<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASSET ALLIANCE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 874201 13-3888903
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 207-8786
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRUCE H. LIPNICK
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 207-8786
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
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<S> <C>
RICHARD T. PRINS, ESQ. STUART H. COLEMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP STROOCK & STROOCK & LAVAN LLP
919 THIRD AVENUE 180 MAIDEN LANE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10038
(212) 735-3000 (212) 806-5400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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============================================================================================================
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share...................... $100,000,000 $29,500
============================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 26, 1998
PROSPECTUS
(ASSET ALLIANCE CORP. LOGO)
SHARES
COMMON STOCK
All of the shares of common stock, $.01 par value (the "Common
Stock"), offered hereby (the "Offering") are being sold by Asset Alliance
Corporation ("Asset Alliance" or the "Company"). Prior to the Offering, there
has been no public market for the Common Stock. It is currently anticipated that
the initial public offering price will be between $ and $ per
share. See "Underwriting" for information relating to the method of determining
the initial public offering price. The Company has applied to have the Common
Stock listed on the Nasdaq National Market under the symbol "AACO."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.............................. $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if delivered to and accepted by, the Underwriters and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made on or about ,
1998 at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New York, New
York 10167.
BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1998
<PAGE> 3
ASSETS UNDER MANAGEMENT BY INVESTMENT STYLE
[Pie chart depicting assets under management by investment style on a pro
forma basis at December 31, 1997. Pie chart indicates that hedged equity
strategy, long/short equity, diversified arbitrage, stable value, hedged
mortgage-backed securities trading, diversified market neutral equity,
convertible and merger arbitrage represented 25%, 21%, 22%, 18%, 10%, 3% and 1%
of assets under management on a pro forma basis at December 31, 1997
respectively.]
PRO FORMA 1997 REVENUES AND ASSETS UNDER MANAGEMENT FOR ASSET ALLIANCE
[A graphical depiction containing a bar graph depicting assets under
management on a pro forma basis at December 31, 1997 and a line graph depicting
the Company's pro forma revenues for the year ended December 31, 1997. The left
vertical axis indicates the dollar amount of the assets under management (in
millions) and the right vertical axis indicates the dollar amount of revenues
(in millions). The horizontal axis indicates the name of the Affiliated Firm and
the date acquired by Asset Alliance. Each bar in the bar graph represents the
assets under management for each Affiliated Firm. Bars are "stacked" in a step
ladder-like format to indicate the breakdown of assets under management on an
Affiliated Firm by Affiliated Firm basis. Each point on the line graph will
correspond to the Company's pro forma revenues for the year ended December 31,
1997 on an Affiliated Firm by Affiliated Firm basis.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
Certain statements contained in this Prospectus constitute "forward-looking
statements" which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology. The
statements in "Risk Factors" in this Prospectus constitute cautionary statements
identifying important factors, including certain risks and uncertainties, with
respect to such forward-looking statements that could cause the actual results,
performance or achievements of the Company to differ materially from those
reflected in such forward-looking statements. These forward-looking statements
speak only as of the date of this Prospectus. The Company disclaims any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. Except as otherwise
indicated, information in this Prospectus assumes (i) no exercise of the
Underwriters' over-allotment option and (ii) the conversion of all outstanding
shares of the Company's Series A Convertible Redeemable Preferred Stock (the
"Series A Preferred Stock") and of all outstanding shares of the Company's
Series B Convertible Redeemable Preferred Stock (the "Series B Preferred Stock")
into an aggregate of 1,875,000 shares of Common Stock and a warrant to purchase
175,000 shares of Common Stock, all of which will occur automatically upon
consummation of the Offering. In this Prospectus, unless otherwise indicated,
the information for the Company as of any date or for any period on or after
December 31, 1997 gives pro forma effect to each of the Bricoleur Acquisition,
the JMG-Pacific Acquisition and the MET Acquisition (as such terms are defined
herein) and the related financings as if each such transaction had been
completed as of such date or the beginning of such period.
THE COMPANY
Asset Alliance is an investment management holding company that acquires
preferred interests in privately owned investment management firms specializing
in alternative investment strategies ("Alternative Managers"). The Company
considers Alternative Managers to be those who use hedging or other risk
modifying strategies to seek higher risk adjusted rates of return in various
market environments. The Company generally purchases a 50% equity interest in a
given firm and is granted a preferred right to a comparable percentage of the
firm's gross revenues (the "Preferred Revenue Share"). Asset Alliance's
strategic focus is to acquire interests in established mid-sized Alternative
Managers with assets under management ranging from $50 million to $500 million.
Upon consummation of the Offering and completion of the MET Acquisition, Asset
Alliance will have acquired preferred interests in six Alternative Managers with
aggregate assets under management in excess of $1.25 billion. The Company's goal
is to build a large and diversified family of Alternative Managers each
possessing a high level of expertise in its chosen investment discipline.
The alternative investment management business is one of the fastest
growing segments of the domestic investment management industry. The Company
believes that the domestic alternative investment management business consists
of more than 3,000 Alternative Managers with aggregate assets under management
in excess of $350 billion that have grown at a compound annual rate in excess of
30% since 1992. Moreover, the Company believes that global assets committed to
Alternative Managers also have increased significantly as foreign investors have
become aware of alternative investment strategies. Alternative Managers
generally manage investment funds or separate accounts for institutional
investors, high net worth investors and other investment funds.
Alternative Managers generally charge higher asset-based fees on their
assets under management than traditional investment managers and also are
entitled to annual incentive performance fees or profit allocations on
incremental positive performance. As a result, Alternative Managers with
positive performance historically have generated substantially more revenues per
dollar of assets under management at any given performance level than have
traditional investment managers. This higher level and dual source of revenues
is a distinguishing and attractive characteristic of the alternative investment
management business. The Asset Alliance acquisition structure enables the
Company to participate in this favorable revenue stream.
Asset Alliance has developed an innovative and flexible acquisition
structure which it believes aligns its strategic and financial goals with those
of the principals (the "Principals") of the Alternative Managers in which it
acquires an interest (the "Affiliated Firms"). Acquisitions ordinarily are
structured to allocate all net income of an Affiliated Firm, after payment of
the Preferred Revenue Share to the Principals, thereby permitting them to
participate in the future growth of the Affiliated Firm, in which they retain a
significant ownership position, and creating incentives for them to increase
revenues and assets under management. As Affiliated Firms increase revenues, the
Company's income from its Preferred Revenue Shares also will increase.
Principals participate in and are encouraged to further the growth of the
Company through
3
<PAGE> 5
ownership of Common Stock or Common Stock equivalents received as part of the
consideration for the Preferred Revenue Share. Principals also may be eligible
to receive incentive options to purchase Common Stock if the Affiliated Firm
achieves specified revenue goals. Asset Alliance has actively encouraged and now
generally requires the Principals to provide for orderly succession in the
management and ownership of the Affiliated Firm in order to realize the value of
their retained ownership positions. Asset Alliance itself does not provide
Principals with a buy-out of their remaining ownership interest in the
Affiliated Firm.
Day-to-day management of the Affiliated Firms is delegated to the
Principals while Asset Alliance retains rights of consent on major matters and
the authority to appoint 50% or more of the board of managers or the board of
directors, as applicable, of the Affiliated Firms in certain circumstances. The
Principals retain full investment discretion with respect to their firm's assets
under management. Asset Alliance provides expertise with respect to marketing
and distribution services, strategic planning and administration, as well as
back-office support and systems. The Company seeks to provide new product
development services for the Affiliated Firms, including the integration of
existing investment products and the distribution of new products that
incorporate the investment strategies of several Affiliated Firms. The Company
also actively introduces the Affiliated Firms to new sources of capital and new
markets for their investment products which can result in access to long-term
investment capital. Asset Alliance's marketing and operational support enables
the Principals to focus on their primary expertise -- portfolio management.
The Affiliated Firms have grown rapidly in terms of revenues and assets
under management since their respective inception dates. On a combined basis for
the Affiliated Firms, total management and incentive performance fees have grown
from $2.9 million for the year ended December 31, 1994 to $46.9 million for the
year ended December 31, 1997, representing a compound annual growth rate of
approximately 153%, while total assets under management have grown from $363
million as of December 31, 1994 to $1.2 billion as of December 31, 1997,
representing a compound annual growth rate of 49%. On a pro forma basis for the
year ended December 31, 1997, the Company had gross revenues of $25.6 million,
EBITDA (as defined herein) of $17.5 million, and EBITDA as adjusted (as defined
herein) of $11.6 million. On a historical basis for the year ended December 31,
1997, the Company had gross revenues of $7.9 million, EBITDA of $1.3 million and
EDITDA as adjusted of $852,000.
The alternative asset management business as a whole remains highly
fragmented and generally is characterized by entrepreneurial organizations which
are often heavily or entirely dependent on the investment management,
operational and marketing skills of a small group of individuals. Asset Alliance
believes that principals of Alternative Managers will increasingly seek out an
organization such as Asset Alliance which can provide them with substantial
benefits, including the realization of a portion of the value of their firms,
the framework for succession planning and the diversification of risk while
allowing for continued day-to-day operational control of their firms with
increased marketing and administrative support. Accordingly, Asset Alliance
believes that significant opportunities exist for future growth of the Company
through the acquisition of preferred interests in additional Alternative
Managers. See "Business -- Industry Focus."
Asset Alliance believes it is well positioned to take advantage of the
opportunities in the alternative asset management market because of (i)
management's experience in the alternative asset management business, (ii) the
development of a strong pipeline of potential acquisition targets, (iii) its
experience in acquiring Alternative Managers, (iv) its innovative acquisition
structure and its marketing and operational support capabilities, (v) its
strategic relationship with Arthur J. Gallagher & Co. ("AJG Co."), the fifth
largest insurance broker in the world and a long time participant in the
alternative investment management industry and (vi) the quality of the
Principals and of the Affiliated Firms in which the Company has already acquired
a preferred interest. The Company believes that the Offering increases the
Company's ability to acquire Alternative Managers by raising additional capital
for such acquisitions and by establishing a trading market for the Common Stock,
which will enhance its attractiveness as part of the consideration for such
acquisitions.
------------------------
The Company was incorporated in the State of Delaware in 1996. Its
principal executive offices are located at 800 Third Avenue, New York, New York
10022, and its telephone number is (212) 207-8786.
------------------------
4
<PAGE> 6
RECENT AND PENDING ACQUISITIONS
The Company's principal means of implementing its growth strategy is
through the acquisition of preferred interests in Alternative Managers. During
1996 and 1997, the Company acquired two Alternative Managers and initiated one
Experienced Manager Launch (as defined herein). In 1998, the Company acquired
one Alternative Manager, and has entered into definitive agreements to acquire
two additional Alternative Managers. In February 1998, the Company acquired a
preferred interest in Bricoleur Capital Management LLC (the "Bricoleur
Acquisition"). In March 1998, the Company entered into definitive agreements to
acquire preferred interests in each of JMG Capital Management LLC and Pacific
Assets Management LLC (collectively, the "JMG-Pacific Acquisition") and
Metropolitan Capital Managers LLC and Metropolitan Capital Advisors LLC
(collectively, the "MET Acquisition"). The Company currently anticipates that
the JMG-Pacific Acquisition will close in the second quarter of 1998 and that
the MET Acquisition will close within 30 days after the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent and Pending Acquisitions."
THE AFFILIATED FIRMS
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ASSETS UNDER
MANAGEMENT AS OF
DATE FORMED(1)/ EQUITY OWNERSHIP FEBRUARY 28, 1998
AFFILIATED FIRM INVESTMENT STYLE DATE ACQUIRED PERCENTAGE (IN MILLIONS)
- --------------- ------------------ ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Milestone Global Advisors L.P....... Hedged May 1993/ 99% $ 135
("Milestone") New York, NY Mortgage-Backed July 1996
Securities Trading
Trust Advisors LLC ("Trust
Advisors")........................ Market Neutral July 1989/ 50% 236
Westport, CT Long/Short Equity; October 1996
Stable Value
Silverado Capital Management LLC.... Convertible and March 1997/ 50% 19
("Silverado") Saddle Brook, NJ Merger Arbitrage March 1997
Bricoleur Capital Management LLC.... Long/Short October 1993/ 50% 286
("Bricoleur") San Diego, CA Small and February 1998
Mid-Cap Equity
JMG Capital Management LLC.......... Diversified March 1992(2)/ 50% 288
and Pacific Assets Management Market Neutral Pending
LLC (collectively, "JMG-Pacific") Arbitrage
Los Angeles and San Francisco, CA
Metropolitan Capital Managers LLC... Event Driven July 1992/ 50% 301
and Metropolitan Capital Advisors Arbitrage Pending
LLC (collectively, "MET") New
York, NY ------
TOTAL................................................................................... $1,265
======
</TABLE>
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(1) Date Affiliated Firm or predecessor formed.
(2) JMG Capital Management LLC was formed in March 1992 and Pacific Assets
Management LLC was formed in April 1996.
5
<PAGE> 7
THE OFFERING
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Common Stock offered hereby(1)..................... shares
Common Stock to be outstanding after the
Offering(1)(2)................................... shares
Use of proceeds.................................... To repay indebtedness outstanding under the
Credit Agreement (as defined herein), to finance
the cash portion of the MET Acquisition, to repay
the Citco Loan (as defined herein) and for
working capital needs and other general corporate
purposes, including future acquisitions. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. AACO
</TABLE>
- ---------------
(1) Assumes that the Underwriters' option to purchase up to an additional
shares to cover over-allotments is not exercised.
(2) Excludes 784,594 shares of Common Stock reserved for issuance upon the
exercise of outstanding options pursuant to the Asset Alliance 1996 Stock
Option Plan, as amended (the "1996 Plan"), and all of the non-plan stock
option agreements. See "Management -- Compensation, Benefit and Retirement
Plans." Includes (i) an aggregate of shares of Common Stock issuable
upon the conversion of $ principal amount of the Company's
outstanding subordinated convertible debentures and $ principal
amount of subordinated convertible debentures to be issued in the MET
Acquisition and (ii) an aggregate of 957,500 shares of Common Stock issuable
upon the exercise of 957,500 warrants (including 175,000 warrants issuable
upon the conversion of the Series A Preferred Stock upon consummation of the
Offering).
SUMMARY RISK FACTORS
Before making an investment decision, prospective investors should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the risk factors set forth in "Risk Factors." These
risks include, among others:
- The Company's continued growth is dependent on the successful
implementation of a strategy which primarily focuses on the acquisition
of preferred interests in Alternative Managers. There can be no assurance
that the Company will be able to locate or acquire suitable Alternative
Managers in the future. The inability on an ongoing basis to acquire
additional Alternative Managers on acceptable terms would limit the
Company's growth and could adversely affect the Company and the market
price of the Common Stock.
- The Company's revenues consist principally of the Preferred Revenue
Shares received from the Affiliated Firms. Because a high percentage of
the Affiliated Firms' revenues are dependent on the realization of
incentive performance fees, unfavorable performance on balance by the
Affiliated Firms would adversely affect the Preferred Revenue Shares and,
therefore, the Company's revenues. The impact of unfavorable performance
on the Company's revenues may be magnified by the existence of minimum
performance benchmarks and loss recovery provisions that would reduce or
postpone an Affiliated Firm's ability to collect performance fees.
- The Company's growth also depends on increasing the assets managed by the
Affiliated Firms. There can be no assurance that the Company or the
Affiliated Firms will succeed in attracting new assets or retaining those
assets presently under management. Unfavorable investment performance by
the Affiliated Firms would likely impair the growth or retention of
assets under management. Unfavorable investment performance by the
Affiliated Firms or relative underperformance of the Company's Common
Stock also could result in Alternative Managers becoming less receptive
to an investment by the Company.
- The performance of the Company and the Affiliated Firms may be adversely
affected by changes in economic and market conditions, including
fluctuations in securities prices. The use of leverage and
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<PAGE> 8
other investment techniques by the Affiliated Firms may increase the
volatility of the Affiliated Firms' performance. There can be no
assurance that economic and market conditions will be stable or that
future performance by the Company and the Affiliated Firms will be
favorable.
- The Company and the Affiliated Firms rely on key management personnel,
including the Principals, whose continued service cannot be assured. The
loss of senior management at the Company or the Affiliated Firms could
adversely affect the Company's business.
- The Principals generally manage the day-to-day business of the Affiliated
Firms autonomously, and the Company's management philosophy and financial
arrangements with the Principals limit its ability to influence the
management practices and policies of an Affiliated Firm even if the
Affiliated Firm is experiencing operational difficulties.
- The business of the Affiliated Firms is highly regulated, and the failure
of the Company or an Affiliated Firm to comply with such regulations
could result in fines, other sanctions and losses in assets under
management and revenues. In addition, unforeseen regulatory changes
impacting Alternative Managers could adversely affect the Company's
business.
- The business of the Affiliated Firms is highly competitive and the
business of the Company is becoming competitive. Many potential
competitors of the Company have greater resources than the Company, which
may affect the Company's ability to compete for, or increase the cost of,
future acquisitions of Alternative Managers. Many competitors and
potential competitors of the Affiliated Firms have greater resources than
the Affiliated Firms, which may affect the ability of the Affiliated
Firms to compete for client assets. Each of the foregoing could adversely
affect the Company's business.
- The Company may be exposed to liabilities incurred by the Affiliated
Firms and there can be no assurance that existing insurance coverage will
be sufficient to offset such liabilities.
- The Affiliated Firms' revenues from incentive compensation may vary
substantially from one period to another and result in more volatile
revenues to the Company than is characteristic of other asset management
firms and holding companies. Therefore, the Company's quarterly results
of operations may fluctuate significantly from quarter to quarter, which
may adversely affect the market price of the Common Stock.
- Future debt and equity financings could adversely affect the Company and
its stockholders.
- The Company could be adversely affected by write-offs of its current and
future investments in the Affiliated Firms.
- The Company could be adversely affected by limitations on the payment by
Affiliated Firms of the Preferred Revenue Shares.
- The ability to effect a change of control of the Company, even if such a
change would be beneficial to the stockholders, could be limited by
certain provisions of the Company's charter and by-laws and Delaware law,
which could adversely affect the market price of the Common Stock.
- Certain stockholders may have the ability to exert significant influence
over the Board of Directors of the Company and to influence the outcome
of corporate transactions requiring stockholder approval.
- Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the pro forma net tangible book value per share
of Common Stock purchased in the Offering.
- The Company does not plan to declare or pay dividends, and the terms of
its credit agreement (the "Credit Agreement") with Bank of America
National Trust and Savings Association (the "Lending Bank") could limit
the Company's ability to pay dividends and other distributions to its
stockholders.
- The lack of a prior public market, variations in equity market
conditions, and the sale of shares eligible for future sale could
adversely affect the market price of the Common Stock.
7
<PAGE> 9
BENEFITS TO RELATED PARTIES
AJG Financial Services, Inc. ("AJG"), which will be the beneficial owner of
approximately % of the Common Stock after giving effect to the Offering,
will realize material benefits from the Offering because the guarantee of $20.0
million of the Company's indebtedness under the Credit Agreement by AJG Co., the
parent company of AJG, will terminate upon repayment of such amount to the
Lending Bank. The Citco Group Limited (the "Citco Group"), which will be the
beneficial owner of % of the Common Stock after giving effect to the Offering,
also will realize material benefits from the Offering because the Company
intends to use a portion of the net proceeds of the Offering to repay $5.0
million of indebtedness which will be borrowed by the Company from Citco Banking
Corporation N.V., an affiliate of the Citco Group, to finance a part of the cash
portion of the purchase price for the JMG-Pacific Acquisition (the "Citco
Loan"). See "Certain Relationships and Related Party Transactions."
8
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical consolidated statement of operations data and
balance sheet data set forth below are derived in the relevant periods from the
consolidated financial statements and the notes thereto of the Company. The
Company's consolidated financial statements have been audited by Ernst & Young
LLP, independent auditors, as of December 31, 1996 and 1997, and for the period
from February 1, 1996 (date of inception) to December 31, 1996 and the year
ended December 31, 1997, and are included elsewhere in this Prospectus, together
with the report of Ernst & Young LLP thereon. The unaudited pro forma
consolidated financial information is not necessarily indicative of the results
that might have occurred had such transactions actually taken place at the
beginning of the period specified and is not intended to be a projection of
future results. This summary historical and pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," with the Company's historical consolidated
financial statements and the notes thereto and the historical financial
statements and related notes thereto of each of Bricoleur, JMG-Pacific and MET,
with the Company's Unaudited Pro Forma Financial Consolidated Information and
the notes thereto, and with the other financial information included elsewhere
in this Prospectus.
<TABLE>
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HISTORICAL
----------------------------------- PRO FORMA
PERIOD FROM PRO FORMA AS ADJUSTED
FEBRUARY 1, 1996 ------------ ------------
(DATE OF INCEPTION) YEAR ENDED YEAR ENDED YEAR ENDED
TO DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997(1) 1997(2)
------------------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Management and incentive fees
(including equity interests from
preferred revenue share)............ $ 914 $ 7,923 $25,555 $
Portion of equity interest from
amortization of acquisition costs
allocated to contracts.............. (22) (201) (9,991)
Other................................. 86 339 339
------ ------- ------- -------
Net revenues............................ 978 8,061 15,903
------ ------- ------- -------
Expenses:
Sub-advisory fee...................... 529 4,864 4,864
Compensation and related expenses..... 297 1,412 2,715
Other operating expenses.............. 228 900 1,090
------ ------- ------- -------
Total expenses........................ 1,054 7,176 8,669
------ ------- ------- -------
Operating (loss) income................. (76) 885 7,234
Interest income, net.................... 55 36 (6,651)
------ ------- ------- -------
Income (loss) before income taxes....... (21) 922 583
Provision for income taxes.............. 38 357 222
------ ------- ------- -------
Net (loss) income....................... (59) 564 361
Preferred stock dividend requirement.... 60 125 625
------ ------- ------- -------
Net (loss) income available to common
stockholders.......................... $ (119) $ 439 $ (264) $
====== ======= ======= =======
Net (loss) income per share available to
common stockholders:
Basic................................. $(0.03) $ 0.10 $ (0.04) $
====== ======= ======= =======
Diluted............................... $(0.03) $ 0.09 $ (0.04) $
====== ======= ======= =======
Shares used to compute net income (loss)
per share:
Basic................................. 3,837 4,471 7,351
====== ======= ======= =======
Diluted............................... 3,837 4,631 7,351
====== ======= ======= =======
OTHER FINANCIAL DATA:
Assets under management (at period end,
in millions).......................... $ 293 $ 391 $ 1,191 $
EBITDA(5)............................... 51 1,285 17,452
------ ------- ------- -------
EBITDA as adjusted(6)................... -- 852 11,565
Cash flow used in operating
activities............................ (2,734) (1,732)
Cash flow used in investing
activities............................ (877) (1,124)
Cash flow from financing activities..... 6,834 11,802
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
----------------- ------------ ------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1997(3) 1997(4)
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets....................................... $6,518 $20,629 $ 9,567 $
Investments in equity interests from preferred
revenue share...................................... 1,921 3,956 137,812
Total assets......................................... 8,696 24,822 147,911
Current liabilities.................................. 720 4,227 4,227
Long-term debt....................................... 750 2,690 104,096
Total liabilities.................................... 1,493 7,021 108,427
Total stockholders' equity........................... 7,203 17,801 39,484
</TABLE>
- ---------------
(1) Gives effect to (i) the Bricoleur Acquisition, the JMG-Pacific Acquisition
and the MET Acquisition as if such acquisitions had occurred on January 1,
1997, (ii) amortization and depreciation of contracts and other acquired
assets, (iii) increased interest costs from borrowings to finance the
Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET Acquisition,
(iv) certain other increased costs to the Company related to new employment
arrangements and increased rent expense and (v) the related tax effects of
the above adjustments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Unaudited Pro Forma
Consolidated Financial Information and the notes thereto included elsewhere
in this Prospectus.
(2) Adjusted to reflect the reduction of interest expense related to (i) the
Credit Agreement and the Citco Loan, which are to be repaid with the net
proceeds from the Offering and (ii) the assumed financing of $18.4 million
representing the cash portion of the purchase price for the MET Acquisition
and related transaction expenses (the "Assumed Indebtedness"). See the
Unaudited Pro Forma Consolidated Financial Information and the notes thereto
included elsewhere in this Prospectus.
(3) Gives effect to the Bricoleur Acquisition, the JMG-Pacific Acquisition and
the Met Acquisition as if they had occurred as of December 31, 1997 and the
related financing of such acquisitions, including (i) $30.0 million of
indebtedness under the Credit Agreement, (ii) $5.0 million of indebtedness
under the Citco Loan and (iii) the Assumed Indebtedness. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Unaudited Pro Forma Consolidated Financial Information and the notes
thereto included elsewhere in this Prospectus.
(4) Adjusted to reflect (i) the sale of shares of Common Stock in the
Offering (at an assumed initial public offering price of $ per share)
and the receipt of the estimated net proceeds therefrom, (ii) the
application of such estimated net proceeds to repay indebtedness outstanding
under the Credit Agreement, the Citco Loan and the Assumed Indebtedness and
(iii) the conversion of the Series A Preferred Stock and the Series B
Preferred Stock into an aggregate of 1,875,000 shares of Common Stock and a
warrant to purchase 175,000 shares of Common Stock. See the Unaudited Pro
Forma Consolidated Financial Information and the notes thereto included
elsewhere in this Prospectus.
(5) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary items. The Company believes EBITDA may be
useful to investors as an indicator of the Company's ability to service
debt, to make additional acquisitions and to meet working capital
requirements. EBITDA, as calculated by the Company, may not be consistent
with computations of EBITDA by other companies. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.
(6) EBITDA as adjusted represents earnings after interest expense and income
taxes but before depreciation and amortization, extraordinary items and
amortization of original issue discount on the Company's subordinated
convertible debentures. The Company believes that this measure may be useful
to investors as another indicator of funds available to the Company, which
may be used, among other things, to make additional acquisitions and repay
debt obligations. EBITDA as adjusted, as calculated by the Company, may not
be consistent with computations of EBITDA as adjusted by other companies.
EBITDA as adjusted is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.
10
<PAGE> 12
RISK FACTORS
An investment in the Common Stock involves various risks. In addition to
the other information in this Prospectus, the following risk factors should be
carefully considered in evaluating the Company and its business before
purchasing the shares of Common Stock offered hereby.
THE COMPANY'S GROWTH STRATEGY MAY NOT BE SUCCESSFUL
The Company's continued growth is dependent on the successful
implementation of a strategy which primarily focuses on the acquisition of
preferred interests in Alternative Managers. Upon consummation of the Offering
and completion of the MET Acquisition, Asset Alliance will have acquired
preferred interests in six Affiliated Firms and intends to continue this
acquisition program in the future, subject to its ability on an ongoing basis to
locate suitable Alternative Managers in which to invest and its ability to
negotiate agreements with such Alternative Managers on acceptable terms. There
can be no assurance that Asset Alliance will be successful in locating or
acquiring such Alternative Managers. The inability to acquire preferred
interests in additional Alternative Managers on acceptable terms would limit the
Company's growth and could adversely affect the Company and the market price for
the Common Stock. See "Business -- Acquisition Criteria" and "-- Growth
Strategy."
UNFAVORABLE PERFORMANCE BY THE AFFILIATED FIRMS WOULD ADVERSELY AFFECT THE
COMPANY
A substantial portion of the revenue of Alternative Managers is based upon
performance-driven incentive compensation whereby the Alternative Manager
receives a percentage of any return to investors, usually on a cumulative basis,
and only after any prior underperformance has been recouped and sometimes only
if the incremental return exceeds a specified minimum level. If the Alternative
Manager's investment performance does not exceed the applicable requirements
during a particular period, no incentive performance fee is earned for that
period. Accordingly, revenues from incentive compensation can vary substantially
from year to year depending upon investment performance. Because the Company's
revenues consist largely of the Preferred Revenue Shares received from the
Affiliated Firms, a failure by the Affiliated Firms to earn performance fees
would adversely effect the Preferred Revenue Shares and, accordingly, could
reduce the Company's profitability. Volatility in the quarterly or annual
performance of the Affiliated Firms would result in similar fluctuations in the
Company's quarterly or annual revenues and income. Significant fluctuations in
the Company's revenues and income could adversely affect the price of the Common
Stock. Although management intends to diversify the Company's investments in
Affiliated Firms across a broad range of investment strategies which are not
highly correlated so as to increase the likelihood of achieving more consistent
revenues, there can be no assurance that the acquisition strategy or such
diversification will successfully insulate the Company from volatility in its
revenue stream. An Affiliated Firm's historical returns also may not be
indicative of future performance.
GROWTH OF ASSETS UNDER MANAGEMENT MAY NOT OCCUR
The Company's growth also depends on increasing the assets managed by the
Affiliated Firms and the revenues they derive from managing assets. Growth in
assets under management is principally achieved through attracting new
investors, additional investments by existing investors and achieving increases
in portfolio value as a result of positive investment return. There can be no
assurance that Asset Alliance or the Affiliated Firms will succeed in attracting
new assets, retaining those assets presently under management or achieving
portfolio growth through investment performance. Unfavorable investment
performance could impair the Affiliated Firms' and the Company's ability to
attract new assets and retain present investors. Unfavorable investment
performance by the Affiliated Firms or relative underperformance of the
Company's Common Stock could also cause Alternative Managers to become less
receptive to an investment by the Company. Furthermore, the investment
strategies utilized by the Affiliated Firms may be less successful at higher
asset levels, leading the Affiliated Firms to limit their growth or to
experience lower revenue growth than asset growth. See "-- The Performance of
the Company and the Affiliated Firms May Be Adversely
11
<PAGE> 13
Affected by Economic and Market Conditions" and "-- The Business of the
Affiliated Firms is Highly Competitive and the Business of the Company is
Becoming Competitive."
THE PERFORMANCE OF THE COMPANY AND THE AFFILIATED FIRMS MAY BE ADVERSELY
AFFECTED BY ECONOMIC AND MARKET CONDITIONS
The Affiliated Firms offer a range of investment management services and
styles primarily to private investment funds, institutional investors and high
net-worth investors. Across all of the Affiliated Firms, the Company operates in
a number of sectors within the alternative investment segment of the investment
management industry. Consequently, the Company's revenues are directly affected
by conditions in the financial and securities markets.
The financial markets and the investment management industry in general
have experienced record performance and record growth in recent years. For
example, between January 1, 1992 and December 31, 1997, the Standard & Poor's
500 Index (the "S&P 500") appreciated at a compound annual rate in excess of 17%
and the Lehman Long Bond Index appreciated at a compound annual growth rate in
excess of 10%. According to Van Hedge Fund Advisors, Inc., a leading data source
for the alternative investment management industry, aggregate assets under
management of Alternative Managers grew at a compound annual rate of
approximately 33% during the same period. The financial markets and businesses
operating in the securities industry, however, can be highly volatile and are
directly affected by, among other factors, domestic and foreign economic
conditions and general trends in business and finance, all of which are beyond
the control of the Company. There can be no assurance that broader market
performance will be favorable in the future. Any decline in the financial
markets or a lack of sustained growth may result in a decline in performance by
the Affiliated Firms and may adversely affect assets under management and/or
fees at the Affiliated Firm level, which would reduce the Preferred Revenue
Shares and, therefore, the Company's revenues.
Alternative Managers also typically use leverage as part of their
investment strategy. The use of leverage and other investment techniques may
magnify the effect of any underperformance or overperformance.
THE COMPANY AND THE AFFILIATED FIRMS RELY ON KEY MANAGEMENT PERSONNEL WHOSE
CONTINUED SERVICE CANNOT BE ASSURED
The Company's success depends to a significant degree upon its growth
strategy, which, in turn, depends on the continuing contributions of its key
management personnel. In particular, the Company would be materially and
adversely affected if it were to lose the services of Bruce H. Lipnick, its
President, Chief Executive Officer and Chairman of the Board of Directors, and
Arnold L. Mintz, its Executive Vice President, Chief Operating Officer and a
member of the Board of Directors, who each play an important role in identifying
suitable investment opportunities for the Company and in structuring and
negotiating the terms of the Company's investments in Alternative Managers.
Messrs. Lipnick and Mintz are subject to five-year employment and non-compete
agreements with the Company.
The Affiliated Firms are dependent upon their individual Principals.
Individual Principals of the Affiliated Firms often have regular direct contact
with particular clients and investors, which can lead to a strong client
relationship based on a client's trust in a certain Principal. The loss of a
Principal of an Affiliated Firm could jeopardize the Affiliated Firm's
relationships with its clients and lead to the loss of client accounts at such
Affiliated Firm or of investors in pooled products managed by such Affiliated
Firm. Such losses could have an adverse effect on the results of operations and
financial condition of the Affiliated Firm and the Company. The Principals are
subject to long-term employment and non-compete agreements with the related
Affiliated Firms of which the Company is a third-party beneficiary.
Although the Company and the Affiliated Firms use a combination of economic
incentives, employment agreements and non-competition agreements as a means of
seeking to retain key management personnel at the Company and the Affiliated
Firms, there can be no assurance that such personnel will remain with their
respective entities. The loss of key management personnel or an inability to
attract, retain and motivate sufficient numbers of qualified management
personnel on the part of the Company or the Affiliated Firms would adversely
affect the Company's business.
12
<PAGE> 14
AFFILIATED FIRM AUTONOMY COULD ADVERSELY AFFECT THE COMPANY
Asset Alliance generally has limited ability to influence the Principals'
day-to-day decisions, policies and strategies in respect of the Affiliated
Firms, including in those cases where an Affiliated Firm may be experiencing
operational difficulties. Although Asset Alliance retains the authority to
prevent and cause certain types of activities by the Affiliated Firms, has veto
rights regarding significant business decisions and can assert greater control
in certain situations or upon payment of a substantial penalty by the Company,
the Principals are authorized to manage and conduct the day-to-day operations of
the Affiliated Firms. An Affiliated Firm's non-compliance with regulatory
requirements or the occurrence of other events that Asset Alliance might detect
if it operated the business of the Affiliated Firms itself may not be detected
by Asset Alliance as quickly, if at all, which may subsequently adversely affect
the Company's financial condition and results of operations. See "-- The
Business of the Affiliated Firms is Highly Regulated" and "Business --
Innovative Structure -- Operational Autonomy of Affiliated Firms."
THE BUSINESS OF THE AFFILIATED FIRMS IS HIGHLY REGULATED
The business of the Affiliated Firms is highly regulated. An Affiliated
Firm's failure to comply with applicable laws or regulations could result in
fines, suspensions of individual employees or other sanctions, including
revocation of an Affiliated Firm's registration as an investment adviser or
broker-dealer (where applicable). Such actions could materially and adversely
affect the Company. Applicable federal laws include the Investment Advisers Act
of 1940, as amended (the "Advisers Act"), the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Asset Alliance itself does not manage
investments for clients, does not provide any investment management services
and, therefore, is not registered as an investment adviser under federal or
state law. See "Business -- Regulation."
In addition, the regulatory environment with respect to Alternative
Managers is continually changing. Regulatory changes, including changes in the
tax laws, the Advisers Act and the Investment Company Act of 1940, as amended
(the "Investment Company Act"), could have the effect of limiting the ability of
the Company and the Affiliated Firms to attract new assets or retain assets
under management. Accordingly, such changes could materially and adversely
affect the Company.
THE BUSINESS OF THE AFFILIATED FIRMS IS HIGHLY COMPETITIVE AND THE BUSINESS OF
THE COMPANY IS BECOMING COMPETITIVE
The Company believes the market for acquisitions of Alternative Managers to
be a developing market which presently involves few competitors. The Company is
aware of other holding companies which have been organized to invest in or
acquire Alternative Managers but these firms have engaged in limited activities
to date. Nonetheless, the Company views these firms as among its potential
competitors. In addition, numerous other companies, both privately and publicly
held, including commercial and investment banks, insurance companies, and
investment management firms, many of which have longer established operating
histories and significantly greater resources than the Company, make investments
in and acquire investment management firms. There can be no assurance that the
Company will be able to compete effectively with such competitors, that
additional competitors will not enter the market or that such competition will
not make it more difficult or impracticable for the Company to make investments
in Alternative Managers. See "Business -- Industry Focus" and "-- Competition."
The investment management business also is highly competitive. Each of the
Affiliated Firms competes with a broad range of investment managers for client
assets, including public and private investment advisers as well as affiliates
of securities broker-dealers, banks, insurance companies and other Alternative
Managers. Many of the Affiliated Firms' competitors and potential competitors
have greater resources and assets under management than any of the Affiliated
Firms or the Affiliated Firms and the Company combined. In addition, there are
relatively few barriers to entry into the alternative investment management
business by new Alternative Managers. The Company believes that each Affiliated
Firm's ability to compete effectively with Alternative Managers and other
investment management firms is primarily dependent upon the Affiliated Firm's
investment strategies, level of investment performance and the reputation of its
Principals. Of lesser importance are fee levels, client service and marketing
and distribution. There can be no assurance that the
13
<PAGE> 15
Affiliated Firms will be able to achieve favorable investment performance or
retain their existing clients. See "Business -- Competition."
THE COMPANY MAY BE EXPOSED TO LIABILITIES INCURRED BY THE AFFILIATED FIRMS
The Company generally has the contractual right to exercise control over an
Affiliated Firm under specified circumstances. In addition, with respect to
certain existing Affiliated Firms organized as limited liability companies, the
Company acts as a managing member. Consequently, the Company potentially could
be held liable, as a control person, for certain acts of the Affiliated Firms,
the Principals or their employees. The Company and each of the Affiliated Firms
maintain general liability insurance in amounts which the Company and the
Principals consider appropriate. There can be no assurance, however, that a
claim or claims will not exceed the limits of available insurance coverage, that
any insurer will remain solvent and will meet its obligations to provide
coverage, or that such coverage will continue to be available with sufficient
limits or at a reasonable cost. A judgment against any of the Affiliated Firms
or the Company in excess of available insurance coverage could have a material
adverse effect on the Company.
THE COMPANY'S QUARTERLY RESULTS MAY FLUCTUATE SIGNIFICANTLY
The Affiliated Firms' revenues from incentive compensation may vary
substantially from one period to another and result in more volatile revenues to
the Company than is characteristic of other asset management holding companies.
The Company's quarterly results of operations may fluctuate significantly from
quarter to quarter as a result of the foregoing and other factors, including
fluctuations in the various markets in which the Affiliated Firms invest and
general economic conditions. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent quarter or for a full year. Fluctuations in the Company's quarterly
results of operations may adversely affect the market price of the Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Accounting Considerations."
FUTURE FINANCINGS COULD ADVERSELY AFFECT THE COMPANY AND ITS STOCKHOLDERS
The Company's acquisitions of preferred interests in Alternative Managers
require substantial capital investments. Although the Company believes that the
proceeds of the Offering together with its existing cash resources and cash flow
from operations will be sufficient to meet the Company's working capital needs
for normal operations for the foreseeable future, these sources of capital are
not expected to be sufficient to enable the Company to pursue its anticipated
acquisition activities on a long-term basis. Therefore, the Company will likely
need to raise capital through the incurrence of additional long-term or
short-term indebtedness or the issuance of additional equity securities in
private or public transactions in order to complete additional acquisitions.
This could result in dilution of the equity of existing stockholders, increased
interest expense or decreased net income. In addition, significant capital
requirements associated with its investments may impair the Company's ability to
pay dividends (although the Company does not anticipate paying any dividends on
its Common Stock in the foreseeable future). There can be no assurance that
acceptable financing for future investments can be obtained on suitable terms,
if at all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
USE OF DEBT TO FINANCE ACQUISITIONS COULD ADVERSELY AFFECT THE COMPANY
Upon completion of the Offering and assuming the application of a portion
of the net proceeds of the Offering to repay all indebtedness to be outstanding
under the Credit Agreement, the Company will not have any borrowing capacity
available under the Credit Agreement. The Company anticipates that it will incur
indebtedness in addition to the outstanding indebtedness under the Credit
Agreement in connection with future acquisitions of preferred interests in
Alternative Managers. There can be no assurance, however, that the Company will
succeed in obtaining any additional financing, and the Company cannot predict at
this time the terms of such financing, if obtained. The Company is and will be
subject to risks normally associated with debt financing. Accordingly, the
Company is and will be subject to the risk that a substantial portion of the
Company's cash flow may be required to be dedicated to the payment of the
Company's debt service obligations or even that its cash flow will be
insufficient to meet required payments of principal and interest. The failure to
make any required debt service payments or to comply with any restrictive or
financial
14
<PAGE> 16
covenants contained in the Credit Agreement or any other debt instrument could
give rise to a default permitting acceleration of the debt under such instrument
as well as debt under other instruments that contain cross-acceleration or
cross-default provisions, which could have an adverse effect on the Company's
financial condition and prospects. The Company's borrowings under the Credit
Agreement may be used only to acquire preferred interests in Alternative
Managers. The Company's borrowings are collateralized by the pledge of all of
the Company's interests in each Affiliated Firm acquired with such borrowings.
The Company has utilized borrowings under the Credit Agreement to finance the
cash portion of the Bricoleur Acquisition and intends to use borrowings under
the Credit Agreement to finance a part of the cash portion of the purchase price
for the JMG-Pacific Acquisition. Investments in Bricoleur and JMG-Pacific in the
aggregate represent in excess of 69% of the Company's assets at December 31,
1997 on a pro forma basis. The Credit Agreement contains, and future debt
instruments may contain, restrictive covenants that could limit the Company's
ability to obtain additional debt financing and thereby could adversely affect
the Company's ability to make future acquisitions of Alternative Managers. The
Credit Agreement also restricts the Company and its subsidiaries from incurring
material indebtedness, incurring liens, disposing of assets and engaging in
extraordinary transactions. The Company is required to comply with certain
financial covenants under the Credit Agreement on an ongoing basis, with which
the Company is currently in compliance. Compliance with such financial covenants
could have the effect of constructively limiting the Company's ability to pay
dividends and other distributions to stockholders (although the Company does not
anticipate paying any dividends on its Common Stock in the foreseeable future).
In addition, indebtedness under the Credit Agreement bears interest at variable
rates and future indebtedness may also bear interest at variable rates. An
increase in interest rates on such indebtedness would increase the Company's
interest expense, which could adversely affect the Company's cash flow and
ability to meet its debt service obligations. The Company also intends to incur
the Citco Loan to finance part of the cash portion of the purchase price for the
JMG-Pacific Acquisition. The Citco Loan is expected to be repaid from the net
proceeds of the Offering. See "Use of Proceeds."
THE COMPANY COULD BE ADVERSELY AFFECTED BY WRITE-OFFS OF INVESTMENTS IN
AFFILIATED FIRMS
On a pro forma basis at December 31, 1997, the Company's total assets were
approximately $147.9 million, of which approximately $137.8 million were
investments in Affiliated Firms and amounts allocated to contracts or other
intangibles. There can be no assurance that the value of such assets will ever
be realized by the Company. The contracts and other assets are being amortized
on a straight-line basis over periods ranging from seven to twenty years. Pro
forma amortization for all investments in Affiliated Firms to date would have
resulted in a charge to operations of approximately $10.0 million for the year
ended December 31, 1997. The Company evaluates each investment and establishes
appropriate amortization periods based on the underlying facts and
circumstances. Subsequent to each investment, the Company reevaluates, on a
regular basis, such facts and circumstances to determine if the investments
continue to be realizable and if the amortization period continues to be
appropriate. Although at December 31, 1997, the net unamortized balance of
amounts allocated to contracts and other intangible assets is not considered to
be impaired, any future determination requiring the accelerated write-off of a
significant portion of the Company's investments would adversely affect the
Company's results of operations and financial position. In addition, the Company
intends to acquire preferred interests in additional Alternative Managers in the
future. While these firms are expected to contribute additional revenue to the
Company, such investments also will result in the recognition of additional
amortizable assets which will cause further increases in amortization expense.
THE COMPANY COULD BE ADVERSELY AFFECTED BY LIMITATIONS ON PAYMENT OF
DISTRIBUTIONS BY AFFILIATED FIRMS
Asset Alliance's agreements with the Affiliated Firms contain provisions
pursuant to which each Affiliated Firm has agreed to pay the Preferred Revenue
Shares to Asset Alliance. There can be no assurance, however, that distributions
of the Preferred Revenue Shares will always be made by the Affiliated Firms or
as to the amounts or timing of any such distributions. See
"Business -- Innovative Structure -- Revenue Sharing Arrangements." The
Organizational Documents (as hereinafter defined) of each Affiliated Firm
generally requires the Affiliated Firm to cover expenses of the business and
compensation of the Principals from amounts remaining after distribution of the
Preferred Revenue Share to the Company. However, the payment of the Preferred
Revenue Share to Asset Alliance may be subject to limitations under the laws of
the
15
<PAGE> 17
jurisdiction of organization of the Affiliated Firm, regulatory requirements,
claims of creditors of the Affiliated Firm and applicable bankruptcy and
insolvency laws.
THE COMPANY COULD BE ADVERSELY AFFECTED BY LIENS ON INTERESTS IN AFFILIATED
FIRMS
Because Asset Alliance is structured as a holding company, substantially
all of the cash flow of the Company consists of distributions of the Preferred
Revenue Shares received from the Affiliated Firms. Borrowings under the Credit
Agreement are secured by all of Asset Alliance's interests, including the
Preferred Revenue Shares, in the Affiliated Firms acquired with borrowings under
the Credit Agreement. While the Company intends to use the proceeds of the
Offering to repay all indebtedness under the Credit Agreement, the Company
expects that in the future it will enter into a new or replacement credit
agreement which will likely have substantially similar terms to those contained
in the Credit Agreement. In the event of a default under the Credit Agreement,
the Lending Bank may act on its security interest to take control of all or a
portion of the Preferred Revenue Shares from the Affiliated Firms. Any
disruption in the Company's receipt of the Preferred Revenue Shares from the
Affiliated Firms could adversely affect the Company's operations. See "-- Use of
Debt to Finance Acquisitions Could Adversely Affect the Company" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ANTI-TAKEOVER PROVISIONS MAY LIMIT THE ABILITY TO EFFECT A CHANGE IN CONTROL OF
THE COMPANY
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") and Amended and Restated By-Laws (the
"By-Laws") and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company,
hinder the removal of incumbent directors and limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock.
See "Description of Capital Stock -- Anti-Takeover Effects of Certain Provisions
of the Certificate and By-Laws and of Delaware Law."
CERTAIN STOCKHOLDERS HAVE THE ABILITY TO EXERT SIGNIFICANT INFLUENCE OVER THE
BUSINESS, POLICIES AND AFFAIRS OF THE COMPANY
After giving effect to the sale of the shares of Common Stock sold in the
Offering, AJG, the Citco Group, members of senior management of the Company and
the Principals will beneficially own in the aggregate approximately %,
%, % and %, respectively, of the outstanding Common Stock. Upon
consummation of the Offering, there will be no agreements among such persons
relating to the voting of the Common Stock or otherwise relating to corporate
governance issues. If such persons were to vote their shares together, these
persons would have the power to elect the Board of Directors of the Company and
to approve any action requiring stockholder approval, including the adoption of
amendments to the Company's Certificate and the approval of sales of all or
substantially all of the Company's assets. This control could preclude any
unsolicited acquisition of the Company and, consequently, adversely affect the
market price of the Common Stock. See "Certain Relationships and Related Party
Transactions," "Principal Stockholders" and "Shares Eligible for Future Sale."
PURCHASERS OF COMMON STOCK IN THE OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the pro
forma net tangible book value (deficit) per share of the Company which, as of
December 31, 1997, was ($10.55). Purchasers of the shares of Common Stock sold
in the Offering will experience immediate and substantial pro forma net tangible
book value dilution of $ per share (assuming an initial public offering
price of $ per share). See "Dilution."
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<PAGE> 18
LACK OF A PRIOR MARKET, EQUITY MARKET CONDITIONS AND SHARES AVAILABLE FOR FUTURE
SALE COULD ADVERSELY AFFECT THE TRADING PRICE OF THE COMMON STOCK
No Prior Market; Volatility
Before the Offering, there has been no public market for the Common Stock.
No assurance can be given that an active trading market will develop or be
sustained in the future or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price of the Common Stock will be determined by negotiations between the Company
and the representatives of the Underwriters and may not be indicative of the
market price of the Common Stock after the Offering. See "Underwriting." From
time to time after the Offering, there may be significant volatility in the
market price for the Common Stock. Quarterly operating results of the Company,
changes in general conditions in the economy or the financial markets, or other
developments affecting the Company or its competitors could cause the market
price of the Common Stock to fluctuate substantially. In addition, in recent
years, the stock market has experienced significant price and volume
fluctuations. This volatility has affected the market prices of securities
issued by many companies for reasons unrelated to their operating performance
and may adversely affect the price of the Common Stock. See
"Business -- Industry Focus" and "-- Acquisition Criteria."
Shares Eligible for Future Sale
Sales of a substantial number of shares of Common Stock in the public
market or the perception that such sales could occur could adversely affect
prevailing market prices for the Common Stock. Upon consummation of the
Offering, the Company will have shares of Common Stock
( shares if the Underwriters' over-allotment option is
exercised in full) outstanding. Of these shares, the shares of Common
Stock to be sold in the Offering will be freely tradable without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), except for
any such shares which may be acquired by an "affiliate" of the Company. In
addition, as of the date of this Prospectus, the Company had outstanding (i)
options to purchase 784,594 shares of Common Stock, of which options to purchase
336,926 shares are currently exercisable, (ii) warrants to purchase 957,500
shares of Common Stock, all of which are currently exercisable, and (iii)
$ aggregate principal amount of subordinated convertible debentures
which are convertible into shares of Common Stock. In connection with
the MET Acquisition, the Company expects to issue $17.85 million aggregate
principal amount of subordinated convertible debentures which are initially
convertible into 1,785,000 shares of Common Stock. In connection with the
Offering, the Company and each of the Company's officers, directors and
stockholders have agreed not to dispose of, subject to certain exceptions, any
shares of Common Stock for a period of 270 days from the date of this Prospectus
(the "Lockup Period") without the prior written consent of Bear, Stearns & Co.
Inc., on behalf of the Underwriters. Upon expiration of the Lockup Period, the
Company believes shares will be eligible for sale in the public
market subject to compliance with the volume limitations and other restrictions
of Rule 144 under the Securities Act ("Rule 144"). In connection with the
Company's acquisitions, certain Principals holding an aggregate of approximately
shares of Common Stock (the "Principal Shares") have entered into
agreements with the Company which prohibit them, subject to certain exceptions,
from disposing of some or all of the Principal Shares for periods of up to five
years from the date such Principal Shares were issued to them by the Company
(collectively, the "Company Lockup Periods"). The Company Lockup Periods will
expire at various times after February 2000. Upon expiration of the Company
Lockup Periods, the applicable Principal Shares will become eligible for sale in
the public market under Rule 144. If stockholders should sell or otherwise
dispose of a substantial amount of shares of Common Stock in the public market,
the prevailing market price could be adversely affected. See "Shares Eligible
For Future Sale."
Registration Rights
The holders of 5,870,500 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public, and the holders of an additional
10,231,048 shares of Common Stock have the right to include all or a portion of
their shares in certain circumstances in a registration statement filed by the
Company. These registration rights may enable
17
<PAGE> 19
such holders to publicly sell shares of Common Stock which would otherwise be
ineligible for sale in the public market. After the Offering, the Company also
intends to register all of the shares of Common Stock issuable under the 1996
Plan. See "Management -- Compensation, Benefit and Retirement Plans." The sale
of a substantial number of shares of Common Stock into the public market
following the Offering, or the availability of such shares for future sale,
could adversely affect the market price for the Common Stock and could impair
the Company's ability to obtain additional capital in the future through an
offering of equity securities should it desire to do so. See "Description of
Capital Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
USE OF PROCEEDS
The Company intends to use approximately $30 million of the net proceeds of
the Offering to repay all indebtedness to be outstanding under the Credit
Agreement. Borrowings under the Credit Agreement mature in February 2003, are
secured by all of the Company's interests in the Affiliated Firms acquired with
such borrowings and bear interest at a variable rate (7.1% per annum at March
15, 1998). Borrowings under the Credit Agreement were used to pay the cash
portion of the purchase price for the Bricoleur Acquisition and will be used to
finance a part of the cash portion of the purchase price for the JMG-Pacific
Acquisition. In addition, the Company intends to use approximately $5 million of
the net proceeds of the Offering to repay the Citco Loan to be incurred to
finance a part of the cash portion of the purchase price for the JMG-Pacific
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
The Company also intends to use approximately $17.85 million of the net
proceeds of the Offering to finance the cash portion of the purchase price for
the MET Acquisition. The closing of the MET Acquisition is subject to customary
closing conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent and Pending Acquisitions."
The balance of the net proceeds of the Offering will be used for working
capital and general corporate purposes, including future acquisitions of
preferred interests in Alternative Managers. Although the Company regularly
reviews acquisition prospects that would augment or complement the Company's
existing holdings, the Company does not presently have any agreement with
respect to any additional acquisitions.
Pending the use of the net proceeds as described above, the net proceeds
will be invested in short-term, investment grade securities.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on the Common Stock.
The Company does not anticipate declaring or paying cash dividends in the
foreseeable future and currently intends to retain any future earnings for
reinvestment in its business. In addition, certain restrictions in the Credit
Agreement may act to limit the Company's ability to pay dividends. Under the
Credit Agreement, the Company is required to comply with certain financial
covenants on an ongoing basis, with which the Company is currently in
compliance. Compliance with such covenants could have the effect of
constructively limiting the Company's ability to pay dividends and other
distributions to stockholders. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." Any future determination to declare or pay cash dividends will be at
the discretion of the Board of Directors and will be dependent upon the
Company's financial condition, results of operations, restrictions contained in
the Credit Agreement, capital requirements and such other factors as the Board
of Directors deems relevant.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at December 31, 1997; (ii) the pro forma capitalization as of such date
after giving effect to the Bricoleur, JMG-Pacific and MET Acquisitions, the
borrowings under the Credit Agreement and the Citco Loan; and (iii) such pro
forma capitalization as adjusted to give effect to the sale of the shares of
Common Stock in the Offering (at an assumed initial public offering price of
$ per share) and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, including current maturities............. $ 3,290 $104,696(1) $
Minority interest........................................ 19 19
------- -------- -------
Stockholders' equity(2)(3):
Series A Preferred Stock, $0.01 par value; 100,000
shares authorized, 100,000 shares issued and
outstanding (aggregate liquidation value of
$2,500,000), actual and pro forma; none issued and
outstanding, pro forma as adjusted.................. 1 1
Series B Preferred Stock, $0.01 par value; 100,000
shares authorized, 100,000 shares issued and
outstanding (aggregate liquidation value of
$10,000,000), actual and pro forma; none issued and
outstanding, pro forma as adjusted.................. 1 1
Common Stock, $0.01 par value, 100,000,000 shares
authorized, 4,485,000 shares issued and outstanding,
actual; 7,365,000 issued and outstanding, pro forma;
issued and outstanding pro forma as
adjusted............................................ 45 74
Additional paid-in capital.......................... 17,487 39,141
Retained earnings................................... 267 267
------- -------- -------
Total stockholders' equity............................... 17,801 39,484
------- -------- -------
Total capitalization..................................... $21,110 $144,199 $
======= ======== =======
</TABLE>
- ---------------
(1) Includes the Assumed Indebtedness.
(2) Excludes (i) 628,000 shares of Common Stock reserved for issuance under
options outstanding under the 1996 Plan, of which 223,332 shares are
currently issuable upon the exercise of outstanding stock options with
exercise prices ranging from $2.86 to $10.00, (ii) 156,594 shares of Common
Stock reserved for issuance under options outstanding which were granted
other than under the 1996 Plan, of which 113,594 shares are currently
issuable upon the exercise of outstanding stock options with exercise prices
ranging from $5.00 to $10.00, (iii) shares of Common Stock
reserved for issuance upon conversion of an aggregate of $
principal amount of subordinated convertible debentures with conversion
prices ranging from $ to $ and (iv) 957,500 shares of
Common Stock reserved for issuance upon the exercise of warrants (including
175,000 warrants issuable upon the conversion of the Series A Preferred
Stock upon consummation of the Offering) with exercise prices ranging from
$5.00 to $12.50. See "Management -- Compensation, Benefit and Retirement
Plans" and "Description of Capital Stock -- Authorized and Outstanding
Capital Stock."
(3) Upon the consummation of the Offering and the conversion of the Series A
Preferred Stock and the Series B Preferred Stock, the Company will be
authorized to issue 20,000,000 shares of undesignated Preferred Stock, $0.01
par value per share, none of which will be issued and outstanding. See
"Description of Capital Stock -- Preferred Stock."
19
<PAGE> 21
DILUTION
The unaudited pro forma net tangible book value (deficit) of the Common
Stock at December 31, 1997 after giving effect to the Bricoleur, JMG-Pacific and
MET Acquisitions was ($97.5 million), or ($10.55) per share. After giving effect
to the sale of the shares of Common Stock in the Offering at an
assumed initial public offering price of $ per share (before deducting
the underwriting discounts and commissions and estimated offering expenses), and
applying the estimated net proceeds therefrom as set forth in "Use of Proceeds,"
the pro forma net tangible book value of the Company at December 31, 1997 would
have been $ million, or $ per share. This represents an immediate
increase in net tangible book value of $ per share to the Company's
existing stockholders and an immediate dilution in net tangible book value of
$ per share to purchasers of Common Stock in the Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value (deficit) per share
before the Offering.................................. $(10.55)
Increase in pro forma net tangible book value per share
attributable to the Offering.........................
-------
Pro forma net tangible book value (deficit) per share after
the Offering.............................................. ()
-------
Dilution in pro forma net tangible book value (deficit) per
share to new investors.................................... $
=======
</TABLE>
Assuming the Underwriters' over-allotment option is exercised in full, the
pro forma net tangible book value at December 31, 1997 would be $
million or $ per share, the immediate increase in pro forma net
tangible book value of shares owned by existing stockholders would be
$ per share, and the immediate dilution to purchasers of shares of
Common Stock in the Offering would be $ per share.
The following table summarizes, at December 31, 1997, after giving effect
to the sale of the shares of Common Stock in the Offering at an assumed initial
public offering price of $ per share, (i) the number and percentage of
shares of Common Stock purchased from the Company, (ii) the total cash
consideration paid for the Common Stock and (iii) the average price per share of
Common Stock paid by existing stockholders and to be paid by purchasers of the
Common Stock in the Offering:
<TABLE>
<CAPTION>
TOTAL
SHARES OWNED CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)......................
New investors.................................
Total...............................
</TABLE>
- ---------------
(1) Excludes (i) 628,000 shares of Common Stock reserved for issuance under
options outstanding under the 1996 Plan, of which 223,332 shares are
currently issuable upon the exercise of outstanding stock options with
exercise prices ranging from $2.86 to $10.00, (ii) 156,594 shares of Common
Stock reserved for issuance under options outstanding which were granted
other than under the 1996 Plan, of which 113,594 shares are currently
issuable upon exercise of outstanding stock options with exercise prices
ranging from $5.00 to $10.00, (iii) shares of Common Stock
reserved for issuance upon conversion of an aggregate of $
principal amount of subordinated convertible debentures with conversion
prices ranging from $ to $ and (iv) 957,500 shares of
Common Stock reserved for issuance upon the exercise of warrants (including
175,000 warrants issuable upon the conversion of the Series A Preferred
Stock upon consummation of the Offering) with exercise prices ranging from
$5.00 to $12.50. See "Management -- Compensation, Benefit and Retirement
Plans" and "Description of Capital Stock -- Authorized and Outstanding
Capital Stock." To the extent outstanding stock options, warrants or
subordinated convertible debentures are exercised or converted, as the case
may be, there will be further dilution to new investors.
20
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA
The selected historical consolidated statement of operations data and
balance sheet data set forth below are derived in the relevant periods from the
consolidated financial statements and the notes thereto of the Company. The
Company's consolidated financial statements have been audited by Ernst & Young
LLP, independent auditors, as of December 31, 1996 and 1997, and for the period
from February 1, 1996 (date of inception) to December 31, 1996 and the year
ended December 31, 1997, and are included elsewhere in this Prospectus, together
with the report of Ernst & Young LLP thereon. This selected historical financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and with the Company's historical
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1996
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
-------------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA
AND AS OTHERWISE INDICATED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Management and incentive fees (including equity interests
from preferred revenue share).......................... $ 914 $ 7,923
Portion of equity interest from amortization of
acquisition costs allocated to contracts............... (22) (201)
Other..................................................... 86 339
------ -------
Net revenues................................................ 978 8,061
------ -------
Expenses:
Sub-advisory fee.......................................... 529 4,864
Compensation and related expenses......................... 297 1,412
Other operating expenses.................................. 228 900
------ -------
Total expenses............................................ 1,054 7,176
------ -------
Operating (loss) income..................................... (76) 885
Interest income, net........................................ 55 36
------ -------
Income (loss) before income taxes........................... (21) 922
Provision for income taxes.................................. 38 357
------
Net (loss) income........................................... (59) 564
Preferred stock dividend requirement........................ 60 125
------ -------
Net (loss) income available to common stockholders.......... $ (119) $ 439
====== =======
Net (loss) income per share available to common
stockholders:
Basic..................................................... $(0.03) $ 0.10
====== =======
Diluted................................................... $(0.03) $ 0.09
====== =======
Shares used to compute net income (loss) per share:
Basic..................................................... 3,837 4,471
====== =======
Diluted................................................... 3,837 4,631
====== =======
OTHER FINANCIAL DATA:
Assets under management (at period end,
in millions).............................................. $ 282 $ 377
EBITDA(1)................................................... 51 1,285
------ -------
EBITDA as adjusted(2)....................................... -- 852
Cash flow used in operating activities...................... (2,734) (1,732)
Cash flow used in investing activities...................... (877) (1,124)
Cash flow from financing activities......................... 6,834 11,802
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
------ -------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $6,518 $20,629
Investments in equity interests from preferred revenue
share..................................................... 1,921 3,956
Total assets................................................ 8,696 24,822
Current liabilities......................................... 720 4,237
Long-term debt.............................................. 750 2,690
Total liabilities........................................... 1,493 7,021
Total stockholders' equity.................................. 7,203 17,801
</TABLE>
- ---------------
(1) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary items. The Company believes EBITDA may be
useful to investors as an indicator of the Company's ability to service
debt, to make additional acquisitions and to meet working capital
requirements. EBITDA, as calculated by the Company, may not be consistent
with computations of EBITDA by other companies. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.
