will use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions and so long as such efforts would not be
unreasonably disadvantageous to it, as determined in its sole discretion) to
designate a different lending office if the making of such a designation would
reduce or obviate the need for the Borrower to make payments under subsection
3.10 or 3.11(a), or would eliminate or reduce the effect of any adoption or
change described in subsection 3.9.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, the Borrower hereby represents and warrants to
the Administrative Agent and each Lender that:
4.1 FINANCIAL CONDITION. The Borrower has heretofore furnished to
each Lender copies of (i) the audited consolidated balance sheet of the Borrower
and its consolidated Subsidiaries as at December 31, 1996 and the related
audited consolidated statements of income and of cash flows for the fiscal year
ended on such date, audited by Coopers & Lybrand L.L.P. and (ii) the unaudited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at September 30, 1997 and the related unaudited consolidated statements of
income and of cash flows for the nine-month period ended on such date, certified
by a Responsible Officer (the "FINANCIAL STATEMENTS"). The Financial Statements
present fairly, in all material respects, the consolidated financial condition
of the Borrower and its consolidated Subsidiaries as at December 31, 1996 and
September 30, 1997 and present fairly, in all material respects, the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject to normal year-end audit adjustments and the
absence of footnote disclosure). The Financial Statements, including the
related schedules and notes thereto, have been prepared in accordance with GAAP
applied consistently throughout the period involved. Except as set forth on
Schedule 4.1, neither the Borrower nor any of its consolidated Subsidiaries had,
at December 31, 1996 or at the date hereof, any material Guarantee Obligation,
material contingent liability or material liability for taxes, or any material
long-term lease or unusual material forward or long-term commitment, including,
without limitation, any interest rate or foreign currency swap or exchange
transaction, which is not reflected in the foregoing statements or in the notes
thereto. Except as set forth on Schedule 4.1, during the period from December
31, 1996 to and including the date hereof there has been no sale, transfer or
other disposition by the Borrower or any of its consolidated Subsidiaries of any
material part of its business or property and no purchase or other acquisition
of any business or property (including any capital stock of any other Person)
material in relation to the consolidated financial condition of the Borrower and
its Subsidiaries as of December 31, 1996.
4.2 NO CHANGE. (a) From December 31, 1996 except as set forth in the
Financial Statements or the Pro Forma Balance Sheet, there has been no
development or event which has had or could have a Material Adverse Effect, and
(b) except as set forth on Schedule 4.2, during the period from December 31,
1996 to and including the date hereof, no dividends or other distributions have
been declared, paid or made upon the Capital Stock of the Borrower nor has any
of the Capital Stock of the Borrower been redeemed, retired, purchased or
otherwise acquired for value by the Borrower or any of its Subsidiaries.
4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the Borrower
and its Subsidiaries (a) is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization, (b) has the
power and authority, and the legal right, to own and operate its property, to
lease
<PAGE>
24
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation, partnership
or limited liability company, as applicable, and in good standing under the laws
of each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect and
(d) is in compliance with its certificate of incorporation and by-laws or other
similar organizational or governing documents and with all Requirements of Law,
except to the extent that the failure to comply therewith could not, in the
aggregate, have a Material Adverse Effect.
4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
Borrower has the corporate power and authority, and the legal right, to make,
deliver and perform the Loan Documents to which it is a party and to borrow
hereunder and has taken all necessary corporate action to authorize the
borrowings on the terms and conditions of this Agreement and any Notes and to
authorize the execution, delivery and performance of the Loan Documents to which
it is a party. No consent or authorization of, filing with, notice to or other
act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan Documents to which
the Borrower is a party; PROVIDED that the Administrative Agent's rights under
the Pledge Agreements are subject to the terms and provisions thereof. This
Agreement has been, and each other Loan Document to which it is a party will be,
duly executed and delivered on behalf of the Borrower. This Agreement
constitutes, and each other Loan Document to which it is a party when executed
and delivered will constitute, a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
4.5 NO LEGAL BAR. The execution, delivery and performance of the Loan
Documents to which the Borrower is a party, the borrowings hereunder and the use
of the proceeds thereof will not violate any certificate of incorporation and
by-laws or other similar organizational or governing documents, Requirement of
Law or Contractual Obligation of the Borrower or of any of its Subsidiaries,
except for such violations which could not reasonably be expected to have a
Material Adverse Effect, and will not result in, or require, the creation or
imposition of any Lien on any of its or their respective properties or revenues
pursuant to any such organizational or governing document, Requirement of Law or
Contractual Obligation, except pursuant to this Agreement.
4.6 NO MATERIAL LITIGATION. No litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or,
to the knowledge of the Borrower, threatened by or against the Borrower or any
of its Subsidiaries or against any of its or their respective properties or
revenues which in the Borrower's reasonable opinion could reasonably be expected
to have a Material Adverse Effect.
4.7 NO DEFAULT. Neither the Borrower nor any of its Subsidiaries is
in default under or with respect to any of its Contractual Obligations in any
respect which could have a Material Adverse Effect. No Default or Event of
Default has occurred and is continuing.
4.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its material real
<PAGE>
25
property, and good title to, or a valid leasehold interest in, all its other
material property, and none of such property is subject to any Lien except as
permitted by subsection 7.3.
4.9 TAXES. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all material tax returns which, to the knowledge of the
Borrower, are required to be filed or has timely filed a request for an
extension of such filing and has paid all taxes shown to be due and payable on
said returns or extension requests or on any assessments made against it or any
of its property and except as set forth on Schedule 4.9, all other taxes, fees
or other charges imposed on it or any of its property by any Governmental
Authority (other than any the amount or validity of which are currently being
contested in good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books of the Borrower
or its Subsidiaries, as the case may be and any which the failure to pay would
not have a Material Adverse Effect); no tax Lien has been filed, and, to the
knowledge of the Borrower, no material claim is being asserted, with respect to
any such tax, fee or other charge.
4.10 FEDERAL REGULATIONS. (a) No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation G or Regulation
U of the Board of Governors of the Federal Reserve System as now and from time
to time hereafter in effect. If requested by any Lender or the Administrative
Agent, the Borrower will furnish to the Administrative Agent and each Lender a
statement to the foregoing effect in conformity with the requirements of FR Form
G-3 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case
may be.
(b) The Borrower is not subject to regulation under any Federal or
State statute or regulation (other than Regulation X of the Board of Governors
of the Federal Reserve System) which limits its ability to incur Indebtedness.
4.11 ERISA. No Reportable Event has occurred during the five-year
period prior to the date on which this representation is made or deemed made
with respect to any Plan, and each Plan has complied in all material respects
with the applicable provisions of ERISA and the Code. The present value of all
accrued benefits under each Single Employer Plan maintained by the Parent or any
Commonly Controlled Entity (based on those assumptions used to fund the Plans)
did not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits. There are no Multiemployer Plans.
Neither the Parent nor any Commonly Controlled Entity has had a complete or
partial withdrawal from any Multiemployer Plan.
4.12 INVESTMENT COMPANY ACT. (a) Neither the Borrower nor any of its
Subsidiaries or other Management Companies is, or, after giving effect to any
Acquisition, will be, an "investment company" within the meaning of the
Investment Company Act.
(b) Each of the Subsidiaries of the Borrower and each of its other
Management Companies is, to the extent required thereby, duly registered as an
investment adviser under the Investment Advisers Act. On the date hereof, the
Borrower is not an "investment adviser" within the meaning of the Investment
Advisers Act. Each Fund which is sponsored by any Subsidiary or other
Management Company and which is required to be registered as an "investment
company" under the Investment Company Act is duly registered as such thereunder.
<PAGE>
26
(c) The Borrower is not required to be duly registered as a
broker-dealer under the Securities Acts (and each Subsidiary and other
Management Company required to be so registered is so duly registered).
(d) Each of the Borrower and its Subsidiaries and other Management
Companies is duly registered, licensed or qualified as an investment adviser or
broker-dealer in each State of the United States where the conduct of its
business requires such registration, licensing or qualification and is in
compliance in all material respects with all Federal and State laws requiring
such registration, licensing or qualification, except to the extent where the
failure to be so registered, licensed or qualified or to be in such compliance
will not have, in the case of Federal laws, or could not reasonably be expected
to have, in the case of State laws, a Material Adverse Effect.
4.13 INVESTMENT ADVISORY AGREEMENTS. Each of the investment advisory
agreements, distribution agreements and shareholder or other servicing contracts
to which the Borrower or any of its Subsidiaries or other Management Companies
is a party is a legal, valid and binding obligation of the parties thereto
enforceable against such parties in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law) except for failures
which individually and in the aggregate could not reasonably be expected to have
a Material Adverse Effect; and neither the Borrower nor any of its Subsidiaries
or other Management Companies is in breach or violation of or in default under
any such agreement or contract in any material respect which could individually
or in the aggregate reasonably be expected to have a Material Adverse Effect.
The parties hereto understand that all customers have the right to terminate
such investment advisory agreements at will.
4.14 SUBSIDIARIES AND OTHER OWNERSHIP INTERESTS. The Subsidiaries
listed on Schedule 4.14 hereto constitute the only Subsidiaries of the Borrower
as at the date hereof. The Borrower has as at the date hereof an equity or
other ownership interest in Management Companies of the Borrower and each other
Person listed on Schedule 4.14 and other than as set forth on such schedule, the
Borrower has no such interest in any other Management Company or Person.
4.15 PURPOSE OF LOANS. (a) The proceeds of the Loans shall be used by
the Borrower (i) to refinance loans outstanding under the Existing Agreement,
(ii) for general corporate purposes, (iii) to make Acquisitions and (iv) to pay
fees and expenses to be incurred in connection therewith and in connection with
the execution and delivery of the Loan Documents.
4.16 ACCURACY AND COMPLETENESS OF INFORMATION. To the best of the
Borrower's knowledge, the documents furnished and the statements made in writing
to the Lenders by or on behalf of the Borrower in connection with the
negotiation, preparation or execution of this Agreement or any of the other Loan
Documents, taken as a whole, do not contain any untrue statement of fact
material to the credit worthiness of the Borrower or omit to state any such
material fact necessary in order to make the statements contained therein not
misleading, in either case which has not been corrected, supplemented or
remedied by subsequent documents furnished or statements made in writing to the
Lenders prior to the date hereof.
<PAGE>
27
SECTION 5. CONDITIONS PRECEDENT
5.1 CONDITIONS TO INITIAL LOANS. The agreement of each Lender to make
the initial Loan requested to be made by it is subject to the satisfaction,
immediately prior to or concurrently with the making of such Loan on the Closing
Date, of the following conditions precedent:
(a) LOAN DOCUMENTS. The Administrative Agent shall have received
(i) this Agreement, executed and delivered by a duly authorized officer of
the Borrower, with a counterpart for each Lender, and (ii) the Pledge
Agreements, each executed and delivered by a duly authorized officer of the
parties thereto, with a counterpart or a conformed copy for each Lender.
(b) RELATED AGREEMENTS. The Administrative Agent shall have received,
true and correct copies, of each of the existing Revenue Sharing Agreements
and any purchase agreements executed in connection with an Acquisition or
proposed Acquisition, and such other documents or instruments as may be
reasonably requested by the Administrative Agent, (including, without
limitation, a copy of any debt instrument, security agreement or other
material contract to which the Borrower or one of its Subsidiaries may be a
party).
(c) NOTES. The Administrative Agent shall have received, for the
account of each Lender that has requested the same, a Note made by the
Borrower conforming to the requirements of this Agreement, and executed by
a duly authorized officer of the Borrower.
(d) BORROWING CERTIFICATE. The Administrative Agent shall have
received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, substantially in the form of Exhibit C,
with appropriate insertions and attachments, satisfactory in form and
substance to the Administrative Agent, executed by two Responsible Officers
of the Borrower.
(e) CORPORATE PROCEEDINGS OF THE BORROWER. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of the Borrower authorizing (i) the
execution, delivery and performance of this Agreement and the other Loan
Documents to which it is a party, (ii) the borrowings contemplated
hereunder and (iii) the granting by it of the Liens created pursuant to the
Pledge Agreements, certified by the Secretary or an Assistant Secretary of
the Borrower as of the Closing Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(f) BORROWER INCUMBENCY CERTIFICATE. The Administrative Agent shall
have received, with a counterpart for each Lender, a certificate of the
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower executing any Loan Document satisfactory in form
and substance to the Administrative Agent, executed by the President or any
Vice President and the Secretary or any Assistant Secretary of the
Borrower.
(g) CORPORATE PROCEEDINGS OF SUBSIDIARIES. The Administrative Agent
shall have received, with a counterpart for each Lender, a copy of the
resolutions, in form and substance satisfactory to the Administrative
Agent, of the Board of Directors of each Subsidiary of the Borrower which
is a party to a Loan Document authorizing (i) the execution, delivery and
performance of the Loan Documents to which it is a party and (ii) the
granting by it of the Liens created pursuant to the Loan
<PAGE>
28
Documents to which it is a party, certified by the Secretary or an
Assistant Secretary of each such Subsidiary as of the Closing Date, which
certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded.
(h) SUBSIDIARY INCUMBENCY CERTIFICATES. The Administrative Agent
shall have received, with a counterpart for each Lender, a certificate of
each Subsidiary of the Borrower which is a party to a Loan Document, dated
the Closing Date, as to the incumbency and signature of the officers of
such Subsidiaries executing any Loan Document, satisfactory in form and
substance to the Administrative Agent, executed by the President or any
Vice President and the Secretary or any Assistant Secretary of each such
Subsidiary.
(i) CORPORATE DOCUMENTS. The Administrative Agent shall
have received, with a counterpart for each Lender, true and complete copies
of the certificate of incorporation and by-laws of the Borrower and each
Subsidiary of the Borrower which is a party to a Loan Document, certified
as of the Closing Date as complete and correct copies thereof by the
Secretary or an Assistant Secretary of the Borrower or such Subsidiary.
(j) FEES. All fees payable by the Borrower to the Administrative
Agent and any Lender on or prior to the Closing Date pursuant to this
Agreement or pursuant to the Engagement Letter and Fee Letter, each dated
December 1, 1997, among The Chase Manhattan Bank, Chase Securities Inc., as
arranger of the Commitments and the Borrower shall have been paid in full,
in each case in the amounts and on the dates set forth herein or therein.
(k) LEGAL OPINION. The Administrative Agent shall have received, with
a counterpart for each Lender, the executed legal opinion of Goodwin,
Procter & Hoar LLP, counsel to the Borrower, substantially in the form of
Exhibit D. Such legal opinion shall cover such other matters incident to
the transactions contemplated by this Agreement as the Administrative Agent
may reasonably require.
(l) PLEDGED STOCK AND OTHER EQUITY INTERESTS; TRANSFER POWERS. The
Administrative Agent shall have received any certificates representing the
shares of Capital Stock pledged pursuant to the Stock Pledge Agreement and
the Subsidiary Pledge Agreement, together with an undated transfer power,
in form and substance satisfactory to the Administrative Agent, for each
such certificate executed in blank by a duly authorized officer of the
pledgor thereof.
(m) ACTIONS TO PERFECT LIENS. The Administrative Agent shall have
received evidence in form and substance satisfactory to it that all
filings, recordings, registrations and other actions, including, without
limitation, the filing of duly executed financing statements on form UCC-1,
necessary or, in the opinion of the Administrative Agent, desirable to
perfect the Liens created by the Pledge Agreements shall have been
completed.
(n) LIEN SEARCHES. The Administrative Agent shall have received the
results of a recent search by a Person satisfactory to the Administrative
Agent, of the Uniform Commercial Code, judgement and tax lien filings which
may have been filed with respect to personal property of the Borrower, and
the results of such search shall be satisfactory to the Administrative
Agent.
<PAGE>
29
(o) PRO FORMA BALANCE SHEET. The Administrative Agent shall have
received a PRO FORMA balance sheet of the Borrower as at September 30, 1997
(the "Pro Forma Balance Sheet"), after giving effect to (i) the
acquisitions of Tweedy, Browne Company L.P. and GeoCapital Corporation,
(ii) the initial public offering of its common stock, (iii) the redemption,
repurchase or prepayment of its senior subordinated bridge facility and
(iv) the conversion of its convertible preferred stock to common stock.
(p) EXISTING FACILITY. The Administrative Agent shall have received
evidence satisfactory to it that all accrued but unpaid fees payable and
all principal of and accrued but unpaid interest on any loans made under
the Existing Facility shall be paid in full from the proceeds of the first
advance hereunder and the Existing Facility shall have been terminated.
5.2 CONDITIONS TO EACH LOAN. The agreement of each Lender to make any
Loan requested to be made by it on any date (including, without limitation, its
initial Loan but excluding any repricing or conversion of any then outstanding
Loan) is subject to the satisfaction of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by the Borrower in or pursuant to the Loan Documents shall
be true and correct in all material respects on and as of such date as if
made on and as of such date; PROVIDED that (i) representations and
warranties made with reference to a specific date shall remain true and
correct as of such date and (ii) representations and warranties shall not
be required to remain true to the extent changes have resulted from actions
permitted hereunder.
(b) NO DEFAULT. No Default or Event of Default shall have occurred
and be continuing on such date or after giving effect to the Loans
requested to be made on such date.
(c) NOTICE OF BORROWING. The Administrative Agent shall have
received a notice of borrowing pursuant to subsection 2.2.
(d) USE OF PROCEEDS. A Responsible Officer shall have delivered to
the Administrative Agent a certificate to the effect that the proceeds of
such Loan will be used in accordance with subsection 4.15 and specifying in
reasonable detail the proposed use of the proceeds thereof.
Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date thereof that the conditions contained in
this subsection have been satisfied.
SECTION 6. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall and (except in
the case of delivery of financial information, reports and notices) shall cause
each of its Subsidiaries to:
6.1 FINANCIAL STATEMENTS. Furnish to the Administrative Agent (which
shall promptly furnish to the other Lenders):
<PAGE>
30
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, copies of the consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the
end of such year and the related consolidated and consolidating statements
of income and retained earnings and of cash flows for such year, and
setting forth in each case in comparative form the figures for the previous
year and, in the case of the consolidated statements, reported on without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by Coopers & Lybrand or other
independent certified public accountants of nationally recognized standing;
and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, copies of the unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the
end of such quarter and the related unaudited consolidated and
consolidating statements of income and retained earnings and of cash flows
for such quarter and the portion of the fiscal year through the end of such
quarter, and setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer as being fairly
stated in all material respects (subject to normal year-end audit
adjustments);
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (subject, in the case of interim financial statements, to year end
adjustments and the absence of footnotes).
6.2 CERTIFICATES; OTHER INFORMATION. Furnish to the Administrative
Agent (which shall promptly furnish to the other Lenders):
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the independent
certified public accountants reporting on such financial statements stating
that in making the examination necessary therefor no knowledge was obtained
of any Default or Event of Default specified in subsection 8(c), except as
specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), (i) a certificate of a
Responsible Officer stating that, to the best of such Officer's knowledge,
that such Officer has obtained no knowledge of any Default or Event of
Default except as specified in such certificate and (ii) a listing for each
Management Company of its aggregate assets under management as of the end
of the period covered by such financial statements;
(c) within five days after the same are filed, copies of all
financial statements and reports which the Borrower may make to, or file
with, the Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(d) within five Business Days after the consummation of any
Acquisition, other than an Acquisition of any interest in a Person that is
already a Subsidiary or a Management Company and with respect to which the
Borrower does not borrow additional funds hereunder (A) copies of the most
recent audited (and, if later, or, if audited statements are not available,
unaudited) financial statements of the Management Company which is the
subject of such Acquisition, (B) copies of the purchase agreement or other
acquisition document (including any Revenue Sharing Agreement)
<PAGE>
31
executed or to be executed by the Borrower or any of its Subsidiaries in
connection with the Acquisition, (C) an unaudited PRO FORMA consolidated
balance sheet of the Borrower and its Subsidiaries as at a recent date but
prepared as though the closing of such Acquisition had occurred on or prior
to such date and related PRO FORMA calculations, indicating compliance on a
PRO FORMA basis as at such date and for the periods then ended with the
financial covenants set forth in subsection 7.1 and (D) a copy of the most
recent Form ADV, if any, filed under the Investment Advisers Act in respect
to any Management Company which is the subject of such Acquisition; and
(e) promptly, such additional financial and other information and
documents (including a copy of any debt instrument, security agreement or
other material contract to which the Borrower or one of its Subsidiaries
may be party) as any Lender may, through the Administrative Agent, from
time to time reasonably request.
6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except (i) where the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
reserves in conformity with GAAP with respect thereto have been provided on the
books of the Borrower or its Subsidiaries, as the case may be and (ii) where the
failure to do so could not have a Material Adverse Effect.
6.4 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Continue to
engage in business of the same general type as now conducted and purported to be
conducted by it and preserve, renew and keep in full force and effect its
corporate existence and take all reasonable action to maintain all rights,
registrations, licenses, privileges and franchises necessary or desirable in the
normal conduct of its business (including, without limitation, all such
registrations under the Investment Advisers Act and all material investment
advisory agreements, distribution agreements and shareholding and other
administrative servicing contracts) except as otherwise permitted pursuant to
subsection 7.5 and except for failures which individually and in the aggregate
could not reasonably be expected to have a Material Adverse Effect; comply, and
to the extent reasonably within its control, cause each Management Company and
Fund (which is sponsored by a Management Company) to comply, with all
Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.5 MAINTENANCE OF PROPERTY; INSURANCE. Keep all property useful and
necessary in its business in good working order and condition, except where the
failure to do so would not have a Material Adverse Effect; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in the same or a
similar business, except where the failure to do so could not have a Material
Adverse Effect; and furnish to the Administrative Agent, upon written request,
full information as to the insurance carried.
6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep
proper books of records and account in which full, true and correct entries in
all material respects in conformity with GAAP and all Requirements of Law shall
be made of all dealings and transactions in relation to its business and
activities, except where the failure to do so would not have a Material Adverse
Effect; and permit representatives of any Lender to visit and inspect any of its
properties and examine and make abstracts from any of its books and records at
any reasonable time and as often as may reasonably be desired and upon at least
three days prior notice or such lesser period of time as may be acceptable to
the Borrower or the relevant Subsidiary, as the case may be, and to discuss the
business, operations, properties and financial
<PAGE>
32
and other condition of the Borrower and its Subsidiaries with officers and
employees of the Borrower and its Subsidiaries and with its independent
certified public accountants.
6.7 NOTICES. Promptly give notice to the Administrative Agent and
each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries or any "affiliated person" of the Borrower or any of its
Subsidiaries within the meaning of the Investment Company Act in which the
amount involved is $5,000,000 or more and not covered by insurance or in
which injunctive or similar relief is sought and which could reasonably be
expected to have a Material Adverse Effect;
(d) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, or any withdrawal from, or the termination, Reorganization or
Insolvency of any Multiemployer Plan or (ii) the institution of proceedings
or the taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any
Plan;
(e) any suspension or termination of the registration of any
Subsidiary or Management Company of the Borrower as an investment adviser
under the Investment Advisers Act, or of any registration as a
broker-dealer under the Securities Acts or under any applicable state
statute which is material to the business thereof, or any cancellation or
expiration without renewal of any investment advisory agreement,
distribution agreement or shareholder or other administrative servicing
contract to which the Borrower or any of its Subsidiaries or Management
Companies is a party the revenues under which have exceeded in the most
recent fiscal year of the Borrower or any such Management Company, as the
case may be, $1,000,000; and
(f) any event which could reasonably be expected to have a Material
Adverse Effect on the Borrower and its Subsidiaries taken as a whole.
Each notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto, if
any.
6.8 STOCK PLEDGES. Promptly upon the consummation of the Acquisition
of a Management Company or the formation of any new Subsidiary, execute and
deliver or cause to be executed and delivered to the Administrative Agent a
Pledge Agreement Supplement with respect to the pledge of the Capital Stock of
such Management Company or new Subsidiary, held, directly by the Borrower or by
any wholly owned Subsidiary of the Borrower, in form and substance reasonably
satisfactory to the Administrative Agent, together with
<PAGE>
33
evidence in form and substance reasonably satisfactory to the Administrative
Agent that all deliveries, filings, recordings, registrations and other actions,
including, without limitation, the delivery of any certificates representing
such Capital Stock, together, in the case of stock certificates, with an undated
transfer power, in form and substance reasonably satisfactory to the
Administrative Agent, for each such certificate executed in blank by a duly
authorized officer of the pledgor thereof, and the filing of duly executed
financing statements on form UCC-1, necessary or, in the opinion of the
Administrative Agent, desirable to perfect the Liens created by such Pledge
Agreement Supplement shall have been completed.
6.9 GUARANTEES. In the case of any Subsidiary of the Borrower which
at any time is wholly owned, promptly upon the request of the Administrative
Agent, execute and deliver to the Administrative Agent, on behalf of the
Lenders, a guarantee of such Subsidiary, in form and substance satisfactory to
the Administrative Agent, with respect to the performance of the obligations of
the Borrower under this Agreement and the other Loan Documents.
SECTION 7. NEGATIVE COVENANTS
The Borrower hereby agrees that, from and after the Closing Date and
so long as the Commitments remain in effect or any amount is owing to any Lender
or the Administrative Agent hereunder or under any other Loan Document, the
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
7.1 FINANCIAL CONDITION COVENANTS.
(a) MAINTENANCE OF NET WORTH. Permit Consolidated Net Worth at any
time during any period to be less than the sum of (i) $36,000,000, PLUS
(ii) 85% of the net proceeds of any net issuances by the Borrower of any
Capital Stock and any equity contributions to it and any Subordinated
Indebtedness (to the extent included in Consolidated Net Worth) in each
case after September 30, 1997, PLUS (iii) 50% of the positive Consolidated
Net Income, if any, for each completed fiscal quarter of the Borrower from
September 30, 1997 (or MINUS (iii) the lesser of (A) 100% of any
Consolidated Net Loss, if any, for each such completed fiscal quarter or
(B) the extent of any Consolidated Net Loss resulting from (x) a write-off
in the fourth fiscal quarter of 1997 or the first fiscal quarter of 1998 of
expenses relating to the Existing Agreement, the repayment of the
Borrower's senior subordinated bridge facility and the initial public
offering of the Borrower's common stock and (y) Non-Cash Based Compensation
Costs).
(b) INTEREST COVERAGE RATIO. Permit, for any period of four
consecutive fiscal quarters, the ratio of (i) Consolidated EBITDA to (ii)
Consolidated Interest Expense to be less than 2.00 to 1.00.
(c) LEVERAGE RATIO. Permit at any time the ratio of (i) Senior
Indebtedness to (ii) Adjusted EBITDA at the end of the most recently
completed fiscal quarter to exceed 5.00 to 1.00.
7.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement and the other
Loan Documents;
<PAGE>
34
(b) unsecured Indebtedness of any Subsidiary owing to the Borrower or
any other Subsidiary or secured Indebtedness of any Subsidiary owing to the
Borrower;
(c) Indebtedness of the Borrower or any of its Subsidiaries incurred
to finance its working capital (or the working capital of any Subsidiary
of the Borrower) in an aggregate principal amount not exceeding as to the
Borrower or any Subsidiary $1,000,000 at any time outstanding;
(d) Indebtedness of the Borrower or any of its Subsidiaries incurred
to finance its acquisition of fixed or capital assets (whether pursuant to
a deferred purchase arrangement with a vendor, a loan, a Financing Lease or
otherwise) in an aggregate principal amount not exceeding as to the
Borrower or any Subsidiary (other than First Quadrant L.P.) $500,000, and
as to First Quadrant L.P. $1,000,000, at any time outstanding;
(e) Indebtedness of a Person which becomes a Subsidiary after the date
hereof; PROVIDED that (i) such indebtedness existed at the time such Person
became a Subsidiary and was not created in anticipation thereof and (ii)
immediately after giving effect to the acquisition of such Person by the
Borrower no Default or Event of Default shall have occurred and be
continuing;
(f) Indebtedness in respect of (i) the Subordinated Contingent
Payment Notes and (ii) other Subordinated Indebtedness;
(g) Indebtedness of the Borrower and its Subsidiaries existing on the
date hereof, as described on Schedule 7.2(g);
(h) Indebtedness of the type described in clause (g) of the definition
of Indebtedness incurred by the Borrower or any of its Subsidiaries in the
ordinary course of business with reputable financial institutions and not
for speculative purposes;
(i) Indebtedness of the Borrower or any of its Subsidiaries incurred
to the seller of an interest in any Management Company or Subsidiary; and
(j) Indebtedness in the nature of deferred compensation to employees
in an aggregate principal amount not exceeding as to the Borrower and its
Subsidiaries $5,000,000 at any time outstanding.
7.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes, assessments and other governmental charges not
yet due or which are being contested in good faith by appropriate
proceedings; PROVIDED that adequate reserves with respect thereto are
maintained on the books of the Borrower or its Subsidiaries, as the case
may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
<PAGE>
35
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(f) Liens securing Indebtedness of the Borrower and its Subsidiaries
permitted by subsection 7.2(d) incurred to finance the acquisition of fixed
or capital assets; PROVIDED that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv) the principal amount
of Indebtedness secured by such Lien shall at no time exceed the purchase
price of such property;
(g) Liens on the property or assets of a Person which becomes a
Subsidiary after the date hereof securing Indebtedness permitted by
subsection 7.2(e); PROVIDED that (i) such Liens existed at the time such
Person became a Subsidiary and were not created in anticipation thereof,
(ii) any such Lien is not spread to cover any property or assets of such
Person after the time such Person becomes a Subsidiary, and (iii) the
amount of Indebtedness secured thereby is not increased;
(h) Liens arising by reason of any judgment, decree or order of any
court or other Governmental Authority, (i) if appropriate legal proceedings
which have been initiated for the review of such judgment, decree or order
are being diligently prosecuted and shall not have been finally terminated
or the period within which such proceedings may be initiated shall not have
expired or (ii) if such judgment, decree or order shall have been
discharged, within 45 days of the entry thereof or execution thereof has
been stayed pending appeal;
(i) Liens created pursuant to the Pledge Agreements;
(j) Liens existing, or provided for under arrangements existing, as of
the date hereof as described on Schedule 7.3(j); and
(k) Liens permitted under subsection 4 of each of the Stock Pledge
Agreement and the Subsidiary Pledge Agreement and subsection 3 of each of
the Partnership Pledge Agreement and the LLC Pledge Agreement.
7.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or
suffer to exist any Guarantee Obligation except guarantees by the Borrower or
any Subsidiary or Management Company of obligations of any of the Subsidiaries,
which obligations are otherwise permitted under this Agreement, and except for
(a) other Guarantee Obligations not exceeding $1,500,000 in the aggregate at any
time, (b) Guarantee Obligations which constitute Indebtedness permitted under
subsection 7.2, (c) Guarantee Obligations of Subsidiaries created pursuant to
the Subsidiary Pledge Agreement or (d) Guarantee
<PAGE>
36
Obligations with respect to Indebtedness of any Person which shall be incurred
by such Person in anticipation of a majority interest therein being acquired by
the Borrower or any of its Subsidiaries and which shall be outstanding for no
more than 30 days in an aggregate principal amount for all such Guarantee
Obligations not exceeding $10,000,000 at any one time outstanding.
7.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets (each a "disposition"), or make any material change in its present method
of conducting business; unless, (i) with respect to a merger, consolidation or
amalgamation of a Subsidiary of the Borrower, if prior to such event the
Borrower owned in excess of a 50% ownership interest, the Borrower shall
continue to own in excess of a 50% ownership interest in such Subsidiary or the
surviving Person of such merger, consolidation or amalgamation or, after such
event it shall have no ownership interest, (ii) with respect to the liquidation,
winding up or dissolution of a direct or indirect Subsidiary of the Borrower,
the assets of such Subsidiary shall have been transferred to the Borrower or a
Subsidiary of the Borrower and the other shareholders, partners or members of a
Subsidiary, or another Subsidiary of the Borrower, and (iii) with respect to any
disposition described above, the Net Proceeds thereof shall have been applied as
set forth in subsection 3.2 to the extent required.
7.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign,
transfer or otherwise dispose (including in connection with sale leaseback
transactions) of any of its property, business or assets (including, without
limitation, receivables and leasehold interests), whether now owned or hereafter
acquired, or, in the case of any Subsidiary, issue or sell any shares of such
Subsidiary's Capital Stock to any Person other than the Borrower or any wholly
owned Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business;
(b) the sale or other disposition of any property in the ordinary
course of business;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof;
(d) the sale, issuance or other disposition of the Capital Stock or
other ownership interest of any Subsidiary of the Borrower or of a
Management Company in which the Borrower owns an ownership interest to
partners, officers or directors of such Subsidiary or Management Company;
PROVIDED that, if prior to such sale, issuance or disposition, the Borrower
owns in excess of a 50% ownership interest in such Subsidiary or Management
Company, the Borrower shall at all times continue to own in excess of a 50%
ownership interest in such Subsidiary or Management Company or after such
sale, issuance or disposition shall have no ownership interest; and
(e) the sale, contribution or other transfer of (i) all or
substantially all the Capital Stock of a Subsidiary or Management Company
(including both Capital Stock held by the Borrower and its Subsidiaries and
by the other holders of Capital Stock of such Subsidiary or Management
Company), or (ii) all or substantially all the assets of a Subsidiary or
Management Company; PROVIDED that, if prior to such sale, contribution or
transfer, the Borrower owns in excess of a 50% ownership interest in such
Subsidiary or Management Company, the Borrower shall at all times continue
to own in excess of a 50% ownership interest in such Subsidiary or
Management Company or, in
<PAGE>
37
the case of clause (ii) above, the Person who is the transferee with
respect to the assets sold, contributed or transferred pursuant to clause
(ii) or after such sale, contribution or transfer shall have no ownership
interest.
