<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 001-13731
Friedman, Billings, Ramsey Group, Inc.
(Exact name of Registrant as specified in its charter)
Virginia 54-1837743
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Nineteenth Street North
Arlington, VA 22209
(Address of principal executive offices) (Zip code)
(703) 312-9500
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Title Outstanding
Class A Common Stock 12,803,888 shares as of October 29, 1999
Class B Common Stock 36,077,929 shares as of October 29, 1999
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page Number(s)
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements - (unaudited)
Consolidated Balance Sheets-
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations-
Three Months Ended September 30, 1999 and 1998 4
Nine Months Ended September 30, 1999 and 1998 5
Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-19
Item 3. Changes in Information About Market Risk 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
EXHIBIT INDEX 20
2
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 23,787 $ 46,827
Receivables:
Investment banking 3,032 3,075
Asset management fees 6,414 5,108
Income taxes 1,300 8,795
Affiliates 7,703 6,871
Other 1,701 967
Due from clearing broker 13,640 10,721
Marketable trading securities, at market value:
Corporate equities 15,574 8,709
Corporate bonds 3,181 4,441
Long-term investments 111,955 97,157
Deferred tax asset 2,402 2,402
Furniture, equipment, software and leasehold improvements,
net of accumulated depreciation and amortization of
$4,831 and $3,467, respectively 9,001 6,946
Prepaid expenses and other assets 2,422 3,097
-------- --------
Total assets $202,112 $205,116
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Trading account securities sold but not yet purchased, at market value:
Corporate equities $ 1,559 $ 2,527
Corporate bonds 9 365
Due to issuer 7,798 -
Accounts payable and accrued expenses 11,458 8,226
Accrued compensation and benefits 8,866 5,185
Long-term secured loans 1,500 1,911
-------- --------
Total liabilities 31,190 18,214
-------- --------
Commitments and contingencies (Note 9) - -
Shareholders' equity:
Preferred Stock, $0.01 par value, 15,000,000 shares authorized,
none issued and outstanding - -
Class A Common Stock, $0.01 par value, 150,000,000 shares
authorized, 13,935,071 and 13,716,571 issued, respectively 139 137
Class B Common Stock, $0.01 par value, 100,000,000 shares authorized,
36,093,929 and 36,312,429 issued and outstanding, respectively 361 363
Additional paid-in capital 208,180 208,525
Treasury stock, at cost, 1,147,183 and 910,037 shares, respectively (8,371) (7,081)
Accumulated other comprehensive loss (13,314) (16,136)
Retained earnings (deficit) (16,073) 1,094
-------- --------
Total shareholders' equity 170,922 186,902
-------- --------
Total liabilities and shareholders' equity $202,112 $205,116
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
-------------------
1999 1998
------- -------
<S> <C> <C>
Revenues:
Investment banking:
Underwriting $ 4,026 $ 4,040
Corporate finance 2,024 4,417
Institutional brokerage:
Principal sales credits 5,041 7,619
Agency commissions 3,372 3,862
Gains and losses, net:
Trading (320) (39,542)
Investment (10,557) (7,480)
Asset management 2,776 2,119
Interest and dividends 2,560 3,456
-------- --------
Total revenues 8,922 (21,509)
-------- --------
Expenses:
Compensation and benefits 16,318 10,870
Business development and professional services 9,662 10,238
Clearing and brokerage fees 1,098 1,603
Occupancy and equipment 1,738 1,284
Communications 1,246 834
Interest expense 159 1,553
Other operating expenses 1,762 2,838
-------- --------
Total expenses 31,983 29,220
-------- --------
Net income (loss) before taxes (23,061) (50,729)
Income tax provision (benefit) - (15,317)
-------- --------
Net income (loss) $(23,061) $(35,412)
======== ========
Basic and diluted earnings (loss) per share $(.47) $(.71)
======== ========
Weighted average shares outstanding 48,882 49,780
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
------- ------
<S> <C> <C>
Revenues:
Investment banking:
Underwriting $ 16,442 $ 68,063
Corporate finance 10,721 37,693
Institutional brokerage:
Principal sales credits 19,270 24,292
Agency commissions 9,940 11,906
Gains and losses, net:
Trading (1,684) (53,779)
Investment 1,567 (4,718)
Asset management 7,635 7,594
Interest and dividends 7,479 12,758
-------- --------
Total revenues 71,370 103,809
-------- --------
Expenses:
Compensation and benefits 52,665 68,112
Business development and professional services 18,164 25,303
Clearing and brokerage fees 3,307 4,596
Occupancy and equipment 4,722 2,947
Communications 3,083 2,537
Interest expense 1,160 4,680
Other operating expenses 5,436 8,034
-------- --------
Total expenses 88,537 116,209
-------- --------
Net income (loss) before taxes (17,167) (12,400)
Income tax provision (benefit) - -
-------- --------
Net income (loss) $(17,167) $(12,400)
======== ========
Basic and diluted earnings (loss) per share $ (.35) $ (.25)
======== ========
Weighted average shares outstanding 48,869 49,945
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------
1999 1998
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(17,167) $ (12,400)
Non-cash items included in earnings--
Net loss and incentive income on
long-term investments 144 2,570
Depreciation and amortization 1,780 971
Other (321) -
Changes in operating assets:
Receivables--
Investment banking 43 2,664
Asset management fees (1,028) (1,272)
Income taxes 7,495 (8,795)
Affiliates (469) (5,919)
Other 92 1,657
Due from clearing broker (2,919) 7,377
* Marketable trading securities 2,193 20,151
Prepaid expenses and other assets 675 (1,532)
Changes in operating liabilities:
Trading account securities sold but not
yet purchased (1,324) (13,255)
Net repayments on short-term subordinated loans - (40,000)
Accounts payable and accrued expenses 3,232 (19,594)
Accrued compensation and benefits 3,681 (7,976)
-------- ---------
Net cash used in operating activities (3,893) (75,353)
-------- ---------
Cash flows from investment activities:
Purchases of fixed assets (4,126) (4,332)
Purchases of investments, net (12,976) (37,252)
-------- ---------
Net cash used in investing activities (17,102) (41,584)
-------- ---------
Cash flows from financing activities:
Repayments of long-term secured loans (411) (379)
Purchases of treasury stock (1,634) (5,679)
Dividends - (24,000)
-------- ---------
Net cash used in financing activities (2,045) (30,058)
-------- ---------
Net decrease in cash and cash equivalents (23,040) (146,995)
Cash and cash equivalents, beginning of period 46,827 205,709
-------- ---------
Cash and cash equivalents, end of period $ 23,787 $ 58,714
======== =========
</TABLE>
* Non-cash transaction: On September 30, 1999, the Company signed an
underwriting agreement to underwrite $7,798 of marketable securities that
settled subsequent to September 30, 1999. The payable for the commitment has
been recorded in "Due to issuer" in the Company's balance sheet.
See notes to consolidated financial statements.
6
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated financial statements of Friedman, Billings, Ramsey Group,
Inc. and subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q. Therefore, they do not include all
information required by generally accepted accounting principles for complete
financial statements. The interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented. All significant intercompany accounts and transactions have been
eliminated in consolidation. The results of operations for interim periods are
not necessarily indicative of the results for the entire year. These financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1998 included on
Form 10-K filed by the Company under the Securities Exchange Act of 1934.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain amounts in the consolidated financial statements for prior periods
have been reclassified to conform to the current period presentation.
2. Summarized Income Statement Information:
The Company's investment in FBR Asset Investment Corporation ("FBR Asset") of
$23.8 million represents 21% of the Company's total long-term investments and
12% of the Company's total assets as of September 30, 1999. Effective September
29, 1999, FBR Asset's stock is publicly traded on the American Stock Exchange
under the symbol "FB". The following table summarizes FBR Asset's income
statement information for the periods presented (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Gross revenues $ 4,603 $ 6,756 $ 15,188 $ 12,408
Total expenses (2,198) (3,190) (6,996) (4,376)
-------- -------- --------- --------
Net income before investment gains 2,405 3,566 8,192 8,032
Investment gains 331 - 1,074 -
-------- -------- --------- --------
Net income $ 2,736 $ 3,566 $ 9,266 $ 8,032
======== ======== ========= ========
</TABLE>
3. Comprehensive Loss:
The components of comprehensive loss are (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss $(23,061) $(35,412) $(17,167) $(12,400)
Other comprehensive income (loss):
Net unrealized investment gains
(losses) on available-for-sale
securities and investment in FBR
Asset Investment Corporation 6,131 (14,888) 2,822 (14,888)
-------- -------- -------- --------
Comprehensive loss $(16,930) $(50,300) $(14,345) $(27,288)
======== ======== ========= ========
</TABLE>
7
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Available-for-Sale Investment Depreciation:
During the quarter ended September 30, 1999, the Company recognized in
earnings unrealized depreciation of $6.5 million related to one available-for-
sale investment. In accordance with Financial Accounting Standard No. 115 ("SFAS
No. 115"), unrealized depreciation related to available-for-sale investments
should be recognized in earnings when the depreciation is considered "other than
temporary." Due to the fact that the depreciation has reduced the Company's
shareholder's equity since September 1998, it was reclassified from "accumulated
other comprehensive loss" to "investment loss" in September 1999, in accordance
with SFAS No. 115. This adjustment did not impact the Company's total
shareholders' equity or book value.
5. Executive Officer Compensation:
During 1999, the Company's Executive Officer Directors are eligible for
bonuses under the 1997 Key Employee Incentive Plan (the "Plan") based on two
components. First, Executive Officer Directors are eligible to participate in a
bonus pool of up to 20% of the Company's pre-tax income (before payment of the
bonuses), adjusted for certain expense items that are excluded from pre-tax
income. The 20% pool is subject to a cap related to the ratio of compensation
expense (excluding certain items) to total revenues. Second, Executive Officer
Directors are eligible to participate in a bonus pool of $6.0 million.
Eligibility for the $6.0 million pool is based on a formula tied to the
performance of the Company's principal broker-dealer's trading operations
without reference to the overall profitability of the Company.
During the three and nine months ended September 30, 1999, the Company
recorded $0.3 million and $3.8 million of compensation expense, respectively,
related to the Plan. During the three months ended September 30, 1998, the
Company recorded a reduction of $7.6 million of compensation expense, related to
the 1997 Stock and Annual Incentive Plan. The Company did not reflect any
executive officer profit sharing compensation expense (the 20% pool) in the
Statement of Operations for the nine months ended September 30, 1999 and 1998
because the Company experienced net losses for these periods.
6. Income Taxes:
As of September 30, 1999, the Company had net operating losses ("NOL") for
tax purposes of approximately $39.2 million that expire through 2018. The
Company maintains a partial valuation allowance related to the NOL because,
based on the weight of available evidence, it is more likely than not that a
portion of the NOL may not be realized. As a result of recording the valuation
allowance, based on current evidence, the Company estimates that no income tax
provision will be recorded in the Statement of Operations until the Company
earns an additional $30.1 million in taxable net income.
7. Net Capital Requirements:
The Company's U.S. broker-dealer subsidiaries are subject to the Securities
and Exchange Commission's Uniform Net Capital Rule which requires the
maintenance of minimum net capital and requires the ratio of aggregate
indebtedness to net capital, both as defined, not to exceed 15 to 1. As of
September 30, 1999, the broker-dealer subsidiaries had aggregate net capital of
$14.0 million, which exceeded the requirement by $12.4 million.
8. Earnings (Loss) Per Share:
Basic earnings (loss) per share is computed by dividing net income available
to common shareholders by the weighted-average number of common shares
outstanding for the period. The diluted earnings per share calculation also
includes the impact of dilutive securities.
8
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Earnings (Loss) Per Share, continued:
Options to purchase 6,551,705 and 4,198,900 shares of common stock were
outstanding, as of September 30, 1999 and 1998, respectively, but were not
included in the computations of diluted earnings (loss) per share because their
effect would be anti-dilutive.
9. Commitments and Contingencies:
As of September 30, 1999, the Company is not a defendant or plaintiff in any
lawsuits or arbitrations that are expected to have a material adverse effect on
the Company's financial condition. The Company is a defendant in a small number
of civil lawsuits and arbitrations (together "litigation") relating to its
various businesses. There can be no assurances that these matters will not have
a material adverse effect on the Company's consolidated financial condition or
results of operations in a future period. However, based on management's review
with counsel, resolution of these matters is not expected to have a material
adverse effect on the Company's consolidated financial condition or results of
operations.
Many aspects of the Company's business involve substantial risks of liability
and litigation. Underwriters, broker-dealers and investment advisers are
exposed to liability under Federal and state securities laws, other Federal and
state laws and court decisions, including decisions with respect to
underwriters' liability and limitations on indemnification, as well as with
respect to the handling of customer accounts. For example, underwriters may be
held liable for material misstatements or omissions of fact in a prospectus used
in connection with the securities being offered and broker-dealers may be held
liable for statements made by their securities analysts or other personnel. In
certain circumstances, broker-dealers and asset managers may also be held liable
by customers and clients for losses sustained on investments. In recent years,
there has been an increasing incidence of litigation involving the securities
industry, including class actions that seek substantial damages. The Company is
also subject to the risk of litigation, including litigation that may be without
merit. As the Company intends actively to defend such litigation, significant
legal expenses could be incurred. An adverse resolution of any future
litigation against the Company could materially affect the Company's operating
results and financial condition.
10. Segment Information:
The Company considers its capital markets and asset management operations to
be two separate reportable segments. Parent company interest income, income
taxes and administration expenses are not allocated to the segments and,
therefore, are included in the "Other" column below. There are no significant
revenue transactions between the segments. The following table illustrates the
financial information for both segments for the periods presented (in
thousands):
9
<PAGE>
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Segment Information, continued:
<TABLE>
<CAPTION>
Capital Asset Consolidated
Markets Management Other Totals
--------- ----------- -------- -------------
<S> <C> <C> <C> <C>
Three Months Ended September 30, 1999
- -------------------------------------
Total revenues $ 16,165 $(7,087) $ (156) $ 8,922
Pre-tax income (loss) (12,954) (9,852) (255) (23,061)
Three Months Ended September 30, 1998
- -------------------------------------
Total revenues (16,456) (4,944) (109) (21,509)
Pre-tax income (loss) (44,614) (5,919) (196) (50,729)
Nine Months Ended September 30, 1999
- ------------------------------------
Total revenues 62,183 8,608 579 71,370
Pre-tax income (loss) (14,933) 626 (2,860) (17,167)
Nine Months Ended September 30, 1998
- ------------------------------------
Total revenues 98,122 4,097 1,590 103,809
Pre-tax income (loss) (12,809) (104) 513 (12,400)
</TABLE>
11. Subsequent Events:
Acquisition of Investment Adviser and Bank:
- ------------------------------------------
Subsequent to September 30, 1999, the Company announced a definitive
agreement to acquire Money Management Associates, LP ("MMA"), a privately-held
investment adviser, servicing agent and administrator for 20 mutual funds and
Rushmore Trust and Savings, a federally chartered and insured savings bank
(together "adviser and bank"). Under the terms of the agreement, the Company
will acquire the adviser and bank for $17.5 million in cash at closing and a $10
million non-interest-bearing installment note payable over a ten-year period.
The transaction is subject to the approval of regulators and the approval of the
shareholders of the related mutual funds.
Redemption of Imperial Credit Industries, Inc. Investment:
- ---------------------------------------------------------
In November 1999, Imperial Credit Industries, Inc. ("ICII") redeemed their
preferred stock that the Company purchased in the second quarter of 1999. The
Company received $20.6 million representing 103% of the Company's original cost,
including a 3% redemption fee. The Company also received accrued dividends at
an annual rate of 14.5%. As a result of the redemption, the Company's
regulatory net capital was increased by approximately $20 million.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis of the consolidated financial condition and results of
operations of Friedman, Billings, Ramsey Group, Inc. (the "Company") should be
read in conjunction with the unaudited Consolidated Financial Statements as of
September 30, 1999 and 1998, and the Notes thereto and the Company's 1998 Annual
Report on Form 10-K.
BUSINESS ENVIRONMENT
The Company's principal business activities (capital raising, securities
sales and trading, merger and acquisition and advisory services, proprietary
investments and asset management services) are linked to the capital markets.
In addition, the Company's business activities are primarily focused on small
and mid-cap stocks in the bank, financial services, real estate and technology
sectors. By their nature, the Company's business activities are highly
competitive and are not only subject to general market conditions, volatile
trading markets and fluctuations in the volume of market activity but to the
conditions affecting the companies and markets in the Company's areas of focus.
During the first three quarters of 1999, with the exception of the technology
sector, the sectors on which the Company focuses have under-performed the
overall securities markets.
The Company's revenues, particularly from capital raising, private equity and
other principal investment activities, are subject to substantial positive and
negative fluctuations due to a variety of factors that cannot be predicted with
great certainty, including the overall condition of the economy and the
securities markets as a whole and of the sectors on which the Company focuses.
Fluctuations also occur due to the level of market activity, which, among other
things, affects the flow of investment dollars and the size, number and timing
of transactions. As a result, net income and revenues in any particular period
may not be representative of full-year results and may vary significantly from
year to year and from quarter to quarter.
The financial services industry continues to be affected by the intensifying
competitive environment, as demonstrated by consolidation through mergers and
acquisitions, as well as significant growth in competition in the market for on-
line trading services. The relaxation of banks' barriers to entry into the
securities industry and expansion by insurance companies into traditional
brokerage products, coupled with the repeal of laws separating commercial and
investment banking activities in the future, have increased the number of
companies competing for a similar customer base.
In order to compete in this increasingly competitive environment, the Company
continually evaluates its businesses across varying market conditions for
profitability and alignment with long-term strategic objectives, including the
diversification of revenue sources. The Company believes that it is important to
diversify and strengthen its revenue base by increasing segments of its business
that offer a recurring and more predictable source of revenue.
Strategic Alliance with Fidelity Investments:
- --------------------------------------------
On August 12, 1999, the Company announced a strategic alliance with Fidelity
Investments ("Fidelity") in which Fidelity will participate in the distribution
of securities underwritten by the Company. Under the alliance, the Company will
invite Fidelity to participate in selected offerings underwritten by the
Company. Initially, the two firms will focus their efforts on certain industry
sectors that make up the Company's core research and underwriting capabilities
and include technology, real estate, regional banks, thrifts, specialty finance
companies, energy and healthcare. In the future, both firms may explore
potential business relationships in other business areas, including asset
management, research and electronic trading of securities.
11
<PAGE>
RECENT DEVELOPMENTS
Rushmore Acquisition:
- --------------------
In October 1999, the Company announced a definitive agreement to acquire
Money Management Associates, LP ("MMA") and Rushmore Trust and Savings, FSB,
Bethesda, Maryland. MMA is a privately-held investment adviser with
approximately $887 million in assets under management. Together, MMA and
Rushmore are the investment adviser, servicing agent or administrator for 20
mutual funds. Rushmore is a federally chartered and federally insured savings
bank that offers traditional banking services (lending, deposits, cash
management, trust services and serves as a transfer agent and custodian), along
with mutual fund accounting. Upon closing, the Company will have new
capabilities in traditional banking and cash management services to offer
customers. Under the terms of the agreement, the Company will acquire
MMA/Rushmore for $17.5 million in cash at closing and a $10 million non-
interest-bearing installment note will be payable over a ten-year period. The
transaction is subject to the approval of regulators and the shareholders of the
Rushmore Funds.
Redemption of Imperial Credit Industries, Inc. Investment:
- ---------------------------------------------------------
In November 1999, Imperial Credit Industries, Inc. ("ICII") redeemed their
preferred stock that the Company purchased in the second quarter of 1999. The
Company received $20.6 million which represents 103% of the Company's original
cost, including a 3% redemption fee. The Company also received accrued
dividends at an annual rate of 14.5%.
RESULTS OF OPERATIONS
Three months ended September 30, 1999 compared to three months ended September
30, 1998
The Company's revenues changed from $(21.5) million in 1998 to $8.9 million
in 1999. Net loss decreased 35% from $35.4 million in 1998 to $23.1 million in
1999. The Company's basic and diluted loss per share decreased 34% from $0.71
in 1998 to $0.47 in 1999. The decrease in net loss was primarily related to
lower trading losses offset by an increase in compensation expense.
Underwriting revenue remained constant at $4.0 million in 1998 and 1999.
During the quarter ended September 30, 1999, the Company managed six public
offerings raising $294 million and generating $4.0 million in revenues. During
the third quarter of 1998, the Company managed four transactions raising $984
million and generating $4.0 million in revenues. The average size of
transactions managed decreased from $246.1 million in 1998 to $49.0 million in
1999. While the aggregate dollars raised was greater in 1998 compared to 1999,
the Company's allocation of revenue earned as a percentage of total dollars
raised increased in 1999 due, in part, to differences in the types of
transactions completed and the allocation of revenue among the deal managers.
Corporate finance revenue decreased 54% from $4.4 million in 1998 to $2.0
million in 1999 due primarily to a decrease in revenue generated from private
placement transactions and M&A and advisory service fees. In 1999, the Company
completed one private placement generating $0.6 million in revenues compared to
one completed transaction in 1998 that generated $1.9 million in revenues. M&A
and advisory fee revenue also decreased from $2.5 million in 1998 to $1.4
million in 1999 due to a decline in the number of deals completed and retainer
fees earned.
Principal sales credits decreased 34% from $7.6 million in 1998 to $5.0
million in 1999. This decrease was attributed to lower volumes in the Company's
NASDAQ trading, notably, in the real estate and financial services sectors, two
of the Company's primary industries of focus.
Agency commissions decreased 13% from $3.9 million in 1998 to $3.4 million in
1999. This decrease was attributed to the decline in securities transaction
volume attributed to less market volatility in the real estate and financial
services sectors in 1999 compared to 1998.
12
<PAGE>
RESULTS OF OPERATIONS, continued
Three months ended September 30, 1999 compared to three months ended September
30, 1998, continued
Net trading losses decreased 99% from $39.5 million in 1998 to $0.3 million
in 1999. The decrease in trading losses is attributed to a significant
management effort to reduce broker-dealer trading inventories to an amount
needed to provide the appropriate level of liquidity in securities for which the
Company is a market maker. This reduction has limited the Company's broker-
dealer trading inventories' exposure to future downturns in the markets.
Net investment losses increased 41% from $7.5 million in 1998 to $10.6
million in 1999. Investment losses in 1999 include $6.5 million of "other
than temporary" unrealized depreciation related to an available-for-sale
investment accounted for under Financial Accounting Standard No. 115 and $4.7
million related to the Company's investments in proprietary investment
partnerships. Investment losses in 1998 were primarily related to the Company's
investment in one proprietary investment partnership that invests primarily in
the financial services sector. Unrealized depreciation related to the Company's
investments and included in "accumulated other comprehensive loss" in the
Company's balance sheet totaled $13.3 million as of September 30, 1999. If and
when management determines that this decline in value is "other than temporary",
a portion or all of the depreciation will be recognized as investment losses in
the Statement of Operations during the period in which the determination is
made. The Company's investment portfolio is also exposed to future downturns in
the markets and preferred and debt securities are exposed to deterioration of
credit quality and to defaults.
Asset management revenue increased 31% from $2.1 million in 1998 to $2.8
million in 1999. This increase was due primarily to an increase in base
management fees earned from technology venture capital funds. During 1999, the
Company raised a second technology venture capital fund.
Net interest and dividends (net of interest expense) increased 26% from $1.9
million in 1998 to $2.4 million in 1999. This increase is due primarily to an
increase in the Company's interest-bearing investments, primarily the Imperial
Credit Industries, Inc. investment.
Total expenses increased 9% from $29.2 million in 1998 to $32.0 million in
1999 due primarily to an increase in variable compensation expense.