(2) EBITDA as adjusted represents earnings after interest expense and income
taxes but before depreciation and amortization, extraordinary items and
amortization of original issue discount on the Company's subordinated
convertible debentures. The Company believes that this measure may be useful
to investors as another indicator of funds available to the Company, which
may be used, among other things, to make additional acquisitions and repay
debt obligations. EBITDA as adjusted, as calculated by the Company, may not
be consistent with computations of EBITDA as adjusted by other companies.
EBITDA as adjusted is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.
22
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet at December 31, 1997
sets forth the historical consolidated balance sheet of the Company adjusted for
the Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET Acquisition
as if they had occurred as of December 31, 1997 and the related financing of
such acquisitions, including (i) $30.0 million of indebtedness under the Credit
Agreement, (ii) $5.0 million of indebtedness under the Citco Loan and (iii) an
assumed financing of $18.4 million representing the cash portion of the purchase
price for the MET Acquisition and related transaction expenses (the "Assumed
Indebtedness").
The unaudited pro forma, as adjusted, consolidated balance sheet at
December 31, 1997 further reflects (i) the sale of shares of Common
Stock in the Offering (at an assumed initial public offering price of $ per
share) and the receipt of the estimated net proceeds therefrom, (ii) the
application of such estimated net proceeds to repay the indebtedness outstanding
under the Credit Agreement, the Citco Loan and the Assumed Indebtedness and
(iii) the conversion of the Series A Preferred Stock and the Series B Preferred
Stock into an aggregate of 1,875,000 shares of Common Stock and a warrant to
purchase 175,000 shares of Common Stock.
The unaudited pro forma consolidated statement of operations for the year
ended December 31, 1997 sets forth the historical consolidated results of
operations of the Company adjusted for (i) the Bricoleur Acquisition, the
JMG-Pacific Acquisition and the MET Acquisition as if such acquisitions had
occurred on January 1, 1997, (ii) amortization and depreciation of contracts and
other acquired assets, (iii) increased interest costs from borrowings to finance
the acquisitions, (iv) certain other increased costs related to new employment
arrangements and increased rent expense and (v) the related tax effects of the
above adjustments. The unaudited pro forma consolidated statement of operations
does not reflect earn-out payments or purchase price adjustments with respect to
the Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET Acquisition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The unaudited pro forma as adjusted consolidated statement of operations
further reflects the reduction of interest expense related to (i) the Credit
Agreement and the Citco Loan which are to be repaid with the net proceeds from
the Offering and (ii) the Assumed Indebtedness.
The pro forma adjustments are based on available information and upon
certain assumptions that management believes are reasonable under the
circumstances. Each of the Bricoleur Acquisition, the JMG-Pacific Acquisition
and the MET Acquisition is accounted for under the equity method of accounting.
Under this method of accounting, the purchase price has been allocated to the
underlying fair value of net assets acquired, including contracts and other
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
The unaudited pro forma consolidated financial information should be read
in conjunction with the Consolidated Financial Statements of the Company and the
financial statements of Bricoleur, JMG-Pacific and MET included herein. The
unaudited pro forma consolidated financial information is based on the
historical data with respect to the Company and the Affiliated Firms, and is not
necessarily indicative of the results that might have occurred had such
transactions actually taken place at the beginning of the period specified and
is not intended to be a projection of future results.
23
<PAGE> 25
ASSET ALLIANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORICAL(A) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $12,172 $ (11,812)(B) $ 360 $ (I) $
Investment in limited
partnerships............ 3,875 750(C) 4,625
Fees and other
receivables............. 4,546 -- 4,546
Other current assets....... 36 -- 36
------- -------- -------
Total current assets......... 20,629 9,567
Investments in equity
interests from preferred
revenue share.............. 3,956 133,856(D) 137,812
Property and
equipment -- net........... 83 200(E) 283
Organization costs -- net.... 153 -- 153
Other........................ 1 95(F) 96
------- -------- -------
Total assets....... $24,822 $147,911 $
======= ======== =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:......... $ 4,227 $ -- $ 4,227
Deferred income taxes........ 27 -- 27
Deferred rent................ 58 -- 58
Long-term debt............... 2,690 101,406(G) 104,096 (I)
Minority interest............ 19 -- 19
------- -------- ------- -------
Stockholders' equity:
Preferred stock, Series A
Convertible
Redeemable.............. 1 -- 1 (J)
Preferred stock, Series B
Convertible
Redeemable.............. 1 -- 1 (J)
Common stock............... 45 29(H) 74 (I)(J)(K)
Additional paid-in
capital................. 17,487 21,654(H) 39,141 (I)(J)(K)
Retained earnings.......... 267 267 (I)(K)
------- -------- -------
Total stockholders'
equity........... 17,801 39,484
------- -------- -------
Total liabilities
and stockholders'
equity........... $24,822 $147,911 $
======= ======== =======
</TABLE>
See accompanying notes (A)-(K) to this
unaudited pro forma consolidated balance sheet.
24
<PAGE> 26
ASSET ALLIANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORICAL(L) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Management and incentive fees
and equity interest from
preferred revenue share...... $ 7,923 $17,632(M) $25,555 $ $
Portion of equity interest of
amortization costs allocated
to contracts................. (201) (9,790)(N) (9,991)
Realized and unrealized
appreciation on investment in
limited partnership............. 339 -- 339
---------- ------- ------- ------ -------
Net revenues...................... 8,061 7,842 15,903
Expenses:
Sub-advisory fee................ 4,864 -- 4,864
Compensation and related
expenses..................... 1,412 1,303(O) 2,715
Other operating expenses........ 900 190(P) 1,090
---------- ------- ------- ------ -------
Total expenses.................... 7,176 1,493 8,669
---------- ------- ------- ------ -------
Operating income.................. 885 6,349 7,234
Interest income (expense) net..... 36 (6,687)(Q) (6,651) (V)
---------- ------- ------- ------ -------
Income before income taxes........ 921 (338) 583
Provision for income taxes........ 357 (135)(R) 222
---------- ------- ------- ------ -------
Net income........................ 564 (203) 361
Preferred stock dividend
requirement..................... 125 500(S) 625
---------- ------- ------- ------ -------
Net income (loss) available to
common stockholders............. $ 439 $ (703) $ (264) $ $
========== ======= ======= ====== =======
Net income (loss) per share
available to common
stockholders(W):
Basic........................... $ 0.10 $ (0.04) $
========== ======= =======
Diluted......................... $ 0.09 $ (0.04) $
========== ======= =======
Shares used to compute net income
(loss) per share:
Basic........................... 4,471 7,351
========== ======= =======
Diluted......................... 4,631 7,351
========== ======= =======
Assets under management (at period
end, in millions)............... $ 391 $ 1,191
========== =======
EBITDA (T)........................ $ 1,285 $17,452 $
========== ======= =======
EBITDA as adjusted (U)............ $ 852 $11,565 $
========== ======= =======
</TABLE>
See accompanying notes (L)-(W) to this
unaudited pro forma consolidated statement of operations.
25
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the historical consolidated balance sheet of the Company at
December 31, 1997.
(B) Reflects the cash portion of the purchase price for the Bricoleur
Acquisition, the JMG-Pacific Acquisition and the MET Acquisition, net of
(i) borrowings under the Credit Agreement, the Citco Loan and the Assumed
Indebtedness, (ii) cash acquired in the Bricoleur Acquisition and (iii)
financing costs associated with the Credit Agreement and the Citco Loan, as
detailed in the following table:
<TABLE>
<S> <C>
Cash used in acquisitions................................... $(66,657,000)
Cash used to pay for financing costs........................ (12,000)
Cash from borrowings........................................ 53,357,000
Cash acquired in the Bricoleur Acquisition.................. 1,500,000
------------
Pro forma adjustment to cash................................ $(11,812,000)
============
</TABLE>
(C) Represents investment in limited partnership acquired in the Bricoleur
Acquisition.
(D) Reflects the purchase price for the Bricoleur Acquisition, the JMG-Pacific
Acquisition and the MET Acquisition, inclusive of estimated transaction
costs as follows:
<TABLE>
<CAPTION>
SUBORDINATED COMMON STOCK
CONVERTIBLE ------------------------
INVESTMENT CASH DEBENTURES SHARES VALUE
------------ ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Bricoleur Acquisition...... $ 45,150,000 $17,700,000 $ 5,850,000 2,880,000 $21,600,000
JMG-Pacific Acquisition.... 57,602,000 30,600,000 27,002,000 -- --
MET Acquisition............ 33,554,000 18,357,000 15,197,000 -- --
------------ ----------- ----------- ---------- -----------
136,306,000 $66,657,000 $48,049,000 2,880,000 $21,600,000
------------ =========== =========== ========== ===========
Cash acquired in the
Bricoleur Acquisition.... (1,500,000)
Investment in limited
partnership acquired in
the Bricoleur
Acquisition.............. (750,000)
Property and
equipment -- net acquired
in the Bricoleur
Acquisition.............. (200,000)
------------
Pro forma adjustment to
investments in equity
interests from preferred
revenue share............ $133,856,000
============
</TABLE>
(E) Represents property and equipment -- net acquired in the Bricoleur
Acquisition.
(F) Represents (i) capitalized financing costs associated with the Credit
Agreement and the Citco Loan of $12,000 and (ii) the value of 10,000
warrants to purchase shares of Common Stock issued in connection with the
Credit Agreement and 17,500 warrants to purchase shares of Common Stock
issued in connection with the Citco Loan, with an estimated value of $3.00
per warrant.
(G) Represents (i) $30.0 million of indebtedness under the Credit Agreement,
(ii) $5.0 million of indebtedness under the Citco Loan, (iii) $18.4 million
of Assumed Indebtedness, and (iv) an aggregate of $48.0 million of
subordinated convertible debentures issued in connection with the Bricoleur
Acquisition, the JMG-Pacific Acquisition and the MET Acquisition (see note
(D)).
(H) Represents the issuance of (i) 2,880,000 shares of Common Stock as part of
the purchase price for the Bricoleur Acquisition valued at $21.6 million
(see note (D)) and (ii) the value of 10,000 warrants to purchase shares of
Common Stock issued in connection with the Credit Agreement and 17,500
warrants to purchase shares of Common Stock issued in connection with the
Citco Loan, with an estimated value of $3.00 per warrant.
26
<PAGE> 28
(I) Reflects net proceeds of $ from the Offering, the repayment of
indebtedness outstanding under the Credit Agreement, the Citco Loan and the
Assumed Indebtedness and the write-off of financing costs related to such
debt (see Note (E)).
(J) Reflects the conversion of the Series A Preferred Stock and the Series B
Preferred Stock into 1,875,000 shares of Common Stock and 175,000 warrants
to purchase shares of Common Stock.
(K) Reflects $ representing a non-recurring charge related to the
repricing of certain stock options upon the consummation of the Offering to
one-half the public offering price per share.
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(L) Reflects the historical consolidated statement of operations of the Company
for the year ended December 31, 1997.
(M) Represents the sum of (i) 50% of the management and incentive fees earned by
Bricoleur (including 50% of the $1,601,510 earned by the Principals of
Bricoleur for acting as a sub-advisor to JIB Associates, which fees will be
considered as earned by Bricoleur under the Organizational Documents (as
defined herein) for Bricoleur) for the year ended December 31, 1997, (ii)
50% of the management and incentive fees earned by JMG-Pacific for the year
ended December 31, 1997 and (iii) 40% of the management and incentive fees
earned by MET for the year ended December 31, 1997, as follows:
<TABLE>
<CAPTION>
EQUITY INTEREST FROM
PREFERRED REVENUE SHARE
----------------------------
<S> <C>
Bricoleur............................................ $ 6,198,000
JMG-Pacific.......................................... 5,969,000
MET.................................................. 5,465,000
-----------
$17,632,000
===========
</TABLE>
(N) Reflects the increase in amortization of intangible assets in connection
with the Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET
Acquisition being amortized over periods from seven to twenty years, as
detailed in the following tables:
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
PERIOD AMORTIZATION
IN YEARS EXPENSE
------------ ------------
<S> <C> <C> <C>
BRICOLEUR
Contracts 25%...................... $ 10,675,000 7 $1,525,000
Goodwill 75%....................... 32,025,000 20 1,601,000
------------ ----------
$ 42,700,000 $3,126,000
============ ==========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
PERIOD AMORTIZATION
IN YEARS EXPENSE
------------ ------------
<S> <C> <C> <C>
JMG-PACIFIC
Contracts 25%...................... $ 14,367,000 7 $2,052,000
Goodwill 75%....................... 43,101,000 20 2,155,000
------------ ----------
$ 57,468,000 $4,207,000
============ ==========
</TABLE>
27
<PAGE> 29
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
PERIOD AMORTIZATION
IN YEARS EXPENSE
------------ ------------
<S> <C> <C> <C>
MET
Contracts 25%...................... $ 8,389,000 7 $1,199,000
Goodwill 75%....................... 25,165,000 20 1,258,000
------------ ----------
$ 33,554,000 $2,457,000
============ ==========
ANNUAL
AMORTIZATION
EXPENSE
TOTALS
Contracts................................... $ 33,431,000 $4,776,000
Goodwill.................................... 100,291,000 5,014,000
------------ ----------
$133,722,000 $9,790,000
============ ==========
</TABLE>
(O) Reflects increased compensation to executives of the Company under new
employment arrangements.
(P) Reflects (i) $162,000 in increased rent expense and (ii) $28,000 in
increased depreciation of fixed assets acquired in the Bricoleur
Acquisition.
(Q) Reflects the increase in interest expense in connection with indebtedness
under the Credit Agreement, the Citco Loan, the Company's subordinated
convertible debentures and the Assumed Indebtedness, as follows:
<TABLE>
<CAPTION>
BEGINNING PRINCIPAL
AMOUNT WEIGHTED AVERAGE RATE ANNUAL INTEREST EXPENSE
------------------- --------------------- -----------------------
<S> <C> <C> <C>
Credit Agreement........ $ 30,000,000 7.107% $2,132,000
Citco Loan.............. 5,000,000 8.500% 425,000
Subordinated convertible
debentures............ 48,049,335 5.943% 2,855,812
Assumed Indebtedness.... 18,207,000 7.000% 1,274,490
------------ ----- ----------
Total......... $101,256,335 6.604% $6,687,302
============ ===== ==========
</TABLE>
(R) Reflects the tax effect of the adjustments described in notes (M) through
(Q).
(S) Reflects the payment of dividends on the Series B Preferred Stock.
(T) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary items. The Company believes EBITDA may be
useful to investors as an indicator of the Company's ability to service
debt, to make additional acquisitions and to meet working capital
requirements. EBITDA, as calculated by the Company, may not be consistent
with computations of EBITDA by other companies. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.
(U) EBITDA as adjusted represents earnings after interest expense and income
taxes but before depreciation and amortization, extraordinary items and
amortization of original issue discount on the Company's subordinated
convertible debentures. The Company believes that this measure may be useful
to investors as another indicator of funds available to the Company, which
may be used, among other things, to make additional acquisitions and repay
debt obligations. EBITDA as adjusted, as calculated by the Company, may not
be consistent with computations of EBITDA as adjusted by other companies.
EBITDA as adjusted is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.
28
<PAGE> 30
(V) Reflects the elimination of interest expense in connection with the Credit
Agreement, the Citco Loan and the Assumed Indebtedness. See Note (Q).
(W) Net income (loss) per share available to common stockholders is computed in
accordance with Financial Accounting Standards Board No. 128, Earnings Per
Share, which was effective as of December 31, 1997.
Pro forma net income (loss) per share has been calculated using the weighted
average shares outstanding calculated as described above after giving effect
to the Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET
Acquisition.
Pro forma net income (loss) per share as adjusted is computed using the pro
forma weighted average shares outstanding plus (i) the shares of Common
Stock sold in the Offering and (ii) the shares of Common Stock and the
warrants to purchase shares of Common Stock issuable upon conversion of the
Series A Preferred Stock and the Series B Preferred Stock upon consummation
of the Offering, as if all such shares were issued at the beginning of the
periods presented.
Pro forma net income (loss) per share is calculated as follows:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
<S> <C> <C>
NUMERATOR:
Numerator for pro forma basic net income (loss) per
share --
Pro forma net income available to common
stockholders........................................... $ 723 $
Effect of dilutive securities:
Subordinated convertible debentures issued in
acquisitions (net interest)............................ --*
Preferred stock dividend requirement...................... --
------ -------
Numerator for pro forma diluted net income (loss) per
share.................................................. $ 723 $
====== =======
DENOMINATOR:
Historical weighted average shares of Common Stock for
year ended December 31, 1997........................... 4,471
Shares issued upon conversion of Series A Preferred Stock
and
Series B Preferred Stock............................... --*
Shares issued for acquisitions............................ 2,880
Shares issued in Offering................................. --
------ -------
Denominator for pro forma basic net income (loss) per
share.................................................. 7,351
Effect of dilutive securities
Series A Preferred Stock............................... --*
Stock options.......................................... --*
Warrants............................................... --*
Subordinated convertible debentures.................... --* --
------ -------
Denominator for pro forma diluted net income (loss) per
share.................................................. 7,351
------ -------
</TABLE>
- ---------------
*Anti-dilutive.
29
<PAGE> 31
BUSINESS
OVERVIEW
Asset Alliance is an investment management holding company that acquires
preferred interests in privately owned investment management firms specializing
in alternative investment strategies ("Alternative Managers"). The Company
considers Alternative Managers to be those who seek higher risk adjusted rates
of return through use of hedging or other risk modifying strategies. The Company
generally purchases a 50% equity interest in a given firm and is granted a
preferred right to a comparable percentage of the firm's gross revenues (the
"Preferred Revenue Share"). Asset Alliance's strategic focus is to acquire
interests in established mid-sized Alternative Managers with assets under
management ranging from $50 million to $500 million. Upon consummation of the
Offering and completion of the MET Acquisition, Asset Alliance will have
acquired preferred interests in six Alternative Managers with aggregate assets
under management in excess of $1.25 billion. The Company's goal is to build a
large and diversified family of Alternative Managers each possessing a high
level of expertise in its chosen investment discipline.
The Company was founded in February 1996 by Bruce H. Lipnick, the Company's
President, Chief Executive Officer and Chairman of the Board of Directors, and
Arnold L. Mintz, the Company's Executive Vice President, Chief Operating Officer
and a member of the Company's Board of Directors, and commenced operations in
July 1996. Messrs. Lipnick and Mintz have been involved in the investment
management and related investment services industry, with a focus on alternative
investment strategies, for most of their professional careers. See
"Management -- Directors and Executive Officers."
The field of alternative investment strategies comprises one of the fastest
growing segments of the domestic investment management industry. Alternative
Managers generally charge higher asset-based fees on their assets under
management than do traditional investment managers and also are entitled to
annual incentive performance fees or profit allocations as well. This higher
level and dual source of revenues is a distinguishing and attractive
characteristic of the alternative investment management business.
Asset Alliance has developed an innovative and flexible acquisition
structure which it believes aligns its strategic and financial goals with those
of the principals (the "Principals") of the Alternative Managers in which it
acquires an interest (the "Affiliated Firms"). Acquisitions ordinarily are
structured to allocate all net income of an Affiliated Firm, after payment of
the Preferred Revenue Share to the Principals, thereby permitting them to
participate in the future growth of the Affiliated Firm, in which they retain a
significant ownership position, and creating incentives for them to increase
revenues and assets under management. As Affiliated Firms increase revenues, the
Company's income from its Preferred Revenue Shares also will increase.
Principals participate in and are encouraged to further the growth of the
Company through ownership of Common Stock or Common Stock equivalents received
as part of the consideration for the Preferred Revenue Share. Principals also
may be eligible to receive incentive options to purchase Common Stock if the
Affiliated Firm achieves specified revenue goals. Asset Alliance has actively
encouraged and now generally requires the Principals to provide for orderly
succession in the management and ownership of the Affiliated Firm in order to
realize the value of their retained ownership positions. Asset Alliance itself
does not provide Principals with a buy-out of their remaining ownership interest
in the Affiliated Firm.
Day-to-day management of the Affiliated Firms is delegated to the
Principals while Asset Alliance retains rights of consent on major matters and
the authority to appoint 50% or more of the board of managers or the board of
directors, as applicable, of the Affiliated Firms in certain circumstances. The
Principals retain full investment discretion with respect to their firm's assets
under management. Asset Alliance provides expertise with respect to marketing
and distribution services, strategic planning and administration, as well as
back-office support and systems. The Company also seeks to provide new product
development services for the Affiliated Firms, including the integration of
existing investment products and the distribution of new products that
incorporate the investment strategies of several Affiliated Firms. The Company
also actively introduces the Affiliated Firms to new sources of capital and new
markets for their investment products which can result in access to long-term
investment capital. Asset Alliance's marketing and operational support enables
the Principals to focus on their primary expertise -- portfolio management.
30
<PAGE> 32
The Affiliated Firms have grown rapidly in terms of revenues and assets
under management since their respective inception dates. On a combined basis for
the Affiliated Firms, total management and incentive performance fees have grown
from $2.9 million for the year ended December 31, 1994 to $46.9 million for the
year ended December 31, 1997, representing a compound annual growth rate of
approximately 153%, while total assets under management have grown from $363
million as of December 31, 1994 to $1.2 billion as of December 31, 1997,
representing a compound annual growth rate of 49%. On a pro forma basis for the
year ended December 31, 1997, the Company had gross revenues of $25.6 million
EBITDA of $17.5 million, and EBITDA as adjusted of $11.6 million. On a
historical basis for the year ended December 31, 1997, the Company had gross
revenues of $7.9 million, EBITDA of $1.3 million and EBITDA as adjusted of
$852,000.
INDUSTRY FOCUS
Many professional investors historically have allocated a percentage of
their investment portfolio to assets other than traditional stock and bond
holdings and to investment strategies other than traditional long-term
investment. By investing in such "alternative" investment strategies, investors
seek to diversify their holdings across investment styles whose performance is
not highly correlated. Correlation generally indicates the degree to which
investments are expected to experience similar results under similar conditions.
Allocating assets among different asset classes and investment styles with a low
degree of correlation theoretically reduces the overall risk of an investment
portfolio. An increasing awareness of the potential benefits of this type of
portfolio diversification and the desire to obtain risk-adjusted investment
returns in excess of those available in traditional stock and bond holdings has
made the alternative asset management business one of the fastest growing
sectors of the domestic investment management industry.
The Company believes that the domestic alternative investment management
business currently consists of more than 3,000 Alternative Managers with
aggregate assets under management in excess of $350 billion. As of December 31,
1992, there were estimated to be approximately 2,100 Alternative Managers with
total net assets under management of approximately $92 billion. Thus, over the
five-year period from December 31, 1992 to December 31, 1997, the total net
assets under management by Alternative Managers grew at a compound annual rate
in excess of 30%. Moreover, the Company believes that global assets committed to
Alternative Managers also have increased significantly as foreign investors have
become aware of alternative investment strategies.
Asset Alliance expects that the market for investments in alternative
investment strategies will continue to expand rapidly thereby creating increased
demand for experienced Alternative Managers. The alternative asset management
business as a whole remains highly fragmented and generally is characterized by
entrepreneurial organizations which are often heavily or entirely dependent on
the investment management, operational and marketing skills of a small group of
individuals. Accordingly, Asset Alliance believes that significant opportunities
exist for future growth of the Company through the acquisition of preferred
interests in additional Alternative Managers.
The distinction between "traditional" and "alternative" investments is
evolving. The Company considers Alternative Managers to be those who seek higher
risk adjusted rates of return through use of hedging or other risk modifying
strategies. Among the investment specialities of the Alternative Managers in
which the Company has acquired or may in the future acquire interests include
convertible arbitrage, event driven arbitrage, fixed income arbitrage, futures
arbitrage, merger arbitrage, risk arbitrage, distressed securities, hedged
mortgage-backed securities trading, hedged high yield mezzanine financing,
market neutral long-short equity, synthetic guaranteed investment contracts,
managed futures, enhanced overlay management, emerging markets and hedged
international equities and bonds. The Company continually monitors the
investment management market in search of promising alternative investment
strategies in addition to those listed above. The Company does not intend to
purchase interests in traditional asset managers that invest solely on an
unhedged basis in the debt and equity markets unless a portion of their assets
under management can be converted to alternative investment strategies.
The Company believes that equity investment in Alternative Managers offers
a higher, although potentially more volatile, revenue stream than ownership
interests in traditional investment managers.
31
<PAGE> 33
Alternative Managers generally charge higher asset-based fees on their assets
under management than traditional investment managers and also generally are
entitled to periodic incentive performance fees or profit allocations on
incremental positive performance. As a result, Alternative Managers with
positive performance historically have generated substantially more revenues per
dollar of assets under management at any given performance level than have
traditional investment managers. This higher level and dual source of revenues
is a distinguishing and attractive characteristic of the alternative investment
management business. The Asset Alliance acquisition structure enables the
Company to participate in this favorable revenue stream.
The incentive fees or profit allocations of several of the Affiliated Firms
and many of the Alternative Managers that would be acquisition candidates for
the Company are subject to hurdle and/or "high water mark" limitations. High
water mark provisions require that the client's accounts recoup any loss in net
asset value before the Alternative Manager receives any further incentive fee or
profit allocation. Hurdle rate provisions require that the client's account
achieve a specified return before the Alternative Manager receives an incentive
fee or profit allocation. Sometimes hurdle rate and high water mark provisions
are combined. These limitations could have the effect of reducing the Company's
revenues from a particular Affiliated Firm not only during periods of
underperformance but also during the subsequent period of positive performance
required to recoup the prior underperformance. The existence of hurdle and high
water provisions together with the inherent variability of incentive fees may
result in volatility in the Company's revenue stream over time. The Company
seeks to ameliorate this characteristic of its revenue stream by acquiring
interests in Affiliated Firms that have achieved consistent performance records
and whose investment style exhibits a low correlation with the styles of other
Affiliated Firms. See "-- Acquisition Criteria."
INNOVATIVE STRUCTURE
Asset Alliance has developed an innovative and flexible acquisition
structure which it believes aligns its strategic and financial goals with those
of the Principals of the Affiliated Firms in which it acquires an interest. The
Company structures its acquisitions to address the critical business, personal,
tax and estate planning needs of the Principals. The purchase price for the
acquisition of a preferred interest in an Alternative Manager is subject to
negotiation among the Company and the Principals but is typically based on a
multiple of the firm's average annual revenue during the prior two or three-year
period. Consideration paid to the Principals for the sale of a preferred
interest in their firm to Asset Alliance generally consists of a combination of
cash, subordinated notes, Common Stock and options to purchase Common Stock.
Principals are expected to execute long-term employment agreements that contain
covenants not-to-compete and to retain a significant portion of their liquid
net-worth on an ongoing basis in the funds they manage. Once the Company has
acquired an interest in an Affiliated Firm, that Affiliated Firm continues to
operate as a separate business under its existing firm name, under the
continuing guidance and direction of the Principals and following its existing
investment philosophy and methodology.
Operational Autonomy of Affiliated Firms
As part of the Asset Alliance acquisition structure, each of the Affiliated
Firms is (and the Company believes that each future Affiliated Firm will be)
organized as a separate and largely autonomous limited liability company,
partnership or offshore entity. Each Affiliated Firm operates under its own
limited liability company agreement, partnership agreement or similar charter
documents (such Affiliated Firm's "Organizational Document"), which includes
provisions regarding the use of the Affiliated Firm's revenues and the
management of the Affiliated Firm.
The management provisions in each Organizational Document are jointly
developed by Asset Alliance and the Principals at the time Asset Alliance
acquires a preferred interest in the Affiliated Firm. These provisions generally
delegate to the Principals the power and authority to carry on the day-to-day
operation and management of the Affiliated Firm, including matters relating to
non-equity personnel, investment management policies and fee structures
(consistent with the firm's established investment style and asset class),
client relationships and employee compensation programs. Asset Alliance retains
the authority to prevent certain specified types of actions which Asset Alliance
believes could adversely affect revenue distributions to the Company. For
instance, the Affiliated Firms may not enter into new businesses, incur
32
<PAGE> 34
material debt, admit new equity owners or reallocate the Principals' equity
interests beyond certain limits or take other extraordinary actions without the
consent of Asset Alliance. In addition, Asset Alliance has the authority to
appoint 50% or more of the board of managers or the board of directors, as
applicable, of the Affiliated Firms, although the exercise of that authority,
other than in specified circumstances, could result in financial penalties to
Asset Alliance. Asset Alliance itself is solely a holding company and does not
manage investments for clients, does not provide any investment management
services and is not registered as an investment adviser under federal or state
law.
Revenue Sharing Arrangements
The Organizational Document of each Affiliated Firm also contains the
revenue sharing arrangements for that Affiliated Firm. These arrangements
generally provide for a Preferred Revenue Share to Asset Alliance and require
the Affiliated Firm to distribute such amounts to Asset Alliance on a preferred
basis at specified time intervals, typically monthly or quarterly in respect of
management fees, and typically annually in respect of incentive fees. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Accounting Considerations." All remaining revenues of the
Affiliated Firm are allocated to the Principals of the firm (the "Principals'
Allocation"). The Principals' Allocation generally is required to be used first
to pay all expenses of the Affiliated Firm, including salaries, and to fund
reserves and, thereafter, may be distributed to the Principals. In certain
instances, the Company may agree to bear a pro rata and capped portion of
expenses of an Affiliated Firm or of increased expenses associated with
infrastructure improvement and personnel recruitment. Asset Alliance expects
that, after payment of the Preferred Revenue Share the revenue sharing
arrangements will generally result in the distribution of substantially all of
each Affiliated Firm's remaining net income on an annual basis to the
Principals. Asset Alliance will realize return on its investment in an
Affiliated Firm primarily through the Preferred Revenue Share. The Company does
not anticipate disposing of any of its preferred interests in the Affiliated
Firms in order to realize any appreciation in value as the Affiliated Firms
grow.
The purpose of the revenue sharing arrangements is to provide ongoing
incentives for the Principals to increase revenues while controlling operating
expenditures. Because the amount of the Principals' Allocation after payment of
expenses is available to the Principals in the form of bonuses, the Principals
of each Affiliated Firm participate directly in any increase or decrease in
revenues or expenses. The revenue sharing arrangements also allow Asset Alliance
to participate in the growth of revenues of each Affiliated Firm because as
revenues increase the Preferred Revenue Share also increases. The Principals are
expected to manage the business in a manner such that the Principals' Allocation
is sufficient to pay all expenses of the business. If the Principals' Allocation
is insufficient to pay expenses, the Principals must adjust expenses or
contribute additional capital, and the Preferred Revenue Share is not affected
unless all other sources have been exhausted.
Succession Management
Asset Alliance has actively encouraged and now generally requires the
Principals to provide for orderly succession in the management and ownership of
the Affiliated Firm in order to realize the value of their retained ownership
positions. Asset Alliance itself does not provide Principals with a buy-out of
their remaining ownership interests in the Affiliated Firm. As part of Asset
Alliance's acquisition structure, the Organizational Documents provide the
framework which allows the Principals to recruit and develop successors who they
believe are capable of acquiring the Principals' interests and generating
additional growth.
In general, the Organizational Documents permit the Principals to transfer
a percentage of their equity in the Affiliated Firm to other full-time employees
of that firm. Employees who receive equity interests (collectively, with the
Principals, the "Management Owners") are required to become parties to the
Organizational Documents. The Organizational Documents generally include
provisions permitting the purchase of equity interests of Management Owners who
are retiring or reducing their involvement in the business by those other
persons who are taking on increased roles.
33
<PAGE> 35
The buy-sell provisions of the Organizational Documents permit or, in
certain cases, require Management Owners to sell to other Management Owners
various portions of their equity prior to and after becoming less than full-time
employees of the Affiliated Firm. The price to be paid to the Management Owners
for such equity interests varies based on the circumstances at the time and, in
certain cases, may be determined by negotiation among the Management Owners of
the Affiliated Firm. The Company expects that terminating Management Owners will
generally receive a significantly higher price in circumstances where they have
facilitated succession through the prior transfer of a significant percentage of
their equity interests and have provided long term notice of their departures.
Asset Alliance believes that the provisions described above align the interests
of the Principals with those of the Company in addressing the issue of
succession management and the continued viability of the Affiliated Firms. By
creating successor managers positioned to continue the operations of the
Affiliated Firms, the Principals create the mechanism which permits them to
realize the value of their retained ownership interest in the Affiliated Firm
upon termination of their employment. To the extent succession management plans
are successfully implemented, Asset Alliance also benefits through the
continuation of the Preferred Revenue Shares as successive generations of
management assume control of the Affiliated Firms.
The Company believes that its typical acquisition structure appeals to
Alternative Managers for a number of financial and operational reasons.
Successful Alternative Managers can generate substantial present earnings and
future earnings potential for the Principals of such firm. However, such
earnings are subject to variability depending upon the Alternative Manager's
performance and the ability to retain and attract assets among other factors.
Additionally, a large portion of the Principals' personal net worth is often
represented by their ownership interest in the Alternative Manager. Because
Alternative Managers in the Company's target market are usually relatively small
and specialized entities, these ownership interests are generally illiquid and
non-diversified. From the Principals' perspective, a partial sale of their firm
to the Company is an effective means to realize a portion of the past success of
the Alternative Manager while continuing to maintain day-to-day operational
control of the firm with increased marketing and operational support. In the
Asset Alliance acquisition structure, Principals can participate in the future
success of their firm through the Principals' Allocation and share in the growth
of Asset Alliance through their ownership of Common Stock and Common Stock
equivalents received as acquisition consideration.
ACQUISITION CRITERIA
The Company has established certain guidelines for prospective acquisitions
of existing Alternative Managers. Among the criteria which the Company considers
are the background and experience of the Principals of such firms, historic
investment performance, investment style, amount of assets under management,
historical annual growth rates, earnings and cash flow from management fees and
incentive revenues, and the ability and likelihood that the Principals can
expand their asset base and revenues.
The Company targets Alternative Managers with assets under management of
between $50 million and $500 million and places particular emphasis on those
Alternative Managers whose Principals have at least ten years of investment
management experience, a diversified client base, an established performance
record, a demonstrated ability to hedge market risk, a desire to promote
succession management and significant personal investments in the investment
vehicles they manage.
The Company seeks to acquire Alternative Managers whose investment styles
have low correlations of likely investment results with traditional indices of
investment performance, such as the Lehman Long-Bond Index or the S&P 500. Asset
Alliance also seeks to minimize the correlation of likely investment results
among the Affiliated Firms in which it has an interest by acquiring interests in
Alternative Managers representing a broad spectrum of investment styles. Through
this approach, the Company believes different Affiliated Firms are likely to
outperform the market indices in different market cycles, thereby resulting in a
more consistent revenue stream to the Company. The Company believes that
currently the universe of Alternative Managers that meet the Company's initial
criteria in terms of size and investment style exceeds 1,500. Although many of
these Alternative Managers currently have insufficient performance records or
infrastructure, the Company believes there are presently several hundred firms
which would be attractive candidates for the Company's acquisition program.
34
<PAGE> 36
GROWTH STRATEGY
Active Acquisition Program
The core growth strategy of the Company is to acquire preferred interests
in high quality Alternative Managers. Upon consummation of the Offering and
completion of the MET Acquisition, Asset Alliance will have acquired preferred
interests in six Affiliated Firms with aggregate assets under management in
excess of $1.25 billion. Through careful industry research and an active calling
program, Asset Alliance has generated a strong pipeline of potential acquisition
candidates. Each acquisition to date has increased the Company's cash earnings
per share upon closing. The Company believes that the Offering will increase the
Company's ability to acquire Alternative Managers by raising additional capital
for such acquisitions and by establishing a trading market for the Common Stock,
which will enhance its attractiveness as part of the consideration for such
acquisitions.
In general, the Company seeks to initiate its contacts with potential
acquisition candidates on an exclusive basis and does not seek to participate in
competitive auction processes. If necessary, the Company may utilize investment
bankers or other intermediaries on a selective basis to assist it in identifying
potential acquisition candidates.
Asset Alliance identifies and develops relationships with potential
acquisition candidates based on a thorough understanding of its principal target
universe -- mid-sized Alternative Managers with assets under management of
between $50 million and $500 million. Using data from third party vendors,
public and industry sources, and its own research, Asset Alliance screens and
prioritizes prospects and systematically reviews previous contacts with
potential acquisition candidates. The Company believes that this approach
enhances its ability to identify, develop and maintain relationships with
potential acquisition candidates and their Principals. Such activities lead to a
substantial number of unsolicited calls to Asset Alliance from Alternative
Managers. The Company believes that it has established ongoing relationships
with a substantial number of Alternative Managers which may consider receiving
an investment by Asset Alliance in the future.
Once discussions with an acquisition candidate lead to transaction
negotiations, Asset Alliance's management performs substantially all of the
functions related to the valuation, structuring, and negotiation of the
transaction. The Company's management team includes professionals with
experience in the field of mergers and acquisitions of investment management
firms. The Company conducts extensive due diligence regarding the acquisition
candidate and utilizes specialized accounting and legal services to assist it in
this process.
When Asset Alliance considers acquiring an interest in an Alternative
Manager, it evaluates whether the revenue and expense base of the firm will
support payment of (i) the Preferred Revenue Share, (ii) the projected operating
expenses of the potential Affiliated Firm over time and (iii) reasonable bonus
compensation to the Principals. While the Company and its management have
significant experience in the asset management industry, there can be no
assurance that the Company will successfully anticipate future liabilities or
changes in the revenue and expense base of any Affiliated Firm and, therefore,
no assurance that the agreed upon allocation of revenues will be sufficient to
ensure payment of the Preferred Revenue Share. See "Risk Factors -- The Company
Could Be Adversely Affected by Limitations on Payment of Distributions by
Affiliated Firms."
Experienced Manager Launches
In addition to acquisitions of existing Alternative Managers, Asset
Alliance also will launch new Alternative Managers in partnership with
experienced investment managers that have demonstrated superior risk-adjusted
investment performance and who desire to work in an independent and
entrepreneurial environment (an "Experienced Manager Launch" or an "EML"). In
EML transactions, the Company provides a portion of the seed capital and other
assistance necessary for an individual or individuals to establish a new
alternative management entity. For relatively small capital outlays, the Company
seeks to achieve substantially higher rates of growth in assets under management
and revenues through Experienced Manager Launches. Because of the elevated level
of risk associated with an EML, the Company intends to limit such transactions
to experienced investment managers that have demonstrable long-term track
records and who, in the Company's judgment, have the ability and desire to
manage and increase the size and profitability of an
35
<PAGE> 37
Alternative Manager in their field of investment expertise. The Company
generally retains a greater degree of control over the operation and direction
of an EML than in acquisitions of established Alternative Managers. The Company
perceives Experienced Manager Launches to be an important long-term tool that
will enable Asset Alliance to create new entities positioned to participate in
the growing demand for Alternative Managers. The Company believes the experience
of its senior management in establishing and operating Alternative Managers will
be of significant value to Affiliated Firms organized in the Company's EML
program.
The Company anticipates that each Experienced Manager Launch will
necessarily involve different terms and features. In general, an EML transaction
will involve the Company and the Principals contributing capital to the new firm
in an amount necessary to fund operating expenses for an agreed upon period
until the entity is economically self-supporting. There can be no assurance that
EML entities will successfully achieve such status. Asset Alliance will
generally provide the new Principals with ownership of a portion of the new
firm's equity, as well as incentives linked to Common Stock, such as options and
redeemable debt instruments, for achieving certain minimum revenue levels within
a given period of time. In an EML transaction, Asset Alliance will generally
require Principals to commit a significant amount of their personal capital to
the assets under management of the new Affiliated Firm. To date, Asset Alliance
has completed one Experienced Manager Launch. See "-- The Affiliated
Firms -- Silverado Capital Management LLC."
Product Development and Marketing/Operational Support
The Company intends to continue to develop new products and enhance
existing products for its Affiliated Firms as another component of the growth
strategy. In October 1997, the Company organized Asset Alliance Preferred
Manager Trust LLC ("Preferred Manager Trust"), a private investment fund which
has a minimum two year investment period for investors and which has raised
assets of over $30 million since inception. Preferred Manager Trust is managed
by Asset Alliance Advisors Inc., a wholly-owned subsidiary of the Company.
Preferred Manager Trust functions as a "fund of funds" whereby investors' assets
under management are allocated among underlying investment vehicles established
by the Affiliated Firms. Preferred Manager Trust represents a new distribution
channel for the Company, as well as for the Affiliated Firms and is an integral
part of the Company's effort to promote the investment vehicles of and access
new investors for existing and future Affiliated Firms, including Experienced
Manager Launches. Other product development initiatives include "conversion
enhancements" whereby the Company creates or assists in the creation of
alternative investment products for a traditional manager it has acquired. See
"-- The Affiliated Firms -- Trust Advisors LLC."
In addition to its product development and enhancement efforts, Asset
Alliance offers to support the operations of the Affiliated Firms. Asset
Alliance assists the Affiliated Firms, as appropriate, with the marketing and
distribution of their existing products. Asset Alliance has a full time
marketing officer servicing the Affiliated Firms and intends to increase its
marketing and client service staff substantially over time. Asset Alliance
believes that the Principals of each Affiliated Firm are in the best position to
assess their firm's needs and opportunities, and that the autonomy and culture
of each Affiliated Firm should be preserved. However, as requested by the
Principals, Asset Alliance provides strategic, marketing and operational
assistance to the Affiliated Firms. The Company believes that these support
services are attractive to the Principals because such services lessen the
operational burden placed on the Principals, allow the Principals to focus on
their primary expertise of portfolio management and may not otherwise be as
accessible or as affordable for firms of their size.
POTENTIAL GROWTH THROUGH INVESTMENT PERFORMANCE
The Company's growth also is directly related to the investment performance
of the Affiliated Firms. Positive investment performance net of expenses
increases portfolio value and assets under management by an Affiliated Firm. As
both the management fee and the incentive fee charged by the Affiliated Firms is
based in part on assets under management, increases in assets will increase the
revenues of such firm (assuming no withdrawals and, in the case of the incentive
fee, constant performance). Asset Alliance participates directly in any increase
in the revenues of an Affiliated Firm through the Preferred Revenue Share. To
the extent positive net investment performance can be maintained by an
Affiliated Firm, a compounding effect will occur
36
<PAGE> 38
in such firm's assets and revenues. The magnitude of the compounding effect will
grow with increased levels of investment performance. Internal growth through
positive investment performance effectively results in the acquisition of new
assets under management without the costs associated with attracting new
investors or establishing new investment vehicles.
While Asset Alliance is not itself involved in any way in the day to day
investment decisions of the Principals, it does perform a detailed due diligence
on each potential Principal's investment performance track record and, most
importantly, on the variability of each Principal's returns. Asset Alliance
actively seeks Affiliated Firms with Principals that have records of consistent
returns across market cycles and who the Company believes are capable of
achieving internal growth in assets through investment performance, as well as
external growth through marketing efforts. There can be no assurance that the
future investment performance of any Affiliated Firm will be positive. Negative
investment performance by an Affiliated Firm (assuming no contributions by
investors) will result in loss of assets and revenues by such firm. A decrease
in the revenues of an Affiliated Firm will decrease the Preferred Revenue Share
and, therefore, the Company's revenues. See "Risk Factors -- Growth of Assets
Under Management May Not Occur."
The table below depicts the pro forma change in the Company's assets under
management (assuming all Affiliated Firms were included for the entire periods
presented).
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------- ------------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C>
Assets under management --
Beginning of period..................................... $ $
Net new sales.............................................
Investment performance....................................
Assets under management --
-------- --------
End of period........................................... $ $
======== ========
</TABLE>
THE AFFILIATED FIRMS
<TABLE>
<CAPTION>
ASSETS UNDER
EQUITY MANAGEMENT AS OF
DATE FORMED(1)/ OWNERSHIP FEBRUARY 28, 1998
AFFILIATED FIRM INVESTMENT STYLE DATE ACQUIRED PERCENTAGE (IN MILLIONS)
--------------- ---------------------- --------------- ---------- -----------------
<S> <C> <C> <C> <C>
Milestone...................... Hedged Mortgage- May 1993/ 99% $ 135
New York, NY Backed Securities July 1996
Trading
Trust Advisors................. Market Neutral July 1989/ 50% 236
Westport, CT Long/Short Equity; October 1996
Stable Value
Silverado...................... Convertible and Merger March 1997/ 50% 19
Saddle Brook, NJ Arbitrage March 1997
Bricoleur...................... Long/Short Small and October 1993/ 50% 286
San Diego, CA Mid-Cap Equity February 1998
JMG-Pacific(3)................. Diversified Market March 1992(2)/ 50% 288
Los Angeles and Neutral Arbitrage Pending(3)
San Francisco, CA
MET(4)......................... Event Driven Arbitrage July 1992/ 50% 301
New York, NY Pending(4)
------
TOTAL....................................................................... $1,265
======
</TABLE>
- ---------------
(1) Date Affiliated Firm or predecessor formed.
(2) JMG Capital Management LLC was formed in March 1992 and Pacific Assets
Management LLC was formed in April 1996.
37
<PAGE> 39
(3) On March 26, 1998, the Company entered into a definitive agreement to
acquire a preferred interest in JMG-Pacific. It is currently anticipated
that the JMG-Pacific Acquisition will close in the second quarter of 1998.
(4) On March 24, 1998, the Company entered into a definitive agreement to
acquire a preferred interest in MET. The Company presently anticipates that
the MET Acquisition will close within 30 days after the Offering.
The following table sets forth consolidated assets under management of the
Affiliated Firms by type of client on a pro forma basis as of December 31, 1997
(dollars in millions):
<TABLE>
<CAPTION>
ASSETS UNDER
MANAGEMENT CLIENTS
------------------- -----------------
AMOUNT PERCENT NUMBER PERCENT
-------- ------- ------ -------
<S> <C> <C> <C> <C>
Institutions:
Domestic............................................ $ 326 27.70% 66 11.24%
Offshore............................................ 200 16.99 82 13.97
High Net Worth Investors:
Domestic............................................ 292 24.81 233 39.69
Offshore............................................ 30 2.55 41 6.98
Fund of Funds......................................... 329 27.95 165 28.11
-------- ------ --- ------
$1,177 100.0% 587 100.0%
======== ====== === ======
</TABLE>
The Affiliated Firms are described below in order of their respective dates
of acquisition or proposed acquisition by Asset Alliance.
Milestone Global Advisors L.P.
Milestone was founded in May 1993 by Bruce H. Lipnick and Arnold L. Mintz,
the President and Executive Vice President of the Company, respectively.
Milestone identifies certain market inefficiencies in the mortgage-backed
securities markets and then creates hedged investments to profit from those
inefficiencies. Bear Stearns Investment Advisors, Inc. ("BSIA"), a subsidiary of
Bear, Stearns & Co. Inc., served as sub-adviser to Milestone's investment
vehicles from July 1996 until October 1997. On October, 1, 1997, Milestone
delegated to Westside Advisors ("Westside"), an entity unaffiliated with the
Company, full investment discretion in respect of Milestone's investment funds.
The senior principals of Westside were previously responsible for managing
Milestone's portfolio on a non-discretionary basis while employed at BSIA. In
the future, Milestone may enter into additional mortgage related trading joint
ventures with specialized managers to develop new products.
Milestone's investment strategy is a market neutral, arbitrage approach to
investing in mortgage-backed securities. Milestone invests in high credit
quality mortgage-backed securities, consisting mostly of securities backed by
the full faith and credit of the U.S. government or its agencies, with no
holdings rated lower than "AA" by Standard & Poor's. Securities and derivative
securities are purchased and sold short to achieve a net investment duration
close to (but which typically varies somewhat from) zero years. Duration is a
measure of time to maturity, with greater durations indicative of increased
sensitivity of investment values to interest rate changes. Milestone seeks to
identify and exploit the market inefficiencies presented by seasonal market
conditions and portfolio adjustments of dealers and major institutions. A
strategy of combining investments in "interest only" securities, which generally
rise in price as interest rates rise, and investments in "principal only"
securities, which generally fall in price as interest rates rise, is also
employed in an attempt to increase returns without accepting an associated
interest rate risk.
38
<PAGE> 40
MILESTONE GLOBAL ADVISORS L.P.
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES* FEES
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1994 Second Quarter.................... $ 4,000,000 $ 3,031 $ 11,905 $ 14,936
Third Quarter..................... 14,000,000 11,225 27,590 38,815
Fourth Quarter.................... 13,000,000 10,232 49,565 59,797
-------- ---------- ----------
ANNUAL TOTAL.................................... $ 24,488 $ 89,060 $ 113,548
======== ========== ==========
1995 First Quarter..................... $ 18,000,000 $ 15,102 $ 76,399 $ 91,501
Second Quarter.................... 20,000,000 16,350 32,496 48,846
Third Quarter..................... 21,000,000 17,688 37,702 55,390
Fourth Quarter.................... 20,000,000 18,304 89,097 107,401
-------- ---------- ----------
ANNUAL TOTAL.................................... $ 67,444 $ 235,694 $ 303,138
======== ========== ==========
1996 First Quarter..................... $ 22,000,000 $ 18,624 $ 76,188 $ 94,812
Second Quarter.................... 24,000,000 19,776 113,879 133,655
Third Quarter..................... 33,000,000 59,823 260,137 319,960
Fourth Quarter.................... 39,000,000 94,058 388,199 482,257
-------- ---------- ----------
ANNUAL TOTAL.................................... $192,281 $ 838,403 $1,030,684
======== ========== ==========
1997 First Quarter..................... $ 69,000,000 $154,834 $ 782,884 $ 937,718
Second Quarter.................... 94,000,000 186,181 1,725,345 1,911,526
Third Quarter..................... 101,000,000 211,223 1,676,032 1,887,255
Fourth Quarter.................... 120,000,000 241,987 1,773,520 2,015,507
-------- ---------- ----------
ANNUAL TOTAL.................................... $794,225 $5,957,781 $6,752,006
======== ========== ==========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Milestone in each quarter.
Performance fee figures are gross of amounts payable to BSIA from the third
quarter of 1996 through the third quarter of 1997 of $3,713,607 and amounts
payable to Westside for the fourth quarter of 1997 of $1,489,780.
Trust Advisors LLC
The predecessor to Trust Advisors was a traditional investment manager
founded in 1989 by Mark R. Tonucci and Michael E. Portnoy for the purpose of
managing stable value and collective trust assets. Trust Advisors currently
manages three separate alternative investment vehicles: Trust Advisors Stable
Value Plus Fund ("SVP"), Trust Advisors Equity Plus LLC ("Equity Plus") and Twin
Plus LLC ("Twin Plus"). After acquiring a preferred interest in Trust Advisors
in September 1996, the Company assisted in the conversion of SVP from a
traditional stable value fund to one employing alternative investment strategies
as described below.
SVP is a stable value fund investing in guaranteed investment contracts
("GICs") and synthetic GICs. The synthetic GICs held by SVP permit Trust
Advisors to allocate a percentage of assets to Equity Plus and to investment
vehicles managed by Milestone. The allocated assets are "wrapped" by a major
commercial bank to guarantee a minimum rate of return to SVP. Investment returns
from Equity Plus and the investment vehicles managed by Milestone in excess of
the minimum return guaranteed by the bank are passed through to SVP thereby
increasing the yield to investors.
With Equity Plus, Trust Advisors offers a long/short equity investment
program designed to be risk balanced and capable of achieving substantial
capital appreciation in both up and down markets. Trust Advisors allocates the
capital of Equity Plus among unaffiliated Alternative Managers that employ
"market neutral" equity investment strategies. Using this diversified approach
to market neutral investing, Trust Advisors seeks to access and benefit from the
strategies and expertise of select Alternative Managers.
39
<PAGE> 41
Twin Plus is a recently established investment vehicle. The investment
objectives and methods of Twin Plus are substantially similar to those of Equity
Plus with the exception that the assets of Twin Plus are allocated to a single
underlying and unaffiliated Alternative Manager. In addition to managing its
investment vehicles, Trust Advisors provides asset management consulting
services to high net worth individuals, institutions and tax exempt
organizations.
TRUST ADVISORS LLC
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES* FEES
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1993 First Quarter..................... $274,000,000 $142,162 $ -- $ 142,162
Second Quarter.................... 281,000,000 146,631 -- 146,631
Third Quarter..................... 288,000,000 149,104 -- 149,104
Fourth Quarter.................... 288,000,000 152,180 -- 152,180
-------- -------- ----------
ANNUAL TOTAL.................................... $590,077 $ -- $ 590,077
======== ======== ==========
1994 First Quarter..................... $284,000,000 $146,197 $ -- $ 146,197
Second Quarter.................... 284,000,000 168,637 -- 168,637
Third Quarter..................... 276,000,000 164,502 -- 164,502
Fourth Quarter.................... 274,000,000 159,929 -- 159,929
-------- -------- ----------
ANNUAL TOTAL.................................... $639,265 $ -- $ 639,265
======== ======== ==========
1995 First Quarter..................... $268,000,000 $153,104 $ -- $ 153,104
Second Quarter.................... 265,000,000 166,458 -- 166,458
Third Quarter..................... 289,000,000 177,257 -- 177,257
Fourth Quarter.................... 284,000,000 177,343 -- 177,343
-------- -------- ----------
ANNUAL TOTAL.................................... $674,162 $ -- $ 674,162
======== ======== ==========
1996 First Quarter..................... $271,000,000 $172,728 -- $ 172,728
Second Quarter.................... 266,000,000 187,779 -- 187,779
Third Quarter..................... 252,000,000 238,166 -- 238,166
Fourth Quarter.................... 254,000,000 202,533 -- 202,533
-------- -------- ----------
ANNUAL TOTAL.................................... $801,206 $ -- $ 801,206
======== ======== ==========
1997 First Quarter..................... $261,000,000 $211,015 $ 71,650 $ 282,665
Second Quarter.................... 257,000,000 232,424 159,382 391,806
Third Quarter..................... 258,000,000 251,000 542,906 793,906
Fourth Quarter.................... 254,000,000 258,763 193,504 452,267
-------- -------- ----------
ANNUAL TOTAL.................................... $953,202 $967,442 $1,920,644
======== ======== ==========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Trust Advisors in each
quarter.
Silverado Capital Management LLC
Silverado, the Company's first Experienced Manager Launch, was formed in
March 1997 by the Company and Jeffrey D. Cohen to manage investment vehicles
dedicated to convertible securities arbitrage and merger arbitrage. Mr. Cohen
has more than twenty years of experience analyzing and investing in the
convertible securities arbitrage and merger arbitrage areas. Mr. Cohen serves as
Silverado's Managing Director, and Sheri Kaplan, who has worked with Mr. Cohen
for eight years, is Silverado's Director of Arbitrage Trading.
40
<PAGE> 42
Silverado uses convertible securities arbitrage in an effort to capture
positive cash flow from interest paying instruments while profiting from pricing
inefficiencies between convertible securities, including convertible bonds and
convertible preferred stocks, and the underlying common stocks. In addition to
convertible securities arbitrage investments, Silverado engages in merger
arbitrage. In a merger arbitrage transaction, Silverado invests in publicly
announced but not yet completed acquisition transactions in an effort to capture
the incremental returns typically available upon completion of the acquisitions.
Convertible arbitrage and merger arbitrage are investment strategies that
attempt to be market neutral and eliminate correlation with the movement of
broader stock market indices.
SILVERADO CAPITAL MANAGEMENT LLC
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES * FEES
------------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
1997 Third Quarter........................ $ 9,000,000 $37,310 $ 8,135 $ 45,445
Fourth Quarter....................... 16,000,000 18,879 156,345 175,224
------- -------- --------
ANNUAL TOTAL......................... $56,189 $164,480 $220,669
======= ======== ========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Silverado in each quarter.
Bricoleur Capital Management LLC
Bricoleur was founded in November 1993 by John I. Bloomberg and Daniel P.
Wimsatt. The firm focuses on achieving attractive risk-adjusted "absolute"
returns regardless of current trends in the overall equity markets. Bricoleur
invests primarily in U.S. equities and does not invest in currencies,
commodities or futures.
Bricoleur uses fundamental, bottom-up analysis in selecting securities,
focusing on, among other things, growth in earnings and margins, product and
industry positioning, cash flows and management strength. Bricoleur also
considers "technical" and "macro-economic" factors in its evaluation process.
Bricoleur primarily targets companies which are smaller and not widely followed
by the investment community. Bricoleur employs a model of contrarian,
diversified investing which essentially seeks to identify investments that are,
at the time of analysis, out of favor with other investors. Bricoleur seeks to
reduce the risk associated with such investments by employing various hedging
techniques such as short selling companies which the Company believes are
currently overvalued.
41
<PAGE> 43
BRICOLEUR CAPITAL MANAGEMENT LLC*
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES ** FEES
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1994 First Quarter................... $ 22,000,000 $ 6,700 $ 282,800 $ 289,500
Second Quarter.................. 25,000,000 7,400 190,400 197,800
Third Quarter................... 26,000,000 12,900 423,500 436,400
Fourth Quarter.................. 30,000,000 21,200 101,900 123,100
---------- ----------- -----------
ANNUAL TOTAL.................... $ 48,200 $ 998,600 $ 1,046,800
========== =========== ===========
1995 First Quarter................... $ 36,000,000 $ 34,400 $ 371,479 $ 405,879
Second Quarter.................. 42,000,000 48,600 542,268 590,868
Third Quarter................... 56,000,000 82,700 1,210,425 1,293,125
Fourth Quarter.................. 65,000,000 102,500 508,128 610,628
---------- ----------- -----------
ANNUAL TOTAL.................... $ 268,200 $ 2,632,300 $ 2,900,500
========== =========== ===========
1996 First Quarter................... $ 86,000,000 $ 150,500 $ 2,019,608 $ 2,170,108
Second Quarter.................. 104,000,000 193,600 1,553,422 1,747,022
Third Quarter................... 114,000,000 218,700 119,052 337,752
Fourth Quarter.................. 126,000,000 244,600 1,653,097 1,897,697
---------- ----------- -----------
ANNUAL TOTAL.................... $ 807,400 $ 5,345,179 $ 6,152,579
========== =========== ===========
1997 First Quarter................... $140,000,000 $ 265,300 $ 1,907,855 $ 2,173,155
Second Quarter.................. 171,000,000 328,000 5,195,686 5,523,686
Third Quarter................... 213,000,000 407,300 3,281,336 3,688,636
Fourth Quarter.................. 246,000,000 457,300 552,779 1,010,079
---------- ----------- -----------
ANNUAL TOTAL.................... $1,457,900 $10,937,656 $12,395,556
========== =========== ===========
</TABLE>
- ---------------
* Included in the period end assets under management and performance fees are
amounts earned by the Principals of Bricoleur for acting as sub-advisor to
JIB Associates ("JIB"), which are not reflected in the historical financial
statements of Bricoleur included elsewhere in this Prospectus. Effective
January 1, 1998, such amounts will be reflected in the operations of
Bricoleur.
** Performance fee figures represent amounts earned by Bricoleur in each
quarter.
JMG Capital Management LLC and Pacific Assets Management LLC
JMG Capital Management LLC ("JMG Capital") was founded in March 1992 by its
principal, Jonathan M. Glaser. Pacific Assets Management LLC ("Pacific" and,
collectively with JMG Capital, "JMG-Pacific") was founded in April 1996 by its
principals, Roger Richter and Daniel David. In general, JMG-Pacific provides
investment advisory services domestically through JMG-Pacific Capital and
offshore through Pacific. JMG-Pacific emphasizes conservative strategies with a
goal of achieving consistent returns to investors in different market
environments. In seeking its objective, JMG-Pacific employs a broad range of
investment strategies, including hedged options strategies, convertible
arbitrage, capital structure arbitrage and merger and acquisition arbitrage.
JMG-Pacific seeks to structure its portfolio to take advantage of market
volatility and price anomalies between highly correlated or substantially
similar securities. In creating its investment portfolio, JMG-Pacific
de-emphasizes fundamental research and economic forecasting and does not attempt
to rely on accurately predicting market direction or the fortunes of an
individual company.
JMG-Pacific seeks portfolio investments that allow it to apply hedging
techniques in an effort to reduce a high percentage of position risk and that
are perceived to be capable of generating consistent rates of return
42
<PAGE> 44
over full market cycles. JMG-Pacific utilizes options strategies as a method to
enhance both returns and hedge positions.