7.7 LIMITATION ON LEASES. Permit the amount paid by the Borrower for
lease obligations under operating leases to which the Borrower is a party
(including any such leases entered into in connection with sale leaseback
transactions) for any fiscal year of the Borrower to exceed $750,000 or permit a
Subsidiary of the Borrower to make any such payment in respect of lease
obligations except to the extent that any such payment is made out of that
portion of its revenues designated as Operating Cash Flow (and not Free Cash
Flow) under the relevant Revenue Sharing Agreement.
7.8 LIMITATION ON DIVIDENDS. Declare or pay any dividend (other than
dividends payable solely in common stock of the Borrower) on, or make any
payment on account of, or set apart assets for a sinking or other analogous fund
for, the purchase, redemption, defeasance, retirement or other acquisition of,
any shares of any class of Capital Stock of the Borrower or any warrants or
options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary in an aggregate amount exceeding as to the Borrower and its
Subsidiaries $500,000; PROVIDED that the Borrower may repurchase shares of its
common stock as long as (i) no Default or Event of Default shall have occurred
and be continuing or would result therefrom, (ii) the ratio of Senior
Indebtedness to Adjusted EBITDA at the end of the most recently completed fiscal
quarter is less than or equal to 3.0 to 1.0 and (iii) the aggregate amount
thereof in any fiscal year, calculated at the date of each such repurchase, does
not exceed 10% of Consolidated Net Income for the most recently completed fiscal
year of the Borrower.
7.9 LIMITATION ON CAPITAL EXPENDITURES. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any expenditure
in respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations) except in the case
of the Borrower, for expenditures in the ordinary course of business not
exceeding, in the aggregate for the Borrower during any fiscal year of the
Borrower $2,500,000 and except in the case of a Subsidiary of the Borrower,
expenditures in respect of fixed or capital assets to the extent that such
expenditures are made out of that portion of its revenues designated as
Operating Cash Flow (and not Free Cash Flow) under the relevant Revenue Sharing
Agreement.
7.10 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in cash equivalents, including any such investment
that may be readily sold or otherwise liquidated in any Fund for which any
Subsidiary or other Management Company provides management, advisory or
administrative services and which principally invests in cash equivalents;
(c) any investment in or loan or advance to a Management Company or a
Subsidiary or in any Person which, after giving effect to such investment,
will become a Subsidiary or a Management Company, if, after giving effect
to such investment, no Default or Event of Default shall have occurred and
be continuing;
<PAGE>
38
(d) loans to officers of the Borrower or its Subsidiaries listed on
Schedule 8.10 in aggregate principal amounts outstanding not to exceed the
respective amounts set forth for such officers on said schedule;
(e) (i) loans and advances to employees of the Borrower or its
Subsidiaries for travel, entertainment and relocation expenses in the
ordinary course of business in an aggregate amount for the Borrower and its
Subsidiaries not to exceed $150,000 at any one time outstanding (other than
as permitted in subsection 7.10(f)) and (ii) in the case of a Subsidiary of
the Borrower, loans and advances to employees for travel, entertainment and
relocation expenses in the ordinary course of business to the extent that
such loans and advances are made out of that portion of its revenues
designated as Operating Cash Flow (and not Free Cash Flow) under the
relevant Revenue Sharing Agreement;
(f) to the extent made out of the portion of the revenues of a
Subsidiary of the Borrower which is designated as Operating Cash Flow (and
not Free Cash Flow) under the relevant Revenue Sharing Agreements; and
(g) investments in any Fund or financial product for which any
Subsidiary provides management, advisory or administrative services in an
aggregate amount not to exceed $2,000,000 at any one time outstanding.
7.11 LIMITATION ON PAYMENTS OF SUBORDINATED INDEBTEDNESS. Make any
payment (including any cash payment of interest) or prepayment on or redemption,
defeasance or purchase of any Subordinated Indebtedness; PROVIDED, HOWEVER as
long as there is no Default or Event of Default, the Borrower may make payments
due on the Subordinated Contingent Payment Notes as required thereunder and up
to $10,000,000 in the aggregate of payments (including any cash payment of
interest) and prepayments on or redemption, defeasance or purchase of
Subordinated Indebtedness.
7.12 RESTRICTION ON AMENDMENTS TO REVENUE SHARING AGREEMENTS. Amend
or modify the terms of a Revenue Sharing Agreement such that, as a result of
such amendment or modification a Material Adverse Effect would occur.
7.13 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Except as described
on Schedule 7.13, enter into any transaction, including, without limitation, any
purchase, sale, lease or exchange of property or the rendering of any service,
with any Affiliate unless such transaction is (a) otherwise expressly permitted
under this Agreement or (b) in the ordinary course of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such Subsidiary, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate;
PROVIDED that (i) transactions between the Borrower and its Subsidiaries and
Management Companies and (ii) transactions between the Borrower or any of its
Subsidiaries or any officer, director, individual stockholder, partner or member
(or an entity wholly owned by such an individual) and any Fund or other
Investment Company sponsored by the Borrower or any Subsidiary or for which the
Borrower or any Subsidiary provides advisory, administrative, supervisory,
management, consulting or similar services, that are otherwise permissible under
the Investment Company Act, the Investment Advisers Act and the applicable
management contracts shall be permitted under this subsection 7.13.
7.14 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of
the Borrower to end on a day other than December 31.
<PAGE>
39
SECTION 8. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms thereof or hereof; or the Borrower shall fail
to pay any interest on any Loan, or any other amount payable hereunder,
within five days after any such interest or other amount becomes due in
accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any of its Subsidiaries herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any agreement contained in Section 5 and
Section 6 of each of the Stock Pledge Agreement and the Subsidiary Pledge
Agreement and Section 4 and Section 5 of each of the Partnership Pledge
Agreement and the LLC Pledge Agreement; or
(d) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, in either case in an
outstanding principal amount in excess of $5,000,000, beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or (ii) default in the observance or performance of any other
agreement or condition relating to any such Indebtedness or Guarantee
Obligation or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to become due prior to
its stated maturity or such Guarantee Obligation to become payable; or
(f) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of
<PAGE>
40
its creditors; or (ii) there shall be commenced against the Borrower or any
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Borrower or any of its Subsidiaries
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within 60 days from the entry thereof; or (iv) the
Borrower or any of its Subsidiaries shall take any action in furtherance
of, or indicating its consent to, approval of, or acquiescence in, any of
the acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower
or any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due;
or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan maintained by the Borrower or any of its Subsidiaries, (ii) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan maintained by
the Borrower or any of its Subsidiaries, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist, with
respect to a Plan; and in each case in clauses (i) through (vi) above, such
event or condition, together with all other such events or conditions, if
any, could have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance or indemnification) of $5,000,000
or more, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within 60 days from the entry
thereof; or
(i) (i) Any of the Pledge Agreements shall cease, for any reason, to
be in full force and effect, or the Borrower or any of its Subsidiaries
party thereto shall so assert or (ii) the Lien created by any of the Pledge
Agreements shall cease to be enforceable and of the same effect and
priority purported to be created thereby; or
(j) A Change of Control shall have occurred.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon the Commitments shall
<PAGE>
41
immediately terminate; and (ii) with the consent of the Required Lenders, the
Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Borrower, declare the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement to be due and payable forthwith, whereupon the same shall immediately
become due and payable. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived.
SECTION 9. THE ADMINISTRATIVE AGENT
9.1 APPOINTMENT. Each Lender hereby irrevocably designates and
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
9.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of
its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys in-fact selected by it with reasonable care.
9.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any
of its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct) or (ii) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
officer thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the properties, books or records of the Borrower.
9.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to the Borrower), independent
accountants and other experts selected by the Administrative Agent. The
Administrative Agent
<PAGE>
42
may deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Administrative Agent. The Administrative Agent shall
be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Loan Documents in accordance with a request of the Required Lenders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders and all future holders of the Loans.
9.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event
that the Administrative Agent receives such a notice, the Administrative Agent
shall give notice thereof to the Lenders, or, if such notice is received from a
Lender, to the Borrower. The Administrative Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; PROVIDED that unless and until the Administrative Agent
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
9.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each
Lender expressly acknowledges that neither the Administrative Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to it and that no act by the
Administrative Agent hereinafter taken, including any review of the affairs of
the Borrower, shall be deemed to constitute any representation or warranty by
the Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
9.7 INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Commitment Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date upon which the Commitments
<PAGE>
43
shall have terminated and the Loans shall have been paid in full, ratably in
accordance with their Commitment Percentages immediately prior to such date),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against the Administrative Agent in any way relating to or arising out of, the
Commitments, this Agreement, any of the other Loan Documents or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; PROVIDED
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this
subsection shall survive the payment of the Loans and all other amounts payable
hereunder.
9.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the agent hereunder and under the other Loan
Documents. With respect to the Loans made by it, the Administrative Agent shall
have the same rights and powers under this Agreement and the other Loan
Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
9.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as Administrative Agent upon 30 days' notice to the Lenders. Upon any
such resignation, the Required Lenders shall appoint from among the Lenders a
successor agent for the Lenders, which successor agent shall be approved by the
Borrower; PROVIDED that, in the event such Lenders are unable to agree upon a
successor to a resigning Administrative Agent, a resigning Administrative Agent
shall appoint a successor agent from the existing Lenders. Upon the approval
and acceptance of any appointment as Administrative Agent, such successor agent
shall succeed to the rights, powers and duties of the Administrative Agent, and
the term "Administrative Agent" shall mean such successor agent effective upon
such appointment and approval, and the former Administrative Agent's rights,
powers and duties as Administrative Agent shall be terminated, without any other
or further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as Administrative Agent, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Administrative Agent under this Agreement and the
other Loan Documents.
SECTION 10. MISCELLANEOUS
10.1 AMENDMENTS AND WAIVERS. (a) Neither this Agreement nor any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (x) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (y) waive, on such terms and conditions
as the Required Lenders or the Administrative Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
other Loan Documents or any Default or Event of Default and its
<PAGE>
44
consequences; PROVIDED, HOWEVER that no such waiver and no such amendment,
supplement or modification shall (i) reduce the amount or extend the scheduled
date of final maturity of any Loan, or reduce the stated rate of any interest or
fee payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Commitment, in
each case without the consent of each Lender directly affected thereby, or
(ii) amend, modify or waive any provision of this subsection or reduce the
percentage specified in the definition of Required Lenders, or consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement and the other Loan Documents or release all or
substantially all of the Collateral or Pledged Collateral, in each case without
the written consent of all the Lenders or (iii) amend, modify or waive any
provision of Section 9 without the written consent of the then Administrative
Agent. Any such waiver and any such amendment, supplement or modification shall
apply equally to each of the Lenders and shall be binding upon the Borrower, the
Lenders, the Administrative Agent and all future holders of the Loans. In the
case of any waiver, the Borrower, the Lenders and the Administrative Agent shall
be restored to their former positions and rights hereunder and under the other
Loan Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereon.
(b) In addition to amendments effected pursuant to the foregoing
paragraph (a), this Agreement shall be amended to include a prospective Lender
as a party hereto upon the execution and delivery of a Joinder Agreement as
contemplated in subsection 2.3(e).
10.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission), and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when delivered, or 5 days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the
Administrative Agent, and as set forth in Schedule I in the case of the other
parties hereto, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrower: Affiliated Managers Group
Two International Place, 23rd Floor
Boston, Massachusetts 02110
Attention: Sean Healey, Executive Vice President
Fax: (617) 346-7115
The Administrative
Agent: The Chase Manhattan Bank
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Laura Rebecca
Fax: (212) 552-7490
PROVIDED that any notice, request or demand to or upon the Administrative Agent
or the Lenders pursuant to subsection 2.2, 2.5, 3.1, 3.3 or 3.8 shall not be
effective until received.
10.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Administrative Agent or any Lender, any
right, remedy, power or privilege hereunder or under
<PAGE>
45
the other Loan Documents shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and privileges herein
provided are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law.
10.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder through the Termination Date.
10.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or
reimburse the Administrative Agent for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, the reasonable fees and
disbursements of counsel to the Administrative Agent, (b) to pay or reimburse
each Lender and the Administrative Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement, the other Loan Documents and any such other documents during the
continuance of an Event of Default, including, without limitation, the fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes other than Non-Excluded Taxes, if any, which may be payable or determined
to be payable in connection with the execution and delivery of, or consummation
or administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents and (d) to
pay, indemnify, and hold each Lender and the Administrative Agent harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents (all
the foregoing in this clause (d), collectively, the "indemnified liabilities");
PROVIDED that the Borrower shall have no obligation hereunder to the
Administrative Agent or any Lender with respect to indemnified liabilities
arising from (i) the gross negligence, bad faith or willful misconduct of the
Administrative Agent or any such Lender or (ii) legal proceedings commenced
against the Administrative Agent or any such Lender by any security holder or
creditor thereof arising out of and based upon rights afforded any such security
holder or creditor solely in its capacity as such. Any statement for reasonable
expenses of counsel to the Administrative Agent and the Lenders payable by the
Borrower pursuant to this subsection 10.5 shall be sent to a Responsible Officer
of the Borrower within six months of the termination of the event giving rise to
such expenses. The agreements in this subsection shall survive repayment of the
Loans and all other amounts payable hereunder.
10.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Administrative Agent and their respective successors and assigns,
except that the Borrower may not assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each
Lender.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, and, so long as no Event of
Default has been continuing for a period of 90 days, with the consent of the
Borrower (which consent shall not be unreasonably withheld), at any time sell
<PAGE>
46
to one or more banks or other entities ("PARTICIPANTS") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Administrative Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
this Agreement and the other Loan Documents. The Borrower agrees that if
amounts outstanding under this Agreement are due or unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall, to the maximum extent permitted by applicable
law, be deemed to have the right of setoff in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement; PROVIDED that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in subsection 10.7(a) as fully as if it were a
Lender hereunder. The Borrower also agrees that each Participant shall be
entitled to the benefits of subsections 3.10, 3.11, 3.12 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; PROVIDED that, in the case of subsection 3.11, such
Participant shall have complied with the requirements of said subsection and
PROVIDED, FURTHER that no Participant shall be entitled to receive any greater
amount pursuant to any such subsection than the transferor Lender would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to any Lender or any affiliate thereof or, with the consent of each
of the Administrative Agent and, so long as no Event of Default has been
continuing for a period of 90 days, the Borrower (which in each case shall not
be unreasonably withheld), to an additional bank or financial institution ("an
ASSIGNEE") all or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit E, executed by such Assignee, such
assigning Lender (and, in the case of an Assignee that is not then a Lender or
an affiliate thereof, by the Administrative Agent) and delivered to the
Administrative Agent for its acceptance and recording in the Register; PROVIDED
that, in the case of any such assignment to an additional bank or financial
institution (other than an assignment of all the assigning Lender's rights and
obligations with respect to the Commitments), the sum of the aggregate principal
amount of the Loans and the aggregate amount of the unused Commitments being
assigned and, if such assignment is of less than all of the rights and
obligations of the assigning Lender, the sum of the aggregate principal amount
of the Loans and the aggregate amount of the unused Commitments remaining with
the assigning Lender are each not less than $5,000,000 (or such lesser amount as
may be agreed to by the Borrower and the Administrative Agent). Upon such
execution, delivery, acceptance and recording, from and after the effective date
determined pursuant to such Assignment and Acceptance, (x) the Assignee
thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of a Lender hereunder
with a Commitment as set forth therein, and (y) the assigning Lender thereunder
shall, to the extent provided in such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such assigning Lender shall cease to be a
party hereto).
<PAGE>
47
(d) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in subsection
10.2 a copy of each Assignment and Acceptance delivered to it and a register
(the "REGISTER") for the recordation of the names and addresses of the Lenders
and the Commitments of, and principal amounts of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrower, the Administrative Agent and the
Lenders may (and, in the case of any Loan or other obligation hereunder not
evidenced by a Note, shall) treat each Person whose name is recorded in the
Register as the owner of a Loan or other obligation hereunder as the owner
thereof for all purposes of this Agreement and the other Loan Documents,
notwithstanding any notice to the contrary. Any assignment of any Loan or other
obligation hereunder not evidenced by a Note shall be effective only upon
appropriate entries with respect thereto being made in the Register. The
Register shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Administrative Agent with the
approval of the Borrower) together with payment by the Lenders parties thereto
to the Administrative Agent of a registration and processing fee of $3,500, the
Administrative Agent shall (i) promptly accept such Assignment and Acceptance
and (ii) on the effective date determined pursuant thereto record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "TRANSFEREE") and any prospective Transferee approved by
the Borrower, which approval shall not be unreasonably withheld, subject to the
provisions of subsection 10.15, any and all financial information in such
Lender's possession concerning the Borrower and its Affiliates which has been
delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Affiliates prior to becoming a party to this Agreement; PROVIDED, HOWEVER
that prior to such disclosure each such prospective Transferee shall have
executed a confidentiality agreement substantially in the form of Exhibit F.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this subsection concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
10.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in subsection 8(f), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such benefitted Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
PROVIDED, HOWEVER that if all or any portion of such excess payment or benefits
is thereafter recovered from such
<PAGE>
48
benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned, to the extent of such recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to
set-off and appropriate and apply against such amount any and all deposits
(general or special, time or demand, provisional or final), in any currency, and
any other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrower. Each Lender agrees promptly to notify
the Borrower and the Administrative Agent after any such set-off and application
made by such Lender; PROVIDED that the failure to give such notice shall not
affect the validity of such set-off and application.
10.8 COUNTERPARTS. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Borrower and the
Administrative Agent.
10.9 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.10 INTEGRATION. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10.12 SUBMISSION TO JURISDICTION; WAIVERS. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgement in
respect thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
<PAGE>
49
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in subsection 10.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this subsection any special, exemplary, punitive or consequential
damages.
10.13 ACKNOWLEDGEMENTS. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower arising out of or in connection
with this Agreement or any of the other Loan Documents, and the
relationship between Administrative Agent and Lenders, on one hand, and the
Borrower, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
10.14 WAIVERS OF JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, THE
BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
10.15 CONFIDENTIALITY. Each Lender agrees to keep confidential any
written or oral information (a) provided to it by or on behalf of the Borrower
or any of its Subsidiaries pursuant to or in connection with this Agreement or
(b) obtained by such Lender based on a review of the books and records of the
Borrower or any of its Subsidiaries; PROVIDED that nothing herein shall prevent
any Lender from disclosing any such information (i) to the Administrative Agent
or any other Lender or to any Person who evaluates, approves, structures or
administers the Loans on behalf of a Lender and who is subject to this
confidentiality provision, (ii) to any Transferee or prospective Transferee
which agrees in writing to comply with the provisions of this subsection, (iii)
to its employees, directors, agents, attorneys, accountants and other
professional advisors who are directly involved in the execution of the
transactions contemplated by this Agreement and have been informed of their
obligations under this subsection 10.15, (iv) upon the request or demand of any
Governmental Authority having jurisdiction over such Lender, (v) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law (notice of which shall be provided
promptly to the Borrower), (vi) which has been publicly disclosed other than in
breach of this Agreement, or (vii) in connection with the exercise of any remedy
hereunder.
<PAGE>
50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
AFFILIATED MANAGERS GROUP, INC.
By: /s/ Sean M. Healey
------------------------------
Title: Executive Vice President
THE CHASE MANHATTAN BANK, as Administrative
Agent and as a Lender
By: /s/ Bruce Borden
------------------------
Title: Vice President
NATIONSBANK, N.A., as
Documentation Agent and as a Lender
By: /s/ Kenneth Ricciardi
---------------------------
Title: Senior Vice President
<PAGE>
FIRST UNION NATIONAL BANK
By: /s/ Gail M. Golightly
---------------------------
Title: Senior Vice President
<PAGE>
SOCIETE GENERALE
By: /s/ John H. Padwater
------------------------
Title: Vice President
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
--------------------------
Title: First Vice President
<PAGE>
CIBC INC.
By: /s/ Gerald Girardi
---------------------------------------
Title: Executive Director
CIBC Oppenheimer Corp., as agent
<PAGE>
STATE STREET BANK AND TRUST COMPANY
By: /s/ F. Andrew Beise
------------------------
Title: Vice President
<PAGE>
MELLON BANK, N.A.
By: /s/ Susan M. Whitewood
------------------------
Title: Vice President
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Linda Landuchi
------------------------
Title: Vice President
<PAGE>
ANNEX I
PRICING GRID
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Ratio of Senior
Indebtedness to Adjusted Applicable Margin for Applicable Margin For ABR Commitment Fee
EBITDA Eurodollar Loans Loans Rate
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
greater than/equal to
4.5 to 1.00 2.25% 1.25% 0.50%
- ---------------------------------------------------------------------------------------------------
greater than/equal to
3.75 to 1.00 1.75% 0.75% 0.50%
- ---------------------------------------------------------------------------------------------------
greater than/equal to
3.00 to 1.00 1.25% 0.25% 0.375%
- ---------------------------------------------------------------------------------------------------
greater than/equal to
2.00 to 1.00 0.75% 0.00% 0.25%
- ---------------------------------------------------------------------------------------------------
less than
2.00 to 1.00 0.50% 0.00% 0.20%
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE I
LENDER COMMITMENTS
A. Commitments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Lender Commitment
- ------------------------------------------------------------------
<S> <C>
The Chase Manhattan Bank $42,167,000
- ------------------------------------------------------------------
NationsBank, N.A. $52,333,000
- ------------------------------------------------------------------
CIBC Inc. $35,000,000
- ------------------------------------------------------------------
Credit Lyonnais New York Branch $35,000,000
- ------------------------------------------------------------------
Societe Generale $35,000,000
- ------------------------------------------------------------------
Mellon Bank, N.A. $25,000,000
- ------------------------------------------------------------------
State Street Bank and Trust Company $22,500,000
- ------------------------------------------------------------------
Union Bank of California, N.A. $20,000,000
- ------------------------------------------------------------------
First Union National Bank $18,000,000
- ------------------------------------------------------------------
$285,000,000
- ------------------------------------------------------------------
</TABLE>
B. Addresses for Notices
THE CHASE MANHATTAN BANK
270 Park Avenue
New York, NY 10017
Attn: Darrell Crate
Telephone: (212) 270-5005
Telecopy: (212) 270-5222
NATIONSBANK, N.A.
600 Peachtree Street, N.E.
21st Floor
Atlanta, GA 30308-2214
Attn: Ronald Blissett
Telephone: (404) 607-4138
Telecopy: (404) 607-6318
CIBC INC.
425 Lexington Avenue, 8th Floor
New York, NY 10017
Attn: Gerald Girardi
Telephone: (212) 856-3649
Telecopy: (212) 856-3558
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
53 State Street, 27th Floor
Boston, MA 02109
Attn: Lisa Turilli
Telephone: (617) 723-2615
Telecopy: (617) 723-4803
SOCIETE GENERALE
1221 Avenue of the Americas
New York, NY 10020
Attn: John Padwater
Telephone: (212) 278-6263
Telecopy: (212) 278-7569
MELLON BANK, N.A.
One Mellon Bank Center, Room 350
Pittsburgh, PA 15258
Attn: Susan Whitewood
Telephone: (412) 234-7112
Telecopy: (412) 234-8087
STATE STREET BANK AND TRUST COMPANY
235 Franklin Street, 2nd Floor
Boston, MA 02110
Attn: Monica Sheehan
Telephone: (617) 664-4957
Telecopy: (617) 664-6527
UNION BANK OF CALIFORNIA, N.A.
350 California Street
San Francisco, CA 94104
Attn: David Hants
Telephone: (415) 705-7020
Telecopy: (415) 705-7037
FIRST UNION NATIONAL BANK
301 South College Street DC-5
Charlotte, NC 28288-0735
Attn: Robert W. Beatty
Telephone: (704) 374-4176
Telecopy: (704) 383-7611
<PAGE>
EXHIBIT 10.15
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
MARCH 20, 1998
<PAGE>
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
TABLE OF CONTENTS
Page
ARTICLE I -- DEFINITIONS............................................... 1
Section 1.1 Definitions......................................... 1
ARTICLE II -- ORGANIZATION AND GENERAL PROVISIONS...................... 11
Section 2.1 Continuation........................................ 11
Section 2.2 Name................................................ 11
Section 2.3 Term................................................ 12
Section 2.4 Registered Agent and Registered Office.............. 12
Section 2.5 Principal Place of Business......................... 12
Section 2.6 Qualification in Other Jurisdictions................ 12
Section 2.7 Purposes and Powers................................. 12
Section 2.8 Title to Property................................... 13
ARTICLE III -- MANAGEMENT OF THE LLC................................... 13
Section 3.1 Management in General............................... 13
Section 3.2 Management Committee of the LLC..................... 16
Section 3.3 Officers of the LLC................................. 19
Section 3.4 Employees of the LLC................................ 19
Section 3.5 Operation of the Business of the LLC................ 20
Section 3.6 Compensation and Expenses of the Members............ 23
Section 3.7 Other Business of the Manager Member and its
Affiliates..................................... 24
Section 3.8 Non-Manager Members and Non Solicitation
Agreements..................................... 24
Section 3.9 Non Solicitation and Non Disclosure by Non-Manager
Members and Employee Stockholders.............. 24
Section 3.10 Remedies Upon Breach................................ 27
Section 3.11 Repurchase Upon Termination of Employment or
Transfer by Operation of Law................... 28
Section 3.12 No Employment Obligation............................ 33
Section 3.13 Capitalization of Excess Operating Cash Flow........ 33
Section 3.14 Miscellaneous....................................... 33
ARTICLE IV -- CAPITAL CONTRIBUTIONS;
CAPITAL ACCOUNTS AND ALLOCATIONS; DISTRIBUTIONS.................... 34
Section 4.1 Capital Contributions............................... 34
Section 4.2 Capital Accounts; Allocations....................... 35
Section 4.3 Distributions....................................... 38
Section 4.4 Distributions Upon Dissolution; Establishment of a
Reserve Upon Dissolution....................... 40
(i)
<PAGE>
Page
----
Section 4.5 Proceeds from Capital Contributions and the Sale
of Securities; Insurance Proceeds; Certain
Special Allocations............................ 41
Section 4.6 Federal Tax Allocations............................. 42
ARTICLE V -- TRANSFER OF LLC INTERESTS BY NON-MANAGER MEMBERS;
RESIGNATION, REDEMPTION AND WITHDRAWAL BY NON-MANAGER MEMBERS;
ADMISSION OF ADDITIONAL NON-MANAGER MEMBERS........................ 43
Section 5.1 Assignability of Interests.......................... 43
Section 5.2 Substitute Non-Manager Members...................... 45
Section 5.3 Allocation of Distributions Between Assignor and
Assignee; Successor to Capital Accounts........ 45
Section 5.4 Resignation, Redemptions and Withdrawals............ 46
Section 5.5 Issuance of Additional LLC Interests................ 46
Section 5.6 Additional Requirements to Transfer or Issuance..... 47
Section 5.7 Representation of Members........................... 47
ARTICLE VI -- TRANSFER OF LLC INTERESTS BY THE MANAGER MEMBER;
REDEMPTION, REMOVAL AND WITHDRAWAL................................. 48
Section 6.1 Assignability of Interest........................... 48
Section 6.2 Resignation, Redemption, and Withdrawal............. 49
ARTICLE VII -- PUT OF LLC INTERESTS.................................... 49
Section 7.1 Puts................................................ 49
Section 7.2 Election Rights of Non-Manager Members to Receive
AMG Stock...................................... 52
Section 7.3 Registration Rights................................. 54
Section 7.4 Restrictions........................................ 57
Section 7.5 Limitation of Registration Rights................... 58
Section 7.6 Option of Receiving Future Piggyback Registration
Rights......................................... 58
Section 7.7 Calls............................................... 58
ARTICLE VIII -- DISSOLUTION AND TERMINATION............................ 59
Section 8.1 No Dissolution...................................... 59
Section 8.2 Events of Dissolution............................... 59
Section 8.3 Notice of Dissolution............................... 59
Section 8.4 Liquidation......................................... 59
Section 8.5 Termination......................................... 60
Section 8.6 Claims of the Members............................... 60
ARTICLE IX -- RECORDS AND REPORTS...................................... 60
Section 9.1 Books and Records................................... 60
Section 9.2 Accounting.......................................... 60
(ii)
<PAGE>
Page
----
Section 9.3 Financial and Compliance Reports.................... 60
Section 9.4 Meetings............................................ 61
Section 9.5 Tax Matters......................................... 61
ARTICLE X -- LIABILITY, EXCULPATION AND INDEMNIFICATION................ 62
Section 10.1 Liability........................................... 62
Section 10.2 Exculpation......................................... 62
Section 10.3 Fiduciary Duty...................................... 63
Section 10.4 Indemnification..................................... 63
Section 10.5 Notice; Opportunity to Defend and Expenses.......... 64
Section 10.6 Miscellaneous....................................... 65
ARTICLE XI -- MISCELLANEOUS............................................ 65
Section 11.1 Notices............................................. 65
Section 11.2 Successors and Assigns.............................. 65
Section 11.3 Amendments.......................................... 65
Section 11.4 No Partition........................................ 66
Section 11.5 No Waiver; Cumulative Remedies...................... 66
Section 11.6 Dispute Resolution.................................. 66
Section 11.7 Prior Agreements Superseded......................... 67
Section 11.8 Captions............................................ 67
Section 11.9 Counterparts........................................ 67
Section 11.10 Applicable Law; Jurisdiction........................ 67
Section 11.11 Interpretation...................................... 67
Section 11.12 Severability........................................ 67
Section 11.13 Creditors........................................... 67
EXHIBITS
Exhibit A -- Incentive Program
Exhibit B -- Form of Non Solicitation/Non Disclosure Agreement for
Employee Stockholders
Exhibit C -- Form of Promissory Note for Repurchases
SCHEDULES
- ---------
Schedule A -- LLC Points and Capital Contribution
Schedule B -- Model Repurchase Calculation
(iii)
<PAGE>
ESSEX INVESTMENT MANAGEMENT COMPANY, LLC
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
----------------------------------------
----------------------------------------
This Limited Liability Company Agreement (the "Agreement") of Essex
Investment Management Company, LLC (the "LLC" or the "Company") is made and
entered into as of March 20, 1998 (the "Effective Date"), by and among the
persons identified as the Manager Member and the Non-Manager Members on
Schedule A attached hereto as members of the LLC, and the Persons who become
members of the LLC in accordance with the provisions hereof.
WHEREAS, a limited liability company has been formed pursuant to the
Delaware Limited Liability Company Act, 6 Delaware Code Section 18-101, et
seq., as it may be amended from time to time and any successor to such Act
(the "Act"), by filing a Certificate of Formation of the LLC with the office
of the Secretary of State of the State of Delaware on January 12, 1998, and
entering into a Limited Liability Company Agreement of the LLC, dated as of
January 12, 1998; and
WHEREAS, pursuant to the Merger Agreement, Constitution Merger Sub, Inc.
a Massachusetts corporation and a wholly owned subsidiary of Affiliated
Managers Group, Inc. ("Merger Sub"), is being merged with and into Essex
Investment Management Company, Inc., a Massachusetts corporation ("Essex"),
effective as of the Closing (as defined in the Merger Agreement) and the
Members desire to continue the LLC as a limited liability company under the
Act with Essex as Manager Member, and to amend and restate the Limited
Liability Company Agreement of the LLC, dated as of January 12, 1998 in its
entirety.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and in consideration of the
mutual covenants hereinafter set forth, the parties hereby agree as follows:
ARTICLE I -- DEFINITIONS.
Section 1.1 Definitions. Unless the context otherwise requires, the
terms defined in this Article I shall, for the purposes of this Agreement,
have the meanings herein specified.
"1940 Act" shall mean the Investment Company Act of 1940, as it may be
amended from time to time, and any successor to such act.
"Act" shall have the meaning set forth in the preamble of this Agreement.
"Additional Non-Manager Members" shall have the meaning specified in
Section 5.5.
"Advisers Act" shall mean the Investment Advisers Act of 1940, as it may
be amended from time to time, and any successor to such act.
"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
<PAGE>
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.
"Agreement" shall mean this Limited Liability Company Agreement, as it
may from time to time be amended, supplemented or restated.
"AMG" shall mean Affiliated Managers Group, Inc., a Delaware
corporation, and any successors or assigns thereof.
"AMG Stock" shall have the meaning specified in Section 7.2(a) hereof.
"Asserted Liability" shall have the meaning specified in Section 10.5(a)
hereof.
"Capital Account" shall mean the capital account maintained by the LLC
with respect to each Member in accordance with the capital accounting rules
described in Section 4.2 hereof.
"Capital Contribution" shall mean, as to each Member, the amount of
money and/or the agreed fair market value of any property (net of any
liabilities encumbering such property that the LLC is considered to assume or
take subject to) contributed to the capital of the LLC by such Member.
"Certificate" shall mean the original Certificate of Formation of the
LLC required under the Act, as such Certificate may be amended and/or
restated from time to time.
"Claims Notice" shall have the meaning specified in Section 10.5(a)
hereof.
"Client" shall mean all Past Clients, Present Clients and Potential
Clients, subject to the following general rules: (i) with respect to each
Client, the term shall also include any persons or entities which are known
to the Employee Stockholder to be Affiliates of such Client or persons who
are members of the Immediate Family of such Client or any of its Affiliates;
(ii) with respect to any collective investment vehicle other than an
investment company registered under the Investment Company Act of 1940, as
amended, the term shall also include any investor or participant in such
Client; and (iii) with respect to so-called "wrap programs," both the sponsor
of the program and the underlying participants in the program (or clients who
have selected the LLC or a Controlled Affiliate under their contract with the
sponsor) shall be included as Clients.