Compensation and benefits expense increased 50% from $10.9 million in 1998 to
$16.3 million in 1999. This increase was primarily due to a reduction of
executive compensation accruals in 1998. In 1998, the Company reduced executive
compensation expense by $7.6 million due to the decline in profits. In 1999,
the executive officer compensation reduction was $1.4 million.
Business development and professional services decreased 6% from $10.2
million in 1998 to $9.7 million in 1999 primarily due to a $3.7 million decrease
in investment banking and professional services expenses associated with lower
investment banking activity. This decrease is offset by a $3.2 million increase
in advertising and other promotional expenses in 1999 related to the launch of
fbr.com.
Clearing and brokerage fees decreased 32% from $1.6 million in 1998 to $1.1
million in 1999 due to a decline in the volume of sales and trading activity.
As a percentage of principal sales credits and agency commissions revenue,
clearing and brokerage fees decreased from 14.0% in 1998 to 13.1% in 1999 due to
lower rates charged by the Company's principal clearing broker.
Occupancy and equipment expense increased 35% from $1.3 million in 1998 to
$1.7 million in 1999 primarily due to an increase in depreciation expense
related to software, computer and telecommunications equipment for fbr.com's
operations.
Communications expense increased 49% from $0.8 million in 1998 to $1.2
million in 1999 due to an increase in costs associated with an upgrade of the
Company's broker-dealer trading system.
13
<PAGE>
RESULTS OF OPERATIONS, continued
Three months ended September 30, 1999 compared to three months ended September
30, 1998, continued
Other operating expenses decreased 38% from $2.8 million in 1998 to $1.8
million in 1999 due to the decrease in losses related to unsecured customer
accounts. In addition, the Company reduced or eliminated certain non-revenue-
producing expenses and other overhead costs such as printing and copying and
other office management expenses.
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998
The Company's revenues decreased 31% from $103.8 million in 1998 to $71.4
million in 1999. Net loss increased 38% from $12.4 million in 1998 to $17.2
million in 1999. The Company's basic and diluted loss per share increased 40%
from $0.25 in 1998 to $0.35 in 1999. The increase in net loss was primarily
related to lower investment banking activity offset by a decrease in trading
losses.
Underwriting revenue decreased 76% from $68.1 million in 1998 to $16.4
million in 1999. During 1999, the Company managed seventeen public offerings
raising $1.1 billion and generating $16.4 million in revenues. During 1998, the
Company completed twenty-five transactions raising $3.6 billion and generating
$68.1 million in revenues. In 1998, the Company completed one of the largest
public offerings in its history from which it earned $22.9 million in revenues.
The average size of transactions managed decreased from $144 million in 1998 to
$64.0 million in 1999. The decrease in underwriting revenue is attributed to
(1) the decline in the size of completed transactions and the size of the
Company's proportionate fee and (2) fewer completed deals attributed to the
continuation of lower prices and reduced activity in the markets for securities
of companies in the financial services and real estate sectors, two of the
Company's primary areas of focus.
Corporate finance revenue decreased 72% from $37.7 million in 1998 to $10.7
million in 1999 due primarily to a decrease in the number of private placement
transactions completed and a decrease in M&A and other advisory fee revenue. In
1999, the Company completed five private placements generating $3.6 million in
revenues compared to eight completed transactions in 1998 that generated $25.8
million in revenues. In 1998, the Company completed one of the largest private
placement transactions in its history from which it generated revenue of $17.8
million. M&A and advisory fee revenue also decreased from $11.9 million in 1998
to $7.1 million in 1999 due to a decline in the number of deals completed and
retainer fees earned.
Principal sales credits decreased 21% from $24.3 million in 1998 to $19.3
million in 1999. This decrease was due to lower volumes in the Company's NASDAQ
trading, notably, in the real estate and financial services sectors, two of the
Company's primary industries of focus.
Agency commissions decreased 17% from $11.9 million in 1998 to $9.9 million
in 1999. This decrease was attributed to the decline in securities transaction
volume attributed to less market volatility in the real estate and financial
services sectors in 1999 compared to 1998.
Net trading losses decreased 97% from $53.8 million in 1998 to $1.7 million
in 1999. The decrease in trading losses is attributed to a significant
management effort to reduce trading inventories to an amount needed to provide
the appropriate level of liquidity in securities for which the Company is a
market maker. This reduction has limited the Company's broker-dealer trading
inventories' exposure to future downturns in the markets.
14
<PAGE>
RESULTS OF OPERATIONS, continued
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998, continued
Net investment gains (losses) changed from $(4.7) million in 1998 to $1.6
million in 1999. Investment losses in 1998 were generated solely from the
Company's proprietary investment partnerships. Net investment gains in 1999
include: $1.9 million related to the Company's proprietary investment
partnerships; $2.1 million resulting from the sale of Building One Services
Corporation warrants; $3.5 million related to the Company's investment in FBR
Asset Investment Corporation; net of $6.5 million of "other than temporary"
unrealized depreciation related to an available-for-sale investment accounted
for under Financial Accounting Standard No. 115. Although the Company realized
investment gains during 1999, unrealized losses related to the Company's
investments that are included in "accumulated other comprehensive loss" in the
Company's balance sheet totaled $13.3 million as of September 30, 1999. If and
when management determines that the decline in value of these investments is
"other than temporary", a portion or all of the losses will be recognized as
investment losses in the Statement of Operations during the period in which the
determination is made. The Company's investment portfolio is also exposed to
future downturns in the markets and preferred and debt securities are exposed to
deterioration of credit quality and to defaults.
Asset management revenue remained constant at $7.6 million in 1998 and 1999,
however, the mix between base management fees and incentive income changed from
1998 to 1999. In 1998, the Company earned $1.9 million in incentive income
related to one proprietary investment partnership compared to none in 1999.
Also in 1998, the Company earned $1.0 million in advisory fees related to its
mutual funds compared to $0.4 million in 1999 due to a decline in the average
net assets of the mutual funds. However, base management fees earned from
proprietary investment partnerships increased 47% from $4.5 million in 1998 to
$6.6 million in 1999 due to the change in the mix of assets under management to
higher base-fee partnerships, in particular, technology venture capital funds.
Net interest and dividends (net of interest expense) decreased 22% from $8.1
million in 1998 to $6.3 million in 1999. This decrease is due primarily to a
decrease in the Company's trading inventory from which dividend income may be
earned. During 1998, the Company recorded $3.5 million of dividend income,
including two dividends totaling $1.0 million, from two significant trading
positions, compared to $1.3 million in 1999. Net interest revenue (net of
interest expense) increased 9% from $4.6 million in 1998 to $5.0 million in 1999
due to an increase in the Company's interest-bearing investments.
Total expenses decreased 24% from $116.2 million in 1998 to $88.5 million in
1999 due primarily to lower variable compensation expense and lower investment
banking expenses associated with the decrease in investment banking revenues.
Compensation and benefits expense decreased 23% from $68.1 million in 1998 to
$52.7 million in 1999. This decrease was primarily due to a decline in variable
investment banking compensation, directly related to the decrease in investment
banking revenues, offset by a $7.3 million reduction of 1997 bonus accruals in
1998 and offset by $3.8 million of executive officer bonus compensation recorded
in 1999 under the $6 million performance-based pool.
Business development and professional services decreased 28% from $25.3
million in 1998 to $18.2 million in 1999 primarily due to a decrease in legal
costs and travel and meals expenses associated with lower investment banking
activity. This decrease is offset by an increase in professional fees and other
promotional expenses in 1999 related to fbr.com's operations.
Clearing and brokerage fees decreased 28% from $4.6 million in 1998 to $3.3
million in 1999 due to a decline in the volume of sales and trading activity.
As a percentage of principal sales credits and agency commissions revenue,
clearing and brokerage fees decreased from 12.7% in 1998 to 11.3% in 1999 due to
lower rates charged by the Company's principal clearing broker.
15
<PAGE>
RESULTS OF OPERATIONS, continued
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998, continued
Occupancy and equipment expense increased 60% from $2.9 million in 1998 to
$4.7 million in 1999 primarily due to the expansion of office space and an
increase in depreciation expense related to software, computer and
telecommunications equipment and furniture for the expanded facilities and
fbr.com's operations. As a result of the expansion, office rent expense
increased $0.6 million in 1999 compared to 1998, and depreciation and
amortization expense increased $0.8 million in 1999 compared to 1998.
Communications expense increased 22% from $2.5 million in 1998 to $3.1
million in 1999 due to an increase in costs associated with an upgrade of the
Company's broker-dealer trading system.
Other operating expenses decreased 32% from $8.0 million in 1998 to $5.4
million in 1999 due to the reduction or elimination of certain non-revenue-
producing expenses and other overhead costs such as printing and copying and
other office expenses, offset by a $1.0 million charge in 1999 for litigation
accruals.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's principal assets consist of cash and
cash equivalents, receivables, including a receivable from its clearing broker,
securities held for trading purposes and long-term investments. Liquid assets
consist primarily of cash and cash equivalents of $23.8 million and a receivable
for cash on deposit with the Company's clearing broker of $13.6 million.
As of September 30, 1999, long-term investments consist of: $23.8 million
investment in FBR Asset Investment Corporation; $29.0 million of investments in
proprietary investment partnerships managed by the Company; $27.2 million of
debt or preferred instruments issued in non-public transactions by four
companies, including three instruments held by FBR Business Development Fund;
$18.7 million Imperial Credit Industries, Inc. investment; and $13.3 million of
available-for-sale securities. Subsequent to September 30, 1999, the Imperial
Credit Industries Inc., investment was redeemed at cost plus a 3% redemption fee
and accrued dividends.
With respect to long-term investment risk, the Company's primary exposure is
to debt and equity price changes and the resulting impact on the Company's long-
term investments. The effect of these changes was particularly evident in the
volatility of the capital markets in the second half of 1998, as the Company
recorded $16.1 million of unrealized investment depreciation in shareholders'
equity, related to its investments in long-term marketable securities and FBR
Asset Investment Corporation. During the quarter ended September 30, 1999, the
Company determined that the $6.5 million decline in value of one investment was
"other than temporary", therefore, in accordance with Financial Accounting
Standard No. 115, the related unrealized depreciation was recorded in earnings.
As of September 30, 1999, the unrealized depreciation related to available-for-
sale securities and included in "accumulated other comprehensive loss" on the
Company's balance sheet was $13.3 million. To the extent the price declines
related to these securities are determined to be "other than temporary", any
resulting losses would be recognized in earnings. In addition, the Company's
long-term investments in private debt and preferred equity instruments are
subject to credit/concentration risks, which could result in losses recognized
in earnings. As of September 30, 1999, the potential loss in the fair value of
all of the Company's long-term investments, using a hypothetical 10% decline in
reported value, is $11.2 million.
Friedman, Billings, Ramsey & Co., Inc. ("FBRC") and FBR Investment Services,
Inc. ("FBRIS") are wholly owned broker-dealer subsidiaries of the Company and
are registered with the SEC and are members of the NASD. As such, they are
subject to minimum net capital requirements. As of September 30, 1999, FBRC and
FBRIS were required to maintain minimum regulatory net capital of $1.3 million
and $0.3 million and had total regulatory net capital of $11.1 million and $2.9
million which was $9.8 million and $2.6 million, respectively, in excess of
their requirements.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES, continued
Management believes that the Company's current level of equity capital and
committed line of credit, including funds generated from operations, are
adequate to meet its liquidity and regulatory capital requirements and other
Company activities, including those associated with fbr.com. The Company may,
however, seek debt or equity financing, in public or private transactions, or
otherwise re-deploy assets, to provide capital for corporate purposes and/or to
fund fbr.com and other strategic business opportunities, including possible
acquisitions, joint ventures, alliances or other business arrangements which
could require substantial capital outlays. The Company's policy is to evaluate
strategic business opportunities, including acquisitions and divestitures, as
they arise.
The Company constantly reviews its capital needs and sources, the cost of
capital and return on equity, and seeks strategies to provide favorable returns
on capital. In evaluating the Company's anticipated capital needs and current
cash resources during 1998, the Company's Board of Directors authorized a share
repurchase program of up to 2.5 million shares of the Company's Class A Common
Stock. Since announcing the share repurchase program, the Company has purchased
1,468,027 shares as of September 30, 1999.
WARRANTS
In connection with certain capital raising transactions, the Company has
received and holds warrants for stock of the issuing corporation generally
exercisable at the corporation's respective offering price. Due to the
restrictions on the warrants and the underlying securities, the Company carries
the warrants at a nominal value, and will recognize any potential, future
revenues and profits, if any, only when realized. In 1999, the Company granted
certain economic rights, related to these warrants, to certain key employees,
subject to vesting provisions that require continued employment with the Company
for a period of time. As of September 30, 1999, the Company's warrants, after
grants to employees and assuming 100% vesting, are:
<TABLE>
<CAPTION>
Number of Exercise Sept. 30, 1999 Expiration
Warrants Price Closing Price Date
--------- -------- -------------- ----------
<S> <C> <C> <C> <C>
American Capital Strategies, Ltd. 307,335 $15.00 $18.500 08/29/02
Capital Automotive REIT 894,464 15.00 12.375 02/12/03
East West Bank 232,500 10.00 11.875 06/12/03
Local Financial Corporation 382,000 10.00 9.250 09/08/02
PlanetClick, Inc. 125,000 3.20 * 06/30/04
Styling Technology Corporation 71,050 12.00 10.750 11/21/01
FBR Asset Investment Corporation 970,805 20.00 11.000 12/11/07
Xypoint Corporation 285,107 2.10 * 07/10/03
Vcampus Corporation (formerly UOLP) 36,500 4.625 14.875 09/16/03
Resource Asset Investment Trust 99,292 15.00 11.125 01/08/03
</TABLE>
* The underlying unregistered security does not have a ready market. The Company
received the warrants in a private placement transaction.
MATTERS RELATED TO YEAR 2000
The following year 2000 discussion is a "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Disclosure Act.
The Company utilizes certain software and related information technologies
that may be affected by the date change in the year 2000. The Company is also
heavily reliant on certain third parties for critical information processing,
particularly its principal clearing broker, Bear Stearns Securities Corporation
("Bear Stearns"). Additionally, the Company relies on certain non-information
technology systems, such as communications and building operations systems, that
could be affected by the date change. The failure of these non-information
technology systems could interrupt or shutdown business operations for some
period of time.
17
<PAGE>
MATTERS RELATED TO YEAR 2000, continued
The year 2000 issue exists because many computer systems and applications
currently use two-digit date fields to designate a year. When the century date
change occurs, certain date-sensitive systems may recognize the year 2000 as
1900, or not at all. This inability to recognize or properly treat the year
2000 may result in a systems failure or may cause systems to process critical
financial and operational information incorrectly.
The Company has assessed and continues to assess the level of the year 2000
readiness of its internal information technology systems, those of vendors on
which it places significant reliance and its non-information technology systems.
The Company's year 2000 plan contains four phases: phase one is the inventorying
and prioritization of in-house and third party information technology and non-
information technology systems; phase two is the diagnostic assessment of
critical information technology and non-information technology systems for year
2000 compliance; phase three is the implementation and testing of solutions,
including necessary repair work, modifications, and replacements to system
software and hardware; and phase four is the execution of the contingency plan
created during phases one through three for those areas where residual risk was
identified.
The Company continues to refine its year 2000 plan and substantially
completed phases one and two in March 1999. The Company completed phases three
and four in August 1999. The Company has assessed nd will continue to assess
its year 2000 risk, its year 2000 plan and contingency efforts. The total cost
associated with the Company's year 2000 plan has not been and is not expected to
be material to the Company's financial position. Estimates of remaining costs
are based on estimates made by management.
The Company has inquired of and obtained certain information regarding Bear
Stearns' year 2000 plans and state of readiness. Bear Stearns has indicated
that it has established a task force to review and develop an action plan to
address the year 2000 issue. Bear Stearns has indicated that the action plan
addresses both information and non-information technology issues. Bear Stearns
has indicated that it believes that the activities that it is undertaking should
satisfactorily resolve year 2000 compliance exposure within its own worldwide
systems. Bear Stearns has also indicated that it actively participates in
various industry wide testing that exercises critical systems used to interface
with third party clients and service providers.
Bear Stearns and the Company also rely heavily on various third party systems
or services to conduct business, including NASDAQ, Inc., the New York Stock
Exchange, Inc. and regional and national telecommunications and market data
services providers. The Company is presently monitoring the progress of these
and other entities' year 2000 compliance. Due diligence that the Company has
and is continuing to perform to evaluate the readiness of key third party
vendors includes point to point testing with mission critical vendors, such as
NASDAQ, Instinet and Bridge, conducting interviews with key third party vendors
and analysis of compliance letters received from third party vendors. To date
the Company has not encountered a vendor that does not expect to be fully
compliant by the end of the year. In addition, the Company intends to continue
monitoring the progress of its third party vendors through any combination of
the following activities: reviewing status updates whenever provided by third
party vendors, performing additional point to point testing when third party
vendors provide this capability, and reviewing results from the Securities
Industries Association testing when made available.
To mitigate material risks due to failure resulting from year 2000 issues,
the Company has prepared contingency plans for its mission critical systems.
These plans were finalized in August 1999. The failure of Bear Stearns or other
critical service providers to satisfactorily address the year 2000 issue, or the
failure of the Company's contingency plans to mitigate any year 2000 failures,
such as the Company's inability to submit trade orders timely and Bear Stearns'
inability to clear the Company's trades, could have a material adverse effect on
the Company's operations, liquidity and financial condition.
18
<PAGE>
MATTERS RELATED TO YEAR 2000, continued
There can be no assurance that actual year 2000 related costs will not
differ materially from the Company's current expectations or that the
contingency plans, if needed, will sufficiently mitigate year 2000 related
problems. Specific factors that might cause such material differences include,
but are not limited to, the success of the Company in identifying additional
systems and programs that are not year 2000 ready, the nature and amount of
programming required to upgrade or replace each of the affected programs, the
availability, rate and magnitude of related labor and consulting costs; the
success of the Company's business partners, vendors and clients in addressing
the year 2000 issue and the ability to formulate and successfully implement
contingency plans, if required, and similar uncertainties.
Item 3. Changes in Information About Market Risk
None.
Forward-Looking Statements
The Company has made in this report, and from time to time may otherwise make
in its public filings, press releases and discussions with Company management,
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Such statements include, but are not
limited to, those relating to growth, new business initiatives, principal
investment activities, levels of activity, levels of assets under management and
capital levels and availability. Such statements are subject to various risks
and uncertainties and the Company cautions readers that any forward-looking
information provided by or on behalf of the Company is not a guarantee of future
performance and there is no assurance that results for any present or future
period will be consistent with such statements or comparable to those attained
in any prior period. Actual results could differ materially from those currently
anticipated due to a number of factors, including: (i) general economic and
market conditions, (ii) competitive conditions within the securities industry,
(iii) changes in demand for investment banking, securities brokerage and asset
management services, (iv) changes in the industries in which the Company is
active, (v) changes in interest rates, loan delinquency rates, stock market
volume and prices, and mutual fund, 401(k) and pension plan inflows or outflows,
(vi) changes in the securities and banking laws and regulations, (vii) trading
and principal investment activities and results, (viii) availability of adequate
financing to support the Company's business, (ix) potential restrictions on the
withdrawal of capital from certain subsidiaries of the Company due to net
capital requirements, (x) failure of the Company, its vendors or other third
parties to achieve year 2000 compliance, (xi) the Company's ability to recruit
and retain key employees, (xii) the availability of technology and the Company's
ability to implement necessary technologies, and (xiii) litigation and
arbitration. For a more detailed explanation of these and other risks and
uncertainties, refer to "Business - Factors Affecting the Company's Business,
Operating Results and Financial Condition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Market and Business
Risk and - Matters Related to Year 2000" in the Company's Annual Report on Form
10-K for 1998, incorporated herein by reference. The Company undertakes no
obligation to update publicly any forward-looking statements whether as a result
of new information, future events, or otherwise.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Purchase and sale agreement
(27) Financial data schedule
(b) Reports on Form 8-K
o July 29, 1999: second quarter 1999 results
o August 12, 1999: strategic alliance with Fidelity Investments
o October 21, 1999: third quarter 1999 results and acquisition of
a bank and mutual fund company
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Friedman, Billings, Ramsey Group, Inc.
11/15/99 By: /s/ Eric Y. Generous
---------------- -----------------------------------------
Date Eric Y. Generous, Chief Financial Officer
(Principal Financial Officer)
11/15/99 By: /s/ Kurt R. Harrington
---------------- ------------------------------------------
Date Kurt R. Harrington, Treasurer (Principal
Accounting Officer)
EXHIBIT INDEX
EXHIBIT 10.01 Purchase and Sale Agreement
EXHIBIT 27.01 Financial Data Schedule
20
<PAGE>
PURCHASE AND SALE AGREEMENT
by and among
MONEY MANAGEMENT ASSOCIATES, INC.,
MONEY MANAGEMENT ASSOCIATES (LP), INC.,
MONEY MANAGEMENT ASSOCIATES, L.P.,
RUSHMORE TRUST AND SAVINGS, FSB,
DANIEL L. O'CONNOR
and
THE LIMITED PARTNERS of MONEY MANAGEMENT ASSOCIATES, L.P.
NAMED HEREIN
Dated: October 20, 1999
<PAGE>
PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SALE AND PURCHASE OF INTERESTS AND STOCK............................................. 2
1.1. Sale and Purchase............................................................ 2
1.2. Time and Form of Delivery.................................................... 3
1.3. Pre-Closing Liquidation and Distributions; Closing........................... 3
1.4. Purchase Price............................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF BUYERS AND FBR.................................... 4
2.1. Organization and Authority................................................... 4
2.2. Authorization................................................................ 4
2.3. Accuracy of Representations and Documents.................................... 5
2.4. Brokers and Finders.......................................................... 5
2.5. Litigation and Other Proceedings............................................. 5
2.6. Certain Information Provided by Buyers....................................... 6
2.7. No Unfair Burden............................................................. 6
2.8. Financial Ability; Regulatory Matters........................................ 6
2.9. No Other Representations or Warranties....................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MMA, RTS AND PRINCIPAL SELLERS................... 7
3.1. Organization and Authority................................................... 7
3.2. Authorization................................................................ 7
3.3. Capitalization of MMA; Beneficial Ownership.................................. 8
3.4. Accuracy of Representations and Documents.................................... 9
3.5. Certain Information Provided by MMA, RTS, each Subsidiary and each Fund...... 9
3.6. Brokers and Finders.......................................................... 10
3.7. Contracts.................................................................... 10
3.8. No Defaults under Contracts or Agreements.................................... 11
3.9. Real Estate and Assets....................................................... 11
3.10. Assets Under Management...................................................... 13
3.11. Financial Statements......................................................... 14
3.12. Taxes........................................................................ 15
3.13. Loans; Accounts Receivable................................................... 16
3.14. Absence of Certain Changes................................................... 17
3.15. Ordinary Course.............................................................. 18
3.16. Banking Relations............................................................ 18
</TABLE>
i
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement"), for (i) all of the
outstanding interests ("Interests") of Money Management Associates, L.P., a
District of Columbia limited partnership ("MMA") and the controlling shareholder
of Rushmore Trust and Savings, FSB, a federal stock savings bank ("RTS"), and
(ii) all of the outstanding capital stock of RTS (the "Stock") not owned by MMA
(the "Minority Stock"), made this 20th day of October, 1999, by and among MMA,
RTS, Money Management Associates, Inc., a Delaware corporation ("MMA Buyer"),
Money Management Associates (LP), Inc., a Delaware corporation ("LP Buyer" and,
together with MMA Buyer, the "Buyers"), Daniel L. O'Connor, the sole general
partner of MMA (the "General Partner") and the owner of all of the general
partnership interest in MMA (the "General Partnership Interest"), the owners of
all of the outstanding limited partnership interests of MMA (the "Limited
Partnership Interests") named on Schedule 1.1 (collectively, the "Limited
------------
Partners" and, each individually a "Limited Partner" and, together with the
General Partner, the "Sellers" and each individually a "Seller") and, solely for
purposes of Article II and Sections 1.4, 10.2 and 11.5, Friedman, Billings,
---------- ------------------ ----
Ramsey Group, Inc., a Virginia corporation ("FBR").