JMG CAPITAL MANAGEMENT LLC AND PACIFIC ASSETS MANAGEMENT LLC
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES * FEES
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1993 First Quarter.................... $ 2,000,000 $ 4,246 $ 27,369 $ 31,615
Second Quarter................... 3,000,000 5,345 39,615 44,960
Third Quarter.................... 4,000,000 8,282 133,381 141,663
Fourth Quarter................... 7,000,000 14,796 89,738 104,534
---------- ---------- -----------
ANNUAL TOTAL..................... $ 32,669 $ 290,103 $ 322,772
========== ========== ===========
1994 First Quarter.................... $ 11,000,000 $ 29,164 $ 88,245 $ 117,409
Second Quarter................... 13,000,000 31,915 107,699 139,614
Third Quarter.................... 17,000,000 42,297 185,746 228,043
Fourth Quarter................... 21,000,000 54,192 191,390 245,582
---------- ---------- -----------
ANNUAL TOTAL..................... $ 157,568 $ 573,080 $ 730,648
========== ========== ===========
1995 First Quarter.................... $ 36,000,000 $ 89,485 $ 382,149 $ 471,634
Second Quarter................... 38,000,000 95,897 304,567 400,464
Third Quarter.................... 41,000,000 100,596 672,202 772,798
Fourth Quarter................... 44,000,000 102,507 617,797 720,304
---------- ---------- -----------
ANNUAL TOTAL..................... $ 388,485 $1,976,715 $ 2,365,200
========== ========== ===========
1996 First Quarter.................... $ 49,000,000 $ 121,017 $ 764,669 $ 885,686
Second Quarter................... 64,000,000 155,639 1,108,106 1,263,745
Third Quarter.................... 86,000,000 237,710 759,142 996,852
Fourth Quarter................... 110,000,000 317,813 1,078,886 1,396,699
---------- ---------- -----------
ANNUAL TOTAL..................... $ 832,179 $3,710,803 $ 4,542,982
========== ========== ===========
1997 First Quarter.................... $122,000,000 $ 341,418 $1,628,045 $ 1,969,463
Second Quarter................... 158,000,000 458,431 2,224,864 2,683,295
Third Quarter.................... 192,000,000 618,293 3,385,740 4,004,033
Fourth Quarter................... 257,000,000 885,736 2,395,247 3,280,983
---------- ---------- -----------
ANNUAL TOTAL..................... $2,303,878 $9,633,896 $11,937,774
========== ========== ===========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by JMG-Pacific in each
quarter.
Metropolitan Capital Managers LLC and Metropolitan Capital Advisors LLC
Metropolitan Capital Managers LLC ("Metropolitan Managers") and
Metropolitan Capital Advisors LLC ("Metropolitan Advisors" and, collectively
with Metropolitan Managers, "MET") were founded in May 1992 by Jeffrey Schwarz
and Karen Finerman. In general, MET provides investment advisory services
domestically through Metropolitan Advisers and offshore through Metropolitan
Managers. MET seeks to achieve capital appreciation while maintaining a
conservative risk profile.
MET emphasizes opportunities created by significant transitional events in
the corporate life cycle including spin-offs, divestitures, mergers and
acquisitions, reorganizations and bankruptcies, recapitalizations and share
buybacks. MET also considers management changes, overall industry changes and
disappointing announcements causing analysts to change their expectations and
the shareholder base to turn over as potential investment opportunities. Once an
attractive opportunity has been identified, MET searches for the
43
<PAGE> 45
most effective instrument available to create the desired risk/reward profile
for that given investment. MET invests in equity and debt securities, including
publicly traded stocks, warrants and rights, listed and over-the-counter
options, corporate and government bonds, debentures and convertible securities,
bank loans and trade claims and privately-placed securities.
MET's strategy includes, among other things, value investing with a focus
on event-oriented opportunities, traditional risk-arbitrage and distressed
securities investing. In select instances, MET will endeavor to be an activist
investor, providing the catalyst necessary to unlock value when there appears to
be no other agent for change. Elements of this proactive strategy may include
buying large blocks of stock, identifying industry buyers and running proxy
contests.
MET also employs various hedging strategies in an effort to reduce the
exposure of its investment portfolio to market volatility.
METROPOLITAN CAPITAL MANAGERS LLC AND METROPOLITAN CAPITAL ADVISORS LLC
<TABLE>
<CAPTION>
PERIOD END
ASSETS UNDER MANAGEMENT PERFORMANCE TOTAL
MANAGEMENT FEES FEES * FEES
------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1993 First Quarter.................... $ 9,000,000 $ -- $ 147,267 $ 147,267
Second Quarter................... 11,000,000 -- 162,632 162,632
Third Quarter.................... 13,000,000 -- 227,224 227,224
Fourth Quarter................... 16,000,000 -- 128,148 128,148
---------- ---------- -----------
ANNUAL TOTAL..................... $ -- $ 665,271 $ 665,271
========== ========== ===========
1994 First Quarter.................... $ 20,000,000 $ -- $ 147,321 $ 147,321
Second Quarter................... 21,000,000 -- 150,674 150,674
Third Quarter.................... 25,000,000 -- 283,920 283,920
Fourth Quarter................... 25,000,000 -- (187,954) (187,954)
---------- ---------- -----------
ANNUAL TOTAL..................... $ -- $ 393,961 $ 393,961
========== ========== ===========
1995 First Quarter.................... $ 49,000,000 $ 217,142 $ 455,861 $ 673,003
Second Quarter................... 55,000,000 242,296 770,782 1,013,078
Third Quarter.................... 65,000,000 289,634 952,307 1,241,941
Fourth Quarter................... 67,000,000 325,519 587,174 912,693
---------- ---------- -----------
ANNUAL TOTAL..................... $1,074,591 2,766,124 $ 3,840,715
========== ========== ===========
1996 First Quarter.................... $ 90,000,000 $ 389,402 $1,342,551 $ 1,731,953
Second Quarter................... 98,000,000 445,654 767,072 1,212,726
Third Quarter.................... 120,000,000 515,759 1,832,324 2,348,083
Fourth Quarter................... 133,000,000 599,801 2,048,193 2,647,994
---------- ---------- -----------
ANNUAL TOTAL..................... $1,950,616 $5,990,140 $ 7,940,756
========== ========== ===========
1997 First Quarter.................... $174,000,000 $1,046,877 $2,255,784 $ 3,302,661
Second Quarter................... 206,000,000 1,063,604 1,619,862 2,683,466
Third Quarter.................... 265,000,000 940,453 4,274,345 5,214,798
Fourth Quarter................... 297,000,000 1,013,821 1,448,511 2,462,332
---------- ---------- -----------
ANNUAL TOTAL..................... $4,064,755 $9,598,502 $13,663,257
========== ========== ===========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by MET in each quarter.
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<PAGE> 46
COMPETITION
The Company believes the market for acquisitions of Alternative Managers to
be a developing market which presently involves few competitors. The Company is
aware of other holding companies which have been organized to invest in or
acquire Alternative Managers but these firms have engaged in limited activities
to date. Nonetheless, the Company views these firms as among its potential
competitors. In addition, numerous other companies, both privately and publicly
held, including commercial and investment banks, insurance companies and
investment management firms, many of which have longer established operating
histories and significantly greater resources than the Company, make investments
in and acquire investment management firms. There can be no assurance that these
companies will not enter or increase their activities in the market for
acquisitions of Alternative Managers. The longer operating histories and greater
resources of these companies may make them more attractive to the owners of
firms in which Asset Alliance is considering an investment and may enable them
to offer greater consideration to such owners. The Company believes that
important factors affecting its ability to compete for future acquisitions are
(i) the degree to which target firms view the Asset Alliance acquisition
structure as preferable, financially and operationally, to acquisition or
investment arrangements offered by other potential purchasers, (ii) the market
value of the Common Stock, which may be a form of consideration in acquisitions,
(iii) the attractiveness of Alternative Managers to other acquirers and (iv) the
reputation and performance of the existing and future Affiliated Firms, by which
target firms will judge Asset Alliance and its future prospects.
The investment management business also is highly competitive. Each of the
Affiliated Firms competes with a broad range of investment managers for client
assets, including public and private investment advisers as well as affiliates
of securities broker-dealers, banks, insurance companies and other Alternative
Managers. Many of the Affiliated Firms' competitors have greater resources and
assets under management than any of the Affiliated Firms or the Affiliated Firms
and the Company combined. In addition, there are relatively few barriers to
entry into the alternative asset management business by new Alternative
Managers. Asset Alliance believes that the most important factors affecting the
Affiliated Firms' ability to compete for clients are (i) the investment
strategies offered and (ii) the abilities, performance records and reputation of
their Principals. Of lesser importance are (i) the level of performance
allocations and management fees, (ii) the level of client service offered and
(iii) the development of new investment strategies and marketing. The importance
of these factors can vary depending on the type of investment management service
involved. Each Affiliated Firm's ability to retain and increase assets under
management and to enhance revenues would be adversely affected if client
accounts underperform in comparison to relevant benchmarks, or if Principals or
other key employees leave the Affiliated Firm. The ability of each Affiliated
Firm to compete with other investment management firms is also dependent, in
part, on the relative attractiveness of their respective investment philosophies
and methods under then prevailing market conditions.
EMPLOYEES
As of March 15, 1998, the Company employed eleven persons, eight of whom
are full time employees. The Company is not subject to any collective bargaining
agreements and the Company believes its labor relations are satisfactory.
PROPERTIES
Asset Alliance's executive offices are located at 800 Third Avenue, New
York, New York 10022, where it occupies approximately 10,800 square feet under a
lease expiring in May 2008. Each of the Affiliated Firms also leases office
space for their principal offices. The Company believes that its facilities are
adequate for its present and currently foreseeable needs.
REGULATION
The business of the Affiliated Firms is highly regulated. An Affiliated
Firm's failure to comply with applicable laws or regulations could result in
fines, suspensions of individual employees or other sanctions, including
revocation of an Affiliated Firm's registration as an investment adviser or
broker-dealer (where
45
<PAGE> 47
applicable). Such actions could materially and adversely affect the Company.
Applicable federal laws include the Advisers Act, ERISA, the Exchange Act and
the Investment Company Act. Milestone, Trust Advisors and Bricoleur are each
registered with the Commission as an investment adviser under the Advisers Act
or with a state under the applicable state statute governing investment
advisers, and are subject to the provisions of investment advisory regulations
and regulatory oversight and exam. These regulations impose numerous obligations
on registered investment advisers, including fiduciary, record keeping,
operational and disclosure obligations. Certain Affiliated Firms are subject to
ERISA, and to regulations promulgated thereunder, because they are "fiduciaries"
under ERISA with respect to certain of their clients. ERISA and the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), impose
certain duties on persons who are fiduciaries under ERISA, and prohibit certain
transactions involving the assets of each ERISA plan which is a client of an
Affiliated Firm, as well as certain transactions by the fiduciaries (and certain
other related parties) to such plans. Each of Asset Alliance Investment Services
Inc., a wholly-owned subsidiary of the Company, Equity Plus Ltd., Twin Trust
Trading LLC, JMG Convertible Investments, L.P., Silverado Arbitrage Trading Ltd.
and Equity Plus is registered or is in the process of registering under the
Exchange Act as a broker-dealer and thus is subject to extensive regulation with
respect to sales methods, trading practices, the use and safekeeping of
customers' funds and securities, capital structure, record keeping and the
conduct of directors, officers and employees.
Recent amendments to the federal securities laws will affect the
alternative investment management business. The National Securities Improvement
Act of 1996, among other things, added Section 3(c)(7) to the Investment Company
Act, creating a new type of private investment company that, despite having more
than 100 investors, does not have to register with the Commission under the
Investment Company Act (each, a "Section 3(c)(7) Fund"). Section 3(c)(7) Funds
are available to certain "qualified purchasers" (as defined in the Investment
Company Act) and are exempt from certain performance fee restrictions in the
Advisers Act. The Company believes that the authority to create Section 3(c)(7)
Funds provides Alternative Managers with additional flexibility in increasing
their assets under management.
Asset Alliance itself does not manage investments for clients, does not
provide any investment management services and, therefore, is not registered as
an investment adviser under federal or state law.
LEGAL PROCEEDINGS
From time to time, the Company and the Affiliated Firms may be parties to
various claims, suits and complaints. Currently, neither the Company nor any of
the Affiliated Firms is a party to any material legal proceedings.
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<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus.
OVERVIEW
Asset Alliance is an investment management holding company that acquires
preferred interests in privately owned investment management firms specializing
in alternative investment strategies ("Alternative Managers"). The Company
generally purchases a 50% equity interest in a given firm and is granted a
preferred right to a comparable percentage of the firm's revenues (the
"Preferred Revenue Share"). The Company's goal is to build a large and
diversified family of Alternative Managers each possessing a high degree of
expertise in its chosen investment discipline.
The Company derives its revenues from its ownership of the preferred
interests in the Alternative Managers in which it acquires an interest (the
"Affiliated Firms"). The Company has a revenue sharing arrangement with each
Affiliated Firm, which is set forth in the Organizational Documents of each such
Affiliated Firm. These arrangements generally provide for a Preferred Revenue
Share to Asset Alliance and require the Affiliated Firm to distribute such
amounts to Asset Alliance on a preferred basis at specified time intervals. All
remaining revenues of the Affiliated Firm are allocated to the Principals of the
firm (the "Principals' Allocation"). The Principals' Allocation generally is
required to be used first to pay all expenses of the Affiliated Firm, including
salaries, and to fund reserves and, thereafter, may be distributed to the
Principals. In certain circumstances, a set amount of expense or actual expense
up to a certain limit is deducted from gross revenues before the Preferred
Revenue Share is distributed to the Company. Presently, across all of the
Affiliated Firms, the maximum expense deductions for any given year may not
exceed an aggregate of $550,000.
The Affiliated Firms generate substantially all their revenues from two
sources: asset-based fees and performance-based fees. Asset-based fees entitle
the Affiliated Firms to a fee based upon a specified percentage (generally 1% to
2% per annum) of their assets under management. Performance-based fees entitle
the Affiliated Firms to a specified percentage (generally a minimum of 20% per
annum) of the annual incremental positive investment performance of their assets
under management. Historically, asset-based fees are paid quarterly in arrears,
while performance-based fees are paid annually. See "-- Certain Accounting
Considerations."
The revenue sharing arrangements among the Company and the Principals are
designed to align the strategic and financial goals of the Principals with those
of the Company. As an Affiliated Firm increases revenues, either through
increasing assets under management or through investment performance, both the
Principals' Allocation and the Preferred Revenue Share will increase. The
revenue sharing arrangements also provide ongoing incentives for the Principals
to control operating expenditures. The Principals are expected to manage the
business in a manner such that the Principals' Allocation is sufficient to pay
all expenses of the business. If the Principals' Allocation is insufficient to
pay expenses, the Principals must adjust expenses or contribute additional
capital, and the Preferred Revenue Share is not affected unless all other
sources have been exhausted.
CERTAIN ACCOUNTING CONSIDERATIONS
The Affiliated Firms generally are entitled to receive annual incentive
fees on positive investment performance or performance beyond a specified rate
of return, which are accrued as revenues. The accrual of such revenues generally
represents revenues the Affiliated Firms would have earned if performance-based
fees were payable as of the date of accrual as compared to on an annual basis.
The Affiliated Firms generally will accrue revenues from incentive fees on a
quarterly basis. Realization of the incentive fee accrual is subject to the
Affiliated Firm maintaining the positive investment performance through the end
of the applicable annual period. If an Affiliated Firm fails to maintain the
positive investment performance or the investment
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<PAGE> 49
performance falls below any applicable hurdle rate, subsequent incentive fee
accruals will be negative and offset prior positive incentive fee accruals.
The incentive fee accrual is directly correlated with investment
performance. Therefore, variations in quarterly investment performance by an
Affiliated Firm will result in volatility in the amount of the corresponding
incentive fee accrual.
As a result of the Preferred Revenue Shares, Asset Alliance will be
required to record its share of the incentive fee accruals of each of the
Affiliated Firms, and such amounts likely will represent a high percentage of
the Company's revenues. Therefore, volatility in the performance of the
Affiliated Firms will result in fluctuations, which could be significant, in the
Company's quarterly revenues and may result in the Company's revenue stream
becoming more volatile than is characteristic of other investment management
firms or holding companies. Accordingly, the Company seeks to acquire preferred
interests in Alternative Managers it believes likely to achieve consistent
returns and to diversify its investments in Affiliated Firms across a broad
range of investment strategies that are not highly correlated, so as to increase
the likelihood of achieving more consistent revenues. However, there can be no
assurance that the Company's acquisition strategy or such diversification will
successfully insulate the Company from the potential volatility in its revenue
stream. See "Risk Factors -- The Company's Quarterly Results May Fluctuate
Significantly" and "-- Unfavorable Investment Performance by the Affiliated
Firms Would Adversely Affect the Company."
The Preferred Revenue Shares are included in the Company's historical
financial statements from the respective acquisition dates of the Affiliated
Firms. The Company accounts for the Affiliated Firms on an unconsolidated basis
using the equity method, except that Milestone, which is 99% owned by the
Company, is consolidated. Therefore, other than with respect to Milestone, the
principal effects on the Company's financial statements of the ongoing
activities of the Affiliated Firms are the gross revenues allocated to the
Company, the amortization and depreciation of contracts and other acquired
assets, and the associated tax expense reflected in the Company's statements of
operations.
The Company's profitability will be determined by a number of factors, the
most important of which are the investment performance of its Affiliated Firms
and the level of assets under their management. The other principal factors
affecting profitability are: (i) the terms upon which the Company is able to
acquire additional Alternative Managers; (ii) the cost of the capital with which
the Company finances its acquisitions; (iii) the level of intangible assets and
the associated amortization expense resulting from the Company's acquisition of
preferred interests in Alternative Managers; (iv) the level of corporate
expenses incurred by the Company, including compensation for its employees, rent
and professional fees; and (v) taxes paid by the Company.
RECENT AND PENDING ACQUISITIONS
Bricoleur Capital Management LLC
On February 27, 1998, the Company acquired a preferred interest in
Bricoleur (the "Bricoleur Acquisition"). The purchase price paid for Bricoleur
(the "Bricoleur Purchase Price") was $17.55 million in cash, 2.88 million shares
of Common Stock and $5.85 million principal amount of the Company's subordinated
convertible debentures (the "Bricoleur Debentures"), which are initially
convertible into 780,000 shares of Common Stock.
The Bricoleur Purchase Price is subject to adjustment based on the
aggregate revenues of Bricoleur to which the Company is entitled through
December 31, 1999. If revenues exceed a minimum benchmark, the Principals of
Bricoleur will be entitled to receive additional shares of Common Stock. If
revenues do not exceed the minimum benchmark, the Principals of Bricoleur will
be obligated to make a payment to the Company in cash or in shares of Common
Stock in an amount equal to the shortfall. The purchase price adjustment is
subject to a cap of $5 million with the shares of Common Stock being valued at
their average trading price for the ten days immediately preceding December 31,
1999.
In connection with the Bricoleur Acquisition, the Company also agreed to
make certain earn-out payments to the Principals of Bricoleur based on Bricoleur
achieving targeted levels of assets under management and the Company realizing
specified levels of revenues therefrom. The earn-out payments
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<PAGE> 50
consist of (i) a one-time cash payment of $1.5 million upon Bricoleur achieving
a specified level of assets under management, and (ii) the issuance of options
to purchase shares of Common Stock in connection with increases in assets under
management by Bricoleur, which also result in increases in revenues to the
Company above a minimum amount. Options can be earned over a five-year period
and are issued at an initial exercise price equal to fair market value on the
date of grant. The initial exercise price of options that may be issued to the
Principals of Bricoleur pursuant to the earn-out provisions is limited to $7
million.
The Bricoleur Debentures mature on February 28, 2000 and are convertible
into shares of Common Stock at the option of the Principals of Bricoleur at any
time.
In connection with the Bricoleur Acquisition, the Principals of Bricoleur
entered into five-year employment agreements with Bricoleur under which the
Company is a third-party beneficiary. The Principals of Bricoleur also agreed to
maintain minimum investments of an aggregate of $10 million of their personal
funds in the investment vehicles which they manage for so long as they retain an
ownership interest in Bricoleur.
JMG Capital Management LLC and Pacific Assets Management LLC
On March 26, 1998, the Company entered into definitive agreements to
consummate the JMG-Pacific Acquisition. The Company expects that the JMG-Pacific
Acquisition will close in the second quarter of 1998. The consummation of the
JMG-Pacific Acquisition is subject to the satisfaction of usual and customary
closing conditions.
The purchase price payable for JMG-Pacific (the "JMG-Pacific Purchase
Price") is expected to be approximately $30.5 million in cash, $15.25 million
principal amount of the Company's Series A Subordinated Convertible Debentures
(the "Series A Debentures") and $15.25 million principal amount of the Company's
Series B Subordinated Convertible Debentures (the "Series B Debentures" and,
collectively with the Series A Debentures, the "JMG-Pacific Debentures").
The Series A Debentures mature on the fifth anniversary of the closing of
the JMG-Pacific Acquisition and are initially convertible into 1,742,857 shares
of Common Stock at the option of the Principals of JMG-Pacific at any time after
the first anniversary of the closing of the JMG-Pacific Acquisition. The Series
B Debentures mature on the fifth anniversary of the closing of the JMG-Pacific
Acquisition and are initially convertible into 1,742,857 shares of Common Stock
at the option of the Principals of JMG-Pacific at any time after the entire
principal amount of the Series A Debentures have been converted.
The JMG-Pacific Purchase Price is subject to adjustment based on the
aggregate revenues of JMG-Pacific to which the Company is entitled through
December 31, 1999. If such revenues exceed a minimum benchmark, the Principals
of JMG-Pacific will be entitled to receive additional consideration in cash or,
at the Company's election, in shares of Common Stock. If revenues fall short of
a minimum benchmark, the Principals of JMG-Pacific will be required to repay a
portion of the JMG-Pacific Purchase Price in cash or, at any such Principal's
election, in Series A Debentures, Series B Debentures or shares of Common Stock.
The purchase price adjustment is subject to a cap of $5.25 million with the
shares of Common Stock being valued at their average trading price for the ten
days immediately preceding December 31, 1999.
The JMG-Pacific Purchase Price is also subject to a one-time downward
adjustment based on the revenues as of July 1998 of Pacific Capital Management,
Inc., an entity controlled by JMG-Pacific ("PCM"). If PCM's revenues expressed
as a percentage of fee paying assets under management do not equal or exceed a
minimum benchmark, the Principals of JMG-Pacific will be obligated to pay to the
Company an amount determined by the magnitude of such shortfall. This purchase
price adjustment is subject to an aggregate cap of $5.2 million and is payable
in cash and through the surrender of a portion of the JMG-Pacific Debentures.
The JMG-Pacific Purchase Price also may be adjusted upward and the Company
may incur a contingent payment obligation to the Principals of JMG-Pacific no
earlier than April 2001 and in an amount not in excess of $10 million. This
contingent payment is based on whether certain shares of Common Stock are freely
tradeable under the Securities Act and the market performance of the Common
Stock.
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<PAGE> 51
In connection with the JMG-Pacific Acquisition, the Principals of
JMG-Pacific are expected to enter into five-year employment agreements with
JMG-Pacific under which the Company will be a third-party beneficiary. The
Principals of JMG-Pacific also agreed to maintain minimum investments of an
aggregate of $15 million of their personal funds in the investment vehicles
which they manage for so long as they retain an ownership interest in
JMG-Pacific.
Metropolitan Capital Management LLC and Metropolitan Capital Advisors LLC
On March 24, 1998, the Company entered into definitive agreements to
consummate the MET Acquisition. The Company expects that the MET Acquisition
will close within 30 days after the Offering. The consummation of the MET
Acquisition is subject to the satisfaction of usual and customary closing
conditions.
The purchase price payable for MET (the "MET Purchase Price") is expected
to be approximately $17.85 million in cash (the "MET Cash Consideration") and
$17.85 million principal amount of the Company's subordinated convertible
debentures (the "MET Debentures"). The Preferred Revenue Share in MET will
entitle the Company to a 50% equity ownership interest and 40% of the gross
revenues in MET.
The MET Debentures mature on the fifth anniversary of the MET Acquisition
and are initially convertible into 1,785,000 shares of Common Stock at the
option of the Principals of MET at any time after the first anniversary of the
MET Acquisition.
The MET Purchase Price is subject to adjustment based on future events. The
MET Cash Consideration may be increased or decreased if the level of assets
under management by MET as of the closing of the MET Acquisition do not fall
within a specified range. Similarly, the conversion price and the conversion
ratio of the MET Debentures may be increased or decreased based on the initial
public offering price of the shares of Common Stock to be sold in this Offering.
Based on the assumed initial public offering price of $ per share, no
adjustment to the conversion price or the conversion ratio of the MET Debentures
would be made. Similarly, management of the Company does not currently
anticipate that any material adjustment to the MET Cash Consideration will
occur.
The MET Purchase Price also is subject to a purchase price adjustment based
on aggregate revenues of MET to which the Company is entitled through June 30,
2000. If such revenues fall short of a minimum benchmark, the Principals of MET
will be required to surrender MET Debentures convertible into shares of Common
Stock with a value equal to the revenue shortfall. If such revenues exceed a
minimum benchmark, the Principals of MET will be entitled to shares of Common
Stock, or in certain cases, cash, with a value equal to the revenue excess. The
revenue purchase price adjustment is subject to a cap of $5 million.
In connection with the MET Acquisition, the Principals of MET are expected
to enter into five-year employment agreements with MET under which the Company
will be a third-party beneficiary. The Principals also agreed to maintain
minimum investments of an aggregate of $10 million in the investment vehicles
which they manage for the duration of their employment by MET.
On a pro forma basis for the year ended December 31, 1997, the Bricoleur
Acquisition, the JMG-Pacific Acquisition and the MET Acquisition contributed
$6.2 million, $6.0 million and $5.5 million to the Company's gross revenues,
respectively.
PRIOR ACQUISITIONS
In July 1996, the Company acquired all the outstanding capital of Milestone
Investment Group Inc. ("MIG") from Messrs. Lipnick and Mintz. See "Certain
Relationships and Related Party Transactions." One of the principal assets of
MIG is a 99% limited partnership interest in Milestone. Pursuant to a stock
purchase agreement (the "Milestone Agreement"), ownership of MIG was transferred
to the Company in exchange for 2,500,000 shares of Common Stock, $637,500 in
cash, warrants to purchase 350,000 shares of the Common Stock, contingent
earn-out payments and contingent stock options. Contingent earn-out payments for
1996 and 1997 were $0 and $637,500, respectively. No further contingent earn-out
payments are payable under the Milestone Agreement. The Milestone Agreement also
provides for the issuance of stock options
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<PAGE> 52
based upon specified increases in the gross revenues of MIG for the years 1996
through 1998. Contingent stock options available for issuance in 1998 may not
exceed a value of $159,375 in initial exercise price. No contingent stock
options were granted to Messrs. Lipnick and Mintz for 1996 and contingent stock
options to purchase an aggregate of 21,250 shares of Common Stock were granted
to Messrs. Lipnick and Mintz for 1997 in connection with the Milestone
Agreement.
In October 1996, the Company acquired a preferred interest in Trust
Advisors. The purchase price consisted of $600,000 in cash, 175,000 shares of
Common Stock, warrants exercisable for 35,000 shares of Common Stock at an
exercise price of $5.00 per share and $750,000 principal amount of the Company's
subordinated convertible debentures, which are initially convertible into 50,000
shares of Common Stock. The Principals of Trust Advisors are eligible to receive
contingent stock options in connection with increases in the revenues through
the year 2001 in an aggregate amount not to exceed $500,000 in initial exercise
price. Upon the consummation of the Offering, the initial exercise price of
contingent stock options previously granted to the Principals of Trust Advisors
will automatically be adjusted to equal one-half the initial public offering
price. The initial exercise price of contingent stock options granted to the
Principals of Trust Advisors after the Offering will be fair market value.
Contingent stock options to purchase an aggregate of 15,344 shares of Common
Stock were granted to the Principals of Trust Advisors for 1996 and 1997.
The Company's acquisitions are accounted for, or, in the case the
JMG-Pacific Acquisition and the MET Acquisition, will be accounted for, under
the equity method of accounting from the date of the respective acquisitions.
The purchase price is allocated based on the fair value of the net assets
acquired, primarily investment advisory contracts. The cost assigned to
contracts acquired is amortized using the straight-line method over periods
ranging from seven to twenty years. The Company reviews each individual
investment on a regular basis to determine if the remaining amortizable period
should be accelerated. In determining the remaining amortization period for
intangible assets acquired, the Company considers a number of factors relating
to each Affiliated Firm including: historical and potential future operating
performance, client attrition rates, past and expected future investment
performance, characteristics of products and investment styles and the stability
and depth of the management team. Amortization of contracts and other
intangibles will have a negative effect on the Company's results of operations.
See "Risk Factors -- The Company Could Be Adversely Affected by Write-Offs of
Investments in Affiliated Firms."
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared to Period Ended December 31, 1996
In its first full calendar year of operations, the Company had net income
of $564,000, compared to a net loss of $59,000 for the period from February 1,
1996 (date of inception) to December 31, 1996. Net revenues were $8.1 million in
1997, as compared to $978,000 in 1996. The primary cause of the increased
revenue level was the increase in assets under management by Milestone. The
portion of the Company's revenues representing management fees earned by
Milestone totaled $6.8 million in 1997 compared to revenues of $804,000 in 1996.
Also contributing to the increase in the Company's revenues in 1997 was an
increase in the amount of management fees earned by Trust Advisors, attributable
in large part to the introduction of new investment vehicles, as well as the
establishment of Silverado. The Company's share of gross revenues from Trust
Advisors increased to $960,000 in 1997 from $101,000 in 1996. The Company held a
preferred interest in Trust Advisors for only three months in 1996. The
Company's share of gross revenues from Silverado for 1997 were $88,000.
Sub-advisory fees paid in 1997 totalled $4.9 million, including $3.2
million paid Milestone to BSIA and $1.5 million paid by Milestone to Westside,
as compared to a total of $529,000 for 1996. The Company expects that Milestone
will continue to pay comparable levels of sub-advisory expense as a percentage
of its revenues for the foreseeable future. Compensation and related expenses in
1997 were $1.4 million, including earn-out payments of $637,500 paid by
Milestone to Messrs. Lipnick and Mintz upon the achievement of gross revenue
targets specified in the Milestone Agreement, as compared to compensation and
related expenses of $297,000 in 1996. The earn-out payments to Messrs. Lipnick
and Mintz are a one-time, non-
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recurring payment. See "Certain Relationships and Related Party Transactions."
Other operating expenses were $900,000 in 1997, as compared to $228,000 in 1996.
Net interest income was not significant for either the year ended December
31, 1997 or the period ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has met its cash requirements primarily through
cash generated by its operations, bank borrowings, and the issuance of equity
and debt securities in private placement transactions. See "Certain
Relationships and Related Party Transactions."
The Company intends to use its cash flow from operations for the
foreseeable future to support marketing activities and product development, to
repay debt, including interest payments on outstanding debt, and for other
working capital needs. To a lesser extent, the Company may use cash flow from
operations for its acquisition activities, although the Company does not expect
that such amounts alone will be sufficient to support its planned level of
acquisition activities. The Company's principal uses of cash have been to make
acquisitions of the Affiliated Firms and to support the Company's operating
activities. The Company does not expect to make commitments for material capital
expenditures in the foreseeable future.
As of December 31, 1997, the Company had cash and cash equivalents of $12.2
million, compared to $3.2 million at the end of 1996. As of December 31, 1997,
the Company had $3.9 million invested in the Cash Alternative Fund, L.P., a
corporate cash management investment vehicle in which the Company and its
affiliates hold a limited partnership interest of approximately 35%.
Net cash flow used in operating activities was $1.7 million and $2.7
million for the periods ended December 31, 1997 and 1996, respectively. Net cash
flow used in investing activities was $1.1 million and $877,000 for the periods
ended December 31, 1997 and 1996, respectively. Such amounts were used primarily
to acquire preferred interests in Trust Advisors in 1996 and Silverado in 1997.
Net cash provided by financing activities was $11.8 million and $6.8 million for
the periods ended December 31, 1997 and 1996, respectively. The issuance of the
Series B Preferred Stock was the primary source of the net cash provided by
financing activities in 1997. Net cash provided by financing activities in 1996
primarily consisted of the proceeds from the issuance of capital stock including
the Series A Preferred Stock and shares of Common Stock sold to private
investors.
In February 1998, the Company completed the Bricoleur Acquisition, which
required approximately $17.7 million in cash (including transaction costs). The
Company expects to complete its acquisition of a preferred interest in
JMG-Pacific in April 1998, which is expected to require approximately $30.6
million in cash (including transaction costs). The Company expects to complete
the MET Acquisition within 30 days after the consummation of the Offering. The
consummation of the MET Acquisition is expected to require approximately $18.4
million in cash (including transaction costs). See "-- Recent and Pending
Acquisitions."
The Company obtained or expects to obtain the financing for the cash
portions of the purchase prices for the Bricoleur Acquisition and the
JMG-Pacific Acquisition pursuant to (i) $30.0 million in borrowings under the
Credit Agreement, (ii) $10.0 million in proceeds from the issuance of the Series
B Preferred Stock, and (iii) $5.0 million in borrowings pursuant to the Citco
Loan (clauses (i) -- (iii) collectively, the "Recent Financing"). The Company
expects to obtain the cash portion of the purchase price for the MET Acquisition
from the proceeds of the Offering.
In February 1998, the Company entered into the Credit Agreement with the
Lending Bank. The Credit Agreement permits the Company to borrow an aggregate of
$30 million in term loans with five-year maturities in two facilities: $10
million under Facility A and $20 million under Facility B. The Facility B term
loans are guaranteed by AJG Co. Interest on the term loans is calculated, at the
option of the Company, at LIBOR or the Lending Bank's Federal Funds rate, plus a
margin of 1.25% for the Facility A term loans and 0.50% for the Facility B term
loans.
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<PAGE> 54
The Facility A and Facility B term loans can be prepaid without penalty at
any time. Principal payments, if not otherwise made from the proceeds of the
Offering, are required on the term loans in aggregate annual amounts of $5
million during the first two years of the loans to repay the Facility A term
loans and $6.66 million during the third, fourth and fifth years of the loans to
repay the Facility B term loans.
The Company intends to repay all indebtedness to be outstanding under the
Credit Agreement with a portion of the net proceeds of the Offering. As a
result, upon completion of the Offering and the application of proceeds
therefrom, the Company will not have any borrowing capacity available under the
Credit Agreement. See "Use of Proceeds."
The Company's borrowings under the Credit Agreement may be used only to
acquire preferred interests in Alternative Managers. These borrowings are
collateralized by the pledge of all of the Company's interests in each
Affiliated Firm acquired with such borrowings. The Company has utilized
borrowings under the Credit Agreement to finance the cash portion of the
Bricoleur Acquisition and intends to use borrowings under the Credit Agreement
to finance a part of the cash portion of the purchase for the JMG-Pacific
Acquisition. Investments in Bricoleur and JMG-Pacific in the aggregate represent
in excess of 69% of the Company's assets at December 31, 1997 on a pro forma
basis. The Credit Agreement contains usual and customary covenants, including
financial covenants. As of the date of this Prospectus, the Company is in
compliance with each of the covenants, including the financial covenants. The
Company's ability to borrow under the Credit Agreement is conditioned upon its
compliance with the requirements of the Credit Agreement, and any non-
compliance with those requirements could give rise to a default entitling the
lenders to accelerate all outstanding borrowings under the Credit Agreement. The
Company expects that in the future it will enter into a new or replacement
credit agreement, which will likely have substantially similar terms to those
contained in the Credit Agreement.
As part of the Recent Financing, in December 1997 the Company issued to AJG
Co. 100,000 shares of Series B Preferred Stock (convertible into 1,000,000
shares of Common Stock) for aggregate cash consideration of $10 million. See
"Certain Relationships and Related Party Transactions." The proceeds from the
sale of the Series B Preferred Stock were used to finance a part of the cash
portion of the purchase price for the Bricoleur Acquisition. The Series B
Preferred Stock will automatically convert into shares of Common Stock upon the
consummation of the Offering.
On March 23, 1998, the Company entered into the Citco Loan with Citco
Banking Corporation N.V. to finance $5 million of the cash portion of the
purchase price for the JMG-Pacific Acquisition. The Citco Loan provides for
borrowings at 2% over the prime rate as quoted in The Wall Street Journal and
matures on June 1, 1998. In connection with the Citco Loan, the Company issued
17,500 warrants to an affiliate of the Citco Group, with an initial exercise
price of $10.00 per share. The Company intends to repay the Citco Loan with a
portion of the net proceeds of the Offering. See "Use of Proceeds."
In May 1997, the Company entered into a $5 million revolving credit
facility provided by the Bank of America Illinois. The facility provided for
borrowings at variable rates of 1.25% over LIBOR or the Federal Funds rate, at
the option of the Company. The Company did not draw on this revolving credit
facility and it was renegotiated and replaced in February 1998 by the amended
and restated Credit Agreement as part of the Recent Financing described above.
In order to maintain its planned level of acquisition activities in the
future, the Company expects it will be necessary to incur, from time to time,
additional long-term bank debt and/or issue equity or debt securities. There can
be no assurance that such additional financing will be available on terms
acceptable to the Company. See "Risk Factors -- Use of Debt to Finance
Acquisitions Could Adversely Affect the Company."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field and therefore cannot
recognize the year 2000. These date code fields will need to
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<PAGE> 55
accept four digit entries in order to distinguish 21(st) century dates from
20(th) century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
The Company currently is evaluating its information technology infrastructure
and that of the Affiliated Firms for "Year 2000" compliance. The Company does
not expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results of
operations nor does it anticipate any material disruption in its operations as a
result of any failure by the Company to be Year 2000 compliant. Nonetheless,
there can be no assurance in this regard until the Year 2000 occurs.
The Company's Year 2000 issues relate not only to its own systems and those
of the Affiliated Firms but also to the systems of service providers to the
Company and the Affiliated Firms. The failure to recognize the Year 2000 could
have a negative impact on, among other things, the handling of securities
trades, the pricing of securities and account services. The Company currently
does not have any information regarding the Year 2000 compliance status of the
service providers to the Company or the Affiliated Firms. The failure of such
service providers to successfully and timely achieve Year 2000 compliance could
adversely affect the business of the Company and/or the Affiliated Firms.
INTEREST RATE SENSITIVITY
The Company's revenues consist principally of distributions of the
Preferred Revenue Shares from its Affiliated Firms. Accordingly, a high
percentage of the Company's revenues are dependent on fees or profit allocations
which are based on a combination of the investment performance of the Affiliated
Firms and the values of assets managed by them. Investment performance and
thereby asset values are often affected by changes in the broader financial
markets which are, in part, and sometimes significantly, affected by changing
interest rates. The Company cannot predict the effects that interest rates or
changes in interest rates may have on either the broader financial markets or
the investment performance of the Affiliated Firms. Any decline in the financial
markets or a lack of sustained growth may result in a decline in performance by
the Affiliated Firms and may adversely affect assets under management and/or
fees at the Affiliated Firm level, which would reduce the Preferred Revenue
Shares to the Company. Increases in interest rates, however, would have the
effect of making future debt financings by the Company more expensive. See "Risk
Factors -- The Performance of the Company and the Affiliated Firms May Be
Adversely Affected by Economic and Market Conditions" and "-- Use of Debt to
Finance Acquisitions Could Adversely Affect the Company."
ECONOMIC AND MARKET CONDITIONS
The financial markets and the investment management industry in general
have experienced record performance and record growth in recent years. The
financial markets and businesses operating in the securities industry, however,
are highly volatile and are directly affected by, among other factors, domestic
and foreign economic conditions and general trends in business and finance, all
of which are beyond the control of the Company. No assurance can be given that
broader market performance will be favorable in the future. Any decline in the
financial markets or a lack of sustained growth may result in a corresponding
decline in performance by the Affiliated Firms and may adversely affect assets
under management and/or fees or profit allocations at the Affiliated Firm level,
which would reduce the Preferred Revenue Share to the Company.
INTERNATIONAL OPERATIONS
In the future, the Company may seek to invest in Affiliated Firms that are
located and/or conduct a significant part of their operations outside of the
United States. Many of the Affiliated Firms currently manage one or more
investment funds that are domiciled and administered outside the United States.
Certain risks are inherent in doing business internationally, such as changes in
applicable laws and regulatory requirements, difficulties in staffing and
managing foreign operations, longer payment cycles, difficulties in collecting
investment advisory fees receivable, political instability, fluctuations in
currency exchange rates, expatriation controls and potential adverse tax
consequences. No assurance can be given that one or more of such factors
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<PAGE> 56
will not have a material adverse effect on the Affiliated Firms and,
consequently, on the Company's business, financial condition and results of
operations.
INFLATION
The Company does not believe that inflation or changing prices have had a
material impact on its results of operations.
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<PAGE> 57
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of Asset Alliance are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bruce H. Lipnick.......................... 51 President, Chief Executive Officer and
Chairman of the Board
Arnold L. Mintz........................... 51 Executive Vice President, Chief Operating
Officer, Secretary and Director
Jeffrey J. Ervine......................... 32 Senior Vice President and Treasurer
David R. Long............................. 45 Senior Vice President, Acquisitions and
Director(1)
Jeffrey M. Moses.......................... 37 Senior Vice President and General Counsel
Mark P. Strauch........................... 42 Senior Vice President, Chief Financial
Officer and Director(1)
Joseph Lagnado............................ 46 Controller
Jefferson F. Allen........................ 52 Director(2)
Harvey Silverman.......................... 57 Director(2)
</TABLE>
- ---------------
(1) Messrs. Long and Strauch are part-time employees of the Company.
(2) To become a Director upon and subject to consummation of the Offering.
BRUCE H. LIPNICK, the founder of Asset Alliance, has served as the Chairman
of the Board of Directors, President and Chief Executive Officer of the Company
since its inception in 1996. Since 1982, Mr. Lipnick has served as President,
Chief Executive Officer and Director of Wharton Management Group Inc., a
registered investment adviser ("Wharton Management"). In addition, since 1982,
Mr. Lipnick has served as chief executive officer and general partner of several
investment entities. Mr. Lipnick currently serves as the President and a
Director of Milestone Fund Manager Inc. (the general partner of Milestone) and
the President and Chief Executive Officer of Milestone Investment Group Inc.
(the limited partner of Milestone). He also serves as President and Director of
Manager Advisory Group Inc., a broker-dealer registered with the NASD, which is
unaffiliated with the Company.
ARNOLD L. MINTZ, the co-founder of Asset Alliance, has served as Executive
Vice President, Chief Operating Officer, Secretary and Director of the Company
since its inception in 1996. Since 1982, Mr. Mintz has served as Executive Vice
President, Chief Operating Officer, Secretary and Director of Wharton
Management. In addition, since 1982, Mr. Mintz has served as chief operating
officer of several investment entities. He currently serves as the Executive
Vice President, Chief Operating Officer and Secretary of Milestone Investment
Group Inc. and Milestone Fund Manager Inc. Mr. Mintz also serves as Executive
Vice President, Secretary, Director and a registered principal of Manager
Advisory Group Inc. and Asset Alliance Investment Services Inc., a wholly-owned
subsidiary of the Company, which is a broker-dealer with NASD registration
pending.
JEFFREY J. ERVINE joined Asset Alliance as Senior Vice President and
Treasurer in March 1998. From 1997 until joining Asset Alliance, Mr. Ervine was
an associate in the Financial Institutions Group at Bear, Stearns & Co. Inc.,
where he began working after he received his Master of Business Administration
with a concentration in finance. From 1992 to 1995, Mr. Ervine worked for
Deloitte & Touche LLP as a manager in the LBO Coverage Group, where he
specialized in buyside advisory due diligence. Mr. Ervine is a Certified Public
Accountant.
JEFFREY M. MOSES joined Asset Alliance as Senior Vice President and General
Counsel in February 1998. From 1991 through 1996, Mr. Moses was Executive Vice
President of Systematic Financial Management, L.P., an investment advisory firm.
Prior to that time, Mr. Moses was an attorney at Baer Marks & Upham LLP,
focusing on mergers and acquisitions. Mr. Moses also is a Chartered Financial
Analyst.
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<PAGE> 58
DAVID R. LONG has served as Senior Vice President, Acquisitions and
Director of Asset Alliance since July 1996. Since 1996, Mr. Long has served, and
is currently serving, as President of AJG, a wholly-owned subsidiary of AJG Co.,
where he has served in various executive capacities since 1981. Since 1989, Mr.
Long also has served as Vice President and Chief Investment Officer of AJG Co.,
having previously served as its Treasurer. In addition, Mr. Long serves as a
Director of Fasciano Fund Mutual Fund Company, an open-end mutual fund company.
MARK P. STRAUCH has served as Senior Vice President, Chief Financial
Officer and Director of Asset Alliance since July 1996. Since March 1997, Mr.
Strauch has served, and is currently serving, as Executive Vice President of AJG
and he has served as Treasurer of AJG Co. since 1989, where he also is a member
of its investment committee.
JOSEPH LAGNADO has served as the Controller of Asset Alliance since its
inception in 1996. From 1986 to the present, Mr. Lagnado also has served as
Chief Financial Officer and Compliance Director of Wharton Management Group Inc.
and its affiliated entities. He has been the Chief Financial Officer for Manager
Advisory Group Inc. since 1987 and serves as Chief Financial Officer for several
of the funds operated by Milestone, Trust Advisors and Silverado. Mr. Lagnado is
a Certified Public Accountant and an NASD registered financial and operations
principal.
JEFFERSON F. ALLEN has served as the President and Director of Tosco
Corporation ("Tosco"), the largest independent refiner and marketer of petroleum
products in the United States, since November 1997 and has served as Chief
Financial Officer of Tosco since June 1990. From June 1990 until November 1997,
Mr. Allen was Executive Vice President of Tosco and served as Treasurer from
June 1990 until October 1995.
HARVEY SILVERMAN is co-head and Senior Managing Director of Spear, Leeds &
Kellogg ("Spear, Leeds"), the largest specialist on both the New York and
American Stock Exchanges, and has held various positions, including senior
management positions, since joining Spear, Leeds in 1963. Mr. Silverman is the
Vice Chairman and Director of the Options Clearing Corporation and an official
of the American Stock Exchange. Mr. Silverman also is a Director of Unidigital
Inc. and Worldwide Entertainment & Sports Corp.
The Company intends to appoint one additional outside Director prior to the
consummation of the Offering.
The Company's Board of Directors will, upon consummation of the Offering,
consist of seven directors. The directors will be divided as evenly as possible
into three classes, denominated Class I, Class II and Class III, with the terms
of office of each class expiring at the 1999, 2000 and 2001 annual meeting of
stockholders, respectively. At each annual meeting of the stockholders following
such initial classification and election, directors elected to succeed those
directors whose terms expire will be elected for a term to expire at the third
succeeding annual meeting of the stockholders after their election. See
"Description of Capital Stock -- Anti-Takeover Effects of Certain Provisions of
the Certificate and By-Laws and of Delaware Law -- Classified Board of
Directors." The directors in each class are as follows: Class I -- Messrs.
Allen, Long and Strauch, Class II -- Messrs. Mintz and Silverman and Class
III -- Messrs. Lipnick and the additional outside Director. Mr. Strauch does not
intend to be a candidate for re-election to the Board of Directors at the 1999
annual meeting of stockholders. All officers are appointed by and serve at the
direction of the Board of Directors. There are no family relationships among any
of the officers and directors.
The Board of Directors will conduct its regular meetings on a quarterly
basis and will schedule special meetings as necessary.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the consummation of the Offering, the Board of Directors will
establish an audit committee (the "Audit Committee"), which will consist of
Messrs. Allen and Silverman, a compensation committee (the "Compensation
Committee"), which will consist of Messrs. Mintz, Allen and Silverman, and an
executive committee (the "Executive Committee"), which will consist of Messrs.
Lipnick, Mintz, Ervine and Long.
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<PAGE> 59
The Audit Committee will review the scope and approach of the annual audit,
the annual financial statements of the Company and the auditors' report thereon
and the auditors' comments relative to the adequacy of the Company's system of
internal controls and accounting systems. The Audit Committee will also
recommend to the Board of Directors the appointment of independent public
accountants for the following year. The Audit Committee will consist of at least
two members, the majority of whom will be independent directors.
The Compensation Committee will review management compensation levels and
provide recommendations to the Board of Directors regarding salaries and other
compensation for the Company's executive officers, including bonuses and
incentive programs, and will administer the 1996 Plan.
The Executive Committee will have the power and authority of the Board of
Directors to manage the affairs of the Company between meetings. The Executive
Committee will also regularly review significant corporate matters and recommend
action as appropriate to the Board of Directors. However, the Executive
Committee may not (i) amend the Certificate or the By-Laws of the Company, (ii)
adopt an agreement of merger or consolidation, (iii) recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
Company's property and assets, (iv) recommend to the stockholders a dissolution
of the Company or revoke a dissolution, (v) elect a director or (vi) make a
distribution or authorize the issuance of stock.
BOARD OF ADVISORS
The Company's management has established an advisory committee (the "Board
of Advisors") with which management consults on possible acquisition
opportunities and on other matters relating to the business of the Company. The
function of the Board of Advisors is to offer broad guidance to the officers and
the Board of Directors of the Company on matters of policy and to provide
specific assistance and advice regarding potential acquisitions. Management
believes that the members of the Board of Advisors, because of their experience
and diverse interests and activities, will be a source of opportunities for the
Company and the Affiliated Firms. The Company has no obligation to accept or
take action with respect to any recommendation of the Board of Advisors.
The Board of Advisors meets quarterly, and the Company regularly calls on
members of the Board of Advisors from time to time as they are needed for advice
and consultation. Any compensation to members of the Board of Advisors is paid
by the Company and may include the issuance of options to purchase shares of
Common Stock or the issuance of warrants exercisable for Common Stock. The Board
of Directors has granted each member of the Board of Advisors who is
unaffiliated with the Company ten-year options to purchase shares of Common
Stock. See "-- Non-Plan Stock Option Grants."
Unaffiliated Members
The following individuals have been appointed by the Board of Directors to
serve as unaffiliated members of the Board of Advisors:
ANDREW W. GITLIN was appointed to the Board of Advisors in November 1996.
Mr. Gitlin is President of AIG International Asset Management, Inc. ("AIGIAM"),
a majority-owned subsidiary of American International Group, Inc., one of the
largest financial service companies in the world. At AIGIAM, Mr. Gitlin is
responsible for a business that currently manages investment products for third
parties and also is responsible for the allocation of capital to a variety of
external money managers. Before joining AIGIAM, Mr. Gitlin was a director of
Chase Manhattan Capital Finance Corp. and a vice president and founder of the
CHASE managed funds, a multi-adviser managed fund business.
BARRY GOODMAN was appointed to the Board of Advisors in March 1997. Mr.
Goodman is Executive Vice President, Director of Trading and Co-Director of
Research of the Millburn Ridgefield Corporation ("Millburn"), a commodity
trading advisory firm, with assets under management of approximately $1.5
billion. Mr. Goodman is responsible for the development and implementation of
trading and investment programs for Millburn.
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<PAGE> 60
HARRY W. RHULEN was appointed to the Board of Advisors in March 1998. Mr.
Rhulen is President, Chief Executive Officer and Chairman of the Board of
Frontier Insurance Company, a specialty insurance company listed on the New York
Stock Exchange.
ERMANNO UNTERNAHRER was appointed to the Board of Advisors in November
1996. Mr. Unternahrer is the President of Citco Fund Advisors LLC ("Citco Fund
Advisors"), a New York based consulting firm specializing in the selection and
tracking of money managers. Citco Fund Advisors is an affiliate of the Citco
Group, a global independent fund administrator and financial services
organization.
Affiliated Members
The Board of Directors also has appointed Principals from each of the
Affiliated Firms to serve as affiliated members of the Board of Advisors. In
such capacity, these Principals will advise the Board of Directors on various
matters pertaining to the Company and the Affiliated Firms. The Principals will
not receive any compensation for their service to the Company as members of the
Board of Advisors. See "Business -- The Affiliated Firms."
STRATEGIC STOCKHOLDERS
Since inception, Asset Alliance has benefitted from a core group of
founding strategic stockholders, including AJG and the Citco Group.
AJG, in addition to providing equity capital to the Company, has assisted
the Company with financial planning and analysis and with negotiating and
structuring several of its acquisitions. AJG, through the services of David R.
Long and Mark P. Strauch, will continue to provide the Company with such
services on an arm's-length basis for a minimum of one year from the date of the
Offering. See "Management -- Employment Agreements."
The Citco Group has assisted the Company by providing the initial capital
for, and assisting in the structuring of, various investment vehicles managed by
the Affiliated Firms.
Both AJG and the Citco Group also have had representatives serving on the
Company's Board of Directors and/or Board of Advisors, and have assisted the
Company in its marketing and distribution efforts.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company by the Company's Chief Executive
Officer and its other most highly compensated executive officer whose total
salary and bonus exceeded $100,000 for the fiscal year ended December 31, 1997
(collectively, the "Named Executive Officers").
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<PAGE> 61
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) COMPENSATION($)(1) OPTIONS(#)
- --------------------------- ------------ ------------------ ------------
<S> <C> <C> <C>
Bruce H. Lipnick, Chairman of the Board,
President and Chief Executive Officer......... $200,000 $22,963 20,000
Arnold L. Mintz, Executive Vice President, Chief
Operating Officer and Secretary............... 200,000 14,143 20,000
</TABLE>
- ---------------
(1) Includes: (i) the dollar value of insurance premiums paid by the Company
with respect to long-term disability insurance policies in the amount of
$8,166 on behalf of Mr. Lipnick and $4,262 on behalf of Mr. Mintz; and (ii)
the amount paid by the Company with respect to automobile lease expenses in
the amount of $14,797 on behalf of Mr. Lipnick and $9,881 on behalf of Mr.
Mintz. Excludes a one-time aggregate earn-out payment of $637,500 made to
Messrs. Lipnick and Mintz pursuant to the terms of the Milestone Agreement.
See "Certain Relationships and Related Party Transactions."
STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options during the fiscal year ended December 31, 1997 by the Company to
the Named Executive Officers. As of the date hereof, the Company has not granted
any stock appreciation rights.
OPTIONS GRANTED IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL 1997 ($/SHARE)(1) DATE(2) 5%($) 10%($)
- ---- ---------- ------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bruce H. Lipnick.......... 20,000 20% $7.50 12/05/07 $ 94,400 $239,000
Arnold L. Mintz........... 20,000 20% 7.50 12/05/07 94,400 239,000
</TABLE>
- ---------------
(1) The exercise price was fixed at the date of the grant and represented the
fair market value per share of Common Stock on such date.
(2) All options were granted on December 5, 1997 and vest at a rate of one-third
per year, with one-third becoming exercisable on each of December 5, 1998,
December 5, 1999 and December 5, 2000.
(3) In accordance with the rules of the Commission, the amounts shown on this
table represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from
the date the respective options were granted to their expiration date and do
not reflect the Company's estimates or projections of future Common Stock
prices. The gains shown are net of the option exercise price, but do not
include deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the option holders' continued employment
through the option period, and the date on which the options are exercised.
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<PAGE> 62
The following table sets forth information concerning the number and value
of securities underlying unexercised options held at December 31, 1997 by each
of the Named Executive Officers. During 1997, no stock options were exercised by
any of the Named Executive Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Bruce H. Lipnick..................... 8,333 36,667 $ $
Arnold L. Mintz...................... 8,333 36,667
</TABLE>
- ---------------
(1) Value for "in-the-money" options represents the positive spread between the
respective exercise prices of outstanding options and an assumed initial
public offering price of $ per share (the mid-point of the
estimated range of the initial public offering price).
EMPLOYMENT AGREEMENTS
Bruce H. Lipnick and Arnold L. Mintz (each, an "Employee") are each party
to an amended and restated employment agreement with the Company (collectively,
the "Employment Agreements"), pursuant to which each Employee is entitled to an
annual base salary of $495,000 and $395,000, respectively. Each Employee also is
entitled to an additional incentive bonus payment of a stated amount based upon
the Company achieving a certain EBITDA per share (the "Incentive Bonus"), as
determined each year by the Board of Directors and the Company's independent
accountants, and may receive a discretionary annual bonus as determined solely
by the Board of Directors. The Employment Agreements replaced each Employee's
initial employment agreement dated July 8, 1996. In consideration of entering
into the Employment Agreements and foregoing the right to receive certain cash
bonus payments, the Company granted options to purchase 50,000 shares of Common
Stock to each Employee.
The Employment Agreements became effective on January 1, 1998, for a term
of five years expiring on January 1, 2003, and automatically renew for
successive one-year periods unless terminated earlier upon 180 days' prior
written notice by the Company or Employee. The Company has the right to
terminate each Employee for cause and each Employee has the right to resign for
good reason, including a change of control of the Company, as such terms are
defined in the Employment Agreements.
In the event that either Employee is terminated without cause or resigns
for good reason, the Company must continue to pay the terminated or resigning
Employee the full amount of his then current base salary plus all other benefits
to which he is entitled to under the Employment Agreement. In addition, the
Company must pay, in a single lump sum within five days after the date of such
termination or resignation, three times the average of the Incentive Bonus paid
or payable to such Employee in the last two years. If such resignation is the
result of a change of control, then the Company must pay the entire amount
payable to the Employee (as described above) in a single lump sum within five
days after the date of resignation. In addition, the Employment Agreements
provide for a "gross-up" payment with respect to any excise tax imposed on an
Employee under Section 4999 of the Code with respect to the payments under his
Employment Agreement.
The Employment Agreements provide that during the term of such agreements,
each Employee shall devote substantially all of his working time to the business
of the Company. In addition, each Employee has agreed that for the term of the
Employment Agreement and for two years thereafter, he shall not engage in
competing ventures, subject to exception for certain existing activities (as
defined in the Employment Agreements), and shall not interfere with the
customers or solicit any employee of the Company or any of its affiliates.
The Company also has entered into employment agreements with the following
executive officers who were not Named Executive Officers with respect to the
fiscal year ended 1997 but who the Company anticipates will be named executive
officers in fiscal 1998.
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Jeffrey J. Ervine is a party to an employment agreement with the Company,
pursuant to which he is entitled to an annual base salary of $175,000, and may
receive, at the discretion of the Board of Directors, a discretionary annual
bonus of up to 50% of his base salary. In addition, the Company has granted Mr.
Ervine options to purchase 150,000 shares of Common Stock, of which options to
purchase 50,000 shares vested on March 12, 1998, with the remainder vesting
annually thereafter pursuant to a six year vesting schedule. Pursuant to the
terms of the employment agreement, the Company has agreed to employ Mr. Ervine
as Senior Vice President and Treasurer of the Company until such time as the
Board of Directors shall appoint him Chief Financial Officer, which shall occur
no later than six months after the consummation of the Offering.
Mr. Ervine's employment agreement became effective on March 12, 1998, for a
term of five years expiring on January 1, 2003. The Company has the right to
terminate Mr. Ervine for cause and Mr. Ervine has the right to resign for good
reason including a change of control of the Company, as such terms are defined
in the employment agreement. In the event that Mr. Ervine is terminated without
cause or resigns for good reason, the Company must continue to pay Mr. Ervine
the full amount of his then current base salary for three years, if such
termination or resignation occurs on or before March 12, 2000, or for two years,
if such termination or resignation occurs after such date. In addition, all of
Mr. Ervine's options shall vest and become immediately exercisable as of the
date of such termination or resignation.
Mr. Ervine also is subject to the same non-competition and non-intervention
restrictions as Messrs. Lipnick and Mintz, which are described above.
Mark P. Strauch and David R. Long also are parties to amended and restated
employment agreements (collectively, the "Strauch and Long Agreements") with the
Company, pursuant to which Messrs. Strauch and Long are entitled to annual base
salaries of $95,000 and $105,000, respectively, and may be granted a bonus at
the discretion of the Board of Directors. Messrs. Strauch and Long may be
granted options under the 1996 Plan, but are not entitled to participate in the
Company's employee benefit plans. The Strauch and Long Agreements replaced
initial employment agreements of each of Messrs. Strauch and Long dated July 8,
1996. In consideration of entering into the Strauch and Long Agreements and
foregoing the five-year employment term of their prior agreements, the Company
granted options to purchase 20,000 shares of Common Stock to each of Messrs.
Strauch and Long.
The Strauch and Long Agreements require Messrs. Strauch and Long to devote
the amount of time necessary to fulfill their duties to the Company in a
faithful and diligent manner, subject to their responsibilities to AJG. The
Strauch and Long Agreements became effective on February 1, 1998 for a one year
term expiring February 1, 1999 and are renewable at the option of the Company
and the employee upon 30 days' notice under the same terms. In the event that
either of Messrs. Strauch or Long is terminated without cause (as defined in the
Strauch and Long Agreements), the Company must continue to pay the terminated
employees base salary through the expiration of the term of his agreement.
Each of Messrs. Strauch and Long has agreed that for the term of his
agreement and for six months thereafter, he shall not engage in competing
ventures, subject to exception for the performance of his duties to AJG Co., and
shall not interfere with the customers or solicit any employee of the Company or
any of its affiliates. AJG Co., which employs both Messrs. Strauch and Long on a
full-time basis, has been apprised of such agreements and has consented to the
terms and conditions contained therein. See "Certain Relationships and Related
Party Transactions."