"Code" or "Internal Revenue Code" shall mean the United States Internal
Revenue Code of 1986, as from time to time amended, and any successor
thereto, together with all regulations promulgated thereunder.
"Committee Vote" shall have the meaning specified in Section 3.2(b)(iv)
hereof.
2
<PAGE>
"Controlled Affiliate" shall mean, with respect to a Person, any
Affiliate of such Person under its "control," as the term "control" is
defined in the definition of Affiliate.
"Controlling Person" shall have the meaning specified in Section 7.3(e)
hereof.
"Covered Person" shall mean a Member, any Affiliate of a Member, any
officer, director, shareholder, partner, employee or member of a Member or
any of its Affiliates, or any Officer.
"Earned Performance Fee" shall mean, for each Performance Account, with
respect to a calendar quarter in which any "carried interest," special
performance allocation or other profit allocation or any "performance fee"
(in each case as set forth in the investment contract with, or organizational
document of, a Performance Account) has been definitively allocated to or
earned by the LLC and is no longer subject to any offset or reduction, an
amount equal to the product of (a) that "carried interest" or other profit
allocation or any "performance fee" and (b) the Free Cash Flow Percentage.
"Effective Date" shall have the meaning specified in the preamble of
this Agreement.
"Eligible Person" shall have the meaning specified in Section 3.2(b)(i)
hereof.
"Employee Stockholder" shall mean (a) in the case of a Non-Manager
Member which is an individual, such Non-Manager Member, and (b) in the case
of a Non-Manager Member which is not an individual, that certain employee of
the LLC who is the owner of all the issued and outstanding capital stock of
such Non-Manager Member, and is listed as such on Schedule A hereto,
including such employee after such employee transfers his or her interest in
such Non-Manager member to a Permitted Transferee.
"Employment Agreement" shall have the meaning ascribed thereto in the
Merger Agreement.
"Essex" shall have the meaning specified in the preamble of this
Agreement.
"Fair Market Value" shall mean such fair market value as the Manager
Member may reasonably determine (or, for purposes of Section 4.4 hereof, if
there shall be no Manager Member, the Liquidating Trustee) with the consent
of the Management Committee (which consent shall not be unreasonably
withheld) or, in the absence of such determination and consent, as determined
by an appraiser jointly selected by the Manager Member and the Management
Board.
"For Cause" shall mean, with respect to the termination of an Employee
Stockholder's employment with the LLC, or his removal from the Management
Committee or from his position as an Officer, any of the following:
(a) The Employee Stockholder has engaged in (i) any criminal
offense which is classified as a felony (or its equivalent under the
laws or regulations of any country or political subdivision thereof), or
(ii) any other criminal offense which involves
3
<PAGE>
a violation of federal or state securities laws or regulations (or
equivalent laws or regulations of any country or political subdivision
thereof), embezzlement, fraud, wrongful taking or misappropriation of
property, theft, or any other crime involving dishonesty and has been
convicted (whether or not subject to appeal) or pled nolo contendere (or
any similar plea) to any criminal offense in connection with or relating
to such act;
(b) The Employee Stockholder has persistently and willfully
failed to perform his or her duties or failed to devote substantially
all of his or her working time to the performance of such duties
(except, in the case of an Employee Stockholder who is a party to an
Employment Agreement or a Non-Solicitation Agreement, as may be
specifically permitted by the terms of such Employment Agreement or a
Non-Solicitation Agreement); or
(c) The Employee Stockholder has (i) engaged in a Prohibited
Competition Activity, (ii) violated or breached any material provision
of his or her Employment Agreement or Non Solicitation Agreement or
(iii) engaged in any of the activities prohibited by Section 3.9 hereof.
"Free Cash Flow" shall mean, for any period, the Free Cash Flow
Percentage multiplied by the Revenues From Operations of the LLC for such
period.
"Free Cash Flow Expenditure" shall have the meaning specified in Section
3.5(a) hereof.
"Free Cash Flow Percentage" shall mean fifty-two percent (52%).
"Governmental Authority" shall mean any foreign, federal, state or local
court, governmental authority or regulatory body.
"Holders" shall have the meaning specified in Section 7.3(a) hereof.
"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.
"Incentive Program" shall mean the Essex Investment Management Company,
LLC Incentive Program in the form attached hereto as Exhibit A. On the
Effective Date, there are the sixty eight (68) LLC Points held by the
Manager Member that are designated as available for transfer pursuant to the
Incentive Program.
"Indebtedness" shall mean, with respect to a Person, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred
in the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note,
4
<PAGE>
bond, debenture or similar instrument, (c) all obligations of such Person
under any financing leases, (d) all obligations of such person in respect of
acceptances issued or created for the account of such Person, (e) all
obligations of such Person under noncompetition agreements reflected as
liabilities on a balance sheet of such Person in accordance with generally
accepted accounting principles, (f) all liabilities secured by any Lien on
any property owned by such Persons even though such Person has not assumed or
otherwise become liable for the payment thereof, and (g) all net obligations
of such Person under interest rate, commodity, foreign currency and financial
markets swaps, options, futures and other hedging obligations.
"Independent Public Accountants" shall mean any independent certified
public accountant satisfactory to the Manager Member and retained by the LLC.
"Initial Members" shall mean those Persons which are Members on the
Effective Date.
"Initial LLC Points" means, with respect to a Non-Manager Member
(including his (or its) Related Non-Manager Members) and their respective
Permitted Transferees, those LLC Points held by such Non-Manager Member and
his (or its) Related Non-Manager Members in the LLC on the Effective Date,
provided that LLC Points shall cease to be Initial LLC Points from and after
the date on which they are acquired by the Manager Member (or its assignee).
"Initial Put LLC Points" shall have the meaning specified in Section
7.1(d) hereof.
"Intellectual Property" shall have the meaning specified in Section
3.9(d) hereof.
"Investment Management Services" shall mean any services which involve
(a) the giving of advice with respect to the investment and/or reinvestment
of assets or funds (or any group of assets or funds, other than services
provided on an isolated basis without receipt of compensation for such
isolated services, or (b) the management of an investment account or fund (or
portions thereof or a group of investment accounts or funds).
"IRS" shall mean the Internal Revenue Service of the United States
Department of the Treasury.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, restriction, claim, lien (statutory or
other), charge or other security interest or any preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other
title retention agreement and any financing lease having substantially the
same economic effect as any of the foregoing).
"Liquidating Trustee" shall have the meaning specified in Section 8.4
hereof.
"LLC" means Essex Investment Management Company, LLC, the limited
liability company heretofore formed and continued under and pursuant to the
Act and this Agreement, as the same may be amended and/or restated from time
to time.
5
<PAGE>
"LLC Contribution" shall have the meaning ascribed thereto in the Merger
Agreement.
"LLC Contribution Agreement" shall have the meaning ascribed thereto in
the Merger Agreement.
"LLC Interest" means a Member's limited liability company interest in
the LLC, which includes such Member's LLC Points as well as such Member's
Capital Account and other rights under this Agreement and the Act.
"LLC Points" shall mean, as of any date, with respect to a Member, the
number of LLC Points of such Member as set forth on Schedule A hereto, as
amended from time to time in accordance with the terms hereof, and as in
effect on such date.
"LLC Repurchase" shall have the meaning specified in Section 3.11(a)
hereof.
"Maintenance Fees"shall mean, for any period, the product of (a) the
Revenues From Operations for that period minus the Performance Fees for that
period and (b) the Free Cash Flow Percentage.
"Majority Vote" shall mean the affirmative approval, by vote or written
consent, of Non-Manager Members holding a majority of the outstanding Vested
LLC Points then held by all Non-Manager Members.
"Management Committee" shall have the meaning specified in Section
3.2(a) hereof.
"Manager Member" shall mean Essex Investment Management Company, Inc.,
and any Person who becomes a successor Manager Member as provided herein.
"Members" shall mean any Person admitted to the LLC as a "member" within
the meaning of the Act, which includes the Manager Member and the Non-Manager
Members, unless otherwise indicated, and includes any Person admitted as an
Additional Non-Manager Member or a substitute Non-Manager Member pursuant to
the provisions of this Agreement, in such Person's capacity as a member of
the LLC, unless otherwise indicated. For purposes of the Act, the Members
shall constitute one (1) class or group of members.
"Merger Agreement" shall mean that certain Agreement and Plan of
Reorganization dated as of January 15, 1998, as amended, by and among
Affiliated Managers Group, Inc., Merger Sub, Essex Investment Management
Company, Inc. and certain stockholders of Essex Investment Management
Company, Inc., as the same has been amended from time to time.
"NASD" shall have the meaning specified in Section 7.3(d) hereof.
"Net Assets" shall mean, with respect to a Performance Account the
assets in such Performance Account, net of the liabilities of such
Performance Account (if any), on the
6
<PAGE>
measurement date, with such assets and liabilities valued in accordance with
the valuation rules applicable to the calculation of the Earned Performance
Fee for such Performance Account.
"Non-Manager Member" shall mean any Person who is or becomes a
Non-Manager Member pursuant to the terms hereof, unless otherwise indicated.
"Non Solicitation Agreement" shall have the meaning set forth in Section
3.8 hereof.
"Notice Deadline" shall have the meaning specified in Section 7.1(d)
hereof.
"Notices" shall have the meaning specified in Section 11.1 hereof.
"Officers" shall have the meaning specified in Section 3.3(a) hereof.
"Operating Cash Flow" shall mean, for any period, an amount equal to the
positive difference, if any, between Revenues From Operations of the LLC for
such period and Free Cash Flow for such period.
"Option Exercise" shall have the meaning specified in Section 7.1(c)
hereof.
"Option Put LLC Points" shall have the meaning specified in Section
7.1(d) hereof.
"Past Client" shall mean at any particular time, any Person who at any
point prior to such time had been an advisee or investment advisory customer
of, or recipient of Investment Management Services from, the LLC (including,
without limitation, its predecessor, Essex Investment Management Company,
Inc.) or a Controlled Affiliate of the LLC but at such time is not an advisee
or investment advisory customer or client of, or recipient of Investment
Management Services from, the LLC or a Controlled Affiliate of the LLC.
"Performance Account" shall mean any contract or agreement (including,
without limitation, a partnership or limited liability company or other
similar agreement) pursuant to which the LLC or a Controlled Affiliate of the
LLC provides investment advice, directly or indirectly, and pursuant to which
the LLC or such an Affiliate is or becomes entitled to receive a Performance
Fee.
"Performance Account Adjustment" shall mean, for each Performance
Account, and with respect to a calendar quarter, an amount equal to the sum
for all months in that calendar quarter, of an amount equal to (i) the
Performance Fee which the LLC or a Controlled Affiliate would have been
entitled to if the Net Assets in such Performance Account on the first
business day of the month had increased ten percent (10%) over a twelve (12)
month period due solely to market performance, and assuming that there were
no offsets or other adjustments (whether on account of additions,
withdrawals, historic under performance of the Performance Account (including
so-called "high-water" marks) or otherwise), divided by (ii) twelve (12),
with appropriate adjustments being made for any partial quarter (or other
period) with respect to which a calculation of Performance Account Adjustment
must be made.
7
<PAGE>
"Performance Fee" shall mean (i) any "carried interest", special
performance allocation or other gain (net of losses) allocated (directly or
indirectly) to the LLC or a Controlled Affiliate (other than allocations that
are made pro-rata based on capital to all partners, members, beneficiaries or
other holders of similar economic interests in the Person), or (ii) any
"performance fee" or other payment based, in whole or in part, on the
investment performance of a Client or Client's account
"Permanent Incapacity" shall mean, with respect to an Employee
Stockholder, that such Employee Stockholder has been permanently and totally
unable, by reason of injury, illness or other similar cause (determined
pursuant to the process set forth in the following sentence) to have
performed his or her substantial and material duties and responsibilities for
a period of three hundred sixty-five (365) consecutive days, which injury,
illness or similar cause (as determined pursuant to such process) would
render such Employee Stockholder incapable of operating in a similar capacity
in the future. The foregoing determination shall be made by a licensed
physician selected by the Manager Member; provided, however, that if the LLC
has purchased lump-sum key-man disability insurance with respect to such
Employee Stockholder, which policy is then in effect, then such determination
shall be made either (i) by an agreement between such physician and a
physician selected by the insurance company with which the LLC has entered
into a lump-sum key-man disability policy with respect to such Employee
Stockholder, or, if the two physicians cannot arrive at an agreement, a third
physician will be chosen by the first two physicians, and the majority
decision of the three physicians will then be binding), or (ii) if the LLC
has entered into a lump-sum key-man disability policy with respect to such
Employee Stockholder, and a different procedure is then required under such
policy, then by using such other procedure as may then be required by such
insurance company.
"Permitted Transferee" shall mean, with respect to any Non-Manager
Member, its transferees pursuant to the provisions of Sections 5.1(b) and
5.1(c) hereof and, to the extent set forth in any consent of the Manager
Member pursuant to Section 5.1(a), its transferees pursuant to Section 5.1(a)
hereof.
"Person" means any individual, partnership (limited or general),
corporation, limited liability company, limited liability partnership,
association, trust, joint venture, unincorporated organization or any similar
entity.
"Potential Client" shall mean, at any particular time, any Person to
whom the LLC (including, without limitation, its predecessor, Essex
Investment Management Company, Inc.) or any of its Controlled Affiliates,
through any of their officers, employees, agents or consultants (or persons
acting in any similar capacity), has, within five years prior to such time,
offered (whether by means of a personal meeting or written proposal) to serve
as investment adviser or otherwise provide Investment Management Services,
but who is not at such time an advisee or investment advisory customer of, or
recipient of Investment Management Services from, the LLC or any of its
Controlled Affiliates. The preceding sentence is meant to exclude form
letters, blanket mailings, cold calls and initial marketing efforts that do
not result in a request by the recipient for further information or a
presentation.
8
<PAGE>
"Present Client" shall mean, at any particular time, any Person who is
at such time an advisee or investment advisory customer of, or recipient of
Investment Management Services from, the LLC or any of its Controlled
Affiliates.
"Prohibited Competition Activity" shall mean any of the following
activities:
(a) directly or indirectly, whether as owner, part owner, member,
director, officer, trustee, employee, agent or consultant for or on behalf of
any Person other than the LLC or any Affiliate of the LLC: (i) diverting or
taking away any funds or investment accounts with respect to which the LLC or
any Controlled Affiliate of the LLC is performing investment management or
advisory services; or (ii) soliciting any Person to divert or take away any
such funds or investment accounts; or
(b) directly or indirectly, whether as owner, part owner, partner,
member director, officer, trustee, employee, agent or consultant, for or on
behalf of any Person other than the LLC or any Controlled Affiliate of the
LLC, performing any Investment Management Services (provided that an Employee
Stockholder who directly performs Investment Management Services for his or
her own account or a member of his or her Immediate Family without a fee or
other remuneration, shall not be considered to have engaged in a Prohibited
Competition Activity);
"Purchase Date" shall have the meaning specified in Section 7.1(b)
hereof.
"Put" shall have the meaning specified in Section 7.1(a) hereof.
"Put LLC Points" shall have the meaning specified in Section 7.1(d)
hereof.
"Put Notice" shall have the meaning specified in Section 7.1(d) hereof.
"Put Price" shall have the meaning specified in Section 7.1(e) hereof.
"Receipts Account" shall have the meaning specified in Section 4.3(b)
hereof.
"Registrable Securities" shall have the meaning specified in Section
7.3(b) hereof.
"Registration" shall have the meaning specified in Section 7.3(a) hereof.
"Registration Expenses" shall have the meaning specified in Section
7.3(d) hereof.
"Registration Statement" shall have the meaning specified in Section
7.3(a) hereof.
"Related Non-Manager Member" shall mean, with respect to any Non-Manager
Member who is also an employee of the LLC, any member of his Immediate Family
that is a Transferee or Non-Manager Member, which member of the Immediate
Family is not also a full-time employee of the LLC.
9
<PAGE>
"Repurchase" shall mean a purchase or repurchase of LLC Interests made
pursuant to Section 3.11(a).
"Repurchase Closing Date" shall have the meaning specified in Section
3.11(b) hereof.
"Repurchased Member" shall have the meaning specified in Section 3.11(a).
"Repurchase Price" shall have the meaning specified in Section 3.11(c).
"Retirement" shall mean, with respect to an Employee Stockholder, the
termination by such Employee Stockholder of such Employee Stockholder's
employment with the LLC and its Affiliates: (a) after the date such Employee
Stockholder shall have been continuously employed by the LLC for a period of
fifteen (15) years commencing with the later of the Effective Date or the
date such Employee Stockholder commenced his or her employment with the LLC
(including its predecessor, Essex Investment Management Company, Inc.), as
applicable, and (b) pursuant to a written notice given to the LLC and the
Manager Member not less than one (1) year prior to the date of such
termination. Notwithstanding the foregoing, with respect to Joseph C. McNay,
Stephen R. Clark or Stephen D. Cutler, the term "Retirement" shall mean the
termination by him of his employment with the LLC after the tenth (10)
anniversary of the Effective Date and pursuant to a written notice given to
the LLC and the Manager Member not less than one (1) year prior to the date
of such termination.
"Revenues From Operations" shall mean, for any period, the gross
revenues of the LLC (except as set forth herein), determined on an accrual
basis in accordance with generally accepted accounting principles
consistently applied (but including other income such as interest, dividend
income and gains on the sale of assets); provided, however, that Revenues
From Operations shall be determined without regard to (a) proceeds during
such period from the sale, exchange or other disposition of all, or a
substantial portion of, the assets of the LLC, (b) revenues from the issuance
by the LLC of additional LLC Points, other LLC Interests, or other securities
issued by the LLC, and (c) payments received pursuant to any insurance
policies other than with respect to business interruption insurance.
"SEC" shall mean the Securities and Exchange Commission, and any
successor Governmental Authority thereto.
"Securities Act" shall mean the Securities Act of 1933, as it may be
amended from time to time, and any successor thereto.
"Suspension Period" shall have the meaning specified in Section 7.4(c)
hereof.
"Transfer" shall have the meaning specified in Section 5.1 hereof.
"Unanimous Termination Decision" shall mean a determination with the
prior written consent of the Manager Member and the unanimous vote of the
Management Committee (including any member(s) thereof who may be the subject
of the determination), that an Employee shall be
10
<PAGE>
terminated from employment by the LLC for any reason (including
unsatisfactory performance) or for no reason.
"Vested LLC Points" shall mean, at any time and with respect to any
Member, the number of LLC Points held by such Member which have vested at
such time, as determined pursuant to an agreement among the LLC, the Manager
Member and such Member in connection with the issuance of such LLC Points.
The number of Vested LLC Points held by each member and the vesting schedule
with respect to LLC Points which are not vested, shall be indicated on
Schedule A hereto, which Schedule shall be updated by the Manager member as
additional LLC Points are issued and/or vest from time to time.
In addition to the foregoing, other capitalized terms used in this
Agreement shall have the meaning ascribed thereto in the text of this
Agreement.
ARTICLE II -- ORGANIZATION AND GENERAL PROVISIONS.
Section 2.1 Continuation.
(a) The Members hereby agree to continue the LLC as a limited
liability company under and pursuant to the provisions of the Act, and agree
that the rights, duties and liabilities of the Members shall be as provided
in the Act, except as otherwise provided herein.
(b) Upon the execution of this Agreement or a counterpart of this
Agreement, the Initial Members shall continue as members of the LLC.
(c) The name, LLC Points and Capital Contribution of each Member
(including the agreed value of such Capital Contribution) shall be listed on
Schedule A attached hereto. The Manager Member shall update Schedule A from
time to time as it deems necessary, to accurately reflect the information to
be contained therein. Any amendment or revision to Schedule A shall not be
deemed an amendment to this Agreement. Any reference in this Agreement to
Schedule A shall be deemed to be a reference to Schedule A as amended and in
effect from time to time.
(d) The Manager Member, as an authorized person within the meaning
of the Act, shall execute, deliver and file any certificates required or
permitted by the Act to be filed in the office of the Secretary of State of
the State of Delaware.
Section 2.2 Name. The name of the LLC heretofore formed and
continued hereby is Essex Investment Management Company, LLC. At any time,
the Management Committee may, with the prior consent of the Manager Member,
change the name of the LLC. The business of the LLC may be conducted upon
compliance with all applicable laws under any other name designated by the
Management Committee with the prior written consent of the Manager Member.
11
<PAGE>
Section 2.3 Term. The term of the LLC commenced on the date the
Certificate was filed in the Office of the Secretary of State of the State of
Delaware and shall continue until the LLC is dissolved in accordance with the
provisions of this Agreement.
Section 2.4 Registered Agent and Registered Office. The LLC's
registered agent and registered office in Delaware shall be The Corporation
Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801. At any time, the Manager Member may designate another
registered agent and/or registered office.
Section 2.5 Principal Place of Business. The principal place of
business of the LLC shall be at 125 High Street, Boston, Massachusetts. At
any time, the Management Committee may change the location of the LLC's
principal place of business; provided, however, that if the principal place
of business is to be located outside of Boston, Massachusetts, such action
must be approved by the Manager Member.
Section 2.6 Qualification in Other Jurisdictions. The Management
Committee shall cause the LLC to be qualified or registered (under assumed or
fictitious name if necessary) in any jurisdiction in which the LLC transacts
business or in which such qualification, formation or registration is
required.
Section 2.7 Purposes and Powers. The principal business activity and
purposes of the LLC shall initially be to engage in the investment advisory
and investment management business and any businesses related thereto or
useful in connection therewith. In addition, the LLC shall have the
authority to engage in any other lawful business, purpose or activity
permitted by the Act that is agreed upon in writing by the Manager Member and
the Management Committee. The LLC shall possess and may exercise all of the
powers and privileges granted by the Act or which may be exercised by any
Person, together with any powers incidental thereto, so far as such powers or
privileges are necessary or convenient to the conduct, promotion or
attainment of the business purposes or activities of the LLC, including
without limitation the following powers:
(a) to conduct its business and operations and to have and
exercise the powers granted to a limited liability company by the Act in any
state, territory or possession of the United States or in any foreign country
or jurisdiction;
(b) to purchase, receive, take, lease or otherwise acquire, own,
hold, improve, maintain, use or otherwise deal in and with, sell, convey,
lease, exchange, transfer or otherwise dispose of, mortgage, pledge, encumber
or create a security interest in all or any of its real or personal property,
or any interest therein, wherever situated;
(c) to borrow or lend money or obtain or extend credit and other
financial accommodations, to invest and reinvest its funds in any type of
security or obligation of or interest in any public, private or governmental
entity, and to give and receive interests in real and personal property as
security for the payment of funds so borrowed, loaned or invested;
12
<PAGE>
(d) to make contracts, including contracts of insurance, incur
liabilities and give guaranties, including without limitation, guaranties of
obligations of other Persons who are interested in the LLC or in whom the LLC
has an interest;
(e) to employ Officers, employees, agents and other persons, to
fix the compensation and define the duties and obligations of such personnel,
to establish and carry out retirement, incentive and benefit plans for such
personnel, and to indemnify such personnel to the extent permitted by this
Agreement and the Act;
(f) to make donations irrespective of benefit to the LLC for the
public welfare or for community, charitable, religious, educational,
scientific, civic or similar purposes;
(g) to institute, prosecute, and defend any legal action or
arbitration proceeding involving the LLC, and to pay, adjust, compromise,
settle, or refer to arbitration any claim by or against the LLC or any of its
assets;
(h) to indemnify any Person in accordance with the Act and to
obtain any and all types of insurance;
(i) to negotiate, enter into, renegotiate, extend, renew,
terminate, modify, amend, waive, execute, acknowledge or take any other
action with respect to any lease, contract or security agreement in respect
of any assets of the LLC;
(j) to form, sponsor, organize or enter into joint ventures,
general or limited partnerships, limited liability companies, trusts and any
other combinations or associations formed for investment purposes;
(k) to make, execute, acknowledge and file any and all documents
or instruments necessary, convenient or incidental to the accomplishment of
the purposes of the LLC; and
(l) to cease its activities and cancel its Certificate.
Section 2.8 Title to Property. All property owned by the LLC, real
or personal, tangible or intangible, shall be deemed to be owned by the LLC
as an entity, and no Member, individually, shall have any ownership of such
property.
ARTICLE III -- MANAGEMENT OF THE LLC.
Section 3.1 Management in General.
(a) The management and control of the business of the LLC shall be
vested exclusively in the Manager Member, and the Manager Member shall have
exclusive power and authority, in the name of and on behalf of the LLC, to
perform all acts and do all things which,
13
<PAGE>
in its sole discretion, it deems necessary or desirable to conduct the
business of the LLC; with or without the vote or consent of the Members in
their capacity as such, except as specifically provided in this Agreement.
Members, in their capacity as such, shall have no right to amend or terminate
this Agreement or to appoint, select, vote for or remove the Manager Member,
the Officers or their agents or to exercise voting rights or call a meeting
of the Members, except as specifically provided in this Agreement. No Member
other than the Manager Member shall have the power to sign for or bind the
LLC to any agreement or document in its capacity as a Member, but the Manager
Member may delegate the power to sign for or bind the LLC.
(b) The Manager Member shall, subject to all applicable provisions
of this Agreement and the Act, be authorized in the name of and on behalf of
the LLC: (i) to enter into, execute, amend, supplement, acknowledge and
deliver any and all contracts, agreements, leases or other instruments for
the operation of the LLC's business; and (ii) in general to do all things and
execute all documents necessary or appropriate to conduct the business of the
LLC as set forth in Section 2.7 hereof, or to protect and preserve the LLC's
assets. The Manager Member may delegate any or all of the foregoing powers.
(c) The Manager Member is required to be a Member, and shall hold
office until its resignation in accordance with the provisions hereof. The
Manager Member is a "manager" (within the meaning of the Act) of the LLC.
The Manager Member shall devote such time to the business and affairs of the
LLC as it deems necessary, in its sole discretion, for the performance of its
duties, but in any event, shall not be required to devote full time to the
performance of such duties and may delegate its duties and responsibilities
as provided in Section 3.3.
(d) Any action taken by the Manager Member, and the signature of
the Manager Member (or an authorized representative thereof) on any
agreement, contract, instrument or other document on behalf of the LLC, shall
be sufficient to bind the LLC and shall conclusively evidence the authority
of the Manager Member and the LLC with respect thereto.
(e) Any Person dealing with the LLC, the Manager Member or any
Member may rely upon a certificate signed by the Manager Member as to (i) the
authority of the Manager Member or any Member; (ii) any factual matters
relevant to the affairs of the LLC; (iii) the Persons who are authorized to
execute and deliver any document on behalf of the LLC; or (iv) any action
taken or omitted by the LLC or the Manager Member.
(f) Notwithstanding the foregoing, the Manager Member shall have
no power or authority whatsoever to make investment recommendations to
Clients on behalf of the LLC, to execute or cause the execution of any
transaction in, or exercise any powers with respect to securities or other
instruments or assets held in the accounts of Clients of the LLC, or
determine the terms, timing or other conditions on which any such transaction
may be recommended or executed into.
(g) In addition to, and not in limitation of, the Manager Member's
powers and authority under this Agreement (including without limitation,
pursuant to Section 3.1(a) hereof),
14
<PAGE>
the Manager Member shall also have the power, in its reasonable discretion
(after consultation with at least one member of the Management Committee to
the extent such prior consultation is feasible), to take any or all of the
following actions whether or not they involve day-to-day operations, business
and activities of the LLC:
(i) any action it deems reasonably necessary or appropriate
to cause the LLC or any Controlled Affiliate of the LLC, or any
officer, employee, member, partner, or agent thereof, to comply
with applicable laws, rules or regulations, or any such action
required by the Manager Member in accordance with its duties
hereunder;
(ii) any action it deems reasonably necessary or appropriate
to coordinate any initiative which involves the LLC (or a
Controlled Affiliate of the LLC) and the Manager Member, AMG and/or
any of their respective Affiliates, but only on such terms and
conditions as the participation of the LLC in such initiative has
been approved by the Management Committee;
(iii) any action it deems necessary or appropriate to
cause the LLC to fulfill its obligations and exercise its rights
under the Merger Agreement;
(iv) any action it deems necessary or appropriate to cause the
LLC to participate in employee benefit plans that are subject to
ERISA or require qualification under Section 401 of the Internal
Revenue Code in order to make the expenses of such plans deductible
and establish or modify the terms of any such plan and any action
necessary or desirable in connection therewith, but only to the
extent that the Manager Member reasonably believes that such
participation or modification is required for the continued
qualification of such plan under Section 401(a) of the Code or to
make the expense by the LLC under such plans deductible or to
comply with ERISA, as the case may be, provided that the Manager
Member's power under this paragraph (iv) shall not impair the
Management Committee's power and authority to establish or modify
any employee benefit arrangement not intended to qualify under
Section 401 of the Code or subject to ERISA (excluding Title I,
Subtitle A and Title I, Subtitle B, Part 1 thereof, to the extent
that the establishment or modification of such arrangement does not
adversely affect the ability of the Manager Member (or any of its
Affiliates) to offer the same or similar employee benefit
arrangements to its similarly situated employees;
(v) any other action that the Manager Member is authorized to
take pursuant to the terms of this Agreement (subject to having
obtained any required Management Committee approval) and any other
action necessary or appropriate to prevent actions that require the
Manager Member's consent pursuant to the terms of this Agreement if
such consent has not then been given.
15
<PAGE>
Section 3.2 Management Committee of the LLC.
(a) The LLC shall have a Management Committee (the "Management
Committee"). Subject (i) to the specific rights and powers expressly
reserved to the Manager Member in this Agreement (including, without
limitation, in Sections 3.1(g) and 3.5(b) hereof), (ii) to the agreement,
consent or determination of the Manager Member in any circumstances where
such agreement, consent or determination is expressly provided for in this
Agreement and (iii) to the provisions of Section 3.1 to the extent necessary
or appropriate to effectuate the foregoing, the Manager Member hereby
delegates irrevocably, to the greatest extent permitted by applicable law, to
the Management Committee all powers and authority of the Manager Member, in
the name of and on behalf of the LLC, to perform all acts and do all things
necessary or desirable to conduct the business of the LLC. Without in any
way limiting the scope of the foregoing delegation, the Management Committee
shall have the sole and exclusive power and authority to make recommendations
with respect to and to determine which transactions Clients of the LLC shall
enter into (and the time at which, the parties with which and the terms on
which all such transactions shall be entered into and to exercise any rights,
powers and privileges of the LLC with respect to accounts of Clients or any
of the securities or other instruments in accounts of Clients) and shall have
the power and authority to further delegate any or all of the powers and
authorities delegated to it to Officers and employees of the LLC (provided
that any such delegation shall be revocable), and to also include, subject to
Sections 3.1(g) and 3.5(b) hereof, the power and the authority, in the name
of and on behalf of the LLC, to:
(i) determine the use of the Operating Cash Flow as set forth
in Section 3.5(a) below;
(ii) execute such documents and do such acts as are necessary
to register (or provide or qualify for exemptions from any such
registrations) or qualify the LLC under applicable Federal and
state securities laws;
(iii) enter into contracts and other agreements with respect
to the provision of Investment Management Services and execute
other instruments, documents or reports on behalf of the LLC in
connection therewith;
(iv) enter into contracts, agreements and commitments with
respect to the operation of the business of the LLC as are
consistent with the other provisions of this Agreement and the Act;
and
(v) act for and on behalf of the LLC in all matters
incidental to the foregoing and other day-to-day matters.
To effectuate the foregoing, the Management Committee shall have the power
ascribed to the Manager Member in Section 3.1(b) (subject to Sections 3.1(g)
and 3.5(b) hereof) and Section 3.1(d) and Section 3.1(e) hereof to the extent
related thereto.
16
<PAGE>
(b) The Management Committee shall consist of Non-Manager Members
determined as follows:
(i) The Management Committee shall initially have six (6)
members and shall initially consist of Joseph C. McNay,
Stephen D. Cutler, Stephen R. Clark, Christopher P.
McConnell, R. Daniel Beckham and Colin McNay. The
Management Committee may appoint annually a Secretary
and/or one or more Assistant Secretaries of the
Management Committee. The number of members of the
Management Committee may be increased by the Management
Committee at any time with notice to the Manager Member.
No Person who is not both an active employee or the LLC
and a Non-Manager Member (an "Eligible Person") may be,
become or remain a member of the Management Committee.
(ii) Any vacancy in the Management Committee however occurring
(including a vacancy resulting from the increase in size
of the Management Committee) may be filled by any other
Eligible Person elected by a Committee Vote, provided,
however, that if more than one Non-Manager Member is
available to fill such vacancy, the Manager Member shall
have the right to consent as to which Non-Manager Member
shall fill such vacancy. In lieu of filling any such
vacancy, the Management Committee may determine to reduce
the number of members of the Management Committee, but
not to a number less than three (3).
(iii) Members of the Management Committee shall remain members
of the Management Committee until their resignation,
removal or death. Any member of the Management Committee
may resign by delivering his or her written resignation
to any member of the Management Committee and the Manager
Member. At any time that there are more than three (3)
members of the Management Committee, any member of the
Management Committee may be removed from such position
with or without cause, by the Management Committee acting
by a unanimous vote of the Management Committee (with
such vote being calculated for all purposes as if the
member of the Management Committee whose removal is being
considered were not a member of the Management
Committee), with the prior written consent of the Manager
Member. A Non-Manager Member shall be deemed to have
resigned from the Management Committee and shall no
longer be a member of the Management Committee
immediately upon such Non-Manager Member ceasing to be an
active employee of the LLC or otherwise ceasing to be a
Non-Manager Member, in each case, for whatever reason.