Background
----------
A. MMA is registered under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), as an investment adviser and (i) provides or
procures advisory and/or other compliance and administrative services to The
Rushmore Fund, Inc., Fund for Tax-Free Investors, Inc., Fund for Government
Investors and American Gas Index Fund, Inc. (each a "Fund" and collectively, the
"Funds"), each of which is a registered investment company under the Investment
Company Act of 1940, as amended (the "Investment Company Act"); and (ii)
provides or procures compliance and administrative services for the Cappiello-
Rushmore Trust. MMA currently serves as investment adviser to the Funds
pursuant to management contracts between the Funds and MMA, as listed on
Schedule 3.10 (the "Management Contracts").
- -------------
B. MMA is a savings and loan holding company and is the controlling
shareholder of RTS.
C. RTS, a federal savings bank, provides, among other things,
directly or indirectly, transfer agency, shareholder servicing and custodial and
portfolio accounting services to the Funds, the Cappiello-Rushmore Trust,
Navellier Series Fund and Navellier Performance Funds, and trust and accounting
services to other entities.
D. Each of MMA and RTS is registered as a transfer agent under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
E. Sellers are the owners of all of the Interests, of which Daniel L.
O'Connor, owns 100% of the General Partnership Interest and Daniel L. O'Connor,
Martin O'Connor and
<PAGE>
John Cralle (the "Principal Sellers") own, in the aggregate, 90.0% of the
Limited Partnership Interests. MMA Buyer desires to purchase from the General
Partner, and the General Partner desires to sell to MMA Buyer, 100% of the
General Partnership Interest, and LP Buyer desires to purchase from the Limited
Partners, and the Limited Partners desire to sell to LP Buyer, 100% of the
Limited Partnership Interests, all upon the terms and conditions set forth in
this Agreement. MMA is the owner of all of the Stock other than the Minority
Stock. The General Partner and certain other stockholders (the "Additional
Stockholders" and, together with MMA and the General Partner, the
"Stockholders") are the beneficial and record owners of all of the Minority
Stock. MMA Buyer desires to purchase the Minority Stock upon the terms and
conditions set forth in this Agreement.
F. MMA is the owner of all of the issued and outstanding capital
stock (the "Subsidiary Stock") of Rushmore Investment Brokers, Inc., a Delaware
corporation ("RIB") and Rushmore Services, Inc., a Maryland corporation ("RSI"
and together with RIB, the "Subsidiaries").
G. FBR has agreed to become a party to this Agreement for the limited
purposes of making certain representations and warranties and agreeing to
unconditionally guarantee (i) timely reimbursement to MMA, or direct payment, of
the MMA Transaction Expenses (as hereinafter defined), (ii) payment of MMA
Liquidated Damages (as hereinafter defined) to MMA, if any, from MMA Buyer
pursuant to this Agreement, and (iii) payment and performance of the Note (as
hereinafter defined).
Terms
-----
In consideration of the premises and the mutual promises hereinafter
set forth and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE OF INTERESTS AND STOCK
1.1. Sale and Purchase.
-----------------
Subject to the terms and conditions set forth in this Agreement, at
the closing of the transactions contemplated by this Agreement (the "Closing"),
(a) the General Partner shall sell, transfer, assign and deliver to MMA Buyer,
and MMA Buyer shall purchase from the General Partner, the General Partnership
Interest set forth on Schedule 1.1, free and clear of any liens, security
------------
interests, charges, encumbrances, claims, pledges, equities, options,
restrictions, assignments or other transfers of rights or obligations thereunder
("Liens"), (b) the Limited Partners shall sell, transfer, assign and deliver to
LP Buyer, and LP Buyer shall purchase from the Limited Partners, the Limited
Partnership Interests set forth on Schedule 1.1, which together with the General
------------
Partnership Interest represent all of the outstanding Interests, free and clear
of any Liens and (c) the General Partner shall sell, transfer, assign and
deliver to MMA Buyer, and
2
<PAGE>
MMA Buyer shall purchase from the General Partner, the Minority Stock owned by
the General Partner as set forth on Schedule 1.1, representing all of the
------------
outstanding Stock other than the Stock owned beneficially and of record by MMA
and the Additional Stockholders, free and clear of any Liens. The Stock owned by
MMA is also set forth on Schedule 1.1 and is owned beneficially and of record by
------------
MMA, free and clear of any Liens.
1.2. Time and Form of Delivery
-------------------------
The Sellers shall transfer, assign and deliver the Interests by
delivering to MMA Buyer and LP Buyer, respectively, at the Closing, duly
executed Assignments of Partnership Interest in the forms of Exhibit 1.2(a)
--------------
(General Partnership Interest) and Exhibit 1.2(b) (Limited Partnership
--------------
Interests) and such other appropriate instruments of transfer reasonably
satisfactory in form and substance to MMA Buyer and LP Buyer (as the case may
be). The General Partner and, to the extent applicable, the Additional
Stockholders shall transfer, assign and deliver the Minority Stock by delivering
to MMA Buyer at the Closing duly executed certificates representing the Minority
Stock accompanied by stock powers duly endorsed in blank or duly executed
instruments of transfer and such other appropriate instruments of transfer
reasonably satisfactory in form and substance to MMA Buyer.
1.3. Pre-Closing Liquidation and Distributions; Closing.
--------------------------------------------------
(a) Prior to the Closing, (i) MMA shall liquidate and dissolve RSI and
distribute to MMA all of RSI's then current assets including any tax benefit
relating to the net operating loss carryovers of RSI, (ii) RIB shall distribute
all of its then current assets to MMA other than $5,000 in cash, and (iii) MMA
shall distribute all of its then current assets (including those received from
RSI and RIB) to Sellers which then current assets shall consist solely of cash,
notes and accounts receivable and the desks and computers then used by the
General Partner, Martin O'Connor and John Cralle; provided, however, no claims
or rights against MMA, RTS or RIB shall be distributed hereunder. Other than the
current assets described in the preceding sentence, Buyers shall acquire all
right, title and interest in and to all of material tangible and intangible
assets of MMA used in the business of MMA, RTS and RIB as currently conducted.
(b) The Closing shall take place at the offices of Dechert Price &
Rhoads, 1775 Eye Street, N.W., Washington, D.C. at 10:00 a.m., Eastern time, on
the first business day of the calendar month next following the satisfaction or
waiver of the conditions set forth in Article VIII or at such other time as the
parties may agree (the "Closing Date"). The Closing shall be deemed effective as
of 9:00 a.m., Eastern time, on the Closing Date.
1.4. Purchase Price.
--------------
(a) On the Closing Date, Sellers shall sell, transfer and deliver to
MMA Buyer and LP Buyer, and MMA Buyer and LP Buyer, shall purchase from Sellers
the General Partnership Interest and the Limited Partnership Interests,
respectively, in exchange for an amount in immediately available funds equal to
Seventeen Million Five Hundred Thousand
3
<PAGE>
Dollars ($17,500,000) less the book value of the Minority Stock (the "Minority
Stock Purchase Price") as of the day immediately preceding the Closing Date as
reasonably determined by the parties based on the current book value of the
Minority Stock of $________, adjusted to reflect any changes occurring in the
ordinary course of business (the "Initial Payment") and an installment note of
MMA Buyer (the "Note," together with the Initial Payment, the "Purchase Price
for the Interests") and unconditionally guaranteed as to payment and performance
by FBR in the principal amount of Nine Million Seven Hundred Thousand Dollars
($9,700,000) and secured by all of the Stock pursuant to an escrow agreement to
be entered into among MMA Buyer, MMA, the Sellers and PNC Bank, National
Association, as escrow agent (the "Escrow Agreement") and by a first indemnity
deed of trust on land and improvements owned by RTS and known as 4916, 4918,
4920 and 4922 Fairmont Avenue, Bethesda, MD (the "Deed of Trust"). Each of the
Note, the Pledge and Security Agreement and the Deed of Trust shall be in the
form attached as Exhibit 1.4.
-----------
(b) On the Closing Date, the General Partner and the Additional
Stockholders, to the extent applicable, shall sell, transfer and deliver to MMA
Buyer, and MMA Buyer shall purchase from the General Partner and the Additional
Stockholders, to the extent applicable, the Minority Stock, in exchange for the
Minority Stock Purchase Price in immediately available funds.
(c) On the Closing Date, the Purchase Price for the Interests shall
be allocated among the Sellers as set forth in Schedule 1.1.
------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF BUYERS AND FBR
Buyers and FBR, jointly and severally, represent and warrant to MMA and
Sellers as follows:
2.1. Organization and Authority.
--------------------------
Each of the Buyers and FBR is duly organized under the laws of and in
good standing in the jurisdiction of its incorporation, and has (i) all
necessary power, right and authority to carry out its obligations under this
Agreement, to own its properties and assets, and to conduct its business, and
(ii) all necessary governmental authorizations to own or lease its properties
and assets and to conduct its business as currently conducted.
2.2. Authorization.
-------------
(a) This Agreement and each document, agreement and instrument to be
executed by Buyers or FBR (as the case may be) pursuant to or as contemplated by
this Agreement, has been duly authorized, by Buyers or FBR (as the case may be)
and no further proceedings on the part of Buyers or FBR (as the case may be) are
necessary to authorize this Agreement and the transactions contemplated hereby
and thereby. This Agreement and each
4
<PAGE>
document, agreement and instrument to be executed by Buyers or FBR (as the case
may be) pursuant to or as contemplated by this Agreement, when so executed and
delivered, shall constitute the legal, valid and binding obligation of each
Buyer or FBR (as the case may be) enforceable against it in accordance with its
respective terms.
(b) Neither the execution, delivery and performance of this Agreement
and each document, agreement and instrument to be executed by each Buyer or FBR
(as the case may be) pursuant to or as contemplated by this Agreement nor the
consummation by each Buyer or FBR of the transactions contemplated hereby and
thereby, will (i) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or the creation of any Lien upon any of the
properties or assets of any Buyer or FBR under any of the terms, conditions or
provisions of (x) the organizational documents or bylaws of any Buyer or FBR or
(y) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which any Buyer or FBR may be
bound, or to which any Buyer or FBR or the properties or assets of any Buyer or
FBR may be subject, or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to any Buyer or FBR
or to any of the properties or assets of any Buyer or FBR.
(c) Except as set forth in Sections 6.1 and 6.2 or to, with or of the
--------------------
OTS or other banking or regulatory authority, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any regulatory
authority or other person is necessary for the consummation by Buyers or FBR of
the transactions contemplated by this Agreement.
2.3. Accuracy of Representations and Documents.
-----------------------------------------
No representation, warranty or certification made by or on behalf of
Buyers or FBR in this Agreement or any certificate provided for under this
Agreement is false or misleading in any material respect or contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein not misleading.
2.4. Brokers and Finders.
-------------------
None of Buyers or FBR or any of their respective officers, directors
or employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted, directly or indirectly, for Buyers or FBR (or any of
their respective officers, directors or employees) in connection with this
Agreement or the transactions contemplated hereby.
2.5. Litigation and Other Proceedings.
--------------------------------
There is no litigation or action, suit, proceeding or investigation at
law or in equity pending or, to the knowledge of Buyers and FBR, threatened in
any court or before or by any federal, state, municipal or other governmental
department, commission, bureau, board,
5
<PAGE>
agency or instrumentality, regulatory or self-regulatory body, domestic or
foreign (a "Governmental Authority") or before any arbitrator, by or against any
Buyer or FBR relating to their activities, or any event, circumstance or
condition (i) affecting any Buyer or FBR which would prevent the consummation of
the transactions contemplated by this Agreement (a "Buyer Material Adverse
Effect"), or (ii) which would prevent or prohibit MMA Buyer through MMA or other
appropriately registered entity from acting as an investment adviser to each
Fund.
2.6. Certain Information Provided by Buyers.
---------------------------------------
(a) The information supplied by Buyers that is included in (i) the
materials provided to the Board of Directors/Trustees of each Fund in connection
with the approvals described in Article VI, and (ii) the proxy solicitation
----------
materials to be distributed to the shareholders of each Fund in connection with
the approvals described in Article VI, is complete in all material respects and
----------
does not contain (at the time it is distributed, filed or provided, as the case
may be) any statement which, at the time and in the light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, and will not omit to state any material fact necessary in order to make
the statements therein not false or misleading or (with respect to information
supplied by Buyers and included in proxy statements) necessary to correct any
statement or any earlier communication with respect to the solicitation of a
proxy for the same meeting or subject matter which has become false or
misleading.
(b) The information supplied by Buyers or FBR that is included in any
application or notice to or filing with the OTS or other banking authority
satisfies the requirements of Sections 5(q) and 10 of the Home Owners' Loan Act
and such materials and information are complete in all material respects and do
not contain (at the time distributed or filed, as the case may be) any statement
which, at the time and in the light of the circumstances under which it is made,
is false or misleading with respect to any material fact, and will not omit to
state any material fact necessary in order to make the statements therein not
false or misleading.
2.7. No Unfair Burden.
----------------
In connection with the transactions contemplated by this Agreement,
none of Buyers or any "interested person" (as such term is defined in the
Investment Company Act) of Buyers has imposed and Buyers and their "interested
persons" do not intend to, directly or indirectly, impose, an unfair burden on
any of the Funds as a result of any such transactions, or as a result of any
express or implied terms, conditions, or understandings applicable to any such
transactions within the meaning of Section 15(f) of the Investment Company Act.
2.8. Financial Ability; Regulatory Matters. The Buyers have, or FBR will
-------------------------------------
cause the Buyers to timely have, sufficient cash to fund the Initial Payment and
the Minority Stock Purchase Price in immediately available funds at the Closing.
As of the date hereof, none of Buyers or FBR is aware of any reason that any
approvals contemplated by Section 8.1(a) will not be received on a basis
--------------
consistent with transactions of a similar nature or will be received subject to
the imposition of any non-standard condition
6
<PAGE>
or requirement of any non-standard commitment that is unduly burdensome or any
event, circumstance or condition which would prevent or prohibit MMA Buyer
through MMA or other appropriately registered entity from acting as an
investment adviser to each Fund.
2.9. No Other Representations or Warranties.
--------------------------------------
None of Buyers or FBR makes any representations or warranties to MMA
and Sellers other than as set forth above in this Article II.
----------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MMA, RTS AND PRINCIPAL SELLERS
MMA, RTS and Principal Sellers, jointly and severally, represent and
warrant to Buyers and FBR as follows:
3.1. Organization and Authority.
--------------------------
MMA is duly organized as a limited partnership and in good standing
under the laws of the District of Columbia, is duly registered as a savings and
loan holding company of RTS and is in compliance in all material respects with
all applicable rules and regulations of the OTS. RTS is duly organized as a
federal stock savings bank and is in existence under the laws of the United
States of America. RTS is a member in good standing at the Federal Home Loan
Bank of Atlanta, a qualified thrift lender in accordance with Section 10(m) of
the Home Owners' Loan Act, an insured depository institution under the Federal
Deposit Insurance Act and has received OTS approval under Section 5(q) of the
Home Owners' Loan Act to engage in each fiduciary activity in which it currently
engages. Each of the Subsidiaries is duly organized as a corporation and in
good standing under the laws of the jurisdiction of its incorporation and such
jurisdictions are listed on Schedule 3.1. Each of MMA and RTS has (i) all
------------
necessary power, right and authority to enter into and carry out its obligations
under this Agreement, to own or lease its properties and assets and to conduct
its business, and (ii) all necessary governmental authorizations to own or lease
its properties and assets and to conduct its business as currently conducted.
Each of the Subsidiaries has all necessary power, right and authority, and all
necessary governmental authorizations, to own or lease its properties and assets
and to conduct its business as currently conducted except where the failure to
have any governmental authorizations would not have an MMA Material Adverse
Effect. None of MMA, RTS or the Subsidiaries is required to qualify to do
business in any state or foreign jurisdiction where not already so qualified and
such jurisdictions are listed on Schedule 3.1 except where the failure to be so
------------
qualified would not have an MMA Material Adverse Effect.
3.2. Authorization.
-------------
(a) This Agreement and each document, agreement and instrument to be
executed by MMA or RTS (as the case may be) pursuant to or as contemplated by
this Agreement, has been duly authorized by MMA or RTS (as the case may be) and
no further
7
<PAGE>
proceedings on the part of MMA or RTS (as the case may be) are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement and each document, agreement and instrument to be executed by MMA or
RTS (as the case may be) pursuant to or as contemplated by this Agreement, when
so executed and delivered, shall constitute the legal, valid and binding
obligation of MMA or RTS (as the case may be), enforceable against it in
accordance with its terms.
(b) Neither the execution, delivery and performance of this Agreement
and each document, agreement and instrument to be executed by MMA pursuant to or
as contemplated by this Agreement nor the consummation by MMA of the
transactions contemplated hereby, will (i) violate, conflict with, or result in
a breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or the creation of any Lien upon any
of the properties or assets of MMA, RTS, any Subsidiary or the Funds under any
of the terms, conditions or provisions of (x) the organizational documents of
MMA, RTS, any Subsidiary or any Fund, or (y) except as set forth in
Schedule 3.2(b), the Mutual Fund Agreements or agreements terminable by it with
- ---------------
out premium or penalty upon thirty days' or less written notice or that impose
an obligation for monetary expense in an amount equal to or less than $12,000
per year, any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which MMA, RTS, any Subsidiary or
any Fund is a party or by any of them may be bound, or to which MMA, RTS, any
Subsidiary or any Fund, or the properties or assets of MMA, RTS, any Subsidiary
or any Fund, may be subject, or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to MMA, RTS or any
Fund or to any of the properties or assets of MMA, RTS, any Subsidiary or any
Fund.
(c) Except as contemplated by Schedule 3.7(c), Article VI or to,
--------------- ----------
with or of the OTS or other banking or regulatory authority, no notice to,
filing with, authorization of, exemption by, or consent or approval of, any
regulatory authority or other person is necessary for the consummation by MMA,
RTS, any Subsidiary or any Fund of the transactions contemplated by this
Agreement.
(d) Except as contemplated by Article VI, no action of the
----------
shareholders of anyFund is required in connection with the transactions
contemplated by this Agreement.
3.3. Capitalization of MMA; Beneficial Ownership.
-------------------------------------------
(a) Each Seller owns beneficially and of record the Interests set
forth opposite such Seller's name on Schedule 1.1. Each Seller is the only
------------
beneficial and record holder of the Interests set forth opposite such Seller's
name on Schedule 1.1. Any and all transfers of Limited Partnership Interests to
------------
the Limited Partners were made with the consent of the General Partner to the
extent required by MMA's partnership agreement (the "Partnership Agreement").
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
8
<PAGE>
convertible into, any Interests. None of the Interests has been issued in
violation of any applicable federal and state securities or "blue-sky" laws and
regulations.
(b) Schedule 3.3 sets forth the authorized capital stock of RTS and
------------
the Subsidiaries including the number of shares of common stock, par value per
share, and the number of shares which are presently issued and outstanding or
held in its treasury. All of such outstanding shares have been duly authorized,
validly issued and are fully paid and nonassessable, were not issued in
violation of the terms of any agreement or other understanding binding upon RTS
and the Subsidiaries, and, to the knowledge of MMA and Sellers, were issued in
compliance with all applicable federal and state securities or "blue-sky" laws
and regulations. 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 Stock or Subsidiary Stock.
(c) Each of MMA and the General Partner owns beneficially and of
record the Stock set forth opposite its or his name on Schedule 1.1 To the
------------
knowledge of MMA and Sellers, the Additional Stockholders own beneficially and
of record all of the Minority Stock that is not owned by the General Partner and
the number of shares of such Minority Stock owned by the Additional Stockholders
does not exceed 170 shares. The Stockholders are the only beneficial and record
holders of the Stock. MMA owns beneficially and of record all of the Subsidiary
Stock.
3.4. Accuracy of Representations and Documents.
-----------------------------------------
No representation, warranty or certification made by or on behalf of
MMA, RTS or the Principal Sellers in this Agreement, the Schedules hereto, or
any certificate provided for under this Agreement is false or misleading in any
material respect or contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading.
3.5. Certain Information Provided by MMA, RTS, each Subsidiary and each
------------------------------------------------------------------
Fund.
----
(a) The information supplied by MMA, RIB, RTS and each Fund (as the
case may be) that is included in (i) the proxy solicitation materials to be
distributed to the shareholders of each Fund in connection with the approvals
described in Article VI, and (ii) Forms ADV, ADV-Y2K, BD, BD-Y2K, TA-1 and TA-
----------
Y2K of MMA or RIB (as the case may be), and concerning MMA and its
representatives and beneficial owners, satisfy in all material respects the
requirements of Section 14 of the Exchange Act and the regulations thereunder,
Sections 15 and 20 of the Investment Company Act and the regulations thereunder,
and such Forms ADV, ADV-Y2K, BD, BD-Y2K, TA-1 and TA-Y2K and such materials and
information are and will be complete in all material respects and do not contain
(at the time distributed or filed, as the case may be) any statement which, at
the time and in the light of the circumstances under which it is made, is false
or misleading with respect to any material fact, and will not omit to state any
material fact necessary in order to make the statements therein not false or
misleading or (with respect to information supplied by MMA, RTS, the
Subsidiaries and each
9
<PAGE>
Fund and included in proxy statements) necessary to correct any statement or any
earlier communication with respect to the solicitation of a proxy for the same
meeting or subject matter which has become false or misleading.
(b) The information supplied by MMA and RTS that is included in any
application or notice to or filing with the OTS or other banking authority
satisfies the requirements of Sections 5(q) and 10 of the Home Owners' Loan Act
and such materials and information are complete in all material respects and do
not contain (at the time distributed or filed, as the case may be) any statement
which, at the time and in the light of the circumstances under which it is made,
is false or misleading with respect to any material fact, and will not omit to
state any material fact necessary in order to make the statements therein not
false or misleading.
3.6. Brokers and Finders.
-------------------
None of MMA, RTS, the Subsidiaries or the Sellers has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder has acted,
directly or indirectly, for MMA, RTS, any Subsidiary (or any of their
representatives or employees) or Sellers in connection with this Agreement or
the transactions contemplated hereby.
3.7. Contracts.
---------
(a) Other than the Mutual Fund Agreements (including the Management
Contracts), the Partnership Agreement, the real estate leases for office space
in the property located at 4916, 4918, 4920 and 4922 Fairmont Avenue, Bethesda,
MD, the deposit accounts and Federal Home Loan Bank advances of RTS, and the
other agreements described on Schedule 3.7 (with copies of such other agreements
------------
attached thereto), none of MMA, RTS or any of the Subsidiaries is a party to any
material agreement that is not terminable by it without penalty or premium upon
thirty days' or less written notice (other than the payment of severance,
accrued vacation and accrued sick pay upon termination of an employee's service
consistent with past practices). For purposes hereof, a "material agreement"
means any agreement, contract, arrangement, commitment or understanding that (i)
imposes an obligation on MMA, RTS or any Subsidiary for a monetary expense in
excess of $12,000 per year, (ii) imposes an obligation on MMA, RTS or any
Subsidiary to supply goods, services, surety or warranty, (iii) limits the
freedom of MMA, RTS or any Subsidiary to compete either in any line of business
or with any person or entity, (iv) was not entered into in the ordinary course
of business consistent with past practice or (v) is a "material contract" within
the meaning of Item 601(b)(10) of Regulation S-K of the Securities and Exchange
Commission ("SEC").