In February 1998, Jeffrey M. Moses was retained by the Company as Senior
Vice President and General Counsel. Mr. Moses receives an annual base salary of
$150,000 and is entitled to an annual bonus in an amount to be determined at the
discretion of the Board of Directors. Mr. Moses also was granted options under
the 1996 Plan to purchase 120,000 shares of Common Stock of the Company, of
which options to purchase 15,000 shares vest on August 3, 1998, with the
remainder vesting in equal annual installments over a six-year period.
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COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional
compensation for their services as a director. Non-employee directors
("Independent Directors") are each compensated $500 for each meeting of the
Board of Directors, including committee meetings. Independent Directors also may
be entitled to receive options to purchase shares of Common Stock. The Board of
Directors has approved the grant of options to purchase 10,000 shares of Common
Stock to each of Messrs. Allen and Silverman. See "-- Compensation, Benefit and
Retirement Plans -- Non-Plan Stock Option Grants."
All directors of the Company are reimbursed for travel expenses incurred in
attending meetings of the Board of Directors and its committees.
COMPENSATION, BENEFIT AND RETIREMENT PLANS
The Company currently has in place the 1996 Plan and may also grant options
to various individuals, including members of the Board of Advisors and certain
Principals, pursuant to non-plan stock option agreements. Pursuant to the 1996
Plan and certain stock option agreements, giving effect to the Offering, the
Company will have (i) awarded options to purchase up to shares of Common
Stock, or approximately % of the outstanding Common Stock, to members of
senior management, (ii) awarded options to purchase up to shares of
Common Stock, or approximately % of the outstanding Common Stock, to
Principals of the Affiliated Firms or consultants and advisors of the Company,
and (iii) reserved shares, or approximately % of the outstanding
Common Stock (including shares reserved under the 1996 Plan), for issuance under
the 1996 Plan and all stock option agreements other than under the 1996 Plan.
Overall, members of the Company's senior management own an aggregate
shares of Common Stock (on a fully diluted basis and including shares of stock
purchased outside of the 1996 Plan), or approximately % of the outstanding
Common Stock of the Company. The following is a brief summary of the 1996 Plan
and certain non-plan stock option grants made or to be made in the future by the
Company.
The 1996 Stock Option Plan
On December 18, 1996, the Board of Directors adopted, and the stockholders
of the Company subsequently approved, the 1996 Plan, which was amended on
January 23, 1998. Under the 1996 Plan, 1,400,000 shares of Common Stock are
authorized and reserved for issuance.
The 1996 Plan permits (i) the grant of options to purchase shares of Common
Stock intended to qualify as incentive stock options ("Incentive Options") under
Section 422 of the Code to employees of the Company or its subsidiaries or (ii)
the grant of options that do not so qualify ("Non-Qualified Options") to
employees, directors or consultants of the Company or its subsidiaries. The 1996
Plan was designed and intended to encourage ownership of the Common Stock by
employees, directors, consultants and advisors of the Company and the Affiliated
Firms, to induce qualified personnel to enter and remain in the employ of the
Company or the Affiliated Firms and otherwise to provide additional incentive
for optionees to promote the success of the Company's business. As of March 15,
1998, Non-Qualified Options to purchase 628,000 shares of Common Stock had been
awarded under the 1996 Plan and no Incentive Options had been awarded. The Plan
will be administered by the Board or a committee thereof. The exercise price of
an Incentive Option shall not be less than the fair market value of a share of
Common Stock on the date of grant and the exercise price of a Non-Qualified
Option shall not be less than 85% of the fair market value of a share of Common
Stock on the date of grant. Options shall vest and become exercisable as set
forth in the applicable option agreement. All options shall vest and become
exercisable in full upon a "hostile change in control" as defined in the 1996
Plan or the applicable stock option agreement.
The proceeding summary description is qualified in its entirety by the 1996
Plan, a copy of which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part.
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<PAGE> 65
Non-Plan Stock Option Grants
The Company may grant ten-year options to purchase shares of Common Stock
to non-affiliated members of the Board of Advisors, independent members of the
Board of Directors and certain other advisors or consultants. Such grants are
authorized by the Board of Directors and made pursuant to stock option
agreements between the Company and each individual receiving stock options, but
are not granted pursuant to the 1996 Plan. Upon any such grant, the Board of
Directors reserves from authorized but unissued shares of the Common Stock the
number of shares underlying the grant to each such individual. As of March 15,
1998, the Company has granted options to purchase 80,000 shares of Common Stock
to non-affiliated members of the Board of Advisors, options to purchase 20,000
shares of Common Stock to independent members of the Board of Directors and
options to purchase 20,000 shares of Common Stock to consultants to the Company.
See "-- Board of Advisors."
In addition, the Company is required to grant options to purchase shares of
Common Stock to certain of the Principals pursuant to the terms of the purchase
agreements between the Company and the Affiliated Firms. The grant of such
options to Principals generally will be based upon the achievement of stated
future revenue targets by the Affiliated Firm, as set forth in the applicable
purchase agreement. See "Business -- Innovative Structure." The number of
options to be granted will vary based on the amount by which the Affiliated Firm
exceeds its revenue target. Any such grant requires the Principals to enter into
a stock option agreement with the Company in a form substantially similar to the
stock option agreement appended to the related purchase agreement. Messrs.
Lipnick and Mintz also are entitled to receive options as described above under
the terms of the Milestone Agreement pursuant to which the Company acquired from
them their respective interests in MIG. As a result, as of March 15, 1998, the
Company has granted options to purchase an aggregate of 21,250 shares of Common
Stock to Messrs. Lipnick and Mintz pursuant to the Milestone Agreement. See
"Certain Relationships and Related Party Transactions." In addition, the
Principals of Trust Advisors are entitled to receive options to purchase 15,344
shares of Common Stock based upon Trust Advisors' revenues in 1997. Pursuant to
the terms of each purchase agreement, the Company has reserved from authorized
but unissued shares of Common Stock such number of shares as the Company
anticipates may be necessary for the issuance of options to the Principals.
Pension and Profit Sharing Plan
The Company currently maintains the Asset Alliance 401(k) Retirement Plan
(the "Retirement Plan"). Under the Retirement Plan, qualifying employees of the
Company are able to accumulate savings by means of a salary reduction. Any
contributions by the Company under the Retirement Plan are determined annually
by the Board of Directors. Certain of the Affiliated Firms maintain their own
401(k) and profit sharing plans.
KEY EXECUTIVE LIFE INSURANCE
Asset Alliance Holding Corp., a holding company which is a wholly-owned
subsidiary of Asset Alliance, currently maintains and is the sole beneficiary of
a $1,000,000 key man life insurance policy on each of Messrs. Lipnick and Mintz.
In addition, certain of the Affiliated Firms maintain insurance policies on the
lives of the Principals of such Affiliated Firms. Asset Alliance Holding Corp.
also currently maintains and is the sole beneficiary of additional key man life
insurance policies on the lives of certain other members of management of the
Affiliated Firms. These key man life insurance policies range from $1,000,000 to
$15,000,000. See "Business -- Innovative Structure" and "Risk Factors -- The
Company and the Affiliated Firms Rely on Key Management Personnel Whose
Continued Service Cannot Be Assured."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During its most recent fiscal year, the Company did not have a formal
compensation committee. However, Messrs. Lipnick and Mintz participated in
deliberations of the Company's Board of Directors concerning executive officer
compensation. See "-- Committees of the Board of Directors."
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In July 1996, the Company acquired all the outstanding capital stock of MIG
from Messrs. Lipnick and Mintz. One of the principal assets of MIG is a 99%
limited partnership interest in Milestone. The 1% general partnership interest
in Milestone is owned by Messrs. Lipnick and Mintz. Pursuant to the Milestone
Agreement, the ownership of MIG was transferred to the Company in exchange for
$637,500 in cash, 2,500,000 shares of Common Stock, warrants to purchase 350,000
shares of Common Stock at $5.00 per share, contingent earn-out payments and
contingent stock options. The earn-out payments were based on MIG exceeding
certain gross revenue targets, subject to an aggregate cap. In fiscal 1997,
Messrs. Lipnick and Mintz received the aggregate maximum of $637,500 in
contingent earn-out payments under the terms of the Milestone Agreement and are
therefore no longer entitled to additional earn-out payments. The contingent
stock options are ten-year options to purchase Common Stock and are granted
based upon the first $637,500 increase in the MIG's gross revenues from 1996
through 1998 in excess of the greater of $637,500 or the MIG's greatest revenues
in any single prior year since 1996. The number of options granted is determined
by multiplying the increase in gross revenues by 0.25 and dividing the resulting
amount by the then applicable option exercise price, $7.50 per share prior to
the consummation of the Offering and the fair market value per share of the
Common Stock thereafter. The applicable option exercise price per share for any
contingent options issued as of the date of the Offering will automatically be
adjusted to equal one-half of the initial public offering price. As of the date
of this Prospectus, contingent stock options to purchase an aggregate of 21,250
shares of Common Stock have been granted to Messrs. Lipnick and Mintz. Such
options will be treated as compensation to Messrs. Lipnick and Mintz for fiscal
1998. The acquisition of MIG was treated in a manner similar to a
pooling-of-interests. Accordingly, the assets and liabilities are recorded at
historical cost.
During 1997, the funds for which Silverado provides investment advisory
services, several of the funds for which Milestone provides investment advisory
services, and Preferred Manager Trust and its related offshore fund engaged
Citco Fund Services (USA) and/or Citco Fund Services (Curacao) N.V.,
subsidiaries of the Citco Group, to perform various administrative services. The
Citco Group will be the beneficial owner of % of the Common Stock of the
Company after giving effect to the Offering. For the year ended December 31,
1997, Citco Fund Services (USA) and/or Citco Fund Services (Curacao) N.V.
received an aggregate of approximately $44,500 in payment for its services from
these entities.
In December 1997, the Company entered into a Securities Purchase Agreement
with AJG, whereby on December 26, 1997, AJG invested $10.0 million in the
Company and acquired 100,000 shares of Series B Preferred Stock of the Company.
The proceeds of the investment were used to consummate the Bricoleur Acquisition
and for working capital purposes. Upon consummation of the Offering, the shares
of Series B Preferred Stock will automatically convert into 1,000,000 shares of
Common Stock. In connection with the transaction, AJG Co., the parent of AJG,
agreed to execute and deliver to the Lending Bank a guaranty agreement
guaranteeing $20.0 million of the Company's obligations under the Credit
Agreement. Such guarantee will be canceled upon repayment by the Company of the
outstanding borrowings secured by AJG Co.'s guarantee. See "Use of Proceeds." In
connection with the transaction, the Shareholders' Agreement (as hereinafter
defined) was amended to permit the sale of the Series B Preferred Stock, and AJG
and Messrs. Lipnick and Mintz waived any rights of first refusal arising under
the Shareholders' Agreement as a result of the transaction.
In March 1998, the Company obtained a $5.0 million unsecured loan from
Citco Banking Corporation N.V., an affiliate of the Citco Group, which will be
the beneficial owner of % of Common Stock after giving effect to the
Offering, in order to finance a part of the cash portion of the purchase price
for the JMG-Pacific Acquisition. The Company intends to repay the Citco Loan
with a portion of the net proceeds of the Offering. In connection with the Citco
Loan, the Company also agreed to issue 17,500 warrants, with an initial exercise
price of $10.00 per share, to Citco Banking Corporation N.V. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Messrs. Strauch and Long, in addition to serving as executive officers and
Directors of the Company, are employed on a full-time basis by AJG Co., the
parent company of AJG, which will be the beneficial owner of
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% of the outstanding shares of Common Stock after giving effect to the Offering.
Pursuant to the terms of the Strauch and Long Agreements, Messrs. Strauch and
Long have agreed to devote a sufficient amount of their time, attention and
energies to the business of the Company as may be required by their positions.
AJG has been apprised of the Strauch and Long Agreements and has consented to
the terms and conditions contained therein. See "Management -- Employment
Agreements."
Under the Employment Agreements, Messrs. Lipnick and Mintz have agreed to
devote substantially all of their working time to the management of the Company.
However, Messrs. Lipnick and Mintz continue to be engaged, to a limited extent,
in business activities other than those of the Company. Such activities, which
are not directly competitive with the Company's activities, include ownership
and management of entities which provide investment advisory services and which
act as general partner for certain investment limited partnerships. In 1982, Mr.
Lipnick founded Wharton Management, which acts as the general partner for the
Cash Alternative Fund L.P., a corporate cash management investment vehicle, in
which Asset Alliance Holding Corp. had a limited partnership interest of
approximately 35% as of December 31, 1997. Mr. Lipnick currently serves as
President and a Director and Mr. Mintz serves as the Executive Vice President
and a Director of Wharton Management. In addition, Mr. Lipnick serves as the
President and Director and Mr. Mintz serves as Executive Vice President,
Secretary, Director and a registered principal of Manager Advisory Group Inc., a
registered broker-dealer which provides investment and brokerage services to
various institutional investors. Messrs. Lipnick and Mintz also continue to
manage Milestone through their ownership of its 1% general partner, Milestone
Fund Manager Inc. Mr. Lipnick serves as the President, Chief Executive Officer
and a Director of Milestone Fund Manager Inc. and Mr. Mintz serves as Executive
Vice President and a Director.
The Company receives the benefit of various services provided under certain
contracts to which Wharton Management is a signatory. Accordingly, in 1996, the
Company entered into an expense reimbursement agreement with Wharton Management
pursuant to which the Company reimburses Wharton Management for its
proportionate share of such services, which ranges from 75% to 100%. For the
year ended December 31, 1997, the Company reimbursed Wharton Management for
approximately $116,500 in expenses under this agreement.
In 1997, both Milestone Plus Partners L.P. and Milestone Plus Ltd., for
which Milestone provides investment advisory services, entered into facilities
agreements with Wharton Management, pursuant to which Wharton Management
provides certain services, including, but not limited to, office space,
personnel support, office equipment and operational services. For the year ended
December 31, 1997, Milestone Plus Partners L.P. and Milestone Plus Ltd.
reimbursed Wharton Management for approximately $69,000 and $63,000,
respectively, in expenses under these agreements.
In 1997, Equity Plus, for which Trust Advisors provides investment advisory
services, entered into a facilities agreement with Manager Advisory Group Inc.,
pursuant to which Manager Advisory Group Inc. provides certain services,
including office space, personnel support, office equipment and operational
services. For the year ended December 31, 1997, Equity Plus reimbursed Manager
Advisory Group Inc. for approximately $152,000 in expenses under this agreement.
Although the arrangements described above were not negotiated on an
arm's-length basis, Asset Alliance believes that all of the terms and conditions
of such arrangements are fair to the Company.
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PRINCIPAL STOCKHOLDERS
The following table sets forth as of , 1998, and as adjusted to
reflect the sale of the shares of Common Stock in the Offering, certain
information regarding the beneficial ownership of Common Stock by (i) each
person or "group" (as that term is defined in Section 13(d)(3) of the Exchange
Act) known by the Company to beneficially own more than 5% of the Common Stock,
(ii) each Named Executive Officer, (iii) each director of the Company and (iv)
all directors and executive officers as a group. Except as otherwise indicated,
the Company believes, based on information furnished by such persons, that each
person listed below has sole voting and investment power over the shares of
Common Stock shown as beneficially owned, subject to community property laws,
where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF ---------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
--------------------------- ------------------- --------- ---------
<S> <C> <C> <C>
Bruce H. Lipnick(3)....................................... 1,690,997
Arnold L. Mintz(4)........................................ 988,419
David R. Long(5).......................................... 28,333
Mark P. Strauch(6)........................................ 28,333
Jefferson F. Allen(7)..................................... 3,400
Harvey Silverman(8)....................................... 3,400
John L. Bloomberg(9)...................................... 1,096,200
Daniel P. Wimsatt(10)..................................... 1,830,000
Robert M. Poole(11)....................................... 549,000
AJG Financial Services, Inc.(12).......................... 3,100,000
The Citco Group Limited(13)............................... 437,500
All directors and executive officers as a group (9
persons)(14)............................................ 2,805,416
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each beneficial owner is c/o
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022. The
address of AJG Financial Services, Inc., David R. Long and Mark P. Strauch
is c/o Arthur J. Gallagher & Co., Gallagher Center, Two Pierce Place,
Itasca, Illinois 60143-3141. The address of The Citco Group Limited is c/o
Citco Services, LLC, 450 Lexington Avenue, 33rd Floor, New York, New York
10017. The address of John L. Bloomberg, Daniel P. Wimsatt and Robert M.
Poole is c/o Bricoleur Capital Management LLC, 8910 University Center Lane,
Suite 570, San Diego, California 92122.
(2) In computing the number of shares of Common Stock beneficially owned by a
person, shares of Common Stock subject to options and warrants held by that
person that are currently exercisable or that become exercisable within 60
days of , 1998 are deemed outstanding. For purposes of
computing the percentage of outstanding shares of Common Stock beneficially
owned by such person, such shares of stock subject to options or warrants
that are currently exercisable or that become exercisable within 60 days
are deemed to be outstanding for such person but are not deemed to be
outstanding for purposes of computing the ownership percentage of any other
person. The number of shares of Common Stock outstanding as of
, 1998 includes (i) shares of Common Stock, (ii)
1,875,000 shares of Common Stock issuable upon the conversion of all
outstanding shares of Series A Preferred Stock and Series B Preferred Stock
and (iii) shares of Common Stock issuable by the Company pursuant to
options, warrants and/or convertible subordinated debentures held by the
respective person or group that are exercisable or that will become
exercisable within 60 days of , 1998.
(3) Includes 205,833 shares of Common Stock issuable upon exercise of a
currently exercisable warrant and 72,500 shares issuable upon exercise of
outstanding stock options exercisable within 60 days of , 1998.
Excludes 100,000 shares held by the Oxford Trust II and 100,000 shares held
by the
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Cambridge Trust II, irrevocable trusts for the benefit of Mr. Lipnick's
children and for which Mr. Lipnick does not serve as trustee.
(4) Includes 116,667 shares of Common Stock issuable upon exercise of a
currently exercisable warrant, 65,416 shares issuable upon exercise of
outstanding stock options exercisable within 60 days of , 1998
and 50,000 shares held by the Arnold and Eileen Mintz Trust dated 9/5/97.
(5) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days of , 1998. Excludes 3,100,000 shares
of Common Stock held by AJG Financial Services, Inc. which Mr. Long may be
deemed to beneficially own. Mr. Long disclaims beneficial ownership of all
shares held by AJG Financial Services, Inc.
(6) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days of , 1998. Excludes 3,100,000 shares
of Common Stock held by AJG Financial Services, Inc. which Mr. Strauch may
be deemed to beneficially own. Mr. Strauch disclaims beneficial ownership
of all shares held by AJG Financial Services, Inc.
(7) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days of , 1998.
(8) Represents shares issuable upon exercise of outstanding stock options
exercisable within 60 days of , 1998. Excludes 87,500 shares of
Common Stock and 17,500 shares issuable upon exercise of a currently
exercisable warrant held by Spear, Leeds which Mr. Silverman may be deemed
to beneficially own. Mr. Silverman disclaims beneficial ownership of all
shares held by Spear, Leeds.
(9) Includes 249,600 shares of Common Stock, subject to adjustment, issuable
upon conversion of a subordinated debenture convertible at the option of
the holder at any time.
(10) Includes 390,000 shares of Common Stock, subject to adjustment, issuable
upon conversion of a subordinated debenture convertible at the option of
the holder at any time.
(11) Includes 117,000 shares of Common Stock, subject to adjustment, issuable
upon conversion of a subordinated debenture convertible at the option of
the holder at any time.
(12) Includes (i) 175,000 shares issuable upon exercise of a currently
exercisable warrant, (ii) 100,000 shares of Series A Preferred Stock, which
will automatically convert into 875,000 shares of Common Stock and a
warrant to purchase 175,000 shares of Common Stock upon the consummation of
the Offering and (iii) 100,000 shares of Series B Preferred Stock, which
will automatically convert into 1,000,000 shares upon consummation of the
Offering.
(13) Includes 87,500 shares of Common Stock issuable upon exercise of currently
exercisable warrants, of which 17,500 shares of Common Stock are issuable
upon exercise of a currently exercisable warrant held by Citco Banking
Corporation N.V., an affiliate of the Citco Group.
(14) Includes (i) 322,500 shares of Common Stock issuable upon exercise of
currently exercisable warrants, (ii) 251,382 shares issuable upon exercise
of outstanding stock options exercisable within 60 days of ,
1998 and (iii) 2,534 shares of Common Stock, subject to adjustment,
issuable upon conversion of a subordinated debenture convertible at the
option of the holder at any time.
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<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Immediately prior to the consummation of the Offering, the Company will
file and cause to become effective an Amended and Restated Certificate of
Incorporation (the "Certificate"), which has previously been adopted by the
Board of Directors and approved by the stockholders of the Company. Pursuant to
the Certificate, the Company is authorized to issue (i) 100,000,000 shares of
Common Stock and (ii) 20,000,000 shares of undesignated preferred stock, par
value $0.01 per share (the "Preferred Stock").
As of , 1998, there were shares of Common Stock
outstanding held of record by stockholders. As of , 1998,
options and warrants to purchase an aggregate of 1,567,094 shares of Common
Stock were also outstanding, of which options and warrants to purchase 1,119,426
shares of Common Stock were then exercisable. As of , 1998, there
were $ principal amount of subordinated convertible debentures
outstanding, which may be converted into an aggregate of shares of
Common Stock. Upon consummation of the Offering (including the conversion of the
Series A Preferred Stock and the Series B Preferred Stock into an aggregate of
1,875,000 shares of Common Stock), approximately shares of Common
Stock will be issued and outstanding, and no shares of Preferred Stock will be
issued and outstanding. The following summary description of the capital stock
of the Company is qualified in its entirety by reference to the Certificate and
the Company's Amended and Restated By-Laws (the "By-Laws"), copies of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by stockholders. Holders of Common Stock are not entitled to
cumulative voting rights. Therefore, the holders of a majority of the shares
voted in the election of directors can elect all of the directors then standing
for election, subject to the rights of the holders of Preferred Stock, if and
when issued. The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to the Common Stock.
The holders of Common Stock are entitled to receive such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor. See "Dividend Policy." The possible issuance of
Preferred Stock with a preference over Common Stock as to dividends could impact
the dividend rights of holders of Common Stock. All outstanding shares of Common
Stock, including the shares offered by this Prospectus, are, or will be upon
consummation of the Offering, fully paid and non-assessable.
The Certificate provides, subject to the rights of the holders of the
Preferred Stock, if and when issued, that the number of directors shall be fixed
by the Board of Directors. Subject to any rights of the holders of Preferred
Stock, if and when issued, to elect directors, and to remove any director whom
the holders of any such Preferred Stock had the right to elect, any director of
the Company may be removed from office only with cause and by the affirmative
vote of at least majority of the total votes which would be eligible to be cast
by stockholders in the election of such director.
PREFERRED STOCK
Prior to consummation of the Offering, the Company had outstanding 100,000
shares of Series A Preferred Stock and 100,000 shares of Series B Preferred
Stock. Upon consummation of the Offering and without further action by the
Company, beyond the provision of notice of the Offering to the holder of the
Series A Preferred Stock and Series B Preferred Stock 30 days prior to the
effectiveness of this Registration Statement, which the Company has provided to
such holders, the Series A Preferred Stock will automatically convert pursuant
to its terms into 875,000 shares of Common Stock and a warrant to purchase
175,000 shares of Common Stock and the Series B Preferred Stock will
automatically convert pursuant to its terms into 1,000,000 shares of Common
Stock.
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<PAGE> 71
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 20,000,000 shares of
Preferred Stock in classes or series and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights of
the shares of each series and any qualifications, limitations and restrictions
thereon as set forth in the Certificate. Any such Preferred Stock issued by the
Company may rank prior to the Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of Common Stock. The purpose of authorizing the Board of
Directors to issue Preferred Stock is, in part, to eliminate delays associated
with a stockholder vote on specific issuances. The issuance of Preferred Stock
could have the effect of making it more difficult for a third party to acquire,
or of discouraging a third party from acquiring or seeking to acquire, a
significant portion of the outstanding stock of the Company.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS AND
OF DELAWARE LAW
General
A number of provisions of the Company's Certificate and By-Laws concern
matters of corporate governance and the rights of stockholders. Certain of these
provisions, including those which provide for the classification of the Board of
Directors and which grant the Board of Directors the ability to issue shares of
Preferred Stock and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts not first approved by the Board of Directors (including
takeovers which certain stockholders may deem to be in their best interests). To
the extent takeover attempts are discouraged, temporary fluctuations in the
market price of the Common Stock, which may result from actual or rumored
takeover attempts, may be inhibited. Certain of these provisions also could
delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption would be beneficial
to the stockholders of the Company. These provisions also could discourage or
make more difficult a merger, tender offer or proxy contest, even if they could
be favorable to the interests of stockholders, and could potentially depress the
market price of the Common Stock. The Board of Directors of the Company believes
that these provisions are appropriate to protect the interests of the Company
and its stockholders. The Board of Directors has no present plans to adopt any
other measures or devices which may be deemed to have an "anti-takeover effect."
Classified Board of Directors
The Certificate provides for a Board of Directors that is divided into
three classes. The directors in Class I hold office until the first annual
meeting of stockholders following the Offering, the directors in Class II hold
office until the second annual meeting of stockholders following the Offering,
and the directors in Class III hold office until the third annual meeting of
stockholders following the Offering (or, in each case, until their successors
are duly elected and qualified or until their earlier resignation, removal from
office for cause or death), and, after each such election, the directors in each
such class will then serve in succeeding terms of three years and until their
successors are duly elected and qualified. The classification system of electing
directors, the ability of stockholders to remove directors only for cause (and
only upon an 80% stockholder vote) and the inability of stockholders to call a
special meeting may tend to discourage a third party from making a tender offer
or otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as the classification of the Board of
Directors and such other provisions generally increase the difficulty of, or may
delay, replacing a majority of the directors. In addition, such classification
system and such other provisions may be amended only upon an 80% stockholder
vote.
Meetings of Stockholders
The Certificate provides that annual meetings of stockholders shall be held
at such hour on such day and at such place within or without the State of
Delaware as may be fixed by the Board of Directors. A special meeting of the
stockholders may be called only by the Chairman of the Board, the President or
the Board of Directors.
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Advance Notice Provisions
The By-Laws provide that nominations for directors may not be made by
stockholders at any annual or special meeting thereof unless the stockholder
intending to make a nomination notifies the Company of its intention a specified
number of days in advance of the meeting and furnishes to the Company certain
information regarding itself and the intended nominee. The By-Laws also require
a stockholder to provide to the Secretary of the Company advance notice of
business to be brought by such stockholder before any annual or special meeting
of stockholders as well as certain information regarding such stockholder and
others known to support such proposal and any material interest they may have in
the proposed business. These provisions could delay stockholder actions that are
favored by the holders of a majority of the outstanding stock of the Company
until the next stockholders' meeting.
No Stockholder Action by Written Consent
The Certificate provides that any action required or permitted to be taken
by the stockholders of the Company at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders in lieu thereof.
Amendment of the Certificate and By-Laws
The Certificate provides that an amendment thereof must first be approved
by a majority of the Board of Directors and (with certain exceptions) thereafter
must be approved by the holders of a majority of the total votes eligible to be
cast by holders of Common Stock with respect to such amendment or repeal.
The Certificate and By-Laws provide that the By-Laws may be amended or
repealed by the Board of Directors or by the stockholders. Such action by the
Board of Directors requires the affirmative vote of a majority of the directors
then in office. Such action by the stockholders requires the affirmative vote of
the holders of a majority of the outstanding capital stock entitled to vote with
respect to such amendment or repeal.
Delaware Statutory Business Combination Provision
The Company is subject to Section 203 ("Section 203") of the Delaware
General Corporation Law (the "DGCL"), which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder,
unless: (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced, excluding
for purposes of determining the number of shares outstanding those shares owned
(x) by persons who are directors and also officers and (y) by employee stock
plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the interested stockholder. The application of Section 203 may limit the
ability of stockholders to approve a transaction that they may deem to be in
their best interests.
Section 203 defines "business combination" to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation to or with the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
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<PAGE> 73
pledges or other financial benefits provided by or through the corporation.
Section 203 defines an "interested stockholder" as a person who, together with
affiliates and associates, owns (or within the prior three years did own) 15% or
more of the outstanding voting stock of the corporation.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that, with certain
limited exceptions, such by-law or charter amendment shall not become effective
until 12 months after the date it is adopted. Neither the Certificate nor the
By-Laws contains any such exclusion.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate provides that a director shall not be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent permitted by the DGCL, as it now exists or may
hereafter be amended. The Certificate and the By-Laws also provide that the
Company shall indemnify any and all persons whom it shall have the power to
indemnify, including directors, officers and agents (as determined at the
discretion of the Board of Directors), against any and all expenses, liabilities
or other matters, to the fullest extent permitted by the DGCL. At the present
time, there is no pending litigation or proceeding involving any director,
officer, employee or agent of the Company in which indemnification will be
required or permitted. The Company is not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
REGISTRATION RIGHTS
Pursuant to the terms of the Shareholders' Agreement, dated as of July 8,
1996 (the "Shareholders' Agreement") among the Company and certain of its
stockholders, holders of 5,870,500 shares of Common Stock (which includes shares
issuable upon the conversion of the Series A Preferred Stock and Series B
Preferred Stock and shares issuable upon the exercise of currently exercisable
warrants), including AJG and certain members of senior management of the
Company, have the right to require the Company to register their shares up to
four times at the Company's expense. The aggregate market value of the shares to
be registered on each occasion must equal or exceed $2,000,000. The parties to
the Shareholders' Agreement also have the right to include their shares of
Common Stock in a registration statement filed by the Company subsequent to the
Offering whether for its own account or for that of other stockholders. Pursuant
to the terms of subscription agreements entered into by certain stockholders in
connection with private financing by the Company in 1996, the holders of an
additional 1,050,000 shares of Common Stock (which includes shares issuable upon
the exercise of currently exercisable warrants) also have the right to include
their shares of Common Stock in a registration statement filed by the Company
subsequent to the Offering. In addition, a number of Principals of the
Affiliated Firms have the right to include 9,181,048 shares of Common Stock
(which includes shares issuable upon the exercise of currently exercisable
warrants and options and upon the conversion of subordinated convertible
debentures) in a registration statement filed by the Company subsequent to the
Offering, pursuant to the terms of the transaction documents by which Asset
Alliance acquired its interest in each such Affiliated Firm. See
"Business -- Innovative Structure." All such registration rights are subject to
the right of an underwriter participating in the offering to limit the number of
shares included in the registration. If the underwriter managing such an
offering determines to limit the number of shares offered, holders of such
shares will be included in the offering pro rata after the inclusion of all
shares intended to be offered by the Company and by the parties to the
Shareholders' Agreement. All expenses relating to the filing of such
registration statements, excluding underwriting discounts and selling expenses,
will be paid by the Company. See "Risk Factors -- Registration Rights."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
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<PAGE> 74
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares
of Common Stock ( shares if the Underwriters' over-allotment option is
exercised in full) outstanding. The shares of Common Stock (
shares if the Underwriters' over-allotment option is exercised in full) offered
hereby will be freely tradable without restriction or further registration under
the Securities Act, except for any such shares which may be acquired by or
shares sold by persons deemed to be "affiliates" of the Company, as such term is
defined under the Securities Act, which shares will be subject to the resale
limitations of Rule 144. The remaining shares of Common Stock will be
"restricted securities" within the meaning of Rule 144 (the "Restricted Shares")
and will be eligible for resale, subject to the volume, manner of sale, holding
period and other limitations of Rule 144 and to the agreements with the
Underwriters and the Company described below.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least one year, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company is
entitled to sell within any three-month period the number of shares of Common
Stock which does not exceed the greater of one percent of the number of then
outstanding shares of Common Stock or the average weekly reported trading volume
during the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain notice requirements and to the availability of current public
information about the Company and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company under the Securities Act
during the three months preceding a sale and who had beneficially owned such
shares for at least two years is entitled to sell such shares under Rule 144
without regard to the volume, notice, information and manner of sale provisions
of such Rule.
In connection with the Offering, the Company and each of the Company's
officers, directors and shareholders have agreed not to dispose of, subject to
certain exceptions, any shares of Common Stock for a period of 270 days from the
date of this Prospectus without the prior written consent of Bear, Stearns & Co.
Inc., on behalf of the Underwriters. Beginning 270 days after the date of this
Prospectus, the Company believes that of the Restricted Shares will be
eligible for sale in the public market pursuant to Rule 144. See "Underwriting."
In connection with the Company's acquisitions, certain Principals holding
an aggregate of approximately shares of Common Stock have entered into
agreements with the Company which prohibit them from disposing of some or all of
the Principal Shares for periods of up to five years from the date such shares
were issued to them by the Company. The Company Lockup Periods will expire at
various times after February 2000. Upon expiration of the Company Lockup
Periods, the applicable Principal Shares will become eligible for sale in the
public market under Rule 144.
An aggregate of 1,400,000 shares of Common Stock are reserved for issuance
under the 1996 Plan. As of the date of this Prospectus, options to purchase
628,000 shares have been granted pursuant to the 1996 Plan, of which options to
purchase 223,332 shares are currently exercisable, and options to purchase
156,594 shares have been granted pursuant to non-plan stock option agreements,
of which options to purchase 113,594 shares are currently exercisable. After the
Offering, the Company intends to file a registration statement on Form S-8 to
register the shares of Common Stock issuable upon the exercise of options
granted pursuant to the 1996 Plan. Upon effectiveness of such registration
statement, shares issued upon exercise of options granted under the 1996 Plan
will be freely tradeable, except for any shares held by an "affiliate" of the
Company or which are subject to a Lockup Agreement.
In addition, as of the date of this Prospectus, the Company had outstanding
warrants to purchase 782,500 shares of Common Stock (excluding 175,000 warrants
issuable upon conversion of the Series A Preferred Stock upon consummation of
the Offering), all of which are currently exercisable, and $ aggregate
principal amount of subordinated convertible debentures which are convertible
into shares of Common Stock.
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Prior to the Offering, there has been no public market for Common Stock. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock into the public market or the availability of such shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of Common Stock into the public market after the
restrictions described above lapse could adversely affect the prevailing market
price and the ability of the Company to obtain equity capital in the future.
Additionally, certain holders of shares outstanding prior to the Offering are
entitled to certain registration rights with respect to their shares. See "Risk
Factors -- Lack of a Prior Market, Equity Market Conditions and Shares Available
for Future Sale Could Adversely Affect the Trading Price of the Common
Stock -- No Prior Market; Volatility," "-- Shares Eligible for Future Sale" and
"-- Registration Rights."
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UNDERWRITING
The underwriters of the Offering of the Common Stock (the "Underwriters"),
for whom Bear, Stearns & Co. Inc., PaineWebber Incorporated and Prudential
Securities Incorporated are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part), to purchase from the Company the
aggregate number of shares of Common Stock set forth opposite their name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
PaineWebber Incorporated....................................
Prudential Securities Incorporated..........................
------
Total.............................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that, if any of the
foregoing shares of Common Stock are purchased by the Underwriters pursuant to
the Underwriting Agreement, all such shares must be so purchased. The Company
has agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock to the public initially at the public offering price set
forth on the cover page of this Prospectus and to certain selected dealers (who
may include the Underwriters) at such public offering price less a concession
not to exceed $ per share. The selected dealers may reallow a
concession to certain other dealers not to exceed $ per share. After
the initial offering to the public, the public offering price, the concession to
selected dealers and the reallowance to other dealers may be changed by the
Representatives.
In order to facilitate the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock during and after the Offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the Common
Stock for their own account by selling more shares of Common Stock than have
been sold to them by the Company. The Underwriters may elect to cover any short
position by purchasing shares of Common Stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
such persons may stabilize or maintain the price of the Common Stock by bidding
for or purchasing shares of Common Stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in the Offering are reclaimed if shares of
Common Stock previously distributed in the Offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The imposition of a penalty bid also may affect the price of the Common Stock to
the extent that it discourages resales thereof. Such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The Company has granted the Underwriters an option to purchase up to
additional shares of Common Stock at the public offering price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of this Prospectus. To the
extent the Underwriters exercise such option, each of the Underwriters will be
committed, subject to certain conditions, to purchase a number of additional
shares of Common Stock proportionate to such Underwriter's initial commitment as
indicated in the preceding table.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the public offering price will be determined by
negotiations between the Company and the Underwriters. Among the
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<PAGE> 77
factors to be considered in such negotiations are the nature of the Company's
business, its prospects and management, and the general conditions of the
securities markets at the time of the Offering. There can be no assurance,
however, that the prices at which the shares will sell in the public market
after the Offering will not be lower than the price at which they are sold by
the Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
In connection with the Offering, the Company, all of its stockholders,
including AJG and the Citco Group, and each of its officers and directors have
agreed that they will not, directly or indirectly, without the prior written
consent of Bear, Stearns & Co. Inc., on behalf of the Underwriters, offer,
pledge, sell, offer to sell, contract to sell or grant any option to purchase or
otherwise sell or dispose (or announce any offer, pledge, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or disposition)
of any shares of Common Stock or other capital stock or securities exchangeable
or exercisable for, or convertible into, shares of Common Stock or other capital
stock for a period of 270 days after the date of this Prospectus, except in the
case of the Company, (i) shares of Common Stock offered in connection with the
Offering, (ii) shares of Common Stock issued upon the exercise of presently
outstanding stock options and warrants or upon the conversion or exchange of
presently outstanding convertible or exchangeable securities and (iii) shares of
Common Stock or such other securities issued as consideration in future
investments or acquisitions to be made by the Company or any of its
subsidiaries, provided that such Common Stock or other securities are made
subject to the same 270 day restriction.
Bear, Stearns Securities Corp., an affiliate of Bear, Stearns & Co. Inc.,
is the clearing broker for Milestone, JMG-Pacific and MET. Each of these
Affiliated Firms pays Bear, Stearns Securities Corp. customary charges for its
services as clearing broker. Bear, Stearns Securities Corp. may in the future
serve as clearing broker or in other capacities for one or more additional
Affiliated Firms.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York. Certain legal matters in connection with the Offering will be passed upon
for the Underwriters by Stroock & Stroock & Lavan LLP, New York, New York.
EXPERTS
The financial statements of the Company at December 31, 1996 and 1997 and
for the period from February 1, 1996 (date of inception) to December 31, 1996
and year ended December 31, 1997, of JMG-Pacific and MET at December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
and of Trust Advisors at December 31, 1996 and 1997 and for the three months
ended December 31, 1996 and the year ended December 31, 1997, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon and appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Bricoleur at December 31, 1996 and 1997, and
for each of the three years in the period ended December 31, 1997, appearing in
this Prospectus and Registration Statement have been audited by Peterson & Co.,
independent accountants, as set forth in their report thereon and appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any agreement or other document referred to are not necessarily complete. With
respect to each such agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
public referrals section of the Commission at its Washington address upon
payment of the prescribed fees. The Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval System. The electronically
filed documents, which also include reports, proxy statements and other
information, are maintained by the Commission and may be found at the World Wide
Web site at http://www.sec.gov. Application has been made to list the Common
Stock on the Nasdaq National Market. Certain reports, proxy statements and other
information of listed companies can be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements for each fiscal year and quarterly
reports containing unaudited interim financial information for each of the first
three fiscal quarters of each fiscal year.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
ASSET ALLIANCE CORPORATION
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-3
Consolidated Statements of Operations for the period from
February 1, 1996 to December 31, 1996 and the year
ended December 31, 1997................................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the period from February 1, 1996 to December 31,
1996 and the year ended December 31, 1997.............. F-5
Consolidated Statements of Cash Flows for the period from
February 1, 1996 to December 31, 1996 and the year
ended December 31, 1997................................ F-6
Notes to Consolidated Financial Statements................ F-7
BRICOLEUR CAPITAL MANAGEMENT, INC.
(formerly Utah Capital Corporation)
Report of Independent Accountants......................... F-18
Statements of Financial Condition as of December 31, 1996
and 1997............................................... F-19
Statements of Income for the years ended December 31,
1995, 1996 and 1997.................................... F-20
Statements of Changes in Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997........... F-21
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-22
Notes to Financial Statements............................. F-23
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
Report of Independent Auditors............................ F-29
Combined Balance Sheet as of December 31, 1996 and 1997... F-30
Combined Statements of Operations for the years ended
December 31, 1995, 1996 and 1997....................... F-31
Combined Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1996 and 1997....... F-32
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-33
Notes to Combined Financial Statements.................... F-34
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
Report of Independent Auditors............................ F-38
Combined Balance Sheets as of December 31, 1996 and
1997................................................... F-39
Combined Statements of Income for the years ended December
31, 1995, 1996 and 1997................................ F-40
Combined Statements of Changes in Partners' Capital for
the years ended December 31, 1995, 1996 and 1997....... F-41
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-42
Notes to Combined Financial Statements.................... F-43
TRUST ADVISORS LLC
Report of Independent Auditors............................ F-47
Balance Sheets as of December 31, 1996 and 1997........... F-48
Statements of Income for the three months ended December
31, 1996 and the year ended December 31, 1997.......... F-49
Statements of Changes in Members' Equity for the three
months ended December 31, 1996 and the year ended
December 31, 1997...................................... F-50
Statements of Cash Flows for the three months ended
December 31, 1996 and the year ended December 31,
1997................................................... F-51
Notes to Financial Statements............................. F-52
</TABLE>
F-1
<PAGE> 80
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Asset Alliance Corporation
We have audited the accompanying consolidated balance sheets of Asset
Alliance Corporation (the "Company") as of December 31, 1996 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the period from February 1, 1996 (date of inception) to
December 31, 1996 and the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Asset Alliance
Corporation at December 31, 1996 and 1997 and the consolidated results of its
operations and its cash flows for the period from February 1, 1996 (date of
inception) to December 31, 1996 and the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 1998
F-2
<PAGE> 81
ASSET ALLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $3,225,655 $12,171,578
Investment in limited partnership, at market value (cost
$2,500,000 and $3,450,000 in 1996 and 1997,
respectively).......................................... 2,585,989 3,875,235
Fee and other receivables................................. 700,849 4,546,282
Other current assets...................................... 5,008 36,010
---------- -----------
Total current assets........................................ 6,517,501 20,629,105
Investments in equity interests from preferred revenue
share..................................................... 1,921,251 3,955,520
Property and equipment -- net............................... 62,470 82,516
Organization costs -- net................................... 193,718 153,327
Other....................................................... 1,500 1,500
---------- -----------
Total assets...................................... $8,696,440 $24,821,968
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debentures payable........................................ $ -- $ 600,000
Accounts payable to investment advisors................... 558,931 3,181,853
Other payables and accrued expenses....................... 99,941 127,605
Dividends payable......................................... 31,250 31,250
Income taxes payable...................................... 30,000 256,100
Due to affiliates......................................... -- 29,872
---------- -----------
Total current liabilities................................... 720,122 4,226,680
Deferred income taxes....................................... -- 26,900
Deferred rent............................................... 20,736 57,932
Debentures payable.......................................... 750,000 2,689,904
Minority interest........................................... 2,030 19,187
Commitments and contingencies
Stockholders' equity:
Preferred stock; authorized 2,000,000 shares:
Series A Convertible Redeemable, $0.01 par value,
100,000 shares issued and outstanding (aggregate
liquidation value of $2,500,000)...................... 1,000 1,000
Series B Convertible Redeemable, $0.01 par value,
100,000 shares issued and outstanding (aggregate
liquidation value of $10,000,000)..................... -- 1,000
Common stock, $0.01 par value, 100,000,000 shares
authorized (15,000,000 in 1996), 4,425,000 (1996) and
4,485,000 (1997) shares issued and outstanding......... 44,250 44,850
Additional paid-in capital................................ 7,317,250 17,487,250
Retained earnings (accumulated deficit)................... (158,948) 267,265
---------- -----------
Total stockholders' equity........................ 7,203,552 17,801,365
---------- -----------
Total liabilities and stockholders' equity........ $8,696,440 $24,821,968
========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 82
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1996 YEAR ENDED
(DATE OF INCEPTION) TO DECEMBER 31,
DECEMBER 31, 1996 1997
---------------------- ------------
<S> <C> <C>
Revenues:
Management and incentive fees, including $110,691 in 1996
and $1,132,499 in 1997 of the equity interest from
preferred revenue share................................ $ 914,624 $7,922,284
Portion of equity interest from amortization of
acquisition costs allocated to contracts.......... (22,500) (200,731)
Realized and unrealized appreciation on investment in
limited partnership.................................... 85,989 339,246
---------- ----------
Net revenues................................................ 978,113 8,060,799
Expenses:
Sub-advisory fee.......................................... 529,351 4,864,150
Compensation and related expenses......................... 296,578 1,412,413
Other operating expenses.................................. 228,294 899,618
---------- ----------
Total expenses.............................................. 1,054,223 7,176,181
---------- ----------
Operating income (loss)..................................... (76,110) 884,618
Interest income, net of interest expense of $13,100 in 1996
and $76,091 in 1997....................................... 55,153 36,595
---------- ----------
Income (loss) before income taxes........................... (20,957) 921,213
Provision for income taxes.................................. 37,900 357,000
---------- ----------
Net income (loss)........................................... (58,857) 564,213
Preferred stock dividend requirement........................ 59,783 125,000
---------- ----------
Net income (loss) available to common stockholders.......... $ (118,640) $ 439,213
========== ==========
Net income (loss) per share available to common
stockholders:
Basic..................................................... $ (0.03) $ 0.10
========== ==========
Diluted................................................... $ (0.03) $ 0.09
========== ==========
Shares used to compute net income (loss) per share:
Basic..................................................... 3,837,228 4,470,833
========== ==========
Diluted................................................... 3,837,228 4,630,830
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 83
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 1, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996 AND YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED STOCK PREFERRED STOCK RETAINED
SERIES A SERIES B COMMON STOCK EARNINGS
---------------- ---------------- ------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------- ------ ------- ------ --------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
Convertible Redeemable
Preferred Stock, common
stock and warrants to
purchase 175,000 shares
of common stock for
cash..................... 100,000 $1,000 -- $ -- 875,000 $ 8,750 $ 4,990,250 $ -- $ 5,000,000
Issuance of common stock,
warrants to purchase
350,000 shares of common
stock and distribution of
$637,500 to founders in
exchange for ownership of
Milestone Investment
Group, Inc., which, as of
the exchange date, had
losses in excess of
capital of $40,308....... -- -- -- -- 2,500,000 25,000 (662,500) (40,308) (677,808)
Issuance of common stock
and warrants to purchase
35,000 shares of common
stock for acquisition of
investment in Trust
Advisors LLC............. -- -- -- -- 175,000 1,750 498,250 -- 500,000
Dividends on preferred
stock -- $.59783 per
share.................... -- -- -- -- -- -- -- (59,783) (59,783)
Issuance of common stock
and warrants to purchase
175,000 shares of common
stock
for cash................. -- -- -- -- 875,000 8,750 2,491,250 -- 2,500,000
Net loss................... -- -- -- -- -- (58,857) (58,857)
------- ------ ------- ------ --------- ------- ----------- --------- -----------
Balance at December 31,
1996..................... 100,000 1,000 -- -- 4,425,000 44,250 7,317,250 (158,948) 7,203,552
------- ------ ------- ------ --------- ------- ----------- --------- -----------
Issuance of common stock
for acquisition of
investment in Silverado
Capital Management LLC... -- -- -- -- 50,000 500 142,500 -- 143,000
Issuance of 10,000 shares
of common stock and
warrants to purchase
20,000 shares of common
stock relating to credit
agreement................ -- -- -- -- 10,000 100 28,500 -- 28,600
Issuance of Series B
Convertible Redeemable
Preferred Stock for
cash..................... -- -- 100,000 1,000 -- -- 9,999,000 -- 10,000,000
Dividends on preferred
stock -- $1.25 per
share.................... -- -- -- -- -- -- -- (125,000) (125,000)
Distribution to founders of
Milestone Investment
Group, Inc. ............. -- -- -- -- -- -- -- (13,000) (13,000)
Net income................. -- -- -- -- -- -- -- 564,213 564,213
------- ------ ------- ------ --------- ------- ----------- --------- -----------
Balance at December 31,
1997..................... 100,000 $1,000 100,000 $1,000 4,485,000 $44,850 $17,487,250 $ 267,265 $17,801,365
======= ====== ======= ====== ========= ======= =========== ========= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 84
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1996
(DATE OF INCEPTION) YEAR ENDED
TO DECEMBER 31, DECEMBER 31,
1996 1997
------------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $ (58,857) $ 564,213
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization............................. 36,992 87,034
Equity interest from preferred revenue share.............. (88,191) (931,768)
Distributions from equity interest from preferred revenue
share.................................................. 44,657 525,978
Realized and unrealized appreciation on investment in
limited partnership.................................... (85,989) (339,246)
Deferred income taxes..................................... -- 26,900
Deferred rent............................................. 20,736 37,196
Minority interest......................................... (1,101) 17,157
Changes in operating assets and liabilities:
Investment in limited partnership...................... (2,500,000) (950,000)
Fee and other receivables.............................. (521,837) (3,645,433)
Other current assets................................... (5,008) (31,002)
Other.................................................. (1,500) --
Accounts payable to investment advisors................ 503,735 2,622,922
Other payables and accrued expenses.................... (107,769) 27,664
Income taxes payable................................... 30,000 226,100
Due to affiliates...................................... -- 29,872
----------- -----------
Net cash used in operating activities....................... (2,734,132) (1,732,413)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs.......................................... (207,640) --
Investments in equity interest from preferred revenue
share..................................................... (604,650) (885,479)
Additions to property and equipment......................... (64,437) (38,089)
Other....................................................... -- (200,000)
----------- -----------
Net cash used in investing activities....................... (876,727) (1,123,568)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common and preferred stock........ 7,500,000 10,000,000
Proceeds from issuance of debentures........................ -- 1,939,904
Cash dividend paid.......................................... (28,533) (125,000)
Cash distribution to former owners of Milestone Investment
Group, Inc. .............................................. (637,500) (13,000)
----------- -----------
Net cash provided by financing activities................... 6,833,967 11,801,904
----------- -----------
Net increase in cash and cash equivalents................... 3,223,108 8,945,923
Cash and cash equivalents at beginning of period............ 2,547 3,225,655
----------- -----------
Cash and cash equivalents at end of period.................. $ 3,225,655 $12,171,578
=========== ===========
Interest paid............................................... $ 13,100 $ 63,000
=========== ===========
Income taxes paid........................................... $ 7,900 $ 104,000
=========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 85
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying consolidated financial statements include the accounts of
Asset Alliance Corporation (the "Company"), and its wholly-owned subsidiaries,
Asset Alliance Holding Corporation, Asset Alliance Investment Services, Inc. and
Asset Alliance Advisors, Inc.
The Company, which was formed in February 1996 and began operations on July
1, 1996, acquired Milestone Investment Group Inc. ("MIG"), which owns and
consolidates a 99% limited partnership interest in Milestone Global Advisors
L.P. ("MGA"). MIG was owned by the founding shareholders of the Company prior to
July 1, 1996. The acquisition of MIG was treated in a manner similar to a
pooling-of-interests; accordingly, the assets and liabilities are recorded at
historical cost. On July 1, 1996, pursuant to a stock purchase agreement, the
ownership of MIG was transferred to the Company in exchange for $637,500 in
cash, 2,500,000 shares of the Company's common stock, par value $.01 per share
(the "Common Stock"), warrants to purchase 350,000 shares of Common Stock at
$5.00 per share, contingent earn out payments of $637,500, which were earned and
paid during 1997, and contingent stock options (see Note 10). The contingent
earn out payments were recorded as compensation. MIG is a 1.01% general partner
in Milestone Plus Partners L.P. ("MPP") and Milestone Millennium L.P. ("MMLP").
The Company accounts for its investments in MPP and MMLP under the equity
method.
The Company is an investment management holding company that acquires
preferred interests in privately owned investment management firms specializing
in alternative investment strategies ("Alternative Managers"). The Company
generally purchases a 50% equity interest in a given firm and is granted a
preferred right to a comparable percentage of the firm's revenues (the
"Preferred Revenue Share").
The Company derives its revenues from its ownership of the preferred
interests in the Alternative Managers in which it acquires an interest (the
"Affiliated Firms"). The Affiliated Firms, including MIG, manage both domestic
and international investment portfolios for corporations, pension funds and
individuals. The Company has a revenue sharing arrangement with each Affiliated
Firm, which generally provide for a Preferred Revenue Share to the Company and
require the Affiliated Firm to distribute such amounts to the Company on a
preferred basis. All remaining revenues of the Affiliated Firm are allocated to
the principals of the firm, which are generally required to be used first to pay
all expenses of the Affiliated Firm, including salaries, and to fund reserves
and, thereafter, may be distributed to the principals. The principals of the
Affiliated Firms also may be eligible to receive options to acquire shares of
Common Stock at fair market value as an incentive for realized revenue growth.
Principals of the Affiliated Firms typically enter into non-compete arrangements
at the time of acquisition by the Company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The majority of the Company's revenues are derived from investment advisory
fees charged both as a percentage of investible funds (earned and paid on a
quarterly basis) and performance of the fund (earned and paid on an annual
basis). The Company earned revenues based on a percentage of investible funds
and performance of the funds of $162,080 and $641,853, respectively, for 1996,
and $891,582 and $5,898,203, respectively, for 1997. All fees are accrued on a
monthly basis. All fees receivable are expected to be collected.
The purchase price for the Preferred Revenue Shares are allocated based on
the fair market value of the assets of the Affiliated Firm. The unamortized
costs allocated to contracts are amortized using the straight-line method over
periods ranging from seven to twenty years. Such unamortized costs approximated
$1,825,000 and $2,967,000 at December 31, 1996 and 1997, respectively.
Amortization of such costs were
F-7
<PAGE> 86
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $23,000 and $201,000 for 1996 and 1997, respectively, and is shown
as a reduction of the Company's share of income in such investments.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company
maintains its cash and cash equivalents principally in one financial
institution.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of investments and debentures payable approximate fair
value.
PROPERTY AND EQUIPMENT
The Company uses the straight-line method of depreciation for equipment
over a seven-year period. Leasehold improvements are being amortized on a
straight-line basis over the term of the lease or the estimated useful life of
the improvement, whichever is shorter.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Company were
capitalized and are being amortized over five years on a straight-line basis.
STOCK OPTION PLAN
The Company accounts for its stock-based compensation plan in accordance
with the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the fair value method
pursuant to Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation."
INVESTMENT IN LIMITED PARTNERSHIP, AT MARKET VALUE
The Company invests certain excess funds in a limited partnership, which is
a fund of funds with the underlying assets being marketable securities. As
determined by management of the Company, such investment is classified as
trading securities and, accordingly, is valued at its net asset value, which
approximates market value, with the change in the net asset value included in
net realized and unrealized appreciation (depreciation) on investment in limited
partnership. Appreciation (depreciation) of the investment in limited
partnership is net of any incentive allocation. The resultant unrealized gains
or losses are included in operations.
F-8
<PAGE> 87
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
At December 31, 1996 and 1997, property and equipment, at cost, consists of
the following:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Furniture, fixtures and equipment........................... $59,593 $ 82,775
Leasehold improvements...................................... 4,844 19,751
------- --------
64,437 102,526
Less accumulated depreciation and amortization.............. 1,967 20,010
------- --------
$62,470 $ 82,516
======= ========
</TABLE>
3. INVESTMENTS IN EQUITY INTEREST FROM PREFERRED REVENUE SHARE
In October 1996, the Company acquired a Preferred Revenue Share in Trust
Advisors LLC ("Trust Advisors"), a Delaware limited liability company, for
$600,000 in cash, $750,000 principal amount of subordinated convertible
debentures, 175,000 shares of Common Stock and warrants to purchase 35,000
shares of Common Stock valued at $500,000. The warrants are exercisable for a
period of four years at a price of $5.00 per share, which is subject to
adjustment if diluted, as defined in the agreement.
In March 1997, the Company acquired a Preferred Revenue Share in Silverado
Capital Management LLC ("Silverado"), a newly formed Delaware limited liability
company, for $600,000 in cash, $600,000 principal amount of subordinated
convertible debentures and 50,000 shares of Common Stock valued at $143,000. In
January 1998, the Company transferred $600,000 in cash to Silverado in payment
of the debentures.
The Company accounts for these investments under the equity method.
F-9
<PAGE> 88
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the assets, liabilities, revenues and net
income of Trust Advisors, Silverado and other equity interests at December 31,
1996 and 1997, and for the respective periods of ownership during the periods
then ended and the Company's investment and equity interest in income of Trust
Advisors, Silverado and the other equity interests:
<TABLE>
<CAPTION>
1996 1997
--------------------------------- -----------------------------------------------
SILVERADO
TRUST TRUST CAPITAL
ADVISORS ADVISORS MANAGEMENT
TOTAL LLC OTHER TOTAL LLC LLC OTHER
---------- ---------- ------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total current assets.......... $ 67,020 $1,062,542 $ 416,108
Long-term assets.............. 9,315 6,678 7,608
---------- ---------- ----------
Total assets.................. $ 76,335 $1,069,220 $ 423,716
========== ========== ==========
Total current liabilities..... $ 25,451 $ 63,788 $ 115,368
Long-term liabilities......... -- -- 103,205
Partners' capital/members'
equity...................... 50,884 1,005,432 205,143
---------- ---------- ----------
Total liabilities and
partners' capital/members'
equity...................... $ 76,335 $1,069,220 $ 423,716
========== ========== ==========
Revenues...................... $ 202,533 $1,997,507 $ 222,872
========== ========== ==========
Net income.................... $ 88,521 $1,397,258 $ (309,650)
========== ========== ==========
Investment in equity interests
from preferred revenue
share....................... $1,921,251 $1,884,110 $37,141 $3,955,520 $2,277,602 $1,372,745 $305,173
========== ========== ======= ========== ========== ========== ========
Equity interest in income from
preferred revenue share..... $ 88,191 $ 78,766 $ 9,425 $ 931,768 $ 834,203 $ 13,023 $ 84,542
========== ========== ======= ========== ========== ========== ========
</TABLE>
4. DEBENTURES PAYABLE AND FINANCING ARRANGEMENTS
In connection with the acquisition of Trust Advisors (see Note 3), the
Company issued $750,000 principal amount of subordinated convertible debentures
which bear interest at the rate of 6.93% per annum, are convertible into 50,000
shares of Common Stock at the option of the holder and mature June 30, 2001. The
Company paid approximately $52,000 in interest on these debentures in 1997 and
$13,100 in 1996.
In connection with the capitalization of Silverado (see Note 3), the
Company, through its subsidiary Asset Alliance Holding Corp., issued $600,000
principal amount of non-interest bearing subordinated debentures, evidencing the
Company's obligation to make an additional capital contribution of $600,000.
Such contribution was made and the debentures were reacquired in January 1998.
During 1997, the Company issued $1,939,904 principal amount of subordinated
convertible debentures to various investors. These instruments bear interest at
a rate of 5.8125% per annum, are each convertible into shares of Common Stock at
a conversion price of $7.50 per share at the option of the holder on the earlier
of an initial public offering of Common Stock or maturity, and mature at various
dates through November 30, 2000. The Company reserves the right to redeem these
debentures under specific circumstances. The Company paid approximately $24,000
in interest on these debentures in 1997. Subsequent to year end, the Company
issued an additional $926,505 principal amount of subordinated convertible
debentures.
F-10
<PAGE> 89
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, the Company entered into a revolving credit agreement with a
major financial institution (the "Bank"), which is an affiliate of a shareholder
of the Company, which permitted borrowing up to $5,000,000 in the aggregate,
with interest, at the option of the management, at the offshore rate plus 1.25%,
or federal funds rate plus 1.25%, payable quarterly. In connection with this
credit agreement, the Company issued 10,000 shares of Common Stock and warrants
to purchase 20,000 shares of the Common Stock to an affiliate of the Bank. The
warrants are exercisable at a price of $5.00 per share, which is subject to
adjustment if diluted, as defined in the agreement, for a period of four years.
Borrowings outstanding as of May 27, 1999 will automatically convert to a
three-year term loan payable quarterly in equal principal installments. There
were no amounts outstanding under this agreement at December 31, 1997 (see Note
12).
5. COMMITMENTS
LEASE COMMITMENTS
Office space is leased under operating leases expiring through 2006. The
leases provide for minimum annual rent, plus expense escalations.
At December 31, 1997, the approximate minimum rental commitments under
noncancellable leases are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 142,000
1999........................................................ 142,000
2000........................................................ 142,000
2001........................................................ 142,000
2002........................................................ 142,000
Thereafter.................................................. 545,000
----------
$1,255,000
==========
</TABLE>
Rent expense amounted to approximately $42,000 and $136,000 in 1996 and
1997, respectively.
SUB-ADVISORY FEE
In July 1996, the Company entered into an agreement with an unaffiliated
investment advisor ("Advisor"), whereby the Advisor would provide
non-discretionary investment advisory services to the Company, and receive a
consulting fee equal to 70% of management and incentive fees earned by MGA. This
agreement ended in October 1997, at which time the Company entered into a new
arrangement with an unaffiliated investment advisor to provide similar services
for 75% of management and incentive fees earned by MGA.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the two founding
shareholders of the Company, whereby the Company has agreed to pay the
shareholders annual base salaries of $495,000 and $395,000. The shareholders
also will be entitled to receive annual bonuses, to be determined by the Board
of Directors. These agreements are effective January 1, 1998 and will last for a
term of five years.
The Company also has entered into agreements with two additional members of
the Board of Directors ("Members"), whereby the Company has agreed to pay the
Members annual base salaries of $105,000 and $95,000, respectively. These
agreements are effective February 1, 1998 and will last for a term of one year.