17
<PAGE>
(iv) At any meeting of the Management Committee, presence in
person or by telephone (or other electronic means) of a
majority of the members of the Management Committee shall
constitute a quorum. At any meeting of the Management
Committee at which a quorum is present, a majority of the
members of the Management Committee may take any action
on behalf of the Management Committee (any such action
taken by such members of the Management Committee being
referred to herein as a "Committee Vote"). In the event
that the Management Committee is deadlocked and unable to
resolve any issue for a period of five days, then the
secretary of the Management Committee shall present the
issue either (x) to the Non-Manager Members to Vote on
such issue and a Majority Vote shall resolve such dispute
or, (y) if determined by a Committee Vote, to the Manager
Member for resolution. Any action required or permitted
to be taken at any meeting of the Management Committee
may be taken without a meeting of the Management
Committee, if (A) a written consent thereto is signed by
all the members of the Management Committee and (B) the
Manager Member has been given a copy of such written
consent not less than forty-eight (48) hours prior to
such action. Notice of the time, date and place of all
meetings of the Management Committee shall be given to
all members of the Management Committee and the Manager
Member at least forty-eight (48) hours in advance of the
meeting. A representative of the Manager Member shall be
entitled to attend each meeting of the Management
Committee. Notice need not be given to any member of the
Management Committee or the Manager Member if a waiver of
notice is given (orally or writing) by such member of the
Management Committee or the Manager Member (as
applicable), before, at or after the meeting. Members of
the Management Committee are not "managers" (within the
meaning of the Act) of the LLC.
(v) Notwithstanding any other provision hereof to the
contrary, the Manager Member shall have full power and
authority at any time in its sole discretion (and without
the consent or approval of the Management Committee or
the Non-Manager Members) to remove, with or without
cause, one or more members of the Management Committee or
to increase the number of members of the Management
Committee and to fill the vacancies created by any such
removal or increase with one or more other Non-Manager
Members, provided that such removal or increase may only
be effected by written notice from the Manager Member to
the LLC, which written notice must expressly reference
this Section of this Agreement.
18
<PAGE>
Section 3.3 Officers of the LLC. The Management Committee may
designate employees of the LLC as officers of the LLC (the "Officers") as it
deems necessary or desirable to carry on the business of the LLC. Any two or
more offices may be held by the same Person. New offices may be created and
filled by the Management Committee. Each Officer shall hold office until his
or her successor is designated by the Management Committee or until his or
her earlier death, resignation or removal. Any Officer may resign at any
time upon written notice to the LLC and the Manager Member. Any Officer
designated by the Management Committee may be removed from his or her office
(with or without a concurrent termination of employment) (i) For Cause or not
For Cause by the Management Committee (excluding the Person being considered)
or (ii) For Cause by the Manager Member, in each case, at any time subject to
the terms of such Officer's Employment Agreement with the LLC, if any, and
subject to Section 3.1(g) and 3.5(b) hereof. A vacancy in any office
occurring because of death, resignation, removal or otherwise may be filled
by the Management Committee. Any designation of Officers, a description of
any duties delegated to such Officers, and any removal of such Officers by
the Management Committee shall be approved by the Management Committee in
writing, which shall be delivered to the Manager Member. The Officers are
not "managers" (within the meaning of the Act) of the LLC.
Section 3.4 Employees of the LLC.
(a) The terms of employment of any employee of the LLC who is not
a Non-Manager Member (including, without limitation, with respect to the
hiring, promoting, demoting and terminating of such employees), shall be
determined by the Management Committee or such Person or Persons to whom the
Management Committee may delegate such power and authority (subject, in all
instances, to the power of the Management Committee to revoke such delegation
in whole or in part (by a Committee Vote that excludes any Person to whom
such power and authority has been delegated)), subject, in all cases, to
compliance with all applicable laws, rules and regulations and with the
provisions of Section 3.5 hereof. Notwithstanding the foregoing, the Manager
Member may terminate the employment by the LLC of any employee who has
engaged in any activity included in the definition of "For Cause," provided,
however, that (i) the Manager Member may not terminate the employment of any
such employee without having first consulted with the Management Committee
and given written notice to the Management Committee specifying the reasons
for such decision and (ii) the Manager Member may not terminate the
employment of an employee on account of any activity specified in clause (b)
of the definition of "For Cause" without either (A) obtaining the prior
consent of the Management Committee or (B) complying with the provisions of
the following sentence. If the Manager Member and the Management Committee
(excluding the Person whose termination is being considered) cannot, after
good faith efforts, agree with respect to the termination of the employment
of an employee in the circumstances described in clause (b) of the definition
of "For Cause," then such issue shall be finally determined by binding
arbitration in accordance with the provisions of Section 11.6 of this
Agreement, provided, that such arbitration shall take place no later than
fourteen (14) days following the receipt by the Management Committee of
written notice from the Manager Member that the Manager Member desires to
submit such issue to arbitration, and a final decision with respect to such
issue shall be issued within five (5) business days after such arbitration.
19
<PAGE>
(b) The granting or Transferring of the LLC Interests in
connection with any hiring or promotion of any employee shall be subject to
the terms and conditions set forth in Articles V and VI hereof.
(c) Any Person who is a Non-Manager Member may have his or her
employment with the LLC terminated by the LLC only: (i) in the case of a
termination For Cause, either by the Manager Member or by the Management
Committee (excluding the Person whose termination is being considered), with
the prior written consent of the Manager Member, or (ii) in the case of any
other termination by the LLC, by the Management Committee (excluding for all
purposes the Person whose termination is being considered), with the prior
written consent of the Manager Member.
Section 3.5 Operation of the Business of the LLC.
(a) The Operating Cash Flow of the LLC for any period shall be
used by the LLC to provide for and pay its business expenses and expenditures
as determined by the Management Committee; including, without limitation,
compensation and benefits to its employees (including the Officers) and
expenses and compensation of consultants, vendors and service providers
selected by or pursuant to the authority of the Management Committee.
Without the prior written consent of the Manager Member (which written
consent makes specific reference to this Section 3.5(a)), the LLC shall not
incur (and the Employee Stockholders shall use commercially reasonable
efforts to prevent the LLC from incurring) any expenses or take any action to
incur other obligations, which expenses and obligations exceed the ability of
the LLC to pay or provide for them out of its Operating Cash Flow on a
current or previously reserved basis. Except to the extent otherwise required
by applicable law, the LLC shall only make payments of compensation
(including bonuses) to its employees (including any Officers) out of the
balance of its Operating Cash Flow remaining after the payment (or
reservation for payment) of all the other business expenses and expenditures
for the applicable period and subject to the availability of cash to pay such
other business expenses and expenditures for such period. Any excess
Operating Cash Flow remaining for any fiscal year following the payment (or
reservation for payment) of all business expenses and expenditures may be
used by the LLC in such fiscal year and/or in future fiscal years for any
lawful purpose. Free Cash Flow may be used to provide for and pay the
business expenses of the LLC only to the extent specified in Section 3.5(c)
with respect to key-man life insurance and disability insurance, Section 4.3
with respect to certain extraordinary expenses and as otherwise agreed to in
writing by the Manager Member and the Management Committee (any such use
being referred to herein as a "Free Cash Flow Expenditure").
(b) The LLC shall not do, and the Employee Stockholders and Non
Manager Members shall use commercially reasonable efforts to prevent the LLC
from doing, any of the following without the prior written consent of the
Manager Member (which written consent makes specific reference to this
Section 3.5(b)):
(i) enter into, amend, modify or terminate any contract,
agreement or understanding (written or oral) if such action or the
resulting contract, agreement
20
<PAGE>
or understanding could reasonably be expected to conflict with the
provisions of this Section 3.5;
(ii) enter into, amend, modify or terminate any contract,
agreement or understanding (written or oral) if such action or the
resulting contract, agreement or understanding (individually or in
the aggregate) could (A) materially reduce the percentage of
Operating Cash Flow available in the current or future periods or
effect a material reduction in the availability of Free Cash Flow
for distribution by the LLC (directly or in the form of bonuses to
employees) in the current or future periods or (B) have a material
adverse effect on the condition (financial or otherwise),
properties, assets, liabilities, business or prospects of the LLC;
provided, however, that no consent of the Manager Member shall be
required for decisions by the Management Committee in the exercise
of its good faith judgment relating to the commencement,
termination or modification of any agreement for the provision by
the LLC or any of its Controlled Affiliates of Investment
Management Services, including rates and other terms and conditions
with respect to the Investment Management Services, unless such
decision directly or indirectly benefits a Non-Manager Member or a
member of the Immediate Family of a Non-Manager Member to the
detriment of the LLC or the Manager Member;
(iii) enter into, amend, modify or terminate any contract,
agreement or understanding (written or oral) if such action or the
resulting contract, agreement or understanding has the effect of
creating a Lien either (A) upon any of the assets of the LLC
(other than Liens securing indebtedness of the LLC incurred to
finance the acquisition of fixed or capital assets (whether
pursuant to a deferred purchase agreement with a vendor, a loan, a
financing lease or otherwise), provided that (1) such Liens shall
be created substantially simultaneously with the acquisition of
such fixed or capital assets, (2) such Liens do not at any time
encumber any property other than property financed by such
indebtedness, (3) the amount of indebtedness secured thereby is not
increased and (4) the principal amount of indebtedness secured by
such Lien shall at no time exceed the purchase price of such
property) or (B) upon any of that portion of the revenues of the
LLC which is included in Free Cash Flow (other than with respect to
permitted Free Cash Flow Expenditures hereunder);
(iv) either (A) take any action (or omit to take any action)
if such action (or omission) could reasonably be expected to result
in termination of the employment (including, without limitation, a
so-called constructive termination under applicable law) by the LLC
of any Employee Stockholder (provided, that the foregoing shall not
impose any limitation on the ability of an Employee Stockholder to
terminate his or her employment with the LLC in accordance with the
provisions hereof) or (B) enter into, amend, modify or terminate
any Employment Agreement or other employment commitment or binding
understanding with respect to employment matters with any
Non-Manager Member or members of the Immediate Family of a
Non-Manager Member or waive any rights of the LLC thereunder;
21
<PAGE>
(v) create, incur, assume, or suffer to exist any Indebtedness
of the LLC or its Controlled Affiliates (to the extent such
Indebtedness will be required to be included in the consolidated
balance sheet of the LLC in accordance with generally accepted
accounting principles), except Indebtedness of the LLC incurred to
finance the acquisition of fixed capital assets (whether pursuant to a
deferred purchase agreement with a vendor, a loan, a financing lease
or otherwise) in the amount outstanding at any time not to exceed
$250,000 (which by its terms shall be repaid solely out of Operating
Cash Flow);
(vi) establish or modify any significant compensation arrangement
(other than salary and cash bonuses in the ordinary course) or program
(whether cash or non-cash benefits) applicable to any employee, which
is subject to ERISA, which requires qualification under the Code, or
which otherwise (A) requires the Manager Member or any of its
Affiliates (other than the LLC) to take any action which the Manager
Member in good faith views as being contrary to the interests of the
Manager Member or the interests of any of its Affiliates (other than
LLC) or which it would not take but for the action contemplated by the
LLC or the Employee Stockholders or Officers or (B) prevents the
Manager Member or any of its Affiliates (other than the LLC) from
taking any action which the Manager Member in good faith views as
being in the interest of the Manager Member or any of its Affiliates
(other than the LLC) it would otherwise have been able to take but for
the action contemplated by the LLC or the Employee Stockholders or
Officers (and in addition, each Employee Stockholder will use his or
her commercially reasonable efforts to cause the LLC to give the
Manager Member not less than thirty (30) days prior written notice
before the LLC establishes or modifies any significant compensation
arrangement (other than salary and cash bonuses in the ordinary
course) or program); provided that, for purposes of this paragraph, an
action will not be viewed as adversely affecting the Manager Member's
interests solely because the contributions or benefits payable under
such compensation arrangement or program are paid from Operating Cash
Flow.
(vii) enter into, amend, modify or terminate any contract,
agreement or understanding (written or oral) containing severance or
termination pay arrangements or which could cause the LLC or the
Manager Member to be liable for termination or severance payments or
other contractual payments upon a termination of any employee's
employment with the LLC;
(viii) enter into any line of business other than the
provision of Investment Management Services;
(ix) establish or modify any plan subject to ERISA; or
(x) (A) take any action which may be taken only by the Manager
Member (with or without the consent of the Management Committee,
Non-Manager Members or the Employee Stockholders), or (B) take any
action
22
<PAGE>
which requires the approval or consent of the Manager Member pursuant
to any provision of this Agreement.
(c) The LLC will maintain (and the Employee Stockholders shall use
commercially reasonable efforts to cause the LLC to maintain), in full force and
effect, such insurance as is customarily maintained by companies of similar size
in the same or similar businesses (including, without limitation, errors and
omissions liability insurance), the premiums on which will be paid out of
Operating Cash Flow. The LLC will maintain such key-man life insurance and
disability insurance policies on each Employee Stockholder as the Manager Member
shall deem necessary or desirable, from time to time, and the Employee
Stockholders will use commercially reasonable efforts to effectuate the
foregoing. The LLC will receive the proceeds of the above-referenced insurance
policies, and the Members agree with each other and the LLC that the LLC will
pay the premiums on such key-man life and disability policies, as well as any
reasonable additional insurance policies that the Manager Member deems
necessary, out of Free Cash Flow.
(d) Notwithstanding any of the provisions of this Agreement to the
contrary, all accounting, financial reporting and bookkeeping procedures of the
LLC shall be established in conjunction with policies and procedures determined
under the supervision of the Manager Member. The LLC shall have a continuing
obligation to keep AMG's chief financial officer informed of material financial
developments with respect to the LLC. Notwithstanding any of the provisions of
this Agreement to the contrary, all legal, compliance and regulatory matters of
the LLC shall be coordinated with the Manager Member and/or its Affiliates, and
the LLC's legal compliance activities shall be conducted and established in
conjunction with policies and procedures determined under the supervision of the
Manager Member.
(e) Notwithstanding any of the provisions of this Agreement to the
contrary, the Management Committee and Employee Stockholders of the LLC will
cooperate with the Manager Member and its Affiliates in implementing any
initiative generally involving a number of such Affiliates, but only on such
terms and conditions as the participation of the LLC in such initiative has been
approved by the Management Committee.
Section 3.6 Compensation and Expenses of the Members. The Manager
Member may receive compensation for services provided to the LLC to the extent
approved by the Management Committee. The LLC shall, however, pay and/or
reimburse the Manager Member for all reasonable travel expenses incurred by the
Manager Member or AMG in accordance with Section 9.4 as well as (i) any expenses
incurred by the Manager Member in connection with the operation of the LLC as
approved or directed by the Management Committee or any duly authorized Officer,
(ii) the applicable portion of any expenses incurred by the Manager Member in
connection with any initiative which involves the LLC and/or one or more of the
other Affiliates of the Manager Member or AMG, but only on such terms and
conditions as the participation of the LLC in such initiative has been approved
by the Management Committee, and (iii) any expenses incurred by the Manager
Member in connection with its exercise of its powers under Section 3.1(g) of
this Agreement. Without limiting the generality of the foregoing, the Manager
Member's general overhead items and expenses (including, without limitation,
salaries and rent) shall not be
23
<PAGE>
reimbursed by the LLC. Stockholders, officers, directors, Members and agents of
Members may serve as employees of the LLC and be compensated therefor out of
Operating Cash Flow as determined by the Management Committee (or its
delegate(s)) pursuant to Section 3.5(a), subject to the availability of cash
therefor. Except in respect of their provision of services as employees of the
LLC for which they may be compensated out of Operating Cash Flow as contemplated
by the preceding sentence, Non-Manager Members and members of their Immediate
Family may not receive compensation on account of the provision of services to
the LLC.
Section 3.7 Other Business of the Manager Member and its Affiliates.
The Manager Member, AMG and their respective Affiliates may engage,
independently or with others, in other business ventures of every nature and
description, including the acquisition, creation, financing, trading in, and
operation and disposition of interests in, investment managers and other
businesses that may be competitive with the LLC's business. Neither the LLC nor
any of the Non-Manager Members shall have any right in or to any other such
ventures by virtue of this Agreement or the limited liability company created or
continued hereby, nor shall any such activity by the Manager Member, AMG or such
Affiliates be deemed wrongful or improper or result in any liability of the
Manager Member, AMG or such Affiliates. None of the Manager Member, AMG or any
of their Affiliates shall be obligated to present any opportunity to the LLC
even if such opportunity is of such a character which, if presented to the LLC,
would be suitable for the LLC.
Section 3.8 Non-Manager Members and Non Solicitation Agreements. Each
Employee Stockholder and, if there is one, the Non-Manager Member of which it is
a stockholder (its Non-Manager Member), has provided the LLC with either (a) an
Employment Agreement with the LLC, or (b) a Non Solicitation/Non Disclosure
Agreement in form and substance substantially similar to Exhibit B hereto (the
"Non Solicitation Agreement") (and, in the case of any substitute Non-Manager
Member (pursuant to Section 5.2 hereof) or Additional Non-Manager Member (as
defined in Section 5.5 hereof) which is not already bound by a Non Solicitation
Agreement, it shall, prior to and as a condition precedent to becoming a
Non-Manager Member, provide the LLC with such an agreement (together with any
changes or modifications thereto as the Manager Member may deem necessary or
desirable) and such agreements do and shall, at all times, provide that each of
the LLC and the Manager Member shall be entitled to enforce the provisions of
such agreements on its own behalf and that the Manager Member shall be entitled
to enforce the provisions of such agreements on behalf of the LLC.
Section 3.9 Non Solicitation and Non Disclosure by Non-Manager Members
and Employee Stockholders.
(a) Each Non-Manager Member and each Employee Stockholder agrees, for
the benefit of the LLC and the other Members, that such Non-Manager Member and
such Employee Stockholder shall not, while employed by the LLC or any of its
Affiliates, engage in any Prohibited Competition Activity.
(b) In addition to, and not in limitation of, the provisions of
Section 3.9(a) hereto, each Non-Manager Member and each Employee Stockholder
agrees, for the benefit of the LLC and the other Members, that such Non-Manager
Member and such Employee Stockholder
24
<PAGE>
shall not, during the period beginning on the date such Non-Manager Member
becomes a Non-Manager Member, and until the date which is two (2) years after
the termination of such Employee Stockholder's employment with the LLC and its
Affiliates, without the express written consent of the Manager Member and the
Management Committee, directly or indirectly, whether as owner, part-owner,
shareholder, partner, member, director, officer, trustee, employee, agent or
consultant, or in any other capacity, on behalf of himself or any firm,
corporation or other business organization other than the LLC and its Controlled
Affiliates:
(i) provide Investment Management Services to:
(A) any Person that is a Client of the LLC (as defined herein,
which includes Past, Present and Potential Clients) for whom the
Non-Manager Member or Employee Stockholder provided, directly or
indirectly, in whole or in part, Investment Management Services for
the LLC, or whom the Non-Manager Member or Employee Stockholder
solicited or otherwise had contact with through or on behalf of the
LLC; or
(B) any other Person that is a Client of the LLC (as defined
herein, which includes Past, Present and Potential Clients);
provided, however, that this clause (i) shall not be applicable to clients of
the LLC who are also members of the Immediate Family of the Employee
Stockholder.
(ii) solicit or induce, whether directly or indirectly, any
Person for the purpose (which need not be the sole or primary purpose)
of (A) causing any funds with respect to which the LLC provides
Investment Management Services to be withdrawn from such management,
or (B) causing any Client of the LLC not to engage the LLC or any of
its Affiliates to provide Investment Management Services for any or
additional funds;
(iii) contact or communicate with, in either case in
connection with Investment Management Services, whether directly or
indirectly, any Past, Present or Potential Clients of the LLC;
provided, however, that this clause (iii) shall not be applicable to
clients of the LLC who are also members of the Immediate Family of the
Employee Stockholder; or
(iv) solicit or induce, or attempt to solicit or induce, directly
or indirectly, any employee or agent of, or consultant to, the LLC or
any of its Controlled Affiliates to terminate its, his or her
relationship therewith, hire any such employee, agent or consultant,
or former employee, agent or consultant, or work in any enterprise
involving investment advisory services with any employee, agent or
consultant or former employee, agent or consultant, of the LLC or its
Controlled Affiliates who was employed by or acted as an agent or
consultant to the LLC (or its predecessor Essex Investment Management
Company, Inc.) or its Controlled Affiliates at any time during the two
(2) year period preceding the
25
<PAGE>
termination of the Employee Stockholder's employment (excluding for
all purposes of this sentence, secretaries and persons holding other
similar positions).
For purposes of this Section 3.9(b), (x) the term "Past Client" shall be limited
to those past Clients who were advisees or investment advisory customers of, or
recipients of Investment Management Services, directly or indirectly, from, the
LLC (including its predecessor, Essex Investment Management Company, Inc.) and
its Controlled Affiliates at the date of termination of the Employee
Stockholder's employment or at any time during the two (2) years immediately
preceding the date of such termination; and (y) the term "Potential Client"
shall be limited to those Persons to whom an offer was made within two (2) years
prior to the date of termination of the Employee Stockholder's employment.
Notwithstanding the provisions of Sections 3.9(a) and 3.9(b), any Employee
Stockholder may make passive investments in an enterprise which is competitive
with AMG or the LLC the shares or other equity interests of which are publicly
traded provided his holding therein together with any holdings of his Affiliates
and members of his Immediate Family, are less than five percent (5%) in the
aggregate of the outstanding shares or comparable interests in such entity.
(c) Each Member and each Employee Stockholder agrees that any and all
presently existing investment advisory businesses of the LLC and its Controlled
Affiliates (including its predecessor, Essex Investment Management Company,
Inc.), and all businesses developed by the LLC and its Controlled Affiliates,
including by such Employee Stockholder or any other employee of the LLC
(including, without limitation, employees of its predecessor, Essex Investment
Management Company, Inc.), including without limitation, all investment
methodologies, all investment advisory contracts, fees and fee schedules,
commissions, records, data, client lists, agreements, trade secrets, and any
other incident of any business developed by the LLC (or its predecessor, Essex
Investment Management Company, Inc.) or its Controlled Affiliates or earned or
carried on by the Employee Stockholder for the LLC or its predecessor, Essex
Investment Management Company, Inc. or their respective Controlled Affiliates,
and all trade names, service marks and logos under which the LLC or its
Affiliates do business, and any combinations or variations thereof and all
related logos, are and shall be the exclusive property of the LLC or such
Controlled Affiliate, as applicable, for its or their sole use, and (where
applicable) shall be payable directly to the LLC or such Controlled Affiliate.
In addition, each Member and each Employee Stockholder acknowledges and agrees
that the investment performance of the accounts managed by the LLC (and its
predecessor, Essex Investment Management Company, Inc.) was attributable to the
efforts of the team of professionals of the LLC (or its predecessor, Essex
Investment Management Company, Inc., as applicable) and not to the efforts of
any single individual or subset of such team of professionals, and that
therefore, the performance records of the accounts managed by the LLC (and its
predecessor, Essex Investment Management Company, Inc.) are and shall be the
exclusive property of the LLC.
(d) Each Member and each Employee Stockholder acknowledges that, in
the course of performing services hereunder and otherwise (including, without
limitation, for the LLC's predecessor, Essex Investment Management Company,
Inc.), such Member and Employee Stockholder has had, and will from time to time
have, access to information of a confidential or
26
<PAGE>
proprietary nature, including without limitation, all confidential or
proprietary investment methodologies, trade secrets, proprietary or confidential
plans, client identities and information, client lists, service providers,
business operations or techniques, records and data ("Intellectual Property")
owned or used in the course of business by the LLC or its Controlled Affiliates.
Each Non-Manager Member and each Employee Stockholder agrees always to keep
secret and not ever publish, divulge, furnish, use or make accessible to anyone
(otherwise than in the regular business of the LLC and its Controlled
Affiliates) any Intellectual Property of the LLC or any Controlled Affiliate
thereof unless such information can be shown to be in the public domain through
no fault of such Non-Manager Member or Employee Stockholder. At the termination
of the Employee Stockholder's services to the LLC, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in the Non-Manager
Member's or Employee Stockholder's possession or control, shall be returned to
the LLC and remain in its possession (except where the return of such items
shall be unreasonable or impractical in relation to the importance or
confidentiality of such items).
(e) Each Non-Manager Member and each Employee Stockholder
acknowledges that, in the course of entering into this Agreement, the
Non-Manager Member and the Employee Stockholder have had and, in the course of
the operation of the LLC, the Non-Manager Member and Employee Stockholder will
from time to time have, access to Intellectual Property owned by or used in the
course of business by AMG. Each Non-Manager Member and each Employee
Stockholder agrees, for the benefit of the LLC and its Members, and for the
benefit of the Manager Member and AMG, always to keep secret and not ever
publish, divulge, furnish, use or make accessible to anyone (otherwise than at
the Manager Member's request) any knowledge or information regarding
Intellectual Property (including, by way of example and not of limitation, the
transaction structures utilized by AMG) of AMG unless such information can be
shown to be in the public domain through no fault of such Non-Manager Member or
Employee Stockholder. At the termination of the Employee Stockholder's service
to the LLC, all data, memoranda, documents, notes and other papers, items and
tangible media, and reproductions thereof relating to the foregoing matters in
the Non-Manager Member's or Employee Stockholder's possession or control shall
be returned to AMG and remain in its possession.
(f) The provisions of this Section 3.9 shall not be deemed to limit
any of the rights of the LLC or the Members under any of the Employment
Agreements, Non Solicitation Agreements or under applicable law, but shall be in
addition to the rights set forth in each of the Employment Agreements and Non
Solicitation Agreements, and those which arise under applicable law.
Section 3.10 Remedies Upon Breach.
(a) In the event that a Non-Manager Member or its Employee
Stockholder (i) breaches any of the provisions of Section 3.9 hereof, or (ii)
breaches any of the provisions of the Employment Agreement or Non Solicitation
Agreement to which it or he is a party (in each case, including, without
limitation, following the termination of his or her employment with the LLC),
then (A) such Non-Manager Member shall forfeit its right to receive any payment
for its LLC Interests under Section 3.11, although it shall cease to be a
Non-Manager Member in accordance
27
<PAGE>
with the provisions of Section 3.11(e), and (B) AMG (or its assignees) shall
have no further obligations under any promissory note theretofore issued to such
Non-Manager Member pursuant to Section 3.11(f).
(b) Each Non-Manager Member and each Employee Stockholder agrees that
any breach of the provisions of Section 3.9 of this Agreement or of the
provisions of the Employment Agreement or Non Solicitation Agreement by such
Non-Manager Member or Employee Stockholder could cause irreparable damage to the
LLC and the other Members. The LLC and/or the Manager Member, shall have the
right to an injunction or other equitable relief (in addition to other legal
remedies) to prevent any violation of a Member's or Employee Stockholder's
obligations hereunder or thereunder.
Section 3.11 Repurchase Upon Termination of Employment or Transfer by
Operation of Law.
(a) In the event that the employment by the LLC of any Employee
Stockholder terminates for any reason, then:
(i) if the termination of the Employee Stockholder occurred
because of the death or Permanent Incapacity of such Employee
Stockholder, the LLC shall purchase and the Non-Manager Member (or the
Non-Manager Member of which such Employee Stockholder was the owner,
as applicable) (as indicated on Schedule A hereto) and his (or its)
Related Non-Manager Members (and their respective Permitted
Transferees, if any) (each a "Repurchased Member") shall sell to the
LLC for cash, LLC Points up to the portion of the Repurchase Price (as
such term is defined in Section 3.11(c) below) which is equal to the
cash proceeds of any key-man life insurance policies or lump-sum
disability insurance policies, as applicable, maintained by the LLC on
the life or health of such Employee Stockholder for the benefit of the
LLC (an "LLC Repurchase"), and
(ii) in each other such case (and, in the case of the death or
Permanent Incapacity of an Employee Stockholder, to the extent the
Repurchase Price exceeds the insurance proceeds described in clause
(i) of this Section 3.11(a) (determined after all such proceeds have
been collected)), AMG shall purchase and the Non-Manager Member (or
the Non-Manager Member of which such Employee Stockholder was the
owner, as applicable) (as indicated on Schedule A hereto) and his (or
its) Related Non-Manager Members (and their respective Permitted
Transferees) (each a "Repurchased Member") shall sell (each a "Manager
Member Repurchase") all (or, in the case of the death or Permanent
Incapacity of an Employee Stockholder, such portion as is not required
to be purchased by the LLC under clause (i) of this Section 3.11(a))
of the LLC Interests held by the Repurchased Member, in each case,
pursuant to the terms of this Section 3.11. For purposes hereof, each
LLC Repurchase and each Manager Member Repurchase together with the
related LLC Repurchase, if any, is referred to as a "Repurchase."
28
<PAGE>
(b) The closing of the Repurchase will take place on a date set by
the Manager Member (the "Repurchase Closing Date") which shall be after the last
day of the calendar quarter in which the Employee Stockholder's employment with
the LLC is terminated but which is not more than ninety (90) days after the date
on which the termination of the employment by the LLC of the relevant Employee
Stockholder occurred; provided, however, that (i) if the employment by the LLC
of such Employee Stockholder is terminated because of the death or Permanent
Incapacity of such Employee Stockholder, then the Repurchase Closing Date shall
be a date set by the Manager Member which is as soon as reasonably practicable
after the later of (A) ninety (90) days after the death or Permanent Incapacity,
as applicable, of such Employee Stockholder or (B) thirty (30) days after the
LLC has received the proceeds of all key-man life insurance policies or
disability insurance policies, as applicable, maintained by the LLC on the life
or health of such Employee Stockholder.
(c) The purchase price for the Repurchase (the "Repurchase Price")
shall be determined as follows:
(i) If the Employee Stockholder's employment with the LLC is
terminated because of the death, Permanent Incapacity or Retirement of
the Employee Stockholder or if such Employee Stockholder's employment
with the LLC was terminated by the LLC on such date other than For
Cause and other than upon a Unanimous Termination Decision, then the
Repurchase Price shall equal:
(A) six and three tenths (6.3) times the positive difference,
if any, of (x) the sum of (I) fifty percent (50%) of the LLC's
Maintenance Fees for the twenty-four (24) months ending on the
last day of the calendar quarter in which the termination of
such Employee Stockholder's employment occurs and (II) thirty
three and thirty three one hundredths percent (33.33%) of the
LLC's Earned Performance Fees for the thirty-six (36) months
ending on the last day of the calendar year prior to the
calendar year in which the termination of such Employee
Stockholder's employment occurs minus (y) the amount by which
the actual expenses of the LLC (determined on a basis
consistent with the calculation of Operating Cash Flow)
exceeded the Operating Cash Flow of the LLC (including
previously reserved Operating Cash Flow) during the twelve
(12) months ending the last day of the calendar quarter in
which the termination of such Employee Stockholder's
employment occurs, multiplied by
(B) a fraction, the numerator of which is the number of
Vested LLC Points being purchased in the Repurchase, and the
denominator of which is the number of Vested LLC Points
outstanding on the date of the closing of the Repurchase
(before giving effect to any issuance, redemption or vesting
of LLC Points on such date) (which is intended to be a proxy
for fair market value).
29
<PAGE>
(ii) In all other cases, (including, without limitation, the
resignation of an Employee Stockholder or the termination of such
Employee Stockholder For Cause or upon a Unanimous Termination
Decision), the Repurchase Price shall equal:
(A) three and fifteen one-hundredths (3.15) times the
positive difference, if any, of (x) the sum of (I) fifty
percent (50%) of the LLC's Maintenance Fees for the
twenty-four (24) months ending on the last day of the calendar
quarter in which the termination of such Employee
Stockholder's employment occurs and (II) thirty three and
thirty three one hundredths percent (33.33%) of the LLC's
Earned Performance Fees for the thirty-six (36) months ending
on the last day of the calendar year prior to the calendar
year in which the termination of such Employee Stockholder's
employment occurs minus (y) the amount by which the actual
expenses of the LLC (determined on a basis consistent with the
calculation of Operating Cash Flow) exceeded the Operating
Cash Flow of the LLC (including previously reserved Operating
Cash Flow) during the twelve (12) months ending the last day of
the calendar quarter in which the termination of such Employee
Stockholder's employment occurs, multiplied by
(B) a fraction, the numerator of which is the number of
Vested LLC Points being purchased in the Repurchase, and the
denominator of which is the number of Vested LLC Points
outstanding on the date of the closing of the Repurchase
(before giving effect to any issuance, redemption or vesting
of LLC Points on such date);
provided, however, that for any such Repurchase described in
this Section 3.11(c)(ii) prior to the fifth anniversary of the
Effective Date, the Repurchase Price shall equal the Capital
Account which the Repurchased Member would have if the LLC had
sold all its assets for a price equal to three and fifteen
one-hundredths (3.15) times the positive difference, if any,
of (x) the sum of (I) fifty percent (50%) of the LLC's
Maintenance Fees for the twenty-four (24) months ending on the
last day of the calendar quarter in which the termination of
such Employee Stockholder's employment occurs and (II) thirty
three and thirty three one hundredths percent (33.33%) of the
LLC's Earned Performance Fees for the thirty-six (36) months
ending on the last day of the calendar quarter in which the
termination of such Employee Stockholder's employment occurs
minus (y) the amount by which the actual expenses of the LLC
(determined on a basis consistent with the calculation of
Operating Cash Flow) exceeded the Operating Cash Flow of the
LLC (including previously reserved Operating Cash Flow) during
the
30
<PAGE>
twelve (12) months ending the last day of the calendar
quarter in which the termination of such Employee
Stockholder's employment occurs, and the gain or loss
therefrom (in excess of the sum of the Members Capital
Accounts on such day without giving effect to any such
allocation) was allocated in accordance with Section 4.2(e)
and 4.2(f) hereof. A sample calculation under this Section
3.11(c)(ii) is attached as Schedule B hereto.