(b) Except as set forth on Schedule 3.7, RTS is not a party to, bound
------------
by or subject to any agreement, contract, arrangement, commitment or
understanding that (i) limits the freedom of RTS to engage or compete either in
any line of business permitted by a federal savings bank or with any person or
entity, or (ii) provides any employee or consultant with the right to continue
his or her services or to the payment of severance upon termination of
10
<PAGE>
employment (other than severance generally available consistent with historical
practices of RTS applied on a uniform basis or as set forth in RTS' current
employee handbook or manual).
(c) Other than the Mutual Fund Agreements (including the Management
Contracts) and agreements terminable by it without premium or penalty upon
thirty days' or less written notice or that impose an obligation for monetary
expense in an amount equal to or less than $12,000 per year, any contract,
agreement, lease, arrangement or understanding which requires the consent of a
party in the event of an assignment is listed on Schedule 3.7(c).
---------------
3.8. No Defaults under Contracts or Agreements.
-----------------------------------------
None of MMA, RTS, the Subsidiaries or the Funds is in default in any
material respect under any lease, contract, mortgage, promissory note, deed of
trust, loan, guaranty or other commitment or arrangement to which such person is
a party or by which it is bound, and to the knowledge of MMA and Sellers, no
other party to any of the foregoing is in default in any material respect
thereunder and, except as set forth on Schedule 3.2(b), no event has occurred or
---------------
condition exists that with notice or the passage of time would constitute such a
default.
3.9. Real Estate and Assets.
----------------------
(a) (i) Schedule 3.9(a) sets forth a list of all of the real
---------------
estate owned by MMA, RTS or any Subsidiary (such real estate, together with all
appurtenant easements and other appurtenances thereto and with all buildings,
structures and other improvements thereon and all fixtures attached thereto or
forming a part thereof, is collectively referred to herein as the "Owned Real
Estate"). Except as set forth on Schedule 3.9(a), MMA, RTS and each Subsidiary
---------------
has good, valid, marketable and indefeasible fee simple title to the Owned Real
Estate owned by it, free and clear of all Liens, encroachments (by or onto the
Owned Real Estate), covenants, easements, mortgages, deeds of trust, rights of
first refusal, options, leases and subleases, licenses and title defects of any
nature (collectively, "Real Estate Encumbrances"), except for the following
(collectively, "Permitted Exceptions"): (x) the Real Estate Encumbrances, listed
on Schedule B-II to Commitment for Title Insurance number 8163-11 issued by
-------------
Fidelity National Title Insurance Company of New York dated August 31, 1999, a
copy of which attached to and hereby made a part of Schedule 3.9(a), none of
---------------
which materially interferes with the use of the affected property or the conduct
of the business therein as currently conducted, (y) the leases (the "Lessor
Leases") listed on Schedule 3.9(a), and (z) liens for ad valorem real property
---------------
taxes and assessments not yet due and payable. The water, gas, electricity and
other utilities serving the Owned Real Estate have been and are currently
adequate to service the normal operations conducted thereon consistent with past
practice. The Sellers have made available to MMA Buyer true, correct and
complete copies of all (i) title reports, title insurance policies and
commitments therefore, (ii) surveys, and (iii) licenses, certificates of
occupancy, plans, specifications and permits, pertaining to the Owned Real
Estate that are in the possession or control of any of MMA, RTS or any
Subsidiary.
(ii) MMA, RTS or a Subsidiary is in actual, exclusive
possession of the Owned Real Estate subject only to the rights of the tenants
under the Lessor Leases. True,
11
<PAGE>
complete and accurate copies of all of the Lessor Leases have been made
available to MMA Buyer, each of the Lessor Leases is in full force and effect
and none of the Lessor Leases has been amended or otherwise modified except as
set forth in Schedule 3.9(a). No tenant or other person has any right other than
---------------
as set forth in the Lessor Leases and the other Permitted Exceptions. All tenant
improvement and similar work to be performed under any of the Lessor Leases by
MMA, RTS or any Subsidiary or to be performed by any other person but paid for
by any of them, has been fully performed and paid for. None of MMA, RTS or any
Subsidiary is, and to knowledge of MMA and Sellers, no other party to any Lessor
Lease is, in default under any Lessor Lease and no event has occurred which,
with the giving of notice, the passage of time or both would constitute such a
default. All security deposits required under the Lessor Leases have been posted
and are held by RTS in accordance with the Lessor Leases and are properly
reflected on the financial books and records of RTS.
(iii) All of the real estate leased by MMA, RTS and any
Subsidiary is identified in Schedule 3.9(a) (the "Leased Real Estate"). All
---------------
leases of the Leased Real Estate (collectively, the "Real Estate Leases") are
identified in Schedule 3.9(a), and true and complete copies thereof have been
---------------
made available to MMA Buyer. Each of the Real Estate Leases has been duly
executed by the parties thereto and is in full force and effect. None of MMA,
RTS or the Subsidiaries is in default in any material respect under any of the
Real Estate Leases, nor, except as set forth in Schedule 3.2(b), has any event
---------------
occurred which, with the giving of notice or the passage of time, or both, would
give rise to such a default. To the knowledge of MMA, RTS and Sellers, the other
party to each of the Real Estate Leases is not in default in any material
respect thereunder and there is no event which, with the giving of notice or the
passage of time, or both, would give rise to such a default.
(iv) Except as set forth in Schedule 3.9(a), MMA, RTS or a
---------------
Subsidiary is in actual, exclusive possession of the Leased Real Estate and has
good and valid leasehold title thereto, free and clear of all Real Estate
Encumbrances, except Permitted Exceptions and Real Estate Encumbrances upon
landlord's fee estate.
(v) Except as set forth on Schedule 3.9(a), during the past
---------------
seven years, none of MMA, RTS or any Subsidiary has received any written or, to
the knowledge of MMA and Sellers, oral notice or order from any Governmental
Authority, insurance company which has issued a policy with respect to any of
the Owned or Leased Real Estate or any board of fire underwriters or other body
performing similar functions or any other person which (a) relates to or alleges
a violation of or nonconformity with any zoning, building, safety, subdivision,
wetlands or other similar law, code, rule, regulation, ordinance, permit,
license, certificate, covenant, restriction or condition with respect to any of
the Owned or Leased Real Estate, or (b) requests the performance of any material
repairs, alterations or other work that have not yet been cured or performed, as
applicable. During the past seven years, none of MMA, RTS or any Subsidiary has
received any written notice from any Governmental Authority or other person of
any condemnation action, eminent domain proceeding or other similar proceeding
concerning any of the Owned or Leased Real Estate. To the knowledge of MMA, RTS
and the Sellers, there is no pending condemnation, expropriation, eminent
domain, or similar proceeding affecting any
12
<PAGE>
of the Owned or Leased Real Estate and, to the knowledge of MMA, RTS and
Sellers, no such action, proceeding or litigation is threatened. All of the
buildings and improvements situated upon the Owned or Leased Real Estate are
operable and in good condition and repair, subject to ordinary wear and tear and
to the items set forth on Schedule 3.9(a).
---------------
(vi) The Owned and Leased Real Estate include all of the real
estate used in, and is the only real estate necessary for, the conduct of the
business of MMA, RTS and the Subsidiaries as currently conducted.
(b) Except as set forth in Schedule 3.9(b), as of the date hereof,
---------------
each of MMA, RTS and each Subsidiary owns all of its material fixed assets, free
and clear of any Liens and such fixed assets include all of the fixed assets
used in, and are all of the fixed assets necessary for, the conduct of the
respective businesses of MMA, RTS and the Subsidiaries as currently conducted.
(c) Except as set forth in Schedule 3.9(c), there are no legal,
---------------
administrative, arbitral or other proceedings, claims, actions, causes of
action, private or governmental investigations or remediation activities of any
nature seeking to impose, or that reasonably could be expected to result in the
imposition, on MMA, RTS or any Subsidiary of any liability or obligation arising
under common law or statutory standards or requirements relating to
environmental protection, human health or safety or under any local, state or
federal environmental statute, regulation or ordinance, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (collectively, the "Environmental Laws"), pending or, to
the knowledge of MMA and Sellers, threatened, against MMA, RTS or any
Subsidiary, which liability or obligation would have or would reasonably be
expected to have an MMA Material Adverse Effect (as hereinafter defined). To the
knowledge of MMA and Sellers, there is no reasonable basis for any such
proceeding, claim, action or governmental investigation that would impose any
liability or obligation that would have or would reasonably be expected to have
an MMA Material Adverse Effect. To the knowledge of MMA and Sellers, during or
prior to the period of (i) ownership or operation of any of current or former
properties by MMA, RTS or any Subsidiary, (ii) participation in the management
of any property by MMA, RTS or any Subsidiary, or (iii) holding of a security
interest or other interest in any property by MMA, RTS or any Subsidiary, there
were no releases or threatened releases of hazardous, toxic, radioactive or
dangerous materials or other materials regulated under Environmental Laws, in,
on, under, from or affecting any such property which would reasonably be
expected to have an MMA Material Adverse Effect. Neither MMA, RTS nor any
Subsidiary is subject to any agreement, order, judgment, decree, letter or
memorandum by or with any court, Governmental Authority, arbitrator or third
party imposing any material liability or obligation pursuant to or under any
Environmental Law that would have or would reasonably be expected to have an MMA
Material Adverse Effect.
3.10. Assets Under Management.
-----------------------
The aggregate net assets under management by MMA ("Aggregate Net
Assets") and the aggregate management fees net of discounts, rebates, fee
reimbursements and waivers
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<PAGE>
collected by MMA ("Net Management Fees") for the periods ended December 31, 1998
and June 30, 1999, are accurately set forth in Schedule 3.10. Set forth in
-------------
Schedule 3.10 is a list as of December 31, 1998, June 30, 1999 and September 30,
- -------------
1999, of all investment advisory agreements, administrative services agreements
and other service agreements, if any, to which MMA, RTS or a Subsidiary was a
party as of those dates (collectively, "Mutual Fund Agreements") setting forth
the name of the client under each such contract, the aggregate net assets
subject to each such contract, the fee schedule in effect with respect to each
such contract (and with respect to the list as of September 30, 1999, any
material adjustments to the effective fees made since June 30, 1999 (it being
understood and agreed that adjustments in excess of the lesser of 10% of the
effective fees or $100,000 are material)), the consent required for the
assignment by MMA, RTS or a Subsidiary of each such contract other than those
that by their express terms terminate upon assignment (which are so identified).
Except as set forth in Schedule 3.10 and expressly described thereon, there are
-------------
no contracts, arrangements or understandings pursuant to which MMA, RTS or a
Subsidiary has undertaken or agreed to limit, waive or reimburse any or all fees
or charges payable by any of the clients set forth in Schedule 3.10 or pursuant
-------------
to any of the contracts set forth in Schedule 3.10. Except as is set forth in
-------------
Schedule 3.10, as of the date hereof, no client of MMA, RTS or a Subsidiary has
provided any written notice to terminate or reduce its relationship with MMA,
RTS or a Subsidiary or adjust the fee schedule with respect to any contract in a
manner which would reduce the fee to MMA, RTS or a Subsidiary.
3.11. Financial Statements.
--------------------
(a) MMA has delivered to MMA Buyer the audited balance sheets of RTS
at December 31, 1997 and December 31, 1998, and audited statements of its
operations and cash flows for each of the two (2) years then ended, copies of
which are attached to Schedule 3.11 (the "1997 and 1998 RTS Financial
-------------
Statements"). The 1997 and 1998 RTS Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP"), applied
consistently during the periods covered thereby, present fairly, in all material
respects, the financial position of RTS at the dates of said statements and the
results of its operations for the periods covered thereby.
(b) Except for liabilities and obligations set forth in the balance
sheet to the 1998 RTS Financial Statements or the footnotes thereto and
liabilities and obligations incurred by RTS in the ordinary course of business
since December 31, 1998, as of the date hereof, RTS does 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, or
liabilities for taxes due or then accrued or to become due or contingent or
potential liabilities) that are required to be reflected in an audited balance
sheet or notes thereto in accordance with GAAP.
(c) As of the close of business on the day preceding the Closing Date,
neither MMA nor any of the Subsidiaries will have any liabilities or
obligations, absolute, contingent or otherwise, except for prospective
obligations and duties under the Real Estate Leases, the Mutual
14
<PAGE>
Fund Agreements (including the Management Contracts), employment and consulting
arrangements entered into in connection with this Agreement, the payment of
compensation and benefits to employees for services on or after the Closing
Date, honoring accrued vacation and sick pay of the employees, severance to
employees who are terminated after Closing consistent with past practices,
accrued and/or unbilled MMA Transaction Expenses, prospective obligations to
reimburse RTS for services and overhead provided by it or its employees to MMA
or any Subsidiary consistent with current practice, and obligations under
contracts that are terminable on thirty days' or less written notice without
penalty or premium.
3.12. Taxes.
-----
(a) MMA, RTS and each Subsidiary has 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, unincorporated business
taxes, sales taxes, use taxes, ad valorem or value added taxes, employment and
payroll-related taxes, withholding taxes, property 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 (including, without
limitation, all penalties relating to information reporting) owed by it
(collectively, "Taxes" and, each individually, a "Tax"), required to be paid by
it through the date hereof, whether disputed or not. Unpaid Taxes of RTS are
accrued quarterly on their respective financial books and records in accordance
with GAAP and there are no unpaid Taxes of the Subsidiaries. All Taxes required
to be withheld by MMA, RTS or any Subsidiary including, but not limited to,
Taxes arising as a result of payments or allocations (including guaranteed
payments) to foreign persons or to employees of MMA, RTS or any Subsidiary 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 financial books and records of MMA, RTS or
the Subsidiaries (as the case may be).
(b) MMA, RTS and each Subsidiary has, in accordance with applicable
law, filed all federal, state, local and foreign Tax returns (including all
schedules thereto) required to be filed by it, and all such returns, to the
knowledge of MMA and Sellers, correctly and accurately set forth the amount of
any Taxes relating to the applicable period. No Seller has or will, on a Tax
return of the Seller, treat a partnership Tax item of MMA in a manner
inconsistent with the treatment of such item on a Tax return of MMA. A list of
all federal, state, local and foreign income Tax returns filed with respect to
MMA, RTS and each Subsidiary for taxable periods ended on or after December 31,
1995, is set forth in Schedule 3.12, and said Schedule indicates those returns
-------------
that have been audited or subject to administrative or judicial proceedings or
currently are the subject of an audit or administrative or judicial proceeding.
For each taxable period of MMA, RTS and each Subsidiary ended on or after
December 31, 1995, MMA has delivered to MMA Buyer 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 MMA, RTS and
each Subsidiary. Sellers will arrange for the preparation and timely filing of
the final partnership Tax returns for the final taxable year of MMA ending on
the
15
<PAGE>
Closing Date (including any required Internal Revenue Service ("IRS") Form 8308)
and supplying required tax information to MMA, any such filings shall be
complete and correct, and Sellers shall arrange for the timely payment of any
amounts shown or required to be shown as due thereon.
(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 MMA and Sellers, threatening to assert against
MMA, RTS or any Subsidiary any deficiency or claim for additional Taxes or to
initiate any examination or proceedings with respect to any partnership Tax
items. No claim has ever been made by a Taxing Authority in a jurisdiction where
MMA, RTS or any Subsidiary does not file reports and returns that any of them
(or any of the Sellers, by reason of their investment in MMA) is or may be
subject to taxation by that jurisdiction. There are no liens or security
interests (unrecorded or recorded) on any of the assets of MMA, RTS or any
Subsidiary that arose in connection with any failure (or alleged failure) by
MMA, RTS, any Subsidiary or any of the Sellers to pay any Taxes. None of MMA,
RTS or any Subsidiary has ever entered into a settlement or closing agreement
with the IRS or any comparable agreement with any other Taxing Authority.
(d) No extension of time with respect to any date on which a Tax
return was or is to be filed by MMA, RTS or any Subsidiary is currently in
effect, and no waiver or agreement by MMA, RTS or any Subsidiary is currently in
effect for an extension of time for the assessment or payment of any Taxes or
adjustment of any partnership Tax items.
(e) MMA has never been (nor has it 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 Internal Revenue Code of 1986, as amended (the "Code")).
None of RTS or the Subsidiaries has ever been (nor has RTS or the Subsidiaries
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. None of MMA, RTS
or the Subsidiaries has ever filed, nor have they ever been required to file, a
consolidated, combined or unitary tax return with any other entity, other than
tax returns with each other. None of MMA, RTS or the Subsidiaries is a party to
any tax sharing agreement.
3.13. Loans; Accounts Receivable.
--------------------------
All of the loans extended by RTS are listed on Schedule 3.13 and are
-------------
valid and enforceable in accordance with their respective terms and subject to
no setoff or counterclaim. None of MMA, RTS and each Subsidiary has any
accounts receivable or loans receivable from any person, firm or corporation or
other entity which is affiliated with MMA, RTS or any Subsidiary or from any
director, officer or employee of MMA, RTS or any Subsidiary except as disclosed
in Schedule 3.13. Nothing in this Section 3.13 is intended as a representation
------------- ------------
or warranty as to the creditworthiness of any borrower or guarantor or the
current value or collectibility of any loan.
16
<PAGE>
3.14. Absence of Certain Changes.
--------------------------
Except as disclosed in Schedule 3.14, since December 31, 1998 to the
-------------
date hereof, there has not been:
(a) with respect to MMA, RTS, any Subsidiary, any Fund or the
Cappiello-Rushmore Trust, any event, circumstance or condition (A) that has
caused or could reasonably be expected to cause a material adverse effect
(whether taken individually or in the aggregate with all other such effects) on
the financial condition or business or results of operations of MMA, RTS, any
Subsidiary or any Fund, taken as a whole, or (B) affecting MMA, RTS, any
Subsidiary or any Fund which would prevent the consummation of the transactions
contemplated by this Agreement or have a material adverse effect on the assets
of MMA, RTS, each Subsidiary or each Fund, taken as a whole, except for (i)
conditions, events or circumstances generally affecting the economy as a whole
or (ii) any decrease in Aggregate Net Assets from market fluctuations,
redemptions or otherwise (an "MMA Material Adverse Effect");
(b) any amendment or termination or, to the knowledge of MMA and
Sellers, proposed or threatened amendment or termination, whether written or
oral, of any Mutual Fund Agreement, Partnership Agreement, Real Estate Lease or
any agreement listed in Schedule 3.7;
------------
(c) any material claim placed on any of the properties or assets of
MMA, RTS or any Subsidiary;
(d) any cancellation of any material debt or material claim owing to,
or waiver of any material right of, MMA, RTS or any Subsidiary;
(e) any 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 MMA, RTS or any Subsidiary other than in the ordinary
course of business consistent with past practices;
(f) any material damage, destruction or loss, whether or not covered
by insurance, to the assets of MMA, RTS or any Subsidiary;
(g) any declaration, setting aside or payment of any dividend or
distribution by RTS or the making of any other distribution in respect of Stock
or any direct or indirect redemption, purchase or other acquisition of the
Interests, Stock or Subsidiary Stock other than distributions and dividends made
by RTS in the ordinary course and consistent with past practices;
(h) any change in the compensation payable or to become payable by
MMA, RTS or any Subsidiary to any of its representatives, employees, agents or
independent contractors other than (x) normal increases in accordance with its
usual practices or (y) any non-recurring bonus payment or arrangement made to or
with any of such representatives, employees, agents or independent contractors;
17
<PAGE>
(i) any obligation or liability incurred by MMA, RTS or any Subsidiary
to any of its representatives, employees, or any Seller or Stockholder or any
loans or advances made by MMA, RTS or any Subsidiary to any of its
representatives, employees, or any Seller or Stockholder except normal
compensation and expense allowances payable to representatives or employees in
the ordinary course of business consistent with past practices and MMA
Transaction Expenses;
(j) any payment or discharge of a material lien or liability of MMA,
RTS or any Subsidiary other than in the ordinary course of business consistent
with the past practices of MMA, RTS or any Subsidiary;
(k) any change in accounting methods or practices (except as required
by applicable law or GAAP), or billing or collection policies used by MMA, RTS
or any Subsidiary; or
(l) any capital expenditures incurred by RTS in excess of $25,000 in
the aggregate, other than expenditures necessary to maintain existing assets in
good repair.
(m) any agreement or understanding, whether in writing or otherwise,
for MMA, RTS or any Subsidiary to take any of the actions specified in
paragraphs (a) through (l) above.
3.15. Ordinary Course.
---------------
Except as otherwise specifically contemplated by this Agreement, since
December 31, 1998 to the date hereof, each of MMA, RTS and RSI has conducted its
business only in the ordinary course and consistently with its prior practices
and RIB has not engaged in active business.
3.16. Banking Relations.
-----------------
All of the arrangements which MMA, RTS, each Subsidiary and each Fund
has with any banking institution are, in all material respects, accurately
described in Schedule 3.16, indicating with respect to each of such arrangements
-------------
the type of arrangement maintained (such as checking account or borrowing
arrangements) and the person or persons authorized in respect thereof.
3.17. Intellectual Property.
---------------------
(a) None of MMA, RTS or any Subsidiary has any patents, copyrights,
trade secrets, trademarks, trade names, service marks, formulas, designs,
inventions or other proprietary rights (collectively, "Intellectual Property")
except for readily available Intellectual Property licensed from others,
customer lists and related data and rights in and to the names in their areas of
use of "Money Management Associates" and "Rushmore Trust and Savings," rights in
and to the logo and the service marks, and such rights in and to the service
marks are
18
<PAGE>
listed in Schedule 3.17. MMA owns the registration for each of the service marks
-------------
"Rushmore," "The Rushmore Fund, Inc." and "Rushmore Investment Brokers, Inc."
filed with the United States Patent and Trademark Office. Neither MMA nor
Sellers have knowledge of any infringement by others of any Intellectual
Property rights of MMA, RTS or any Subsidiary.
(b) The business of MMA, RTS or any Subsidiary does not, to the
knowledge of MMA and Sellers, infringe any rights of any other person in
Intellectual Property. No proceeding charging MMA, RTS or the Subsidiaries with
infringement of any Intellectual Property of any other person has been filed or,
to the knowledge of MMA and Sellers, is threatened to be filed. None of MMA, RTS
or the Subsidiaries or, to the knowledge of MMA and Sellers, any of their
respective employees have any agreements or arrangements with any person 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 employees on behalf of MMA, RTS or any Subsidiary do not
violate any such agreements or arrangements known to MMA or Sellers.
3.18. Litigation.
----------
Except as set forth on Schedule 3.18, there is no litigation, action,
-------------
suit or proceeding pending or, to the knowledge of MMA and Sellers, threatened
against MMA, RTS or any Subsidiary or any of their assets at law or in equity,
or before any Governmental Authority (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 MMA, RTS or any Subsidiary is a party, or to the
knowledge of MMA and Sellers, with which any of them is threatened. There are
no proceedings pending or, to the knowledge of MMA and Sellers, threatened,
relating to the termination of, or limitation of, the rights of MMA under its
registration under the Advisers Act as an investment adviser or under the
Exchange Act as a transfer agent, the rights of RIB under its registration under
the Exchange Act as a broker-dealer, the rights of RTS as a federal savings bank
under the Home Owners' Loan Act, as a transfer agent under the Exchange Agent or
as an FDIC insured institution under the Federal Deposit Insurance Act or any
similar or related rights under any registrations or qualifications with various
states or other jurisdictions, or under any other investment and banking laws
and regulations. There are no judgments, injunctions, orders or other judicial
or administrative mandates outstanding against or affecting MMA, RTS, any
Subsidiary or the Principal Sellers or, to the knowledge of MMA, RTS and
Sellers, any representative thereof or any Seller other than the Principal
Sellers relating to the activities of or affecting MMA, RTS or any Subsidiary.