In March 1998, the Company entered into an employment agreement with an
additional executive officer of the Company, whereby the Company has agreed to
pay the officer an annual base salary of $175,000. The officer also will be
entitled to receive an annual bonus, to be determined by the Board of Directors.
F-11
<PAGE> 90
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This agreement is effective for a term of five years and will expire on January
1, 2003.
6. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share.
The following table sets forth the computation of basic and dilutive
earnings per share for the periods ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Numerator:
Net (loss) income......................................... $ (58,857) $ 564,213
Preferred stock dividend requirement...................... (59,783) (125,000)
---------- ----------
Numerator for basic and diluted earnings per share-net
income (loss) available for common stockholders........ $ (118,640) $ 439,213
========== ==========
Denominator:
Denominator for basic earnings per share-weighted
average shares......................................... 3,837,228 4,470,833
Effect of dilutive securities:
Stock options.......................................... -- 57,806
Warrants............................................... -- 102,191
---------- ----------
Denominator for diluted earnings per share-adjusted
weighted-average shares and assumed conversions........ 3,837,228 4,630,830
========== ==========
Net (loss) income per share:
Basic.................................................. $ (0.03) $ 0.10
========== ==========
Diluted................................................ $ (0.03) $ 0.09
========== ==========
</TABLE>
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Preferred stock -- Series A and 175,000 warrants at
conversion................................................ 1,050,000 1,050,000
Preferred stock -- Series B................................. -- 1,000,000
Subordinated convertible debentures......................... 50,000 308,654
Stock options............................................... 140,000 110,000
Warrants.................................................... 735,000 --
</TABLE>
For additional information on the above securities, see Notes 1, 3, 4, 7
and 10. See Note 12 for information on Common Stock and subordinated convertible
debentures issued subsequent to December 31, 1997.
F-12
<PAGE> 91
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 2,000,000 shares of Preferred Stock. The Company
issued during 1996 Series A Convertible Redeemable Preferred Stock, $.01 par
value per share (the "Series A Preferred Stock"), of which 100,000 shares are
issued and outstanding. Each share of Series A Preferred Stock is convertible
into the number of shares of Common Stock that results from dividing $25.00 by
the conversion price per share in effect (currently $2.857). The holder has the
right to convert the shares of Series A Preferred Stock at any time and will
receive warrants to purchase 175,000 shares of Common Stock, at an exercise
$5.00 per share, upon conversion.
The Company issued during 1997 Series B Convertible Redeemable Preferred
Stock, $.01 par value per share (the "Series B Preferred Stock"), of which
100,000 shares are issued and outstanding. Each share of Series B Preferred
Stock is convertible into the number of shares of Common Stock that results from
dividing $100.00 by the conversion price per share in effect (currently $10.00).
The holder has the right to convert the Series B Preferred Stock at any time.
Each share of Series A Preferred Stock and Series B Preferred Stock which
remains outstanding on the closing date of a public offering will automatically
convert into Common Stock. The stockholders of the Series A Preferred Stock and
Series B Preferred Stock are entitled to receive cumulative dividends at $1.25
and $5.00, respectively, per share per annum, payable in quarterly installments.
Payment of dividends on the Series B Preferred Stock will commence on April 1,
1998. The Company, after June 30, 1997, may redeem and liquidate the shares of
Series A Preferred Stock at $25.00 per share plus any accrued and unpaid
dividends, and after January 1, 1998, may redeem and liquidate the shares of
Series B Preferred Stock at $100.00 per share plus any accrued and unpaid
dividends. Neither the Series A Preferred Stock nor the Series B Preferred Stock
has voting rights.
COMMON STOCK
During 1997, the Company increased its authorized shares of Common Stock
from 15,000,000 to 100,000,000. The Company has reserved for issuance (i)
1,875,000 shares of Common Stock for conversion of the Series A Preferred Stock
and the Series B Preferred Stock, (ii) 930,000 shares of Common Stock upon
exercise of warrants, (iii) 400,000 shares of Common Stock under the 1996 Plan
(as defined in Note 10) and (iv) 308,654 shares of Common Stock upon conversion
of subordinated convertible debentures of the Company.
8. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Current:
Federal................................................... $ -- $251,000
State..................................................... 37,900 79,100
------- --------
Total current..................................... 37,900 330,100
Deferred:
Federal................................................... -- 21,300
State..................................................... -- 5,600
------- --------
Total deferred.................................... -- 26,900
------- --------
Total provision for income taxes.................. $37,900 $357,000
======= ========
</TABLE>
F-13
<PAGE> 92
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. A summary of the components of deferred tax assets and liabilities
at December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Net operating loss carryforwards............................ $ 79,000 $ 72,800
Other deferred tax assets................................... 7,700 63,700
-------- --------
Total deferred tax assets................................... 86,700 136,500
Unrealized income from investments.......................... 10,300 77,600
Other deferred tax liabilities.............................. 5,400 13,000
-------- --------
Total deferred tax liabilities.............................. 15,700 90,600
-------- --------
Net deferred tax asset (liabilities)........................ 71,000 45,900
Valuation allowance......................................... (71,000) (72,800)
-------- --------
Net deferred tax asset (liability) after valuation
allowance................................................. $ -- $(26,900)
======== ========
</TABLE>
The actual income tax expense (benefit) differs from the "expected" tax
expense (benefit) computed by applying the U.S. Federal corporate tax rate of
34% to income taxes, as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Computed "expected" tax expense............................. $ (7,100) $313,200
State taxes, net of Federal income tax benefit.............. 25,000 56,000
Increase (decrease) in valuation allowance.................. 14,800 (8,100)
Permanent tax differences and other......................... 5,200 (4,100)
-------- --------
Tax provision............................................... $ 37,900 $357,000
======== ========
</TABLE>
The Company and its subsidiaries file a consolidated U.S. Federal corporate
income tax return. The Company does not file a consolidated state income tax
return. Thus, each member of the consolidated group is responsible for its
applicable state income tax. At December 31, 1997, the Company has state net
operating loss carryforwards of approximately $428,000 which will begin to
expire in 2011. The above valuation allowance relates to such carryforwards.
9. RELATED PARTY TRANSACTIONS
The Company's affiliates have various administrative charges of $13,000 for
1996 and $87,500 for 1997, paid to a company which is owned by the founders. The
Company paid investment advisory fees of $57,000 and $128,000 in 1996 and 1997,
respectively, to an affiliated company. At December 31, 1996 and 1997, the
Company had accrued investment advisory fees of $59,233 and $29,872,
respectively, payable to this same company. For other related party
transactions, see Notes 4 and 12.
10. STOCK OPTIONS
Pursuant to the purchase of MIG, the Company granted to the founders of the
Company stock options to purchase up to a maximum of 21,250 shares of Common
Stock over the next three years based on a formula pertaining to MIG exceeding
revenues, as defined in the stock purchase agreement. As of December 31, 1997,
the founders earned such options which were issued in March 1998. The exercise
price of the options, prior to the completion of a underwritten initial public
offering, is at $7.50 per share provided the offering price per share is $15.
The exercise price of the options will be adjusted to one-half of the offering
price.
F-14
<PAGE> 93
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, pursuant to the acquisition of Trust Advisors, the managers
of Trust Advisors received 15,344 options at $7.50 which will be adjusted to
one-half of the offering price.
In December 1996, the Company established the Asset Alliance 1996 Stock
Option Plan (the "1996 Plan") for employees, directors, consultants and advisors
of the Company to purchase shares of Common Stock.
The Board of Directors is responsible for determining the type of award,
when and to whom awards are granted, the number of shares and terms of the
awards and the exercise price. The exercise price shall not be less than the
fair market value of the Common Stock at the date the option is granted. As
such, the Company has not recorded compensation expense in connection with these
awards. The options are exercisable for a period not to exceed ten years from
the date of the grant. Vesting periods range from immediate vesting to three
years.
The following table summarizes the 1996 Plan's transactions at and for the
periods ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted..................................................... 140,000 $3.47
------- -----
Balance outstanding at December 31, 1996.................... 140,000 3.47
Granted..................................................... 120,000 7.29
------- -----
Balance outstanding at December 31, 1997.................... 260,000 $5.23
======= =====
Exercisable at December 31, 1996............................ 20,000 $5.00
======= =====
Exercisable at December 31, 1997............................ 73,333 $4.03
======= =====
</TABLE>
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), and has been determined as if the
Company had accounted for its employees' stock options under the fair value
method provided by that Statement. The fair value of the options was estimated
at the date of grant using the Black-Scholes option pricing model with the
following assumptions for vested and non-vested options:
<TABLE>
<CAPTION>
PERIOD ENDED DECEMBER 31,
--------------------------
ASSUMPTION 1996 1997
---------- ----------- -----------
<S> <C> <C>
Risk-free interest yield................................... 6.38 - 6.46% 5.92 - 6.56%
Volatility................................................. -- --
Dividend yield............................................. -- --
Average life............................................... 10 years 10 years
</TABLE>
The Black-Scholes options valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock has characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-15
<PAGE> 94
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For purpose of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Pro forma net (loss) income available to common
stockholders:............................................. $(123,240) $408,786
Pro forma net (loss) income per share available to common
stockholders:
Basic.................................................. $ (0.03) $0.09
========= ========
Diluted................................................ $ (0.03) $0.09
========= ========
</TABLE>
The weighted average fair value of options granted during the periods ended
December 31, 1996 and 1997 was $0.96 and $3.11, respectively.
The following tables summarize information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICES OPTIONS OUTSTANDING OPTIONS EXERCISABLE REMAINING CONTRACTUAL LIFE
- --------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
$2.86 100,000 33,333 9.00
$5.00 50,000 40,000 8.97
$7.50 110,000 -- 9.92
------- ------ ----
260,000 73,333 9.08
======= ====== ====
</TABLE>
11. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution plan covering all eligible
employees, which qualifies under Section 401(k) of the Internal Revenue Code.
The Company's 401(k) plan provides that eligible employees may make
contributions subject to Internal Revenue Service limitations. Under the terms
of the adoption agreement, the Company may make matching contributions at their
discretion. In 1997, the Company contributed approximately $4,700 to the plan.
12. SUBSEQUENT EVENTS
The Company entered into an agreement dated February 20, 1998 in which a
wholly-owned subsidiary of the Company merged with and into Bricoleur Capital
Management, Inc. ("BCMI"), a Utah corporation. The Company exchanged 2,880,000
shares of Common Stock valued at $21,600,000, $5,850,000 principal amount of
subordinated convertible debentures, which bear interest at the rate of 7.7% per
annum, are convertible into 780,000 shares of Common Stock and mature on
February 27, 2000, and $17,550,000 in cash in exchange for the shares of BCMI.
The assets of BCMI were contributed to Bricoleur Capital Management Co. LLC (the
"LLC"), a Delaware limited liability company, for a 50% equity interest and
preferred revenue share. The principals of BCMI entered into five-year
employment agreements and non-compete agreements with the LLC. The transactions
closed on February 27, 1998.
The Company has agreed to acquire a 50% preferred equity interest in the
operations of each of JMG Capital Management, Inc. and Pacific Capital
Management, Inc. for an aggregate of $30,500,000 in cash and $30,500,000
principal amount of subordinated convertible debentures, which bear interest at
the rate per annum equal to one-half of a two year Treasury note plus 25 basis
points, to be determined at closing, are convertible into 3,485,714 shares of
the Company's Common Stock and mature on December 31, 2000. The definitive
agreement provides for the Company to receive 50% of revenues. The Company will
bear 50% of operating expenses to the extent they exceed $1.1 million but do not
exceed $2.2 million.
The Company also has agreed to acquire a preferred equity interest in the
operations of Metropolitan Capital Advisors, L.P., Metropolitan Capital Partners
II, L.P. and Metropolitan Capital Partners III, L.P. for
F-16
<PAGE> 95
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an aggregate of $35,700,000, of which $17,850,000 will be payable in cash and
$17,850,000 principal amount of subordinated convertible debentures, which bear
interest at the rate of 2.2% per annum, are convertible into 1,785,000 shares of
Common Stock and mature five years following issuance. The definitive agreement
provides for the Company to receive 50% of revenues less 50% of actual operating
expenses so long as operating expenses do not exceed 20% of revenues. If
operating expenses exceed 20% of revenues, the Company shall receive 40% of
revenues.
The Company is in the process of filing a Form S-1 Registration Statement
under the Securities Act of 1933, as amended, in which the Company intends to
offer shares of its Common Stock to the public (the "IPO").
In February 1998, the Company entered into an agreement with the Bank
amending and restating the Company's existing credit agreement with the Bank
dated May 27, 1997 (see Note 4). The new credit agreement permits borrowings up
to $30,000,000 in the aggregate. Facility A permits borrowings of up to
$10,000,000 and Facility B permits borrowings of up to $20,000,000. Interest, at
the option of management, is charged at the offshore or the federal funds rate
plus the applicable margins. The margin for Facility A borrowings is 1.25% and
the margin for Facility B borrowings is 0.50%. Facility B borrowings are
guaranteed by a major shareholder of the Company. This guarantee will terminate
upon the IPO. The credit agreement contains certain financial covenants,
including minimum net worth and debt services coverage requirements, which, if
they had been in effect as of December 31, 1997, the Company would have been in
compliance.
On January 23, 1998, the Company increased the number of shares available
for grant under the 1996 Plan from 400,000 to 1,400,000.
In March 1998, the Company obtained an additional loan from a shareholder
of the Company. The loan permits borrowing up to $5,000,000 in the aggregate,
bearing interest at prime plus 2%. In connection with this loan, the Company
issued warrants to purchase 17,500 shares of Common Stock. The warrants are
exercisable at a price of $10 per share, which is subject to adjustment if
diluted, as defined in the agreement, and are exercisable through June 30, 2003.
Borrowings under the loan are due June 1, 1998 unless the IPO does not occur, at
which point the loan will be repaid in six monthly installments of $859,000
beginning June 30, 1998.
F-17
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Bricoleur Capital Management, Inc.
We have audited the accompanying statements of financial condition of
Bricoleur Capital Management, Inc. (the "Company"), formerly Utah Capital
Corporation, as of December 31, 1996 and 1997, and the related statements of
income, changes in shareholders' equity, and cash flows for the years ended
December 31, 1995, 1996 and 1997. The financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bricoleur Capital
Management, Inc. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1995, 1996 and
1997 in conformity with generally accepted accounting principles.
/s/ PETERSON & CO.
San Diego, California
March 20, 1998
F-18
<PAGE> 97
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash........................................................ $ 80,497 $ 45,888
Management fee receivable................................. 360,674 497,419
Performance fee receivable................................ 2,984,730 7,069,078
Investment securities: trading............................ 181,760 --
Investment securities: available-for-sale................. 434,216 2,461,672
Deferred tax assets....................................... 21,700 27,700
Prepaid expenses.......................................... 9,641 -
---------- -----------
Total current assets.............................. 4,073,218 10,101,757
---------- -----------
Furniture, equipment and leasehold improvements, net........ 114,202 202,324
Other assets
Organization costs, net................................... 5,267 1,867
Investment in limited partnership......................... 666,975 927,393
Security deposits......................................... - 4,507
---------- -----------
Total assets...................................... $4,859,662 $11,237,848
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities.................. $ 811 $ 57,144
Current portion of long-term debt......................... 100,000 --
Accrued commissions payable............................... 2,950,000 6,900,000
Income tax payable........................................ 321,957 846,800
Deferred tax liabilities.................................. 166,700 286,300
---------- -----------
Total current liabilities......................... 3,539,468 8,090,244
---------- -----------
Other long-term liabilities
Deferred tax liabilities.................................. 23,800 16,600
---------- -----------
Total liabilities................................. 3,563,268 8,106,844
Shareholders' equity:
Common stock, $1 par value -- 50,000 shares authorized;
50,000 shares issued and outstanding................... 50,000 50,000
Retained earnings......................................... 1,228,385 2,856,697
Unrealized gain on investment securities, net............. 18,009 224,307
---------- -----------
Total shareholders' equity........................ 1,296,394 3,131,004
---------- -----------
Total liabilities and shareholders' equity........ $4,859,662 $11,237,848
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 98
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Revenues
Performance fees.................................... $1,667,284 $4,184,779 $ 9,336,155
Asset management fees............................... 272,170 807,473 1,457,238
Principal transactions.............................. 1,079,351 1,506,745 1,216,578
Partnership income.................................. 103,091 233,400 260,418
Interest and dividends.............................. 7,224 9,818 13,125
Other income........................................ 24,225 3,928 47,768
---------- ---------- -----------
3,153,345 6,746,143 12,331,282
---------- ---------- -----------
Expenses
Employee compensation and benefits.................. 1,936,765 5,560,014 9,378,502
Brokerage, administrative and registration fees..... 7,181 9,241 2,406
Communications and data processing.................. 19,337 39,359 100,790
Occupancy........................................... 19,443 25,904 44,383
Depreciation and amortization....................... 15,611 21,868 46,244
Other expenses...................................... 114,072 158,943 311,739
---------- ---------- -----------
2,112,409 5,815,329 9,884,064
---------- ---------- -----------
Operating income...................................... 1,040,936 930,814 2,447,218
Other expense
Interest............................................ (1,611) (6,207) (5,430)
Loss on investment.................................. -- (17,500) --
---------- ---------- -----------
Income before income taxes............................ 1,039,325 907,107 2,441,788
Provision for income taxes............................ 365,212 476,396 813,476
---------- ---------- -----------
Net income............................................ $ 674,113 $ 430,711 $ 1,628,312
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 99
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL
----------------- RETAINED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT EARNINGS INCOME EQUITY
------ ------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... 50,000 $50,000 $ 123,561 $ -- $ 173,561
Net income....................... 674,113 674,113
------ ------- ---------- -------- ----------
Balance at December 31, 1995..... 50,000 50,000 797,674 -- 847,674
COMPREHENSIVE INCOME
Net income..................... 430,711 430,711
Unrealized gain, net........... 18,009 18,009
----------
448,720
------ ------- ---------- -------- ----------
Balance at December 31, 1996..... 50,000 50,000 1,228,385 18,009 1,296,394
COMPREHENSIVE INCOME
Net income..................... 1,628,312 1,628,312
Unrealized gain, net........... 206,298 206,298
----------
1,834,610
------ ------- ---------- -------- ----------
Balance at December 31, 1997..... 50,000 $50,000 $2,856,697 $224,307 $3,131,004
====== ======= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 100
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................... $ 674,113 $ 430,711 $1,628,312
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................... 15,611 21,868 46,244
Gain on investments............................. (1,079,351) (1,506,745) (1,216,578)
Loss on disposal of assets...................... 1,589 --
Increase in investment in partnership........... (103,091) (233,400) (260,418)
Decrease (increase) in operating assets
Management and performance fees receivable...... (1,331,115) (1,807,582) (4,221,093)
Securities owned, net........................... 1,011,201 1,454,360 1,398,338
Deferred tax assets............................. (20,000) (1,700) (6,000)
Prepaid and other assets........................ 17,512 (9,641) 5,134
Increase (decrease) in operating liabilities
Commission payable.............................. 738,049 2,013,281 3,950,000
Income tax payable.............................. 118,809 185,957 524,843
Deferred tax liabilities........................ 230,953 (77,600) (213,700)
Accounts payable and accrued expenses........... (7,233) (10,705) 56,333
---------- ---------- ----------
Net cash provided by operating activities............ 265,458 460,393 1,691,415
CASH FLOWS FROM INVESTING ACTIVITIES
Contributions to investment in partnership......... (200,778) -- --
Purchase of long-term investment................... -- (403,107) (1,495,058)
Purchase of capital assets......................... (33,003) (65,164) (130,966)
---------- ---------- ----------
Net cash used in investing activities................ (233,781) (468,271) (1,626,024)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt.......................... (5,333) (100,000) (100,000)
---------- ---------- ----------
Net cash used in financing activities................ (5,333) (100,000) (100,000)
---------- ---------- ----------
Net increase (decrease) in cash...................... 26,344 (107,878) (34,609)
Cash, beginning of year.............................. 162,031 188,375 80,497
---------- ---------- ----------
Cash, end of year.................................... $ 188,375 $ 80,497 $ 45,888
========== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Interest paid...................................... $ 1,611 $ 6,207 $ 5,430
========== ========== ==========
Income taxes paid.................................. $ 35,450 $ 369,739 $ 338,733
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 101
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and History
Bricoleur Capital Management, Inc. (the "Company"), formerly Utah Capital
Corporation, is a Utah corporation organized on August 30, 1992 for the purpose
of providing financial advisory services. The Company is the general partner of
Bricoleur Partners, L.P. (the "Partnership") which was organized to invest
primarily in publicly-traded securities. The Company also provides financial
advisory services to JIB Associates and Albany Management Company Limited, which
are also organized to invest primarily in publicly-traded securities.
Basis of Accounting
The Company's financial statements have been prepared on the accrual method
of accounting which recognizes revenues when they are earned and expenses when
they are incurred.
Investment Securities
The Company invests excess funds in marketable equity securities which are
carried on the balance sheet at market value.
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), which requires investments to be classified into the
following three categories: held-to-maturity, trading or available-for-sale.
Held-to-maturity securities are presented at amortized cost while unrealized
gains and losses on any trading securities are included in earnings. Trading
securities are presented at fair market value, with unrealized holding gains and
losses included in earnings. Unrealized gains and losses on available-for-sale
securities are recorded directly to stockholders' equity, net of tax.
Security transactions are accounted for on the date the securities are
purchased or sold (trade date). The realized gain or loss from sales of
investment securities is computed on the first-in, first-out basis. Dividend
income is recorded on the date of record. Interest income is recorded on the
accrual basis.
Valuation of Investment Securities
Investment securities are carried at market value. Securities which are
listed on a national securities exchange and which are freely marketable are
valued at their last sale price or, if no sales occurred on the valuation date,
at the mean between the "bid" and "asked" prices on such day. Other securities
which are publicly traded and which are freely marketable are valued at their
last closing "bid" prices if held "long" and their last closing "asked" prices
if sold "short" as supplied by the National Association of Securities Dealers,
Inc.
Income Taxes
The Company calculates its tax provision in accordance with Statement of
Financial Accounting Standard No. 109. Deferred income taxes reflect the impact
of temporary differences between the tax bases of assets and liabilities and
their financial reporting amounts at year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. The principal reason for the difference
between tax expense computed based on the statutory federal rate and income tax
expense was state income taxes.
F-23
<PAGE> 102
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are stated at cost and depreciation has been
provided using the straight-line method over the estimated useful lives of
depreciable property ranging from 5 to 7 years.
Leasehold improvements are stated at cost and amortization has been
provided using the straight line method over remaining life of the associated
lease.
Organization Costs
Organization costs are amortized using the straight-line method over a
period of five years.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Securities Sold, Not Yet Purchased
Securities sold, not yet purchased, consisting of domestic common stock,
represent obligations of the Company to make a future delivery of a specific
security and, correspondingly, create an obligation to purchase the security at
prevailing market prices (or deliver the security if owned by the Company) at
the later delivery date. As a result, short sales create the risk that the
Company's ultimate obligation to satisfy the delivery requirement may exceed the
amount of the obligation recorded in the financial statements.
Reclassification
During 1997, the Company elected to recognize certain deferred revenue as
taxable income in 1996. As a result, deferred tax liabilities have been
reclassified to income tax payable as of December 31, 1996. The effect of such
reclassification was to increase income tax payable by $207,985. Certain other
amounts reported in the statement of financial condition as of December 31, 1996
have been reclassified to conform with the presentation as of December 31, 1997.
NOTE 2 -- INVESTMENTS IN LIMITED PARTNERSHIP
The Company is the general partner of the Partnership and has accounted for
its investment in the Partnership using the equity method. As such, the
accompanying financial statements reflect the Company's equity in the
Partnership as of December 31, 1996 and 1997.
In addition, in its role as the general partner, the Company is required to
absorb any deeds, obligations, or losses which may occur in excess of the
limited partners' respective capital accounts and, as a result, it is possible
that the Company could incur a loss which might exceed the amount recorded as
its investment in the Partnership as of December 31, 1997.
F-24
<PAGE> 103
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of assets and liabilities of the Partnership at December 31, 1996
and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Total assets................................................ $ 113,986,286 $ 223,204,158
Total liabilities........................................... (24,744,688) (62,861,340)
Equity of others............................................ (88,574,623) (159,415,425)
------------- -------------
Investment in Partnership................................... $ 666,975 $ 927,393
============= =============
</TABLE>
A summary of revenues and expenses of the Partnership at December 31, 1995,
1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Total investment revenues........................ $ 1,036,538 $ 3,136,338 $ 6,541,905
Total investment expenses........................ (330,838) (837,102) (1,539,620)
Total gain on investments, net................... 8,535,838 18,386,323 36,026,997
Net increase in assets of others................. (9,138,447) (20,452,159) (40,768,864)
------------ ------------ ------------
Net increase in Partnership assets............... $ 103,091 $ 233,400 $ 260,418
============ ============ ============
</TABLE>
NOTE 3 -- INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in equity
securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Trading securities:
Publicly traded............................... $177,832 $ 3,928 $ - $181,760
Private placement offering.................... 17,500 -- (17,500) --
-------- ------- -------- --------
Total trading securities........................ $195,332 $ 3,928 $(17,500) $181,760
======== ======= ======== ========
Available-for-sale securities
Equity securities --
Aventine Int'l Fund........................ $403,107 $31,109 $ -- $434,216
======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Trading securities:
Publicly traded............................ $ -- $ -- $ -- $ --
---------- -------- ------- ----------
Total trading securities..................... $ -- $ -- $ -- $ --
========== ======== ======= ==========
Available-for-sale securities
Equity securities --
Aventine Int'l Fund..................... $2,067,765 $393,907 $ -- $2,461,672
========== ======== ======= ==========
</TABLE>
F-25
<PAGE> 104
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- FEES AND COMPENSATION
The Company earned performance fees from the Partnership.
- General partner incentive allocations in 1995, 1996 and 1997 in the
amounts of $1,140,808, $4,032,831, and $7,918,893, representing 20% of
the net increase in partners' capital resulting from operations after the
asset management fee.
- Quarterly asset management fee in 1995, 1996 and 1997 in the amounts of
$272,170, $763,214 and $1,351,987 based on .25% of the partners' ending
capital.
As of December 31, 1996 and 1997 asset management fees totaling $360,674
and $497,419, respectively and performance fees totaling $2,944,730 and
$7,029,078, respectively were due from the Partnership.
NOTE 5 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment, and leasehold improvements at December 31, 1996 and
1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Furniture and fixtures................................. $ 32,454 $ 84,744
Computer equipment..................................... 106,777 123,468
Leasehold improvements................................. 6,572 68,557
-------- --------
145,803 276,769
Less accumulated depreciation and amortization......... 31,601 74,445
-------- --------
$114,202 $202,324
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1996 and 1997
was $11,811, $18,468 and $42,844, respectively. Amortization expense was $3,800,
$3,400 and $3,400, respectively.
NOTE 6 -- INCOME TAXES
The significant components of the Company's deferred tax liabilities and
assets as of December 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities
Unrealized gain on investments....................... $ 13,100 $169,600
Deferred performance fees............................ 153,600 116,700
Depreciation......................................... 23,800 16,600
-------- --------
Total deferred tax liabilities......................... 190,500 302,900
-------- --------
Deferred tax assets
Unrealized loss on investments....................... 7,400 --
State income taxes................................... 11,700 21,200
Unrealized loss on investments....................... 2,600 6,500
-------- --------
Total deferred tax assets.............................. 21,700 27,700
-------- --------
Net deferred tax liability............................. $168,800 $275,200
======== ========
</TABLE>
F-26
<PAGE> 105
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the provision for income taxes for the years
ended December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Current
Federal.......................................... $109,890 $421,965 $678,843
State............................................ 44,369 120,631 197,833
-------- -------- --------
Total current...................................... 154,259 542,596 876,676
-------- -------- --------
Deferred
Federal.......................................... 166,302 (51,800) (55,400)
State............................................ 44,651 (14,400) (7,800)
-------- -------- --------
Total deferred..................................... 210,953 (66,200) (63,200)
-------- -------- --------
Total provision for income taxes................... $365,212 $476,396 $813,476
======== ======== ========
</TABLE>
NOTE 7 -- RELATED-PARTY TRANSACTIONS
The Company had borrowed funds from a shareholder of the Company in
exchange for a note payable due September 30, 1997. The note carried interest at
the rate of 5.83% annually and was uncollateralized. The note was paid in full,
according to terms.
NOTE 8 -- NET CAPITAL REQUIREMENTS
As a registered investment adviser with the California Department of
Corporations, the Company is required to maintain certain minimum capital
requirements. Under the applicable capital rules, the Company must at all times
maintain: (i) "Tangible Net Capital" at 500% in excess of "Total Aggregate
Indebtedness"; (ii) "Current Net Capital" greater than "Current Aggregate
Indebtedness"; and (iii) "Tangible Net Capital" in excess of $25,000. At
December 31, 1997, the Company was in compliance with these minimum capital
requirements.
NOTE 9 -- COMMITMENTS
Operating Lease
During 1997, the Company rented its office space. Rent expense for the
years ended December 31, 1995, 1996 and 1997 was $19,443, $25,904 and $44,383,
respectively.
Future minimum obligations for this operating lease as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998 $54,086
=======
</TABLE>
Employment Agreement
The Company has entered into an employment agreement with the senior vice
president. The agreement provides base payments of $100,000 per year through
January 1, 2003. The agreement also provides equity ownership through the
purchase of stock of the Company.
NOTE 10 -- SUBSEQUENT EVENTS
In February 1998, the Company entered into a Merger Agreement with Asset
Alliance Corporation ("Parent") and Asset Alliance Bricoleur Merger Co., Inc.
("Sub"), a wholly-owned subsidiary of the Parent, pursuant to which the Company
was merged with and into Sub. At the joint expense of Parent and the
F-27
<PAGE> 106
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company, Parent will make all regulatory and other filings necessary for
Bricoleur Capital Management Co., LLC, a newly formed Delaware limited liability
Company ("LLC"), to continue the business of the Company after the merger. Sub
has transferred to LLC substantially all of its business and net assets in
exchange for a 50% membership interest in LLC and a preferred return equal to
50% of the LLC's revenue.
NOTE 11 -- PRIOR PERIOD ADJUSTMENT
The Company's statement of financial condition as of December 31, 1996, has
been restated to reflect a receivable from the Partnership for performance fees
earned, but payable at future dates. The change has been applied to prior years
retroactively. The effect of this restatement was to increase retained earnings
as of December 31, 1995 and 1996 and increase net income for the years then
ended by $353,262 and $144,045, respectively.
F-28
<PAGE> 107
REPORT OF INDEPENDENT AUDITORS
The Shareholders of
JMG Capital Management, Inc.
Pacific Capital Management, Inc.
We have audited the accompanying combined balance sheets of JMG Capital
Management, Inc. and Pacific Capital Management, Inc. (collectively, the
"Corporations") as of December 31, 1996 and 1997, and the related combined
statements of operations, changes in shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the management of the Corporations. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of JMG Capital
Management, Inc. and Pacific Capital Management Inc. at December 31, 1996 and
1997 and the combined results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 1998
F-29
<PAGE> 108
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 115,612 $ 578,220
Management and incentive fees receivable.................. 63,856 --
Interest receivable....................................... 64,023 --
---------- -----------
Total current assets........................................ 243,491 578,220
Fixed assets, net of accumulated depreciation of $7,845 and
$22,196 in 1996 and 1997, respectively.................... 31,682 56,064
Deferred management and incentive fees...................... 288,098 4,845,697
Investments in limited partnerships, at equity.............. 5,858,387 8,051,443
---------- -----------
Total assets...................................... $6,421,658 $13,531,424
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses.......................................... $ 10,851 $ 20,690
---------- -----------
Total current liabilities................................... 10,851 20,690
Deferred income taxes....................................... 37,958 126,559
Commitments and contingencies
Shareholders' equity:
Common stock of JMG Capital Management, Inc. (no par
value; 1,000,000 shares authorized; 225,000 shares
issued and outstanding in 1996 and 1997)............... 225,000 225,000
Common stock of Pacific Capital Management, Inc. ($.01 par
value, 1000 shares authorized; 200 issued and
outstanding in 1996 and 1997).......................... 2 2
Note receivable from shareholder.......................... (200,000) --
Retained earnings......................................... 6,347,847 13,159,173
---------- -----------
Total shareholders' equity........................ 6,372,849 13,384,175
---------- -----------
Total liabilities and shareholders' equity........ $6,421,658 $13,531,424
========== ===========
</TABLE>
See accompanying notes.
F-30
<PAGE> 109
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Management and incentive fees....................... $ 388,485 $1,120,277 $ 5,919,209
Equity interest in income of limited partnerships... 2,288,840 4,073,276 6,631,554
Unrealized appreciation on deferred revenues........ -- -- 383,774
Interest income..................................... 14,642 19,690 29,226
Other revenues...................................... 68,099 129,511 77,701
---------- ---------- -----------
Total revenues........................................ 2,760,066 5,342,754 13,041,464
Expenses:
Compensation and related expenses................... 318,440 414,982 649,531
Other operating expenses............................ 84,449 183,462 710,409
---------- ---------- -----------
Total expenses........................................ 402,889 598,444 1,359,940
---------- ---------- -----------
Income before income tax.............................. 2,357,177 4,744,310 11,681,524
Income tax............................................ 35,000 71,000 175,000
---------- ---------- -----------
Net income............................................ $2,322,177 $4,673,310 $11,506,524
========== ========== ===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 110
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON NOTE RECEIVABLE RETAINED
STOCKS FROM SHAREHOLDER EARNINGS TOTAL
-------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at January 1, 1995............ $225,000 $(200,000) $ 1,087,449 $ 1,112,449
Net income.......................... -- -- 2,322,177 2,322,177
Shareholders' distributions......... -- -- (335,089) (335,089)
-------- --------- ----------- -----------
Balance at December 31, 1995.......... 225,000 (200,000) 3,074,537 3,099,537
Issuance of common stock of Pacific
Capital Management, Inc.......... 2 -- -- 2
Net income.......................... -- -- 4,673,310 4,673,310
Shareholders' distributions......... -- -- (1,400,000) (1,400,000)
-------- --------- ----------- -----------
Balance at December 31, 1996.......... 225,002 (200,000) 6,347,847 6,372,849
Proceeds from note receivable....... -- 200,000 -- 200,000
Net income.......................... -- -- 11,506,524 11,506,524
Shareholders' distributions......... -- -- (4,695,198) (4,695,198)
-------- --------- ----------- -----------
Balance at December 31, 1997.......... $225,002 $ -- $13,159,173 $13,384,175
======== ========= =========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE> 111
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income........................................... $2,322,177 $ 4,673,310 $11,506,524
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 589 5,906 14,351
Equity interest in income of limited
partnerships including incentive fee
allocation.................................... 2,288,840 (4,073,276) 6,631,554
Unrealized appreciation on deferred revenues.... -- -- (383,774)
Distributions from investments in limited
partnerships.................................. 700,000 1,500,000 4,493,498
Deferred income taxes........................... 18,685 19,273 88,601
Changes in operating assets and liabilities:
Interest receivable........................... (13,300) (13,337) 64,023
Management and incentive fees receivable...... -- (351,954) (4,109,970)
Deposits...................................... 1,194 -- --
Accrued expenses.............................. 32,341 (43,899) 9,840
---------- ----------- -----------
Net cash provided by operating activities............ 772,846 1,716,023 5,051,539
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in limited partnerships.................. (66,617) (177,030) (55,000)
Additions to fixed assets............................ (2,420) (33,826) (38,733)
---------- ----------- -----------
Net cash used in investing activities................ (69,037) (210,856) (93,733)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment received on note receivable.................. -- -- 200,000
Principal payment on notes payable................... (365,165) -- --
Issuance of common stock............................. -- 2 --
Shareholders' distributions.......................... (335,089) (1,400,000) (4,695,198)
---------- ----------- -----------
Net cash used in financing activities................ (700,254) (1,399,998) (4,495,198)
---------- ----------- -----------
Net increase in cash................................. 3,555 105,169 462,608
Cash at beginning of year............................ 6,888 10,443 115,612
---------- ----------- -----------
Cash at end of year.................................. $ 10,443 $ 115,612 $ 578,220
========== =========== ===========
Income taxes paid.................................... $ 16,315 $ 50,891 $ 85,282
========== =========== ===========
</TABLE>
See accompanying notes.
F-33
<PAGE> 112
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined financial statements include the accounts of JMG
Capital Management, Inc., a California corporation ("JMG"), for the three years
ended December 31, 1997 and Pacific Capital Management, Inc., a Delaware
corporation ("PCM" and collectively with JMG, the "Corporations"), for the
period from April 8, 1996 (date of inception) through December 31, 1996 and for
the year ended December 31, 1997. The Corporations are affiliated through common
ownership.
JMG and PCM were formed on March 10, 1992 and April 8, 1996, respectively.
As more fully described in Note 2, JMG is a general partner in JMG Capital
Partners, L.P. ("JMGCP"), a California limited partnership, and JMG Convertible
Investments, L.P. ("JMGCI" and collectively with JMGCP, the "Partnerships"), a
California limited partnership. JMG and JMGCP entered into an agreement in
November 1994 to form JMGCI as 1% general partner and 99% limited partner,
respectively.
PCM is the investment manager of Triton Capital Holdings, Inc., an
international business company incorporated in the Territory of the British
Virgin Islands ("Triton"). The Corporations earn fees for investment management
services provided to the Partnerships and Triton.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the 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.
REVENUE RECOGNITION
The majority of the Corporations' revenues are derived from management
fees, charged as a percentage of the capital balance of each limited partner's
account in the Partnerships and incentive fees charged or incentive allocations
of income received as a percentage of the net increase in net assets, as defined
in the partnership agreement or investment advisory agreement. The Company
receives such revenues from the Partnerships after it has managed a partners
account for twelve consecutive months.
JMG, as General Partner and investment manager, earns management fees and
receives incentive allocations from JMGCP. Management fees earned and incentive
allocations received for the years ended December 31, 1995, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Management fees........................ $ 388,485 $ 665,943 $1,054,324
Incentive allocations.................. 1,976,715 3,422,705 6,018,565
</TABLE>
PCM, as investment manager, earns management and incentive fees from
Triton. Management and incentive fees earned for the period from April 8, 1996
(date of inception) through December 31, 1996 and for the year ended December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Management fees...................................... $166,236 $1,249,554
Incentive fees....................................... 288,098 3,615,331
</TABLE>
F-34
<PAGE> 113
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PCM had elected to defer management fees of $558,494 earned in 1997 and
$288,098 and $3,615,331 of incentive fees earned in 1996 and 1997, respectively.
All deferred amounts remain in Triton subject to the claims of general creditors
and are invested in Triton, without any charge for management or performance
fees, and will appreciate (depreciate) accordingly. The appreciation on the
deferred management and incentive fees for the year ended December 31, 1997 were
$42,986 and $340,788, respectively.
FIXED ASSETS
Furniture and equipment are stated at cost. Depreciation of furniture and
equipment is computed on the straight-line basis over the estimated useful lives
of the individual assets generally three to seven years.
INCOME TAXES
The Corporations' shareholders have elected to be taxed for Federal income
tax purposes as a Subchapter S Corporation under the Internal Revenue Code. As a
result, the net income and any tax credits of the Corporations are included in
the personal income tax returns of the Corporations' shareholders. Accordingly,
no provision has been made of Federal income taxes in the accompanying financial
statements. For state tax purposes, the Corporations are subject to an S
Corporation tax of 1.5% of pretax earnings.
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. The deferred tax liability relates primarily to the deferred
management and incentive fees.
F-35
<PAGE> 114
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT IN LIMITED PARTNERSHIPS
The following is a summary of the assets, liabilities, revenues and net
income of the Partnerships, which is accounted for using the equity method, and
JMG's investment and equity interest in income of the Partnerships at December
31, 1995, 1996, and 1997 and for the years then ended:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Investment in securities and debt
obligations, at market value........... $105,364,101 $233,859,614 $580,957,927
Funds held by brokers.................... 27,253,420 58,616,297 69,350,791
Receivable from brokers.................. 1,644,796 240,000 19,288,875
Other assets............................. 695,757 1,697,304 2,697,032
------------ ------------ ------------
Total assets............................. $134,958,074 $294,413,215 $672,294,625
============ ============ ============
Securities sold, but not yet purchased
at market value........................ $ 83,102,636 $200,755,916 $506,183,507
Payable to brokers....................... 3,830,835 6,912,723 34,477,416
Advance capital contributions............ 1,000,000 137,767 1,014,890
Other liabilities........................ 135,037 151,992 389,689
------------ ------------ ------------
Total liabilities........................ 88,068,508 207,958,398 542,065,502
Net assets............................... 46,889,566 86,454,817 130,229,123
------------ ------------ ------------
Total liabilities and net assets......... $134,958,074 $294,413,215 $672,294,625
============ ============ ============
Revenues................................. $ 14,327,810 $ 27,821,350 $ 53,642,988
============ ============ ============
Net increase in net assets............... $ 10,261,251 $ 18,164,106 $ 31,567,984
============ ============ ============
Investment in limited partnerships....... $ 3,108,081 $ 5,858,387 $ 8,051,443
============ ============ ============
Equity interest in income of limited
partnerships........................... $ 2,288,840 $ 4,073,276 $ 6,631,554
============ ============ ============
Incentive allocation included above...... $ 1,976,715 $ 3,422,705 $ 6,018,565
============ ============ ============
</TABLE>
3. DEFINED CONTRIBUTION PLAN
JMG maintains a money purchase pension plan which requires fixed employer
contributions of 25% of each participant's compensation. The plan covers all
employees who are at least 21 years of age and have completed a minimum of six
months of service. JMG has contributed $53,964, $69,333 and $84,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
4. COMMITMENTS
In June 1996, PCM entered into an Investor Referral Agreement with an
unaffiliated entity to assist in obtaining investors. For these services, PCM
pays a fee in an amount equal to any management (asset-based) fees PCM receives
from Triton relating to investors that were referred to Triton during the first
two years of the Investor Referral Agreement. For the period from April 8, 1996
(date of inception) through December 31, 1996 and the year ended December 31,
1997, referral fees were approximately $52,000 and $398,000, respectively.
F-36
<PAGE> 115
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED-PARTY TRANSACTIONS
On March 1992, JMG received a secured promissory note from its President
and sole shareholder in the amount of $200,000, bearing interest at 7.33% and
due on March 11, 1998 for the purpose of purchasing shares of stock in JMG.
Principal and interest totaling $270,000 were paid in full in June 1997.
Affiliates of JMG maintain investments of approximately $5,175,000 and
$13,196,000 as of December 31, 1996 and December 31, 1997, respectively, in
JMGCP through nine limited partner accounts.
6. SUBSEQUENT EVENTS
In January 1998, JMGCP distributed cash in the amount of $5,000,000 to
JMG's president for his limited partnership interest.
The Corporations has agreed to sell a preferred equity interest in each
Corporation for an aggregate of $30,500,000 in cash and $30,500,000 principal
amount of subordinated convertible debentures which bear interest at the rate
per annum equal to one-half of the two year Treasury note plus 25 basis points,
to be determined at closing, are convertible into 3,485,714 shares of the
purchasers common and mature December 31, 2000. The definitive agreements
provide for the Corporations to distribute 50% of revenues less 50% of operating
expenses to the extent they exceed $1.1 million, but do not exceed $2.2 million.
As a result of such transaction, the Corporations were replaced by successor
limited liability corporations as the General Partner and investment manager.
7. YEAR 2000 (UNAUDITED)
The Corporation's use of computer applications are not complex. However, it
is not certain whether the Corporation's computer programs and systems (or that
of other entities with which they electronically connect) are year 2000
compliant. Management does not believe that the costs of addressing the Year
2000 issue or the consequences of incomplete or untimely resolution of the issue
will have a major impact on the Corporations.
F-37
<PAGE> 116
REPORT OF INDEPENDENT AUDITORS
The Partners of
Metropolitan Capital Advisors, L.P.
Metropolitan Capital Partners II, L.P.
Metropolitan Capital Partners III, L.P.
We have audited the accompanying combined balance sheets of Metropolitan
Capital Advisors, L.P., Metropolitan Capital Partners II, L.P. and Metropolitan
Capital Partners III, L.P. (collectively, the "Partnerships") as of December 31,
1996 and 1997, and the related combined statements of income, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
management of the Partnerships. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Metropolitan
Capital Advisors, L.P., Metropolitan Capital Partners II, L.P. and Metropolitan
Capital Partners III, L.P. at December 31, 1996 and 1997 and the combined
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 1998
F-38
<PAGE> 117
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 704,858 $ 1,704,274
Fees and other receivables................................ 767,856 1,393,005
Investment in securities, at market value
(cost -- $50,000)...................................... -- 165,584
---------- -----------
Total current assets........................................ 1,472,714 3,262,863
Fixed assets -- net of accumulated depreciation of $5,109
and $9,345 in 1996 and 1997, respectively................. 8,045 11,207
Investment in limited partnership, at equity................ 6,344,550 8,136,914
Management and incentive fees receivable.................... 168,819 3,182,553
Other assets................................................ 65,371 54,183
---------- -----------
Total assets...................................... $8,059,499 $14,647,720
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accrued expenses.......................................... $1,198,094 $ 2,118,512
Due to affiliates......................................... 22,500 --
---------- -----------
Total current liabilities................................... 1,220,594 2,118,512
Partners' capital........................................... 6,838,905 12,529,208
---------- -----------
Total liabilities and partners' capital........... $8,059,499 $14,647,720
========== ===========
</TABLE>
See accompanying notes.
F-39
<PAGE> 118
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Revenues:
Management fees..................................... $1,319,695 $2,792,061 $ 7,322,214
Equity interest in income of limited partnership.... 2,670,761 5,456,671 6,741,651
Unrealized appreciation on investments in securities
and deferred revenues............................ -- -- 202,164
Interest income..................................... -- 7,371 14,035
Other revenues...................................... 5,750 78,727 66,945
---------- ---------- -----------
Total revenues........................................ 3,996,206 8,334,830 14,347,009
Expenses:
Compensation and related expenses................... 415,807 1,324,980 2,287,354
Other operating expenses............................ 532,265 644,891 860,860
---------- ---------- -----------
Total expenses........................................ 948,072 1,969,871 3,148,214
---------- ---------- -----------
Net income............................................ $3,048,134 $6,364,959 $11,198,795
========== ========== ===========
</TABLE>
See accompanying notes.
F-40
<PAGE> 119
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1995.................. $ 38,405 $ 803,192 $ 841,597
Capital contributions............................... 656 156,671 157,327
Distributions....................................... (2,902) (690,750) (693,652)
Net income.......................................... 41,110 3,007,024 3,048,134
-------- ----------- -----------
Partners' capital at December 31, 1995................ 77,269 3,276,137 3,353,406
Capital contributions............................... 4,399 379,241 383,640
Distributions....................................... (32,093) (3,231,007) (3,263,100)
Net income.......................................... 78,119 6,286,840 6,364,959
-------- ----------- -----------
Partners' capital at December 31, 1996................ 127,694 6,711,211 6,838,905
-------- ----------- -----------
Capital contributions............................... -- 600,000 600,000
Distributions....................................... (57,515) (6,050,977) (6,108,492)
Net income.......................................... 126,722 11,072,073 11,198,795
-------- ----------- -----------
Partners' capital at December 31, 1997................ $196,901 $12,332,307 $12,529,208
======== =========== ===========
</TABLE>
See accompanying notes.
F-41
<PAGE> 120
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................... $ 3,048,134 $ 6,364,959 $11,198,795
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,880 3,447 4,889
Equity interest in income of limited
partnership.................................... (2,670,761) (5,456,671) (6,741,651)
Unrealized appreciation on investments in
securities and deferred revenues............... -- -- (202,164)
Changes in operating assets and liabilities:
Receivables.................................... (281,801) (654,874) (3,552,303)
Investments in securities...................... -- -- (50,000)
Other assets................................... (44,709) (17,613) 10,535
Accrued expenses............................... 432,839 765,255 920,418
Due to affiliates.............................. -- 22,500 (22,500)
----------- ----------- -----------
Net cash provided by operating activities........... 485,582 1,027,003 1,566,019
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from investments in limited
partnership....................................... 410,012 2,264,467 5,149,287
Contributions to investment in limited
partnership....................................... (50,000) -- (200,000)
Additions to property and equipment................. (13,154) -- (7,398)
Other assets........................................ -- (3,267) --
----------- ----------- -----------
Net cash provided by investing activities........... 346,858 2,261,200 4,941,889
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions............................... 157,327 383,640 600,000
Cash distributions.................................. (693,652) (3,263,100) (6,108,492)
----------- ----------- -----------
Net cash used in financing activities............... (536,325) (2,879,460) (5,508,492)
----------- ----------- -----------
Net increase in cash................................ 296,115 408,743 999,416
Cash and cash equivalents at beginning of period.... -- 296,115 704,858
----------- ----------- -----------
Cash and cash equivalents at end of period.......... $ 296,115 $ 704,858 $ 1,704,274
=========== =========== ===========
</TABLE>
See accompanying notes.
F-42
<PAGE> 121
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The accompanying combined financial statements include the accounts of
Metropolitan Capital Advisors, L.P. ("MCA"), Metropolitan Capital Partners II,
L.P. ("MCP II") and Metropolitan Capital Partners III, L.P. ("MCP III")
(collectively, the "Partnerships"), which are Delaware limited partnerships and
are affiliated through common ownership. All intercompany transactions and
balances have been eliminated in combination.
MCA was formed on March 1, 1993, and is the sole general partner of Bedford
Falls Investors, L.P.("Bedford"), a Delaware limited partnership that engages in
speculative trading of investment instruments. As general partner in Bedford,
MCA engages in formulating investment strategies, objectives, and selecting
investment positions. Such investment is accounted for under the equity method.
MCP II, was formed on July 1, 1995 for the purpose of providing investment
advisory services and management of clients' assets. MCP III was formed on
August 29, 1996. MCP III acts as investment manager to and manages the capital
of Metropolitan Capital Advisors International Limited ("MCAI"), a British
Virgin Islands company.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The majority of the Partnerships' revenues are derived from investment
advisory fees charged both as a percentage of net assets of the funds managed by
the Partnerships (the "funds"), and performance of the funds, as defined in the
investment advisory agreements. The Partnerships earned revenues based on a
percentage of net assets and performance of the funds, of $1,074,591 and
$2,766,124, respectively, for 1995, $1,950,616 and $5,990,140, respectively, for
1996, and $4,064,755 and $9,598,502, respectively, for 1997.
MCP III has elected to defer the receipt of all management and performance
fees of approximately $169,000 and $3,014,000 earned in 1996 and 1997,
respectively, until the year 2007. Pursuant to the partnership agreement for MCP
III, all deferred amounts payable to MCP III remain in MCAI and are invested in
MCAI, without any charge for management or performance fees, and will appreciate
(depreciate) accordingly. The appreciation on the deferred management and
performance fees for the year ended December 31, 1997, was approximately
$87,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Partnerships are not subject to federal, state or local income taxes.
Taxable income or losses from the Partnership results of operations accrue to
the individual partners.
F-43
<PAGE> 122
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FIXED ASSETS
Fixed assets consist of leasehold improvements and furniture and fixtures.
The Partnerships are amortizing leasehold improvements using the straight-line
method over the life of the lease, which expires on June 30, 2000. Depreciation
of furniture and fixtures is computed principally using accelerated methods over
the useful lives of the assets, which is seven years.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Partnerships are
capitalized and are being amortized over five years on a straight-line basis.
INVESTMENT IN SECURITIES, AT MARKET VALUE
Investment in securities represents trading assets which are held for
resale in anticipation of short-term market movements. Trading account assets,
of marketable equity securities, are stated at market value. Unrealized gains
are included in unrealized appreciation on investments in securities.
2. PARTNERS' CAPITAL
ALLOCATIONS
In accordance with the partnership agreements for the Partnerships, 1% of
profits and losses are allocated to the respective general partners and the
remaining 99% are allocated to the limited partners.
DISTRIBUTIONS
The general partners of each of the Partnerships shall have the sole
discretion in determining the amount and frequency of distributions; provided,
however, that no distribution shall be made that would render the Partnerships
insolvent or that would cause any Partner to have a negative capital account.
WITHDRAWALS
Any limited partner of MCA may, upon 45 days prior written notice to the
other partners, withdraw a portion of its capital account as of the last day of
a fiscal year, provided that such withdrawal shall be not less than $50,000 and
provided that the MCA is able to meet minimum capital requirement as general
partner under the agreement with Bedford.
The general partner of MCA may, upon 45 days prior written notice to the
other partners, withdraw a portion of its capital account as of the last day of
a fiscal year, provided that its capital account remaining after such withdrawal
shall be not less than 1% of all the partners' total positive capital account
balances.
A partner of MCA may withdraw a greater amount than stated above, or an
amount at other times during the fiscal year or upon a shorter notice period as
of the last day of a fiscal year, only upon the prior written consent of the
general partners and a majority in interest of the limited partners.
Any limited partner of MCP II or MCP III may withdraw a portion of its
capital account at the discretion of the general partners.
F-44
<PAGE> 123
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN LIMITED PARTNERSHIP
The following is a summary of the assets, liabilities, revenues and net
income of Bedford which is accounted for using the equity method and the
Partnerships' investment and equity interest in income of Bedford at December
31, 1995, 1996 and 1997 and for the years then ended:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
Investments in marketable securities, at
market value............................ $64,023,458 $109,578,369 $198,610,591
Due from brokers.......................... 12,895,307 10,995,459 17,905,785
Other current assets...................... 1,358,444 13,409,275 2,200,732
----------- ------------ ------------
Total current assets and total assets..... $78,277,209 $133,983,103 $218,717,108
=========== ============ ============
Securities sold, but not yet purchased, at
market value............................ $18,625,922 $ 24,527,966 $ 48,981,348
Other current liabilities................. 1,967,323 5,051,522 3,462,480
----------- ------------ ------------
Total current liabilities................. 20,593,245 29,579,488 52,443,828
Partners' capital......................... 57,683,964 104,403,615 166,273,280
----------- ------------ ------------
Total liabilities and partners' capital... $78,277,209 $133,983,103 $218,717,108
=========== ============ ============
Revenues.................................. $15,051,162 $ 28,364,403 $ 37,685,121
=========== ============ ============
Net income................................ $13,734,409 $ 26,265,625 $ 34,062,262
=========== ============ ============
Investment in limited partnership......... $ 3,152,365 $ 6,344,550 $ 8,136,914
=========== ============ ============
Equity interest in income of limited
partnership............................. $ 2,670,761 $ 5,456,671 $ 6,741,651
=========== ============ ============
</TABLE>
4. COMMITMENTS
Office space is leased under an operating lease expiring on June 30, 2000.
The lease provides for minimum annual rent, plus expense escalations.
At December 31, 1997, the approximate minimum rental commitments under this
noncancellable lease are as follows:
<TABLE>
<S> <C>
1998.............................................. $160,000
1999.............................................. 160,000
2000.............................................. 80,000
--------
$400,000
========
</TABLE>
Rent expense amounted to approximately $51,500, $125,800 and $161,600 in
1995, 1996 and 1997, respectively.
5. CREDIT RISK
One fund represented approximately 91% of total revenues for the year ended
December 31, 1995. One fund represented approximately 86% of total revenues for
the year ended December 31, 1996, and two other funds represented approximately
97% of fees and other receivables at December 31, 1996. Two funds represented
approximately 87% of total revenues for the year ended December 31, 1997, and
two other funds
F-45
<PAGE> 124
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
represented approximately 100% of fees and other receivables at December 31,
1997. Non-current management and incentive fees receivable pertain to one fund.
6. SUBSEQUENT EVENT
The Partnerships have agreed to sell a 50% preferred equity interest in
MCA, MCP II and MCP III for an aggregate of $35,700,000, of which $17,850,000
will be payable in cash, and $17,850,000 principal amount of subordinated
convertible debentures which bear interest at 2.2% per annum, are convertible
into 1,785,000 shares of the purchaser's common stock and mature five years
following issuance.
7. YEAR 2000 (UNAUDITED)
Some of the Company's computer programs and systems are not year 2000
compliant. The Company's use of computer applications is not complex. The
Company expects it will have to modify or replace portions of its software so
that its computer systems will function properly with respect to dates in the
year 2000 and thereafter. Management does not believe such related costs will be
significant.
F-46
<PAGE> 125
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trust Advisors LLC
We have audited the accompanying balance sheets of Trust Advisors LLC (the
"Company") as of December 31, 1996 and 1997, and the related statements of
income, changes in members' equity and cash flows for the three months ended
December 31, 1996 and for the year ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trust Advisors LLC at
December 31, 1996 and 1997 and the results of its operations and its cash flows
for the three months ended December 31, 1996 and for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 1998
F-47
<PAGE> 126
TRUST ADVISORS LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,311 $ --
Investment in investment company, at market value, which
approximates cost...................................... -- 100,000
Accounts receivable....................................... 54,169 962,542
Other current assets...................................... 2,540 --
------- ----------
Total current assets........................................ 67,020 1,062,542
Equipment -- net of accumulated depreciation of $6,139 and
$7,776 in 1996 and 1997, respectively..................... 4,565 2,928
Organization costs -- net of accumulated amortization of
$250 and $1,250 in 1996 and 1997, respectively............ 4,750 3,750
------- ----------
Total assets...................................... $76,335 $1,069,220
======= ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accrued expenses.......................................... $20,451 $ 49,125
Due to bank............................................... -- 9,663
Due to affiliate.......................................... 5,000 5,000
------- ----------
Total current liabilities................................... 25,451 63,788
Members' equity:
Preferred interests....................................... 59,119 578,731
Other interests (deficit)................................. (8,235) 426,701
------- ----------
Total members' equity............................. 50,884 1,005,432
------- ----------
Total liabilities and members' equity............. $76,335 $1,069,220
======= ==========
</TABLE>
See accompanying notes.
F-48
<PAGE> 127
TRUST ADVISORS LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Revenues:
Investment advisory fees.................................. $184,533 $1,848,644
Administrative fees....................................... 18,000 72,000
Other revenues............................................ -- 76,863
-------- ----------
Total revenues.............................................. 202,533 1,997,507
Expenses:
Compensation and related expenses......................... 88,140 438,366
Other operating expenses.................................. 25,872 161,883
-------- ----------
Total expenses.............................................. 114,012 600,249
-------- ----------
Net income.................................................. $ 88,521 $1,397,258
======== ==========
</TABLE>
See accompanying notes.
F-49
<PAGE> 128
TRUST ADVISORS LLC
STATEMENTS OF MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
AND THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PREFERRED OTHER
INTEREST INTERESTS TOTAL
--------- --------- ----------
<S> <C> <C> <C>
Members' equity at October 1, 1996....................... $ 2,510 $ 4,510 $ 7,020
Net income............................................. 101,266 (12,745) 88,521
Distributions.......................................... (44,657) -- (44,657)
--------- -------- ----------
Members' equity at December 31, 1996..................... 59,119 (8,235) 50,884
Contributions.......................................... 50,000 -- 50,000
Net income............................................. 960,322 436,936 1,397,258
Distributions.......................................... (490,710) (2,000) (492,710)
--------- -------- ----------
Members' equity at December 31, 1997..................... $ 578,731 $426,701 $1,005,432
========= ======== ==========
</TABLE>
See accompanying notes.
F-50
<PAGE> 129
TRUST ADVISORS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 88,521 $1,397,258
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 705 2,637
Changes in operating assets and liabilities:
Investment in investment company....................... -- (100,000)
Accounts receivable.................................... (54,169) (908,373)
Other current assets................................... (540) 2,540
Accrued expenses....................................... 20,451 28,674
-------- ----------
Net cash provided by operating activities................... 54,968 422,736
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to bank................................................. -- 9,663
Contributions............................................... -- 50,000
Distributions............................................... (44,657) (492,710)
-------- ----------
Net cash used in financing activities....................... (44,657) (433,047)
-------- ----------
Net increase (decrease) in cash............................. 10,311 (10,311)
Cash and cash equivalents at beginning of period............ -- 10,311
-------- ----------
Cash and cash equivalents at end of period.................. $ 10,311 $ --
======== ==========
</TABLE>
See accompanying notes.
F-51
<PAGE> 130
TRUST ADVISORS LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Trust Advisors LLC (the "Company") is engaged in the business of managing
investments vehicles using alternative investment management styles.
The Company was formed as a limited liability company in the State of
Delaware on February 6, 1996 under the name Trust Advisors Group, LLC. On March
6, 1996, the Company amended its name to Trust Advisors LLC. The Company is a
registered investment advisor incorporated in the State of Connecticut. On
September 30, 1996, the Trust Advisors Group, Inc. ("TAG") transferred certain
assets and liabilities to the Company in exchange for preferred and common
equity interests. This transfer included TAG's business, investment and
management contracts and substantially all other assets. On October 1, 1996, TAG
sold its preferred interests in the Company to Asset Alliance Holding
Corporation.
Preferred interests are entitled to receive 50% of gross investment
advisory and administrative fees of the Company. Other members are entitled to
receive annual cash distributions not to exceed the net cash flow of the
Company, including priority distributions, in order to pay their share of
certain tax liabilities.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The majority of the Company's revenues are derived from investment advisory
fees charged both as a percentage of investible funds (earned and paid on a
monthly basis) and performance of the fund (earned and paid on a quarterly
basis). The Company earned revenues based on a percentage of investible funds of
$202,533 for 1996, and revenues based on a percentage of investible funds and
performance of the funds of $953,202 and $967,442, respectively, for 1997. All
fees are accrued on a monthly basis. All fees receivable are expected to be
collected.
CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company
maintains its cash and cash equivalents principally in one financial
institution.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
The Company uses the straight-line method of depreciation. Fixed assets are
depreciated over five and seven year periods.
ORGANIZATION COSTS
Costs incurred in connection with the organization of the Company were
capitalized and are being amortized over five years on a straight-line basis.
F-52
<PAGE> 131
TRUST ADVISORS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company is treated as a partnership for federal and state income tax
purposes and, accordingly, all income and losses are reported by its individual
members.
INVESTMENT IN INVESTMENT COMPANY, AT MARKET VALUE
The Company invests certain excess funds in an investment company, which is
a fund of funds with the underlying assets being marketable securities. As
determined by management of the Company, such investment is classified as
trading securities and, accordingly, is valued at its net asset value, which
approximates market value, with the change in the net asset value included in
net realized and unrealized appreciation (depreciation) on investment in
investment company. Appreciation (depreciation) of investment in investment
company is net of any incentive allocation. The resultant unrealized gains or
losses are included in operations.
2. COMMITMENTS
LEASE COMMITMENTS
The Company is obligated under operating leases for software and office
equipment that expire at various dates through September 1998. The Company
leases office facilities in Connecticut under a noncancellable operating lease
that expires in 1999.
At December 31, 1997, the approximate minimum rental commitments under
noncancellable leases are as follows:
<TABLE>
<S> <C>
1998........................................................ $36,000
1999........................................................ 36,000
-------
Total minimum lease payments................................ $72,000
=======
</TABLE>
Rent expense for the three months ended December 31, 1996 and the year
ended December 31, 1997 was approximately $8,000 and $34,000, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two executives of
the Company, whereby the Company has agreed to pay each of the executives annual
base salaries of $100,000. These agreements were effective October 1, 1996 and
will last for a term of five years.
3. RELATED PARTY TRANSACTIONS
Amounts due to affiliates pertain to organization expenses paid for by an
affiliated company. This amount is payable upon demand.
4. CREDIT RISK
Two customers represented approximately 96% of total revenues for the three
months ended December 31, 1996, and 91% of accounts receivable at December 31,
1996. Two customers represented approximately 80% of total revenues for the year
ended December 31, 1997, and one of these customers represented approximately
88% of accounts receivable at December 31, 1997.
F-53
<PAGE> 132
======================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 11
Use of Proceeds......................... 18
Dividend Policy......................... 18
Capitalization.......................... 19
Dilution................................ 20
Selected Historical Financial Data...... 21
Unaudited Pro Forma Consolidated
Financial Information................. 23
Business................................ 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 47
Management.............................. 56
Certain Relationships and Related Party
Transactions.......................... 65
Principal Stockholders.................. 67
Description of Capital Stock............ 69
Shares Eligible for Future Sale......... 73
Underwriting............................ 75
Legal Matters........................... 76
Experts................................. 76
Additional Information.................. 77
Index to Financial Statements........... F-1
</TABLE>
------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
(ASSET ALLIANCE CORP. LOGO)
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1998
======================================================
<PAGE> 133
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred by the
Registrant in connection with the Offering described in this Registration
Statement (excluding underwriting discounts and commissions). All such amounts
are estimated except for the SEC Registration Fee, the Nasdaq National Market
listing fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- -------
<S> <C>
SEC Registration Fee........................................ $29,500
Nasdaq National Market Listing Fee.......................... *
NASD Filing Fee............................................. 10,500
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Blue Sky Qualifications Fees and Expenses................... *
Transfer Agent's Fee........................................ *
Miscellaneous............................................... *
-------
TOTAL............................................. $ *
=======
</TABLE>
- ---------------
* To be completed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") provides that the Company shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
The Company's Amended and Restated By-Laws provide for indemnification by
the Company of its directors, officers and certain non-officer employees under
certain circumstances against expenses (including attorneys fees, judgments,
fines and amounts paid in settlement) reasonably incurred in connection with the
defense or settlement of any threatened, pending or completed legal proceeding
in which any such person is involved by reason of the fact that such person is
or was an officer or employee of the Company if such person acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests
II-1
<PAGE> 134
of the Company, and, with respect to criminal actions or proceedings, if such
person had no reasonable cause to believe his or her conduct was unlawful.
The Company's Certificate also provides that no director shall be
personally liable to the Company or its stockholders for monetary damages
resulting from breaches of their fiduciary duty as directors, except (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
which makes directors liable for unlawful dividend payments or stock redemptions
or repurchases, or (iv) for any transaction from which directors derived an
improper personal benefit.
Expenses for the defense of any action for which indemnification may be
available may be advanced by the Company under certain circumstances.
The general effect of the foregoing provisions may be to reduce the
circumstances which an officer or director may be required to bear the economic
burden of the foregoing liabilities and expenses.
The Company's directors and officers will be covered by liability insurance
indemnifying them against damages arising out of certain kinds of claims which
might be made against them based on their negligent acts or omissions while
acting in their capacity as such.
The Underwriting Agreement to be filed as Exhibit 1.1 will provide that the
Underwriters named therein will indemnify and hold harmless the Company and each
director, officer or controlling person of the Company from and against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"), and the Underwriting Agreement will provide that such
Underwriters will contribute to certain liabilities of such persons under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the time that the Company was founded in February 1996, the Company
has issued unregistered securities to a limited number of persons, as described
below. No underwriters or underwriting discounts or commissions were involved.
There was no public offering in any such transaction, and the Company believes
that each transaction was exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereof, based on the private nature of
the transactions and the financial sophistication of the purchasers, all of whom
had access to complete information concerning the Company and acquired the
securities for investment and not with a view to the distribution thereof.
(1) On July 8, 1996, the Company issued an aggregate of 2,500,000 shares of
the Company's Common Stock and 350,000 Redeemable Common Stock Purchase
Warrants (each convertible into one share of Common Stock)("Warrants"),
at an initial exercise price of $5.00 per share, to Bruce H. Lipnick
and Arnold L. Mintz in exchange for capital contributions to the
Company consisting of 300 shares of common stock, par value $0.01 per
share, of Milestone Investment Group Inc., a Delaware corporation,
valued at approximately $1.25 million.
(2) On July 8, 1996, the Company issued an aggregate of 100,000 shares of
the Company's Series A Convertible Redeemable Preferred Stock
(convertible into 875,000 shares of Common Stock and 175,000 Redeemable
Common Stock Purchase Warrants (each convertible into one share of
Common Stock), at an initial exercise price of $5.00 per share),
875,000 shares of the Company's Common Stock and 175,000 Redeemable
Common Stock Purchase Warrants (each convertible into one share of
Common Stock), at an initial exercise price of $5.00 per share, for an
aggregate purchase price of $5 million to AJG Financial Services, Inc.
(3) Between August 11, 1996 and December 18, 1996, the Company issued an
aggregate of 875,000 shares of the Company's Common Stock and 175,000
Redeemable Common Stock Purchase Warrants (each convertible into one
share of Common Stock), at an initial exercise price of $5.00 per
share, for an aggregate purchase price of $2.5 million to Walter A.
Rhulen, Peter L. Rhulen, Ira D. Riklis, Mauricio Epelbaum and Lidia
Epelbaum as Trustees for the Epelbaum Revocable Trust 1990, Spear,
Leeds & Kellogg, The Citco Group Limited and New Frontier Partners.
II-2
<PAGE> 135
(4) On January 2, 1997, the Company issued an aggregate of 175,000 shares
of the Company's Common Stock and 35,000 Redeemable Common Stock
Purchase Warrants (each convertible into one share of Common Stock), at
an initial exercise price of $5.00 per share and $750,000 in principal
amount of convertible subordinated debentures (convertible into 50,000
shares of Common Stock) in connection with the Company's investment in
Trust Advisors LLC.
(5) On March 11, 1997, the Company issued an aggregate of 50,000 shares of
the Company's Common Stock in connection with the Company's investment
in Silverado Capital Management LLC.
(6) On March 27, 1997, the Company issued an aggregate of 10,000 shares of
the Company's Common Stock and 20,000 Redeemable Common Stock Purchase
Warrants (each convertible into one share of Common Stock), at an
initial exercise price of $5.00 per share to BankAmerica Investment
Corporation in connection with the execution of a Credit Agreement
dated as of May 27, 1997 among the Company, Asset Alliance Holding
Corp. and Bank of America Illinois.
(7) On December 26, 1997, the Company issued 100,000 shares of Series B
Convertible Redeemable Preferred Stock (convertible into 1,000,000
shares of the Company's Common Stock) for an aggregate purchase price
of $10 million to AJG Financial Services, Inc.
(8) Between October 1, 1997 and March 1, 1998, the Company issued an
aggregate of $2,866,409 in principal amount of adjustable rate
subordinated convertible debentures (convertible into an aggregate of
approximately 382,180 shares of Common Stock) in connection with
investments made in Asset Alliance Preferred Manager Trust LLC, a
private investment fund whereby investors' assets under management are
allocated among underlying investment vehicles established by the
Company's Affiliated Firms.
(9) On February 27, 1998, the Company issued 10,000 Redeemable Common Stock
Purchase Warrants (each convertible into one share of Common Stock), at
an initial exercise price of $12.50 per share to Bank of America
National Trust and Savings Association in connection with the execution
of an Amended and Restated Credit Agreement dated as of February 27,
1998 among the Company, Asset Alliance Holding Corp. and Bank of
America National Trust and Savings Association.
(10) On February 27, 1998, the Company issued an aggregate of 2,880,000
shares of the Company's Common Stock and $5,850,000 in principal
amount of convertible subordinated debentures (convertible into
780,000 shares of Common Stock) in connection with the Company's
investment in Bricoleur Capital Management LLC.
(11) On March 26, 1998 the Company issued 17,500 Redeemable Common Stock
Purchase Warrants (each convertible into one share of Common Stock),
at an initial exercise price of $10.00 per share to Citco Banking
Corporation N.V. in connection with the execution of a $5 million loan
agreement dated as of March 26, 1998 among the Company and Citco
Banking Corporation N.V.
II-3
<PAGE> 136
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a complete list of Exhibits filed as part
of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement by and among the Company and
the Underwriters.
2.1*+ Merger Agreement dated as of February 20, 1998 by and among
the Company, Asset Alliance Bricoleur Merger Co. Inc.,
Bricoleur Capital Management, Inc., Bricoleur Capital
Management LLC and the shareholders of Bricoleur Capital
Management, Inc. (excluding schedules and exhibits, which
the Company agrees to furnish supplementally to the
Commission upon request).
2.2*+ Stock Purchase Agreement dated as of July 8, 1996 among the
Company, Asset Alliance Holding Corp. and the shareholders
of Milestone Investment Group Inc. (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
2.3*+ Purchase Agreement dated as of March 26, 1998 by and among
the Company, JMG Capital Management LLC, Pacific Assets
Management LLC, JMG Capital Management, Inc., Pacific
Capital Management, Inc., Jonathan Glaser, Roger Richter and
Daniel David (excluding schedules and exhibits, which the
Company agrees to furnish supplementally to the Commission
upon request).
2.4*+ Purchase Agreement dated as of March 24, 1998 by and among
the Company, Metropolitan Capital Advisors LLC, Metropolitan
Capital Managers LLC, Metropolitan Capital Advisors, Inc.,
KJ Advisors, Inc., Metropolitan Capital III, Inc.,
Metropolitan Capital Advisors, L.P., Metropolitan Capital
Partners II, L.P., Metropolitan Capital Partners III, L.P.,
Jeffrey Schwarz, Karen Finerman and Jeffrey Schwarz
Children's Trust (excluding schedules and exhibits, which
the Company agrees to furnish supplementally to the
Commission upon request).
2.5*+ Preferred Interest Purchase Agreement dated as of September
30, 1996, among Asset Alliance Corporation, Asset Alliance
Holding Corp., Trust Advisory Group, Inc., Trust Advisors
LLC, Mark R. Tonucci and Michael E. Portnoy (excluding
schedules and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
3.1* Form of Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated By-Laws.
4.1* Specimen certificate for shares of Common Stock of the
Company.
4.2 Amended and Restated Credit Agreement dated as of February
27, 1998 by and among Bank of America National Trust and
Savings Association, Asset Alliance Holding Corp. and the
Company (excluding schedules and exhibits, which the Company
agrees to furnish supplementally to the Commission upon
request).
4.3 Shareholders' Agreement dated as of July 8, 1996 among Bruce
H. Lipnick, Arnold L. Mintz, AJG Financial Services, Inc.,
Arthur J. Gallagher & Co. and the Company.
4.4 Registration Rights Agreement dated as of February 27, 1998
by and among the Company, John I. Bloomberg, Robert M.
Poole, Daniel P. Wimsatt, Richard Hornbuckle and Steven
Brase.
4.5 Registration and Tag Along Rights Agreement dated as of
October 1, 1996 among the Company, Trust Advisory Group,
Inc., Arnold L. Mintz and Bruce H. Lipnick.
4.6 Registration Rights Agreement dated as of March 11, 1997
among the Company, Silverado Capital Management LLC and
Jeffrey Cohen.
4.7* Registration Rights Agreement dated as of , 1998
by and among the Company, JMG Capital Management, Inc.,
Pacific Capital Management, Inc., Jonathan M. Glaser, Roger
Richter and Daniel David.
</TABLE>
II-4
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.8 Form of Asset Alliance Corporation Subscription Agreement.
4.9 Form of Asset Alliance Corporation Redeemable Common Stock
Purchase Warrant.
4.10 Asset Alliance Corporation Convertible Subordinated
Debenture due June 30, 2001 held by Trust Advisory Group,
Inc.
4.11 Form of Asset Alliance Corporation Subordinated Debenture
held by stockholders of Bricoleur Capital Management Inc.
4.12 Form of Asset Alliance Corporation Adjustable Rate
Subordinated Convertible Debenture issued to investors in
Asset Alliance Preferred Manager Trust LLC.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the securities being offered.
10.1*+ Bricoleur Capital Management LLC Limited Liability Company
Operating Agreement dated February 28, 1998 by and among
Asset Alliance Management Corp., Asset Alliance Bricoleur
Merger Co. and the signatories thereto (excluding schedules
and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.2*+ Milestone Global Advisors L.P. Amended and Restated Limited
Partnership Agreement dated June 28, 1996 by Milestone Fund
Manager Inc. and Milestone Investment Group Inc. (excluding
schedules and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.3*+ JMG Capital Management LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.4*+ Pacific Assets Management LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.5*+ Metropolitan Capital Advisors LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.6*+ Metropolitan Capital Managers LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.7*+ Trust Advisors LLC Second Amended and Restated Limited
Liability Company Agreement dated June 30, 1997 by and among
Asset Alliance Holding Corp., Trust Advisory Group, Inc.,
Mark R. Tonucci and Michael E. Portnoy (excluding schedules
and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.8 Asset Alliance Corporation 1996 Stock Option Plan, as
amended by Amendment No. 1 thereto on January 23, 1998.
10.9 Building Lease between the Company and Joseph P. Day Realty
Corp. dated September 12, 1996.
10.10 Building Lease Modification Agreement between the Company
and Joseph P. Day Realty Corp. dated December 8, 1997.
10.11 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Bruce H. Lipnick.
</TABLE>
II-5
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.12 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Arnold L. Mintz.
10.13 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Mark P. Strauch.
10.14 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and David R. Long.
10.15 Employment Agreement dated as of March 12, 1998 between the
Company and Jeffrey J. Ervine.
21 Schedule of Subsidiaries of the Company.
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Peterson & Co.
24 Powers of Attorney (set forth on the signature page to this
Registration Statement).
27 Financial Data Schedule.
99.1 Consent of Jefferson F. Allen.
99.2 Consent of Harvey Silverman.
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York on March 26, 1998.
ASSET ALLIANCE CORPORATION
By: /s/ BRUCE H. LIPNICK
------------------------------------
Name: Bruce H. Lipnick
Title: President, Chief Executive
Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Bruce H. Lipnick, Arnold L. Mintz and
Jeffrey J. Ervine and each of them, as such person's true and lawful
attorney-in-fact and agent, with full power of substitution and revocation for
such person and in such person's name, place and stead, in any and all
capacities, to execute any and all amendments to this Registration Statement,
and all documents relating thereto and any registration statement relating to
any offering made pursuant to this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, with the Securities
and Exchange Commission, granting unto said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 26, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ BRUCE H. LIPNICK President, Chief Executive Officer and
- ----------------------------------------------------- Chairman of the Board (Principal Executive
Bruce H. Lipnick Officer)
/s/ MARK P. STRAUCH Senior Vice President, Chief Financial
- ----------------------------------------------------- Officer and Director (Principal Financial
Mark P. Strauch Officer)
/s/ ARNOLD L. MINTZ Executive Vice President, Chief Operating
- ----------------------------------------------------- Officer and Director
Arnold L. Mintz
/s/ DAVID R. LONG Senior Vice President, Acquisitions and
- ----------------------------------------------------- Director
David R. Long
/s/ JEFFREY J. ERVINE Senior Vice President and Treasurer
- -----------------------------------------------------
Jeffrey J. Ervine
</TABLE>
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement by and among the Company and
the Underwriters.
2.1*+ Merger Agreement dated as of February 20, 1998 by and among
the Company, Asset Alliance Bricoleur Merger Co. Inc.,
Bricoleur Capital Management, Inc., Bricoleur Capital
Management LLC and the shareholders of Bricoleur Capital
Management, Inc. (excluding schedules and exhibits, which
the Company agrees to furnish supplementally to the
Commission upon request).
2.2*+ Stock Purchase Agreement dated as of July 8, 1996 among the
Company, Asset Alliance Holding Corp. and the shareholders
of Milestone Investment Group Inc. (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
2.3*+ Purchase Agreement dated as of March 26, 1998 by and among
the Company, JMG Capital Management LLC, Pacific Assets
Management LLC, JMG Capital Management, Inc., Pacific
Capital Management, Inc., Jonathan Glaser, Roger Richter and
Daniel David (excluding schedules and exhibits, which the
Company agrees to furnish supplementally to the Commission
upon request).
2.4*+ Purchase Agreement dated as of March 24, 1998 by and among
the Company, Metropolitan Capital Advisors LLC, Metropolitan
Capital Managers LLC, Metropolitan Capital Advisors, Inc.,
KJ Advisors, Inc., Metropolitan Capital III, Inc.,
Metropolitan Capital Advisors, L.P., Metropolitan Capital
Partners II, L.P., Metropolitan Capital Partners III, L.P.,
Jeffrey Schwarz, Karen Finerman and Jeffrey Schwarz
Children's Trust (excluding schedules and exhibits, which
the Company agrees to furnish supplementally to the
Commission upon request).
2.5*+ Preferred Interest Purchase Agreement dated as of September
30, 1996 among Asset Alliance Corporation, Asset Alliance
Holding Corp., Trust Advisory Group, Inc., Trust Advisors
LLC, Mark R. Tonucci and Michael E. Portnoy (excluding
schedules and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
3.1* Form of Amended and Restated Certificate of Incorporation.
3.2* Form of Amended and Restated By-Laws.
4.1* Specimen certificate for shares of Common Stock of the
Company.
4.2 Amended and Restated Credit Agreement dated as of February
27, 1998 by and among Bank of America National Trust and
Savings Association, Asset Alliance Holding Corp. and the
Company (excluding schedules and exhibits, which the Company
agrees to furnish supplementally to the Commission upon
request).
4.3 Shareholders' Agreement dated as of July 8, 1996 among Bruce
H. Lipnick, Arnold L. Mintz, AJG Financial Services, Inc.,
Arthur J. Gallagher & Co. and the Company.
4.4 Registration Rights Agreement dated as of February 27, 1998
by and among the Company, John I. Bloomberg, Robert M.
Poole, Daniel P. Wimsatt, Richard Hornbuckle and Steven
Brase.
4.5 Registration and Tag Along Rights Agreement dated as of
October 1, 1996 among the Company, Trust Advisory Group,
Inc., Arnold L. Mintz and Bruce H. Lipnick.
4.6 Registration Rights Agreement dated as of March 11, 1997
among the Company, Silverado Capital Management LLC and
Jeffrey Cohen.
4.7* Registration Rights Agreement dated as of , 1998
by and among the Company, JMG Capital Management, Inc.,
Pacific Capital Management, Inc., Jonathan M. Glaser, Roger
Richter and Daniel David.
4.8 Form of Asset Alliance Corporation Subscription Agreement.
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
4.9 Form of Asset Alliance Corporation Redeemable Common Stock
Purchase Warrant.
4.10 Asset Alliance Corporation Convertible Subordinated
Debenture due June 30, 2001 held by Trust Advisory Group,
Inc.
4.11 Form of Asset Alliance Corporation Subordinated Debenture
held by stockholders of Bricoleur Capital Management Inc.
4.12 Form of Asset Alliance Corporation Adjustable Rate
Subordinated Convertible Debenture issued to investors in
Asset Alliance Preferred Manager Trust LLC.
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to
the legality of the securities being offered.
10.1*+ Bricoleur Capital Management LLC Limited Liability Company
Operating Agreement dated February 28, 1998 by and among
Asset Alliance Management Corp., Asset Alliance Bricoleur
Merger Co. and the signatories thereto (excluding schedules
and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.2*+ Milestone Global Advisors L.P. Amended and Restated Limited
Partnership Agreement dated June 28, 1996 by Milestone Fund
Manager Inc. and Milestone Investment Group Inc. (excluding
schedules and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.3*+ JMG Capital Management LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.4*+ Pacific Assets Management LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.5*+ Metropolitan Capital Advisors LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.6*+ Metropolitan Capital Managers LLC Limited Liability Company
Operating Agreement dated , 1998 by and among
Asset Alliance Management Corp., Asset Alliance Holding
Corp. and the signatories thereto (excluding schedules and
exhibits, which the Company agrees to furnish supplementally
to the Commission upon request).
10.7*+ Trust Advisors LLC Second Amended and Restated Limited
Liability Company Agreement dated June 30, 1997 by and among
Asset Alliance Holding Corp., Trust Advisory Group, Inc.,
Mark R. Tonucci and Michael E. Portnoy (excluding schedules
and exhibits, which the Company agrees to furnish
supplementally to the Commission upon request).
10.8 Asset Alliance Corporation 1996 Stock Option Plan, as
amended by Amendment No. 1 thereto on January 23, 1998.
10.9 Building Lease between the Company and Joseph P. Day Realty
Corp. dated September 12, 1996.
10.10 Building Lease Modification Agreement between the Company
and Joseph P. Day Realty Corp. dated December 8, 1997.
10.11 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Bruce H. Lipnick.
10.12 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Arnold L. Mintz.
</TABLE>
<PAGE> 142
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.13 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and Mark P. Strauch.
10.14 Amended and Restated Employment Agreement dated as of March
4, 1998 between the Company and David R. Long.
10.15 Employment Agreement dated as of March 12, 1998 between the
Company and Jeffrey J. Ervine.
21 Schedule of Subsidiaries of the Company.
23.1* Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1 hereto).
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Peterson & Co.
24 Powers of Attorney (set forth on the signature page to this
Registration Statement).
27 Financial Data Schedule.
99.1 Consent of Jefferson F. Allen.
99.2 Consent of Harvey Silverman.
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
<PAGE> 1
Exhibit 4.2
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF FEBRUARY 27, 1998
AMONG
ASSET ALLIANCE CORPORATION
ASSET ALLIANCE HOLDING CORP.
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I DEFINITIONS....................................................................................1
1.1 Certain Defined Terms..................................................................................1
1.2 Other Interpretive Provisions.........................................................................14
1.3 Accounting Principles.................................................................................15
ARTICLE II THE CREDIT....................................................................................15
2.1 Amounts and Terms of the Facilities...................................................................15
2.1.1 Amounts and Terms of Facility A Loan..................................................................15
2.1.2 Amounts and Terms of Facility B Loan..................................................................15
2.2 Loan Accounts.........................................................................................15
2.3 Procedure for Borrowing...............................................................................16
2.4 Conversion and Continuation Elections.................................................................17
2.5 Repayments............................................................................................18
2.6 Prepayments...........................................................................................18
2.7 Interest..............................................................................................19
2.8 Fees ................................................................................................20
2.9 Computation of Fees and Interest......................................................................20
2.10 Payments by the Borrowers............................................................................20
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY..........................................................21
3.1 Taxes.................................................................................................21
3.2 Illegality............................................................................................22
3.3 Increased Costs and Reduction of Return...............................................................22
3.4 Funding Losses........................................................................................23
3.5 Inability to Determine Rates..........................................................................24
3.6 Certificates of Bank..................................................................................24
3.7 Survival..............................................................................................24
ARTICLE IV CONDITIONS PRECEDENT.............................................................................24
4.1 Conditions of ........................................................................................24
4.2 Conditions to All Borrowings..........................................................................27
ARTICLE V REPRESENTATIONS AND WARRANTIES....................................................................28
5.1 Corporate Existence and Power.........................................................................28
5.2 Corporate Authorization; No Contravention.............................................................28
5.3 Governmental Authorization............................................................................29
5.4 Binding Effect........................................................................................29
5.5 Litigation............................................................................................29
5.6 No Default............................................................................................30
5.7 Employee Benefit Plans................................................................................30
5.8 Use of Proceeds; Margin Regulations...................................................................30
5.9 Title to Properties...................................................................................30
5.10 Taxes.................................................................................................30
5.11 Financial Condition...................................................................................30
5.12 Environmental Matters.................................................................................31
5.13 Regulated Entities....................................................................................31
5.14 No Burdensome Restrictions............................................................................31
5.15 Copyrights, Patents, Trademarks and Licenses, Etc.....................................................31
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.16 Subsidiaries...........................................................................................32
5.17 Insurance..............................................................................................32
5.18 Full Disclosure........................................................................................32
5.19 Material Agreements....................................................................................32
5.20 Capitalization.........................................................................................32
ARTICLE VI AFFIRMATIVE COVENANTS............................................................................33
6.1 Financial Statements...................................................................................33
6.2 Certificates; Other Information........................................................................34
6.3 Notices................................................................................................34
6.4 Preservation of Corporate Existence, Etc...............................................................35
6.5 Maintenance of Property................................................................................36
6.6 Insurance..............................................................................................36
6.7 Payment of Obligations.................................................................................36
6.8 Compliance with Laws...................................................................................36
6.9 Compliance with ERISA..................................................................................36
6.10 Inspection of Property and Books and Records...........................................................37
6.11 Environmental Laws.....................................................................................37
6.12 Initial Use of Proceeds................................................................................37
ARTICLE VII NEGATIVE COVENANTS..............................................................................37
7.1 Limitation on Liens....................................................................................37
7.2 Consolidations and Mergers.............................................................................38
7.3 Transactions with Affiliates...........................................................................38
7.4 Use of Proceeds........................................................................................38
7.5 ERISA .................................................................................................39
7.6 Change in Business.....................................................................................39
7.7 Accounting Changes.....................................................................................39
7.8 Financial Covenants....................................................................................39
7.9 Indebtedness...........................................................................................39
ARTICLE VIII EVENTS OF DEFAULT..............................................................................40
8.1 Event of Default.......................................................................................40
8.2 Remedies...............................................................................................42
8.3 Rights Not Exclusive...................................................................................43
ARTICLE IX MISCELLANEOUS....................................................................................43
9.1 Amendments and Waivers.................................................................................43
9.2 Notices................................................................................................43
9.3 No Waiver; Cumulative Remedies.........................................................................44
9.4 Costs and Expenses.....................................................................................45
9.5 Indemnity..............................................................................................45
9.6 Payments Set Aside.....................................................................................45
9.7 Successors and Assigns.................................................................................46
9.8 Assignments, Participations, Etc.......................................................................46
9.9 Confidentiality........................................................................................47
9.10 Set-off................................................................................................48
9.11 Counterparts...........................................................................................48
9.12 Severability...........................................................................................48
9.13 No Third Parties Benefited.............................................................................48
9.14 Joint and Several Liability............................................................................48
9.15 Governing Law and Jurisdiction.........................................................................50
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
<S> <C>
9.16 Waiver of Jury Trial...................................................................................51
9.17 Entire Agreement.......................................................................................51
9.18 Initial Public Offering by the Company..................................................................51
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 5.20 Capitalization
Schedule 7.1 Existing Liens
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Form of Promissory Note
Exhibit F Form of Warrant
Exhibit G Form of Guaranty
Exhibit H-1 Form of Pledge Agreement
Exhibit H-2 Form of LLC Pledge Agreement
</TABLE>
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
This AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
February 27, 1998, among ASSET ALLIANCE CORPORATION, a Delaware corporation (the
"Company"), ASSET ALLIANCE HOLDING CORP., a Delaware corporation ("Holding";
together with the Company, the "Borrowers") and BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION(the "Bank").
WHEREAS, the Company, Holding and the Bank have entered into a Credit
Agreement, dated as of May 27, 1997 (the "Existing Agreement");
WHEREAS, the parties hereto have agreed to amend and restate the
Existing Agreement so as to, among other things, (a) replace the existing
revolving credit facility with a two year term loan facility and a five year
term loan facility and (b) amend certain covenants and other provisions of the
Existing Agreement.
WHEREAS, the parties hereto intend that this Agreement and the
documents executed in connection herewith not effect a novation of the
obligations of the Company under the Existing Agreement, but merely a
restatement and, where applicable, an amendment of the terms governing such
obligations;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Existing Agreement is amended and restated in its entirety, and the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the
following meanings:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly,
in (a) the acquisition of all or any substantial part of the assets of
a Person, or of any business or division of a Person, or (b) the
acquisition of capital stock, partnership interests or equity of any
Person, or otherwise causing any Person to become a Subsidiary.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and
<PAGE> 6
policies of the other Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agreement" means this Amended and Restated Credit
Agreement.
"Applicable Margin" means: (a) with respect to Facility
A Loans, 1.25%; and (b) with respect to Facility B Loans,
.50%.
"Assignee" has the meaning specified in subsection
9.8(a).
"Attorney Costs" means and includes all fees and disbursements
of any law firm or other external counsel, the non duplicative
allocated cost of internal legal services and all disbursements of
internal counsel.
"Bank" has the meaning specified in the introductory
clause hereto.
"Bankruptcy Code" means the Federal Bankruptcy Reform
Act of 1978 (11 U.S.C. Section 101, et seq.).
"Borrowing" means a borrowing hereunder consisting of a Loan
made to the Borrowers by the Bank under Article II.
"Borrowing Date" means any date on which a Borrowing occurs
under Section 2.3.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Chicago are authorized or
required by law to close and, if the applicable Business Day relates to
any Offshore Rate Loan, means such a day on which dealings are carried
on in the applicable offshore dollar interbank market.
"Calculation Period" means as of the end of any fiscal
quarter, the four quarter period then ending; provided that any
Subsidiary acquired during such four quarter period shall be treated as
if such Subsidiary had been acquired on the first day of such four
quarter period.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"Change of Control" means (a) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company; (b) any
"person" as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of
2
<PAGE> 7
1934, as amended (the "Exchange Act") other than Gallagher and its
Subsidiaries, is or becomes, directly or indirectly, the "beneficial
owner," as defined in Rule 13d-3 under the Exchange Act, of securities
of the Company that represent 20% or more of the combined voting power
of the Company's then outstanding securities and such person shall be a
beneficial owner of a greater percentage of such securities than
Gallagher; or (c) a majority of the members of the Company's Board of
Directors are persons who are then serving on the Board of Directors
without having been elected by the Board of Directors or having been
nominated for election by its shareholders.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by either Borrower in
or upon which a Lien now or hereafter exists in favor of the Bank,
whether under this Agreement or under any other documents executed by
any such Person and delivered to the Bank.
"Collateral Documents" means the Pledge Agreement and all
documents delivered pursuant to Section 4.2(d) hereof pursuant to which
the Bank shall have a security interest in the Collateral.
"Commitment Termination Date" means the earlier to
occur of:
(a) the Second Draw Cut-Off Date; and
(b) the date on which any Termination Event occurs.
"Consolidated Net Worth" means, for any period, the sum of the
consolidated net worth of the Company and its Subsidiaries, as
calculated in accordance with GAAP.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease,
dividend, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise
acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such
primary obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency
or any balance sheet item, level of income or financial condition of
the primary
3
<PAGE> 8
obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of
the ability of the primary obligor to make payment of such primary
obligation, or (iv) otherwise to assure or hold harmless the holder of
any such primary obligation against loss in respect thereof (each, a
"Guaranty Obligation"); (b) with respect to any Surety Instrument
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; or (c) to
purchase any materials, supplies or other property from, or to obtain
the services of, another Person if the relevant contract or other
related document or obligation requires that payment for such
materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or
other property is ever made or tendered, or such services are ever
performed or tendered. The amount of any Contingent Obligation shall,
in the case of Guaranty Obligations, be deemed equal to the stated or
determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and in the
case of other Contingent Obligations, shall be equal to the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
"Controlled Group" means the Company and any corporation,
trade or business that is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades or
businesses as described in sections 414(b) and 414(c), respectively, of
the Code or in section 4001 of ERISA.
"Conversion/Continuation Date" means any date on which, under
Section 2.4, the Company (a) converts Loans of one Type to another
Type, or (b) continues as Loans of the same Type, but with a new
Interest Period, Loans having Interest Periods expiring on such date.
"Debt Service" means as of any applicable date of
determination and as determined in accordance with GAAP, all principal
and interest payments on all outstanding Indebtedness.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
4
<PAGE> 9
"Dollars", "dollars" and "$" each mean lawful money of
the United States.
"EBITDA" means, as of any applicable date of determination and
as determined in accordance with GAAP, net income plus interest
expense, tax expense, depreciation and amortization expenses.
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
or responsibility for violation of any Environmental Law, or for
release of any hazardous substance, waste or material into, or injury
to, the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations promulgated thereunder and under the Code, in each
case as in effect from time to time. References to sections of ERISA
also refer to successor sections.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
"Eurodollar Reserve Percentage" has the meaning specified in
the definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances
specified in Section 8.1.
"Exchange Act" means the Securities and Exchange Act of 1934,
and regulations promulgated thereunder.
"Facility A Loan Amount" means $10,000,000.
"Facility A Loan Commitment" means the Bank's obligation to
make the second Facility A Loan pursuant to Section 2.1.1.
"Facility A Loan Commitment Amount" means $10,000,000 until
the earlier of (i) the second Borrowing under Section 2.1.1 and Section
2.1.2 and (ii) the Second Draw Cut-Off Date, and $0 thereafter.
5
<PAGE> 10
"Facility A Loans" means an extension of credit by the Bank to
the Borrower under Section 2.1.1.
"Facility B Loan Amount" means $20,000,000.
"Facility B Loan Commitment" means the Bank's obligation to
make the second Facility B Loan pursuant to Section 2.1.2.
"Facility B Loan Commitment Amount" means $20,000,000 until
the earlier of (i) the second Borrowing under Section 2.1.1 and Section
2.1.2 and (ii) the Second Draw Cut-Off Date, and $0 thereafter.
"Facility B Loans" means an extension of credit by the Bank to
the Borrower under Section 2.1.2.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York (including any such successor, "H.15(519)") on the preceding
Business Day opposite the caption "Federal Funds (Effective)"; or, if
for any relevant day such rate is not so published on any such
preceding Business Day, the rate for such day will be the arithmetic
mean as determined by the Bank of the rates for the last transaction in
overnight Federal funds arranged prior to 9:00 a.m. (New York City
time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Bank.
"Federal Funds Rate Loan" means a Loan that bears interest
based on the Federal Funds Rate.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of the financial statements referred to in Section 5.11(a) hereof.
"Gallagher" means Arthur J. Gallagher & Co.
"Gallagher Credit Agreement" means the Credit Agreement dated
as of February 16, 1993 among Arthur J. Gallagher &
6
<PAGE> 11
Co., certain lenders and Continental Bank N.A., as agent, as heretofore
amended.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty" means a guaranty and purchase agreement executed by
Gallagher in favor of the Bank, in the form of Exhibit G, as amended or
otherwise modified from time to time.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
"Indebtedness" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course
of business on ordinary terms); (c) all non-contingent reimbursement or
payment obligations with respect to Surety Instruments; (d) all
obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case
with respect to property acquired by the Person (even though the rights
and remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property); (f) all
obligations with respect to capital leases; (g) all net obligations
with respect to Swap Contracts; (h) all indebtedness referred to in
clauses (a) through (g) above secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (i)
all Guaranty Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above.
"Indemnified Liabilities" has the meaning specified in
Section 9.5.
"Indemnified Person" has the meaning specified in
Section 9.5.
7
<PAGE> 12
"Independent Auditor" has the meaning specified in
subsection 6.1(a).
"Insolvency Proceeding" means (a) any case, action or
proceeding before any court or other Governmental Authority relating to
bankruptcy, reorganization, rehabilitation, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any
general assignment for the benefit of creditors, composition,
marshalling of assets for creditors, or other, similar arrangement in
respect of its creditors generally or any substantial portion of its
creditors; undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a
Federal Funds Rate Loan, the last day of each Interest Period
applicable to such Loan and, as to any Federal Funds Rate Loan, the
last Business Day of each calendar quarter and each date such Loan is
converted into another Type of Loan, provided, however, that if any
Interest Period for an Offshore Rate Loan exceeds three months the date
that falls three months after the beginning of such Interest Period and
after each Interest Payment Date thereafter is also an Interest Payment
Date.
"Interest Period" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter as selected by the applicable Borrower
in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period for any Loan shall extend
beyond the Stated Maturity Date.
8
<PAGE> 13
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Lending Office" means the office of the Bank specified in
Schedule 9.2, or such other office or offices as the Bank may from time
to time notify the Company.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law) and
any contingent or other agreement to provide any of the foregoing, but
not including the interest of a lessor under an operating lease.
"LLC Pledge Agreement" means a pledge agreement of
Merger Co. in the form of Exhibit H-2, as amended or
otherwise modified from time to time.
"Loan" means a Facility A Loan or a Facility B Loan.
"Loan Documents" means this Agreement, any Notes, the
Collateral Documents, the Warrant Documents, and all other documents
delivered to the Bank in connection herewith.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse impact upon, the operations, business,
properties, financial condition or prospects of the Company or the
Company and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of either Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse
impact upon the legality, validity, binding effect or enforceability
against either Borrower of any Loan Document.
"Merger Co." means Asset Alliance Bricoleur Merger Co.,
a Delaware corporation.
"Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any
Subsidiary makes, is making, or is obligated to make contributions or,
has made, or been obligated to make, contributions.
9
<PAGE> 14
"Note" means a promissory note executed by the Borrowers in
favor of the Bank pursuant to subsection 2.2(b), in substantially the
form of Exhibit E.
"Notice of Borrowing" means a duly completed notice by the
Company in substantially the form of Exhibit A.
"Notice of Conversion/Continuation" means a duly completed
notice by the Company in substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document owing
by the Borrowers to the Bank or any Indemnified Person, whether direct
or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising.
"Offshore Rate" means, for any Interest Period, with respect
to Offshore Rate Loans, the rate of interest per annum (rounded upward
to the next 1/16th of 1%) determined by the Bank as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for
any Interest Period the maximum reserve percentage (expressed
as a decimal, rounded upward to the next 1/16th of 1%) in
effect on such day (whether or not applicable to the Bank)
under regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum
determined by the Bank to be the rate of interest at which
dollar deposits in the approximate amount of the amount of the
Loan to be made or continued as, or converted into, an
Offshore Rate Loan by the Bank and having a maturity
comparable to such Interest Period would be offered to major
banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior
to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as
to all Offshore Rate Loans then outstanding as of the
effective date of any change in the Eurodollar Reserve
Percentage.
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<PAGE> 15
"Offshore Rate Loan" means a Loan that bears interest based on
the Offshore Rate.
"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, and
all applicable resolutions of the board of directors (or any committee
thereof) of such corporation.
"Other Taxes" means any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies
which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents.
"Participant" has the meaning specified in subsection
9.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"Performance Fees" means fees and allocations paid directly or
indirectly to either Borrower by an investment fund based on the
performance of such fund.
"Permitted Liens" has the meaning specified in Section
7.1.
"PERSI" means a preferred equity revenue sharing interest
acquired by a Borrower in an investment advisory firm which entitles
such Borrower to an interest in the gross revenues of such investment
advisory firm.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
limited liability company, joint venture or Governmental Authority.
"Plan" means any "employee pension benefit plan", as such term
is defined in ERISA, which is subject to Title IV of ERISA (other than
a "Multiemployer Plan"), and as to which any entity in the Controlled
Group has or may have any liability, including any liability by reason
of having been a substantial employer within the meaning of section
4063 of ERISA for any time within the preceding five years or by reason
of being deemed to be a contributing sponsor under section 4069 of
ERISA.
"Pledge Agreement" means a pledge agreement of the Company, in
the form of Exhibit H-1, as amended or otherwise modified from time to
time.
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<PAGE> 16
"Reportable Event" means, any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of
the Company, or any other officer having substantially the same
authority and responsibility.
"SEC" means the Securities and Exchange Commission, or
any Governmental Authority succeeding to any of its
principal functions.
"Second Draw Cut-Off Date" means February 27, 2000.
"Stated Maturity Date" means February 27, 2003.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than
50% of the voting stock or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or
indirectly by the Person, or one or more of the Subsidiaries of the
Person, or a combination thereof. Unless the context otherwise clearly
requires, references herein to a "Subsidiary" refer to a Subsidiary of
the Company.
"Subsidiary Stock Value" for any Subsidiary means the product
of (i) EBITDA for the four most recent consecutive fiscal quarters of
such Subsidiary multiplied by (ii) 5.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments.
"Swap Contract" means any agreement (including any master
agreement and any agreement, whether or not in writing, relating to any
single transaction) that is an interest rate swap agreement, basis
swap, forward rate agreement, commodity swap, commodity option, equity
or equity index swap or option, bond option, interest rate option,
forward foreign exchange agreement, rate cap, collar
12
<PAGE> 17
or floor agreement, currency swap agreement, cross-currency rate swap
agreement, swaption, currency option or any other, similar agreement
(including any option to enter into any of the foregoing).
"Taxes" means any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding such taxes (including income taxes or
franchise taxes) as are imposed on or measured by the Bank's net income
by the jurisdiction (or any political subdivision thereof) under the
laws of which the Bank is organized or maintains a lending office.
"Termination Event" means (a) the occurrence of a Default
described in Section 8.1(f) or (g) or (b) the occurrence and
continuance of any other Event of Default and either (i) the Loans are
declared to be due and payable pursuant to Section 8.2, or (ii) the
Bank gives notice to the Borrower that the Commitments have been
terminated.
"Type" means either a Federal Funds Rate Loan or an
Offshore Rate Loan.
"United States" and "U.S." each means the United States
of America.
"Warrant" means a warrant of the Company, in the form of
Exhibit F with respect to 10,000 shares of capital stock of the Company
with a strike price of $12.50 per share.
"Warrant Document" means the Warrant and each other document
executed or delivered by the Company pursuant to the Warrant.
"Welfare Plan" means any "employee welfare benefit plan" as
such term is defined in ERISA, as to which either Borrower has any
liability.
"Wholly-Owned Subsidiary" means any corporation in which
(other than directors' qualifying shares required by law) 100% of the
capital stock of each class having ordinary voting power, and 100% of
the capital stock of every other class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Company, or by one or more of the other Wholly-Owned
Subsidiaries, or both.
1.2 Other Interpretive Provisions. (a) The meanings of
defined terms are equally applicable to the singular and plural
forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section,
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<PAGE> 18
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document, and (ii) references to any statute
or regulation are to be construed as including all statutory and regulatory
provisions consolidating, amending, replacing, supplementing or interpreting the
statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
1.3 Accounting Principles. (a) Unless the context otherwise clearly
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of the Company.
ARTICLE II
THE CREDIT
2.1 Amounts and Terms of the Facilities
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<PAGE> 19
2.1.1 Amounts and Terms of Facility A Loan. The Bank agrees, on the
terms and conditions set forth herein, to make loans to the Borrowers (each such
loan, a "Facility A Loan"). The Bank agrees to make the first such loan on the
Closing Date in an amount up to $5,000,000. The Bank agrees to make additional
loans no later than the Commitment Termination Date in amounts aggregating no
greater than $10,000,000 less the amount of the initial Facility A Loan. The
amount of Facility A Loans outstanding shall at no time exceed the Facility A
Loan Amount. Upon the occurrence of the Commitment Termination Date, the
Facility A Loan Commitment shall terminate automatically and without any further
action. Amounts borrowed as Facility A Loans which are repaid or prepaid by the
Borrower may not be reborrowed, and shall permanently reduce the Facility A Loan
Commitment Amount.
2.1.2 Amounts and Terms of Facility B Loan. The Bank agrees, on the
terms and conditions set forth herein, to make loans to the Borrowers (each such
loan, a "Facility B Loan"). The Bank agrees to make the first such loan on the
Closing Date in an amount up to $10,000,000. The Bank agrees to make additional
loans no later than the Commitment Termination Date in amounts aggregating no
greater than $20,000,000 less the amount of the initial Facility B Loan. The
amount of Facility B Loans outstanding shall at no time exceed the Facility B
Loan Amount. Upon the occurrence of the Commitment Termination Date, the
Facility B Loan Commitment shall terminate automatically and without any further
action. Amounts borrowed as Facility B Loans which are repaid or prepaid by the
Borrower may not be reborrowed, and shall permanently reduce the Facility B Loan
Commitment Amount.
2.2 Loan Accounts. (a) The Loans made by the Bank shall be evidenced by
one or more loan accounts or records maintained by the Bank in the ordinary
course of business. The loan accounts or records maintained by the Bank shall be
conclusive absent manifest error of the amount of the Loans made by the Bank to
the Borrowers and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Company hereunder to pay any amount owing with respect to the
Loans.
(b) Upon the request of the Bank, the Loans made by the Bank
may be evidenced by one or more Notes, instead of loan accounts. The Bank shall
endorse on the schedules annexed to the Note(s) the date, amount and maturity of
each Loan made by it and the amount of each payment of principal made by the
Borrowers with respect thereto. The Bank is irrevocably authorized by the
Borrowers to endorse the Note(s) and the Bank's record shall be conclusive
absent manifest error; provided, however, that the failure of the Bank to make,
or an error in making, a notation thereon with respect to any Loan shall not
limit or otherwise affect the obligations of the Borrowers hereunder or under
any such Note to the Bank.
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<PAGE> 20
2.3 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
Company's irrevocable written notice delivered to the Bank in the form of a
Notice of Borrowing (which notice must be received by the Bank prior to 10:00
a.m. (Chicago time) (i) three Business Days prior to the requested Borrowing
Date, in the case of Offshore Rate Loans; and (ii) on the requested Borrowing
Date, in the case of Federal Funds Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in
the amounts specified in Section 2.1.1 and 2.1.2 and in a
minimum amount for each Loan not less than $500,000;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising the Borrowing;
(D) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any
Borrowing comprised of Offshore Rate Loans, such Interest
Period shall be three months; and
(E) the Borrower to which the proceeds of the
Borrowing should be advanced.
(b) The Bank will make the amount of each Borrowing available
to the Borrower specified in the Notice of Borrowing by crediting the account of
such Borrower on the books of the Bank with the amount of each Borrowing.
(c) After giving effect to any Borrowing, there may not be
more than three different Interest Periods in effect.
(d) Each Borrowing shall consist of Facility A Loans and
Facility B Loans with the amount of the Facility B Loans being twice the amount
of the Facility A Loans.
2.4 Conversion and Continuation Elections. (a) Either Borrower may,
upon irrevocable written notice to the Bank if accordance with subsection
2.4(b):
(i) elect, as of any Business Day, in the case of
Federal Funds Rate Loans, or as of the last day of the applicable
Interest Period, in the case of Offshore Rate Loans, to convert any
such Loans (or any part thereof in an amount not less than $500,000, or
that is in an integral multiple of $50,000 in excess thereof) into
Loans of any other type; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Loans having Interest
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<PAGE> 21
Periods expiring on such day (or any part thereof in an amount not less
than $500,000, or that is in an integral multiple of $50,000 in excess
thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000 such Offshore Rate Loans shall
automatically convert into Federal Funds Rate Loans, and on and after such date
the right of the Borrowers to continue such Loans as, and convert such Loans
into, Offshore Rate Loans shall terminate.
(b) The Company shall deliver a Notice of
Conversion/Continuation to be received by the Bank not later than 10:00 a.m.
(Chicago time) at least (i) three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or continued
as Offshore Rate Loans; and (ii) on the Conversion/Continuation Date, if the
Loans are to be converted into Federal Funds Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
renewed;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into
Federal Funds Rate Loans, the duration of the requested
Interest Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or if any Default or Event
of Default then exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Federal Funds Rate Loans effective as of the
expiration date of such Interest Period.
(d) Unless the Bank otherwise agrees, during the existence of
a Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan.
(e) Notwithstanding anything herein to the contrary, during
the existence of a Default or an event of Default, unless the Bank otherwise
agrees, all outstanding Offshore Rate Loans shall be redenominated and converted
into Federal Funds Rate Loans in Dollars on the last day of the Interest Period
applicable to any such Offshore Rate Loans.
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<PAGE> 22
(f) After giving effect to any conversion or continuation of
Loans, there may not be more than three different Interest Periods in effect.
2.5 Repayments. The Borrower shall, on each date set forth below, make
a scheduled repayment of the aggregate outstanding principal amount, in the
principal amounts for each Facility set forth below opposite such date:
<TABLE>
<CAPTION>
Facility A Facility B
---------- ----------
<S> <C> <C>
2/27/99 $5,000,000 $ -0-
2/27/00 $5,000,000 $ -0-
2/27/01 $0 $6,666,666.66
2/27/02 $0 $6,666,666.66
2/27/03 $0 $6,666,666.67
</TABLE>
Any repayments made by the Borrower pursuant to this Section 2.5 shall
be applied first to the Facility A Loans provided however, if the Borrower fails
to make a scheduled payment under this Section 2.5 and a repayment is made by
Gallagher on behalf of the Borrower pursuant to Gallagher's obligations under
the Guaranty, such repayment shall be applied first to the Facility B Loans.
2.6 Prepayments. Subject to Section 3.4, the Borrowers may, at any time
or from time to time, upon not less than three Business Days' irrevocable notice
to the Bank from the Company, ratably prepay Loans in whole or in part, in
minimum amounts of $100,000 or any multiple of $50,000 in excess thereof. Such
notice of prepayment shall specify the date and amount of such prepayment and
the Type(s) of Loans to be prepaid. If such notice is given by the Company, the
Borrowers shall make such prepayment and the payment amount specified in such
notice shall be due and payable on the date specified therein, together with
accrued interest to each such date on the amount prepaid and any amounts
required pursuant to Section 3.4. Any prepayment of the Loans under this Section
2.6(a) (except any prepayment made by Gallagher out of its own funds) shall be
applied, first to the Facility A Loans, to the unpaid installments of Facility A
Loans in inverse order of their maturities and second to the unpaid installments
of the Facility B Loans in inverse order of their maturities. Any prepayments
made by Gallagher out of its own funds shall be applied to either the Facility A
Loans or the Facility B Loans, as specified by Gallagher, and as to the
installments of either Loan in the inverse order of their maturities.
2.7 Interest. (a) Each Loan shall bear interest on the outstanding
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Offshore Rate, or the Federal Funds Rate, as the case may be (and
subject to the Company's right to convert to other Types of Loans under Section
2.4), plus the Applicable Margin. Any payments of interest in part, shall be
applied first to the Facility A Loans, except
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<PAGE> 23
payments made by Gallagher pursuant to its Guaranty which shall be applied as
directed by Gallagher.
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date and on the Stated Maturity Date. Interest shall also be
paid on the date of any prepayment of Loans under Section 2.6 for the portion of
the Loans so prepaid and upon payment (including prepayment) in full thereof
and, during the existence of any Event of Default, interest shall be paid on
demand of the Bank.
(c) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, the Borrowers shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all outstanding Loans, at a rate per annum which
is determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans; provided, however, that, on and after the expiration of any Interest
Period applicable to any Offshore Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Federal Funds Rate
plus the Applicable Margin for Federal Funds Rate Loan plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrowers to the Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but only to the extent)
that contracting for or receiving such payment by the Bank would be contrary to
the provisions of any law applicable to the Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by the Bank,
and in such event the Borrowers shall pay the Bank interest at the highest rate
permitted by applicable law.
2.8 Fees. (a) On the Closing Date, the Borrowers shall deliver to the
Bank the Warrant Documents duly executed and registered in the name of the Bank
or such Affiliates of the Bank as the Bank shall designate.
(b) The Borrower shall pay to the Bank a commitment fee on the
average daily unused portion of the Facility A Commitment and Facility B
Commitment, computed on a quarterly basis in arrears based upon the daily
utilization for that quarter as calculated by the Bank, equal to 0.25 percent
per annum. Such commitment fee shall accrue from the dated hereof to the
Commitment Termination Date and shall be due and payable quarterly in arrears on
the last Business Day of each calendar quarter through the Commitment
Termination Date, with the final payment to be made on the Commitment
Termination Date. The commitment fees provided in this subsection shall accrue
at all times after the above-mentioned commencement date, including
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<PAGE> 24
at any time during which one or more conditions in Article IV are not met.
2.9 Computation of Fees and Interest. (a) All computations of fees and
interest shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the Bank shall
be conclusive and binding on the Borrowers in the absence of manifest error.
2.10 Payments by the Borrowers. (a) All payments to be made by the
Borrowers shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrowers shall be made
to the Bank at the Bank's Lending Office, and shall be made in dollars and in
immediately available funds, no later than 11:00 a.m. (Chicago time) on the date
specified herein. Any payment received by the Bank later than 11:00 a.m.
(Chicago time) shall be deemed to have been received on the following Business
Day and any applicable interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.1 Taxes. (a) Any and all payments by the Borrowers to the Bank under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for any Taxes. In addition, the Borrowers shall
pay all Other Taxes.
(b) The Borrowers agree to indemnify and hold harmless the
Bank for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Bank and any liability arising therefrom or with respect thereto. Payment
under this indemnification shall be made within 30 days after the date the Bank
makes written demand therefor.
20
<PAGE> 25
(c) If the Borrowers shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to the Bank, then:
(i) the sum payable shall be increased as necessary
so that after making all required deductions and withholdings
(including deductions and withholdings applicable to additional sums
payable under this Section) the Bank receives an amount equal to the
sum it would have received had no such deductions or withholdings been
made;
(ii) the Borrowers shall make such deductions and
withholdings;
(iii) the Borrowers shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(iv) the Borrowers shall also pay to the Bank, at the
time interest is paid, all additional amounts which the Bank specifies
as necessary to preserve the after-tax yield the Bank would have
received if such Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the
Borrowers of Taxes or Other Taxes, the Borrowers shall furnish to the Bank the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Bank.
(e) If the Borrowers are required to pay additional amounts to
the Bank pursuant to subsection (c) of this Section, then the Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Borrowers which may thereafter accrue, if such change in the
judgment of the Bank is not otherwise disadvantageous to the Bank.
3.2 Illegality. (a) If the Bank determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for the Bank or its Lending Office to make Offshore Rate
Loans, then, on notice thereof by the Bank to the Company, any obligation of the
Bank to make, convert Federal Funds Rate Loans into or maintain Offshore Rate
Loans shall be suspended until the Bank notifies the Company that the
circumstances giving rise to such determination no longer exist.
(b) If the Bank determines that it is unlawful to maintain any
Offshore Rate Loan, the Borrowers shall, upon its receipt by the Company of
notice of such fact and demand from such Bank, convert to Federal Funds Rate
Loans the amount in full
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<PAGE> 26
of such Offshore Rate Loans of the Bank then outstanding, together with interest
accrued thereon and amounts required under Section 3.4, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan. If the Borrowers are
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, the Borrowers shall borrow from the Bank, in the amount of such
repayment, a Federal Funds Rate Loan.
(c) Before giving any notice to the Company under this
Section, the Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
3.3 Increased Costs and Reduction of Return. (a) If the Bank determines
that, due to either (i) the introduction of or any change (other than any change
by way of imposition of or increase in reserve requirements included in the
calculation of the Offshore Rate) in or in the interpretation of any law or
regulation or (ii) the compliance by the Bank with any guideline or request,
issued or becoming effective after the date hereof, from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to the Bank of agreeing to make or making,
funding or maintaining any Offshore Rate Loans then the Borrowers shall be
liable for, and shall from time to time, upon demand, pay to the Bank,
additional amounts as are sufficient to compensate the Bank for such increased
costs.
(b) If the Bank shall have determined that, after the date
hereof, (i) the introduction of any Capital Adequacy Regulation, (ii) any change
in any Capital Adequacy Regulation, (iii) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or (iv) compliance by the Bank (or its Lending Office) or any
corporation controlling the Bank with any Capital Adequacy Regulation, affects
or would affect the amount of capital required or expected to be maintained by
the Bank or any corporation controlling the Bank and (taking into consideration
the Bank's or such corporation's policies with respect to capital adequacy and
the Bank's desired return on capital) determines that the amount of such capital
is increased as a consequence of the commitments, loans, credits or obligations
under this Agreement, then, upon demand of the Bank to the Borrowers, the
Borrowers shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such increase.
22
<PAGE> 27
3.4 Funding Losses. The Borrowers shall reimburse the Bank
and hold the Bank harmless from any loss or expense which the
Bank may sustain or incur as a consequence of:
(a) the failure of the Borrowers to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of the Borrowers to borrow, continue or
convert a Loan after the Borrowers have given (or are deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation;
(c) the failure of the Borrowers to make any prepayment in
accordance with any notice delivered under Section 2.6;
(d) the prepayment or other payment (including after
acceleration thereof) of an Offshore Rate Loan on a day that is not the last day
of the relevant Interest Period;
(e) the automatic conversion under Section 2.4 of any Offshore
Rate Loan to a Federal Funds Rate Loan on a day that is not the last day of the
relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by the Borrowers to the Bank under this Section and
under subsection 3.3(a), each Offshore Rate Loan made by the Bank (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR used in determining the Offshore Rate
for such Offshore Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded.
3.5 Inability to Determine Rates. If the Bank determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to Section 2.7(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to the Bank of funding such Loan, the
Bank will promptly so notify the Company. Thereafter, the obligation of the Bank
to make or maintain Offshore Rate Loans hereunder shall be suspended until the
Bank revokes such notice in writing. Upon receipt of such notice, the Company
may revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Company does not revoke such Notice, the Bank shall make
or continue the Loans, as proposed by the Company, in the amount specified in
the applicable notice submitted by the Company, but such Loans shall
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be made, converted or continued as Federal Funds Rate Loans instead of Offshore
Rate Loans.
3.6 Certificates of Bank. The Bank, when claiming reimbursement or
compensation under this Article III, shall deliver to the Company a certificate
setting forth in reasonable detail the amount payable to the Bank hereunder and
such certificate shall be conclusive and binding on the Borrowers in the absence
of manifest error. The Bank agrees to deliver such certificate within 180 days
after becoming aware of any claim for reimbursement or compensation under this
Article III.
3.7 Survival. The agreements and obligations of the Company in this
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions of Effectiveness. The effectiveness of this Agreement
and the obligation of the Bank to make Loans hereunder is subject to the
condition that the Bank has received on the Closing Date all of the following,
in form and substance satisfactory to the Bank:
(a) Amended and Restated Credit Agreement. This Agreement
executed by each party thereto;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of
directors of each Borrower authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an
Assistant Secretary of the such Borrower; and
(ii) A certificate of the Secretary or Assistant
Secretary of each Borrower certifying the names and true signatures of
the officers of such Borrower authorized to execute, deliver and
perform, as applicable, this Agreement, and all other Loan Documents to
be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation and
the bylaws of each Borrower as in effect on the Closing Date, certified
by the Secretary or Assistant Secretary of each Borrower as of the
Closing Date; and
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(ii) a good standing certificate for each Borrower
from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where such
Borrower is qualified to do business as a foreign corporation as of a
recent date;
(d) Legal Opinion. An opinion of counsel to the each Borrower
and addressed to the Bank, substantially in the form of Exhibit D;
(e) Payment of Fees. Evidence of payment by the Company of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of the Bank to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Bank's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings (provided
that such estimate shall not thereafter preclude final settling of accounts
between the Borrowers and the Bank); including any such costs, fees and expenses
arising under or referenced in Section 9.4;
(f) Certificate. A certificate signed by a Responsible Officer
in such capacity, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article V are true and correct on and as of such date, as
though made on and as of such date;
(ii) no Default or Event of Default exists or
would result from the initial Borrowing;
(iii) there has occurred since December 31, 1996 no
event or circumstance that has resulted or could reasonably be
expected to result in a Material Adverse Effect;
(g) Warrant Documents. The Company shall have
delivered to the Bank either the Warrant Documents duly executed
and registered in the name of the Bank or such Affiliates of the
Bank as the Bank shall designate;
(h) Resolutions - Gallagher.