If a Repurchase Price must be determined prior to thirty-six (36) months
after the Effective Date, then the amount of the LLC's Maintenance Fees and
Earned Performance Fees for the portion of the relevant period before the
Effective Date shall be calculated on a pro-forma basis, as if the LLC's
predecessor, Essex Investment Management Company, Inc. had operated under the
provisions of this Agreement but with the resulting Maintenance Fees and Earned
Performance Fees multiplied by the lesser of (x) one (1) or (y) a fraction, the
numerator of which is the sum of the Contract Values of each investment advisory
agreement of Essex Investment Management Company, Inc. (which was not terminated
at or prior to the Closing or the LLC Contribution and was contributed to the
LLC and with respect to which the Client of the LLC gave its Consent to the
transactions contemplated by the Merger Agreement), and the denominator of which
shall be the Base Fees. Capitalized terms used in this paragraph and not
otherwise defined herein shall have the meaning ascribed to such terms in
Section 8.3 of the Merger Agreement.
(d) The rights of AMG, the Manager Member, the LLC and their
assignees hereunder are in addition to and shall not affect any other rights
which AMG, the Manager Member, the LLC or their assigns may otherwise have to
repurchase LLC Interests (including, without limitation, pursuant to any
agreement entered into by a Non-Manager Member or an Additional Non-Manager
Member which provides for the vesting of LLC Points).
(e) On the Repurchase Closing Date, AMG and/or the LLC or their
respective assignees (as applicable) shall pay to the Repurchased Member the
Repurchase Price for the LLC Interests repurchased in the manner set forth in
this Section 3.11, and upon such payment the Repurchased Member shall cease to
hold any LLC Interests, and such Repurchased Member shall be deemed to have
withdrawn from the LLC and shall cease to be a Member of the LLC and shall no
longer have any rights hereunder; provided, however, that the provisions of this
Article III shall continue as set forth in Section 3.11 below. On the
Repurchase Closing Date, the Repurchased Member and the LLC (and if AMG is
purchasing LLC Interests from the Repurchased Member, AMG) (or their assignees)
shall, if AMG so requests, execute an agreement reasonably acceptable to the
Manager Member in which the Repurchased Member represents and warrants to the
Manager Member and/or AMG and/or the LLC, as applicable (or their assignees),
that it has sole record and beneficial title to the Repurchased Interest, free
and clear of any Liens as of the date of the transaction other than those
imposed by this Agreement. Payment of the Repurchase Price shall be made on the
Repurchase Closing Date as follows: (i) in the case of termination of
employment because of death or Permanent Incapacity (to the extent of the
collected proceeds of any disability insurance policies under which the LLC is
the beneficiary upon the permanent incapacity of such Employee Stockholder), by
wire-transfer of immediately available funds to an account designated by the
Repurchased Member at least three (3) business days prior to the
31
<PAGE>
Repurchase Closing Date, and (ii) in the case of any other termination of
employment (including a termination of employment because of Permanent
Incapacity to the extent the obligation exceeds the proceeds of any key-man
disability insurance policies described above), (A) in the case of a termination
by the LLC other than For Cause and other than a Unanimous Termination Decision,
on the Repurchase Date; and (B) in the case of any other termination, on the
later to occur of (x) the Repurchase Date or (y) the date which is the first
business day after the fifth anniversary of the Effective Date.
(f) If an Employee Stockholder's employment with the LLC is
terminated because such Employee Stockholder has resigned (other than a
resignation which is included in the definition of "Retirement") or was
terminated For Cause or upon a Unanimous Termination Decision, then, at the sole
discretion of the Manager Member, the payment required by this Section 3.11 may
be made with a promissory note in the form attached hereto as Exhibit C, with an
initial principal amount equal to the Repurchase Price, and the principal of
which promissory note would be paid in four (4) equal annual installments, with
the first installment to be paid on the date Payment of the Repurchase Price
would be required under Section 3.11(e) above (in each case, subject to the
terms and conditions of this Agreement and such note).
(g) AMG may assign and/or delegate any or all of its rights and
obligations under this Section 3.11, in one or more instances, to the Manager
Member; provided, however, that no such assignment or delegation shall relieve
AMG of its obligation to make payment of a Repurchase Price. AMG may, with the
consent of the Management Committee, assign any or all of its rights and
obligations under this Section 3.11, in one or more instances, to the LLC;
provided, that the foregoing limitation shall have no effect on the LLC's
obligation set forth in Section 3.11(a)(i) regarding the use of the proceeds of
a key-man life or disability insurance policy.
(h) In the event that a Non-Manager Member or Employee Stockholder
(or other holder of LLC Points, other than the Manager Member) (i) has filed a
voluntary petition under the bankruptcy laws or a petition for the appointment
of a receiver or makes any assignment for the benefit of creditors, (ii) is
subject involuntarily to such a petition or assignment or to an attachment or
other legal or equitable interest with respect to any of its LLC Interests or,
in the case of an Employee Stockholder which is not a Non-Manager Member, its
interests in the Non-Manager Member which it owns, and such involuntary petition
or assignment or attachment is not discharged within sixty (60) days after its
effective date, or (iii) is subject to a transfer of any of its LLC Interests
or, in the case of an Employee Stockholder which is not a Non-Manager Member,
its interests in the Non-Manager Member which it owns, by court order or decree
or by operation of law, then AMG shall purchase all the LLC Interests held by
such Non-Manager Member (or other holder of LLC Points, other than the Manager
Member) (including the Non-Manager Member through which such Employee
Stockholder holds his or her interest in the LLC) pursuant to the terms of this
Section 3.11 as if such Non-Manager Member was a Repurchased Member with the
purchase price determined pursuant to Section 3.11(c)(ii) and the date of the
closing to take place within thirty (30) days following written notice delivered
by the Manager Member. In order to give effect to clause (iii) of the
foregoing, if any of the interests of a Non-Manager Member in the LLC, or of an
Employee Stockholder in a Non-Manager
32
<PAGE>
Member, become subject to transfer (or purport to be or have been transferred)
by a court order or decree or by operation of law, the Non-Manager Member (or
other holder of LLC Points, other than the Manager Member) (whose interest in
the LLC or the interests in which are subject to such transfer) shall cease to
be a Member of the LLC, and the transferee by court order or decree or by
operation of law shall not become a Member, and AMG shall have the right to
purchase from the Non-Manager Member which has ceased to be a Non-Manager
Member, all his, her or its interest in the LLC as set forth in the preceding
sentence.
(i) In the event that a Non-Manager Member is required to sell its
LLC Interests pursuant to the provisions of this Section 3.11, and in the
further event that such Non-Manager Member refuses to, is unable to, or for any
reason fails to, execute and deliver the agreements required by this Section
3.11, the LLC or AMG, as applicable (or their respective assigns) may deposit
the purchase price, if any, therefor (including cash and/or promissory notes)
with any bank doing business within fifty (50) miles of the LLC's principal
place of business, as agent or trustee, or in escrow, for the Non-Manager
Member, to be held by such bank for the benefit of and for delivery to such
Non-Manager Member. Upon such deposit by the LLC or AMG (or their respective
assigns) and upon notice thereof given to the Non-Manager Member (or other
holder of LLC Points, other than the Manager Member), such Non-Manager Member's
LLC Interests shall be deemed to have been sold, transferred, conveyed and
assigned to the LLC or AMG (or their assigns), as applicable, the Non-Manager
Member shall have no further rights with respect thereto (other than the right
to withdraw the payment therefor, if any, held in escrow), and the Manager
Member shall record such transfer or repurchase on Schedule A hereto.
Section 3.12 No Employment Obligation. Each Non-Manager Member and each
Employee Stockholder acknowledges that neither this Agreement nor the provisions
of the Non Solicitation Agreement creates an obligation on the part of the LLC
to continue the employment of an Employee Stockholder with the LLC, and that
such Employee Stockholder, unless he or she is a party to an Employment
Agreement, is an employee at will of the LLC.
Section 3.13 Capitalization of Excess Operating Cash Flow. At any time
the Management Committee reasonably believes that the Operating Cash Flow of the
LLC will exceed the actual expenses of the LLC (taking into account business
conditions at the time and including both a reasonable allowance for executive
compensation increases, and a reasonable allowance for either a loss of business
or a change in margins in the business), at the request of the Management
Committee, representatives of the Manager Member shall meet with the Management
Committee to discuss the extent of such excess and the Management Committee and
the Manager Member shall reasonably and in good faith agree upon the amount of
(if any) such excess. Upon such agreement, the Management Committee and the
Manager Member shall negotiate in good faith for the purpose of determining a
reasonable and appropriate means to permit the Non-Manager Members to utilize
such excess Operating Cash Flow. Subject to such agreement, such means may
include (but shall not be limited to) the following examples: an increase in
the percentage of Revenues from Operations that constitutes Free Cash Flow
(together with the grant of put rights applicable to such adjusted Free Cash
Flow on terms comparable to those set forth in Article VII), the purchase of all
or a portion of any excess by AMG or the Manager Member (or its designee(s))
33
<PAGE>
on terms comparable to the terms set forth in Article VII with respect to Puts
or Section 3.10 with respect to Repurchases or any combination of the foregoing.
Section 3.14 Miscellaneous. Each Member and each Employee Stockholder
agrees that the enforcement of the provisions of Sections 3.8, 3.9, 3.10 and
3.11 hereof, and the enforcement of the provisions of the Employment Agreements
and Non Solicitation Agreements are necessary to ensure the protection and
continuity of the business, goodwill and confidential business information of
the LLC for the benefit of each of the Members. Each Member and each Employee
Stockholder agrees that, due to the proprietary nature of the LLC's business,
the restrictions set forth in Section 3.9 hereof and in the Employment
Agreements and the Non Solicitation Agreements are reasonable as to duration and
scope. If any provision contained in this Article III shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Article III. It is the intention of the parties hereto that if any of the
restrictions or covenants contained herein is held to cover a geographic area or
to be for a length of time that is not permitted by applicable law, or is any
way construed to be too broad or to any extent invalid, such provision shall not
be construed to be null, void and of no effect, but to the extent such provision
would then be valid or enforceable under applicable law, such provision shall be
construed and interpreted or reformed to provide for a restriction or covenant
having the maximum enforceable geographic area, time period and other provisions
as shall be valid and enforceable under applicable law.
Each Member and Employee Stockholder acknowledges that the obligations and
rights under Sections 3.8, 3.9, 3.10 and 3.11 and this Section 3.14 shall
survive the termination of the employment of an Employee Stockholder with the
LLC and/or the withdrawal or removal of a Member from the LLC, regardless of the
manner of such termination, withdrawal or removal in accordance with the
provisions hereof and of the relevant Employment or Non Solicitation Agreement.
Moreover, each Member agrees that the remedies provided herein, are reasonably
related to the anticipated loss that the LLC and the Members (including, without
limitation, the Manager Member which would be purchasing LLC Interests from a
Non-Manager Member) would suffer upon a breach of such provisions. Except as
agreed to by the Manager Member, in advance, in a writing making specific
reference to this Article III, no Employee Stockholder or Non-Manager Member
shall enter into any agreement or arrangement which is inconsistent with the
terms and provisions hereof.
ARTICLE IV - CAPITAL CONTRIBUTIONS;
CAPITAL ACCOUNTS AND ALLOCATIONS; DISTRIBUTIONS.
Section 4.1 Capital Contributions.
(a) On the Effective Date, Essex Investment Management Company, Inc.
contributed to the LLC certain of its assets, properties, rights, powers,
privileges and business (and the goodwill associated therewith), and the Members
agree that such Capital Contribution had a value of $100,816,673. On the
Effective Date but following the LLC Contribution (as such term is defined in
the Merger Agreement), the Non-Manager Members will contribute to the LLC
34
<PAGE>
certain properties having a value of $213,839 in the aggregate. Except as may
be agreed to in connection with the issuance of additional LLC Points, as
specifically set forth herein, or as may be required under applicable law, the
Members shall not be required to make any further contributions to the LLC.
No Member shall make any contribution to the LLC without the prior consent
of the Manager Member except that Messrs. McNay, Cutler and Clark may contribute
cash in an aggregate amount of up to $500,000 within seven (7) days following
the Effective Date. In addition, the Management Committee shall have the right,
from time to time, to make capital calls on the Non-Manager Members in an
aggregate amount per quarter of not more than the aggregate amount of all
distributions made in the previous quarter, in any such event pro-rata to the
Non-Manager Members' Vested LLC Points, by giving written notice thereof prior
to such capital call. In the event of any such capital call, each Non-Manager
Member shall make prompt payment to the LLC, in accordance with such written
instructions as may be approved by the Management Committee, of cash in the
amount of such additional capital contribution.
(b) No Member shall have the right to withdraw any part of his, her
or its (or their predecessors in interest) Capital Contribution until the
dissolution and winding up of the LLC, except as distributions pursuant to this
Article IV may represent returns of capital, in whole or in part. No Member
shall be entitled to receive any interest on any Capital Contribution made by it
(or its predecessors in interest) to the LLC. No Member shall have any personal
liability for the repayment of any Capital Contribution of any other Member.
Section 4.2 Capital Accounts; Allocations.
(a) There shall be established for each Member a Capital Account (a
"Capital Account") which, in the case of each Member, shall initially be equal
to the Capital Contribution of such Member as set forth on Schedule A hereto.
(b) The Capital Account of each Member shall be adjusted in the
following manner. Each Capital Account shall be increased by such Member's
allocable share of income and gain, if any, of the LLC (as well as the Capital
Contributions made by a Member after the Effective Date) and shall be decreased
by such Member's allocable share of deductions and losses, if any, of the LLC
and by the amount of all distributions made to such Member. The amount of any
distribution of assets other than cash shall be deemed to be the Fair Market
Value of such assets (net of any liabilities encumbering such property that the
distributee Member is considered to assume or take subject to). Capital
Accounts shall also be adjusted upon the issuance of additional LLC Interests as
set forth in Section 5.5(c) and upon the transfer of LLC Interests as set forth
in Section 5.1.
(c) Subject to Sections 4.2(e), 4.2(g) and 4.5 hereof, all items of
LLC income and gain shall be allocated among the Members' Capital Accounts at
the end of every quarter as follows:
35
<PAGE>
(i) first, items of income and gain shall be allocated to the
Manager Member in an amount equal to:
(A) the Free Cash Flow for such quarter (net of Free Cash
Flow Expenditures for such quarter) multiplied by a fraction,
(1) the numerator of which is the sum of the number of LLC
Points held by the Manager Member on the first day of such
quarter and (2) the denominator of which is the number of LLC
Points outstanding on the first day of such quarter, plus
(B) the product of (1) the sum of all Performance Account
Adjustments for such quarter, (2) the Free Cash Flow
Percentage, and (3) a fraction, the numerator of which is the
number of LLC Points held by the Manager Member on the first
day of such quarter, and the denominator of which is the sum
of the number of LLC Points outstanding, minus
(C) for each Performance Account that has an Earned
Performance Fee in that quarter, the product of (1) that
Earned Performance Fee, (2) the Free Cash Flow Percentage, and
(3) a fraction, the numerator of which is the number of LLC
Points held by the Manager Member on the first day of such
quarter, and the denominator of which is the number of LLC
Points outstanding on the first day of such quarter; and
(D) only for the last quarter of each fiscal year, if the
sum of all amounts previously subtracted under Section
4.2(c)(i)(C) for that quarter and the three (3) previous
quarters of such fiscal year exceeds the sum of all amounts
previously added under Section 4.2(c)(i)(B) for that quarter
and the three previous quarters of such fiscal year, then plus
the aggregate amount of such excess.
(ii) second, the Manager Member shall be allocated items of
income and gain until the Manager Member has been allocated cumulative
income and gain under this Section 4.2(c)(ii) equal to the cumulative
amount of losses and deductions allocated to the Manager Member under
Sections 4.2(d)(ii) and 4.2(d)(iii), if any;
(iii) third, items of income and gain, if any, shall be
allocated among all Non-Manager Members in accordance with (and in
proportion to) each Non-Manager Member's respective number of Vested
LLC Points on the first day of such quarter, until the aggregate
amount of such items allocated to the Members (including both the
Manager Member and the Non-Manager Members) pursuant to Sections
4.2(c)(i) and 4.2(c)(ii) and this 4.2(c)(iii) for such quarter equal
the aggregate amount of (A) Free Cash Flow (net of Free Cash Flow
Expenditures) for such quarter, and (B) only for the first three
quarters of the fiscal year, if the
36
<PAGE>
amount determined under Section 4.2(c)(i)(C) for such quarter exceeds
the amount determined under Section 4.2(c)(i)(B) for such quarter,
then minus the amount of such excess; and
(iv) fourth, items of income and gain, if any, shall be allocated
to the Manager Member in an amount equal to $96,000 per quarter, for
each quarter beginning on or after April 1, 1998 through and including
the quarter ended December 31, 2000; and an additional amount equal to
$22,500 per quarter, for each quarter beginning on or after April 1,
1998 through and including the quarter ended March 31, 1999; and
(v) fifth, items of LLC income and gain shall be allocated among
the Non-Manager Members in accordance with (and in proportion to) each
Non-Manager Member's respective number of Vested LLC Points on the
first day of such quarter until the cumulative aggregate amount of
such items of income and gain allocated to the Non-Manager Members
pursuant to this Section 4.2(c)(v) for such quarter and all prior
quarters in that fiscal year equals the cumulative aggregate amount of
items of deduction and loss allocated to the Non-Manager Members for
such quarter and all prior quarters in that fiscal year pursuant to
the provisions of Section 4.2(d) hereof.
(d) Subject to Sections 4.2(f), 4.2(g) and 4.5, all items of LLC loss
and deduction shall be allocated among the Members' Capital Accounts at the end
of every quarter as follows:
(i) first, all items of LLC loss and deduction for such quarter
shall be allocated among the Non-Manager Members in accordance with
(and in proportion to) their respective numbers of Vested LLC Points
on the first day of such quarter after giving effect to the allocation
of the items of income and gain for such quarter under Section 4.2(c),
until all such Capital Accounts have been reduced to zero (0),
provided that no additional loss or deduction shall be allocated to
any Non-Manager Member once its Capital Account has been reduced to
zero (0);
(ii) second, all items of LLC loss and deduction for such quarter
not allocated to the Non-Manager Members under Section 4.2(d)(i) shall
be allocated to the Manager Member until its Capital Account shall
have been reduced to zero (0); and
(iii) finally, all items of LLC loss and deduction for such
quarter not allocated to the Members under Sections 4.2(d)(i) and
4.2(d)(ii) shall be allocated among all Members in accordance with
(and in proportion to) each Members' respective number of LLC Points
on the first day of such quarter.
37
<PAGE>
(e) If the LLC has a net gain from any sale, exchange or disposition
of all, or substantially all, of the assets of the LLC, then that net gain shall
be allocated among the Members as follows:
(i) first, gain shall be allocated to the Manager Member until
the Manager Member has been allocated cumulative gain which, together
with income and gain previously allocated to the Manager Member under
Section 4.2(c)(ii) hereof, equals the cumulative amount of losses and
deductions allocated to the Manager Member under Sections 4.2(d)(ii)
and 4.2(d)(iii);
(ii) thereafter, gain shall be allocated between the Manager
Member, on the one hand, and the Non Manager Members, on the other
hand, in accordance with (and in proportion to) their respective
number of LLC Points as of the date of the transaction, and among the
Non Manager Members in accordance with (and in proportion to) their
respective number of Vested LLC Points as of the date of the
transaction.
(f) If the LLC has a net loss from any sale, exchange or other
disposition of all, or substantially all, of the assets of the LLC, then that
net loss shall be allocated between the Manager Member, on the one hand, and the
Non Manager Members, on the other hand, in accordance with (and in proportion
to) their respective number of LLC Points as of the date of the transaction, and
among the Non Manager Members in accordance with (and in proportion to) their
respective number of Vested LLC Points as of the date of the transaction
provided that no additional losses shall be allocated to a Member once its
Capital Account has been reduced to zero (0), unless all Members' Capital
Accounts have then been reduced to zero (0).
(g) In the event that during any calendar quarter (or any fiscal
year) there is any change of Members or LLC Points (whether as a result of the
admission of an Additional Non-Manager Member, the redemption by the LLC of all
(or any portion of) any Non-Manager Member's LLC Points, a transfer of any LLC
Points or otherwise), the following shall apply: (i) such transfer shall be
deemed to have occurred as of the end of the last day of the quarter in which
such change occurred, (ii) the books of account of the LLC shall be closed
effective as of the close of business on the effective date of any such change
as set forth in clause (i) and such fiscal year shall thereupon be divided into
two or more portions, (iii) each item of income, gain, loss and deduction shall
be determined (on the closing of the books basis) for the portion of such fiscal
year ending with the date on which the books of account of the LLC are so
closed, and (iv) each such item for such portion of such fiscal year shall be
allocated (pursuant to the provisions of Sections 4.2(c) and (d) hereof) to
those persons who were Members during such portion of such fiscal year in
accordance with their respective LLC Points during such period.
Section 4.3 Distributions.
(a) Subject to Section 4.4 hereof, from and after the date hereof,
within thirty (30) days after the end of each calendar quarter, the Manager
Member shall, to the extent cash is available therefor, and based on the
unaudited financial statements for such calendar quarter
38
<PAGE>
prepared in accordance with Section 9.3 hereof (after approval thereof by the
Manager Member), cause the LLC to:
(i) distribute to the Manager Member an amount equal to the allocations to
the Manager Member pursuant to Section 4.2(c)(i) for such calendar
quarter and any previous calendar quarter to the extent not then
distributed (less the Manager Member's pro-rata portion of any
reservation from Free Cash Flow pursuant to the last sentence of the
second to last paragraph of this Section 4.3(a)), and then
(ii) upon receipt of a Committee Vote, distribute to the Non-Manager
Members (and each Person who was a Non-Manager Member for such
calendar month) an amount equal to (A) the portion of the Free Cash
Flow allocated to such Non-Manager Member pursuant to Section
4.2(c)(iii) for such calendar quarter and any previous calendar
quarter to the extent not then distributed (less each such Person's
pro-rata portion of any reservation from Free Cash Flow pursuant to
the last sentence of the second to last paragraph of this Section
4.3(a)) minus (B) the amount, if any, by which the operating expenses
for the LLC for the calendar quarter exceeded the Operating Cash Flow
of the LLC for such calendar quarter multiplied by a fraction, the
numerator of which is the number of Vested LLC Points held by such
Non-Manager Member, and the denominator of which is the number of
Vested LLC Points held by all the Non-Manager Members, in accordance
with (and in proportion to) their respective number of Vested LLC
Points for such preceding calendar quarter, in each case, if and to
the extent each such Member (and each Person who was a Non-Manager
Member for any portion of any applicable portion of any applicable
calendar quarter) has a positive balance in its Capital Account.
After the end of each fiscal year of the LLC, the Manager Member shall,
based on the audited financial statements prepared in accordance with Section
9.3 hereof, cause the LLC to make a distribution of the remaining Free Cash
Flow, if any, for the preceding fiscal year which was allocated pursuant to
Sections 4.2(c)(i) and 4.2(c)(iii) but not previously distributed in accordance
with the foregoing clauses (i) and (ii) whenever, and to the extent, cash is
available therefor. The Manager Member may, with a Committee Vote, from time to
time, reserve and not distribute portions of Free Cash Flow for LLC purposes;
including, without limitation, to increase the net worth of the LLC, to make
capital expenditures (such as the creation of or investment in a Controlled
Affiliate) or to create a reserve for anticipated repurchases of Vested LLC
Interests; provided, that any such reservation would be made from all Members
pro-rata in proportion to Vested LLC Points, and that such funds shall be
maintained in the Receipts Account (as defined below) pending expenditure
thereof.
Within ninety-five (95) days after the end of each fiscal year of the LLC
(or such earlier date as may be agreed to by the Manager Member with a Committee
Vote, the Manager Member shall, to the extent cash is available therefor, and
based on the audited financial statements prepared in accordance with Section
9.3 hereof, cause the LLC to make a distribution to each Non-Manager Member of
the amount, if any, which was allocated to such Non-Manager Member for the
previous fiscal year pursuant to the provisions of Section 4.5(d).
39
<PAGE>
(b) To give effect to the foregoing, the LLC shall have two (2) bank
accounts. The first account (the "Receipts Account") shall have as its
authorized signatures such representatives of the LLC and the Manager Member as
the Management Committee and the Manager Member shall deem appropriate or
desirable. All the LLC's receipts shall be paid into the Receipts Account;
provided, however, that on a weekly basis, the LLC shall transfer fifty-two
percent (52%) of receipts paid into this account to a second account (the "Free
Cash Flow Account") which shall have as its authorized signatories such
representatives of the Manager Member and the LLC as the Manager Member shall
deem appropriate or desirable. The Manager Member shall use the Free Cash Flow
Account to make all distributions of Free Cash Flow pursuant to Section 4.3(a)
above and to fund all Free Cash Flow Expenditures. The Manager Member shall
retain in the Free Cash Flow Account any amount which gives rise to the right to
make distributions pursuant to Section 4.3(c) hereof (including, without
limitation, the proceeds of sales of assets, insurance proceeds and the proceeds
of issuance of additional LLC Interests) and shall distribute such amounts in
accordance with the provisions of such Section 4.3(c). The Receipts Account
shall be used by the Management Committee to make all operating expense payments
(including payments of salaries and bonuses) out of Operating Cash Flow.
Within thirty (30) days after the end of each calendar quarter, based on
the unaudited financial statements for such calendar quarter prepared in
accordance with Section 9.3 hereof, and within ninety-five (95) days after the
end of each fiscal year of the LLC, based on the audited financial statements
prepared in accordance with Section 9.3 hereof, the Manager Member and the LLC
shall cause such transfers between the accounts to be made as may be necessary
to reconcile the accounts with the amounts of revenue designated as Operating
Cash Flow and Free Cash Flow and other amounts excluded from the definition of
Revenues From Operations hereunder.
(c) Except as otherwise set forth herein, all other amounts or
proceeds available for distribution, if any, shall be distributed to the Members
at such time as may be determined by the Manager Member; provided that any such
distribution shall be made among the Members (i) if attributable to a sale of
all, or substantially all, of the assets of the LLC, in accordance with (and in
proportion to) in their respective Capital Accounts (as determined immediately
prior to such distribution) until all Capital Account balances have been reduced
to zero, and (ii) if otherwise attributable, between the Manager Member, on the
one hand, and the Non Manager Members, on the other hand, in accordance with
(and in proportion to) their respective number of LLC Points as of the date of
dissolution, and among the Non Manager Members in accordance with (and in
proportion to) their respective number of Vested LLC Points at the time of such
distribution; provided, however, that if a Member makes a Capital Contribution
after the Effective Date, the Manager Member may cause the LLC to make a
priority return of such Capital Contribution.
(d) Notwithstanding any other provision of this Agreement, neither
the LLC, nor the Manager Member on behalf of the LLC, shall make a distribution
to any Member on account of its LLC Interest if such distribution would violate
the Act or other applicable law.
Section 4.4 Distributions Upon Dissolution; Establishment of a Reserve
Upon Dissolution. Upon the dissolution of the LLC, after payment (or the
making of reasonable
40
<PAGE>
provision for the payment) of all liabilities of the LLC owing to creditors, the
Manager Member, or if there is none, the Liquidating Trustee appointed as set
forth in Section 8.4 hereof, shall set up such reserves as it deems reasonably
necessary for any contingent, conditional or unmatured liabilities or other
obligations of the LLC. Such reserves may be paid over by the Manager Member or
Liquidating Trustee to a bank (or other third party), to be held in escrow for
the purpose of paying any such contingent, conditional or unmatured liabilities
or other obligations. At the expiration of such period(s) as the Manager Member
or Liquidating Trustee may deem advisable, such reserves, if any (and any other
assets available for distribution), or a portion thereof, shall be distributed
to the Members (i) in accordance with (and in proportion to) the positive
balance (if any) in their respective Capital Accounts (as determined immediately
prior to each such distribution) until all such positive Capital Account
balances have been reduced to zero, and (ii) thereafter, between the Manager
Member, on the one hand, and the Non Manager Members, on the other hand, in
accordance with (and in proportion to) their respective number of LLC Points as
of the date of dissolution, and among the Non Manager Members in accordance with
(and in proportion to) their respective number of Vested LLC Points as of the
date of dissolution. If any assets of the LLC are to be distributed in kind in
connection with such liquidation, such assets shall be distributed on the basis
of their Fair Market Value net of any liabilities encumbering such assets and,
to the greatest extent possible, shall be distributed pro-rata in accordance
with the total amounts to be distributed to each Member. Immediately prior to
the effectiveness of any such distribution-in-kind, each item of gain and loss
that would have been recognized by the LLC had the property being distributed
been sold at Fair Market Value shall be determined and allocated to those
persons who were Members immediately prior to the effectiveness of such
distribution in accordance with Section 4.2(d).
Section 4.5 Proceeds from Capital Contributions and the Sale of
Securities; Insurance Proceeds; Certain Special Allocations.
(a) Capital Contributions made by any Member after the Effective
Date, and other proceeds from the issuance of securities by the LLC may, in the
sole discretion of the Manager Member, be used for the benefit of the LLC
(including, without limitation, the repurchase or redemption of LLC Interests),
or, may be distributed by the LLC, in which case, any such proceeds shall be
allocated and distributed between the Manager Member, on the one hand, and the
Non Manager Members, on the other hand, in accordance with (and in proportion
to) their respective number of LLC Points immediately prior to the date of such
contribution or issuance of securities, and among the Non Manager Members in
accordance with (and in proportion to) their respective number of Vested LLC
Points immediately prior to the date of such contribution or issuance of
securities; it being understood that in the case the proceeds are a note
receivable, any such distribution shall only occur, if at all, upon receipt by
the LLC of any cash in respect thereof.
(b) In the event of the death or Permanent Incapacity of an Employee
Stockholder covered by key-man life or disability insurance, as applicable, the
premiums on which have been paid by the LLC as Free Cash Flow Expenditures, the
proceeds of any such policy shall first be used by the LLC to fund (to the
extent thereof) the Repurchase of LLC Interests from the Employee Stockholder or
Non-Manager Member through which such Employee Stockholder holds or held his or
her interest in the LLC in accordance with Section 3.11 hereof and, if the
proceeds exceed the
41
<PAGE>
amounts so required to effect such Repurchase, then the amount of such excess
proceeds may, as determined by the Manager Member with the consent of the
Management Committee, be used for the benefit of the LLC, or, may be distributed
by the LLC, in which case, any such proceeds shall be allocated and distributed
between the Manager Member, on the one hand, and the Non Manager Members, on the
other hand, in accordance with (and in proportion to) their respective number of
LLC Points immediately following the Repurchase of the LLC Interests from such
Non-Manager Member, and among the Non Manager Members in accordance with (and in
proportion to) their respective number of Vested LLC Points immediately
following the Repurchase of the LLC Interests from such Non-Manager Member.
(c) Items of depreciation or amortization (as calculated for book
purposes in accordance with generally accepted accounting principles,
consistently applied) on account of the property of the LLC on the Effective
Date, shall be specially allocated to the Manager Member; provided, however,
that items of depreciation, amortization, loss or deduction (as calculated for
book purposes in accordance with generally accepted accounting principles,
consistently applied) on account of the property contributed to the LLC by
Non-Manager Members as contemplated by the second sentence in Section 4.1(a),
shall be specially allocated among such Non-Manager Members in proportion to
such contribution. All items of depreciation or amortization (as calculated for
book purposes in accordance with generally accepted accounting principles,
consistently applied) on account of property purchased out of Operating Cash
Flow shall be allocated as set forth in Section 4.2(c)(iii), and all items of
depreciation or amortization (as calculated for book purposes in accordance with
generally accepted accounting principles, consistently applied) on account of
property purchased out of Free Cash Flow shall be allocated among the Members in
accordance with their respective numbers of LLC Points on the date the property
was purchased. All items of depreciation, amortization, loss or deduction (as
calculated for book purposes in accordance with generally accepted accounting
principles, consistently applied) on account of expenses and expenditures paid
for with the contribution made by Messrs. McNay, Cutler and Clark as
contemplated by the first sentence of the second paragraph of Section 4.1(a),
shall be specially allocated among Messrs. McNay, Cutler and Clark in accordance
with their proportionate amounts of such contribution.
(d) If, at the end of a fiscal year, (i) the aggregate amount of
items of income and gain allocated to the Non-Manager Members pursuant to the
provisions of Section 4.2(c)(v) equals the aggregate amount of items of
deduction and loss for such fiscal year, and (ii) there are additional items of
income and gain for such fiscal year which are available to be, but have not
been allocated pursuant to the provisions of Section 4.2 hereof, then such
additional items of income and gain (i.e., the unallocated items of income and
gain in excess of the aggregate amount of items of deduction and loss
attributable to such fiscal year) which were not previously allocated shall be
allocated to the Non-Manager Members and in the amounts as may be selected by a
Committee Vote or, if there is no Committee, then by Majority Vote; provided,
that if no determination is made within ninety-five (95) days after the end of a
fiscal year, such items of income and gain shall be allocated among the
Non-Manager Members in proportion to each Non-Manager Member's respective number
of Vested LLC Points as of the end of such fiscal year.