3.19. Business: Registrations and Compliance with Laws.
------------------------------------------------
(a) MMA is duly registered as an investment adviser under the Advisers
Act and a transfer agent under the Exchange Act. RIB is duly registered as a
broker-dealer under the Exchange Act and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"). MMA is duly
registered, licensed and qualified as an investment adviser, RIB is duly
registered, licensed and qualified as a broker-dealer, and MMA and RTS are
19
<PAGE>
each duly registered, licensed and qualified as a transfer agent in all
jurisdictions where such registration, licensing or qualification is required in
order to conduct its business, except where the failure to be so registered,
licensed or qualified would not have an MMA Material Adverse Effect. MMA, RTS
and each Subsidiary is, and, since its inception, has been, and all of their
real properties and other assets are currently, except for any material non-
compliance prior to the date hereof which has been cured, in compliance in all
material respects with all applicable federal, state and local laws, rules,
regulations, codes, ordinances and orders. MMA has delivered to MMA Buyer true
and complete copies of its most recent Form ADV and Form TA-1, the Form BD of
RIB and the Form TA-1 of RTS, each 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 MMA, RIB and/or RTS (as the case may be) has made all amendments to
such forms as it is required to make under any applicable laws. None of MMA,
RIB, RTS or, to the knowledge of MMA and Sellers, a "person associated with" (as
defined under Section 202(a)(17) of the Advisers Act and Sections 3(a)(18) and
3(a)(49) of the Exchange Act) MMA, RIB or RTS, 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 the registration of MMA as an investment adviser, RIB as a
broker-dealer or MMA or RTS as a transfer agent (as the case may be), and to the
knowledge of MMA and Sellers, there is no proceeding or investigation that is
reasonably likely to become the basis for any such disqualification, denial,
suspension or revocation. MMA (as investment advisor) and each "person
associated with" MMA (as defined in Section 202(a)(17) of the Advisers Act),
including any investment adviser representatives (as such term is defined in
Rule 203A-3(a) under the Advisers Act), MMA (as transfer agent), RIB, RTS and
each "person associated with" MMA, RIB or RTS (as defined under Sections
3(a)(18) and 3(a)(19) of the Exchange Act) and each Subsidiary has, and after
giving effect to the Closing will have, all permits, registrations, licenses,
franchises, certifications and other approvals (collectively, the "Licenses")
required from, and has filed all reports required by, Governmental Authorities
in order for it to conduct the businesses presently conducted by MMA (as
investment adviser and transfer agent), RTS or any Subsidiary (as the case may
be) in the manner presently conducted by them and to own, use and operate its
properties in the manner currently owned, used and operated, except for any such
Licenses which are required solely by reason of Buyers' participation in the
transactions contemplated hereby. None of MMA, RTS or the Subsidiaries is
subject to any limitation imposed in connection with one or more of the Licenses
which would have an MMA Material Adverse Effect.
(b) Except as set forth in Schedule 3.19, neither MMA, RTS nor any of
-------------
its Subsidiaries is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement, supervisory agreement or
memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or has
adopted by board resolutions at the request of (each, whether or not set forth
in Schedule 3.19, a "Regulatory Agreement"), any Governmental Authority that
-------------
restricts the conduct of its business or that in any manner relates to its
capital adequacy, its credit policies, its management or its business, nor has
MMA, RTS or any of its Subsidiaries been advised by
20
<PAGE>
any Governmental Authority that it is considering issuing or requesting any
Regulatory Agreement.
3.20. Insurance.
---------
RTS 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 business, properties and assets and each of MMA, RTS and the
Subsidiaries has in full force and effect such insurance and bonds as are
required by any contract to which it is a party or applicable law, all as listed
in Schedule 3.20. None of MMA, RTS or the Subsidiaries is in material default
-------------
under any such insurance policy.
3.21. Copies of Documents.
-------------------
Except as otherwise provided herein, to the knowledge of MMA and
Sellers, MMA has or has caused to be made available for inspection and copying
by MMA Buyer and its counsel and advisors true and correct copies of all
documents referred to in this Agreement or in the Schedules delivered to MMA
Buyer in connection herewith.
3.22. Transactions with Interested Persons.
------------------------------------
Except as set forth in Schedule 3.22, none of MMA, RTS, the
-------------
Subsidiaries, any employee of any of them (as the case may be), any Seller or
Stockholder, or, to the knowledge of MMA and Sellers, any of their respective
spouses or family members, is a party to any material transaction or material
contract or arrangement with MMA, RTS or any Subsidiary 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, do not exceed five percent (5%) of the outstanding shares or
comparable interest in such entity) in, or serves as an officer or director or
in another similar capacity of, any competitor or client of MMA, RTS or any
Subsidiary or any organization which has a material contract or arrangement with
MMA, RTS or any Subsidiary.
3.23. Employee Benefit Programs.
-------------------------
(a) Schedule 3.23 lists every Employee Program (as defined below) that
-------------
has been maintained (as defined below) by MMA, RTS or any Subsidiary at any time
during the three-year period ending on the date of the Closing.
(b) Each Employee Program which has been maintained by MMA, RTS or any
Subsidiary during the past seven years 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 no such determination or approval letter
has been revoked nor, to the knowledge of MMA and Sellers, is there any reason
for such revocation from the effective date of such Employee Program through and
including the
21
<PAGE>
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) Neither MMA nor Sellers knows or has 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 MMA, RTS or any Subsidiary. To
the knowledge of MMA and Sellers, each Employee Program that has been maintained
by MMA, RTS or any Subsidiary has been maintained, operated and administered in
compliance in all material respects with its terms and with any related
documents or agreements. With respect to any Employee Program ever maintained by
MMA, RTS or any Subsidiary, 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 material taxes, penalties or other liability to Buyers,
MMA, RTS or any Subsidiary. 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) All contributions to, and payments from, any Employee Program
maintained by MMA, RTS or any Subsidiary that may have been required in
accordance with the terms of such Employee Program have been timely made or are
properly accrued, to the extent required. Any insurance premium under any
insurance policy related to an Employee Program for any period up to and
including the Closing Date shall have been paid before the Closing Date.
(e) None of MMA, RTS, any Subsidiary or any ERISA Affiliate (as
defined below) while an ERISA Affiliate (i) has, at any time after January 1,
1992, 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 that could impose a monetary obligation or material non-
monetary obligation after Closing upon Buyers, MMA, RTS or any Subsidiary.
(f) With respect to each Employee Program maintained by MMA, RTS or
any Subsidiary 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 MMA Buyer: (i) all documents
embodying or governing such Employee Program, and any funding medium for the
Employee Program (including, without limitation, trust agreements) as they may
have been amended; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Sections 401 or 501(c)(9), and
any applications for determination or approval subsequently filed with the IRS;
(iii) the three (3) most recently
22
<PAGE>
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 MMA Buyer
to perform any of its responsibilities with respect to any Employee Program
subsequent to the Closing (including, without limitation, health care
continuation requirements).
(g) Each Employee Program listed on Schedule 3.23 may be amended,
-------------
terminated, modified or otherwise revised by MMA, RTS or any Subsidiary (as the
case may be) subject to compliance with applicable law.
(h) 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 MMA, RTS or any
Subsidiary during any period in which it is, or was, considered a single
employer with MMA, RTS or any Subsidiary under ERISA Section 4001(b) or part of
the same "controlled group" as MMA, RTS or any Subsidiary for purposes of Code
Section 414 or ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" shall have the meaning set forth in
ERISA Section 3(37).
23
<PAGE>
3.24. Officers and Employees.
----------------------
(a) Schedule 3.24(a) contains a true and complete list of all current
----------------
officers and employees of MMA, RTS or the Subsidiaries. In each case, such
Schedule includes the current job title and annual salary of each such
individual.
(b) Except as set forth in Schedule 3.23 or Schedule 3.24(b), none of
------------- ----------------
MMA, RTS or the Subsidiaries has any obligation, contingent or otherwise, under
(a) any collective bargaining or other similar labor agreement, (b) any written
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 written non-terminable (whether with or without
penalty) employment arrangement (each an "Employment Arrangement"). None of MMA,
RTS or the Subsidiaries is in default with respect to any material term or
condition of any Employment Arrangement, nor will the Closing (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. None of MMA, RTS or the Subsidiaries 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. Except as set forth in Schedule
--------
3.24(b), upon termination of the employment of any of said employees, none of
- -------
MMA, RTS or the Subsidiaries could, by reason of the transactions contemplated
by this Agreement or any act or omission occurring prior to the Closing, be
liable to any of said employees for so-called "severance pay" or any other
payments. None of MMA, RTS or the Subsidiaries is obligated to make any
payments, nor is it a party to any agreement that could obligate MMA, RTS or any
Subsidiary to make any payments, that will not be deductible under Section 280G
of the Code. Except as set forth in Schedule 3.24(b), none of MMA, RTS or the
----------------
Subsidiaries has any written policy, plan or program of paying severance pay or
any form of severance compensation in connection with the termination of
employment. MMA, RTS and each Subsidiary 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 MMA, RTS or any
Subsidiary. There are no grievances, complaints or charges that have been filed
against MMA, RTS or any Subsidiary under any dispute resolution procedure that
would have an MMA Material Adverse Effect, and there is no arbitration or
similar proceeding pending and no claim therefor has been asserted. MMA, RTS and
each Subsidiary has in place all employee policies required by applicable laws,
rules and regulations, the failure of which to have in place would have an MMA
Material Adverse Effect, and there have been no material violations or alleged
violations of any of such policies. None of MMA, RTS or the Subsidiaries has
received any written notice indicating that any of its employment policies or
practices is currently being audited or investigated by any Governmental
Authority. MMA, RTS and each Subsidiary is, and at all times since November 6,
1986 has been, in compliance with the requirements of the Immigration Reform
Control Act of 1986.
24
<PAGE>
3.25. Non-Foreign Status.
------------------
None of the Sellers, MMA, RTS or the Subsidiaries is a nonresident
alien individual or foreign corporation for purposes of Section 897 of the Code.
RTS is not a United States real property holding corporation within the meaning
of Section 897(c)(ii) of the Code.
3.26. Transfer of Interests, Stock or Subsidiary Stock.
------------------------------------------------
No current holder of Interests, Stock or Subsidiary Stock has at any
time transferred any of such Interests, Stock or Subsidiary Stock or any right
or obligation thereunder to any employee of MMA, RTS or any Subsidiary which
transfer constituted compensation for services rendered to MMA, RTS or any
Subsidiary by said employee.
3.27. No Unfair Burden.
----------------
In connection with the transactions contemplated by this Agreement,
none of MMA, RTS, the Subsidiaries, Sellers or any "interested person" (as such
term is defined in the Investment Company Act) of MMA, RTS, the Subsidiaries or
Sellers has imposed and MMA, RTS, the Subsidiaries and Sellers, and the
"interested persons" of each, do not intend to, directly or indirectly, impose,
an unfair burden on the Funds as a result of any such transactions, or as a
result of any express or implied terms, conditions, or understandings applicable
to any such transactions within the meaning of Section 15(f) of the Investment
Company Act.
3.28. Additional Representations and Warranties relating to each Fund.
---------------------------------------------------------------
(a) Since inception, each Fund has been and continues to be a duly
registered investment company in material compliance with the Investment Company
Act and the rules and regulations promulgated thereunder and duly registered or
licensed and in good standing under the laws of each jurisdiction in which such
qualification is necessary. To the knowledge of MMA and Sellers, each Fund,
since its inception, has been, except for any material non-compliance prior to
the date hereof which has been cured, in compliance in all material respects
with all applicable federal and state laws, rules, regulations and orders,
except as set forth on Schedule 3.28(a). Since their initial offering, shares of
----------------
each Fund have been duly qualified for sale under the securities laws of each
jurisdiction in which they have been sold or offered for sale at such time or
times during which such qualification was required except where the failure to
be so registered or licensed would not have an MMA Material Adverse Effect. The
offering and sale of shares of each Fund have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), during such period or
periods for which such registration is required, the related registration
statement has become effective under the Securities Act, no stop order
suspending the effectiveness of such registration statement has been issued and
no proceedings for that purpose have been instituted or, to the knowledge of MMA
and Sellers, are contemplated. As the same pertain to each Fund, to the
knowledge of MMA and Sellers, the registration statement of the Fund under the
Investment Company Act and/or the Securities Act has, at all times when such
registration statement was effective, complied in all material respects with the
requirements of the Investment Company Act and the Securities Act then in effect
and
25
<PAGE>
neither such registration statement nor any amendments thereto contained at the
time such registration statement became effective and during which time that the
registration statement was in use, an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Copies of the current registration statement of each
Fund under the Investment Company Act and/or the Securities Act which was filed
____________, 199_, (the "Registration Statement") have been made available to
MMA Buyer. All shares of each Fund were sold pursuant to an effective
registration statement to the extent required by the Securities Act and have
been duly authorized and, when issued, were validly issued, fully-paid and non-
assessable against each Fund. Each Fund's investments made since inception have
been made in all material respects in accordance with its investment objective,
investment policies and restrictions set forth in its registration statement in
effect at the time the investments were made (except where any violation of the
foregoing has been cured and the Fund has been made whole for any resulting
losses) and have been held in accordance with its respective investment policies
and restrictions, to the extent applicable and in effect at the time such
investments were held.
(b) As to each Fund, there has been in full force and effect an
investment advisory agreement at all times since the inception of each Fund.
Each agreement pursuant to which MMA, RTS or any Subsidiary has received
compensation respecting its activities in connection with each Fund was duly
approved and has been duly renewed in accordance with the applicable provisions
of the Investment Company Act.
(c) Except as set forth on Schedule 3.28(c), there are no special
----------------
restrictions, consent judgments or SEC or judicial orders on or with regard to
any Fund currently in effect.
(d) Since its inception, each Fund has continuously elected and
qualified to be treated as a "regulated investment company" under Subsection M
of the Code and has continuously been eligible to compute, and has for each
taxable year computed, its federal income tax under Section 852 of the Code.
None of MMA, RTS, any Subsidiary or, to the knowledge of MMA and Sellers, any
Fund, has received any notice or other communication relating to or affecting
such status.
(e) At the Closing Date, each Fund will have timely filed all Tax
returns, reports and other filings (including information returns, declarations
and reports) (the "Mutual Fund Tax Returns") required to be filed by it on or
before such date, any such Mutual Fund Tax Returns shall be, to the knowledge of
MMA and Sellers, complete and correct, and each Fund will have paid, or withheld
and paid over, all Taxes shown or required to be shown as due on such Mutual
Fund Tax Returns. No such Mutual Fund Tax Return is currently under audit, no
assessment has been asserted with respect to such Mutual Fund Tax Returns, and
no requests for waivers of the time to make any such assessment are pending.
None of the Funds is delinquent in the payment of any Tax, assessment or
governmental charge.
(f) None of MMA, RTS, any Subsidiary or any person who is an
"affiliated person" (as defined in the Investment Company Act) or an "interested
person" (as defined in the Investment Company Act) of MMA, RTS or any
Subsidiary, receives or is entitled to receive any
26
<PAGE>
compensation directly or indirectly (i) from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of such
Fund, other than as broker in connection with the purchase or sale of securities
in compliance with Section 17(e) of the Investment Company Act and regulations
thereunder, or (ii) from any Fund or its security holders for other than bona
fide investment advisory, administrative or other services. Accurate and
complete disclosure of all such compensation arrangements has been made in the
Registration Statement filed under the federal securities laws.
(g) MMA has made available to MMA Buyer correct and complete copies of
the audited financial statements, prepared in accordance with GAAP, of each Fund
for the past five fiscal years, and unaudited financial statements, prepared in
accordance with GAAP, of each Fund as of its most recent semi-annual stub period
(the "1999 Unaudited Financials") (each hereinafter referred to as a "Mutual
Fund Financial Statement"). Each of the Mutual Fund Financial Statements is
consistent with the books and records of such Fund, is complete and correct in
all material respects and presents fairly the financial position of such Fund in
accordance with GAAP applied on a consistent basis (except as otherwise noted
therein) at the respective date of such Mutual Fund Financial Statements and the
results of operations and cash flows for the respective periods indicated
(except in the case of the 1999 Unaudited Financials, the absence of footnotes
and customary year end adjustments). The Mutual Fund Financial Statements
reflect and disclose all material changes in accounting principles and practices
adopted by each Fund during the periods covered by each Mutual Fund Financial
Statement.
(h) Except as set forth on Schedule 3.28(h), there is no litigation or
----------------
action, suit, proceeding or investigation at law or in equity pending or, to the
knowledge of MMA and Sellers, threatened in any court or before or by any
Governmental Authority, or before any arbitrator, by or against each Fund, or,
to the knowledge of MMA and Sellers, any officer or director thereof, MMA, RTS
or any Subsidiary relating to the activities of any Fund, that, if successful,
would result in any disqualification of MMA under Section 9(a) of the Investment
Company Act, or any event which would require MMA to give an affirmative
response to any of the questions in Item 11 of MMA's Form ADV (or any similar or
successor form) or Item 3 of the SEC Supplement to Form TA-1 (or any similar
successor form) or require an affirmative response from RIB under Item 7 of
RIB's Form BD (or any similar or successor form) or from RSI under Item 3 of the
SEC Supplement to Form TA-1 (or any similar successor form). There are no
judgments, injunctions, orders or other judicial or administrative mandates
outstanding against or affecting any Fund or, to the knowledge of MMA and
Sellers, any officer or director thereof relating to the activities of or
affecting any Fund.
(i) Except as set forth on Schedule 3.28(i), to the knowledge of MMA
----------------
and Sellers, each Fund complies, and has been maintained in compliance, in all
material respects, with all applicable requirements, including all reporting and
disclosure requirements, prescribed by any and all applicable laws or
regulations and orders thereunder.
(j) The exhibit list in the Registration Statement includes all of the
documents that would be required to be included thereon if such Registration
Statement were being refiled.
27
<PAGE>
(k) MMA has furnished to MMA Buyer, with respect to each Fund,
complete and correct copies of (i) Annual and Semi-Annual Reports and proxy
statements of the Fund pertaining to the last five years of the Fund, each in
the form delivered to the Fund's shareholders, as well as any additional report
or other material generally delivered to such shareholders since the delivery of
such Annual Report or Semi-Annual Report, as the case may be; (ii) all
Prospectuses, together with Statements of Additional Information of each Fund,
filed with the SEC in the last five years and (iii) all reports of each Fund on
Form N-SAR together with any and all exhibits annexed thereto from the last five
years of each Fund; each in the form filed with the SEC (all of the foregoing
documents referred to in (i), (ii) and (iii) being collectively referred to
herein as the "Fund Statements"). To the knowledge of MMA and Sellers, the
information contained in the Fund Statements does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make any material statement made
therein, in light of the circumstances, not misleading. The financial
statements, including, without limitation, the Statement of Assets and
Liabilities, the Statement of Operations and the Statement of Changes in Net
Assets, and the notes thereto set forth in any such Annual or Semi-Annual Report
fairly present the financial position of each Fund as at the dates of such
statements and the results of its operations for the periods covered thereby in
accordance with GAAP consistently applied (except as noted therein). Since the
end of the period covered by any such Annual or Semi-Annual Report, there has
occurred no event or condition which would (i) require any Fund to file an
additional amendment, registration statement, prospectus, prospectus supplement,
report or other document with the SEC, which document has not been so filed with
the SEC and delivered to Buyers or (ii) require any Fund to conduct a meeting of
its shareholders, in each case other than with respect to the transactions
contemplated by this Agreement.
3.29. Absence of Certain Changes.
--------------------------
Since the date of the most recent Mutual Fund Financial Statements of
each Fund to the date hereof, no event or development has occurred that has had
or would reasonably be expected to have an MMA Material Adverse Effect on any
Fund. During such period, neither MMA (as pertains to its management of each
Fund) nor any Fund has:
(a) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or other equity interests or
otherwise purchased or redeemed, directly or indirectly, any shares of its
capital stock or other equity interests, except in the ordinary course of its
business consistent with past practice;
(b) had any action taken by the Board of Directors/Trustees of any
Fund, other than actions in the ordinary course of business;
(c) adopted, or amended in any material respect, any employment,
collective bargaining, bonus, profit-sharing, compensation, stock option,
pension, retirement, deferred compensation or other plan, agreement, trust, fund
or arrangement for the benefit of any Director/Trustee of the Funds;
28
<PAGE>
(d) amended or terminated or, to the knowledge of MMA and Sellers,
proposed or threatened amendment or termination, whether written or oral, of any
agreement or contract involved in the operation of any Fund;
(e) amended its Articles of Incorporation, Declaration of Trust or by-
laws or any other organizational documents;
(f) waived any right of material value;
(g) changed in any material respect its investment objective,
policies, or restrictions;
(h) except as set forth on Schedule 3.29(h), changed its accounting
----------------
practices, policies or principles, except as may be required under applicable
law or GAAP;
(i) operated its business in any manner other than in the ordinary
course of business consistent with past practice; or
(j) except as otherwise contemplated herein, taken any action or
omitted to take any action that is reasonably likely to result in the occurrence
of, or agreed or committed to do, any of the foregoing.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller, on his or her own behalf only, represents and warrants to
Buyers as follows:
4.1. Ownership of Interests.
----------------------
(a) Each Seller (i) is the sole record and beneficial owner of the
Stock and/or Interests set forth opposite his, her or its name on Schedule 1.1,
------------
free and clear of all Liens; and (ii) has full legal right, power and authority
to enter into this Agreement and to sell such Stock and/or Interests to Buyers
without the need for the consent of any other person.
(b) Neither the execution, delivery and performance of this Agreement
and each document, agreement and instrument to be executed by Sellers pursuant
to or as contemplated by this Agreement nor the consummation by Sellers of the
transactions contemplated hereby, will (i) violate, conflict with, or result in
a breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or the creation of any Lien upon any
of the properties or assets of MMA, RTS, any Subsidiary or
29
<PAGE>
the Funds under any of the terms, conditions or provisions of (x) the
organizational documents of MMA, RTS, any Subsidiary or any Fund, or (y) except
as set forth in Schedule 3.2(b) or Schedule 4.1(b), any note, bond, mortgage,
--------------- ---------------
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which MMA, RTS, any Subsidiary or any Fund is a party or by which
MMA, RTS, any Subsidiary or any Fund may be bound, or to which MMA, RTS, any
Subsidiary or any Fund, or the properties or assets of MMA, RTS, any Subsidiary
or any Fund, may be subject, or (ii) violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation of any governmental, regulatory
or self-regulatory authority applicable to MMA, RTS, any Subsidiary or any Fund
or to any of the properties or assets of MMA, RTS, any Subsidiary or any Fund.
4.2. Authorization.
-------------
This Agreement and each document, agreement and instrument to be
executed by Sellers pursuant to or as contemplated by this Agreement, has been
duly authorized, executed and delivered by Sellers, and no further proceedings
on the part of Sellers are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement and each document, agreement
and instrument to be executed by Sellers (as the case may be) pursuant to or as
contemplated by this Agreement, is the legal, valid and binding obligation of
Sellers, enforceable in accordance with its terms.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1. Conduct Prior to Closing.