(i) Copies of the resolutions of the board of
directors of Gallagher authorizing execution and delivery of the
Guaranty, certified as of the Closing Date by the Secretary or an
Assistant Secretary of such Borrower;
(ii) A certificate of the Secretary or Assistant
Secretary of Gallagher certifying the names and true signatures of the
officers of Gallagher authorized to execute, deliver and perform the
Guaranty;
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(i) Organization Documents; Good Standing. Each of
the following documents:
(i) the articles or certificate of
incorporation and the bylaws of Gallagher as in effect on the
Closing Date, certified by the Secretary or Assistant
Secretary of Gallagher as of the Closing Date; and
(ii) a good standing certificate for Gallagher from
the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where
Gallagher is qualified to do business as a foreign corporation
as of a recent date.
(j) Guaranty. The Guaranty executed by Gallagher;
(k) Pledge Agreement. The Pledge Agreement executed by the
Company together with stock certificates, stock powers executed in blank and
such other documents as the Bank may deem necessary with respect thereto;
(l) LLC Pledge Agreement. The LLC Pledge Agreement executed by
Merger Co. together with such other documents as the Bank may deem necessary
with respect thereto;
(m) Resolutions; Incumbency Merger Co..
(i) Copies of the resolutions of the board of
directors of Merger Co. authorizing the transactions
contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of Merger Co.; and
(ii) A certificate of the Secretary or Assistant
Secretary of Merger Co. certifying the names and true
signatures of the officers of Merger Co. authorized to
execute, deliver and perform, as applicable, this Agreement,
and all other Loan Documents to be delivered by it hereunder;
(n) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation and
the bylaws of Merger Co. as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of Merger
Co. as of the Closing Date; and
(ii) the good standing certificate for Merger Co.
from the Secretary of State (or similar, applicable
Governmental Authority) of its state of incorporation and each
state where Merger Co. is qualified to do business as a
foreign corporation as of a recent date;
(o) Capital Contribution. The Company shall have delivered a
certificate confirming that Gallagher has contributed
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an additional $10,000,000 since December 1, 1997 to the equity of the Company
and such equity shall be in form satisfactory to the Bank; and
(p) Other Documents. Such other approvals, opinions, documents
or materials as the Bank may reasonably request.
4.2 Conditions to All Borrowings. The obligation of the Bank to make
any Loan to be made by it (including its initial Loan) under Section 2.1 is
subject to the satisfaction of the following conditions precedent on the
relevant Borrowing Date:
(a) Notice of Borrowing. The Bank shall have received a Notice
of Borrowing;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article V hereof and in each Loan Document
shall be true and correct on and as of such Borrowing Date with the same effect
as if made on and as of such Borrowing Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date);
(c) No Existing Default. No Default or Event of Default shall
exist or shall result from such Borrowing; and
(d) Initial Loan. Concurrently with the initial Loan
hereunder, the Company shall have purchased Bricoleur Capital Management, Inc.
pursuant to a merger agreement dated February 20, 1998, have contributed the
business of Bricoleur Capital Management, Inc. to Bricoleur Capital Management
LLC and have caused the Bank to have a first perfected security interest in the
direct and indirect interest of the Company in Bricoleur Capital Management LLC
pursuant to the Pledge Agreement.
(e) Consent of Bank. Concurrently with the subsequent Loans
hereunder, the Company shall have obtained the written consent of the Bank to
the Company's or Holding's acquisition of each PERSI for which the Loan proceeds
are to be used and the Borrowers shall have caused the Bank to have a first
perfected security interest in such PERSI in accordance with such documents as
shall be satisfactory to the Bank in its sole discretion.
Each Notice of Borrowing submitted by the Company hereunder shall constitute a
representation and warranty by the Company hereunder, as of the date of each
such notice and as of each Borrowing Date that the conditions in Sections
4.2(a), (b) and (c) are satisfied.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Bank that:
5.1 Corporate Existence and Power. (a) Each of the Company
and its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation;
(b) Each of the Company and its Subsidiaries has the power and
authority and all governmental licenses, authorizations, consents and approvals
necessary to own its assets, carry on its business and the Company has the power
and authority and all governmental licenses, authorizations, consents and
approvals to execute, deliver, and perform its obligations under the Loan
Documents;
(c) Each of the Company and its Subsidiaries is duly qualified
as a foreign corporation and is licensed and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification or license, except to the
extent that the failure to do so could not reasonably be expected to have a
Material Adverse Effect; and
(d) Each of the Company and its Subsidiaries is in compliance
with all Requirements of Law, except to the extent that the failure to do so
could not reasonably be expected to have a Material Adverse Effect.
5.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Borrowers of this Agreement and each other Loan Document
to which either Borrower is party, have been duly authorized by all necessary
corporate action, and do not and will not:
(a) contravene the terms of any of the Organization Documents
of either Borrower;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which either Borrower is a party, except for the creation of Liens
pursuant to the Loan Documents, or any order, injunction, writ or decree of any
Governmental Authority to which either Borrower or its property is subject; or
(c) violate any Requirement of Law.
5.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required
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in connection with the execution, delivery or performance by, or enforcement
against, either Borrower of this Agreement or any other Loan Document.
5.4 Binding Effect. This Agreement and each other Loan Document to
which either Borrower is a party constitute the legal, valid and binding
obligations of such Borrower, enforceable against such Borrower in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
5.5 Litigation. There are no actions, suits, proceedings, labor
controversies, claims or disputes pending, or to the best knowledge of the
Borrowers, threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, against the Company, or its Subsidiaries or
any of their respective properties which:
(a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or
(b) if determined adversely to the Company or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
5.6 No Default. No Default or Event of Default exists or would result
from the incurring of any Obligations by the Borrowers. As of the Closing Date,
neither the Company nor any Subsidiary is in default under or with respect to
any Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Closing Date,
create an Event of Default under subsection 8.1(e).
5.7 Employee Benefit Plans. Set forth on Schedule 5.7 is a list of all
welfare plans and all pension plans, within the meaning of sections 3(1) and (2)
of ERISA, respectively, which, to the knowledge of the Borrowers, are maintained
with respect to employees of the Company or its Subsidiaries. Also set forth in
Schedule 5.7 is a list of all Multiemployer Plans, all Welfare Plans and all
Plans which the Borrowers have adopted or expect to adopt.
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5.8 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
to be used solely for the purposes set forth in and permitted by Section 6.12
and Section 7.4. The Company is not generally engaged in the business of
extending credit for the purpose of purchasing or carrying Margin Stock.
5.9 Title to Properties. The Company and each Subsidiary have good
record and marketable title in fee simple to, or valid leasehold interests in,
all real property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, have a Material Adverse Effect. As of the Closing Date, the
property of the Company and its Subsidiaries is subject to no Liens, other than
Permitted Liens.
5.10 Taxes. The Company and its Subsidiaries have filed all Federal and
other material tax returns and reports required to be filed, and have paid all
Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against the Company or
any Subsidiary that would, if made, have a Material Adverse Effect.
5.11 Financial Condition. (a) The unaudited consolidated financial
statements of the Company and its Subsidiaries dated December 31, 1996,
including the notes accompanying the same, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal quarter ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, subject to ordinary, good faith
year-end audit adjustments;
(ii) fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
5.11, show all material indebtedness and other liabilities, direct or
contingent, of the Company and its consolidated Subsidiaries as of the
date thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since December 31, 1996, there has been no Material
Adverse Effect.
5.12 Environmental Matters. The effect of existing Environmental Laws
and existing Environmental Claims on the Company's or Holding's business,
operations and properties could
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not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
5.13 Regulated Entities. None of the Company, any Person controlling
the Company, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. The Company is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
5.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
5.15 Copyrights, Patents, Trademarks and Licenses, Etc. The Company or
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Company, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Company or any
Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Company,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
5.16 Subsidiaries. The Company has no Subsidiaries other than those
specifically disclosed in part (a) of Schedule 5.16 hereto and has no equity
investments in any other corporation or entity other than those specifically
disclosed in part (b) of Schedule 5.16 and as otherwise permitted hereunder.
5.17 Insurance. The properties and business of the Company and its
Subsidiaries are insured with financially sound and reputable insurance
companies not Affiliates of the Company, in such amounts, with such deductibles
and covering such risks as are customarily carried by companies engaged in
similar businesses and owning similar properties in localities where the Company
or such Subsidiary operates.
5.18 Full Disclosure. None of the representations or warranties made by
either Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of
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<PAGE> 36
either Borrower in connection with the Loan Documents (including the offering
and disclosure materials delivered by or on behalf of either Borrower with
respect to the Borrowers, Merger Co., Bricoleur Capital Management, Inc. and
Bricoleur Capital Management LLC to the Bank prior to the Closing Date),
contains any untrue statement of a material fact or omits any material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading as of
the time when made or delivered; provided that all representations or warranties
made with respect to Merger Co., Bricoleur Capital Management, Inc. and
Bricoleur Capital Management LLC by the Borrowers herein are made to the best of
the Borrowers' knowledge.
5.19 Material Agreements. The Company and its Subsidiaries are not
parties to any agreement with respect to borrowed money or any other agreement,
the violation of which or the termination of which would reasonably be likely to
have a Material Adverse Effect.
5.20 Capitalization. The authorized capital stock of the Company
consists of 102,000,000 shares of capital stock, of which 100,000,000 shares are
common stock, $.01 par value and 2,000,000 shares are preferred stock, $.01 par
value. As of the date hereof, 7,365,000 shares of such common stock (including
the Company Stock) and 200,000 shares of such preferred stock were validly
issued and outstanding, fully paid and non assessable. No Person has any
preemptive right to purchase or subscribe for any shares of stock of the Company
except as set forth in the Shareholders Agreement among Bruce H. Lipnick, Arnold
Mintz, AJG Financial Services, inc., Arthur J. Gallagher & Co. and Asset
Alliance Corporation dated as of July 8, 1996, a true and correct copy of which
Shareholders Agreement has been delivered to the Bank. Except as set forth in
Schedule 5.20, there are no outstanding securities of the Company or any of its
Subsidiaries which are convertible into or exchangeable for any shares of its
capital stock, there are no existing contracts, options, warrants, calls or
similar commitments of any character granted or issued by the Company or any of
its Subsidiaries calling for or relating to the issuance or transfer of shares
of capital stock or any other securities of the Company or any of its
Subsidiaries and there are no stock appreciation rights, contingent interest
certificates or coupons, phantom stock rights or similar interests in the
capital stock or any other securities of the Company or any of its Subsidiaries.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Loan or other Obligation shall remain unpaid or
unsatisfied:
6.1 Financial Statements. The Company shall deliver to the
Bank, in form and detail satisfactory to the Bank:
(a) as soon as available, but not later than 90 days after the
end of each fiscal year, a copy of the audited consolidated balance sheet of the
Company and its Subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of Ernst & Young
LLP or another nationally-recognized independent public accounting firm
("Independent Auditor"),which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years. Such opinion shall not be qualified or limited because of a restricted or
limited examination by the Independent Auditor of any material portion of the
Company's or any Subsidiary's records;
(b) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year, a copy of
the unaudited consolidated balance sheet of the Company and its Subsidiaries as
of the end of such quarter and the related consolidated statements of income or
operations, shareholders' equity and cash flows for the period commencing on the
first day and ending on the last day of such quarter, and certified by a
Responsible Officer as fairly presenting, in accordance with GAAP (subject to
ordinary, good faith year-end audit adjustments), the financial position and the
results of operations of the Company and the Subsidiaries;
(c) as soon as available, but not later than 45 days after the
end of each fiscal year, a copy of an unaudited consolidating balance sheet of
the Company and its Subsidiaries as at the end of such year and the related
consolidating statement of income, shareholders' equity and cash flows for such
year, certified by a Responsible Officer as having been developed and used in
connection with the preparation of the financial statements referred to in
subsection 6.1(a); and
(d) as soon as available, but not later than 30 days after
each month of each fiscal year, a copy of the unaudited consolidated balance
sheet of the Company and its Subsidiaries as of the end of such month and the
related consolidated statements of income, shareholders' equity and cash flows
for the period commencing on the first day and ending on the last day of such
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month, and certified by a Responsible Officer as fairly presenting, in
accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of the
Company and the Subsidiaries.
6.2 Certificates; Other Information. The Company shall
furnish to the Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 6.1(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a Compliance Certificate in
substantially the form of Exhibit C executed by a Responsible Officer;
(c) promptly, copies of all financial statements and reports
that the Company sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K, 10Q
and 8K) that the Company or any Subsidiary may make to, or file with, the SEC;
and
(d) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as the
Bank may from time to time reasonably request in writing.
6.3 Notices. The Company shall promptly notify the Bank:
(a) of the occurrence of any Default or Event of Default, and
of the occurrence or existence of any event or circumstance that foreseeably
will become a Default or Event of Default;
(b) of the occurrence of any default or event of default as
those terms are defined under the terms applicable to any Indebtedness of the
Company or any other Subsidiary;
(c) of any matter that has resulted or may result in a
Material Adverse Effect, including (i) breach or non-performance of, or any
default under, a Contractual Obligation of the Company or any Subsidiary; (ii)
any dispute, litigation, investigation, proceeding or suspension between the
Company or any Subsidiary and any Governmental Authority; or (iii) the
commencement of, or any material development in, any litigation or proceeding
affecting the Company or any Subsidiary; including pursuant to any applicable
Environmental Laws;
(d) of the failure of any Person in the Controlled Group to
make a required contribution to any Plan if such failure is sufficient to give
rise to a Lien under section 302(f)(1) of ERISA;
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(e) of the institution of any steps by any entity in the
Controlled Group to withdraw from, or the institution of any steps by the
Company or any other Person to terminate under a distress termination, any Plan
or the taking of any action with respect to a Plan which could result in the
requirement that the Company or any of its Subsidiaries furnish a bond or other
security to such Plan, or the occurrence of any event with respect to any Plan
which could result in the incurrence by the Company or any of its Subsidiaries
of any material liability (other than a liability for contributions or
premiums), fine or penalty; or
(f) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a
written statement by a Responsible Officer setting forth details of the
occurrence referred to therein, and stating what action the Company or any
affected Subsidiary proposes to take with respect thereto and at what time. Each
notice under subsection 6.3(a) shall describe with particularity any and all
clauses or provisions of this Agreement or other Loan Document that have been
breached or violated.
6.4 Preservation of Corporate Existence, Etc. The Company shall, and
shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its
existence and good standing under the laws of its state or jurisdiction of
organization;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
6.5 Maintenance of Property. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
6.6 Insurance. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable
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independent insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by companies
engaged in similar businesses and owning similar properties in localities where
the Company or such Subsidiary operates.
6.7 Payment of Obligations. The Company shall, and shall cause each
Subsidiary to, pay and discharge as the same shall become due and payable, all
their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its property; and
(c) all Indebtedness, as and when due and payable, but subject
to any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness.
6.8 Compliance with Laws. The Company shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
6.9 Compliance with ERISA. The Company shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
6.10 Inspection of Property and Books and Records. The Company shall
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied, shall be made of all financial transactions and matters
involving the assets and business of the Company and such Subsidiary. The
Company shall permit, and shall cause each Subsidiary to permit, representatives
and independent contractors of the Bank to visit and inspect any of their
respective properties, to examine their respective corporate, financial and
operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Company; provided, however, when an Event
of Default exists the
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Bank may do any of the foregoing at the expense of the Borrowers at any time
during normal business hours and without advance notice.
6.11 Environmental Laws. The Borrowers shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
6.12 Initial Use of Proceeds. The Borrowers shall use the proceeds of
the initial Loans to acquire Bricoleur Capital Management, Inc. and the
subsequent Loans to acquire PERSI's in certain investment advisory firms.
6.13 Pledge of PERSI's. The Borrowers shall promptly pledge the PERSI's
which are acquired with the Loan proceeds in form satisfactory to the Bank.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Loan or other Obligation shall remain unpaid or
unsatisfied, unless the Bank waives compliance in writing:
7.1 Limitation on Liens. The Company shall not, and shall not suffer or
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property,
whether now owned or hereafter acquired, other than the following ("Permitted
Liens"):
(a) any Lien deemed to have been created under any Loan
Document;
(b) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by Section 6.7, provided that no
notice of lien has been filed or recorded under the Code;
(c) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(d) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
and
(e) any Lien existing on property of the Company or any
Subsidiary on the Closing Date and set forth on Schedule 7.16.
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7.2 Consolidations and Mergers. The Company shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, or make any
Acquisition of any Person, except that, upon the Bank's written approval, the
Borrowers may purchase PERSIs and consummate the Acquisition of Bricoleur
Capital Management, Inc.
7.3 Transactions with Affiliates. The Company shall not, and shall not
suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of the Company, except upon fair and reasonable terms no less
favorable to the Company or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary.
7.4 Use of Proceeds. The Company shall not, and shall not suffer or
permit any Subsidiary to, use any portion of Loan proceeds, directly or
indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise
refinance indebtedness of the Company or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock, or (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act if the acquisition of such
security is subject to Regulation 14D of the Exchange Act and the subject
company does not recommend acceptance of the tender offer of the bidder pursuant
to Rule 14e-2 of the Exchange Act.
7.5 ERISA. The Company shall not, and shall not suffer or permit any of
its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of
the fiduciary responsibility rules with respect to any Plan which has resulted
or could reasonably expected to result in liability of the Company in an
aggregate amount in excess of $1,000,000; or (b) engage in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
7.6 Change in Business. The Company shall not, and shall not suffer or
permit any Subsidiary to, engage in any line of business other than the
acquisition of interests in, management of, marketing of, developing of and
development of products for, investment advisory firms and firms engaged in
securities lending.
7.7 Accounting Changes. The Company shall not, and shall not suffer or
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as permitted by GAAP.
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7.8 Financial Covenants. The Company shall not permit:
(a) at any time the Consolidated Net Worth of the Company to
be less than the sum of (i) $15,000,000 plus (ii) 80% of the net proceeds of any
equity issued by the Company or any of its Subsidiaries (on a consolidated
basis) after the Closing Date;
(b) as at the end of any fiscal quarter, the ratio for the
Calculation Period then ending of EBITDA to Debt Service to be less than 1.0 to
1.0;
(c) as at the end of any fiscal quarter, the ratio for the
Calculation Period then ending of EBITDA to its consolidated interest expense to
be less than 2.0 to 1.0;
(d) at the end of any fiscal quarter, the ratio for the
Calculation Period then ending of Performance Fees to interest expense payable
on any outstanding Facility A Loans to be less than 4.0 to 1.0; and
(e) as at the end of any fiscal quarter the sum of the
Subsidiary Stock Values of all of the Subsidiaries whose stock is pledged to the
Bank pursuant to the Pledge Agreement to be less than 150% of the principal
amount of all outstanding Loans.
7.9 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, create, incur, assume or suffer to exist or otherwise become or
be liable in respect of any Indebtedness, other than (i) Indebtedness in respect
of the Loans and the other Obligations; (ii) Indebtedness subordinated as to
payments of principal and interest in form satisfactory to the Bank; and (iii)
Indebtedness in repect of capital leases or the acquisition of equipment,
provided that the aggregate amount of all such Indebtedness in respect of
capital leases or the acquisition of equipment shall not exceed $10,000.
ARTICLE VIII
EVENTS OF DEFAULT
8.1 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. The Borrowers fail to pay, (i) when and as
required to be paid herein, any amount of principal of any Loan, or (ii) within
five days after the same becomes due, any interest, fee or any other amount
payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty
by the Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at
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any time under this Agreement, or in or under any other Loan Document, is
incorrect in any material respect on or as of the date made or deemed made; or
(c) Non-Compliance with Certain Conditions. Failure by the
Borrowers to comply with their covenants set forth in Sections 6.1, 6.2, or 6.3
or in Article VII; or
(d) Other Defaults. The Borrowers fail to perform or observe
any other term or covenant contained in this Agreement or any other Loan
Document, and such default shall continue unremedied for a period of 20 days
after the date upon which written notice thereof is given to the Company by the
Bank; or
(e) Cross-Default. The Company or any Subsidiary (i) fails to
make any payment in respect of any Indebtedness or Contingent Obligation having
an aggregate principal amount (including undrawn committed or available amounts
and including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $100,000 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and such
failure continues after the applicable grace or notice period, if any, specified
in the relevant document on the date of such failure; or (ii) fails to perform
or observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation of more than $100,000 and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure if the effect of such failure,
event or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause such Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash collateral in
respect thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. Either Borrower (i)
ceases or fails to be solvent, or generally fails to pay, or admits in writing
its inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against either Borrower or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied against
a substantial part of the either Borrower's properties, and any such proceeding
or petition shall not be dismissed, or such writ, judgment, warrant of
attachment, execution or similar process shall not be released, vacated or fully
bonded within 60 days
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after commencement, filing or levy; (ii) either Borrower admits the material
allegations of a petition against it in any Insolvency Proceeding, or an order
for relief (or similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) either Borrower acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
(h) Employee Benefit Plans. A contribution failure occurs with
respect to any Plan sufficient to give rise to a Lien against the Company or any
of its Subsidiaries under section 302(f)(1) of ERISA (as in effect on the
Closing Date); or withdrawal by one or more companies in the Controlled Group
from one or more Multiemployer Plans to which it or they have an obligation to
contribute and the withdrawal liability (without unaccrued interest) to
multiemployer plans as a result of such withdrawal or withdrawals (including any
outstanding withdrawal liability that the Controlled Group has incurred on the
date of such withdrawal) is $10,000,000 or more;
(i) Monetary Judgments. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against the Company or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $1,000,000 or more, and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of 30
days after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order
or decree is entered against the Company or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Change of Control. There occurs any Change of Control; or
(l) Loss of Licenses. Any Governmental Authority revokes or
fails to renew any material license, permit or franchise of the Company or any
Subsidiary, or the Company or any Subsidiary for any reason loses any material
license, permit or franchise, or the Company or any Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with respect to any
material license, permit or franchise, except to the extent that any of the
foregoing could not reasonably be expected to have a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole; or
(m) Collateral.
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(i) any provision of any Collateral Document shall
for any reason cease to be valid and binding on or enforceable against the
Company or any Subsidiary party thereto or the Company or any Subsidiary shall
so state in writing or bring an action to limit its obligations or liabilities
thereunder; or
(ii) any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a valid security
interest in the Collateral purported to be covered thereby or such security
interest shall for any reason cease to be a perfected and first priority
security interest subject only to Permitted Liens; or
(n) Default of Gallagher under Gallagher Credit Agreement.
Gallagher fails to comply with covenants set forth in the Gallagher Credit
Agreement, without giving effect to any termination, amendment or modification
thereof.
8.2 Remedies. If any Event of Default occurs, the Bank
shall have the right to:
(a) declare the Facility A Loan Commitment and the Facility B
Loan Commitment to be terminated, whereupon the Facility A Loan Commitment and
the Facility B Loan Commitment shall be terminated;
(b) declare the unpaid principal amount of all outstanding
Loans, all interest accrued and unpaid thereon, and all other amounts owing or
payable hereunder or under any other Loan Document to be immediately due and
payable, without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by the Company; and
(c) exercise all rights and remedies available to the Bank
under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.1 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of the Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Bank.
8.3 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
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ARTICLE IX
MISCELLANEOUS
9.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrowers therefrom, shall be effective unless the same shall
be in writing and signed by the Bank and the Borrowers, and then any such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
9.2 Notices. (a) All notices, requests and other communications shall
be in writing (including, unless the context expressly otherwise provides, by
facsimile transmission, provided that any matter transmitted by the Borrowers by
facsimile (i) shall be immediately confirmed by a telephone call to the
recipient at the number specified below, and (ii) shall be followed promptly by
delivery of a hard copy original thereof) and mailed, faxed or delivered, to the
address or facsimile number specified below; or to such other address as shall
be designated by the Company or the Bank in a written notice to the other party.
If to the Borrower:
Asset Alliance Corporation and
Asset Alliance Holding Corp.
The Gallagher Centre
Two Pierce Place
Itasca, Illinois 60143-3141
Attention: Mark Strauch
Telephone: (630) 285-3493
Facsimile: (630) 285-4000
If to the Bank:
Bank of America National Trust
and Savings Association
231 South LaSalle Street
Chicago, IL 60697
Attention: John Hayes
Telephone: (312) 828-1632
Facsimile: (312) 987-0889
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery;
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except that notices pursuant to Article II shall not be effective until actually
received by the Bank.
(c) Any agreement of the Bank herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Borrowers. The Bank shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by the Borrowers to give such
notice and the Bank shall not have any liability to the Borrowers or any other
Person on account of any action taken or not taken by the Bank in reliance upon
such telephonic or facsimile notice. Notices transmitted by telephone shall be
followed by written notice provided that the obligation of the Borrowers to
repay the Loans shall not be affected in any way or to any extent by any failure
by the Bank to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Bank of a confirmation which is at variance with
the terms understood by the Bank to be contained in the telephonic or facsimile
notice.
9.3 No Waiver; Cumulative Remedies. No failure by the Bank to exercise
and no delay by the Bank in exercising any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege.
9.4 Costs and Expenses. The Borrowers shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse the Bank within five Business Days after demand
(subject to subsection 4.1(e)) for all reasonable costs and expenses incurred by
the Bank in connection with the development, preparation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby, including reasonable Attorney Costs incurred by the Bank with respect
thereto; and
(b) pay or reimburse the Bank within five Business Days after
demand (subject to subsection 4.1(e)) for all reasonable costs and expenses
(including reasonable Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
9.5 Indemnity. Whether or not the transactions contemplated hereby are
consummated, the Borrowers shall
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indemnify and hold the Bank and its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses and disbursements
(including reasonable Attorney Costs) of any kind or nature whatsoever which may
at any time (including at any time following repayment of the Loans) be imposed
on, incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or the use of the proceeds thereof, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrowers shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting from the gross negligence or willful misconduct of such
Indemnified Person. The agreements in this Section shall survive payment of all
other Obligations.
9.6 Payments Set Aside. To the extent that the Borrowers make a payment
to the Bank, or the Bank exercises its right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred.
9.7 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrowers may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Bank.
9.8 Assignments, Participations, Etc. (a) The Bank shall have the right
at any time to assign and delegate to an Affiliate of the Bank (an "Assignee")
all of the Loans, the Facility A Commitment, the Facility B Commitment and the
other rights and obligations of the Bank hereunder; provided, however, that the
Borrowers may continue to deal solely and directly with the Bank in connection
with the interest so assigned to an Assignee until written notice of such
assignment, together with payment instructions, addresses and related
information with respect to the Assignee, shall have been given to the Company
by the Bank.
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(b) From and after the date that the Bank notifies the Company
of any assignment in accordance with subsection 9.8(a), (i) the Assignee shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such assignment, shall have the rights and
obligations of the Bank under the Loan Documents, and (ii) the Bank shall, to
the extent that rights and obligations hereunder and under the other Loan
Documents have been assigned by it pursuant to such assignment, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) After the receipt by the Company of notice by the Bank of
an assignment pursuant to this Section 9.8 and upon the request of the Bank or
the Assignee, the Company shall execute and deliver to the Assignee a new
Note(s) evidencing such Assignee's assigned Loans and Facility A Commitment and
Facility B Commitment, if applicable, and such other agreements or documents as
the Bank or the Assignee may reasonably request.
(d) The Bank may at any time sell to one or more commercial
banks or other Persons not Affiliates of the Borrowers (a "Participant")
participating interests in any Loans, the Facility A Commitment and the Facility
B Commitment and the other interests of the Bank hereunder and under the other
Loan Documents; provided, however, that (i) the Bank's obligations under this
Agreement shall remain unchanged, (ii) the Bank shall remain solely responsible
for the performance of such obligations, and (iii) the Borrowers shall continue
to deal solely and directly with the Bank in connection with the Bank's rights
and obligations under this Agreement and the other Loan Documents.
(e) Notwithstanding any other provision in this Agreement, the
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and any Note held by
it in favor of any Federal Reserve Bank in accordance with Regulation A of the
FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve
Bank may enforce such pledge or security interest in any manner permitted under
applicable law.
9.9 Confidentiality. The Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Company (or reasonably understood by the Bank and its Affiliates
to be confidential) and provided to it by the Company or any Subsidiary under
this Agreement or any other Loan Document, and neither it nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the other Loan Documents or in connection with
other business now or hereafter existing or contemplated with the Company or any
Subsidiary; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Bank, or
(ii) was or becomes
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available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that the Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of the Bank by any such authority; (B) pursuant to subpoena or other
court process following notice to the Company to the extent permitted by law;
(C) when required to do so in accordance with the provisions of any applicable
Requirement of Law; (D) to the extent reasonably required in connection with any
litigation or proceeding to which the Bank or its Affiliates may be party; (E)
to the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (F) to the Bank's independent
auditors and other professional advisors; (G) to any Participant or Assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Bank hereunder; (H)
as to the Bank or its Affiliate, as expressly permitted under the terms of any
other document or agreement regarding confidentiality to which the Company or
any Subsidiary is party or is deemed party with the Bank or such Affiliate; and
(I) to its Affiliates provided that any such Affiliate agrees in writing to keep
such information confidential to the same extent required of the Bank hereunder.
9.10 Set-off. In addition to any rights and remedies of the Bank
provided by law, if an Event of Default exists or the Loans have been
accelerated, the Bank is authorized at any time and from time to time, without
prior notice to the Borrowers, any such notice being waived by the Borrowers to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, the Bank to or for the credit or
the account of either Borrower against any and all Obligations owing to the
Bank, now or hereafter existing, irrespective of whether or not the Bank shall
have made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. The Bank agrees promptly to notify
the Company after any such set-off and application made by the Bank; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application.
9.11 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
9.12 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the
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legality or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
9.13 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrowers and the Bank and
their permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
9.14 Joint and Several Liability.
(a) The Obligations of the Borrowers are joint and several.
(b) Each Borrower acknowledges and agrees that it is the
intent of the parties that each Borrower be primarily liable for the
Obligations as a joint and several obligor. It is the intention of the
parties that with respect to liability of either Borrower hereunder
arising solely by reason of its being jointly and severally liable for
Loans taken by the other Borrower the obligations of such Borrower
shall be absolute, unconditional and irrevocable irrespective of:
(i) any lack of validity, legality or enforceability
of this Agreement or any Note as to the other Borrower;
(ii) the failure of the Bank or any holder of any
Note
(A) to enforce any right or remedy against
the other Borrower or any other Person
(including any guarantor) under the
provisions of this Agreement, the Note, or
otherwise, or
(B) to exercise any right or remedy against
any guarantor of, or collateral security,
any Obligations;
(iii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or any other extension, compromise or renewal of
any Obligations;
(iv) any reduction, limitation, impairment or
termination of any Obligations with respect to the other
Borrower for any reason including any claim of waiver,
release, surrender, alteration or compromise, and shall not be
subject to (and each Borrower hereby waives any right to or
claim of) any defense or setoff, counterclaim, recoupment or
termination whatsoever by
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reason of the invalidity, illegality, nongenuiness,
irregularity, compromise, unenforceability of, or any other
event or occurrence affecting, any Obligations with respect to
the other Borrower;
(v) any addition, exchange, release, surrender or
nonperfection of any collateral, or any amendment to or waiver
or release or addition of, or consent to departure from, any
guaranty, held by the Bank or any Holder of the Note as
security for any of the Obligations; or
(vi) any other circumstance which might otherwise
constitute a defense available to, or a legal or equitable
discharge of, the other Borrower, any surety or any guarantor.
Each Borrower agrees that its joint and several liability hereunder
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment (in whole or in part) of any of the Obligations is rescinded or
must be restored by any Bank or any holder of any Note, upon the insolvency,
bankruptcy or reorganization of the Borrower as though such payment had not been
made.
Each Borrower hereby expressly waives: (a) notice of the Bank's
acceptance of this Agreement; (b) notice of the existence or creation or
non-payment of all or any of the Obligations; (c) presentment, demand, notice of
dishonor, protest, and all other notices whatsoever other than notices expressly
provided for in this Agreement and (d) all diligence in collection or protection
of or realization upon the Obligations or any thereof any obligation hereunder,
or any security for or guaranty of any of the foregoing.
No delay on the Bank's part in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by the Bank
of any right or remedy, shall preclude other or further exercise thereof or the
exercise of any other right or remedy. No action of the Banks permitted
hereunder shall in any way affect or impair the Bank's rights or any Borrower's
obligations under this Agreement.
Notwithstanding the foregoing, Holding shall be liable for the
Obligations for the maximum amount of such liability that can be hereby incurred
without rendering this Agreement, any Note or any other Loan Document, voidable
under applicable law, including applicable law relating to fraudulent conveyance
or fraudulent transfer, and not for any greater amount.
Each Borrower hereby represents and warrants to the Bank that it now
has and will continue to have independent means of obtaining information
concerning the Borrowers' affairs, financial condition and business. The Bank
shall not have any duty or responsibility to provide any Borrower with any
credit or
49
<PAGE> 54
other information concerning the Borrowers' affairs, financial condition or
business which may come into the Bank's possession.
9.15 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND THE NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
ILLINOIS; PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL
LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF ILLINOIS, COOK COUNTY, OR OF THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT,
EACH BORROWER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NONEXCLUSIVE JURISDICTION OF THOSE COURTS. EACH BORROWER IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH BORROWER WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY ILLINOIS LAW.
9.16 Waiver of Jury Trial. EACH BORROWER WAIVES ITS RIGHT TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
EACH BORROWER AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH BORROWER
FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.17 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding between the Borrowers
and the Bank, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
9.18 Initial Public Offering by the Company. The Bank understands that
before September 30, 1998, the Company expects to receive at least $50,000,000
of net cash proceeds from the initial public offering of common stock of the
Company. Upon the Company's receipt of such $50,000,000 or more of net cash
proceeds and the Bank's reasonable satisfaction with the Company's planned use
of such net cash proceeds, the Bank and the
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<PAGE> 55
Borrowers plan to negotiate the release of the Guaranty and the restructuring of
the facility as a revolving facility; provided, however nothing in this
paragraph shall require the Bank or the Borrowers to negotiate any such changes
or amendments to this Agreement, the Guaranty or any of the Loan Documents.
51
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in Chicago, Illinois by their proper and duly
authorized officers as of the day and year first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
-------------------------------------
Title: Executive Vice President
----------------------------------
ASSET ALLIANCE HOLDING CORP.
By: /s/ Arnold L. Mintz
-------------------------------------
Title: Executive Vice President
----------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ John Hayes
-------------------------------------
Title: Vice President
----------------------------------
52
<PAGE> 1
Exhibit 4.3
SHAREHOLDERS AGREEMENT
among
BRUCE H. LIPNICK,
ARNOLD L. MINTZ,
AJG FINANCIAL SERVICES, INC.
ARTHUR J. GALLAGHER & CO.
and
ASSET ALLIANCE CORPORATION
Dated as of July 8, 1996
<PAGE> 2
This SHAREHOLDERS' AGREEMENT, dated as of July 8, 1996, is made among
BRUCE H. LIPNICK, ARNOLD L. MINTZ, AJG FINANCIAL SERVICES, INC., a Delaware
corporation ("AJG"), ARTHUR J. GALLAGHER & CO., a Delaware corporation
("Parent"), and ASSET ALLIANCE CORPORATION, a Delaware corporation (the
"Company").
W I T N E S S E T H
WHEREAS, the parties hereto each own such number of shares (the "Shares")
of Common Stock (the "Common Stock"), par value $0.01 per share, of the Company
as are set forth herein; and
WHEREAS, the parties hereto desire to provide for a constructive and
mutually beneficial relationship and in furtherance thereof to define certain
rights, duties and obligations of the parties hereto with respect to the Shares.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants hereinafter set forth and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following words as used herein shall
have the meanings ascribed to such words below:
1.1 "Act" shall mean the Securities Act of 1933, as amended.
1.2 "Additional Shares" shall mean, in respect of the Shares, any share
dividends issued incidental thereto, shares received in replacement thereof, and
any other shares issued in respect of such shares pursuant to a share split,
recapitalization or similar action.
1.3 "Agreement" shall mean this Shareholders Agreement as it may be
amended, restated or replaced from time to time.
1.4 "AJG" shall mean AJG Financial Services, Inc.
1.5 "AJG Group" shall mean AJG and any permitted transferees of Shares
held by AJG (other than transfers made after a Qualified Public Offering).
<PAGE> 3
1.6 "Board" shall mean the Board of Directors of the Company as the same
may exist from time to time.
1.7 "Business" shall mean the business of the Company, which is the
acquisition of equity interests whereby the Company will have substantial
ownership participations in investment advisory firms, and such other associated
or ancillary businesses as the Board may from time to time determine.
1.8 "Business Day" shall mean a day on which banks in the State of New
York are not authorized or required by law to close.
1.9 "Common Stock" shall mean the Common Stock of the Company, par value
$0.01 per share.
1.10 "Company Group" shall mean the Company and any direct or indirect
subsidiary of the Company from time to time and references to any member of the
Company Group or to a Group company shall be construed accordingly.
1.11 "Confidential Information" shall mean any and all information
relating to the business of the Company Group which information is not in the
public domain or which is in the public domain through a breach of the terms of
this Agreement, including without limitation, all notes, financial information,
memoranda, discoveries, concepts, drawings, designs, specifications, computer
programs and software in any state of development, techniques, models, technical
manuals, research and development materials, processes, procedures, know-how,
data or other materials of any nature relating to any matter within the scope of
the business of the Company Group or concerning any of its dealings or affairs,
regardless of whether such information was disseminated to the Shareholder prior
to or following the signing of this Agreement.
1.12 "Director" shall mean a member of the Board; "Lipnick Director" shall
mean a Director nominated as a Director by Lipnick, "Mintz" Director shall mean
a Director nominated as a Director by Mintz and "AJG Director" shall mean a
Director nominated as a Director by AJG.
1.13 "Employment Agreement" shall mean the Employment Agreement dated the
date hereof between the Company and each of Lipnick and Mintz.
1.14 "Fair Value" of any Shares to be transferred pursuant to the
provisions of Section 5.6(c) shall be such sum as may be agreed between the
Proposed Transferor and the Directors within seven days of the service or deemed
service upon the Company of a Transfer Notice in which such Shares are comprised
or, in default of such agreement, such sum as an investment banker or other
qualified business valuation consultant (the "Valuer") appointed in the manner
described below shall certify in writing to be, in its opinion, the fair value
thereof, on the basis of a sale as between a willing seller and a willing
purchaser of the entire issued share capital of the Company in the open market
and disregarding the fact that the said Shares constitute a minority holding of
shares in the
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<PAGE> 4
Company or that such transfer of Shares is restricted by the provisions of this
Agreement. Such Valuer shall be appointed by agreement between the parties
within seven days following the expiration of the period of seven days referred
to above or, failing agreement, shall be appointed by the majority of the Board
of Directors of the Company (including for such purposes the vote of the
Directors nominated by the Group which includes the Proposed Transferor). For
such purposes, the Valuer appointed shall not be considered an arbitrator. The
certificate of the Valuer appointed shall be final and binding.
1.15 "Founders Group" shall mean Lipnick and Mintz and any permitted
transferees of Shares held by either of them (other than transfers made after a
Qualified Public Offering).
1.16 "General Corporation Law" shall mean the Delaware General Corporation
Law, as the same shall exist from time to time.
1.17 "Group" shall mean the Founders Group or the AJG Group.
1.18 "Lipnick" shall mean Bruce H. Lipnick.
1.19 "Mintz" shall mean Arnold L. Mintz.
1.20 "New Securities" shall mean any capital stock of the Company whether
now authorized or not, and rights, options or warrants to purchase capital
stock, and securities of any type whatsoever that are, or may become convertible
into or exerciseable or exchangeable for capital stock, issued on or after the
date hereof; provided that the term "New Securities" does not include (i) Common
Stock issued as a stock dividend to holders of Common Stock or upon any stock
split, subdivision or combination of shares of Common Stock, (ii) Preferred
Stock issued as a dividend to holders of Preferred Stock or upon any stock
split, subdivision or combination of Preferred Stock, (iii) capital stock or
rights, options or warrants to purchase capital stock of the Company issued
under any stock option plan, stock purchase plan or other benefit program of the
Company or executive compensation package approved by the Board involving the
issuance of capital stock or rights, options or warrants to purchase capital
stock to employees, Directors or members of the Board of Advisors of the Company
Group, (iv) capital stock or rights, options or warrants to purchase capital
stock of the Company issued as consideration for an investment, acquisition or
business combination to which the Company Group is a party, and (v) capital
stock or rights, options or warrants to purchase capital stock of the Company
issued to any Strategic Alliance Investor.
1.21 "Preferred Shares" shall mean the validly issued, fully-paid and
non-assessable shares of Series A Convertible Redeemable Preferred Stock, par
value $.01 per share, of the Company.
1.22 "Qualified Public Offering" shall mean the closing of an underwritten
public offering by the Company pursuant to a registration statement filed and
declared effective under the Act covering the offer and sale of Common Stock for
the account of the Company.
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<PAGE> 5
1.23 "Representative" shall mean a Director appointed to a Committee of
the Board created by the Board.
1.24 "Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated the date hereof among the Company, AJG, Lipnick and Mintz.
1.25 "Shares" shall mean the validly issued, fully-paid and non-assessable
shares of Common Stock now held or hereafter acquired by the parties to this
Agreement or their transferees, including, without limitation, Shares acquired
upon exercise of warrants and conversion rights.
1.26 "Shareholder" shall mean each holder of Shares who is a party to or
is subject to the terms of this Agreement.
1.27 "Strategic Alliance Investor" shall mean a person or entity with
which the Company Group has a material business relationship (separate from such
person or entity's investment in capital stock or other securities of the
Company) involving the development, marketing, management or sale of products or
services.
ARTICLE II
STOCK OWNERSHIP; THE BOARD
2.1 Ownership of Shares. As of the date hereof, the Shareholders are each
the owner of record for such number of Shares as is set forth below:
Name of Shareholder Number of Shares
------------------- ----------------
Bruce H. Lipnick 1,666,666
Arnold L. Mintz 833,334
AJG 875,000
In addition, AJG is the owner of record of 100,000 Preferred Shares.
2.2 Ranking of Shares. The Shares shall rank pari passu in all respects
except as expressly hereinafter provided as regards the appointment of
Directors, voting and quorum.
2.3 Number of Directors Constituting the Board. The Board shall consist of
not less than four persons and, unless Directors who are unaffiliated with any
of the parties hereto ("Independent Directors") are elected to the Board, the
Board shall be divided into two classes, designated Founders Group Directors and
designated AJG Group Directors. Each such class shall consist of one-half of
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<PAGE> 6
the total number of Directors who are not Independent Directors, and each of
whom shall be elected to the Board in accordance with Section 2.4 hereof. All
nominations of Directors shall be in writing delivered to the Company in
accordance with the provisions of Section 6.8 hereof and signed by the person or
persons entitled to make such nomination. A Director shall hold office until the
annual meeting of stockholders for the year in which his/her term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death or resignation. Any director elected to fill a vacancy not resulting
from an increase in the number of Directors shall have the same remaining term
as that of his/her predecessor. All other provisions concerning the election,
term and proceedings of the Directors of the Company shall be as set forth from
time to time herein and in the By-Laws of the Company.
2.4 Election of Directors. Each Group shall cast all of its votes as
Shareholders of the Company annually to elect the nominees of its Group (in the
case of the Founders Group, one half of such nominees to be designated by
Lipnick and one half by Mintz) and the other Group to the Board. If a director
dies, resigns, or is removed, the Shareholders shall cause the vacancy to be
filled with a nominee of the Group who nominated the Director who has died,
resigned or been removed. So long as David R. Long and Mark P. Strauch remain in
the employ of AJG, Parent or their affiliates, they shall (unless Lipnick and
Mintz otherwise agree) be and remain nominees of AJG to be AJG Group Directors.
Any other AJG nominees to be AJG Group Directors must be reasonably acceptable
to Lipnick and Mintz.
2.5 Director Designations. In accordance with the provisions of Section
2.4 hereof, the Groups shall (until such time as other persons are designated in
accordance with Section 2.3 hereof) vote for the election of the following
individuals to the Board, such individuals having been duly designated by the
respective Groups in accordance with the provisions of Section 2.3 hereof:
Founders Group Director:Bruce H. Lipnick
Founders Group Director:Arnold L. Mintz
AJG Group Director:David R. Long
AJG Group Director:Mark P. Strauch
2.6 Disqualification and Removal of Directors. The respective Groups shall
be entitled at any time and from time to time to remove from office any Director
nominated by such Group and to appoint any other person or persons in place of
any such Director so removed or to appoint any other person or persons in place
of any Director previously nominated by such Group who vacates such office. The
office of a Director shall be vacated if:
(a) he/she ceases to be a Director because he becomes prohibited by
law from being a Director;
(b) he/she seeks the protection of the United States Bankruptcy
Court, is adjudged a bankrupt or makes any arrangement or composition with
his creditor generally;
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<PAGE> 7
(c) he/she resigns his office by notice to the Company;
(d) he/she is removed from office by the particular Group that
nominated him to such directorship; or
(e) he/she dies or becomes incapacitated while serving as a
Director.
2.7 Directors' Right of Disclosure to Shareholders. Any Director shall be
at liberty for the purposes of bona fide reporting of the affairs of the Company
to make such disclosure to any Shareholder as such Director may in his/her
discretion think fit, provided that nothing in this Section 2.7 shall be so
construed as to entitle any Director to disclose any matter or thing otherwise
than for the bona fide reporting of the affairs of the Company to a Shareholder.
A Shareholder shall be bound by the provisions of Sections 4.1 and 4.2 with
respect to any information received by such Shareholder pursuant to this Section
2.7.
2.8 Committees of the Board. The Directors shall be entitled to delegate
any of their powers which may be so delegated under the Business Corporation Law
to committees comprised solely of members of the Board ("Representatives"),
provided however, that:
(a) the Founders Group shall be entitled at any time and from time
to time to appoint one person as a Representative and to remove any such
Representative from office and to appoint any other person or persons in
place of any such Representative so removed or dying or otherwise vacating
office;
(b) the AJG Group shall be entitled at any time and from time to
time to appoint one person as a Representative and to remove any such
Representative from office and to appoint any other person or persons in
place of any such Representative so removed or dying or otherwise vacating
office;
(c) meetings of any committee of Directors shall be held as and when
the committee thinks fit. Any Representative shall be entitled to call a
committee meeting, which shall, unless otherwise agreed by all the members
of the committee (or where relevant their duly appointed alternate), be
called on not less than 5 Business Days prior written notice to all
Representatives. The notice shall specify the nature of the business to be
transacted at such committee meeting and no other business shall be
transacted thereat without the prior agreement of all Representatives; and
(d) the quorum for the transaction of the business of the Board, or
a committee of the Directors, shall, unless otherwise provided by the
By-Laws of the Company or the resolution of the Board creating any such
committee, be three-fourths of the members of the Board or such committee,
as the case may be, and a vote of three-fourths of the whole Board or
committee shall be necessary for the approval of all matters to be voted
on thereby (provided, however, that immediately prior to the first
Qualified Public Offering the
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<PAGE> 8
Company's By-Laws shall be amended to provide for a quorum of a majority
and a voting requirement of a majority of the members in attendance).
2.9 Reimbursement of Expenses of the Board. Subject to the By-Laws of the
Company, as they may be amended from time to time, reasonable expenses of
Directors shall be reimbursed only where agreed by the Board or where incurred
in conformity with a policy approved by the Board.
2.10 Directors Holding Other Offices. Any Director who is appointed or who
otherwise performs services which in the opinion of the Directors are outside
the scope of the ordinary duties of a Director may, subject to the provisions of
Section 2.11 hereof, be paid such extra remuneration by way of salary,
percentage of profits or otherwise as the Board may from time to time determine.
2.11 Powers of Directors. The Board shall have such powers and shall
operate within such constraints as are enumerated herein and in the Certificate
of Incorporation and By-Laws of the Company.
2.12 Action Without a Meeting. A resolution adopted without a meeting of
the Board and evidenced by writing under the hands of all of the Directors shall
be valid and effectual for all purposes as a resolution of the Directors passed
at a meeting duly convened, held and constituted and may consist of several
documents in like form, each signed by one or more Directors.
2.13 Directors' Interests. To the extent permitted by the General
Corporation Law, provided that a Director declares and publicizes to the other
members of the Board his interest in a contract, arrangement, or other matter
upon which the Board will vote, he shall be counted in the quorum of any meeting
of the Directors at which the same is considered and shall be entitled to vote
as a Director in respect thereof.
2.14 Management Procedures. The Company and the Shareholders agree to
cause the Company and its directors, officers and employees to operate in
accordance with the Management Protocol attached hereto as Schedule 2.14 and
made a part hereof and each party agrees that the provisions thereof are
incorporated herein and are binding upon the parties hereto as if set forth
herein in their entirety.
ARTICLE III
FINANCIAL MATTERS AND WARRANTIES
3.1 Shareholder Rights to Examine Books and Records. AJG, Lipnick and
Mintz and their representatives shall be entitled to examine the separate books,
accounts and records to be kept by the Company and to be supplied with all
relevant information, including quarterly management accounts and operating
statistics and such other financial information, in such form as such
Shareholder shall reasonably require in order to keep properly informed about
the business of the
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<PAGE> 9
Company and to protect such Shareholder's interests. Such Shareholders and their
representatives shall be bound by the provisions of Sections 4.1 and 4.2 hereof
with respect to any information received by such Shareholder and/or such
Shareholder's representatives pursuant to this Section 3.1.
3.2 No Further Financial Obligations. Except as otherwise agreed by any
Shareholder, no Shareholder shall be under any further obligation to provide any
financing to the Company. The Board shall use reasonable efforts to satisfy all
financing needs of the Company from borrowings, from revenues of the Company and
from possible additional investment by outside investors, however, nothing
contained in this paragraph 3.2 shall preclude the Company from raising
additional financing from willing Shareholders.
3.3 Continuing Financial Disclosure. The Company and the Shareholders
hereby represent, warrant and covenant to each other that to the extent of their
respective rights from time to time to vote as Shareholders and/or Directors, as
the case may be, they shall vote to ensure that:
(a) the Company shall keep the Shareholders informed of all material
matters relating to the progress of the Business by furnishing to the
Shareholders information in such form as may be agreed between the Company
and the Shareholders from time to time;
(b) the Company shall prepare and not later than two weeks prior to
the commencement of the Company's financial year deliver to each
Shareholder an annual business plan in respect of its next financial year
which shall include an annual budget, cash flow forecast and a statement
of business objectives, such annual business plan to be considered and
acted upon by the Board; and
(c) the Company shall deliver to each Shareholder:
(i) unaudited quarterly management accounts within 45 days after the
end of each fiscal quarter of the Company;
(ii) audited accounts prepared by the Company's independent
certified public accountants within 75 days of the end of each
financial year or such further period as the Shareholders may from
time to time agree; and
(iii) as soon as reasonably practicable, such further
information as any Shareholder may from time to time reasonably
request as to all matters relating to the Company's business or
financial position or otherwise relating to the Company's affairs.
3.4 Representations and Warranties of the Shareholders. The Shareholders
hereby each, jointly and severally, represent, warrant and covenant to the
others and to the Company that:
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<PAGE> 10
(a) the Shareholder will use his, her or its voting powers and/or
its influence over the Directors appointed by it at both Shareholders' and
Directors' meetings of the Company in order to ensure (so far as possible)
that the Company complies with the terms of this Agreement;
(b) the Shareholder will not at any time use in any business the
name of the Company or any confusingly similar name or any trademark or
trade name used by the Company;
(c) the Shareholder has full power and authority to enter into this
Agreement and this Agreement is a valid and binding obligation of the
Shareholder;
(d) in no event will the Shareholder offer, sell, transfer or
distribute any portion of the Shares owned by such Shareholder unless the
Company shall have (in connection with each such sale, transfer or
distribution) received an opinion of counsel reasonably satisfactory to
the Company that the Shares may be legally sold or distributed without
registration under the Act, and without registration and/or other
qualification under then applicable state and/or Federal statutes, or the
Shares shall have been so registered and/or qualified and an appropriate
prospectus, if required, shall then be in effect and current;
(e) the Shareholder will not transfer (other than transfers
permissible under any subparagraph of Section 5.6 hereof or pursuant to
the Management Protocol), sell, convey or otherwise dispose of any Shares
currently held by such Shareholder prior to the fifth anniversary of the
date of this Agreement; and
(f) the Shareholder acknowledges that the Shares are not registered
under the Act, that they may not be offered, sold or transferred except in
compliance with the Act and the rules and regulations adopted pursuant
thereto, that the Shares must be held indefinitely unless they are
subsequently registered under such Act or an exemption from such
registration is available, that except as otherwise provided herein the
Company is under no obligation to register the Shares or to supply the
information necessary for the applicability of certain of such exemptions,
that any such exemptions may only be applicable in certain limited
circumstances and that any routine public sales of securities made in
reliance upon Rule 144 promulgated under the Act can be made only in
limited amounts in accordance with the terms and conditions of that Rule
and that in the event the provisions of such Rule are not applicable to
the proposed public sale of the Shares, compliance with Regulation A or
some other applicable exemption will be required.
3.5 Representations of AJG and Parent. AJG and Parent each hereby jointly
and severally represents and warrants to each of the other Shareholders and the
Company that:
(a) it has full power and authority to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its
obligations hereunder;
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<PAGE> 11
(b) the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of AJG and Parent;
(c) this Agreement has been duly executed and delivered by AJG and
Parent, and is a valid and binding obligation of each of AJG and Parent
enforceable against AJG in accordance with its terms; and
(d) the execution, delivery and performance of this Agreement will
not conflict with or result in a breach or violation of any provision of
AJG's or Parent's certificate of incorporation, by-laws or of any order,
writ, injunction, judgment, decree, law, statute, rule or regulation of
any governmental authority to which AJG or Parent is a party or by which
AJG or Parent may be bound or affected, including, without limitation, the
Rules of the New York Stock Exchange.
3.6 Representations of the Company. The Company hereby represents and
warrants to each of the Shareholders that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the corporate
power and authority to own and operate its properties and assets and to
conduct its business as it is now being conducted;
(b) it has full corporate power and authority to enter into this
Agreement, to consummate the transactions contemplated hereby and to
perform its obligations hereunder;
(c) the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company;
(d) this Agreement has been duly executed and delivered by the
Company, and is a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms;
(e) the execution, delivery and performance of this Agreement will
not conflict with or result in a breach or violation of any provision of
the Certificate of Incorporation or By-Laws of the Company or of any
order, writ, injunction, judgment, decree, law, statute, rule or
regulation of any governmental authority to which the Company is a party
or by which the Company may be bound or affected;
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<PAGE> 12
(f) no consent, authorization, order or approval of, or filing or
registration with, any governmental commission, board or other regulatory
body or any other person is required for or in connection with the
execution and delivery of this Agreement by the Company and the
performance by the Company of its obligations hereunder; and
(g) the Company covenants and agrees that it will maintain key-man
life insurance policies covering the lives of Lipnick and Mintz with the
death benefit payable to the Company in such amounts as shall be approved
by the Board.
3.7 Duty to Exercise in Each Capacity. Where any party hereto is required
hereunder to exercise its powers to procure a particular matter or thing, such
obligation shall be deemed to include an obligation to exercise its powers both
as a Shareholder (subject to applicable fiduciary duties) and as a director or
partner of any relevant company or partnership and to procure (to the extent
possible) that any director or partner appointed by him (whether alone or
jointly with any other person or persons) of such company or partnership shall
procure such matter or thing.
3.8 Noncompetition. (a) Except with the written consent of a majority of
the disinterested Directors, from the date hereof until the later of: (i) the
fifth anniversary of this Agreement or (ii) two years from the date on which
Parent, AJG and their affiliates own less than 5% of the Company's outstanding
capital stock, Parent and its affiliates will not, directly or in directly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization, engage in the business of
acquiring equity interests of, or otherwise investing in, investment management
firms. For so long as Parent, AJG or their affiliates remain a Shareholder, and
for a period of two years thereafter, Parent, AJG and their affiliates will not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (i) request or cause any person, firm or company who was at the
time of such solicitation, enticement or discouragement an officer of, or a
consultant to, the Company Group, to cancel or terminate any business
relationship with the Company Group, or (ii) solicit or otherwise cause any
employee of the Company Group to terminate such employee's relationship with the
Company Group.
(b) While in the employ of the Company, Lipnick and Mintz each agree to
devote substantially all of their time, attention and energies to the
performance of the business of the Company and Lipnick and Mintz shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned with any other duties
or pursuits which interfere with the performance of their duties as an employee
of the Company, or which, even if noninterfering, may be contrary to the best
interests of the Company (provided, however, that Lipnick and Mintz may continue
their business activities involving the providing of investment management and
advisory services for a cash alternative fund and involving market neutral
strategies and convertible arbitrage programs or, with AJG's prior written
consent, any other strategy which is not in competition with any member of the
Company Group at the time such strategy commences (the "Existing Activities")).
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(c) Until two years after the termination or cessation of Lipnick's or
Mintz' (as the case may be) employment with the Company for any reason
(including termination of employment by the Company without cause provided the
Company is complying with its payment obligations to Lipnick or Mintz under
their Employment Agreement), Lipnick or Mintz (as the case may be) shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization, engage in the business of acquiring equity interests of, or
otherwise investing in, investment management firms other than (i) continuation
of the Existing Activities, and (ii) after termination of Lipnick's or Mintz'
employment with the Company for any reason, any investment management firm in
which Lipnick or Mintz (as the case may be) is a principal executive officer
involved in management of the business on a day-to-day basis. For a period of
two years after the termination or cessation of Lipnick's or Mintz' employment
with the Company for any reason (including termination of employment by the
Company without cause provided the Company is complying with its payment
obligations to Lipnick or Mintz under their Employment Agreement) Lipnick or
Mintz (as the case may be) shall not, directly or indirectly, alone or as a
member of any partnership or other business organization, or as a partner,
officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization (i) request or cause any
customer of the Company or its affiliates who was introduced to the Company or
its Affiliates by Lipnick or Mintz to cancel or terminate any business
relationship with the Company or such affiliate, or (ii) solicit or otherwise
cause any employee of the Company or its affiliates to terminate such employee's
relationship with the Company or such affiliate.
3.9 Standstill Provisions. Until the occurrence of a public announcement
or filing of a third party's acquisition of or intention of acquire at least 20%
of the outstanding Common Stock of the Company for a purpose other than
investment (as disclosed by the third party), the Stockholders which are members
of the AJG Group and Parent agree that, except as otherwise approved by the
Board, the members of the AJG Group and their affiliates will not acquire, offer
to acquire or agree to acquire, directly or indirectly, by purchase or
otherwise, any Common Stock of the Company (or options, warrants, rights or
other securities exercisable, exchangeable or convertible into shares of Common
Stock of the Company) except (i) shares issuable upon exercise of the warrants
issued by the Company to AJG on the date hereof or upon conversion of the
preferred stock issued by the Company to AJG on the date hereof, (ii) as a
result of a stock split, stock dividend or similar recapitalization of the
Company, (iii) pursuant to a merger, consolidation or other business combination
transaction involving the Company, or (iv) in connection with the exercise of
rights pursuant to Sections 5.3 and 5.6 hereof.
ARTICLE IV
CONFIDENTIALITY
4.1 Restrictions on Disclosure of Terms of Agreement. The parties hereto
each, jointly and severally, agree that they shall not divulge to any third
party the existence or the nature and terms of this Agreement or, in the case of
the Shareholders, of any sale made pursuant to this Agreement, without the prior
written consent of the other parties hereto, provided, however, that the
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Company may disclose the terms hereof to potential investors, other holders of
capital stock of the Company and lenders and in proxy statements and other
disclosure documents.
4.2 Restrictions on Disclosure of Proprietary or Confidential Information.
(a) Except as otherwise provided in Sections 4.2(b) and 4.2(c) hereof, the
parties hereto agree that they shall not, without the written consent of each
party to whom such Confidential Information relates, divulge to any third party
any Confidential Information received or disclosed by or to it, provided that
the parties hereto shall be under no such obligation in relation to any such
information that is:
(i) known to them prior to disclosure;
(ii) subsequently received by them from a third party on an
unrestricted basis; and
(iii) is or subsequently comes into the public domain other
than through a breach of this Agreement.
(b) Notwithstanding the foregoing Section 4.2(a), the parties hereto may,
as permitted by the Company, transmit the Confidential Information to their
attorneys, accountants, agents, directors and officers who need to know the
Confidential Information for the purpose of business with the Company and who
are informed of, and agree to be bound by, the terms of this Agreement. The
party so disclosing shall be responsible for any breach of this Section 4.2 by
any of such persons.
(c) In the event that a party hereto receives a request to disclose all or
any part of the Confidential Information under the terms of a valid and
effective subpoena or order issued by a court of competent jurisdiction or by a
governmental body, such party agrees to immediately notify the Company of the
existence, terms and circumstances surrounding such a request so that the
Company may seek an appropriate protective order and/or waive compliance by such
party with the appropriate provisions of this agreement. If such party is
compelled to disclose any of the Confidential Information, it will disclose only
that portion thereof which it is compelled to disclose and shall use its best
efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to the Confidential Information so disclosed.
ARTICLE V
RELATIVE RIGHTS OF SHAREHOLDERS
5.1 Meetings of the Shareholders. No business shall be transacted at any
general meeting of the Shareholders unless a quorum of shareholders is present
at the time when the meeting proceeds to business. Subject to the provisions of
the Management Protocol, a quorum shall consist of such number of shareholders
collectively holding not less than 80% in nominal value of the issued capital
stock of the Company, taken together as one class, being present in person or by
proxy or (in
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the case of a corporation, partnership or other entity) by a duly authorized
representative and a vote of 80% of the outstanding capital stock shall be
necessary for the approval of all matters to be voted on by stockholders of the
Company (provided, however, that immediately prior to the first Qualified Public
Offering the Company's By-Laws shall be amended to provide for a quorum of a
majority of outstanding shares and a voting requirement of a majority of the
stockholders in attendance). Nothing contained in this Section 5.1 shall be
construed so as to circumvent compliance with the provisions of the General
Corporation Law applicable to shareholder voting and quorum.