42
<PAGE>
Section 4.6 Federal Tax Allocations. The Manager Member shall, in its
sole discretion, allocate the ordinary income and losses and capital gains and
losses of the LLC as determined for U.S. Federal income tax purposes (and each
item of income, gain, loss, deduction or credit entering into the computation
thereof), as the case may be, among the Members for tax purposes in a manner
that, to the greatest extent possible: (a) reflects the economic arrangement of
the Members under this Agreement (determined after taking into account the
allocation provisions of Sections 4.2, 4.4 and 4.5 hereof, and the distribution
provisions of Sections 4.3, 4.4 and 4.5 hereof), (b) is consistent with the
principles of Sections 704(b) and 704(c) of the Code and (c) incorporates a
"qualified income offset," a "minimum gain chargeback" and a "partner
nonrecourse debt minimum gain chargeback" as those terms are defined in the
Treasury Regulations under Section 704 of the Code. "Nonrecourse deductions,"
as defined in such Treasury Regulations, shall be allocated among the Members in
accordance with their LLC Points. Deductions attributable to "partner
nonrecourse debt" shall be allocated as provided in such Treasury Regulations.
The Members understand and agree that, with respect to any item of property
(other than cash) contributed (or deemed to be contributed for U.S. federal
income tax purposes) by a Member to the capital of the LLC, the initial tax
basis of such property in the hands of the LLC will be the same as the tax basis
of such property in the hands of such Member at the time so contributed. The
Members further understand and agree that the taxable income and taxable loss of
the LLC is to be computed for Federal income tax purposes by reference to the
initial tax basis to the LLC of any assets and properties contributed by the
Members (and not by reference to the fair market value of such assets and
properties at the time contributed). The Members also understand that, pursuant
to Section 704(c) of the Code, all taxable items of income, gain, loss and
deduction with respect to such assets and properties shall be allocated among
the Members for Federal income tax purposes so as to take account of any
difference between the initial tax basis of such assets and properties to the
LLC and their fair market values at the time contributed, using any method
authorized by the Income Tax Regulations under Section 704(c) and selected by
the Manager Member, in its sole discretion. For purposes of maintaining the
Capital Accounts of the Members, items of income, gain, loss and deduction
relating to any asset or property contributed to the LLC that are required to be
allocated for tax purposes pursuant to Section 704(c) of the Code shall not be
reflected in the Capital Accounts of the Members. Without limiting the
generality of the foregoing, all deductions with respect to the amortization or
depreciation of property contributed to the LLC by a Member shall be allocated
to the contributing member for all (state, foreign and Federal) income tax
purposes and all deductions with respect to the amortization or depreciation of
property purchased out of Operating Cash Flow or Free Cash Flow shall be
allocated in accordance with the provisions of Section 4.5(c) hereof.
ARTICLE V - TRANSFER OF LLC INTERESTS BY NON-MANAGER
MEMBERS; RESIGNATION, REDEMPTION AND WITHDRAWAL BY
NON-MANAGER MEMBERS;
ADMISSION OF ADDITIONAL NON-MANAGER MEMBERS.
Section 5.1 Assignability of Interests. No interest of a Non-Manager
Member in the LLC may be sold, assigned, transferred, gifted or exchanged, nor
may any Non-Manager Member offer to do any of them (each, a "Transfer"), nor may
any interest in any Non-Manager Member
43
<PAGE>
be Transferred, nor may any stockholder in any Non-Manager Member which is not
an individual offer to do any of them, and no Transfer by a Non-Manager Member
or stockholder of a Non-Manager Member shall be binding upon the LLC or any
Non-Manager Member unless it is expressly permitted by this Article V and the
Manager Member receives an executed copy of the documents effecting such
Transfer, which shall be in form and substance reasonably satisfactory to the
Manager Member. The assignee of such interest in the LLC may become a
substitute Non-Manager Member only upon the terms and conditions set forth in
Section 5.2. If an assignee or transferee of an interest of a Non-Manager
Member in the LLC does not become (and until any such assignee or transferee
becomes) a substitute Non-Manager Member, in accordance with the provisions of
Section 5.2, such Person shall not be entitled to exercise or receive any of the
rights, powers or benefits of a Non-Manager Member other than the right to
receive distributions which the assigning Non-Manager Member has sold,
transferred or assigned to such Person in compliance with this Section 5.1. No
Non-Manager Member's interest in the LLC or, in the case of a Non-Manager Member
which is not an individual, none of the direct and indirect interests of a
beneficial owner of such Non-Manager Member, may be Transferred except:
(a) with the prior written consent of the Manager Member, which
consent may be granted or withheld by the Manager Member in its sole discretion
except that the Manager Member may not unreasonably withhold its consent in the
case of a Transfer of less than ten (10%) of the Initial LLC Points held by a
Non-Manager Member to a bona fide charitable organization;
(b) upon the death of such beneficial owner, their interests in the
LLC or in the Non-Manager Member may be Transferred by will or the laws of
descent and distribution (subject, in all cases, to the provisions of Section
3.11 hereof); and
(c) a Non-Manager Member (and its beneficial owners) may Transfer
interests in the LLC or in such Non-Manager Member to individuals described in
clause (a) of the definition of such Non-Manager Member's Immediate Family (or
trusts for their benefit and of which the beneficial owner is the settlor and/or
trustee, provided that any such trust does not require or permit distribution of
such interests).
provided, that in the case of (b) or (c) above, (i) the transferee enters into
an agreement with the LLC agreeing to be bound by the provisions hereof (and if
such transferee is or is becoming an employee of the LLC and is not already a
party to a Non Solicitation Agreement, the transferee enters into a Non
Solicitation Agreement), and (ii) whether or not the transferee enters into such
an agreement, such LLC Interests, and interests in such Non-Manager Member,
shall thereafter remain subject to this Agreement (and, if applicable, the
relevant Non Solicitation Agreement) to the same extent they would be if held by
such Non-Manager Member or beneficial owner, as applicable; provided, however,
that the provisions of Sections 3.8, 3.9 and 3.10 will not apply unless such
Transferee is or is becoming an employee of the LLC or any of its Controlled
Affiliates or is a Controlled Affiliate of any such employee. Notwithstanding
the foregoing, no Non-Manager Member's interest in the LLC may be Transferred
if, giving effect to such Transfer, the total number of Members of the LLC would
exceed one hundred (100) (as determined in accordance with Treasury Regulation
Section 1.7704-1(h)(3), which provides, in general, that under certain
circumstances a Person owning an interest in (A) a partnership for federal
income tax purposes,
44
<PAGE>
(B) a "grantor trust," any portion of which is treated as owned by the
grantor(s) or other person(s) under sections 671-679 of the Code, or (C) an "S
corporation" within the meaning of section 1361(a) of the Code (each, a
"flow-through entity") that owns, directly or through other flow-through
entities, an interest in the LLC shall be treated as a Member), unless either
such Transfer is a Transfer described in Treasury Regulation Section 1.7704-1(e)
or such Transfer is pursuant to a Put right under Article VII and the sum of the
percentage interests in profits or capital of the LLC Transferred during the
taxable year of the LLC (other than in Transfers described in Treasury
Regulation Section 1.7704-1(e)) would, taking the Transfer in question into
account and assuming the maximum exercise of the Non-Manager Members' Put rights
under Article VII, exceed ten percent (10%) of the total interests in profits or
capital of the LLC.
For all purposes of this LLC Agreement, any Transfers of LLC Interests
shall be deemed to occur as of the end of the last day of the calendar quarter
in which any such Transfer would otherwise have occurred. Upon any Transfer of
LLC Interests, the Manager Member shall make the appropriate revisions to
Schedule A hereto.
Each time LLC Interests are Transferred (including, without limitation,
additional LLC Points), the Manager Member may, in its reasonable discretion,
elect to revalue the Capital Accounts of all Members. If the Manager Member so
elects, then the Capital Accounts of all the Members shall be adjusted as
follows: (i) the Manager Member shall determine the proceeds which would be
realized if the LLC sold all its assets at such time for a price equal to the
Fair Market Value of such assets, and (ii) the Manager Member shall allocate
amounts equal to the gain or loss which would have been realized upon such a
sale to the Capital Accounts of all the Members immediately prior to such
Transfer in accordance with Section 4.2(d) hereof.
No interests of a Non-Manager Member in the LLC may be pledged,
hypothecated, optioned or encumbered, nor may any interests in a Non-Manager
Member be pledged, hypothecated, optioned or encumbered, nor may any offer to do
any of the foregoing be made without the prior written consent of the Management
Committee and the Manager Member; provided the consent of the Manager Member
will not be unreasonably withheld if the purpose of any such pledge or
encumbrance is to secure financing to enable the Transferee to purchase LLC
Interests from other Non-Manager Members and are subordinated to the
satisfaction of the Manager Member to all other rights of the Manager Member and
all other claims and encumbrances hereunder.
Section 5.2 Substitute Non-Manager Members. No transferee of interests
of a Non-Manager Member shall become a Member except in accordance with this
Section 5.2. The Manager Member may, in its sole discretion, admit as a
substitute Non-Manager Member (with respect to all or a portion of the LLC
Interests held by a Person), any Person that acquires an LLC Interest by
Transfer from another Non-Manager Member pursuant to Section 5.1 hereof, or that
acquires an LLC Interest from the Manager Member pursuant to Section 6.1 hereof.
The admission of an assignee as a substitute Non-Manager Member shall, in all
events, be conditioned upon the execution of an instrument satisfactory to the
Manager Member whereby such assignee becomes a party to this Agreement as a
Non-Manager Member as well as compliance by such assignee with the provisions of
Section 3.8 hereof if such Transferee is or is becoming an employee of the LLC
45
<PAGE>
or any of its Controlled Affiliates or is a Controlled Affiliate of any such
employee. Upon the admission of a substitute Non-Manager Member, the Manager
Member shall make the appropriate revisions to Schedule A hereto.
Section 5.3 Allocation of Distributions Between Assignor and Assignee;
Successor to Capital Accounts. Upon the Transfer of an LLC Interest pursuant to
this Article V, distributions pursuant to Article IV shall be made to the Person
owning the LLC Interest at the date of distribution, unless the assignor and
assignee otherwise agree and so direct the LLC and the Manager Member in a
written statement signed by both the assignor and assignee. In connection with
a Transfer by a Member of LLC Points, the assignee shall succeed to a pro-rata
(based on the percentage of such Person's LLC Points transferred) portion of the
assignor's Capital Account, unless the assignor and assignee otherwise agree and
so direct the LLC and the Manager Member in a written statement signed by both
the assignor and assignee and consented to by the Manager Member.
Section 5.4 Resignation, Redemptions and Withdrawals. No Non-Manager
Member shall have the right to resign, to cause the redemption of its interest
in the LLC, in whole or in part, or to withdraw from the LLC, except (a) with
the consent of the Manager Member, (b) as is expressly provided for in Section
3.11 hereof; or (c) as is expressly provided for in Section 7.1 hereof. Upon
any resignation, redemption or withdrawal, the Non-Manager Member shall only be
entitled to the consideration, if any, provided for by Section 3.11 or Section
7.1 hereof, if and to the extent that one of such Sections is applicable. Upon
the resignation, redemption or withdrawal, in whole or in part, by a Non-Manager
Member, the Manager Member shall make the appropriate revisions to Schedule A
hereto.
Section 5.5 Issuance of Additional LLC Interests.
(a) Additional Non-Manager Members (the "Additional Non-Manager
Members" and each an "Additional Non-Manager Member") may be admitted to the LLC
and such Additional Non-Manager Members may be issued LLC Points, only upon
receipt of a Committee Vote and the consent of the Manager Member and upon such
terms and conditions as may be established by the Manager Member with the
consent of Management Committee (including, without limitation, upon such
Additional Non-Manager Member's execution of an instrument satisfactory to the
Manager Member whereby such Person becomes a party to this Agreement as a
Non-Manager Member as well as, in the case of employees of the LLC (or its
Controlled Affiliates or Controlled Affiliates of such employees, such Person's
compliance with the provisions of Section 3.8 hereof).
(b) Existing Non-Manager Members may be issued additional LLC Points
(or other LLC Interests), only by the LLC with the consent of, and upon such
terms and conditions as may be established by, the Management Committee with the
consent of the Manager Member. The Manager Member or its Affiliates (other than
the LLC and its Controlled Affiliates) may only be issued new additional LLC
Points (or other LLC Interests) upon the receipt of a Committee Vote.
(c) Each time additional LLC Interests are issued (including, without
limitation, additional LLC Points), the Capital Accounts of all the Members
shall be adjusted as follows: (i)
46
<PAGE>
the Manager Member shall determine the proceeds which would be realized if the
LLC sold all its assets at such time for a price equal to the Fair Market Value
of such assets, and (ii) the Manager Member shall allocate amounts equal to the
gain or loss which would have been realized upon such a sale to the Capital
Accounts of all the Members immediately prior to such issuance in accordance
with Section 4.2(d) hereof.
(d) Upon the issuance of additional LLC Interests, the Manager Member
shall make the appropriate revisions to Schedule A hereto.
(e) Notwithstanding anything in this Agreement to the contrary, (i)
no additional LLC Interests may be issued if, giving effect to such Transfer,
the total number of Members would exceed one hundred (100) as determined in
accordance with Treasury Regulation Section 1.7704-1(h)(3)) and (ii) no LLC
Interests may be issued (A) in a transaction that is required to be registered
under the Securities Act or (B) in a transaction that is not required to be
registered under the Securities Act by reason of Regulation S thereunder unless
the offering and sale of the LLC Interests would not have been required to be
registered under the Securities Act if the LLC Interests had been offered and
sold within the United States.
Section 5.6 Additional Requirements to Transfer or Issuance. As
additional conditions to the validity of (x) any Transfer of a Non-Manager
Member's interest in the LLC (or, in the case of a Non-Manager Member which is
not an individual, the interests of the direct and indirect beneficial owners of
such Non-Manager Member) (pursuant to Section 5.1 above), or (y) the issuance of
additional LLC Interests (pursuant to Section 5.5 above), such Transfer or
issuance shall not: (i) violate the registration provisions of the Securities
Act or the securities laws of any applicable jurisdiction, (ii) cause the LLC to
become subject to regulation as an "investment company" under the 1940 Act, and
the rules and regulations of the SEC thereunder, (iii) result in the termination
of any contract to which the LLC is a party and which individually or in the
aggregate are material (it being understood and agreed that any contract
pursuant to which the LLC provides Investment Management Services is material),
or (iv) result in the treatment of the LLC as an association taxable as a
corporation or as a "publicly traded partnership" for Federal income tax
purposes.
The Manager Member may require reasonable evidence as to the foregoing,
including, without limitation, a favorable opinion of counsel, which expense
shall be borne by the parties to such transaction (and to the extent the LLC is
such a party, shall be paid from Operating Cash Flow).
To the fullest extent permitted by law, any Transfer or issuance that
violates the conditions of this Section 5.6 shall be null and void.
Section 5.7 Representation of Members. Each Member (including each
Additional Non-Manager Member) hereby represents and warrants to the LLC and
each other Member, and acknowledges, that (a) it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of an investment in the LLC and making an informed
investment decision with respect thereto, (b) it is able to bear the economic
and financial risk of
47
<PAGE>
an investment in the LLC for an indefinite period of time, (c) it is acquiring
an interest in the LLC for investment only and not with a view to, or for resale
in connection with, any distribution to the public or public offering thereof,
(d) the equity interests in the LLC have not been registered under the
securities laws of any jurisdiction and cannot be disposed of unless they are
subsequently registered and/or qualified under applicable securities laws and
the provisions of this Agreement have been complied with, and (e) the execution,
delivery and performance of this Agreement by such Member do not require it to
obtain any consent or approval that has not been obtained and do not contravene
or result in a default under any provision of any existing law or regulation
applicable to it, any provision of its charter, by-laws or other governing
documents or any agreement or instrument to which it is a party or by which it
is bound.
ARTICLE VI - TRANSFER OF LLC INTERESTS BY THE
MANAGER MEMBER; REDEMPTION, REMOVAL
AND WITHDRAWAL
Section 6.1 Assignability of Interest.
(a) Except as set forth in this Section 6.1, without a Committee Vote
the Manager Member's interest in the LLC may not be Transferred; provided,
however, (i) it is understood and agreed that, in connection with the operation
of the business of AMG and the Manager Member (including, without limitation,
the financing of its interest herein and direct or indirect interests in
additional investment management companies), the Manager Member's interest in
the LLC will be pledged and encumbered and lien holders of the Manager Member's
interest shall have and be able to exercise the rights of secured creditors with
respect to such interest, (ii) the Manager Member may Transfer some (but not a
majority) of its LLC Interests to a Person who is not a Member but who is an
Officer or employee of the LLC or who becomes an Officer or employee of the LLC
in connection with such issuance, or a Person wholly owned by any such Person,
provided that such Transferee shall not become a Member unless the Management
Committee has consented thereto, (iii) the Manager Member may sell some (but not
all) of its LLC Interests to existing Non-Manager Members, and (iv) the Manager
Member may sell all or any portion of its LLC Interests to an Affiliate of the
Manager Member which shall thereafter be subject to the provisions contained
herein with respect to the Manager Member. Notwithstanding anything else set
forth herein, the Manager Member may, with a Majority Vote, sell or transfer as
a result of a merger or consolidation all its interests in the LLC in a single
transaction or a series of related transactions, and, in any such case, each of
the Non-Manager Members shall be required to sell or transfer, in the same
transaction or transactions, all their interests in the LLC; provided, that the
price to be received by all the Members shall be allocated among the Members as
follows: (a) an amount equal to the sum of the positive balances, if any, in
positive Capital Accounts shall be allocated among the Members having such
Capital Accounts in proportion to such positive balances, and (b) the excess, if
any, shall be allocated among all Members in accordance with their respective
number of LLC Points at the time of such sale. Upon any of the foregoing
transactions, the Manager Member shall make the appropriate revisions to
Schedule A hereto.
48
<PAGE>
(b) In the case of any Transfer upon foreclosure pursuant to
Section 6.1(a)(i) above, each Transferee shall sign a counterpart signature page
to this Agreement agreeing thereby to become either a Non-Manager Member or a
Manager Member (provided, however, that once one such other Transferee elects to
become a Manager Member, no transferee (other than a subsequent Transferee of
such new Manager Member) may elect to be a Manager Member hereunder). If the
transferees pursuant to Section 6.1(a)(i) above receive all the Manager Member's
LLC Interests, and none of such transferees elects to become a Manager Member,
then that shall be deemed to be an event of withdrawal by the Manager Member.
If, however, one of the Transferees elects to become a Manager Member, and
executes a counterpart signature page to this Agreement agreeing thereby to
become a Manager Member, then notwithstanding any other provision hereof to the
contrary, the old Manager Member shall thereupon be permitted to withdraw from
the LLC as Manager Member.
(c) In the case of a transfer pursuant to the penultimate sentence of
Section 6.1(a) above, the Manager Member shall be deemed to have withdrawn, and
its transferee shall be deemed to have become the Manager Member.
Section 6.2 Resignation, Redemption, and Withdrawal. To the fullest
extent permitted by law, except as set forth in Section 6.1, without a prior
Majority Vote, the Manager Member shall not have the right to resign or withdraw
from the LLC as Manager Member. With a prior Majority Vote, the Manager Member
may resign or withdraw as Manager Member upon prior written notice to the LLC.
Without a prior Majority Vote, the Manager Member shall have no right to have
all or any portion of its interest in the LLC redeemed. Any resigned or
withdrawn Manager Member shall retain its interest in the capital of the LLC and
its other economic rights under this Agreement as a Non-Manager Member having
the number of LLC Points and Vested LLC Points held by the Manager Member prior
to its resignation or withdrawal. If a Manager Member who has resigned or
withdrawn no longer has any economic interest in the LLC, then upon such
resignation or withdrawal such Person shall cease to be a Member of the LLC.
ARTICLE VII - PUT OF LLC INTERESTS
Section 7.1 Puts.
(a) Each Non-Manager Member may, at such Non-Manager Member's option,
subject to the terms and conditions set forth in this Section 7.1, cause AMG to
purchase portions of the LLC Points held by such Non-Manager Member in the LLC
(a "Put").
(b) Each Non-Manager Member may, subject to the terms and conditions
set forth in this Agreement, cause AMG to purchase up to ten percent (10%) of
the Initial LLC Points of such Non-Manager Member from such Non-Manager Member
(and/or any Permitted Transferee of such Non-Manager Member), on the last
business day in March (each a "Purchase Date") (but only up to an aggregate of
fifty (50%) of such Non-Manager Member's Initial LLC Points) starting with the
last business day in March, 2003 and ending with the last business day in March,
2012. On any Purchase Date starting with the Purchase Date in March 2003, Mr.
Joseph C. McNay may
49
<PAGE>
cause AMG to purchase from Mr. McNay (and/or any Transferee of Mr. McNay
pursuant to the provisions of Section 5.1(b) or 5.1(c) hereof (and, to the
extent set forth in any consent of the Manager Member pursuant to Section
5.1(a), his Transferees pursuant to Section 5.1(a))) a number of LLC Points of
Mr. McNay and such Transferees that is equal to or less than the difference
between the number of LLC Points then held by Mr. McNay and such Transferees and
twenty-five percent (25%) of the greatest total number of Initial LLC Points
issued to Mr. McNay; provided that in the event Mr. McNay exercises his rights
under this sentence, he shall thereafter not be entitled to cause any Puts under
this Section 7.1; provided, however, that the exercise of the rights set forth
in the first sentence of this paragraph shall not be deemed to be an exercise
pursuant to this sentence. On any Purchase Date starting with the Purchase Date
in March 2006, Mr. Stephen Cutler may cause AMG to purchase from Mr. Cutler
(and/or any Transferee of Mr. Cutler pursuant to the provisions of Section
5.1(b) or 5.1(c) hereof (and, to the extent set forth in any consent of the
Manager Member pursuant to Section 5.1(a), his Transferees pursuant to Section
5.1(a))) a number of LLC Points of Mr. Cutler and such Transferees that is equal
to or less than the difference between the number of Initial LLC Points then
held by Mr. Cutler and such Transferees and twenty-five percent (25%) of the
greatest total number of LLC Points issued to Mr. Cutler; provided that in the
event Mr. Cutler exercises his rights under this sentence, he shall thereafter
not be entitled to cause any Puts under this Section 7.1; provided, however,
that the exercise of the rights set forth in the first sentence of this
paragraph shall not be deemed to be an exercise pursuant to this sentence.
(c) Each Non-Manager Member may, subject to the terms and conditions
set forth in this Agreement, cause AMG to purchase a number of LLC Points as is
equal to up to ten percent (10%) of the LLC Points issued to such Non-Manager
Member pursuant to the Incentive Program or upon the exercise of an option
issued pursuant thereto (each such issuance or issuance upon the exercise of an
option, being referred to herein as an "Option Exercise") from such Non-Manager
Member (and/or any Permitted Transferee of such Non-Manager Member), on any five
(5) separate Purchase Dates (but only up to an aggregate of a number of LLC
Points as is equal to fifty percent (50%) of the LLC Points issued in each such
Option Exercise) starting on the first Purchase Date which is at least five (5)
years following the date of each such Option Exercise and ending on the first
Purchase Date which is at least fifteen (15) years following the date of such
Option Exercise.
(d) If a Non-Manager Member desires to exercise its rights under
Section 7.1(b) or 7.1(c) above, it and its Employee Stockholder shall give the
Manager Member, AMG, each other Employee Stockholder and the LLC irrevocable
written notice (a "Put Notice") on or prior to the preceding December 31 (the
"Notice Deadline"), stating that it is electing to exercise such rights and the
number of LLC Points (the "Put LLC Points") to be sold in the Put and whether or
to what extent such Put is a Put of Initial LLC Points (the "Initial Put LLC
Points") or LLC Points issued pursuant to an Option Exercise (together, the
"Option Put LLC Points") and, if Option Put LLC Points, what Option Exercise
they are associated with. Puts in any given calendar year for which Put Notices
are received before the Notice Deadline for that calendar year shall be
completed as follows: AMG shall purchase from each Non-Manager Member (and his
(or its) Related Non-Manager Members) and their respective Permitted Transferees
that number of Put LLC Points as is equal to the sum of (i) the number of
Initial Put LLC Points designated as such in the Put Notice,
50
<PAGE>
up to the maximum number permitted by Section 7.1(b) above with respect to that
year and the aggregate number of Initial LLC Points that may be Put by the
Non-Manager Member (and his (or its) Related Non-Manager Members) and their
respective Permitted Transferees, and (ii) the number of Option Put LLC Points
designated as such in the Put Notice, up to the maximum number permitted by
Section 7.1(c) above with respect to the Option Exercise and that year and the
aggregate number of LLC Points that may be put by the Non-Manager Member (and
his (or its) Related Non-Manager Members) and their respective Permitted
Transferees, with respect to the Option Exercise.
(e) The purchase price for a Put (the "Put Price") shall be an amount
(which is intended to be a proxy for fair market value) equal to (i) six and
three tenths (6.3) times the positive difference, if any, of (x) the sum of (I)
fifty percent (50%) of the LLC's Maintenance Fees for the twenty-four (24)
months ending on the last day of the calendar quarter in which the closing of
the Put occurs and (II) thirty three and thirty three one hundredths percent
(33.33%) of the LLC's Earned Performance Fees for the thirty-six (36) months
ending on the last day of the calendar year prior to the calendar year in which
the Put occurs minus (y) the amount by which the actual expenses of the LLC
(determined on a basis consistent with the calculation of Operating Cash Flow)
exceeded the Operating Cash Flow of the LLC (including previously reserved
Operating Cash Flow) during the twelve (12) months ending on the last day of the
calendar quarter prior to the date of the closing of such Put (in each case
determined by reference to the most recent financial statements with respect to
the applicable period supplied to the Manager Member pursuant to Section 9.3)
multiplied by (ii) a fraction, the numerator of which is the number of Vested
LLC Points to be purchased from such Non-Manager Member on the Purchase Date and
the denominator of which is the number of LLC Points outstanding on the Purchase
Date before giving effect to any Puts, Calls or any issuances or redemptions of
LLC Points on such date. Notwithstanding the foregoing, if the Non-Manager
Member exercising a Put has made an election contemplated in Section 7.2 then
the "Put Price" shall be (i) the product of percentage of Vested LLC Points
being Put by such Non-Manager Member to which such election does not apply, and
the Put Price calculated in the foregoing sentence with respect to all LLC
Points being Put by such Non-Manager Member, plus (ii) the number of shares of
AMG Stock resulting from the calculation set forth in Section 7.2(c) upon such
election.
(f) In the case of any Put, the Put Price shall be paid by AMG (or,
if AMG shall have assigned its obligation to the Manager Member or the LLC
pursuant to paragraph (h) below, the Manager Member or the LLC) (or their
respective assigns) on the relevant Purchase Date by wire transfer or certified
check issued to such Non-Manager Member, in each case, against delivery of such
documents or instruments of transfer as may reasonably be requested by AMG, the
Manager Member or the LLC, as applicable, and in each case including
representations that at the effective time of such transfer the transferring
Non-Manager Member is the record and beneficial owner of the LLC Interests being
Put, free and clear of any Liens other than those imposed by this Agreement.
(g) Notwithstanding any other provision of this Section 7.1 to the
contrary, no purchase by AMG pursuant to this Section 7.1 (or, upon assignment
of any of AMG's obligations to the Management Member or the LLC pursuant to
paragraph (h) hereof, purchase by the Manager
51
<PAGE>
Member or redemption by the LLC) shall occur if it would result in the Manager
Member and AMG (taken together) owning, directly or indirectly, in excess of
eighty percent (80%) of the LLC Points outstanding after giving effect to any
such sale or redemption. If some, but not all, of the LLC Points which
Non-Manager Members have requested be purchased can be so purchased without the
Manager Member's and AMG's (taken together) ownership, directly or indirectly,
exceeding eighty percent (80%) of the outstanding LLC Points, then AMG or the
Manager Member shall purchase, or shall assign their obligations to the LLC, and
the LLC shall redeem, LLC Points from the Non-Manager Members having Put LLC
Interests in proportion to the LLC Points then held by such Non-Manager Members
up to the maximum extent that would not cause the Manager Member and AMG (taken
together) to own, directly or indirectly, in excess of eighty percent (80%) of
the outstanding LLC Points (in each case, subject to the maximum amount set
forth in Sections 7.1(b) and 7.1(c) hereof).
(h) AMG may assign and/or delegate any or all of its rights and
obligations to purchase LLC Points under this Section 7.1, in one or more
instances, to the Manager Member; provided that no such assignment or delegation
shall relieve AMG of its obligation to make the payment for a Put as required by
this Section 7.1. The Manager Member may, only with a Majority Vote, assign any
or all of its rights and obligations to purchase LLC Points under this Section
7.1, in one or more instances, to the LLC.
(i) In the case of any Put, as of any Purchase Date, the Non-Manager
Member shall cease to hold the LLC Points purchased on the Purchase Date, and
shall cease to hold a pro-rata portion of such Non-Manager Member's Capital
Account (which shall have been transferred to AMG (or, upon assignment of any of
AMG's obligations to the Management Member or the LLC pursuant to paragraph (h)
hereof, transferred to the Manager Member or canceled by the LLC)) and shall no
longer have any rights with respect to such portion of its LLC Interests.
Section 7.2 Election Rights of Non-Manager Members to Receive AMG Stock.
(a) The Non-Manager Member exercising a Put or with respect to whom a
Call is exercised (as contemplated by Section 7.7. hereof) may elect to request
that AMG pay up to one-half (50%) of the LLC Points being Put by such
Non-Manager Member (or being Called from such Non-Manager Member) to be paid for
by AMG in shares of AMG's Common Stock, $.01 par value per share (the "AMG
Stock") in accordance with the provisions of this Section 7.2. If a Non-Manager
Member makes the request set forth in Section 7.2(a), AMG may, in its sole
discretion, elect by written notice (the "Election Notice") to such Non-Manager
Member within ten (10) days after receiving such Non-Manager Member's request to
make the payment for the Put or Call as contemplated by the succeeding
provisions of this Section 7.2, or may, in lieu thereof, pay an amount in cash
as is equal to the Number of Shares of AMG Stock such Non-Manager Member is
entitled to receive pursuant to the calculation set forth below, multiplied by
AMG's Average Stock Price, calculated as set forth below.
(b) An election under this Section 7.2 must be made by the
Non-Manager Member at least sixty (60) days prior to the relevant Purchase Date,
by giving written notice to the
52
<PAGE>
LLC, AMG and the Manager Member of such election, which election, once made,
shall be irrevocable without the prior written consent of AMG.
(c) The number of shares of AMG Stock to be issued upon exercise of
the Put or Call (as applicable) shall be determined in accordance with the
following formula:
Number of
Shares of AMG Stock = FCF x Percentage Put/Called x AMG's EBITDA Multiple x .75
---------------------------------------------------------
AMG's Average Stock Price
Where:
FCF = an amount equal to (x) the sum of (I) fifty
percent (50%) of the LLC's Maintenance
Fees for the twenty-four (24) months
ending on the last day of the calendar
quarter in which the Put or Call (as
applicable) occurs and (II) thirty three
and thirty three one hundredths percent
(33.33%) of the LLC's Earned Performance
Fees for the thirty-six (36) months ending
on the last day of the calendar year prior
to the calendar year in which the Put or
Call (as applicable) occurs minus (y) the
amount by which the actual expenses of the
LLC (determined on a basis consistent with
the calculation of Operating Cash Flow)
exceeded the Operating Cash Flow of the
LLC (including previously reserved
Operating Cash Flow) during the twelve
(12) months ending on the last day of the
calendar quarter prior to the date of the
closing of such Put or Call (as
applicable) (in each case determined by
reference to the most recent financial
statements with respect to the applicable
period supplied to the Manager Member
pursuant to Section 9.3)
Percentage Put/Called = a fraction, the numerator of which is the
number of Vested LLC Points to be purchased
from the Non-Manager Member on the Purchase
Date, and the denominator of which is the
number of LLC Points outstanding on the
Purchase Date before giving effect to any
Puts, Calls or any issuances or redemptions
of LLC Points on such date.
AMG's EBITDA Multiple = a fraction, the numerator of which is (a) the
number of shares of AMG Stock issued and
outstanding immediately prior to the closing
of the Put or Call (as applicable),
multiplied by AMG's Average Stock Price, plus
(b) the long-term indebtedness (including the
current
53
<PAGE>
portion thereof) of AMG as of the
date of its most recent public
financial reports prior to the
closing of the Put or Call (as
applicable), and the denominator of
which is AMG's earnings before
interest, taxes, depreciation and
amortization for the twelve (12)
month period ending on the last day
of the calendar quarter prior to the
date of the closing of the Put or
Call (as applicable).
Notwithstanding the foregoing, AMG's
EBITDA Multiple shall be calculated
giving pro-forma effect to any
investments or other similar
transactions consummated (or which
AMG became contractually obligated to
consummate) rpior to the closing of
the Put or Call (as applicable), in
each case, as calculated in good
faith by the Manager Member.
AMG's Average Stock Price = the average (arithmetic mean) Stock
Price of AMG Stock during the forty (40)
trading days prior to the date of the
closing of the Put or Call (as
applicable). The term "Stock Price"
shall mean the closing price for each
day for the AMG Stock which shall be the
last sale price or, in the case no such
sale takes place on such day, the
average of the closing bid and asked
prices in either case as reported in the
principal consolidated transaction
reporting system with respect to
securities listed on the principal
national securities exchange on which
the AMG Stock is listed or admitted to
trading; or, if not listed or admitted
to trading on any national securities
exchange, the last quoted price (or, if
not so quoted, the average of the last
quoted high bid and low asked prices) in
the over-the-counter market, as reported
by NASDAQ or such other system then in
use; or, if on any such date no bids are
quoted by any such organization, the
average of the closing bid and asked
prices as furnished by a professional
market maker making a market in such
security reasonably selected by the
Board of Directors of AMG.
In the event that there is any stock
split (or reverse stock split), stock
dividend or other similar event, equit-
able and appropriate adjustments shall
be made in the application of the fore-
going calculation of AMG's Average Stock
Price to take account of such event.