------------------------
MMA hereby covenants and agrees with Buyers that, prior to the
Closing, unless the prior written consent of MMA Buyer shall have been obtained
and except as otherwise expressly contemplated in this Agreement or requested by
MMA Buyer (and agreed to by MMA), MMA, RTS, each Subsidiary and each Fund shall
operate its business only in the usual, regular and ordinary course and in
accordance with past practice and conduct its business in a manner comporting
with the standards of service quality and compliance heretofore met by it, shall
use its best efforts to operate its business in compliance in all material
respects with applicable laws and shall use its commercially reasonable efforts
to preserve intact its business organization and assets and maintain its rights,
franchises and business and customer relations necessary to run the business as
currently run. To the extent this Section 5.1 (or any of its subsections
hereinafter set forth) is applicable to the Funds, MMA's obligation shall be
limited to not taking any action (except as directed by the governing board of a
Fund) or recommending that the Funds take any action inconsistent with the
following covenants and agreeing to promptly advise MMA Buyer of any action
taken by a Fund's officers or governing board that would be inconsistent with
the following covenants. From the date hereof until the Closing, MMA shall
ensure, subject to the foregoing, that without the prior written consent of MMA
Buyer and except as otherwise expressly contemplated by this Agreement:
30
<PAGE>
(a) MMA, RTS, each Subsidiary and each Fund shall not incur any
indebtedness for borrowed money, except in the ordinary course of business
consistent with prior practice, issue or sell any debt securities or prepay any
debt;
(b) MMA, RTS, each Subsidiary and each Fund shall not, except in the
ordinary course of business consistent with past practice, sell, transfer,
lease, mortgage, pledge or hypothecate any of its properties or assets, tangible
or intangible; provided, that in any event RTS shall not sell, transfer, lease
or encumber the Owned Real Estate or any interest therein or portion thereof or
enter into any contract, agreement or understanding to do the same;
(c) MMA, RTS, each Subsidiary and each Fund shall not, except where
required in the exercise of its fiduciary obligations, take any action (other
than in connection with the transactions contemplated hereby), other than
actions in the ordinary course of business;
(d) MMA, RTS, each Subsidiary and each Fund shall not forgive or
cancel any debts or claims, or waive any rights, or discharge any lien or
liability except for fair value or in the ordinary course of business consistent
with past practice;
(e) MMA, RTS and each Subsidiary shall not recommend that any Fund
change its investment objective, policies, or restrictions;
(f) MMA, RTS, each Subsidiary and each Fund shall not, except as
provided in Section 5.1(l) or as may be required by applicable law and after
notice to MMA Buyer, adopt, or amend in any material respect, any employment,
collective bargaining, bonus, profit-sharing, compensation, stock option,
pension, retirement, deferred compensation or other plan, agreement, trust, fund
or arrangement for the benefit of employees or officers of MMA, RTS, any
Subsidiary or the Directors/Trustees of each Fund;
(g) except (i) such changes or terminations as may be proposed by MMA
Buyer (and agreed to by MMA), (ii) as may be required by applicable law and
after notice to Buyers, (iii) as expressly provided by this Agreement or (iv)
any renewal of an expiring agreement for which MMA, RTS, each Subsidiary and
each Fund shall obtain the prior consent of MMA Buyer which consent shall not be
unreasonably withheld, MMA, RTS, each Subsidiary and each Fund shall not amend
or terminate the Partnership Agreement, any Real Estate Lease, any agreement or
contract involved in the operation of the Funds, any material agreement,
Articles of Incorporation, Declaration of Trust or bylaws (as the case may be)
or any other organizational documents, or file any tax election, claim for
refund on an amended return (in the case of RTS or RIB only), or request for
ruling or determination with any taxing authority;
(h) MMA, RTS, each Subsidiary and each Fund shall not change in any
respect its accounting practices, policies or principles, except as may be
required by applicable law or GAAP and after notice to MMA Buyer;
(i) MMA, RTS, each Subsidiary and each Fund shall not incur any
liability or obligation (whether absolute, accrued, contingent or otherwise and
whether direct or as guarantor
31
<PAGE>
or otherwise with respect to the obligations of others), except in the ordinary
course of business consistent with past practice or as otherwise permitted
hereunder; provided, however, that in no event shall any of RTS or the Funds
incur any such debt obligations in an amount in excess of $25,000 without
providing prior notice to MMA Buyer (other than deposit accounts or Federal Home
Loan Bank advances with a term of one year or less);
(j) MMA, RTS, each Subsidiary and each Fund shall not make any
material changes in policies or practices relating to the sale of its shares
(including accounting practices relating thereto) or in policies or practices of
employment unless required by applicable law or GAAP and after notice to MMA
Buyer;
(k) MMA, RTS, each Subsidiary and each Fund shall not enter into any
type of business not conducted as of the date of this Agreement or create or
organize any subsidiary or enter into or participate in any joint venture or
partnership;
(l) MMA, RTS, each Subsidiary and each Fund shall not make any change
in the compensation payable or to become payable to any of its representatives,
employees, agents or independent contractors except with respect to its
employees (exclusive of any of the Sellers) for (i) normal annual increases in
accordance with past practices or (ii) annual bonus payments or arrangements in
the ordinary course of business not to exceed $200,000 per year in the
aggregate;
(m) RTS, each Subsidiary and each Fund shall not adjust, split,
combine or reclassify any capital stock except as set forth in Section 7.12; set
------------
any record or payment dates for the payment of any dividends or distributions,
or pay any dividend or make any distribution, on its capital stock except in the
ordinary and usual course of business consistent with past practice; directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock (except with respect to the Funds as required by the provisions of the
Investment Company Act) or any securities or obligations convertible into or
exchangeable for any shares of its capital stock or grant any stock appreciation
rights or grant any individual, corporation or other entity any right to acquire
any shares of its capital stock; MMA shall not make any transfer or distribution
of its property to the Sellers in respect of any Interests except to the extent
and in the manner provided in Section 1.3 and except that MMA shall not be
-----------
prohibited from redeeming, purchasing or otherwise acquiring the Limited
Partnership Interests of the Sellers other than the Principal Sellers;
(n) MMA, RTS, each Subsidiary and each Fund shall not, except for
transactions in the ordinary course of business consistent with past practice,
make any material acquisition or investment either by purchase of stock or
securities, merger or consolidation, contributions to capital, property
transfers, or purchases of any property or assets of any other individual,
corporation or other entity other than a wholly-owned subsidiary thereof;
provided, however, that, notwithstanding anything to the contrary contained
herein, none of MMA, RTS or the Subsidiaries shall make any acquisition that
would require it or MMA Buyer to register as a bank holding company under the
Bank Holding Company Act of 1956, as amended;
32
<PAGE>
(o) RTS shall not enter into, renew or terminate any contract or
agreement, other than loans, deposit accounts and Federal Home Loan Bank
advances with a term of one year or less made in the ordinary course of
business, that calls for aggregate annual payments in excess of $50,000
individually or $200,000 in the aggregate and which is not either (i) terminable
at will on 60 days or less notice without payment of a penalty or (ii) has a
term of one year or less; or make any material change in or terminate any of its
leases or contracts, other than renewals of contracts or leases for a term of
one year or less without materially adverse changes to the terms thereof;
(p) RTS shall not make any capital expenditures in excess of $25,000 in
the aggregate without the prior written consent of MMA Buyer which will not be
unreasonably withheld, other than expenditures necessary to maintain existing
assets in good repair;
(q) RTS shall not make application for the opening, relocation or
closing of any, or open, relocate or close any, branch or loan production
office;
(r) RTS shall not make or acquire any loan or issue a commitment for any
loan except for loans and commitments that are made in the ordinary course of
business consistent with past practice or issue or agree to issue any letters of
credit or otherwise guarantee the obligations of any other persons except in the
ordinary course of business in order to facilitate the sale of real property
acquired by foreclosure or deed in lieu of foreclosure;
(s) RTS shall not foreclose upon or otherwise acquire (whether by deed
in lieu of foreclosure or otherwise) any real property without the prior written
consent of MMA Buyer which will not be unreasonably withheld (other than 1-to-4
family residential properties in the ordinary course of business);
(t) RTS shall not change its investment securities portfolio policy, or
the manner in which the portfolio is classified or reported except as required
by applicable law or GAAP;
(u) RTS shall not engage in the business of making or make any Veterans'
Administration guaranteed or Federal Housing Administration insured mortgage
loans;
(v) RTS shall not enter into any contracts or agreements or amendments
or supplements thereto pertaining to any further development of specialized
software without the prior written consent of MMA Buyer which will not be
unreasonably withheld;
(w) RTS shall maintain its loan loss reserves in an amount that is not
less than the amount reflected on the 1998 RTS Financial Statements to the
extent permitted by GAAP;
(x) MMA, RTS, each Subsidiary and each Fund shall not enter into any
agreement, commitment or other transactions or make any amendment or
modification to any such agreement or agree or commit to do any of the foregoing
unless it is entered into in the
33
<PAGE>
ordinary course of business or required by applicable law or GAAP and after
notice to MMA Buyer.
5.2. Consents and Approvals.
----------------------
Subject to the terms and conditions herein provided, each of the
parties hereto agrees to cooperate with the other and use its commercially
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under all applicable
laws, regulations and contractual arrangements to consummate and make effective
the transactions contemplated by this Agreement at the earliest practicable
time. The parties hereto shall take no action, and MMA shall use its
commercially reasonable efforts not to permit each Subsidiary and each Fund,
without in any way limiting the ability of the Board of Directors/Trustees of
each Fund to fulfill its fiduciary obligations, to take any action (i) with
respect to each Subsidiary and each Fund, which would render any of the
representations and warranties contained herein untrue in any material respect
at and as of the Closing Date, (ii) with respect to RTS, which would render any
of the representations and warranties of RTS untrue resulting in an RTS Material
Adverse Effect (as defined herein) at and as of the Closing Date, or (iii) which
would materially and adversely affect the ability of the parties to satisfy any
of the conditions set forth in Article VIII.
------------
ARTICLE VI
COMPLIANCE WITH FEDERAL SECURITIES LAWS
6.1. Management Contract; Proxy Statement.
------------------------------------
(a) In anticipation of the Closing, and thereafter as necessary, the
parties hereto shall cooperate, in a manner in compliance with the Investment
Company Act, with one another to obtain approvals for each Fund to enter into a
new management contract with MMA substantially the form attached hereto as
Exhibit 6.1(a) (the "New Management Contract"). MMA shall, in a manner in
- -------------
compliance with the Investment Company Act, use its commercially reasonable
efforts to induce each Fund to call a meeting of its Board of Directors/Trustees
and a meeting of its shareholders to consider and approve the entering by each
Fund into the New Management Contract.
(b) If the New Management Contract is approved by the Board of
Directors/Trustees of each Fund, MMA shall assist each Fund to prepare and file
with the SEC as soon as is reasonably practicable any proxy materials relating
to the transactions contemplated by this Agreement that are required to be
prepared and filed (the "Proxy Statement"). Any material provided by MMA or the
Funds that is included in the Proxy Statement shall comply as to form in all
material respects with all applicable requirements of federal securities laws
and shall be accurate and complete and not contain any untrue statement of
material fact, or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading. MMA shall assist, in a manner in
compliance with the federal securities laws and other applicable law, in the
34
<PAGE>
solicitation of proxies for the required shareholder meetings and shall use its
commercially reasonable efforts to obtain approval from the shareholders and the
Board of Directors/Trustees of each Fund of the matters referred to herein.
6.2. Required Actions.
----------------
MMA shall use its commercially reasonable efforts, in a manner in
compliance with the Investment Company Act, to induce the Board of
Directors/Trustees of each Fund and of the Cappiello-Rushmore Trust, acting in
accordance with its fiduciary obligations to approve (i) entering into such
written fund service agreements (as comply with the Investment Company Act)
substantially in the form attached as Exhibit 6.2 and (ii) terminating the
-----------
existing agreements listed on Schedule 6.2, at the time the replacement service
------------
agreements become effective.
6.3. Section 15(f).
-------------
(a) MMA and MMA Buyer intend to structure and complete the
transactions contemplated by this Agreement, and MMA Buyer intends thereafter to
conduct the affairs of each Fund through MMA, in such a manner as to obtain the
benefits and protections of Section 15(f) of the Investment Company Act.
(b) MMA and MMA Buyer have entered into this Agreement in reliance
upon the benefits and protections provided by Section 15(f) of the Investment
Company Act, and each of MMA and MMA Buyer shall use its respective commercially
reasonable efforts to assist each Fund to solicit proxies and otherwise take
such actions as may be necessary or appropriate to induce the Board of
Directors/Trustees of each Fund to be reconstituted, to the extent necessary, to
satisfy the condition set forth in Section 15(f)(1)(A) of the Investment Company
Act on or before the Closing Date, and otherwise, through the Closing Date, to
conduct its business and the business of each Fund.
(c) MMA Buyer covenants and agrees to use its commercially reasonable
efforts to ensure that:
(i) for a period of three years from and after the Closing Date,
at least 75% of the members of the Board of Directors/Trustees of each Fund are
not interested persons of MMA Buyer, MMA or any other investment manager of each
Fund appointed after the Closing; and
(ii) for a period of two years from and after the Closing Date,
there is not imposed on the Funds an "unfair burden" as a result of the
transactions contemplated by this Agreement, any payments in connection
therewith, or understandings applicable thereto.
(d) From and after the Closing Date, MMA Buyer shall use, and shall
cause MMA to use, its commercially reasonable efforts to encourage and assist
each Fund and its Board of Directors/Trustees to conduct the business of each
Fund in accordance with Section 6.3(c).
--------------
35
<PAGE>
(e) The terms used in this Section 6.3 shall have the meanings set
-----------
forth in Section 15(f) of the Investment Company Act.
ARTICLE VII
COVENANTS
7.1. Current Information.
-------------------
(a) Prior to Closing, MMA shall promptly notify MMA Buyer of (i) any
material change in the normal course of the business of each Fund or of any
complaints from a governmental or regulatory authority or a self-regulatory
body, investigations or hearings (or communications indicating that the same may
be contemplated), or the institution or the threat of any litigation that comes
to its attention which would, in any manner, challenge, prevent, alter or
materially delay any of the transactions contemplated hereby, and MMA will keep
MMA Buyer fully informed with respect to such events, (ii) 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 MMA, RTS or Sellers
prior to the date hereof, of any of the representations, warranties or covenants
of MMA, RTS or Sellers contained in or referred to in this Agreement or any
Schedule or Exhibit referred to in this Agreement, in which case MMA shall give
detailed written notice thereof to MMA Buyer and MMA, RTS and Sellers shall use
its and their respective commercially reasonable efforts to prevent or promptly
remedy the same, and (iii) the status of regulatory applications, third party
consents, shareholder approvals and registration amendments required pursuant to
Article VI or any application or notice to or filing with the OTS or other
- ----------
banking authority.
(b) Prior to Closing, MMA Buyer shall promptly notify MMA of (i) any
complaints from a governmental or regulatory authority or a self-regulatory
body, investigations or hearings (or communications indicating that the same may
be contemplated), or the institution or the threat of any litigation that comes
to its attention with respect to Buyers which would, in any manner, challenge,
prevent, alter or materially delay any of the transactions contemplated hereby,
and MMA Buyer will keep MMA fully informed with respect to such events, (ii) 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
Buyers prior to the date hereof, of any of the representations, warranties or
covenants of Buyers or FBR contained in or referred to in this Agreement or any
Schedule or Exhibit referred to in this Agreement, in which case MMA Buyer shall
give detailed written notice thereof to MMA and Buyers shall use their
commercially reasonable efforts to prevent or promptly remedy the same, and
(iii) the status of regulatory applications, third party consents, shareholder
approvals and registration amendments required pursuant to Article VI or any
application or notice to or filing with the OTS or other banking authority. MMA
Buyer shall also provide to MMA prior to the filing all proposed applications
and other documents and material responses that it intends to file with any
Governmental Authority relating to any of the transactions contemplated by this
Agreement, together with copies of any responses, comments, denials or approvals
issued by any Governmental Authority
36
<PAGE>
promptly upon its receipt thereof. Notwithstanding the foregoing, nothing herein
shall obligate MMA Buyer to provide to MMA any confidential information to be
filed or filed with the OTS or any other banking authority, such as MMA Buyer's
business plan for RTS or the financial or biographical information of any
management official or senior executive of MMA Buyer, FBR or any of their
affiliates.
7.2. Access.
------
MMA, RTS and the Subsidiaries shall upon reasonable notice afford
(and, with respect to the Funds, shall use its best efforts to make available)
to Buyers and their representatives such access during normal business hours
throughout the period prior to the Closing Date to MMA's, RTS's and each
Subsidiary's books, records and Owned and Leased Real Estate and each Fund's
books, records, properties, and to such other information as MMA Buyer may
reasonably request that pertain to the operation of MMA, RTS, each Subsidiary or
each Fund, provided, such access does not unreasonably interfere with the
business of MMA, RTS, each Subsidiary or each Fund. Without limiting the
foregoing, MMA acknowledges that MMA Buyer shall make requests necessary to
afford MMA Buyer the opportunity to complete its due diligence review of the
operations, books and records of the Funds.
7.3. Information.
-----------
Each of Buyers, MMA (on behalf of itself and the Subsidiaries) and RTS
shall hold, and shall cause its respective directors, officers, employees,
agents, consultants and advisors to hold, in strict confidence, unless
disclosure to a regulatory authority is necessary in connection with any
necessary regulatory approval or unless compelled to disclose by judicial or
administrative process or by other requirement of law or the applicable
requirements of any regulatory agency or relevant stock exchange, all nonpublic
records, books, contracts, instruments, computer data and other data and
information (collectively, the "Information") concerning Buyers, MMA, RTS, the
Subsidiaries or the Funds furnished to Buyers or MMA (as the case may be) by the
other or the Funds or their respective representatives pursuant to this
Agreement (except to the extent that such information can be shown to have been
(a) previously known by such party on a non-confidential basis, (b) in the
public domain through no fault of such party or (c) later lawfully acquired from
other sources by the party to which it was furnished), and none of Buyers, MMA
(on behalf of itself and the Subsidiaries) or RTS (as the case may be) shall
release or disclose such Information to any other person, except its auditors,
attorneys, financial advisors, other consultants and advisors and, to the extent
permitted above, regulatory authorities. In the event of the termination of
this Agreement, each of Buyers, MMA (on behalf of itself and the Subsidiaries)
and RTS shall return to the other party or destroy all information furnished to
it and its representatives and all analyses, compilations, data, studies other
documents prepared by them or their representatives containing or based in whole
or in part on any such furnished information (including information reflecting
MMA Buyer's review of each Fund). Neither Sellers on one hand nor Buyers on the
other hand shall, directly or indirectly, defame, disparage, make derogatory
statements about or attempt knowingly to create
37
<PAGE>
any negative inference regarding the business of MMA, RTS, Sellers, the Funds or
Buyers and their respective affiliates.
7.4. Qualification of each Fund.
--------------------------
Subject to applicable fiduciary duties of the Board of
Directors/Trustees of the Funds to each Fund, MMA will use its commercially
reasonable efforts to cause each Fund to take no action (i) that would prevent
each Fund from qualifying as a "regulated investment company", within the
meaning of Section 851 of the Code or being eligible to compute its income under
Section 852 of the Code or so computing its income, or (ii) that would be
inconsistent with each Fund's prospectus and other offering, advertising and
marketing materials.
7.5. Forms.
-----
Prior to the Closing, MMA and RTS shall, and MMA shall cause the
Subsidiaries to, cooperate with MMA Buyer in the preparation and filing of all
forms and amendments to forms, including, without limitation, Forms ADV, BD and
TA-1 of MMA Buyer to be filed with federal agencies and self-regulatory
organizations and the state securities commissions, and all other documents
required to be filed or delivered under applicable federal and state laws, and
regulations promulgated thereunder, including, without limitation, the Advisers
Act and the Exchange Act and applicable related state acts and insurance laws,
as a result of the consummation of the transactions contemplated by this
Agreement and in order to put MMA Buyer in the position to operate the business
of MMA, RTS and RIB after the Closing Date in the same manner as they are
currently conducting business. Each of MMA and RTS shall use, and MMA shall
cause RIB to use, its respective commercially reasonable efforts to obtain as
promptly as practicable all licenses, permits, approvals and authorizations, and
to complete all applications and make all filings necessary (subject to MMA
Buyer's prior approval) to (i) enable MMA Buyer to operate the business of MMA,
RTS and RIB and shall provide MMA Buyer with copies of all such materials prior
to submission and a reasonable opportunity to comment thereon and (ii) prepare
RIB's registration and license under the Exchange Act and state laws as a
broker-dealer and maintain RIB's membership in the NASD. In this regard, MMA
shall provide on Schedule 7.5 a list of all states and other jurisdictions where
------------
RIB is registered or otherwise qualified to conduct business as a broker-dealer.
After the Closing, MMA Buyer will maintain in good condition all presently
existing books, records, files and documents of MMA for the time periods and in
the locations required by the Advisers Act and the rules thereunder including,
without limitation, Rule 204-2, or by Governmental Authorities.
7.6. Exclusivity.
-----------
None of MMA (on behalf of itself and the Subsidiaries), RTS, or the
Sellers will accept, negotiate, solicit, initiate or encourage the submission of
any proposal or offer from any person other than Buyers relating to the
acquisition of all or substantially all of the Interests, Stock, Subsidiary
Stock or assets of MMA, RTS or the Subsidiaries (including any acquisition
structured as a merger, consolidation, or share exchange). Each of MMA and
Sellers shall
38
<PAGE>
promptly notify MMA Buyer of the terms of any such proposal or offer and provide
to MMA Buyer a copy of any written offer or proposal with respect to the
foregoing prior to the Closing Date.
7.7. Taxes.
-----
(a) Each Seller shall be liable for all transfer taxes which are due
as a result of his, her or its transfer of Interests and/or Stock pursuant to
this Agreement.
(b) Sellers shall cause MMA not to amend any Tax return (including any
schedule thereto) filed as of the date of this Agreement, unless required by
applicable law and disclosed in Schedule 3.12 (as such schedule may be amended
at any time prior to the Closing Date by notice to Buyers). Sellers, on behalf
of MMA, shall prepare and file the final partnership Tax returns for the final
taxable year of MMA ending on the Closing Date required to be filed after the
date hereof in a manner that such returns shall be consistent with returns for
prior years.
(c) Sellers shall cause MMA to make a timely election under Code
Section 754 to adjust the basis of partnership property in the manner provided
in Code Sections 734 and 743 for the final taxable year of MMA ending on the
Closing Date, and, in doing so, to include with the final partnership Tax
returns of MMA for such final year any "Section 754 Forms" that are required to
be so included on account of the election under Code Section 754. Sellers and
Buyers shall cooperate fully, and in good faith, with each other in making this
election, determining the fair market value of each asset of MMA and allocating
the Purchase Price for the Interests among those assets in accordance with
Sections 755 and 1060(d) of the Code. "Section 754 Forms" shall mean all
returns, documents, statements, and other forms that are required to be
submitted to the IRS in connection with a Code Section 754 election made by a
partnership with respect to which there has been an applicable asset acquisition
within the meaning of Code Section 1060(d), and any analogous forms that are
required to be filed for state or local tax purposes.
(d) Any failure by Buyers to withhold monies from the Purchase Price
for the Interests that results in Taxes being assessed against Buyers shall be
treated as taxes for which Buyers are entitled to indemnification pursuant to
this Agreement.
(e) In no event will Buyers or any of their affiliates be responsible
for any Tax liability that arises as a result of the transfer of Interests or
Stock pursuant to this Agreement, including any state or local Tax liability
resulting in connection with such transfer; any such liability shall be the
responsibility of Sellers.
7.8. Waiver.
------
Each Seller waives any and all rights under the Partnership Agreement,
including, but not limited to rights of first refusal ("ROFR") and tag along
rights ("TAR"). In addition, Seller waives any and all notice provisions and
waiting periods contemplated by the Partnership
39
<PAGE>
Agreement including, but not limited to such notice provisions and waiting
periods associated with the ROFR, TAR and sale of partnership provisions.
7.9. Regulatory Matters.
------------------
(a) The parties hereto shall cooperate with each other and use
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, to
obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities that are
necessary or advisable to consummate the transactions contemplated by this
Agreement and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Authorities.
(b) Except as limited by Section 7.1(b), MMA shall have the right to
-------------
review in advance all the information relating to MMA and its Subsidiaries that
appears in any filing made with, or written materials submitted to, any third
party or any Governmental Authority in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, MMA shall act
reasonably and as promptly as practicable. The parties hereto agree that they
will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary or advisable to consummate the transactions contemplated
by this Agreement and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(c) MMA and Buyers shall, upon request, furnish each other with all
information concerning itself, its Subsidiaries, representatives, stockholders,
partners and affiliates and such other matters as may be reasonably necessary or
advisable in connection with any other statement, filing, notice or application
made by or on behalf of Buyers, MMA, RTS or any Subsidiary to any Governmental
Authority in connection with the transactions contemplated by this Agreement.
(d) MMA Buyer and MMA shall promptly advise each other upon receiving
any communication from any Governmental Authority whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any regulatory approval will not be obtained or that the receipt of any such
approval will be materially delayed.
7.10. Proxy Statement.
----------------
Prior to mailing to the shareholders of each Fund, MMA Buyer and MMA
shall prepare proxy materials which are subject to regulation under the Exchange
Act or the Investment Company Act and which are to be used for any shareholders'
meeting directly or indirectly relating to the transaction. MMA Buyer and MMA
shall use their best efforts to finalize the proxy statement to their mutual
satisfaction. If the requisite percentage of shareholders of each Fund fails to
approve any one or more of the proposals for which approval was being sought at
the shareholder meeting, and any adjournment thereof, MMA Buyer may, in
40
<PAGE>
its sole discretion, elect in writing within five days after the failure to
approve, time being of the essence, not to consummate the transaction and
terminate this Agreement. If MMA Buyer timely elects to terminate this Agreement
as provided herein, no party shall have any liability to the other hereunder.
7.11. Press Releases, Etc.
--------------------
MMA Buyer and MMA shall consult with each other as to the form,
substance and timing of any press release or other public disclosure of matters
related to this Agreement or any of the transactions contemplated hereby and no
such press release or other public disclosure shall be made without the consent
of the other party or parties, which shall not be unreasonably withheld or
delayed; provided, however, that the parties may make such disclosures as are
required by law after making reasonable efforts in the circumstances to consult
in advance with the other parties.
7.12. Minority Stock.
--------------
The General Partner shall use its good faith efforts to acquire as
promptly as practicable the Minority Stock of the Additional Stockholders. In
the event that the General Partner has not acquired all of the Minority Stock
owned by the Additional Stockholders within three months after the date hereof,
then at the request of MMA Buyer, MMA shall cause RTS to undertake a reverse
merger, reverse stock split or similar action, to the extent not prohibited by
applicable law, to convert the Minority Stock then owned by Additional
Stockholders to a right to receive cash or dissenter or appraisal rights.
7.13. Tax Cooperation.
---------------
Buyers and Sellers shall reasonably cooperate with each other in
connection with the preparation of Tax returns (including the Mutual Fund Tax
Returns) of MMA, RTS, the Subsidiaries and the Funds and MMA, RTS, RIB or the
Sellers (on behalf of RSI and themselves) shall preserve all information,
returns, books, records and documents relating to any liabilities for Taxes with
respect to a taxable period until the later of the expiration of all applicable
statutes of limitation and extensions thereof, or a final determination with
respect to Taxes for such period and shall not destroy or otherwise dispose of
any record without first providing the other party with a reasonable opportunity
to review and copy the same.
7.14. Name Change.
-----------
In the event of termination of this Agreement, as soon as practicable,
each Buyer shall change its name so that it no longer contains any reference to
the name "Money Management Associates."
41
<PAGE>
ARTICLE VIII
CONDITIONS
8.1. Conditions to Each Party's Obligations to Consummate.
----------------------------------------------------
The respective obligations of each party to consummate the
transactions contemplated by this Agreement shall be subject to the fulfillment
or waiver at or prior to the Closing Date of the following conditions:
(a) Regulatory Approvals. The transactions contemplated by this
---------------------
Agreement shall have been approved by all Governmental Authorities, the approval
of which is required to permit consummation thereof, without the imposition of
any non-standard condition or requirement of any non-standard commitment which
is unreasonably burdensome in the reasonable judgment of the parties hereto; and
all waiting periods arising under applicable law shall have duly lapsed or been
terminated.
(b) No Orders. None of Buyers, MMA, RTS, any Subsidiary or any Fund
---------
shall be subject to any order, decree or injunction of a court or agency of
competent jurisdiction which enjoins or prohibits the consummation of any of the
transactions contemplated by this Agreement or prevents MMA Buyer from operating
the business of MMA, RTS and the Subsidiaries upon Closing in the same manner as
the business is currently operating.
(c) Litigation. No action or proceeding shall have been instituted or
-----------
threatened by any court, Governmental Authority, self-regulatory body or other
person or entity and remain pending before any court, governmental body or self-
regulatory body or be threatened, to restrain or prohibit or to recover damages
in respect of any or all of the transactions contemplated by this Agreement
which is reasonably likely to have a Buyer Material Adverse Effect or an MMA
Material Adverse Effect (as the case may be) with respect to any of the parties
hereto, or would hinder MMA Buyer's ability to conduct the business of MMA, RTS
and RIB upon Closing in the same manner as the business is currently being
conducted; nor shall any Governmental Authority or other person or entity have
notified any party to this Agreement or any of its affiliates that consummation
of any or all of the transactions contemplated by this Agreement would
constitute a violation of the laws of any jurisdiction or that it intends to
commence any action or proceeding to restrain or prohibit or to recover damages
in respect of any or all of the transactions contemplated by this Agreement,
unless such Governmental Authority or other person or entity shall have
withdrawn such notice and abandoned such action or proceeding.
(d) Third Party Consents. All authorizations, consents and approvals
---------------------
of third parties and of the Boards of Directors/Trustees of the Funds and the
Cappiello-Rushmore Trust and the shareholders of each Fund that are required to
be obtained in connection with the transactions contemplated hereby, including
those specified in Sections 6.1, 6.2 and 7.9 and Schedule 3.7(c), shall have
------------ --- --- ---------------
been obtained.
42
<PAGE>
8.2. Conditions to Obligation of Buyers to Consummate.
------------------------------------------------
The obligation of Buyers to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver at or prior to the Closing
Date of the following additional conditions:
(a) Representations and Warranties. The representations and warranties
-------------------------------
of MMA, RTS and Sellers set forth in Articles III and IV shall be true and
------------ --
correct in all material respects (other than (i) the representations and
warranties contained in Sections 3.1, 3.2(a) and 3.3 and Article IV and the
------------ ----- --- ----------
representations and warranties qualified as to "material," "materiality" or "MMA
Material Adverse Effect" which shall, subject to such qualifications, be true
and correct in all respects, and (ii) in the case of RTS, inaccuracies in the
representations and warranties of RTS based on an event occurring after the date
hereof and prior to Closing and disclosed to MMA Buyer (A) that has not resulted
in and is not reasonably expected to result in a material adverse effect
(whether taken individually or in the aggregate with all other such effects) on
the financial condition or business or results of operations of RTS, including,
without limitation, any cease and desist order applicable to RTS that limits its
activities or any other supervisory order applicable to RTS that limits in any
material respect its activities, (B) affecting RTS that would prevent the
consummation of the transactions contemplated by this Agreement or have a
material adverse effect on the assets of RTS, except for conditions, events or
circumstances generally affecting the economy as a whole including changes in
prevailing interest rates or changes in laws affecting insured depository
institutions, generally (an "RTS Material Adverse Effect")) as of the Closing
Date as though made at and as of the Closing Date (it being understood that
representations and warranties that speak as of a specified date shall continue
to speak only as of the date specified), and Buyers shall have received a signed
certificate of MMA from its General Partner, of RTS from Daniel L. O'Connor and
its Chief Financial Officer and of Sellers to that effect.
(b) Performance of Obligations. MMA (on behalf of itself and any
---------------------------
Subsidiary), RTS and each Seller shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and Buyers shall have received a signed certificate of MMA
from its General Partner, of RTS from Daniel L. O'Connor and its Chief Financial
Officer and of Sellers to that effect.
(c) Consulting and Noncompetition Agreements. On the date hereof,
----------------------------------------
Daniel L. O'Connor, Martin O'Connor and John Cralle each shall have duly
executed and delivered a Consulting and Noncompetition Agreement substantially
in the form attached hereto as Exhibit 8.2(c), each such agreement to be
--------------
effective as of Closing.
(d) New Management Contract and Fund Services Agreements. The
-----------------------------------------------------
shareholders and the Board of Directors/Trustees of each Fund shall have
approved the New Management Contract, and the New Management Contract shall have
been duly executed and delivered by each Fund, and the Board of
Directors/Trustees of each Fund or the Cappiello-Rushmore Trust, as appropriate,
shall have approved the fund service agreements attached as
43
<PAGE>
EXHIBIT 6.2 and the fund services agreements shall have been duly executed and
- -----------
delivered by each Fund or the Cappiello-Rushmore Trust, as appropriate.
(e) Assets Under Management; Net Management Fees. As of the close of
---------------------------------------------
business two days prior to the Closing Date, MMA shall have Aggregate Net Assets
(excluding any assets with respect to which, at the time of calculation thereof,
MMA had received notice that the contract or arrangement pursuant to which such
assets were being administered was being terminated) and Net Management Fees,
respectively, of at least 80% of (i) the arithmetic daily average of Aggregate
Net Assets and Net Management Fees, respectively, for the period from June 30,
1999 to September 30, 1999 (the "Initial Period") plus (ii) the arithmetic daily
----
average of Aggregate Net Assets and Net Management Fees, respectively, for the
period from October 1, 1999 to December 31, 1999 (or the close of business two
days prior to the Closing Date, if earlier) divided by (iii) 2 (the "Initial
----------
Average"); provided, however, in the event that the Closing Date has not
occurred by October 2, 2000, if (i) the arithmetic daily average of Aggregate
Net Assets and Net Management Fees, respectively, for the Initial Period plus
----
(ii) the arithmetic daily average of Aggregate Net Assets and Net Management
Fees, respectively, for the period from June 30, 2000 to September 30, 2000
divided by (iii) 2 (the "Final Average") is less than the Initial Average, MMA
- ----------
shall have Aggregate Net Assets (excluding any assets with respect to which, at
the time of calculation thereof, MMA had received notice that the contract or
arrangement pursuant to which such assets were being administered was being
terminated) and the Net Management Fees, respectively, of 80% of the Final
Average. MMA Buyer shall receive a signed certificate of MMA certifying that
Aggregate Net Assets and Net Management Fees equal 80% of the Initial Average
or, if applicable, the Final Average.
(f) Opinion of Counsel to MMA and Sellers. Buyers shall have received
--------------------------------------
the opinion of Breyer & Associates PC, counsel to MMA and Sellers, or other
counsel reasonably acceptable to Buyers, dated the Closing Date, addressed to
Buyers substantially in the form set forth in Exhibit 8.2(f) (which opinion may
--------------
rely upon the opinion of counsel to each Fund or any other counsel acceptable to
Buyers).
(g) Opinion of Counsel to each Fund. Buyers shall have received the
--------------------------------
favorable opinion of Morrison & Foerster, LLP, special counsel to each Fund,
dated the Closing Date, addressed to Buyers substantially in the form set forth
in Exhibit 8.2(g) (which opinion may rely upon the opinion of any other counsel
--------------
acceptable to Buyers).
(h) Delivery. Sellers shall have caused to be executed and/or
---------
delivered to MMA Buyer the following:
(i) certified copies of all resolutions, consents and approvals
of the General Partner and the Limited Partners (and if any of the Limited
Partners are entities requiring such resolutions, consents and approvals,
certified copies of such resolutions, consents and approvals) of MMA authorizing
the execution of this Agreement and the transfer of the Interests and Stock and
each of the agreements, documents and instruments contemplated hereby to which
MMA is a party;
44
<PAGE>
(ii) a copy of the Certificate of Limited Partnership and
Partnership Agreement, as amended, of MMA and a certificate issued by the
Recorder of Deeds of the District of Columbia certifying that MMA is in good
standing in the District of Columbia as of the most recent practicable date;
(iii) true, correct and complete copies of each of the
agreements, documents and instruments contemplated hereby to which MMA, RTS and
Sellers are a party, duly executed by MMA, RTS and Sellers and all agreements,
documents, instruments and certificates delivered or to be delivered in
connection therewith by MMA;
(iv) a certificate of the General Partner on behalf of MMA
certifying that the resolutions, consents and agreement in paragraphs (i) and
(ii) above to MMA are in full force and effect and have not been amended or
modified, and that the officers of MMA are those persons named in the
certificate;
(v) a certificate issued by the United States of America and the
Secretary of State of the State of organization, as applicable, for RTS, RIB and
any Limited Partner which is an entity (together with a copy of such entity's
organizational documents) certifying that each entity is duly organized and
validly existing and (except for RTS) in good standing in its jurisdiction of
organization as of the most recent practicable date, and an affidavit from an
officer of such entity confirming that such organizational documents are true
and complete;
(vi) the Escrow Agreement and UCC-1 Financing Statement executed
by the Sellers and the escrow agent, and
(vii) written resignations of the directors and officers of RTS,
RIB and RSI (to the extent RSI has not been previously liquidated and dissolved
in accordance with Section 1.3) and of the trustees, plan administrators and
-----------
fiduciaries of the Employee Programs and evidence satisfactory to Buyers of the
revocation of any powers of attorney or any authorization of any person to draw
on the bank accounts set forth on Schedule 3.16.
-------------
(i) Regulated Investment Company Status.
-----------------------------------
MMA Buyer shall not have determined, applying reasonable methods and
assumptions, that any Fund would fail to qualify, for its taxable year that
includes the Closing Date, for treatment as a regulated investment company that
is eligible to compute its taxable income under Section 852 of the Code.
(j) Material Adverse Effect.
-----------------------
Since the date of this Agreement, there shall have been no event or
condition or events or conditions which, either individually or in the
aggregate, has had or could reasonably be expected to have an MMA Material
Adverse Effect, and Buyers shall be provided with a certificate from the General
Partner of MMA to that effect at the Closing.
45
<PAGE>
(k) Title Policy.
------------
MMA Buyer shall have received the Title Policy (as hereinafter
defined).
(l) Completion of MMA and Fund Due Diligence.
----------------------------------------
Buyers and their counsel shall have been afforded an opportunity to
conduct and complete a due diligence review of the operations, books and records
of MMA and the Funds to the reasonable satisfaction of Buyer, which Buyers shall
complete within forty-five days from the date Buyers have been afforded access
to the operations, books and records of MMA and the Funds; provided, however,
that such period shall not begin to run and/or shall be tolled and this
condition shall not be satisfied unless and until Buyers are provided full and
complete access to such operations, books and records.
(m) Completion of RTS Due Diligence.
-------------------------------
Buyers and their counsel, agents or other representatives shall have
been afforded an opportunity to conduct and complete a due diligence review of
RTS to ensure, and RTS shall provide information reasonably necessary for MMA
Buyer to verify, that RTS is a qualified thrift lender in accordance with
Section 10(m) of the Home Owners Loan Act including, without limitation,
providing copies to MMA Buyer of all calculations made to ensure RTS's
compliance with requirements relating to qualified thrift lenders.
(n) Further Assurances.
------------------
Buyers shall have received such other certificates and instruments
signed by MMA as Buyers may reasonably request to consummate the transactions
contemplated hereby.
8.3. Conditions to Obligation of MMA to Consummate.
---------------------------------------------
The obligation of MMA to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver at or prior to the Closing
Date of the following additional conditions:
(a) Representations and Warranties.
------------------------------
The representations and warranties of Buyers set forth in Article II,
----------
shall be true and correct in all material respects as of the Closing Date as
though made at and as of the Closing Date (it being understood that
representations and warranties that speak as of a specified date shall continue
to speak only as of the date so specified), and MMA shall have received a signed
certificate of each Buyer to that effect.
46
<PAGE>
(b) Performance of Obligations.
--------------------------
Buyers shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and Sellers shall have received a signed certificate of an executive
officer of each Buyer to that effect.
(c) Delivery.
--------
Buyers and FBR (as the case may be) shall have caused to be executed
and/or delivered to Seller Representative the following:
(i) certified copies of resolutions of the boards of directors
of Buyers authorizing the execution of this Agreement and each of the
agreements, documents and instruments contemplated hereby to which each Buyer is
a party;
(ii) a copy of the Certificate of Incorporation and by-laws of
each Buyer, each of which is certified as of a recent date by the Secretary of
State of the State of Delaware;
(iii) a certificate issued by the Secretary of State of Delaware
certifying that each Buyer is validly existing and in good standing in Delaware
as of the most recent practicable date;
(iv) true, correct and complete copies of each of the
agreements, documents and instruments contemplated hereby to which each Buyer is
a party, and all agreements, documents, instruments and certificates delivered
or to be delivered in connection therewith by each Buyer;
(v) a certificate of the Secretary of each Buyer certifying as
to MMA Buyer and LP Buyer (as the case may be) that the resolutions, Certificate
of Incorporation and by-laws in paragraphs (i) and (ii) above are in full force
and effect and have not been amended or modified, and that the officers of each
entity are those persons named in the certificate;
(vi) the Initial Payment, the Minority Stock Purchase Price, the
Note, the Escrow Agreement, the UCC-1 Financing Statement and the Deed of Trust
to be delivered as consideration and collateral at the Closing pursuant to
Section 1.4; and
- -----------
(vii) such other certificates and documents as are required
hereby or are reasonably requested by MMA.
(d) Further Assurances.
------------------
Sellers shall have received such other certificates and instruments
signed by Buyers as Sellers shall reasonably request.
47
<PAGE>
(e) Opinion of Counsel to Buyers.
----------------------------
MMA shall have received the opinion of Dechert Price & Rhoads, counsel
to Buyers, dated the Closing Date, addressed to MMA and each Seller,
substantially in the form set forth in Exhibit 8.3(e).
--------------
ARTICLE IX
INDEMNIFICATION AND REMEDIES
9.1. No Waivers.
----------
No waiver of any breach of any covenant in this Agreement shall be
implied from any forbearance or failure of a party to take action thereon.
9.2. Indemnification.
---------------
(a) Indemnification by Principal Sellers. From and after the Closing,
the Principal Sellers shall jointly and severally indemnify and hold Buyers,
MMA, RTS and RIB their respective directors, trustees, officers, registered
representatives, members and controlling persons, and their respective
successors and assigns, harmless from and against any liabilities, demands,
claims, actions or causes of action, assessments, fines, penalties, costs
(including reasonable attorneys' fee, expert witness fees and court costs),
actual damages and expenses (any and all of the foregoing being referred to as
"Losses" or individually a "Loss"), sustained or incurred by the indemnified
parties to the extent any such Loss is the subject of a Claim (as defined below)
by a party other than an indemnified party or a party providing funding or
financing solely to the extent the indemnified party has assigned to such party
its, or the funding or financing source has succeeded in bankruptcy to such
party's, right, title and interest in, to and under this Agreement (other than a
Claim by an indemnified party or its funding or financing source for a breach of
representation or warranty with respect to ownership/title as set forth in
Sections 3.3, 3.9 or 4.1 which shall be covered by this Section 9.2) and arises
- ------------ --- --- -----------
out of or by virtue of (i) any breach of a representation or warranty made by
MMA, RTS and Principal Sellers herein; (ii) any failure to perform any covenant
or agreement of MMA, RTS and Principal Sellers herein; (iii) any matters
described in Schedules 3.18 and 3.28(h), (iv) any Tax liability of MMA, any
-------------- ------
Subsidiary or any Fund (only to the extent, with respect to the Funds, that such
a Tax liability would be legally or customarily payable by the investment
adviser of, or provider of compliance or administrative services to, a Fund by
virtue of their status as investment adviser or provider of compliance or
administrative services, respectively) in each case relating to the period prior
to the Closing Date, any Tax Liability of Sellers, by reason of transferee
liability or otherwise or any Tax Liability referred to in Section 7.7(d)
--------------
hereof; and (v) (A) any wrongful or negligent act or omission of RTS (except as
specifically provided in subsection (v)(B)) or the Funds which act or omission
relates to, or arises out of the conduct of the business prior to the Closing
Date, or (B) any act or omission of MMA, RTS (only to the extent any such act or
omission results in liability that would be legally or customarily payable by
RTS in its capacity as a provider of services to the Funds) or any Subsidiary
which act or omission relates to, or
48
<PAGE>
arises out of the conduct of the business prior to the Closing Date. In the
event any Principal Seller or any of its successors or assigns (A) reorganizes
or consolidates with or merges into or enters into another business combination
transaction with any other person or entity and it is not the resulting,
continuing or surviving corporation or entity of such consolidation, merger or
transaction, or (B) liquidates, dissolves or transfers all or substantially all
of its properties and assets to any person or entity, then, and in each such
case, proper provisions shall be made so that the successor or assign of such
Principal Seller, as the case may be, assumes the obligations set forth in this
Section 9.2(a).
- --------------
(b) Limitation on Indemnification by Principal Sellers. The
---------------------------------------------------
indemnification provided in Section 9.2(a) shall not apply to any Claim for
-------------
breaches of representations and warranties pursuant to clause (i) of
Section 9.2(a) (other than those contained in Sections 3.2(a) and 3.3 and
- -------------- --------------- ---
Article IV and, with respect to RTS, those contained in Section 3.12 for
------------
which notice pursuant to Section 9.3 has not been received by the Seller
-----------
Representative on or before the date that is six months after the expiration of
the applicable statute of limitations) for which notice pursuant to Section 9.3
-----------
has not been received by the Seller Representative on or before the date that is
two years after the Closing Date. The Principal Sellers shall not be required to
indemnify Buyers, MMA, RTS and RIB, their respective directors, trustees,
officers, registered representatives members and controlling persons, and their
respective successors and assigns, with respect to any Claim resulting from or
arising out of matters described in clause (i) of Section 9.2(a) (other than
--------------
those contained in Sections 3.2(a) and 3.3 and Article IV and, with respect to
--------------- ---
RTS, those contained in Section 3.12) unless and until the aggregate amount
------------
of all Claims against Principal Sellers collectively exceed $248,600 and
then only to the extent such aggregate amount exceeds $248,600. The amount
of the indemnification liability of the Principal Sellers (other than those
contained in Section 9.2(a)(iv) or by virtue of a breach of Sections 3.2(a)
----------------- --------------
and 3.3 and Article IV) shall not exceed $24,860,000.
--- ----------
(c) Indemnification by Buyers. From and after the Closing, Buyers, MMA
and RTS shall jointly and severally indemnify and hold Sellers, their respective
affiliates and subsidiaries, their directors, trustees, officers and controlling
persons, and their successors and assigns, harmless from and against all Losses
sustained or incurred by the indemnified parties to the extent any such Loss
arises out of or by virtue of (i) any breach of a representation or warranty
made by Buyers herein; (ii) any failure to perform any covenant or agreement of
Buyers herein; or (iii) the conduct of the business by Buyers, MMA, RTS, RIB or
any Fund after the Closing. In the event any Buyer, MMA or RTS or any of their
respective successors or assigns (A) reorganizes or consolidates with or merges
into or enters into another business combination transaction with any other
person or entity and is not the resulting, continuing or surviving corporation
or entity of such consolidation, merger or transaction, or (B) liquidates,
dissolves or transfers all or substantially all of its properties and assets to
any person or entity, then, and in each such case, proper provisions shall be
made so that the successor and assign of such Buyer, MMA, or RTS (as the case
may be) assumes the obligations set forth in this Section 9.2(c).
--------------
49
<PAGE>
(d) Limitation on Indemnification by Buyers. The indemnification
----------------------------------------
pursuant to Section 9.2(c) shall not apply to any Claim (as defined below) for
breach of representations and warranties pursuant to clause (i) of Section
--------
9.2(c) (other than those contained in Section 2.2(a)) for which notice pursuant
- ----- --------------
to Section 9.3 has not been received by MMA Buyer on or before the date that is
-----------
two years after the Closing Date. Buyers and MMA shall not be required to
indemnify Sellers with respect to any Claim resulting from or arising out of
matters described in clause (i) of Section 9.2(c) (other than those contained
-------------
Section 2.2(a)) unless and until the aggregate amount of all Claims against
- -------------
Buyers exceed $248,600 and then only to the extent such aggregate amount exceeds
$248,600. The amount of the indemnification liability of Buyers, MMA and RTS
(other than those contained in Section 2.2(a)) shall not exceed $24,860,000.