54
<PAGE>
Section 7.3 Registration Rights.
(a) If at any time or times AMG shall determine to file a
registration statement ("Registration Statement") (which excludes a registration
on Form S-8 (or its then equivalent form) or a registration statement filed
solely to implement an employee benefit plan, a transaction under Rule 145 or to
which any other similar rule of the SEC under the Securities Act is applicable
or registration statement on a form not available for registering securities for
sale to the public) other than on Form S-4 (or its then equivalent form) and
other than with respect to securities to be issued solely in connection with any
acquisition of any securities or assets of any entity or business, then AMG will
give written notice thereof to the Non-Manager Members which are holders of
Registrable Securities (as hereinafter defined) then outstanding (the "Holders")
at least twelve (12) days prior to the filing of a registration statement with
the SEC, and, subject to the terms and conditions of this Section 7.3, will use
commercially reasonable efforts to effect the registration under the Securities
Act (a "Registration") of all Registrable Securities which the Holders request
in a writing delivered to AMG within ten (10) days after the notice given by
AMG. AMG shall have the right to postpone or withdraw any Registration without
any obligation to any Holder.
(b) For the purposes of this Section 7.3, the term "Registrable
Securities" shall mean (i) any AMG Stock held by a Non-Manager Member which was
acquired by such Non-Manager Member pursuant to the Merger Agreement, (ii) any
AMG Stock held by a Non-Manager Member which was acquired by such Non-Manager
Member pursuant to the provisions of Section 7.2 above, and (iii) and any equity
securities issued or issuable with respect to the AMG Stock described in clauses
(i) or (ii) of this Section 7.3(b) by way of a stock dividend or stock split or
in connection with a combination of shares.
(c) Whenever under the preceding provisions of this Section 7.3, AMG
is required hereunder to register Registrable Securities, AMG agrees that it
shall also do the following:
(i) use commercially reasonable efforts to prepare diligently
for filing with the SEC a Registration Statement and such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary for the duration of such
Registration;
(ii) use commercially reasonable efforts to maintain the
effectiveness of any Registration Statement pursuant to which any of the
Registrable Securities are being sold on a delayed or continuous basis
under Rule 415 (or any successor or similar rule) under the Securities Act
(other than a registration statement in connection with an underwritten
offering) until the earlier of (A) the completion of the distribution of
all Registrable Securities offered pursuant thereto or (B) ninety (90) days
after the effective date of such Registration Statement, provided that if a
Suspension Period (as defined below) has occurred during the pendency of a
Registration, AMG shall in good faith use reasonable efforts to extend the
effectiveness of such Registration so that there are ninety (90) days
during which such Registration is effective and a Suspension Period is not
in effect; and
55
<PAGE>
(iii) furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder
may reasonably request to facilitate the public offering of its Registrable
Securities in accordance with customary practices.
(d) All reasonable expenses incident to AMG's performance of or
compliance with this Section 7.3, including SEC and securities exchange or
National Association of Securities Dealers, Inc. ("NASD") registration and
filing fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, fees and disbursements of counsel for AMG and its independent
certified public accountants incurred in connection with each registration
hereunder (excluding any fees or disbursements of counsel for the Holders, or
any underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities, which shall be borne by each applicable Holder) (all
such included expenses being herein called "Registration Expenses"), will be
borne by AMG; provided, however, that if AMG is not selling securities in such
offering, then each Holder shall bear a portion of such expenses equal to such
expenses multiplied by a fraction, the numerator of which is the number of
shares sold by such Holder and the denominator of which is the total number of
shares sold in the offering.
(e) (i) Incident to any registration statement referred to in this
Section 7.3(e), and subject to applicable law, AMG will indemnify each
underwriter, each Holder of Registrable Securities so registered, and each
person controlling any of them ("Controlling Person") against all claims,
losses, damages and liabilities, including legal and other expenses
reasonably incurred in investigating or defending against the same, arising
out of any untrue statement of a material fact contained therein, or any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising out of
any violation by AMG of the Securities Act, any other federal securities
laws, any state securities or "blue-sky" laws or any rule or regulation
thereunder in connection with such registration, except insofar as the same
may have been caused by an untrue statement or omission based upon
information furnished to AMG by or on behalf of such underwriter, Holder or
Controlling Person expressly for use therein, and with respect to such
untrue statement or omission in the information furnished to AMG by or on
behalf of such underwriter, Holder or Controlling Person, such underwriter,
Holder or Controlling Person so providing such information to AMG (or on
whose behalf such information was so provided) will indemnify AMG, its
directors and officers, and the other underwriters, Holders and Controlling
Persons against any losses, claims, damages, expenses or liabilities to
which any of them may become subject to the same extent.
(ii) If the indemnification provided for in this Section 7.3(e) from
the indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection with
the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by
56
<PAGE>
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any
reasonable legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7.3(e) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 7.3(e)(ii), no
Holder shall be required to contribute any amount in excess of the amount by
which the total price at which the Registrable Securities of such Holder were
offered to the public exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 7.3(e), the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Section 7.3(e)(i) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 7.3(e)(ii).
Section 7.4 Restrictions. Notwithstanding anything herein to the
contrary, the parties agree as follows:
(a) In the event that in connection with an underwritten public
offering, the managing underwriter(s) shall in good faith impose a limitation on
the number of securities which may be included in such Registration for
marketing purposes, AMG shall not be required to register Registrable Securities
in excess of such limitation, provided that the reduction in the number of
securities which may be included in such Registration to comply with such
limitation is imposed pro rata (based either (as determined by AMG, in its sole
discretion) on relative number of securities held or relative number of
securities sought to be included in such Registration) with respect to the
Holders and all managers of companies providing Investment Management Services
in which AMG may invest after the date hereof and which have so-called
incidental or piggyback registration rights (it being understood that such
limitation may be imposed as to all holders of such securities and the Holders
prior to the imposition of any limitation on other holders of AMG securities).
(b) If requested in writing by the managing underwriter(s), if any,
of any underwritten public offering of AMG Stock, each Non-Manager Member and
each Employee Stockholder (and their respective Permitted Transferees) agrees
not to offer, sell, contract to sell or otherwise dispose of any shares of AMG
Stock (or any securities convertible into or exchangeable for AMG Stock) except
as part of such underwritten public offering within thirty (30) days before or
one hundred and eighty (180) days after the effective date of the registration
statement filed with respect to said offering.
57
<PAGE>
(c) Following the effectiveness of a Registration (including, without
limitation a Registration for sale on a delayed or continuous basis under Rule
415 under the Securities Act), each Holder and each Employee Stockholder agrees
not to effect any sales of AMG Stock after they have received notice from AMG to
suspend sales as a result of the commencement of any Suspension Period. Each
Holder may recommence effecting sales of AMG Stock following further notice to
such effect from AMG, which shall be given by AMG not later than five (5)
business days after the conclusion of each Suspension Period. For purposes
hereof, a "Suspension Period" shall mean the pendency or occurrence of an event
that would make it impractical or inadvisable (i) to cause a Registration
Statement to remain in effect or (ii) to permit the sale of AMG Stock by Holders
and by limited partners, members or management employees of other entities in
which AMG is a general partner or manager member (without prejudice to any
particular holder), and shall include, without limitation, pending negotiations
relating to, or consummation of, a transaction or the pendency or occurrence of
any other event that would require additional disclosure of material information
by AMG in a registration statement as to which AMG has a bona fide business
purpose for preserving confidentiality or which renders AMG unable to comply
with applicable legal requirements.
Section 7.5 Limitation of Registration Rights. Notwithstanding the
foregoing, AMG shall not be required to effect a Registration of Registrable
Securities under this Agreement if, in the written opinion of counsel for AMG,
the Holders of Registrable Securities may then sell all the Registrable
Securities proposed to be sold without registration under the Securities Act.
Section 7.6 Option of Receiving Future Piggyback Registration Rights.
Notwithstanding any provisions of this Section 7, if AMG offers to any Person
engaged in the business of providing Investment Management Services in which AMG
may invest pursuant to an acquisition or investment transaction closing after
the date hereof any form of piggyback registration rights ("New Registration
Rights"), AMG agrees that at each such occasion it shall provide Holders of
Registrable Securities with the option of either retaining the registration
rights then in force for such Registrable Securities or replacing such
registration rights with the New Registration Rights, subject to the limitation
set forth in Section 7.5.
Section 7.7 Calls.
(a) The Manager Member may, subject to the terms and conditions set
forth in this Section 7.2, cause any or all of Joseph C. McNay, Stephen R. Clark
and Steven D. Cutler to sell portions of the LLC Interests held by each such
Non-Manager Member in the LLC (each a "Call").
(b) The Manager Member may cause each of the Non-Manager Members set
forth in Section 7.7(a) above (and any Transferee thereof) to sell up to five
percent (5%) of the highest total number of LLC Points held by such Non-Manager
Member at any time, to the Manager Member on any Purchase Date (but only up to
an aggregate of fifteen percent (15%) of the highest total number of LLC Points
held by such Non-Manager Member at any time), starting with the first Purchase
Date which is after the sixth (6th) anniversary of the Effective Date.
(c) If the Manager Member desires to exercise its rights under
Section 7.7(b), it shall give each Non-Manager Member and the LLC irrevocable
written notice (a "Call Notice") on
58
<PAGE>
or prior to the immediately preceding Notice Deadline, stating that it is
electing to exercise such rights, the Non-Manager Member with respect to whom
the Call is being exercised and the number of LLC Points to be purchased in the
Call.
(d) The purchase price for a Call (the "Call Price") shall be an
amount (which is intended to be a proxy for fair market value) equal to (i)
seven and nine-tenths (7.9) times the positive difference, if any, of (x) fifty
percent (50%) of the sum of (I) the LLC's Maintenance Fees for the twenty-four
(24) months ending on the last day of the calendar quarter prior to the date of
the closing of such Call and (II) thirty three and thirty three one hundredth
percent (33.33%) of the LLC's Earned Performance Fees for the thirty-six (36)
months ending on the last day of the calendar year prior to the date of the
closing of such Call minus (y) the amount by which the actual expenses of the
LLC (determined on a basis consistent with the calculation of Operating Cash
Flow) exceeded the Operating Cash Flow of the LLC (including previously reserved
Operating Cash Flow) during the twelve (12) months ending on last day of the
calendar quarter prior to the date of the closing of such Call (in each case
determined by reference to the most recent financial statements with respect to
the applicable period supplied to the Manager Member pursuant to Section 9.3)
multiplied by (ii) a fraction, the numerator of which is the number of LLC
Points to be purchased from such Non-Manager Member pursuant to such Call on the
Purchase Date and the denominator of which is the number of LLC Points
outstanding on the Purchase Date before giving effect to any Puts, Calls or any
issuances or redemptions of LLC Points on such date. Notwithstanding the
foregoing, if a Non-Manager Member with respect to whom a Call is exercised has
made an election contemplated in Section 7.2 then the "Call Price" shall be (i)
the product of the percentage of LLC Points being Called from such Non-Manager
Member to which such election does not apply, and the Call Price calculated in
the foregoing sentence with respect to all LLC Points being Called from such
Non-Manager Member, plus (ii) the number of shares of AMG Stock resulting from
the calculation set forth in Section 7.2(c) upon such election.
(e) As of any Purchase Date, the Non-Manager Member (and its
Transferees to the extent applicable) selling LLC Points under this Section 7.2
shall cease to hold the LLC Interests purchased on the Purchase Date, and shall
cease to hold a pro-rata portion of such Non-Manager Member's Capital Account
and shall no longer have any rights with respect to such portion of its LLC
Interests.
ARTICLE VIII - DISSOLUTION AND TERMINATION.
Section 8.1 No Dissolution. The LLC shall not be dissolved by the
admission of Additional Non-Manager Members or substitute Non-Manager Members or
substitute Manager Members in accordance with the Act and the provisions of this
Agreement.
Section 8.2 Events of Dissolution. The LLC shall be dissolved and its
affairs wound up upon the occurrence of any of the following events:
(a) a date designated in writing by the holders of a majority of the
then outstanding Vested LLC Points; or
59
<PAGE>
(b) upon the entry of a decree of judicial dissolution under Section
18-802 of the Act.
Section 8.3 Notice of Dissolution. Upon the dissolution of the LLC, the
Manager Member shall promptly notify the Members of such dissolution.
Section 8.4 Liquidation. Upon the dissolution of the LLC, the Manager
Member, or if there is none, the Person or Persons approved by the holders of
more than fifty percent (50%) of the Vested LLC Points then outstanding
(including the Person that was the Manager Member) shall carry out the winding
up of the LLC (in such capacity, the "Liquidating Trustee"), shall immediately
commence to wind up the LLC's affairs; provided, however, that a reasonable time
shall be allowed for the orderly liquidation of the assets of the LLC and the
satisfaction of liabilities to creditors so as to enable the Members to minimize
the normal losses attendant upon a liquidation. The Members shall continue to
share in allocations and distributions during liquidation in the same
proportions, as specified in Article IV hereof, as before liquidation. The
proceeds of liquidation shall be distributed as set forth in Section 4.4 hereof.
Section 8.5 Termination. The LLC shall terminate when all of the assets
of the LLC, after payment of or due provision for all debts, liabilities and
obligations of the LLC, shall have been distributed to the Members in the manner
provided for in Section 4.4 and the Certificate shall have been canceled in the
manner required by the Act.
Section 8.6 Claims of the Members. The Members and former Members shall
look solely to the LLC's assets for the return of their Capital Contributions
and Capital Accounts, and if the assets of the LLC remaining after payment of or
due provision for all debts, liabilities and obligations of the LLC are
insufficient to return such Capital Contributions or Capital Accounts, the
Members and former Members shall have no recourse against the LLC or any other
Member (including, without limitation, the Manager Member).
ARTICLE IX - RECORDS AND REPORTS.
Section 9.1 Books and Records. The Officers and the Members shall cause
the LLC to keep complete and accurate books of account with respect to the
operations of the LLC, prepared in accordance with generally accepted accounting
principles, using the accrual method of accounting, consistently applied. Such
books shall reflect that the interests in the LLC have not been registered under
the Securities Act, and that the interests may not be sold or transferred
without registration under the Securities Act or exemption therefrom and without
compliance with Article V or Article VI of this Agreement. Such books shall be
maintained at the principal office of the LLC in Boston or at such other place
as the Manager Member shall determine.
Section 9.2 Accounting. The LLC's books of account shall be kept on the
accrual method of accounting, or on such other method of accounting as the
Manager Member may from time to time determine, with the advice of the
Independent Public Accountants, and shall be closed and balanced at the end of
each LLC fiscal year and shall be maintained for each fiscal year in a manner
consistent with the generally accepted accounting principles and with the
principles and/or policies of AMG
60
<PAGE>
applied consistently with respect to its Controlled Affiliates. The taxable
year of the LLC shall be the twelve months ending December 31 or such other
taxable year as the Manager Member may designate, with the advice of the
Independent Public Accountants.
Section 9.3 Financial and Compliance Reports. The LLC shall, and each of
the Non-Manager Members and each of the Employee Stockholders who is a member of
the Management Committee shall use all commercially reasonable efforts to cause
the LLC to, furnish to the Manager Member each of the following:
(a) Within ten (10) days after the end of each month and each fiscal
quarter, an unaudited financial report of the LLC, which report shall be
prepared in accordance with generally accepted accounting principles using the
accrual method of accounting, consistently applied (except that the financial
report may (i) be subject to normal year-end audit adjustments which are neither
individually nor in the aggregate material and (ii) not contain all notes
thereto which may be required in accordance with generally accepted accounting
principles) and shall be certified by the most senior financial officer of the
LLC to have been so prepared, and which shall include the following:
(i) Statements of operations, changes in members' capital and
cash flows for such month or quarter, together with a cumulative income
statement from the first day of the then-current fiscal year to the last
day of such month or quarter;
(ii) a balance sheet as of the last day of such month or quarter;
and
(iii) with respect to the quarterly financial report, a
detailed computation of Free Cash Flow for such quarter.
(b) Within fifteen (15) days after the end of each fiscal year of the
LLC, audited financial statements of the LLC, which shall include statements of
operations, changes in members' capital and cash flows for such year and a
balance sheet as of the last day thereof, each prepared in accordance with
generally accepted accounting principles, using the accrual method of
accounting, consistently applied, certified by the Independent Public
Accountants.
(c) If requested by the Manager Member, within twenty-five (25) days
after the end of each calendar quarter, the LLC's operating budget for each of
the next four (4) fiscal quarters, in such form and containing such estimates as
may be requested by the Manager Member from time to time, certified by the most
senior financial officer of the LLC.
(d) If requested by the LLC, copies of all financial statements,
reports, notices, press releases and other documents released to the public.
(e) As promptly as is reasonably possible following request by the
Manager Member from time to time, such financial, operations, performance or
other information or data as may be requested.
61
<PAGE>
Section 9.4 Meetings.
(a) The LLC and its Officers shall hold such regular meetings at the
LLC's principal place of business with representatives of the Manager Member as
may be reasonably requested by the Manager Member from time to time. These
meetings shall be attended (either in person or by telephone) by such members of
the Management Committee, Officers and other employees of the LLC as may be
requested by the Manager Member or any of the Officers.
(b) At each meeting, the Officers and other employees of the LLC
shall discuss such matters regarding the LLC and its performance, operations
and/or budgets as may be reasonably requested by the Manager Member, and each of
the attendees (whether in person or by telephone) at such meeting shall have the
right to submit proposals and suggestions regarding the LLC, and the attendees
at the meeting shall, in good faith, discuss and consider such proposals and
suggestions.
Section 9.5 Tax Matters.
(a) The Manager Member shall cause to be prepared and filed on or
before the due date (or any extension thereof) Federal, state, local and foreign
tax or information returns required to be filed by the LLC. The Manager Member,
to the extent that LLC funds are available, shall cause the LLC to pay any taxes
payable by the LLC (it being understood that the expenses of preparation and
filing of such tax returns, and the amounts of such taxes, are to be treated as
operating expenses of the LLC to be paid from Operating Cash Flow); provided
that the Manager Member shall not be required to cause the LLC to pay any tax so
long as the Manager Member or the LLC is in good faith and by appropriate legal
proceedings contesting the validity, applicability or amount thereof and such
contest does not materially endanger any right or interest of the LLC and
adequate reserves therefor have been set aside by the LLC. Neither the LLC nor
any Employee Stockholder or Non-Manager Member shall do anything or take any
action which would be inconsistent with the foregoing or with the Manager
Member's actions as authorized by the foregoing provisions of this Section
9.5(a). Each Non-Manager Member shall cooperate with Manager Member in causing
the LLC to make an election under Section 754 of the Code with respect to its
fiscal year ended on the Effective Date. Upon the agreement of the Management
Committee and the Manager Member, the LLC will use commercially reasonable
efforts to cause an election under Section 754 of the Code to be made by
investment funds in which it holds an interest as a manager or general partner.
(b) The Manager Member shall be the tax matters partner for the LLC
pursuant to Sections 6221 through 6233 of the Code.
ARTICLE X - LIABILITY, EXCULPATION AND INDEMNIFICATION.
Section 10.1 Liability. Except as otherwise provided by the Act, the
debts, obligations and liabilities of the LLC, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations and liabilities of the LLC,
and no Covered Person shall be obligated personally for any such debt,
obligation or liability of the LLC solely by reason of being a Covered Person.
62
<PAGE>
Section 10.2 Exculpation.
(a) No Covered Person shall be liable to the LLC or any other Covered
Person for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the LLC
and in a manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement, except that a Covered Person
shall be liable for any such loss, damage or claim incurred by reason of any
action or inaction of such Covered Person which constituted fraud, gross
negligence, willful misconduct or a breach of this Agreement, the Merger
Agreement or, in the case of a Non-Manager Member or Employee Stockholder, the
Non Solicitation Agreement to which he, she or it is a party.
(b) A Covered Person shall be fully protected in relying in good
faith upon the records of the LLC and upon such information, opinions, reports
or statements presented to the Covered Person by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the LLC of such Covered Person.
Section 10.3 Fiduciary Duty.
(a) To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the LLC
or to any Member, a Covered Person acting under this Agreement shall not be
liable to the LLC or to any Member for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the extent that they
restrict the duties and liabilities of a Covered Person otherwise existing at
law or in equity, are agreed by the parties hereto to replace such other duties
and liabilities of such Covered Person.
(b) Unless otherwise expressly provided herein, (i) whenever a
conflict of interest exists or arises between the Manager Member and any other
Member, or (ii) whenever this Agreement or any other agreement contemplated
herein or therein provides that the Manager Member shall act in a manner that
is, or provides terms that are, fair and reasonable to the LLC or any Member,
the Manager Member shall resolve such conflict of interest, take such action or
provide such terms, considering in each case the relative interest of each party
(including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. The resolution, action or term so made, taken or
provided by the Manager Member shall not constitute a breach of this Agreement
or any other agreement contemplated herein or of any duty or obligation of the
Manager Member at law or in equity or otherwise unless the Managing Member did
not act in good faith.
(c) Whenever in this Agreement the Manager Member is permitted or
required to make a decision (i) in its "discretion" or under a grant of similar
authority or latitude, the Manager Member shall be entitled to consider such
interests and factors as it desires, including its own interests, and shall have
no duty or obligation to give any consideration to any interest of or factors
affecting the LLC or any other Person, or (ii) in its "good faith" or under
another express standard,
63
<PAGE>
the Manager Member shall act under such express standard and shall not be
subject to any other or different standard imposed by this Agreement or other
applicable law.
(d) Wherever in this Agreement a factual determination is called for
and the applicable provision of this Agreement does not indicate what party or
parties are to make the applicable factual determination, and/or the applicable
standard to be used in making the factual determination, such determination
shall be made by the Manager Member in the exercise of reasonable discretion.
Section 10.4 Indemnification. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
LLC for any loss, damage or claim (including any amounts paid in settlement of
any such claims) including expenses, fines, penalties and counsel fees and
expenses incurred by such Covered Person by reason of any act or omission
performed or omitted by such Covered Person in good faith on behalf of the LLC
and in a manner reasonably believed to be within the scope of authority
conferred on such Covered Person by this Agreement, except that no Covered
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Covered Person by reason of any action or inaction of
such Covered Person which constituted fraud, [gross] negligence, willful
misconduct or a breach of this Agreement, the Merger Agreement or, in the case
of the Non-Manager Member or Employee Stockholder, the Non Solicitation
Agreement to which he, she or it is a party; provided, however, that any
indemnity under this Section 10.4 shall be provided out of and to the extent of
LLC assets only, and no Member or Covered Person shall have any personal
liability to provide indemnity on account thereof.
Section 10.5 Notice; Opportunity to Defend and Expenses.
(a) Promptly after receipt by any Covered Person from any third party
of notice of any demand, claim or circumstance that, immediately or with the
lapse of time, would reasonably be expected to give rise to a claim or the
commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that could reasonably be expected to
result in any loss, damage or claim with respect to which the Covered Person
might be entitled to indemnification from the LLC under Section 10.4, the
Covered Person shall give notice thereof (the "Claims Notice") to the LLC;
provided, however, that a failure to give such notice shall not prejudice the
Covered Person's right to indemnification hereunder except to the extent that
the LLC is actually prejudiced thereby. The Claims Notice shall describe the
Asserted Liability in such reasonable detail as is practicable under the
circumstances, and shall, to the extent practicable under the circumstances,
indicate the amount (estimated, if necessary) of the loss or damage that has
been or may be suffered by the Covered Person.
(b) The LLC may elect to compromise or defend, at its own expense and
by its own counsel, any Asserted Liability; provided, however, that if the named
parties to any action or proceeding include (or could reasonably be expected to
include) both the LLC and a Covered Person, or more than one Covered Persons,
and the LLC is advised by counsel that representation of both parties by the
same counsel would be inappropriate under applicable standards of professional
conduct, the Covered Person may engage separate counsel at the expense of the
LLC. If the LLC elects to compromise or defend such Asserted Liability, it
shall within twenty (20) business days (or sooner,
64
<PAGE>
if the nature of the Asserted Liability so requires) notify the Covered Person
of its intent to do so, and the Covered Person shall cooperate, at the expense
of the LLC, in the compromise of, or defense against, such Asserted Liability.
If the LLC elects not to compromise or defend the Asserted Liability, fails to
notify the Covered Person of its election as herein provided, contests its
obligation to provide indemnification under this Agreement, or fails to make or
ceases making a good faith and diligent defense, the Covered Person may pay,
compromise or defend such Asserted Liability all at the expense of the Covered
Person (in accordance with the provisions of Section 10.5(c) below). Except as
set forth in the preceding sentence, neither the LLC nor the Covered Person may
settle or compromise any claim over the objection of the LLC or the Manager
Member; provided, however, that consent to settlement or compromise shall not be
unreasonably withheld. In any event, the LLC and the Covered Person may
participate at their own expense, in the defense of such Asserted Liability. If
the Covered Person chooses to defend any claim, the Covered Person shall make
available to the LLC any books, records or other documents within its control
that are necessary or appropriate for such defense, all at the expense of the
LLC.
(c) If the LLC elects not to compromise or defend an Asserted
Liability, or fails to notify the Covered Person of its election as above
provided, then, to the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by a Covered Person in defending any Asserted
Liability, shall, from time to time, be advanced by the LLC prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the LLC of an undertaking by or on behalf of the Covered Person to repay such
amount if it shall be determined that the Covered Person is not entitled to be
indemnified as authorized in Section 10.4 hereof. The LLC may, if the Manager
Member deems it appropriate, require any Covered Person for whom expenses are
advanced, to deliver adequate security to the LLC for his or her obligation to
repay such indemnification.
Section 10.6 Miscellaneous.
(a) The right of indemnification hereby provided shall not be
exclusive of, and shall not affect, any other rights to which a Covered Person
may be entitled. Nothing contained in this Article X shall limit any lawful
rights to indemnification existing independently of this Article X.
(b) The indemnification rights provided by this Article X shall also
inure to the benefit of the heirs, executors, administrators, successors and
assigns of a Covered Person and any officers, directors, partners, shareholders,
employees and Affiliates of such Covered Person (and any former officer,
director, member, shareholder or employee of such Covered Person, if the loss,
damage or claim was incurred while such person was an officer, director, member,
shareholder or employee of such Covered Person). The Manager Member may extend
the indemnification called for by Section 10.4 to non-employee agents of the
LLC, the Manager Member or its Affiliates.
ARTICLE XI - MISCELLANEOUS.
Section 11.1 Notices. All notices, requests, elections, consents or
demands permitted or required to be made under this Agreement ("Notices") shall
be in writing, signed by the Person or Persons giving such notice, request,
election, consent or demand and shall be delivered personally or
65
<PAGE>
by confirmed facsimile, or sent by registered or certified mail, or by
commercial courier to the other Members, at their addresses set forth on the
signature pages hereof or on Schedule A hereto, or at such other addresses as
may be supplied by written notice given in conformity with the terms of this
Section 11.1. All Notices to the LLC shall be made to the Manager Member at the
address set forth on the signature pages hereof or on Schedule A hereto, with a
copy (which shall not constitute notice) to the President of the LLC at the
principal offices of the LLC. The date of any such personal or facsimile
delivery or the date of delivery by an overnight courier or the date five (5)
days after the date of mailing by registered or certified mail, as the case may
be, shall be the date of such notice.
Section 11.2 Successors and Assigns. Subject to the restrictions on
transfer set forth herein, this Agreement shall be binding upon and shall inure
to the benefit of the Members, their respective successors, successors-in-title,
heirs and assigns, and each and every successors-in-interest to any Member,
whether such successor acquires such interest by way of gift, purchase,
foreclosure or by any other method, and each shall hold such interest subject to
all of the terms and provisions of this Agreement.
Section 11.3 Amendments. No amendments may be made to this Agreement
without the prior written consent of (i) the Manager Member and (ii) a vote of
the Non-Manager Members owning of record two-thirds of the outstanding LLC
Points then held by all Non-Manager Members, and, with respect to Sections 3.9,
and 3.11 and Article VII and Article XI hereof, AMG; provided, however, that,
without the vote, consent or approval of any other Member, the Manager Member
shall make such amendments and additions to Schedule A hereto as are required by
the provisions hereof; and, provided further, that the Manager Member may amend
this Agreement to correct any printing, stenographic or clerical errors or
omissions.
Section 11.4 No Partition. No Member nor any successor-in-interest to
any Member, shall have the right while this Agreement remains in effect to have
the property of the LLC partitioned, or to file a complaint or institute any
proceeding at law or in equity to have the property of the LLC partitioned, and
each Member, on behalf of himself, his successors, representatives, heirs and
assigns, hereby waives any such right. It is the intent of the Members that
during the term of this Agreement, the rights of the Members and the Employee
Stockholders and their successors-in-interest, as among themselves, shall be
governed by the terms of this Agreement, and that the right of any Member or
successors-in-interest to assign, transfer, sell or otherwise dispose of his
interest in the LLC shall be subject to the limitations and restrictions of this
Agreement.
Section 11.5 No Waiver; Cumulative Remedies. The failure of any Member
to insist upon strict performance of a covenant hereunder or of any obligation
hereunder, irrespective of the length of time for which such failure continues,
shall not be a waiver of such Member's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder, shall constitute a
consent or waiver to or of any other breach or default in the performance of the
same or any other obligation hereunder. The rights and remedies provided by
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive its right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance or otherwise.
66
<PAGE>
Section 11.6 Dispute Resolution. The parties agree that any and all
disputes, claims, or controversies arising out of or relating to this Agreement,
the Employment Agreements, the Non Solicitation Agreements, the Incentive
Program or any Promissory Note for Repurchase shall be resolved by binding
arbitration in accordance with the applicable rules of the American Arbitration
Association. The arbitration shall be held in 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 11.6 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 attorneys' fees, incurred by the other party in enforcing the award.
The parties may proceed to any court to obtain relief that is solely equitable
in nature and for which no adequate remedy is available at law or to enforce
arbitration decisions rendered in accordance with procedures set forth in this
Section 11.6.
Section 11.7 Prior Agreements Superseded. This Agreement and the
schedules and exhibits hereto supersede the prior understandings and agreements
among the parties with respect to the subject matter hereof and thereof.
Section 11.8 Captions. Titles or captions of Articles or Sections
contained in this Agreement are inserted as a matter of convenience and for
reference, and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision hereof.
Section 11.9 Counterparts. This Agreement may be executed in a number of
counterparts, all of which together shall for all purposes constitute one
Agreement, binding on all the Members notwithstanding that all Members have not
signed the same counterpart.
Section 11.10 Applicable Law; Jurisdiction. This Agreement and the rights
and obligations of the parties hereunder shall be governed by and interpreted,
construed and enforced in accordance with the laws of the State of Delaware,
without applying the choice of law or conflicts of law provisions thereof. Each
of the parties hereby consents to personal jurisdiction, service of process and
venue in the federal or state courts sitting in The Commonwealth of
Massachusetts for any claim, suit or proceeding arising under this Agreement to
enforce any arbitration award or obtain equitable relief and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined in such state court or, to the extent permitted by law, in such
federal court. 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 11.1 hereof. the
parties agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions.
67
<PAGE>
Section 11.11 Interpretation. All terms herein using the singular shall
include the plural; all terms using the plural shall include the singular; in
each case, the term shall be as appropriate to the context of each sentence.
Throughout this Agreement, nouns, pronouns and verbs shall be construed as
masculine, feminine and neuter, whichever shall be applicable.
Section 11.12 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 11.13 Creditors. None of the provisions of this Agreement shall
be for the benefit of or enforceable by any creditor of (i) any Member, (ii) any
Employee Stockholder or (iii) the LLC, other than a Member who is also a
creditor of the LLC.
[INTENTIONALLY LEFT BLANK]
68
<PAGE>
IN WITNESS WHEREOF the Initial Non-Manager Members and the Manager Member
have executed and delivered this Amended and Restated Limited Liability Company
Agreement as of the day and year first above written.
MANAGER MEMBER
Name and Signature Address
ESSEX INVESTMENT c/o Affiliated Managers Group, Inc.
MANAGEMENT COMPANY, INC. Two International Place
23rd Floor
Boston, MA 02110
By:/s/ Nathaniel Dalton
----------------------------------
Name: Nathaniel Dalton
Title:
NON-MANAGER MEMBERS
Name and Signature Address
/s/ Joseph C. McNay
- ---------------------------------
Joseph C. McNay c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Stephen D. Cutler
- ---------------------------------
Stephen D. Cutler c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Stephen R. Clark
- ---------------------------------
Stephen R. Clark c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Roy L. Beane
- ---------------------------------
Roy L. Beane c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ R. Daniel Beckham
- ---------------------------------
R. Daniel Beckham c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
<PAGE>
/s/ Pamela S. Cutrell
- ---------------------------------
Pamela S. Cutrell c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Donald V. Dougherty
- ---------------------------------
Donald V. Dougherty c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Malcolm MacColl
- ---------------------------------
Malcolm MacColl c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Christopher P. McConnell
- ---------------------------------
Christopher P. McConnell c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ David J. McDonald
- ---------------------------------
David J. McDonald c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Colin S. McNay
- ---------------------------------
Colin S. McNay c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Hamilton Mehlman
- ---------------------------------
Hamilton Mehlman c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Kimberly A. Molino
- ---------------------------------
Kimberly A. Molino c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Ryen G. Munro
- ---------------------------------
Ryen G. Munro c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ A. Davis Noble
- ---------------------------------
A.Davis Noble c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
/s/ Susan P. Stickells
- ---------------------------------
Susan P. Stickells c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
<PAGE>
ACKNOWLEDGMENT
The undersigned is executing this Agreement solely to acknowledge and agree
to be bound by the provisions of Section 3.11, Article VII and the relevant
provisions of Article XI hereof.