--------------
(e) Indemnification Changes to Representations and Warranties. For
----------------------------------------------------------
purposes of determining under Section 9.2 if any representation or warranty
-----------
contained in this Agreement has been breached, and for purposes of determining
the amount of a Claim for breach of a representation or warranty under this
Agreement (as applicable), all references to and limitations or qualifications
resulting from the terms "materiality," "MMA Material Adverse Effect,"
"knowledge of MMA, RTS and/or Sellers," and "knowledge of Buyers" shall be
disregarded except as such references are used generally in Sections 2.5,
------------
3.12(b), 3.17(b), 3.18, 3.28(e) and 3.28(h) and as such references are used with
- ------ ------- ---- ------ ------
respect to third parties in Sections 3.8, 3.9(a)(ii), 3.9(a)(iii) and 3.9(a)(v).
------------ --------- ---------- --------
(f) Recoveries. The amount of any Loss suffered by an indemnified
-----------
party under this Agreement shall be net of (i) any amounts recovered or
recoverable by the indemnified party pursuant to any indemnification by or
indemnification agreement with any third party, other than any insurance policy,
and (ii) any insurance proceeds (net of associated incremental premiums)
available as an offset against such Losses.
9.3. Claims Procedures.
-----------------
(a) Notice. An indemnified party shall give written notice to an
-------
indemnifying party promptly upon receipt of written notice or sixty (60) days
from discovery by the indemnified party of any claim, demand or cause of action
which may give rise to a claim for indemnification under this Agreement (a
"Claim") setting forth in detail all information that forms the basis of such
Claim. Except as otherwise set forth in Section 9.2(a) or (c), the failure to
------------- ---
give such notice shall not affect the right of the indemnified party to
indemnity hereunder except to the extent such failure has adversely affected the
rights of the indemnifying party.
(b) Third Party Procedures. In the case of any Claim (other than a
-----------------------
Claim by an indemnified party for a breach of representation or warranty with
respect to ownership/title as set forth in Sections 3.3, 3.9 or 4.1), the
------------ --- ---
indemnified party may defend, settle or otherwise compromise, or pay a Claim
unless it shall have received notice (within thirty (30) days of the
indemnifying party's receipt of the notice of such Claim from the indemnified
party) from the indemnifying party that the indemnifying party either disputes
that it has indemnification responsibility relating to such Claim or it intends,
at its sole cost and expense, to assume the defense of any such matter, in which
latter case the indemnified party shall have the right, at no
50
<PAGE>
cost or expense to the indemnifying party, to participate in such
defense; provided, that, any legal counsel selected by the indemnifying party
pursuant to this Section 9.3(b) shall be reasonably satisfactory to the
-------------
indemnified party; and provided, further, that the indemnifying party shall not,
in the defense of such Claim, consent to the entry of any judgment or enter into
any settlement, except with the written consent of the indemnified party (which
consent shall not be unreasonably withheld or delayed), which provides for
anything other than money damages or other money payments or which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the indemnified party a release from all liability in respect of
such Claim. If the indemnifying party does not assume the defense of a Claim or
dispute that it has indemnification responsibility with respect to such Claim
within the time period specified above, the indemnifying party shall pay all
costs of each indemnified party arising out of the defense until the defense is
assumed. The indemnified party shall take all appropriate action to permit and
authorize the indemnifying party fully to participate, to the extent provided
above, in the defense of any such Claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense.
If the indemnifying party does not assume the defense, the indemnified party
shall keep the indemnifying party reasonably apprised as to the status of the
defense. If the Claim 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.
(c) Indemnified Party Procedures. A party which has a Claim for
-----------------------------
indemnification under this Article IX, other than as described in Section
---------- -------
9.3(b), shall promptly notify the other parties hereto of such Claim. If within
- -----
thirty (30) days of the receipt of such notice of Claim, the parties cannot
agree on the amount of or responsibility for such Claim, the parties agree to
submit such dispute to binding arbitration to be held in Bethesda, Maryland
under the rules of the American Arbitration Association. Any such arbitration
shall be conducted by three arbitrators, one of whom shall be selected by the
Seller Representative, one of whom shall be selected by Buyers and one of whom
shall be selected by the arbitrators selected by the Seller Representative and
Buyers. The expenses of any such arbitration shall be paid by the non-prevailing
party as determined by the final order of the arbitrators.
(d) Remedies. Absent fraud or criminal activity and except for
--------
equitable remedies, the remedies provided for in this Article IX shall
----------
constitute the sole and exclusive remedy of the parties hereto for any post-
Closing claims made for breach of this Agreement or the representations and
warranties contained herein or in connection with the transactions contemplated
hereby or any of the other matters covered by this Article IX. Nothing in this
-----------
subsection is intended to affect any rights under the Note, Escrow Agreement,
Deed of Trust or UCC-1 Financing Statement.
(e) Satisfaction of Losses. Subject to the procedures set forth above,
-----------------------
Losses shall be satisfied as follows:
51
<PAGE>
(i) Principal Sellers shall satisfy their liability for Losses
by paying the amount of such liability to the indemnified party or, at the
written election of either Buyers or Seller Representative, by offsetting such
amount against the outstanding balance of the Note; provided, however, that in
the event any such offset is elected by Seller Representative prior to the due
date of the next installment otherwise payable under the Note, the amount of
Loss to be offset shall be increased by the applicable "short-term rate" per
annum, compounded annually, from the date paid by the indemnified party to a
third party or payable to the indemnified party by virtue of a breach of
Sections 3.3, 3.9 or 4.1 up to the date of the next installment otherwise
- ------------ --- ---
payable under the Note; and
(ii) Buyers and MMA shall satisfy their liability for Losses by
paying the amount of such liability to the Seller Representative on behalf of
the Sellers.
ARTICLE X
TERMINATION
10.1. Termination.
-----------
This Agreement may, by written notice, be terminated at any time prior
to the Closing Date:
(a) by mutual written consent of the Seller Representative and Buyers;
(b) by either MMA or Buyers at any time after March 31, 2001 by
written notice given to the other, if the Closing shall not theretofore have
occurred (provided the terminating party is not otherwise in default or in
breach of this Agreement);
(c) by either MMA or Buyers by written notice given to the other, in
the event of the breach by (i) MMA, RTS and Principal Sellers, in the case of
notice from Buyers, of any representation or warranty contained herein or in any
schedule or document delivered herewith which has resulted or is reasonably
likely to result in an MMA Material Adverse Effect, or any agreement, covenant
or obligation contained herein, which breach cannot be or has not been cured
within 30 days after written notice to MMA, or (ii) Buyers and FBR, in the case
of notice from MMA, of any representation or warranty contained herein or in any
schedule or document delivered herewith which has resulted or is reasonably
likely to result in a Buyer Material Adverse Effect, or any agreement, covenant
or obligation contained herein, which breach cannot be or has not been cured
within 30 days after written notice to Buyers;
(d) by either MMA or Buyers if the Board/Trustees of Directors of each
Fund or the shareholders of each Fund shall have met and rejected any of the
actions or transactions contemplated hereby;
(e) by MMA Buyer pursuant to Section 7.10;
------------
52
<PAGE>
(f) by MMA Buyer by written notice given to Seller Representative (i)
within sixty days of the date hereof, in the event Buyers and their counsel have
not been afforded an opportunity to conduct and complete a due diligence review
of the operations, books and records of MMA and the Funds within forty-five days
of the date hereof or (ii) within sixty days of the date Buyers have been
afforded full and complete access to the operations, books and records of MMA
and the Funds, in the event Buyers are not reasonably satisfied with the results
of such due diligence review; or
(g) by MMA Buyer by written notice given to Seller Representative, in
the event Buyers are not reasonably satisfied with the results of the due
diligence review of RTS provided in Section 8.2(m).
--------------
10.2. Effect of Termination and Abandonment.
-------------------------------------
In the event of termination of this Agreement and abandonment of the
transactions contemplated hereby pursuant to this Article X, no party hereto (or
---------
any of its directors of officers) shall have any liability or further obligation
to any other party to this Agreement, except as provided in Section 11.5 and the
------------
provisions of this Section 10.2. In the event that the Buyers, FBR or any of
------------
them commits a willful and material breach of any of their representations,
warranties, covenants, agreements or obligations contained in this Agreement
(and for purposes hereof, failure by the Buyers to have sufficient cash to fund
the Initial Payment and the Minority Stock Purchase Price shall be deemed to be
a willful and material breach resulting in a Buyer Material Adverse Effect) and
this Agreement is thereafter terminated on account thereof pursuant to Section
-------
10.1(c), then in that event MMA Buyer shall be liable for $1,000,000 in cash
- -------
damages to MMA as agreed upon liquidated damages ("MMA Liquidated Damages")
which shall be paid by MMA Buyer to MMA within thirty days after written demand.
FBR does hereby unconditionally guarantee timely payment of MMA Liquidated
Damages. In the event that MMA, RTS or any of the Sellers commits a willful and
material breach of any of their representations, warranties, covenants,
agreements or obligations contained in this Agreement and this Agreement is
thereafter terminated on account thereof pursuant to Section 10.1(c), then in
---------------
that event MMA shall be liable for $1,000,000 plus the amount of MMA Transaction
Expenses paid by MMA Buyer or FBR or reimbursed by either of them to MMA in cash
damages to MMA Buyer as agreed upon liquidated damages which shall be paid by
MMA to MMA Buyer within thirty (30) days after written demand.
ARTICLE XI
GENERAL PROVISIONS
11.1. Survival of Representations, Warranties and Agreements.
-------------------------------------------------------
All agreements of Buyers or MMA contained in this Agreement or in any
instrument delivered by Buyers or MMA pursuant to this Agreement shall survive
consummation of the transactions contemplated hereby in accordance with their
terms. The representations and warranties contained herein (other than Sections
--------
3.2(a), 3.3, and 2.2(a) and Article IV) shall
- ------ --- ------ ----------
53
<PAGE>
terminate after a period of two years from such consummation or termination of
this Agreement. If this Agreement is terminated prior to the Closing Date, the
respective agreements of the parties in Sections 7.3, 10.2 and Article XI shall
------------------ ----------
survive such termination.
11.2. Notices.
-------
All notices and other communications hereunder shall be in writing and
shall be given and deemed to have been duly received (i) on the date given if
delivered personally or by telex or telecopy or (ii) on the date received if
mailed by registered or certified mail (return receipt requested), to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to MMA Buyer or FBR, to:
Friedman, Billings, Ramsey Group, Inc.
1001 19th Street North
Arlington, VA 22209
Attention: Robert S. Smith, Esq.,
General Counsel
Telecopy: (703) 312-9756
With a copy to:
Dechert Price & Rhoads
1717 Arch Street
Philadelphia, PA 19103
Attention: Christopher G. Karras, Esq.
Telecopy: (215) 994-2222
(b) if to Sellers or MMA, to:
c/o Rushmore Trust & Savings, FSB
4922 Fairmont Avenue
Bethesda, MD 20814
Attention: Daniel L. O'Connor
Telecopy:
With a copy to:
Breyer & Associates PC
1100 New York Avenue, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: John F. Breyer, Jr.
Telecopy: (202) 737-7979
54
<PAGE>
11.3. Counterparts.
------------
This Agreement may be executed in any number of counterparts
(including executed counterparts delivered and exchanged by facsimile
transmission) each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
11.4. Governing Law.
-------------
This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of Maryland without regard to its conflict of law
principles, except to the extent federal law may apply.
11.5. Expenses.
--------
All reasonable third party fees, costs and expenses incurred by
Sellers, MMA, RTS, the Subsidiaries (excluding the cost and expense of the
liquidation and dissolution of RSI) and the Funds prior to Closing shall be
borne by MMA Buyer (including, but not limited to, reasonable fees and
reasonable expenses of attorneys and accountants, filing and other fees payable
to Governmental Authorities, proxy costs and expenses, and mailing and printing
costs) incurred by them, or any of them, in connection with this Agreement, the
transactions contemplated hereby, or the performance of obligations contained
herein. All such reasonable third party fees, costs and expenses incurred by
Sellers, MMA, RTS, the Subsidiaries (excluding the cost and expense of the
liquidation and dissolution of RSI) and the Funds prior to Closing (the "MMA
Transaction Expenses") shall be paid directly by MMA Buyer, or reimbursed by MMA
Buyer to the party who has made payment thereof, within 10 days after written
demand, which written demand shall include invoices or statements of third party
providers relating to such MMA Transaction Expenses; provided however, any MMA
Transaction Expenses that are unpaid at Closing shall be paid by MMA Buyer at
Closing without any requirement for prior written notice. Notwithstanding the
foregoing, MMA Buyer shall not be liable for MMA Transaction Expenses for legal
services to Breyer & Associates PC (inclusive of fees to Silver, Freedman & Taff
LLP but excluding reimbursable expenses) in excess of $160,000 and no MMA
Transaction Expenses, other than the foregoing MMA Transaction Expenses for
legal services to Breyer & Associates PC, shall be incurred without the prior
consent of MMA Buyer, which shall not be unreasonably withheld. FBR does hereby
unconditionally guarantee timely payment or reimbursement of all MMA Transaction
Expenses subject to the thresholds set forth above.
11.6. Waiver, Amendment.
-----------------
Any provision of this Agreement may be (i) waived by the party
benefited by the provision, or (ii) amended or modified at any time (including
the structure of the transactions contemplated hereby, or any part thereof), by
an agreement in writing among the parties hereto and executed in the same manner
as this Agreement. Any waiver of any terms or conditions or of the breach of
any covenant, representation or warranty of this Agreement in one instance shall
55
<PAGE>
not operate as or be deemed to be construed as a further or continuing waiver of
any other breach of such term, condition, covenant, representation or warranty,
nor shall any failure or delay at any time or times to enforce or require
performance of any provision hereof operate as a waiver of or affect in any
manner such party's right at a later time to enforce or require performance of
such provision or of any provision hereof; provided, however, that no such
waiver, unless it, by its own terms, explicitly provides to the contrary, shall
be construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall 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.
11.7. Entire Agreement; No Third-Party Beneficiaries; Etc.
----------------------------------------------------
This Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes any
and all other oral or written agreements heretofore made. All terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns. Nothing in this Agreement, other than
Section 9.2 hereof, is intended to confer upon any other person any rights or
- -----------
remedies of any nature whatsoever under or by reason of this Agreement.
11.8. Assignment.
----------
This Agreement may not be assigned by any party hereto without the
written consent of the other parties.
11.9. Further Assurances.
------------------
At and after the Closing, each of the parties hereto agrees to
execute, acknowledge and deliver such additional instruments as any other party
may reasonably request in connection with the transactions contemplated by this
Agreement.
11.10. 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 State of Maryland 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 11.2. The parties agree that a final judgment 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 serve legal process or to bring any action or proceeding
in the courts of other jurisdictions. Except as provided in Article IX,
----------
56
<PAGE>
the expenses of any such action or proceeding shall be paid by the non-
prevailing party as determined by the final order of the applicable federal or
state court.
11.11. Seller Representative.
---------------------
Each Seller hereby irrevocably appoints Daniel L. O'Connor ("Seller
Representative"), as such Seller's representative, attorney-in-fact and agent,
with full power of substitution to act in the name, place and stead of such
Seller with respect to the transfer of such Seller's Interests to Buyers in
accordance with the terms and provisions of this Agreement and to act on behalf
of such Seller in any litigation or arbitration involving this Agreement and to
do or refrain from doing all such further acts and things, and to execute all
such documents, as such Seller Representative shall deem necessary or
appropriate in connection with any of the transactions contemplated under this
Agreement, including, without limitation, the power:
(a) to act for such Seller with regard to matters pertaining to
indemnification referred to in this Agreement, including the power to compromise
any claim on behalf of such Seller, to bring and transact matters of litigation
and to refer matters to arbitration;
(b) to receive, hold, and deliver to Buyers the Interests accompanied
by executed stock powers, signature guarantees, and any other documents relating
thereto on behalf of such Seller;
(c) to execute and deliver all ancillary agreements, certificates,
statements, notices, approvals, extensions, waivers, undertakings, amendments
and other documents required or permitted to be given in connection with the
consummation of the transactions contemplated by this Agreement;
(d) to receive funds and give receipt for funds including in respect
of the Purchase Price for the Interests for such Seller's Interests, to
distribute to the Seller their respective share of the Purchase Price for the
Interests and to withhold from such funds a contingency reserve for the matters
referred to below;
(e) to give and receive all notices and communications to be given or
received under this Agreement and to receive service of process in connection
with any claims under this Agreement, including service of process in connection
with arbitration; and
(f) to take all actions which under this Agreement may be taken by the
Seller Representative and to do or refrain from doing any further act or deed on
behalf of such Seller which Seller Representative deems necessary or appropriate
in his sole discretion relating to the subject matter of this Agreement as fully
and completely as such Seller could do if personally present.
If Daniel L. O'Connor dies or otherwise becomes incapacitated and
unable to serve as Seller Representative, Martin O'Connor shall become Seller
Representative. The death or incapacity of any Seller shall not terminate the
agency and power of attorney granted hereby
57
<PAGE>
to the Seller Representative. The appointment of Seller Representative shall be
deemed coupled with an Interest and shall be irrevocable and MMA Buyer and any
other person may conclusively and absolutely rely, without inquiry, upon any
action of Seller Representative, as the action of such Seller in all matters
referred to herein. All actions, decisions and instructions of Seller
Representative shall be conclusive and binding upon all of the Sellers and no
Seller shall have any cause of action against Seller Representative for any
action taken or not taken by Seller Representative in his role as such, except
for any action or omission taken or made fraudulently or in bad faith with
respect to such Seller. All reasonable out-of-pocket fees and expenses
(including fees payable to counsel and other professional and brokerage fees)
incurred by Seller Representative in connection with performing such function
and in connection with the transactions contemplated hereby and all payments,
damages, costs, fees and expenses in connection with any indemnification claim
by or other dispute with MMA Buyer under the Agreement shall be paid by each
Seller in proportion to his respective Interests and may be deducted by Seller
Representative from any amounts otherwise payable to any Seller hereunder.
Seller Representative may withhold from funds received on behalf of each Seller
prior to distribution of such funds to each Seller any amount which Seller
Representative deems necessary as a reserve for any such fees, expenses and
indemnification claims.
11.12. Title Insurance.
---------------
The Sellers shall and shall cause MMA, RTS and the Subsidiaries to
cooperate with MMA Buyer in obtaining, a good and valid, irrevocable ALTA title
insurance commitment (the "Title Commitment") from a title insurance company
reasonably acceptable to MMA Buyer (the "Title Company"), irrevocably committing
the Title Company (subject only to the satisfaction of any industry standard
requirements contained in the Title Commitment and reasonably acceptable to MMA
Buyer) to issuing (i) an ALTA form of title insurance policy insuring good,
valid and marketable fee simple title to the Owned Real Estate in RTS, in the
amount that MMA Buyer reasonably requests prior to Closing, or (ii) a date down
and, if required by MMA Buyer, an increased amount endorsement to the existing
title insurance policy number 95080085 issued by Chicago Title Insurance
Company, subject, in either case, to no Liens or other exceptions to title other
than Permitted Exceptions (the "Title Policy") and insuring pedestrian and
vehicular access to and from one or more legally and physically open public
rights of way satisfactory to MMA Buyer, in its sole but reasonable discretion.
The Title Commitment shall be effective as of a date occurring not earlier than
the date of this Agreement and its effective date shall be brought down to the
time of the Closing. The Title Policy shall include such endorsements thereto
as may reasonably be requested by MMA Buyer including, without limitation, a
zoning endorsement. On or prior to the Closing Date, RTS and/or the Sellers
shall execute and deliver, or cause to be executed and delivered, to the Title
Company any affidavits, standard gap indemnities and similar documents
reasonably requested by the Title Company in connection with the issuance of the
Title Commitment or the Title Policy.
11.3. Survey.
------
58
<PAGE>
At MMA Buyer's request, RTS and/or Sellers shall cooperate with Buyers
to obtain, no later than fifteen (15) days prior to Closing, an as-built survey
of the Owned Real Estate (the "Survey") in accordance with (i) the 1997 minimum
standard detail requirements for ALTA/ACSM Land Title Surveys, including,
without limitation, Table A items 2,3,4,6,7,8,9,10,11 and 13 and such additional
or different Table A Items as MMA Buyer may, in its discretion, require, (ii)
with the Accuracy Standards (as adopted by ALTA and ACSM) of an Urban Survey,
and (iii) local standards required by MMA Buyer, in its discretion, dated after
the date hereof, and showing, without limiting the foregoing, all easements and
other appurtenances benefiting and all easements and other encumbrances
burdening the Owned Real Estate. The Survey shall be certified to the Buyers,
the Title Company and any other person reasonably requested by MMA Buyer.
11.14. Tenant Estoppel Certificates.
----------------------------
At MMA Buyer's request, prior to Closing RTS and/or Sellers shall
cooperate with Buyers to obtain estoppel certificates from each of the tenants
under the Lessor Leases in form and substances reasonably satisfactory to MMA
Buyer. No such estoppel certificate shall be conditioned upon a reduction in
rent or other concession to the tenant.
11.15. Non-Disturbance Agreement.
-------------------------
At MMA Buyer's or, after the Closing, RTS' request, the beneficiary
under the Deed of Trust shall (and shall cause the trustee to) execute a
commercially reasonable non-disturbance agreement in favor of any tenant under
the Lessor Leases.
59
<PAGE>
The parties have duly executed this Agreement, all as of the date
first written above.
MONEY MANAGEMENT ASSOCIATES, INC.
By:
-------------------------------------
Chairman and Chief Executive Officer
MONEY MANAGEMENT ASSOCIATES (LP), INC.
By:
-------------------------------------
Chairman and Chief Executive Officer
MONEY MANAGEMENT ASSOCIATES, L.P.
By:
-------------------------------------
Daniel L. O'Connor, General Partner
RUSHMORE TRUST AND SAVINGS, FSB
By:
-------------------------------------
President
-------------------------------------
Daniel L. O'Connor
-------------------------------------
Martin O'Connor
60
<PAGE>
-------------------------------------
John Cralle
-------------------------------------
John Flynn
-------------------------------------
Frank Odenwald
-------------------------------------
Robert Baiers
61
<PAGE>
For Purposes of Article II and Sections 1.4, 10.2
---------- ------------------
and 11.5 only:
----
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
By:
-------------------------------------
President
62
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited Consolidated Balance Sheet as of September 30, 1999 and the unaudited
Consolidated Statement of Operations for the nine months ended September 30,
1999, which are contained in the body of the accompanying Form 10-Q and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-12-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,787
<RECEIVABLES> 33,790
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 130,710
<PP&E> 9,001
<TOTAL-ASSETS> 202,112
<SHORT-TERM> 0
<PAYABLES> 28,122
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 1,568
<LONG-TERM> 1,500
0
0
<COMMON> 208,680
<OTHER-SE> (37,758)
<TOTAL-LIABILITY-AND-EQUITY> 202,112
<TRADING-REVENUE> 17,586
<INTEREST-DIVIDENDS> 7,479
<COMMISSIONS> 9,940
<INVESTMENT-BANKING-REVENUES> 27,163
<FEE-REVENUE> 7,635
<INTEREST-EXPENSE> 1,160
<COMPENSATION> 52,665
<INCOME-PRETAX> (17,167)
<INCOME-PRE-EXTRAORDINARY> (17,167)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,167)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