AFFILIATED MANAGERS GROUP, INC.
Two International Place
23rd Floor
Boston, MA 02110
By: Nathaniel Dalton
--------------------------------
Name: Nathaniel Dalton
Title: Senior Vice President
<PAGE>
SCHEDULE A
Member LLC Points Capital Contribution
Essex Investment
Management Company, Inc. 680 $100,816,673.00
Joseph C. McNay 70 7.00
Stephen D. Cutler 20 2.00
Stephen R. Clark 20 2.00
Roy L. Beane 13 1.30
R. Daniel Beckham 16 1.60
Pamela S. Cutrell 13 1.30
Donald V. Dougherty 13 1.30
Malcolm MacColl 13 1.30
Christopher P. McConnell 16 1.60
David J. McDonald 13 1.30
Colin S. McNay 26 2.60
Hamilton Mehlman 13 1.30
Kimberly A. Molino 13 1.30
Ryen G. Munro 13 1.30
A.Davis Noble 13 1.30
Susan P. Stickells 13 1.30
Unvested 22 2.20
TOTAL 1000 $100,848,673.00
Addresses
Essex Investment Management Company, Inc.
c/o Affiliated Managers Group, Inc.
Two International Place, 23rd Floor
Boston, MA 02110
Each of the above individuals can be contacted at:
c/o Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
<PAGE>
EXHIBIT 10.16
FORM OF ESSEX
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (hereafter the "Employment Agreement") made as of
____________________, 1998 (the "Closing Date"), by and among Essex Investment
Management Company, Inc., a Massachusetts corporation (the "Company"), Essex
Investment Management Company, LLC, a Delaware limited liability company (the
"Employer"), and _________________________, a resident of
_________________________ (the "Employee").
W I T N E S S E T H
WHEREAS, pursuant to an Agreement and Plan of Reorganization dated as of
January 15, 1998 (the "Purchase Agreement") by and among Affiliated Managers
Group, Inc., a Delaware corporation ("AMG"), the Employer, the Employee and
certain other parties as set forth therein, at the Closing (as defined in the
Purchase Agreement), a newly organized subsidiary of AMG will be merged (the
"Merger") with and into the Company, which will become a wholly-owned subsidiary
of AMG and will continue as the Managing Member of the Employer.
WHEREAS, the Company transferred its assets and liabilities to the
Employer, which will continue the investment advisory businesses of the Company
(including acting as an investment adviser to the clients which were clients of
the Company).
WHEREAS, the Employee is a stockholder of the Company and will receive
substantial economic and other benefits if the transactions contemplated by the
Purchase Agreement are consummated.
WHEREAS, on the Closing Date, and in consideration for the Employee
entering into this Employment Agreement, the Employee is being admitted as a
member of the Employer. Reference is hereby made to that certain Amended and
Restated Limited Liability Company Agreement dated as of the Closing Date, as
the same may be amended and/or restated from time to time (the "LLC Agreement").
WHEREAS, it is a condition precedent to the obligation of AMG to consummate
the transactions contemplated by the Purchase Agreement that the Employee enter
into and on the Closing Date (as defined in the Purchase Agreement) be bound by
an employment agreement with the Employer in the form hereof, supplanting any
previous employment agreement or arrangement that Employee may have had with the
Employer or the Company. It is further a condition precedent to the obligation
of AMG to consummate the transactions contemplated by the Purchase Agreement
that the Company be an intended third-party beneficiary of this Employment
Agreement and be entitled to enforce all the provisions hereof as against each
of the Employer and the Employee.
<PAGE>
WHEREAS, it is a condition precedent to the Employee being admitted to the
Employer as a member, that the Employee enter into and on the Closing Date be
bound by an employment agreement with the Employer in the form hereof.
WHEREAS, the Company and the Employer recognize the importance of the
Employee to the Employer and to the Employer's ability to retain the client
relationships transferred to the Employer under the Purchase Agreement and the
Asset Transfer Agreement (as such term is defined in the Purchase Agreement),
and desire that the Employer employ the Employee for the period of employment
and upon and subject to the terms herein provided.
WHEREAS, the Company and the Employer wish to be assured that the Employee
will not compete with the Employer and its Controlled Affiliates during the
period of employment, and will not for a period thereafter compete with the
Employer or its Controlled Affiliates, or solicit any Past, Present, or
Potential Clients (as hereinafter defined) of the Company or the Employer and
will not, by such competition or solicitation, damage the Employer's goodwill
among its clients and the general public.
WHEREAS, the Employee desires to be employed by the Employer and to refrain
from competing with the Employer or soliciting its clients and the clients of
the Company for the periods and upon and subject to the terms herein provided.
WHEREAS, the Employee has been employed by the Company for approximately
years, has while so employed contributed to
the acquisition and retention of the Company's clients, and will continue to
seek to acquire and retain clients and to generate goodwill in the future as an
officer, employee and agent of the Employer.
Capitalized terms used herein and not otherwise defined shall have the
meaning set forth in the LLC Agreement when used in this Employment Agreement.
AGREEMENTS
In consideration of the premises, the mutual covenants and the agreements
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
Section 1. Term of Employment; Compensation. The Employer agrees to
employ the Employee for a period of ten (10) years beginning on the Closing Date
(the "Term") as an officer of the Employer except as provided herein; and the
Employee hereby accepts such employment. As consideration for the Employee's
performance hereunder, the Employer will pay the Employee for his services
during the Term hereof such amounts (which may be zero (0)) as shall be
determined by the Management Committee consistent with the provision of Article
III of the LLC Agreement (including, by way of example and not of limitation,
the provisions of Section
2
<PAGE>
3.5(a) of the LLC Agreement with regard to the use of Operating Cash Flow),
subject to such payroll and withholding deductions as are required by law.
Consistent with the provisions of Section 3.5(a) of the LLC Agreement, the
Employee's compensation (including salary and bonus) will be periodically
reviewed and adjusted (with respect to both increases and/or decreases).
Section 2. Office and Duties.
(a) During the Term of this Employment Agreement, the Employee
shall hold such positions and perform such duties relating to the Employer's
businesses and operations as may from time to time be assigned to him in
accordance with the provisions of Article III of the LLC Agreement. During
the Term of this Employment Agreement and while employed by the Employer, the
Employee shall devote substantially all of his working time to his duties
hereunder and shall, to the best of his ability, perform such duties in a
manner which will further the business and interests of the Employer. If the
Company (as a third party beneficiary of this Agreement) reasonably believes
that the Employee has breached the foregoing obligation, it shall provide
written notice of such breach to the Employer and within three (3) business
days of such notice, the Management Committee (excluding the Person whose
termination is being considered) of the Employer shall determine whether it
concurs in the determination that the Employee has breached such provision.
If the Management Committee disagrees with the Company, then the Management
Committee shall provide written notice of such disagreement to the Company
within three (3) business days of its determination and, if the Company so
notifies the Employer within three (3) business days after notice of such
agreement, then such issue shall be finally determined by binding arbitration
in accordance with the provisions of Section 11 of this Agreement, provided,
that such arbitration shall take place no later than fourteen (14) days
following the receipt by the Management Committee of written notice from the
Company that the Company desires to submit such issue to arbitration, and a
final decision with respect to such issue shall be issued within five (5)
business days after such arbitration. During the longer of the Term of this
Employment Agreement or while Employee is employed by or acting as a
consultant (or in any similar capacity) to the Employer or any of its
Affiliates, the Employee shall not engage (i) in any Prohibited Competition
Activity; (ii) interfere with the relations of the Employer or any of its
Controlled Affiliates with any person or entity who at any time during such
period was a Client (which means Past, Present, and Potential Clients, as
defined below); or (iii) solicit or induce or attempt to solicit or induce,
directly or indirectly, any employee or agent of or consultant (or person
acting in any similar capacity) to the Employer to terminate its, his or her
relationship therewith. The Employee agrees that he will travel to whatever
extent is reasonably necessary in the conduct of the Employer's business.
(b) At any time after the
anniversary of the date hereof, the Employee may elect, with the
written consent of the Management Committee in its sole discretion, to reduce
(but not to zero) the amount of time devoted to his duties hereunder, including
without limitation reduction of travel time.
(c) Except as provided in the LLC Agreement, during the Term of this
Agreement and while employed by the Employer, the Employee shall not, directly
or indirectly,
3
<PAGE>
solicit the business of any Past, Present, or Potential Clients except on behalf
and for the benefit of the Employer, or pursue any other business activity,
including, without limitation, serving as an officer, director, employee, agent
or adviser to any business entity other than the Employer, without the
Employer's prior written consent.
(d) Notwithstanding the provisions of this Section 2, the Employee
may engage in investing for his personal account if each such investment is made
in accordance with the Code of Ethics of the LLC.
(e) The terms "Client" or "Client List" when used herein shall
include all Past, Present, and Potential Clients, subject to the following
general rules: (i) with respect to each such Client, the term shall also
include any persons or entities which are known to the Employee to be Affiliates
of such Client or persons who are members of the Immediate Family of such Client
or any of its Affiliates; and (ii) with respect to so-called "wrap programs,"
both the sponsor of the program and the underlying participants in the program
(or clients who have selected the Company or a Controlled Affiliate under their
contract with the sponsor) shall be included as Clients. Past, Present and
Potential Clients shall be defined as follows:
"Past Client" shall mean at any particular time, any Person who at any
point prior to such time had been an advisee or investment advisory customer of,
or recipient of Investment Management Services from, the Employer (including,
without limitation, its predecessors, including the Corporation) but at such
time is not an advisee, investment advisory customer of, or recipient of
Investment Management Services from, the Employer.
"Present Client" shall mean, at any particular time, any Person who is at
such time an advisee or investment advisory customer of, or recipient of
Investment Management Services from, the Employer or any of its Controlled
Affiliates.
"Potential Client" shall mean, at any particular time, any Person to whom
the Employer (including, without limitation, its predecessors, including the
Company) or any of its Controlled Affiliates, through any of their officers,
employees, agents or consultants (or persons acting in any similar capacity),
has, within five years prior to such time, offered (by means of a personal
meeting or a written proposal specifically directed to the particular Person) to
serve as investment adviser or otherwise provide Investment Management Services
but who is not at such time an advisee or investment advisory customer of, or
recipient of Investment Management Services from, the Employer or any of its
Controlled Affiliates. The preceding sentence is meant to exclude form letters,
blanket mailings, cold calls and initial marketing efforts that do not result in
a request by the recipient for further information or a presentation.
Section 3. Benefits. The Employee shall participate, to the extent he
is eligible and in a manner and to an extent that is fair and appropriate in
light of his position and duties with the Employer at such time, in all bonus,
pension, profit-sharing, group insurance, or other fringe benefit plans which
the Employer may hereafter in its sole and absolute discretion make available
generally to its officers pursuant to the provisions of Article III of the LLC
Agreement, but the
4
<PAGE>
Employer will not be required to establish any such program or plan. The
Employee shall be entitled to such vacations and to such reimbursement of
expenses as the Employer's policies allow, from time to time, to officers having
comparable responsibilities and duties.
Section 4. Termination of Employment. Notwithstanding any other
provision of this Employment Agreement, Employee's employment with the Employer
shall be terminated only in the following circumstances:
(i) At any time by the Company, or by the Employer with the
prior written consent of the Company, For Cause;
(ii) At any time by the Company, or by the Employer with the
prior written consent of the Company upon the Permanent Incapacity of the
Employee; or
(iii) Upon the death of the Employee;
[(iv) At any time by the Employer in accordance with the
provisions of the LLC Agreement.]
Section 5. All Business to be the Property of the Employer; Assignment
of Intellectual Property; Confidentiality.
(a) The Employee agrees that any and all presently existing
investment advisory businesses of the Employer and its Controlled Affiliates
(including its predecessor, the Company), and all businesses developed by the
Employer and its Controlled Affiliates, including by such Employee or any other
employee or agent of the Employer (including, without limitation, employees and
agents of its predecessor, the Company), including, without limitation, all
investment methodologies, all investment advisory contracts, fees and fee
schedules, commissions, records, data, client lists, agreements, trade secrets,
and any other incident of any business developed by the Employer (or its
predecessor, the Company) or its Controlled Affiliates or earned or carried on
by the Employee Stockholder for the Employer or its predecessor, the Company or
their respective Controlled Affiliates, and all trade names, service marks and
logos under which the Employer or its Controlled Affiliates do business, and any
combinations or variations thereof and all related logos, are and shall be the
exclusive property of the Employer or such Controlled Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
the Employer or such Controlled Affiliate. In addition, the Employee
acknowledges and agrees that the investment performance of the accounts managed
by the Employer (and its predecessor, the Company) was attributable to the
efforts of the team of professionals at the Employer (or its predecessor, the
Company, as applicable) and not to the efforts of any single individual, and
that therefore, the performance records of the accounts managed by the Employer
(and its predecessor, the Company) are and shall be the exclusive property of
the Employer.
5
<PAGE>
(b) The Employee acknowledges that, in the course of performing
services hereunder and otherwise (including, without limitation, for the
Employer's predecessor, the Company), the Employee Stockholder has had, and will
from time to time have, access to information of a confidential or proprietary
nature, including without limitation, all confidential or proprietary investment
methodologies, trade secrets, proprietary or confidential plans, client
identities and information, client lists, service providers, business operations
or techniques, records and data ("Intellectual Property") owned or used in the
course of business by the Employer or its Controlled Affiliates. The Employee
agrees always to keep secret and not ever publish, divulge, furnish, use or make
accessible to anyone (otherwise than in the regular business of the Employer)
any Intellectual Property of the Employer or any Controlled Affiliate thereof
unless such information can be shown to be (i) previously known on a
nonconfidential basis by such Employee, (ii) in the public domain through no
fault of such Employee or (iii) lawfully acquired by such Employee from other
sources. At the termination of the Employee's services to the Employer, all
data, memoranda, client lists, notes, programs and other papers, items and
tangible media, and reproductions thereof relating to the foregoing matters in
the Employee's possession or control shall be returned to the Employer and
remain in its possession (except where the return of such items shall be
unreasonable or impractical in relation to the importance or confidentiality of
such items).
(c) The Employee acknowledges that, in the course of entering into
this Employment Agreement, the Employee has had and, in the course of the
operation of the Employer, the Employee will from time to time have, access to
Intellectual Property owned by or used in the course of business by AMG or the
Company. The Employee agrees, for the benefit of AMG and the Company, always to
keep secret and not ever publish, divulge, furnish, use or make accessible to
anyone (other than at AMG's or the Company's request) any knowledge or
information regarding Intellectual Property (including, by way of example and
not of limitation, the transaction structures utilized by AMG or the Company) of
AMG or the Company unless such information can be shown to be (i) previously
known on a nonconfidential basis by such Employee, (ii) in the public domain
through no fault of such Employee or (iii) lawfully acquired by such Employee
from other sources. At the termination of the Employee Stockholder's service to
the Employer, all data, memoranda, documents, notes and other papers, items and
tangible media, and reproductions thereof relating to the foregoing matters in
the Employee's possession or control shall be returned to the Company and remain
in its possession.
(d) The provisions of this Section 5 shall not be deemed to limit any
of the rights of the Employer or the Company under the LLC Agreement or under
applicable law, but shall be in addition to the rights set forth in the LLC
Agreement and those which arise under applicable law.
Section 6. Non-Competition Covenant.
(a) Until the later of (i) three (3) years following the termination
of the Employee's employment with the Employer or any of its Affiliates, or (ii)
(A) in the event the Employee's employment is terminated by the LLC other than
For Cause or a Unanimous
6
<PAGE>
Termination Decision, five (5) years from the date hereof, or (B) in the event
the Employee's employment terminates for any other reason, ten (10) years from
the date hereof, the Employee shall not, directly or indirectly, engage in any
Prohibited Competition Activity.
(b) In addition to, and not in limitation of, the provisions of
Section 6(a), the Employee agrees, for the benefit of the Employer and the
Company, that from and after the termination of his employment with the Employer
and until the later of (i) three (3) years following the termination of the
Employee's employment with the Employer or any of its Affiliates, or (ii) A) in
the event the Employee's employment is terminated by the LLC other than For
Cause or a Unanimous Termination Decision, five (5) years from the date hereof,
or (B) in the event the Employee's employment terminates for any other reason,
ten (10) years from the date hereof, the Employee shall not, directly or
indirectly, whether as owner, part-owner, shareholder, partner, member,
director, officer, trustee, employee, agent or consultant, or in any other
capacity, on behalf of himself or any Person other than the Employer:
(i) provide Investment Management Services to any Person that is
a Past, Present or Potential Client of the Employer; provided, however, that
this clause (i) shall not be applicable to clients of the Employer (including
Potential Clients) who are also members of the Immediate Family of the Employee;
(ii) solicit or induce, whether directly or indirectly, any
Person for the purpose (which need not be the sole or primary purpose) of (A)
causing any funds with respect to which the Employer provides Investment
Management Services to be withdrawn from such management, or (B) causing any
Client of the Employer (including any Potential Client) not to engage the
Employer or any of its Affiliates to provide Investment Management Services for
any or additional funds;
(iii) contact or communicate with, in either case in
connection with Investment Management Services, whether directly or indirectly,
any Past, Present or Potential Clients of the Employer; provided, however, that
this clause (iii) shall not be applicable to clients of the Employer (including
Potential Clients) who are also members of the Immediate Family of the Employee;
or
(iv) solicit or induce, or attempt to solicit or induce, directly
or indirectly, any employee or agent of, or consultant to, the Employer or any
of its Controlled
7
<PAGE>
Affiliates to terminate its, his or her relationship therewith, hire any such
employee, agent or consultant, or former employee, agent or consultant, or work
in any enterprise involving investment advisory services with any employee,
agent or consultant or former employee, agent or consultant, of the Employer or
its Controlled Affiliates who was employed by or acted as an agent or consultant
to the Employer (or its predecessor, the Company) or its Controlled Affiliates
at any time during the two (2) year period preceding the termination of the
Employee Stockholder's employment (excluding for all purposes of this sentence,
secretaries and persons holding other similar positions).
Notwithstanding the provisions of Sections 6(a) and 6(b), the Employee may make
passive investments in a competitive enterprise the shares or other equity
interests of which are publicly traded, provided his holding therein together
with any holdings of his Affiliates and members of his Immediate Family, less
than five percent (5%) of the outstanding shares of comparable interests in such
entity at the time such investments are made.
(c) The Employee, the Employer and the Company agree that the periods
of time and the unlimited geographic area applicable to the covenants of this
Section 6 and of Section 2 are reasonable, in view of the Employee's status as
significant stockholder of the Company and his receipt of his share of the
Merger Consideration in the Purchase Agreement, and which will contribute its
investment advisory business to the Employer, the Employee's receipt of a member
interest in the Employer, the Employee's receipt of the payments specified in
Section 1 above, the geographic scope and nature of the business in which the
Employer is engaged, the Employee's knowledge of the Employer's (and its
predecessor, the Company's) businesses and the Employee's relationships with the
Employer's and the Company's investment advisory clients. However, if such
period or such area should be adjudged unreasonable in any judicial proceeding,
then the period of time shall be reduced by such number of months or such area
shall be reduced by elimination of such portion of such area, or both, as are
deemed unreasonable, so that this covenant may be enforced in such maximum area
and during such maximum period of time as are adjudged to be reasonable.
Section 7. Notices. All notices hereunder shall be in writing and
shall be delivered, sent by recognized overnight courier or mailed by registered
or certified mail, postage and fees prepaid, to the party to be notified at the
party's address shown below. Notices which are hand delivered or delivered by
recognized overnight courier shall be effective on delivery. Notices which are
mailed shall be effective on the third day after mailing.
(i) If to the Employer:
Essex Investment Management Company, LLC
125 High Street
Boston, MA 02110
Attention: Christopher P. McConnell
Facsimile No: (617) 342-3392
8
<PAGE>
with a copy to:
Affiliated Managers Group, Inc.
Two International Place, 23rd Floor
Boston, MA 02110
Attention: Nathaniel Dalton, Senior Vice President
Facsimile No.: (617) 747-3380
(ii) if to the Employee:
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower,
1717 Arch Street
Philadelphia, PA 19103-2793
Attention: Christopher G. Karras
Facsimile No.: (215) 994-2222
(iii) if to the Company:
c/o Affiliated Managers Group, Inc.
Two International Place, 23rd Floor
Boston, MA 02110
Attention: Nathaniel Dalton, Senior Vice President
Facsimile No.: (617) 747-3380
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02110
Attention: Elizabeth Shea Fries
Facsimile No.: (617) 523-1231
unless and until notice of another or different address shall be given as
provided herein.
Section 8. Third Party Beneficiary; Assignability. Each of AMG and the
Company is an intended third party beneficiary of the provisions of this
Employment Agreement. This Employment Agreement shall be binding upon and inure
to the benefit of the Employer, AMG and the Company, and to any person or firm
who may succeed to substantially all of the assets of the Employer, AMG or the
Company. This Employment Agreement shall not be assignable by the Employee.
9
<PAGE>
Section 9. Entire Agreement. Except as set forth in the following
below, this Employment Agreement contains the entire agreement between the
Employer and the Employee with respect to the subject matter hereof, and
supersedes all prior oral and written agreements between the Employer and the
Employee with respect to the subject matter hereof, including without limitation
any oral agreements relating to compensation. In the event of any conflict
between the provisions hereof and of the LLC Agreement, the provisions hereof
shall control.
Section 10. Remedies Upon Breach.
(a) In the event that the Employee breaches any of the provisions of
this Agreement (including, without limitation, following the termination of
his/her employment with the Employer), then AMG (or its assignees) shall have no
further obligations under any promissory note theretofore issued to the Employee
pursuant to Section 3.11(f) of the LLC Agreement.
(b) The Employee recognizes and agrees that the Employer or the
Company's remedy at law for any breach of the provisions of Sections 2, 4, 5, or
6 hereof would be inadequate and that for any breach of such provisions by the
Employee, the Employer or the Company shall, in addition to such other remedies
as may be available to it at law or in equity or as provided in this Employment
Agreement, be entitled to injunctive relief and to enforce their respective
rights by an action for specific performance to the extent permitted by law, and
to the right of set-off against any amounts due to the Employee by the Employer
or the Company. Should the Employee engage in any activities prohibited by this
Employment Agreement, he agrees to pay over to the Employer all compensation
received in connection with such activities. Such payment shall not impair any
other rights or remedies of the Employer or the Company or affect the
obligations or liabilities of the Employee under this Employment Agreement or
applicable law.
Section 11. Arbitration of Disputes. The parties agree that any and all
disputes, claims, or controversies arising out of or relating to this Agreement
or the breach hereof or otherwise arising out of the Employee's employment or
the termination of that employment (including, without limitation, any claims of
unlawful employment discrimination whether based on age or otherwise) shall, to
the fullest extent permitted by law, be settled by arbitration in any forum and
form agreed upon by the parties or, in the absence of such an agreement, under
the auspices of the American Arbitration Association ("AAA") in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules of the
AAA, including, but not limited to, the rules and procedures applicable to the
arbitrators, except that the selection of arbitrator shall apply the law as
established by decisions of the U.S. Supreme Court, the Court of Appeals for the
First Circuit and the U.S. District Court for the District of Massachusetts in
deciding the merits of claims and defenses under federal law or any state or
federal anti-discrimination law, and any awards to the Employee for violation of
any anti-discrimination law shall not exceed the maximum award to which the
Employee would be entitled under the applicable (or most analogous) federal
anti-discrimination civil rights laws. In the event that any person or entity
other than the Employee, the Employer of the Surviving Corporation may be a
party with regard to any such controversy
10
<PAGE>
or claim, such controversy or claim shall be submitted to arbitration subject to
such other person or entity's agreement. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. 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 11 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.
Section 12. Accelerated Put Rights.
(a) Notwithstanding any provisions contained in the LLC Agreement to
the contrary (including Article III and Article VII thereof) upon any exercise
by the Company of any of its rights under Section 3.2(b)(v) (a "Put Acceleration
Event"), then AMG or its successors or assigns shall, upon the request of the
Employee, purchase all of the LLC Points then held by the Employee in the LLC
pursuant to the terms and conditions of this Section 12 (an "Accelerated Put").
(b) If Employee desires to exercise its rights under Section (a)
above, it shall give the Company and AMG irrevocable written notice (a "Put
Notice") within ninety (90) days after the Put Acceleration Event, stating that
it is electing to sell all (but not less than all) of its LLC Points then owned
by the Non-Manager Member.
(c) The purchase price for an Accelerated Put ("Accelerated Put
Price") shall be an amount equal to (i) sixteen (16) times the positive
difference, if any, of (x) the sum of (I) fifty percent (50%) of the LLC's
Maintenance Fees for the twenty-four (24) months ending on the last day of
the calendar quarter in which the Put Acceleration Event occurred and (II)
thirty-three and thirty-three one-hundredths percent (33.33%) of the LLC's
Earned Performance Fees for the thirty-six (36) calendar months ending on the
last day of the calendar year prior to the calendar year in which the
Accelerated Put Event occurred, minus (y) the amount by which the actual
expenses of the LLC exceeded the Operating Cash Flow (including previously
reserved Operating Cash Flow) during the twelve (12) months ending on the
last day of the calendar quarter prior to the date of closing of such
Accelerated Put (in each case determined by reference to the most recent
financial statements with respect to the applicable period supplied to the
Company pursuant to Section 9.3 of the LLC Agreement) multiplied by (ii) a
fraction, the numerator of which is the number of Vested LLC Points to be
purchased from such Employee on the Purchase Date and the denominator of
which is the number of LLC Points outstanding on the Purchase Date before
giving effect to any puts, calls or any issuances or redemptions of LLC
Points on such date or in connection with an Accelerated Put.
11
<PAGE>
(d) In the case of any Accelerated Put, the Put Price shall be paid
by AMG (or its successors and assigns) on a date determined by AMG (but no later
than sixty (60) days following delivery of the Put Notice) by wire transfer or
certified check issued to the Employee.
Section 13. Consent to Jurisdiction. To the extent that any court
action is permitted consistent with or to enforce Section 10 of this Employment
Agreement, the parties hereby consent to the jurisdiction of the Superior Court
of the Commonwealth of Massachusetts and the United States District Court for
the District of Massachusetts. Accordingly, with respect to any such court
action, the Employee (a) submits to the personal jurisdiction of such courts;
(b) consents to service of process at the address determined pursuant to the
provisions of Section 7 hereof; and (c) waives any other requirement (whether
imposed by statute, rule of court, or otherwise) with respect to personal
jurisdiction or service of process.
Section 14. Third-Party Agreements and Rights. The Employee hereby
confirms that the Employee is not bound by the terms of any agreement with any
previous employer or other party which restricts in any way the Employee's use
or disclosure of information or the Employee's engagement in any business. The
Employee represents to the Employer that the Employee's execution of this
Employment Agreement, the Employee's employment with the Employer and the
performance of the Employee's proposed duties for the Employer will not violate
any obligations the Employee may have to any such previous employer or other
party. In the Employee's work for the Employer, the Employee will not disclose
or make use of any information in violation of any agreements with or rights of
any such previous employer or other party, and the Employee will not bring to
the premises of the Employer any copies or other tangible embodiments of
non-public information belonging to or obtained from any such previous
employment or other party.
Section 15. Litigation and Regulatory Cooperation. During and after the
Employee's employment, the Employee shall cooperate fully with the Employer in
the defense or prosecution of any claims or actions now in existence or which
may be brought in the future against or on behalf of the Employer or the Company
or their Affiliates which relate to events or occurrences that transpired while
the Employee was employed by the Employer (including, without limitation, its
predecessor, the Company). The Employee's full cooperation in connection with
such claims or actions shall include, but not be limited to, being available to
meet with counsel to prepare for discovery or trial and to act as a witness on
behalf of the Employer or the Company or their Affiliates at mutually convenient
times. During and after the Employee's employment, the Employee also shall
cooperate fully with the Employer, the Company and their Affiliates in
connection with any investigation or review of any federal, state or local
regulatory authority (including, without limitation, the Securities and Exchange
Commission) as any such investigation or review relates to events or occurrences
that transpired while the Employee was employed by the Employer (including,
without limitation, its predecessor, the Company). The Employer shall reimburse
the Employee for any reasonable out-of-pocket expenses incurred in connection
with the Employee's performance of obligations pursuant to this Section 14.
12
<PAGE>
Section 16. Waivers and Further Agreements. Neither this Employment
Agreement nor any term or condition hereof, including without limitation the
terms and conditions of this Section 15, may be waived or modified in whole or
in part as against the Company, the Employer or the Employee, except by written
instrument executed by or on behalf of each of the parties hereto other than the
party seeking such waiver or modification, expressly stating that it is intended
to operate as a waiver or modification of this Employment Agreement or the
applicable term or condition hereof, it being understood that any action under
this Section 15 on behalf of the Employer may be taken only with the approval of
the Company as Manager Member. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Employment Agreement.
Section 17. Amendments; Employer's Consents. This Employment Agreement
may not be amended, nor shall any change, modification, consent, or discharge be
effected except by written instrument executed by or on behalf of the party
against whom enforcement of any change, modification, consent or discharge is
sought, it being understood that any action under this Section 16 on behalf of
the Employer may be taken only with the prior written approval of the Company as
the Manager Member of the Employer.
Whenever under this Agreement the consent of the Employer is required, that
consent shall only be effective if given with the prior written consent of the
Company as the Manager Member of the Employer.
Section 18. Severability. If any provision of this Employment Agreement
shall be held or deemed to be invalid, inoperative or unenforceable in any
jurisdiction or jurisdictions, because of conflicts with any constitution,
statute, rule or public policy or for any other reason, such circumstance shall
not have the effect of rendering the provision in question unenforceable in any
other jurisdiction or in any other case or circumstance or of rendering any
other provisions herein contained unenforceable to the extent that such other
provisions are not themselves actually in conflict with such constitution,
statute or rule of public policy, but this Employment Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative, or unenforceable provision had never been contained herein and such
provision reformed so that it would be enforceable to the maximum extent
permitted in such jurisdiction or in such case.
Section 19. Governing Law. This Employment Agreement shall be governed
by and construed and enforced in accordance with the laws of The Commonwealth of
Massachusetts which apply to contracts executed and performed solely in The
Commonwealth of Massachusetts.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
a sealed instrument as of the date first above written.
EMPLOYEE: ESSEX INVESTMENT MANAGEMENT
COMPANY, LLC
By: Essex Investment Management Company,
Inc., its Manager Member
_______________________ By: ___________________________
Name: Name:
Title:
AMG ACKNOWLEDGES AND AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF SECTION
12 HEREOF:
AFFILIATED MANAGERS GROUP, INC.
By___________________________________
Name:
Title:
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
(in alphabetical order)
WHOLLY OWNED SUBSIDIARIES OF THE REGISTRANT
AMG/TBC Holdings, Inc., a Delaware corporation
AMG Service Corp., a Delaware corporation
AMG Finance Trust, a Massachusetts business trust (through AMG Service Corp.)
The Burridge Group Inc., an Illinois corporation
Essex Investment Management Company, Inc., a Massachusetts corporation
First Quadrant Corp., a New Jersey corporation (through First Quadrant
Holdings, Inc.)
First Quadrant Holdings, Inc., a Delaware corporation
GeoCapital Corporation, a Delaware corporation
J M H Management Corporation, a Delaware corporation
Suite 3000 Holdings, Inc., a Delaware corporation
ENTITIES IN WHICH THE REGISTRANT HAS A MAJORITY INTEREST (DIRECT AND INDIRECT)
Essex Investment Management Company, LLC, a Delaware limited liability company
(through Essex Investment Management Company, Inc.)
First Quadrant, L.P., a Delaware limited partnership (through First
Quadrant Corp.)
First Quadrant U.K., L.P., a Delaware limited partnership (through First
Quadrant Corp.)
First Quadrant Limited, a U.K. corporation (through First Quadrant U.K., L.P.)
GeoCapital, LLC, a Delaware limited liability company (through GeoCapital
Corporation)
Gofen and Glossberg, L.L.C., a Delaware limited liability company
J.M. Hartwell Limited Partnership, a Delaware limited partnership
Renaissance Investment Management, a Delaware partnership
Skyline Asset Management, L.P., a Delaware limited partnership
Systematic Financial Management, L.P., a Delaware limited partnership
The Burridge Group LLC, a Delaware limited liability company (through
The Burridge Group Inc.)
Tweedy, Browne Company LLC, a Delaware limited liability company
ENTITIES IN WHICH THE REGISTRANT HAS A MINORITY INTEREST
Paradigm Asset Management Company, L.L.C., a Delaware limited
liability company
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCED SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,766
<SECURITIES> 0
<RECEIVABLES> 27,061
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,058
<PP&E> 12,167
<DEPRECIATION> 7,443
<TOTAL-ASSETS> 456,990
<CURRENT-LIABILITIES> 18,815
<BONDS> 159,500
0
0
<COMMON> 273,652
<OTHER-SE> (13,912)
<TOTAL-LIABILITY-AND-EQUITY> 456,990
<SALES> 0
<TOTAL-REVENUES> 95,287
<CGS> 0
<TOTAL-COSTS> 72,726
<OTHER-EXPENSES> 12,249<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,479
<INCOME-PRETAX> 3,007
<INCOME-TAX> 1,364
<INCOME-CONTINUING> 1,643
<DISCONTINUED> 0
<EXTRAORDINARY> (10,011)
<CHANGES> 0
<NET-INCOME> (8,368)
<EPS-PRIMARY> (3.69)
<EPS-DILUTED> (1.02)
<FN>
<F1>MINORITY INTEREST
</FN>
</TABLE>