5.2 Dividend Policy. The Company's Board may formulate a dividend policy
in due course but such policy shall be based upon what is prudent given the
Company's financial position and future investment requirements and in the best
interests of the Company and the Shareholders. Any dividend to be paid shall be
paid in equal amounts on each share of Common Stock in issue of the entire
issued capital of the Company at the relevant time.
5.3 Preemptive Right. (a) The Company hereby grants to each Shareholder so
long as he, she or it or he shall own, of record or beneficially, any Common
Stock, the right to purchase all or part of his, her or its pro rata share of
New Securities which the Company from time to time, proposes to sell and issue.
A Shareholder's pro rata share, for purposes of this preemptive right, is the
ratio of the number of shares of Common Stock which such Shareholder owns to the
total number of such shares of Common Stock then outstanding prior to giving
effect to the New Securities. The Shareholders shall have a right of
over-allotment pursuant to this Section 5.3 such that to the extent a
Shareholder does not exercise his, her or its preemptive right in full
hereunder, such additional shares of New Securities which such Shareholder did
not purchase may be purchased by the other Shareholders in proportion to the
total number of shares of Common Stock which each such other Shareholder owns to
the total number of shares of Common Stock which all such other Shareholders
own.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Shareholder written notice of its intention,
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue the same. Each Shareholder shall have 20 business days
from the date of receipt of any such notice to agree to purchase up to the
Shareholder's pro rata share of such New Securities (and any over-allotment
amount pursuant to the operation of Section 5.1 hereof) for the price and upon
the terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
(c) In the event any Shareholder fails to exercise in full his, her or its
preemptive right (after giving effect to the over-allotment provision of Section
5.3(a) hereof), the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Shareholder's option was not exercised, at
a price and upon terms no more favorable to the purchasers thereof than
specified in the Company's notice. To the extent the Company does not sell all
the New Securities offered within said 90 day period, the Company shall not
thereafter issue or sell such New Securities without first again offering such
securities to the Shareholders in the manner provided above.
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(d) The rights granted to the Shareholders under this Section 5.3 shall
expire immediately prior to, and shall not apply in connection with, the
consummation of the first Qualified Public Offering.
5.4 Stock Certificate Legends. Each certificate representing Shares shall
have the following legends stamped or imprinted thereon:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND UNDER APPLICABLE STATE SECURITIES
LAWS, UNLESS THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER THAT THE SECURITIES REPRESENTED BY
THIS CERTIFICATE MAY BE LEGALLY SOLD OR DISTRIBUTED PURSUANT TO EXEMPTIONS
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
WITHOUT REGISTRATION UNDER THEN APPLICABLE STATE AND FEDERAL LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER CONTAINED IN A SHAREHOLDERS AGREEMENT, DATED AS
OF JULY 2, 1996, COPIES OF WHICH MAY BE OBTAINED FROM THE ISSUER OR FROM
THE HOLDER OF THIS CERTIFICATE, AS WELL AS THE RIGHTS OF CERTAIN PERSONS
UNDER SUCH SHAREHOLDERS AGREEMENT TO PURCHASE SUCH SECURITIES ON THE TERMS
AND CONDITIONS SET FORTH THEREIN. NO TRANSFER OF SUCH SECURITIES WILL BE
MADE ON THE BOOKS OF THE ISSUER UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH SHAREHOLDERS AGREEMENT.
5.5 [Intentionally Omitted]
5.6 Transfer of Shares; Rights of First Refusal.
(a) Except as provided in subparagraph (d) below or elsewhere
herein, no Share or any interest therein shall be transferred or otherwise
disposed of unless and until the rights of first refusal herein conferred
shall have been exhausted.
(b) Until the fifth anniversary of the date of this Agreement no
Shareholder shall transfer or otherwise dispose of any Shares without the
prior written consent of holders of a majority of the Shares held by
members of the Group of which such Shareholder is not a
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member. Thereafter, before a Shareholder or any other person entitled to
be registered in respect of a Share or Shares (the "Proposed Transferor")
transfers or otherwise disposes of any Share or Shares registered in his,
her or its name or any interest therein (other than the right to receive
dividends thereunder) such Proposed Transferor shall give notice (a
"Transfer Notice") to the Company that he, she or it proposes to sell or
transfer such number of Shares at such price and on such other terms as
shall be set forth in such Transfer Notice. Except as herein provided, a
Transfer Notice once given or deemed to be given shall not be revocable
without the written consent of all of the Shareholders. A Transfer Notice
shall automatically and immediately appoint the Company as the Agent of
the Proposed Transferor to sell the Shares comprised therein (the "Offered
Shares") at the price and on the terms set forth in the Transfer Notice
and in accordance with the following provisions:
(i) With respect to any Transfer Notice, the Company may,
within seven days of receipt of such Transfer Notice, and upon
written notice to the Proposed Transferor and each other Shareholder
of the Company, purchase all of such Offered Shares at the price and
on such terms as are set forth in the Transfer Notice;
(ii) In the event that the Company elects not to exercise its
right of first refusal pursuant to Section 5.6(b)(i) above, the
Company shall forthwith upon expiry of the 30-day period set forth
in Section 5.6(b)(i) above, by notice in writing inform each
Shareholder (other than the Proposed Transferor) of the number and
price of the Offered Shares and invite each shareholder to whom such
notice is given to apply in writing to the Company within 30 days of
the date of dispatch of the notice (which date shall be specified
therein) for such maximum number of the Offered Shares (being all or
any thereof) as such Shareholder shall specify in such application;
(iii) The Company shall, within seven days after the
expiration of the 30-day period referred to in paragraph (ii) above,
notify the Proposed Transferor of the number of Offered Shares, if
any, for which a purchaser or purchasers pursuant to paragraph (ii)
above has been found, and if such purchaser or purchasers is in
respect of some but not all of the Offered Shares the Proposed
Transferor shall be entitled to withdraw the Transfer Notice (in
whole, not in part) by written notice to the Company within five
days of such notification, but not if the Transfer Notice was given
or deemed given as provided in Section 5.6(c);
(iv) During the three months following the expiration of the
period of seven days referred to in paragraph (iii) above, the
Proposed Transferor (provided that the Transfer Notice has not been
withdraw under paragraph (iii) above) shall be at liberty to
transfer to any person not being an existing Shareholder at any
price not being less than the price stated in the Transfer Notice
(or, if Section 5.6(c) applies and if one has been fixed, the Fair
Value) any Share not allocated in accordance with the provisions of
this Section 5.6;
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(v) If the Shareholders shall, within the period of 30 days
referred to in paragraph (ii) above, apply for all or (except where
the Transfer Notice is withdrawn as aforesaid) any of the Offered
Shares, the Directors shall allocate the Offered Shares (or so many
of them as shall be applied for as aforesaid) to and amongst the
applicants (and in the case of competition pro rata according to the
number of Shares in respect of which they are registered or
unconditionally entitled to be registered as holders) provided that
no applicant shall be obliged to take more than the maximum number
of Offered Shares specified by such Shareholder as aforesaid and
provided further that any such allocation shall be rounded to the
nearest whole share such that all the Offered Shares are allocated;
(vi) The Company shall (forthwith following the period of five
days referred to in paragraph (iii) above and provided that the
Proposed Transferor shall not have withdrawn the Transfer Notice in
terms thereof) give notice in writing of allocations of Offered
Shares pursuant to paragraph (v) above (an "Allocation Notice") to
the Proposed Transferor and to the persons to whom Offered Shares
have been allocated and (provided that the aggregate number of
Shares so allocated coincides with the number of Shares notified to
the Proposed Transferor pursuant to paragraph (iii)) the Proposed
Transferor shall thereupon be bound to transfer the Shares allocated
upon payment of the price therefor. An Allocation Notice shall state
the names and addresses of the purchasers and the number of Shares
agreed to be purchased by them respectively and the purchases shall
be completed at such place and at such time as shall be specified by
the Company in such Notice being not less than two weeks nor more
than eight weeks after the date of such Notice;
(vii) If in any case the Proposed Transferor having become
bound as aforesaid makes default in accepting payment of the price
for any Offered Share or, as the case may be, in transferring the
same, the Directors may receive such purchase money and may nominate
some person to execute an instrument of transfer of such Shares in
the name and on behalf of the Proposed Transferor and thereafter
when such instrument has been duly stamped the Directors shall cause
the name of the purchaser to be entered in the Company's stock
register as the holder of such Shares and, where applicable, shall
hold the purchase money in trust without interest for the Proposed
Transferor. The receipt of the Directors of the purchase money shall
be a good discharge to the purchaser (who shall not be bound to see
to the application thereof) and after the purchaser's name has been
entered in the Company's stock register, in purported exercise of
the aforesaid powers, the validity of the proceedings shall not be
questioned by any person;
(viii)A Transfer Notice may stipulate that unless all the
Offered Shares are applied for pursuant to this Section 5.6, none
shall be sold.
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(c) In the event of a resolution being passed or an order or filing
being made for the liquidation, dissolution of or, bankruptcy or similar
insolvency proceeding with respect to any Shareholder then such
Shareholder or the liquidator, trustee, debtor in possession, or any like
person in charge of such liquidation, bankruptcy or dissolution (the
"Liquidator") shall be deemed to have immediately upon the happening of
such event given the Company a Transfer Notice in respect of all the
Shares registered in the name of the liquidated, dissolved or bankrupt
Shareholder for sale at the Fair Value thereof and the provisions of
Section 5.6(b) shall have effect accordingly.
(d) Notwithstanding any other provisions of this Agreement, (i) any
Share for the time being and from time to time held by any member of the
Founders Group may at any time be transferred, without restriction as to
price or otherwise and without giving rise to any right of first refusal
of other Shareholders under this Section 5.6, to any other member of the
Founders Group or to any of their family members or to any trust for the
benefit of any of the foregoing and the Directors shall be bound to
register any such transfer forthwith upon receipt by the Company of the
relevant transfer documents (and to the extent that the transferee is not
a party to this Agreement, the transferee having executed a counterpart to
this Agreement such that the transferred Shares shall continue to be
subject to the provisions of this Agreement), and (ii) Lipnick and Mintz
may at any time transfer up to an aggregate of 250,000 Shares and warrants
to purchase an aggregate of up to 34,800 additional Shares (unless
otherwise agreed between them, Lipnick may transfer up to two-thirds of
such numbers of Shares and warrants and Mintz may transfer up to one-third
of such number of Shares and warrants) to non-family members without
restriction as to price or otherwise and without giving rise to any right
of first refusal of other Shareholders under this Section 5.6, provided,
however, that any single transferee (including for such purpose
affiliates, family members and nominees of such transferee) to whom more
than 10,000 Shares or warrants are so transferred under this subparagraph
(d)(ii) must be approved by the Company's Board, and (iii) AJG or its
affiliated transferees may at any time transfer Shares and warrants to any
wholly-owned affiliate of Parent, and the Directors shall be bound to
register any such transfer forthwith upon receipt by the Company of the
relevant transfer documents (and to the extent that the transferee is not
a party to this Agreement, the transferee having executed a counterpart to
this Agreement such that the transferred Shares shall continue to be
subject to the provisions of this Agreement).
(e) Any Shareholder may waive his right to receive a Notice from the
Company under Section 5.6(b) in respect of any proposed transfer and upon
so doing shall cease to have any right of first refusal in respect of the
Shares concerned under that Section 5.6(b) and, if all of the Shareholders
entitled to receive Notice waive their rights to such Notice, the
provisions of Section 5.6(a) shall not apply and the Directors of the
Company shall (subject to Section 5.6(g)) be bound to register a transfer
of the Shares concerned as a permitted transfer.
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(f) The Directors shall refuse to register any proposed transfer of
a Share other than a transfer made pursuant to or permitted by the
provisions of this Section 5.6, and save as provided in Section 5.6(g),
the Directors shall register any transfer so made or permitted.
(g) Subject to Section 5.6(d), the Directors may decline to register
the transfer of a Share on which the Company has a lien and no share shall
be transferred to any bankrupt or person of unsound mind. If the Directors
refuse to register a transfer of any Shares they shall, within 30 days
after the date on which the transfer was lodged with the Company, send to
the transferee notice of their refusal.
(h) For the purposes of Sections 5.6(b), (c) and (d) only,
references to the Directors shall be read and construed as those Directors
of the Company not appointed by the holders of those Shares which are
being or proposed to be transferred.
(i) The rights granted to the Shareholders under Section 5.6 shall
expire immediately prior to, and shall not apply in connection with, the
consummation of the first Qualified Public Offering.
5.7 [Intentionally Omitted]
5.8 Right of Participation in Sales. (a)If at any time a Group (a
"Transferor Group") desires to sell twenty five percent (25%) or more of the
Shares owned by it to a third party (a "Proposed Transferee"), and those Shares
were permitted to be transferred pursuant to the provisions of Section 5.6(b)
hereof and have not been purchased by the Company or the other Shareholders
pursuant to Section 5.6(b) hereof, each of the other Shareholders (other than
those who have elected to purchase Shares pursuant to Section 5.6(b) hereof)
shall have the right to sell to the Proposed Transferee, as a condition to such
sale by the Transferor Group, at the same price per share and on the same terms
and conditions as involved in such sale by the Transferor Group, a pro rata
portion of the amount of Shares proposed to be sold to the Transferor
Transferee. The "pro rata portion" of Shares which a Shareholder shall be
entitled to sell to the Proposed Transferee shall be that number of Shares as
shall equal the number of Offered Shares proposed to be sold to the Proposed
Transferee multiplied by a fraction, the numerator of which is the aggregate of
all Shares which are then held by the Shareholder, and the denominator of which
is the aggregate of all Shares which are then held by the Transferor Group and
all other Shareholders wishing to participate in any sale under this Section
5.8.
(b) In the event that a Transferor Group wishes to make a sale to a
Proposed Transferee which is subject to this Section 5.8 it shall, after
complying with the provisions of Section 5.6, give to each other Shareholder
notice of such proposed sale, and stating that all Offered Shares were not
purchased pursuant to the Offer as discussed in Section 5.6. Such notice shall
be given at least 20 days prior to the date of the proposed sale to the Proposed
Transferee. Each Shareholder wishing to so participate in any sale under this
Section 5.8 shall notify the Transferor Group in writing of
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such intention within 15 days after such Shareholder's receipt of the notice
described in the preceding sentence.
(c) The Transferor Group and each participating Shareholder shall sell to
the Proposed Transferee all, or at the option of the Proposed Transferee, any
part of the Shares proposed to be sold by them at not less than the price and
upon other terms and conditions, if any, not more favorable to the Proposed
Transferee than those in the notice provided by the Transferor under
subparagraph (b) above; provided however, that any purchase of less than all of
such Shares by the Proposed Transferee shall be made from the Transferor Group
and each participating Shareholder based upon the relative number of the Shares
that the Transferor Group and each participating Shareholder is otherwise
entitled to sell pursuant to Section 5.8(a).
(d) If any Shares are sold pursuant to this Section 5.8 to any purchaser
who is not a party to this Agreement, the purchaser of such Shares shall execute
a counterpart of this Agreement as a precondition to the purchase of such Shares
and such Shares shall continue to be subject to the provisions of this
Agreement.
5.9 Registration Rights. (a) If on any of up to four occasions (no more
than two occasions per Group) after the consummation of the Company's first
Qualified Public Offering the Company shall receive from one or more members of
either Group a written request that the Company effect a registration of
Registrable Securities representing at least thirty three and one-third percent
(331/3%) of the aggregate Registrable Securities then owned by such Group
(provided that in no event shall the Company be required to register shares with
an aggregate market value of less than $2,000,000), in connection with a firm
commitment underwriting managed by a nationally recognized underwriter, the
Company will:
(i) promptly given written notice of the proposed registration to
all other Shareholders and other stockholders of the Company having "piggy
back" registration rights ("Other Holders");
(ii) as soon as practicable, use all commercially reasonable efforts
to effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of such portion of such Registrable
Securities as are specified in such request, together with such portion of
the Registrable Securities and stock of any Shareholders and Other Holders
joining in such request as are specified in written requests received by
the Company within 30 days after the sending of the foregoing written
notice to Shareholders and Other Holders. If the underwriter managing the
offering advises the Shareholders and Other Holders who have requested
inclusion of their Registrable Securities and shares in such registration
that marketing considerations require a limitation on the number of shares
offered, such limitation shall be imposed: (A) first, so as to exclude
shares held by Other Holders, and (B) thereafter, pro rata among such
Shareholders who requested inclusion of Registrable Securities in such
registration according to the number of Registrable Securities each such
Shareholder requested to be included in such registration; and
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(iii) the underwriter of any underwriting requested under this
Section 5.9(a) shall be selected by the Shareholders holding a majority of
the Registrable Securities included therein; provided that such
underwriter must be reasonably acceptable to the Company.
(b) The Company agrees that if at any time after the consummation of its
first Qualified Public Offering it shall determine to register any additional
securities for its own account or for the account of any Shareholder exercising
registration rights, other than a registration relating solely to employee
benefit plans on Form S-8 or any successor form, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) Promptly give to each Shareholder written notice thereof (which
shall include the number of shares the Company proposes to register and,
if known, the name of the proposed underwriter); and
(ii) Within thirty (30) days after the date of delivery of the
written notice from the Company described in clause (i) above, use all
reasonable efforts to include in such registration all the Shares
specified in a written request or requests made by any Shareholder. If the
underwriter advises the Company that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then the Company may offer all of the securities it proposes to
register for its own account or the maximum amount that the underwriter
considers saleable and such limitation on any remaining securities that
may, in the opinion of the underwriter, be sold will be imposed pro rata
among such Shareholders who request inclusion of Shares in such
registration according to the number of Shares each such Shareholder
requested to be included in such registration.
(iii) The Shareholders each acknowledge and agree that the Company
shall select the underwriter for an offering made pursuant to this Section
5.9(b).
(c) If the Company completes a Qualified Public Offering, the Company
agrees that it shall thereafter use all reasonable efforts to qualify and remain
qualified for registration on Form S-3 or any comparable or successor form; and
to that end the Company shall register (whether or not required by law to do so)
the Common Stock under the Securities Exchange Act of 1934 (the "Exchange Act")
in accordance with the provisions of the Exchange Act following the effective
date of the first registration of any securities of the Company on Form S-1 or
any comparable or successor form. After the Company has qualified for the use of
Form S-3, in addition to the rights contained in the foregoing provisions of
Section 3 hereof, the Shareholders who are members of each Group shall have the
one-time right to request registration on Form S-3 (such request shall be in
writing signed by a majority in interest of the Shareholders who are members of
the Group requesting registration and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such Shares by such Shareholders), and in no event
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<PAGE> 23
shall the Company be required to register shares with an aggregate market value
of less than $2,000,000.
(d) The Shareholders each acknowledge and agree that the Company need not
effect a registration under any paragraph of this Section 5.9 if (i) in the
written opinion of counsel for the Company, which counsel and the opinion so
rendered shall be reasonably acceptable to the Shareholders, such Shareholder
may sell without registration under the Act all Shares for which he requested
registration under the provisions of the Act and in the manner and in the
quantity in which the Shares were proposed to be sold, or (ii) the Company shall
have obtained from the Securities and Exchange Commission (the "Commission") a
"no-action" letter to that effect. The Company agrees that all Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to any paragraph of this Section 5.9 shall be paid by the
Company, other than fees and expenses of the Shareholders' respective legal
counsel and underwriting discounts or commissions with respect to the
Shareholders' Registrable Securities.
(e) With a view to making available the benefits of certain rules and
regulations of the Commission which may permit the sale of restricted securities
(as that term is used in Rule 144 under the Act) to the public without
registration, the Company agrees to:
(i) make and keep public information available as those terms
are understood and defined in Rule 144 under the Act, at all times
from and after ninety days following the effective date of the first
registration under the Act filed by the Company for an offering of
Common Stock to the general public;
(ii) use its reasonable efforts to file with the Commission in
a timely manner all reports and other documents required of the
Company under the Act and the Exchange Act at any time after it has
become subject to such reporting requirements; and
(iii) so long as a Shareholder owns any restricted securities,
furnish to such Shareholder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 (at any time from and after ninety days
following the effective date of the first registration statement
filed by the Company for an offering of its Common Stock to the
general public), and of the Act and Exchange Act (at any time after
it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such
other reports and documents so filed as such Shareholder may
reasonably request in availing itself of any rule or regulation of
the Commission allowing such Shareholder to sell any such securities
without registration.
ARTICLE VI
MISCELLANEOUS PROVISIONS
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<PAGE> 24
6.1 Entire Agreement; Amendment and Modification. This Agreement
represents the entire agreement among the parties hereto with respect to the
subject matter hereof and may be amended, modified or supplemented only by a
written instrument executed by each of AJG, Lipnick and Mintz (so long as each
of them owns Shares), it being specifically understood that this Agreement can
be amended in any way by a written instrument signed by AJG, Lipnick and Mintz
without the consent or signature of any other party hereto.
6.2 No Partnership or Agency. This Agreement shall not be construed as
creating any partnership or agency between any of the parties hereto.
6.3 Further Assurances. Each of the parties hereby covenant separately
with each of the others that insofar as it is within his or its power, he or it
will take and do all necessary steps and actions or otherwise act or omit to act
(including but without limitation by the exercise of all powers and voting
rights held by him or it as a holder of Shares or as a director of the Company)
to ensure that the provisions of this Agreement are given and remain in full
force and effect.
6.4 Waivers of Compliance. Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation, covenant,
agreement or condition herein may be waived by the party or parties entitled to
the benefits thereof only by a written instrument signed by the party or parties
granting such waiver, but any such waiver or the failure to insist upon strict
compliance with any obligation, covenant, agreement or condition herein, shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure or breach.
6.5 Payment Default. Except as otherwise provided in this Agreement, if
any party hereto fails to pay by the due time any sum due hereunder, or any part
thereof, such sum, or unpaid part thereof shall, for so long as it remains
outstanding, bear interest calculated on a daily basis from and including the
date such sum was due until and including the date such sum is paid in full at a
rate equal to three percent above the Prime Rate (as such term is defined
below).
For purposes of this Agreement, "Prime Rate" means at any time the rate of
interest publicly announced from time to time by the Citibank N.A. ("Citibank")
at its principal office in New York as its prime rate or prime lending rate.
This rate of interest is determined from time to time by Citibank as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by Citibank to any particular class or category of customers of
Citibank.
6.7 Remedies. (a) The rights and remedies reserved to any party hereof or
under any provision of this Agreement shall be in addition and without prejudice
to any other rights or remedies available to such parties whether under this
Agreement or any such document by statute, common law or otherwise, including
but no limited to equitable relief, including injunction, to prevent breaches
and to compel the performance of the terms hereof.
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<PAGE> 25
(b) The parties acknowledge and agree that irreparable and immediate
damage will result to the Company if any party hereto breaches the provisions of
Sections 3.8, 3.9, 4.1 or 4.2 hereof. In the event of any breach of Sections
3.8, 3.9, 4.1 or 4.2 hereof, the Company shall be entitled to such equitable and
injunctive relief as may be available to restrain the violation of such
provisions.
6.8 Notices.
(a) Any notice or other communication hereunder shall be sufficiently
given if delivered personally, by facsimile transmission to the office of the
recipient or to such other place as the recipient shall have designated earlier,
or sent by registered or certified mail, postage prepaid, addressed to:
(i) in the case of Lipnick, c/o Asset Alliance Corporation, 90 Broad
Street, Suite 820, New York, New York 10004, Attn: Bruce H. Lipnick, fax
(212) 480-4149;
(ii) in the case of Mintz, c/o Asset Alliance Corporation, 90 Broad
Street, Suite 820, New York, New York 10004, Attn: Arnold L. Mintz, fax
(212) 480-4149;
(iii) in the case of the Company, to Asset Alliance Corporation, 90
Broad Street, Suite 820, New York, New York 10004, Attn: Arnold L. Mintz,
with a copy to Carter, Ledyard & Milburn, Two Wall Street, New York, New
York 10005, Attention: James E. Abbott, Esq., fax (212) 732-3232; and
(iv) in the case of AJG or Parent, to Arthur J. Gallagher & Co., The
Gallagher Centre, Two Pierce Place, Itasca, Illinois 60143-3141, Attn:
David R. Long, fax (708) 285-4000, with a copy to John C. Rosengren, Vice
President and General Counsel, fax (708) 285-3483;
or to such other person or address as shall be furnished in writing by any
party to the others prior to the giving of the applicable notice or
communication, and such notice or communication shall be deemed to have
been given as of the date so delivered or sent.
(b) Proof that an envelope containing a notice was properly
addressed, prepaid and posted shall be conclusive evidence that the notice
was given. A notice shall be deemed to be given at the expiration of 48
hours after the envelope containing it was posted, and a notice sent by
telex or facsimile shall be deemed to arrive on the date of dispatch.
6.9 Counterparts. This Agreement may be executed in any number of
counterparts, and by any party on separate counterparts, each of which as so
executed and delivered shall be deemed an original but all of which together
shall constitute one and the same instrument, and it shall not be necessary in
making proof of this Agreement as to any party hereto to produce or account for
more than one such counterpart executed and delivered by such party.
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<PAGE> 26
6.10 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement, and shall not be deemed to limit or affect
any of the provisions hereof.
6.11 Severability. If any provision of this Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and this Agreement shall be carried out as nearly as possible
according to its original terms and intent.
6.12 New York Law. This Agreement shall be governed by and construed in
all respects, including validity, interpretation and effect, in accordance with
the laws of the State of New York applicable to contracts made and to be
performed wholly therein, without regard to the conflict of laws principles
thereof.
6.13 Suits in Delaware. The parties hereto agree that any action or
proceeding relating in any way to this Agreement or the transactions
contemplated hereby which by nature and amount in controversy qualifies shall be
brought only in the Superior Court in and for New Castle County, State of
Delaware and shall proceed and be determined under such court's rules governing
Summary Proceedings for Commercial Disputes.
6.14 No Assignment. This Agreement shall not be assignable by any party
without the consent in writing of all of the other parties hereto but shall be
binding upon and enure for the benefit of each party's successors, personal
representatives and permitted assigns. For the avoidance of doubt, the foregoing
shall not prejudice in any manner the right of the parties hereto to transfer
Shares where such transfers would be permitted transfers in accordance with the
terms of the Certificate of Incorporation and By-Laws of the Company from time
to time.
6.15 Duration of Agreement. This Agreement shall continue until terminated
by the earlier to occur of: (i) agreement approved in writing by Lipnick, Mintz
and AJG, or (ii) the tenth anniversary of the date of this Agreement. The rights
and obligations of the parties under Sections 2.3, 2.4, 2.5, 2.6, 2.8, 2.14,
3.4(e), 5.3 and 5.6 shall automatically and without further action on the part
of the parties hereto be deemed terminated upon the closing of a Qualified
Public Offering; the rights and obligations of the parties under Sections 3.4(a)
(b) (d) and (f), 3.5(e), 3.8, 3.9, 4.1, 4.2, 5.1, 5.8, 5.9 and 6.16 shall
continue in full force and effect after the closing of a Qualified Public
Offering. The obligations of Shareholders under Article IV and Sections 3.4(c)
and (d), shall survive termination of this Agreement.
6.16 Parent Guarantee. Parent hereby guarantees to the other Shareholders
the payment and performance by AJG of each and every obligation, covenant and
agreement of AJG pursuant to this Agreement.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
-------------------------------------
Arnold L. Mintz, Executive Vice President
AJG FINANCIAL SERVICES, INC.
By: /s/ John C. Rosengren
-------------------------------------
John C. Rosengren, Vice President
ARTHUR J. GALLAGHER & CO.
By: /s/ John C. Rosengren
-------------------------------------
John C. Rosengren, Vice President
/s/ Bruce H. Lipnick
-------------------------------
Bruce H. Lipnick
/s/ Arnold L. Mintz
-------------------------------
Arnold L. Mintz
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<PAGE> 1
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and entered
into as of this 27th day of February, l998, by and among Asset Alliance
Corporation ("Parent") a Delaware corporation, and John I. Bloomberg, Robert M.
Poole, Daniel P. Wimsatt and Richard Hornbuckle and Steven Brase (each a
"Shareholder" and together, the "Shareholders").
WHEREAS, the Parent and the Shareholders are parties to the Merger
Agreement, dated as of February 20, 1998, by and among the Parent, Asset
Alliance Bricoleur Merger Co. Inc., a Delaware corporation ("Newco"), Bricoleur
Capital Management LLC, a Delaware limited liability company ("LLC"), Bricoleur
Capital Management, Inc., a Utah corporation (the "Company"), and the
Shareholders (the "Merger Agreement") pursuant to which the Shareholders will
receive, among other consideration, pro rata in accordance with their interests
in the shares of the Company, 2,880,000 shares of Common Stock, par value $.01
per share, of Parent ("Parent Common Stock") and $5,850,000 in principal amount
of convertible subordinated debentures (the "Debentures") of the Parent in the
form attached to the Merger Agreement. As used in this Agreement, the term
"Shares" refers to the shares of Parent Common Stock acquired pursuant to the
Merger Agreement, any Parent Common Stock to be acquired upon conversion of the
Debentures and, if applicable, upon exercise of the Option granted to the
Shareholders pursuant to Section 2.8(d) of the Merger Agreement and any capital
stock of the Company issued by way of a stock split, stock dividend,
recapitalization, merger or other distribution with respect to, or in exchange
for, or in replacement of, such Parent Common Stock that Shareholder has
requested to be so registered; and
WHEREAS, the Shareholders have requested that, in connection with the
Merger Agreement, the Parent provide a means of registering the Parent Common
Stock under the Securities Act of 1933, as amended (the "Securities Act"), and
the Parent is willing to provide such registration as provided herein;
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the
agreements herein contained, the parties hereto agree as follows:
1. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Parent proposes
to register any of its equity securities under the Securities Act and
the registration form to be used may be used for the registration of
Shares (a "Piggyback Registration"), the Parent will give prompt
written notice to all Shareholders of its intention to effect such a
registration and will, subject to paragraphs (b), (c) and (d) below,
include in such registration all Shares held by any Shareholder who
holds in excess of 1% of the then outstanding Shares (each, an
("Eligible Shareholder") with respect to which the Parent has received
written requests for inclusion therein within 15 days after the receipt
of the Parent's notice.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Parent (whether or not also on behalf of holders of the Parent's
securities), and the managing underwriters advise the Parent in writing
that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such
offering, the Parent will include in such registration (i) first, the
securities the Parent proposes to sell, (ii) second, the Shares
requested to be included in such registration, pro rata among the
requesting Eligible Shareholders, and (iii) third, other securities
requested to be included in such registration.
(c) Priority on Secondary Registrations. If a
Piggyback Registration is an underwritten secondary registration on
behalf of holders of the Parent's securities, and the managing
underwriters advise the Parent in writing that in their opinion the
number of securities requested to be included in such registration
exceeds the number which can be sold in such offering, the Parent will
include in such registration (i) first, the securi-
2
<PAGE> 3
ties requested to be included therein by the holders demanding such
registration and, (ii) second, the Shares requested to be included in
such registration, pro rata among the requesting Eligible Shareholders
and (iii) third, other securities requested to be included in such
registration.
(d) Nothing in this Section 1 will prohibit the
Parent, in its sole discretion, from determining, at any time, not to
file a registration statement or, if filed, to withdraw such
registration or terminate the registration related thereto.
2. Selection of Underwriters. If any offering pursuant to a
Registration Statement is an underwritten offering, the Parent will select a
managing underwriter or underwriters to administer the offering.
3. Registration Expenses. All expenses incident to the
Parent's performance of or compliance with its obligations under this Agreement
(excluding underwriting discounts, selling commissions and brokerage fees, which
will be paid by the Shareholders) will be paid by the Parent, regardless of
whether Shares are sold pursuant to any registration statement filed pursuant to
Section 1 above (a "Registration Statement").
4. Indemnification; Contribution.
(a) Indemnification by the Parent. The Parent agrees
to indemnify each Shareholder and any agent or investment adviser
thereof against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses of investigation)
incurred by such party pursuant to any actual or threatened action,
suit, proceeding or investigation arising out of or based upon (i) any
untrue or allegedly untrue statement of material fact contained in any
Registration Statement, any prospectus or preliminary prospectus, or
any amendment or supplement to any of the foregoing or (ii) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein (in
the case of a prospectus or a preliminary prospectus, in light of the
circumstances then existing) not mis-
3
<PAGE> 4
leading, except in each case insofar as the same arise out of or are
based upon, any such untrue statement or omission made in reliance on
and in conformity with information with respect to such indemnified
party furnished in writing to the Parent by such indemnified party or
its counsel expressly for use therein. Notwithstanding the foregoing
provisions of this paragraph (a), the Parent will not be liable to any
Shareholder, any person who participates as an underwriter in the
offering or sale of Shares or any other person, if any, who controls
such holder or underwriter (within the meaning of the Securities Act),
under the indemnity agreement in this paragraph (a) for any such loss,
claim, damage, liability (or action or proceeding in respect thereof)
or expense that arises out of such Shareholder's or other person's
failure to send or give a copy of the final prospectus to the person
asserting an untrue statement or alleged untrue statement or omission
or alleged omission at or prior to the written confirmation of the sale
of the Shares to such person if such statement or omission was
corrected in such final prospectus and the Parent has previously
furnished copies thereof to such Shareholder.
(b) Indemnification by Shareholders. In connection
with the Registration Statement, each participating Shareholder will
furnish to the Parent in writing such information, including with
respect to the name, address and the amount of Shares held by such
Shareholder, as the Parent reasonably requests for use in such
Registration Statement or the related prospectus and agrees to
indemnify and hold harmless the Parent, all other prospective holders
or any underwriter, as the case may be, and any of their respective
affiliates, directors, officers and controlling Persons (within the
meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in such Registration Statement or
prospectus or any amendment or supplement to either of them or
necessary to make the statements therein (in the case of a prospectus,
in the light of the circumstances then existing) not misleading,
4
<PAGE> 5
but only to the extent that any such untrue statement or omission is
made in reliance on and in conformity with information with respect to
such Shareholder furnished in writing to the Parent by such Shareholder
or its counsel specifically for inclusion therein.
(c) Conduct of Indemnification Proceedings. Any
person entitled to indemnification hereunder agrees to give prompt
written notice to the indemnifying party after the receipt by such
indemnified party of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof made in
writing for which such indemnified party may claim indemnification or
contribution pursuant to this Agreement (provided that failure to give
such notification shall not affect the obligations of the indemnifying
person pursuant to this Section 4 except to the extent the indemnifying
party shall have been actually prejudiced as a result of such failure).
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
these indemnification provisions for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof other
than reasonable costs of investigation, unless in the reasonable
judgment of any indemnified party a conflict of interest is likely to
exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the reasonable fees and expenses of
such additional counsel or counsels. The indemnifying party will not be
subject to any lia-
5
<PAGE> 6
bility for any settlement made without its consent (which will not be
unreasonably withheld).
(d) Contribution. If the indemnification from the
indemnifying party provided for in this Section 4 is unavailable to the
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute
to the amount paid or payable by such indemnified party as a result of
such losses, claims, damages, liabilities and expenses in such
proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified party in connection with the actions
which resulted in such losses, claims, damages, liabilities and
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified party shall
be determined by reference to, among other things, whether any action
in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result
of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth
in paragraph (c) above, any legal and other fees and expenses
reasonably incurred by such indemnified party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 4 were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. Notwithstanding the provisions
of this Section 4, no underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to
the public
6
<PAGE> 7
exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Shareholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the Shares of such Shareholder were offered to the
public (net of all underwriting discounts and commissions) exceeds the
amount of any damages which such Shareholder has otherwise been
required to pay by reason of such untrue statement or omission. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation.
5. Participation in Underwritten Registrations. No
Shareholder may participate in any underwritten offering hereunder
unless such Shareholder (i) agrees to sell his Shares on the basis
provided in any underwriting arrangements approved by the Parent in its
reasonable discretion and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements.
6. Rule 144. For a period of one year following the
date of the completion of the "firm underwritten" offering of Shares
contemplated by Section 2.8(m) of the Merger Agreement (or such shorter
period as may permit the sale of Shares under Rule 144 under the
Securities Act without regard to the requirement of "current public
information"), the Parent covenants that it will file the reports
required to be filed by it under the Securities Act and the Securities
Exchange Act of 1934, as amended, and the rules and regulations adopted
by the Securities and Exchange Commission ("SEC") thereunder (or, if
the Parent is not required to file such reports, it will, upon the
request of any Shareholder make publicly available other information so
long as necessary to permit sales under Rule 144 under the Securities
Act), and it will take such further action as any Shareholder may
reasonably request, all to the extent required from time to
7
<PAGE> 8
time to enable such Shareholder to sell Shares without registration
under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any Shareholder, the
Parent will deliver to such Shareholder a written statement as to
whether it has complied with such requirements.
7. Remedies. Each Shareholder, in addition to being
entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under
this Agreement.
8. Parties in Interest; No Third Party Beneficiaries.
(a) This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns. This Agreement and the
rights and obligations of the Parent and the Shareholders hereunder may
not be assigned by any of the parties hereto without the prior written
consent of the other parties.
(b) This Agreement is not intended, nor shall it be
construed, to confer any rights or remedies under or by reason of this
Agreement upon any person except the parties hereto and their heirs,
successors and permitted assigns.
9. Entire Agreement. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of
the subject matter hereof. This Agreement supersedes all prior
agreements, arrangements and understandings of the parties with respect
to such subject matter.
10. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument.
8
<PAGE> 9
11. Headings. The section headings contained in this
Agreement are for convenience only and shall not control or affect in
any way the meaning or interpretation of the provisions of this
Agreement.
12. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
without giving effect to the conflicts of law principles of such
jurisdiction.
13. Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be
deemed to have been duly given at the time of delivery if personally
delivered or tele-copied (with confirmation of receipt), the next day,
if delivered by nationally-recognized overnight express service, or
five (5) days, if sent by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following
addresses:
(a) If to the Parent to:
Asset Alliance Corporation
800 Third Avenue
16th Floor
Telephone Number: 212-207-8786
Facsimile Number: 212-207-8785
Attn: Arnold Mintz
with copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Telephone Number: (212) 735-3000
Facsimile Number: (212) 735-2000
Attn: Richard T. Prins, Esq.
(b) If to Shareholders, to the addresses
provided to the Parent at the closing
of the Merger Agreement.
9
<PAGE> 10
or to such other address as the person to whom notice is to be given
may have previously furnished to the other in writing in the manner set
forth above, provided that notice of a change of address shall be
deemed given only upon receipt.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, on the day and year first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
-----------------------------------
Arnold L. Mintz
Executive Vice President
/s/ John I. Bloomberg
-------------------------
John I. Bloomberg
/s/ Robert M. Poole
-------------------------
Robert M. Poole
/s/ Daniel P. Wimsatt
-------------------------
Daniel P. Wimsatt
/s/ Steven A. Brase
-------------------------
Steven A. Brase
/s/ Richard J. Hornbuckle
-------------------------
Richard J. Hornbuckle
<PAGE> 1
Exhibit 4.5
REGISTRATION AND TAG ALONG
RIGHTS AGREEMENT
REGISTRATION AND TAG ALONG RIGHTS AGREEMENT, dated as of October 1,
1996, among, Asset Alliance Corporation, a Delaware corporation ("AAC"), Trust
Advisory Group, Inc., a Connecticut corporation ("TAG"), and Arnold L. Mintz and
Bruce A. Lipnick (together, the "Principals" and each a "Principal"), pursuant
to the Purchase Agreement (as defined below).
R E C I T A L S
WHEREAS, TAG has, pursuant to the terms of a Preferred Interest
Purchase Agreement (the "Purchase Agreement"), dated as of September 30, 1996
among AAC, Asset Alliance Holding Corp., and TAG, Trust Advisors LLC, and Mark
R. Tonucci and Michael E. Portnoy (together, the "TAG Stockholders"), may
acquire shares of the Common Stock, par value $0.01 per share, of AAC ("AAC
Common Stock"); and
WHEREAS, AAC has agreed to grant TAG certain registration rights with
respect to any shares of AAC Common Stock acquired by TAG pursuant to the terms
of the Purchase Agreement; and
WHEREAS, the Principals have agreed to grant TAG certain participation
rights with respect to future sales of AAC Common Stock; and
WHEREAS, the parties hereto desire to define the registration and
participation rights of TAG on the terms and subject to the conditions herein
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective
meanings set forth below:
Commission: shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act;
Convertible Subordinated Debenture: shall mean the Convertible
Subordinated Debenture issued to TAG by AAC on the date hereof in the aggregate
principal amount of $750,000;
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Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended;
Person: shall mean an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof;
Qualified Public Offering: shall mean the closing of an underwritten
public offering by AAC pursuant to a registration statement filed and declared
effective under the Securities Act covering the offer and sale of AAC Common
Stock for the account of AAC;
register, registered and registration: shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: shall mean (A) any shares of AAC Common Stock
acquired by TAG upon conversion of the Convertible Subordinated Debenture, (B)
any shares of AAC Common Stock acquired by TAG upon exercise of the Warrants,
and (C) any shares of AAC Common Stock acquired by the TAG Stockholders upon
exercise of the Options, and (D) any shares of AAC Common Stock issued to TAG as
a dividend or other distribution with respect to, or in exchange for or in
replacement of, the shares of AAC Common Stock referred to in clause (A), (B) or
(C); provided, that Registrable Securities shall not include (i) securities with
respect to which a registration statement with respect to the sale of such
securities has become effective under the Securities Act and all such securities
have been disposed of in accordance with such registration statement, or (ii)
such securities as are actually sold pursuant to Rule 144 (or any successor
provision thereto) under the Securities Act;
Registration Expenses: shall mean all expenses incurred by AAC in
compliance with Article 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for AAC, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of AAC, which shall be paid in any event by
AAC);
Security, Securities: shall have the meaning set forth in Section 2(1)
of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended; and
Selling Expenses: shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for TAG.
2. REGISTRATION RIGHTS
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(a) AAC agrees that if at any time after the consummation of its first
Qualified Public Offering it shall determine to register any additional
securities for its own account or for the account of any shareholder exercising
registration rights, other than a registration relating solely to employee
benefit plans on Form S-8 or any successor form, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Securities, AAC will:
(i) Promptly give TAG and the TAG Stockholders written notice
thereof (which shall include the number of shares AAC proposes to
register and, if known, the name of the proposed underwriter); and
(ii) Within thirty (30) days after the date of delivery of the
written notice from AAC described in clause (i) above, use all
reasonable efforts to include in such registration all the Registrable
Securities specified in a written request or requests made by TAG or
either of the TAG Stockholders (the "Requesting Stockholders"). If the
underwriter advises AAC that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then AAC may offer all of the securities it proposes to
register for its own account and for the accounts of the parties to the
Shareholders Agreement among AAC, Arthur J. Gallagher & Co. and the
Principals, or the maximum amount that the underwriter considers
saleable and such limitation on any remaining securities that may, in
the opinion of the underwriter, be sold will be imposed pro rata among
such other shareholders (including the Requesting Stockholders) who
request inclusion of securities in such registration according to the
number of securities each such shareholder requested to be included in
such registration.
(iii) The Requesting Stockholders acknowledge and agree that
AAC shall select the underwriter for an offering made pursuant to these
provisions.
(b) The Requesting Stockholders acknowledge and agree that AAC need not
effect a registration under these provisions if (i) in the written opinion of
counsel for AAC, the Requesting Stockholders may sell without registration under
the Securities Act all Registrable Securities for which the Requesting
Stockholders requested registration under the provisions of the Act and in the
manner and in the quantity in which the Registrable Securities were proposed to
be sold, or (ii) AAC shall have obtained from the Commission a "no-action"
letter to that effect. AAC agrees that all Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to these
provisions shall be paid by AAC, other than Selling Expenses consisting of the
fees and expenses of the Requesting Stockholders legal counsel and underwriting
discounts or commissions with respect to the Requesting Stockholders'
Registrable Securities.
(c) Notwithstanding the foregoing, if, at any time after giving such
written notice of its
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intention to effect such registration and prior to the effective date of the
registration statement filed in connection with such registration, AAC shall
determine for any reason not to register such equity securities AAC may, at its
election, give written notice of such determination to the Requesting
Stockholders and thereupon AAC shall be relieved of its obligation to register
such Registrable Securities in connection with the registration of such equity
securities.
(d) If the registration of which AAC gives notice is for a registered
public offering involving an underwriting, AAC shall so advise TAG and each of
the TAG Stockholders as a part of the written notice given pursuant to Section
2(a) above. In such event, the right of each of the Requesting Stockholders to
registration pursuant to this Article 2 shall be conditioned upon such
Requesting Stockholder's participation in such underwriting and the inclusion of
such Requesting Stockholder's Registrable Securities in the underwriting to the
extent provided herein. The Requesting Stockholders whose Registrable Securities
are to be included in such registration shall (together with AAC and the Other
Stockholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for the underwriting by AAC or such
shareholder of AAC as shall have requested such registration, as the case may
be. Such underwriting agreement will contain such representations and warranties
by AAC and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution and the provision of opinions
of counsel and accountants' letters, and the representations and warranties by,
and the other agreements on the part of, AAC to and for the benefit of such
underwriters shall also be made to and for the benefit of the Requesting
Stockholders whose Registrable Securities are to be included in such
registration. Notwithstanding any other provision of this Article 2, if the
representative determines that marketing factors require a limitation on the
number of shares to be underwritten, AAC shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated as set forth in Section 2(a) hereof. If any of the Requesting
Stockholders disapproves of the terms of any such underwriting, he or it may
elect to withdraw therefrom by written notice to AAC and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(e) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article 2 shall be borne by AAC, and all Selling Expenses shall be borne by the
Requesting Stockholders of the Registrable Securities so registered pro rata on
the basis of the number of their Registrable Securities so registered.
(f) Termination. The registration rights set forth herein shall not be
available to any Requesting Stockholder if, in the opinion of counsel to AAC,
all of the Registrable Securities then owned by such Requesting Stockholder
could be sold in any 90-day period pursuant to Rule 144(without giving effect to
the provisions of Rule 144(k)).
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3. REGISTRATION PROCEDURES. In the case of each registration effected by
AAC pursuant to Section 2, AAC will keep the Requesting Stockholders, as
applicable, advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, AAC will:
(a) furnish to each Requesting Stockholder, and to any underwriter
before filing with the Commission, copies of any registration statement
(including all exhibits) and any prospectus forming a part thereof and any
amendments and supplements thereto (including all documents incorporated or
deemed incorporated by reference therein prior to the effectiveness of such
registration statement and including each preliminary prospectus, any summary
prospectus or any term sheet (as such term is used in Rule 434 under the
Securities Act)) and any other prospectus filed under Rule 424 under the
Securities Act, which documents, other than documents incorporated or deemed
incorporated by reference, will be subject the review of the Requesting
Stockholders and any such underwriter for a period of at least five business
days, and AAC shall not file any such registration statement or such prospectus
or any amendment or supplement to such registration statement or prospectus to
which any Requesting Stockholder or any such underwriter shall reasonably object
within five business days after the receipt thereof; a Requesting Stockholder or
such underwriter(s), if any, shall be deemed to have reasonably objected to such
filing only if the registration statement, amendment, prospectus or supplement,
as applicable, as proposed to be filed, contains a material misstatement or
omission;
(b) furnish to each Requesting Stockholder and to any underwriter, such
number of conformed copies of the applicable registration statement and of each
amendment and supplement thereto (in each case including all exhibits) and such
number of copies of the prospectus forming a part of such registration statement
(including each preliminary prospectus, any summary prospectus or any term sheet
(as such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, including without
limitation documents incorporated or deemed to be incorporated by reference
prior to the effectiveness of such registration, as each of the Requesting
Stockholders or any such underwriter, from time to time may reasonably request;
(c) to the extent practicable, promptly prior to the filing of any
document that is to be incorporated by reference into any registration statement
or prospectus forming a part thereof subsequent to the effectiveness thereof,
and in any event no later than the date such document is filed with the
Commission, provide copies of such document to the Requesting Stockholders, if
requested, and to any underwriter, make representatives of AAC available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as any
Requesting Stockholder or any such underwriter reasonably may request;
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(d) make available at reasonable times for inspection by the Requesting
Stockholders, any underwriter participating in any disposition pursuant to such
registration and any attorney or accountant retained by the Requesting
Stockholders or any such underwriter, all financial and other records, pertinent
corporate documents and properties of AAC and cause the officers, directors and
employees of AAC to supply all information reasonably requested by the
Requesting Stockholders and any such underwriters, attorneys or accountants in
connection with such registration subsequent to the filing of the applicable
registration statement and prior to the effectiveness of the applicable
registration statement;
(e) use its reasonable best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration under
such other securities or blue sky laws of such States of the United States of
America where an exemption is not available and as the sellers of Registrable
Securities covered by such registration shall reasonably request, (y) to keep
such registration or qualification in effect for so long as the applicable
registration statement remains in effect, and (z) to take any other action which
may be reasonably necessary or advisable to enable such sellers to consummate
the disposition in such jurisdictions of the Registrable Securities to be sold
by such sellers, except that AAC shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
where it is not so qualified, or to subject itself to taxation in any such
jurisdiction, or to execute a general consent to service of process in effecting
such registration, qualification or compliance, unless AAC is already subject to
service in such jurisdiction and except as may be required by the Securities Act
or applicable rules or regulations thereunder;
(f) use its reasonable best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to AAC and counsel to the holders of Registrable
Securities to enable the holders thereof to consummate the disposition of such
Registrable Securities;
(g) promptly notify each holder of Registrable Securities covered by a
registration statement (A) upon discovery that, or upon the happening of any
event as a result of which, the prospectus forming a part of such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any 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, (B) of the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or the
initiation of proceedings for that purpose, (C) of any request by the Commission
for (1) amendments to such registration statement or any document incorporated
or deemed to be incorporated by reference in any such registration statement,
(2) supplements to the prospectus forming a part of such registration statement
or (3) additional information, (D) of the receipt by AAC of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
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jurisdiction or the initiation of any proceeding for such purpose, and at the
request of any such holder promptly prepare and furnish to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading;
(h) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of any such registration, or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction;
(i) if requested by any Requesting Stockholder, or any underwriter,
promptly incorporate in such registration statement or prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as the
Requesting Stockholder and any underwriter may reasonably request to have
included therein, including, without limitation, information relating to the
"plan of distribution" of the Registrable Securities, information with respect
to the principal amount or number of shares of Registrable Securities being sold
to such underwriter, the purchase price being paid therefor and any other terms
of the offering of the Registrable Securities to be sold in such offering and
make all required filings of any such prospectus supplement or post-effective
amendment as soon as practicable after AAC is notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(j) furnish to the Requesting Stockholders, addressed to them, an
opinion of counsel for AAC, dated the date of the closing under the underwriting
agreement, if any, or the date of effectiveness of the registration statement if
such registration is not an underwritten offering, and use its reasonable best
efforts to furnish to the Requesting Stockholders, addressed to them, a "cold
comfort" letter signed by the independent certified public accountants who have
certified AAC's financial statements included in such registration, covering
substantially the same matters with respect to such registration (and the
prospectus included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of securities and
such other matters as the Requesting Stockholders may reasonably request;
(k) provide promptly to the Requesting Stockholders upon request any
document filed by AAC with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act; and
(l) use its reasonable best efforts to cause all Registrable Securities
included in any
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registration pursuant hereto to be listed on each securities exchange on which
securities of the same class are then listed or, if not then listed on any
securities exchange, to be eligible for trading in any over-the-counter market
or trading system in which securities of the same class are then traded.
4. INDEMNIFICATION.
(a) AAC will indemnify each of the Requesting Stockholders, as
applicable, with respect to each registration which has been effected pursuant
to this Agreement, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by AAC of the Securities
Act or the Exchange Act or any rule or regulation thereunder applicable to AAC
and relating to action or inaction required of AAC in connection with any such
registration, qualification or compliance, and will reimburse each of the
Requesting Stockholders for any legal and any other expenses reasonably incurred
in connection with investigating and defending any such claim, loss, damage,
liability or action, provided that AAC will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission based upon written information
furnished to AAC by the Requesting Stockholders specifically for use in such
prospectus, offering circular or other document.
(b) Each of the Requesting Stockholders will, if Registrable Securities
held by it are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify AAC, each of its
directors and officers and each underwriter, if any, of AAC's securities covered
by such a registration statement, each person who controls AAC or such
underwriter, each other stockholder of AAC and each of their officers,
directors, members and partners, and each person controlling such other
stockholder against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such
Requesting Stockholder, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
by such Requesting Stockholder therein not misleading, and will reimburse AAC
and such other stockholders, directors, officers, partners, members, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance
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upon and in conformity with written information furnished to AAC by such
Requesting Stockholder and stated to be specifically for use therein; provided,
however, that the obligations of each of the Requesting Stockholders hereunder
shall be limited to an amount equal to the net proceeds to such Requesting
Stockholder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of one such counsel for all Indemnified Parties shall be at
the expense of the Indemnifying Party), and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 4 unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld or
delayed), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 4 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged omission) to
state a material fact relates to information supplied by the Indemnifying Party
or by the Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
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(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with any underwritten public offering contemplated by this
Agreement are in conflict with the foregoing provisions, the provisions in such
underwriting agreement shall be controlling.
(f) The foregoing indemnity agreement of AAC and Requesting
Stockholders is subject to the condition that, insofar as they relate to any
loss, claim, liability or damage made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the time
the registration statement in question becomes effective or the amended
prospectus filed with the Commission pursuant to Commission Rule 424(b) (the
"Final Prospectus"), such indemnity or contribution agreement shall not inure to
the benefit of any underwriter or Requesting Stockholder (but only if such
Requesting Stockholder was required to deliver such Final Prospectus) if a copy
of the Final Prospectus was furnished to the underwriter and was not furnished
to the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
5. TAG ALONG RIGHTS
(a) If at any time prior to a Qualified Public Offering, either of the
Principals (a "Selling Principal") desires to sell thirty three percent (33%) or
more of the shares of AAC Common Stock owned by it to a third party (a "Proposed
Transferee"), and those shares of AAC Common Stock to be transferred (the
"Offered Shares") have not been purchased by AAC or another stockholder of AAC,
each of TAG and the TAG Stockholders shall have the right to sell to the
Proposed Transferee, as a condition to such sale by the Selling Principal, at
the same price per share and on the same terms and conditions as involved in
such sale by the Selling Principal, a pro rata portion of the amount of shares
of AAC Common Stock proposed to be sold to the Proposed Transferee. The "pro
rata portion" of shares of AAC Common Stock which TAG and the TAG Stockholders
shall be entitled to sell to the Proposed Transferee shall be that number of
shares of AAC Common Stock as shall equal the number of Offered Shares proposed
to be sold to the Proposed Transferee multiplied by a fraction, the numerator of
which is the aggregate of all shares of AAC Common Stock which are then held by
TAG or the TAG Stockholder, and the denominator of which is the aggregate of all
shares of AAC Common Stock which are then held by the Selling Principal and all
other shareholders wishing to participate in any sale under this Section 5(a).
(b) In the event that a Selling Principal wishes to make a sale to a
Proposed Transferee which is subject to this Section 5 it shall give to each of
TAG and the TAG Stockholders notice of such proposed sale, stating the number of
Offered Shares proposed to be sold to the Proposed Transferee. Such notice shall
be given at least 20 days prior to the date of the proposed sale to the Proposed
Transferee. Each shareholder wishing to so participate in any sale under Section
5(a) above shall notify the Selling Principal in writing of such intention
within 15 days after such shareholder's receipt of the notice described in the
preceding sentence.
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(c) The Selling Principal and each participating shareholder shall sell
to the Proposed Transferee all, or at the option of the Proposed Transferee, any
part of the shares of AAC Common Stock proposed to be sold by them at not less
than the price and upon other terms and conditions, if any, not more favorable
to the Proposed Transferee than those in the notice provided by the Selling
Principal under subparagraph (b) above; provided however, that any purchase of
less than all of such shares of AAC Common Stock by the Proposed Transferee
shall be made from the Selling Principal and each participating shareholder pro
rata based upon the relative number of the shares of AAC Common Stock that the
Selling Principal and each participating shareholder is otherwise entitled to
sell pursuant to this Section 5.
6. MISCELLANEOUS.
(a) This Agreement may be amended, modified or supplemented only by a
written instrument executed by all of the parties hereto.
(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but any such
waiver, or the failure to insist upon strict compliance with any obligation,
covenant, agreement or condition herein, shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure or breach.
(c) Each and every representation, warranty, covenant and agreement
contained in this Agreement or in any document delivered pursuant to or in
connection with this Agreement shall survive the Closing and shall not be
affected by any investigation made by any party; provided, however, that this
Section 6(c) shall not be deemed to affect the survival periods contained in the
Purchase Agreement.
(d) All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by facsimile transmission,
telexed or mailed by reputable overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address as any party shall specify by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):
(i) if to either of the TAG Stockholders, at such
person's address as set forth on the
signature pages hereof and if to TAG to:
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Trust Advisory Group, Inc.
1 Morningside Drive North
Westport, Connecticut 06880
Attention: Mark R. Tonucci, President
Telecopier No.: 203-454-3407
in either case with a copy (which shall not constitute notice)
to:
Finn Dixon & Herling LLP
One Landmark Square
Stamford, Connecticut 06901
Attention: Charles J. Downey, III, Esq.
Telecopier No.: 203-348-5777
(ii) If to either of the Principals, at such
person's address as set forth on the
signature pages hereof and if to AAC to:
Asset Alliance Holding Corp.
90 Broad Street, Suite 820
New York, New York 10004
Attention: Mr. Arnold L. Mintz
Telecopier No.: 212-348-7165
in either case with a copy (which shall not constitute
notice) to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
Telecopier No.: 212-732-3232
(e) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, personal representatives, successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto without the prior written consent of the
other parties (other than any assignment by AAC to an affiliate of AAC or to any
party which purchases all of the capital stock or substantially all of the
assets of AAC or any successor to the business of AAC, which may be made without
any such consents). Any purported assignment in violation of the provisions
hereof shall be void.
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(f) This Agreement shall be governed by the laws of the State of New
York (regardless of the laws that might otherwise govern under applicable New
York conflict of laws principles) as to all matters, including but not limited
to matters of validity, construction, effect, performance and remedies.
(g) Except as provided herein, any dispute, controversy or claim
arising out of or relating to this Agreement or the transactions contemplated
hereby shall be settled and finally determined by arbitration in New York, New
York, or at such other location as the parties may agree, in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA")
in force at the time of such arbitration. Judgment upon any award rendered by
such an arbitration may be rendered in any court having jurisdiction. All fees
and charges of the American Arbitration Association and of the arbitrators and
all arbitration-related costs of the parties shall be borne as the arbitrators
shall determine in their award.
Any arbitration pursuant to this Section 6(g) shall be conducted by
three arbitrators. One arbitrator shall be selected by AAC and Principals, one
arbitrator shall be selected by TAG and the third arbitrator shall be selected
by the two arbitrators so selected. The party initiating arbitration shall name
its arbitrator simultaneously. The respondent shall name its arbitrator within
15 days after it receives notice. The two arbitrators selected by the parties
shall select a third arbitrator within 15 days. If the parties fail to comply
with the foregoing, all remaining arbitrators shall be selected in accordance
with the Commercial Arbitration Rules of the AAA. The written decision of the
arbitrators shall be binding, final and conclusive upon the parties. Any party
may apply to a court of competent jurisdiction to enforce the award of the
arbitrators. The procedures specified in this Section 6(g) shall be the sole and
exclusive procedures for the resolution of disputes between the parties arising
out of or relating to this Agreement; provided, however, that a party may seek a
preliminary injunction or other preliminary judicial relief from a court of
competent jurisdiction if in the judgment of such party such action is necessary
to avoid irreparable injury. Despite such action, the parties will continue to
participate in good faith in the procedures specified in this Section 6(g) (it
being understood and agreed that after the initial decision of such court as to
such preliminary injunction or other preliminary judicial relief and after
decision of any appellate body or the expiration of all time periods for
appellate review thereof, the parties shall thereafter submit the dispute,
controversy or claim to arbitration pursuant to this Section 6(g)). The
arbitrators shall be empowered to award equitable or injunctive relief. The
award of damages, if any, shall be limited to actual damages. The arbitrators
are not empowered to award punitive damages.
(h) This Agreement may be executed in any number of counterparts, and
by any party on separate counterparts, each of which as so executed and
delivered shall be deemed an original, but all of which together shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement as to any party hereto to produce or account for more
than one such counterpart executed and delivered by such party.
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<PAGE> 14
(i) This Agreement embodies the entire agreement and understanding of
the parties hereto in respect of the transactions contemplated by this Agreement
and supersedes all prior agreements and understandings between the parties with
respect thereto.
(j) This Agreement may be terminated: (i) at any time by the written
agreement of all of the parties hereto; (ii) upon the redemption, disposal or
cancellation of all shares of AAC Common Stock (and all agreements and
instruments convertible or granting rights to acquire shares of AAC Common
Stock) owned by TAG and the TAG Stockholders.
(k) In the event of termination of this Agreement and abandonment of
the transactions contemplated hereby by any of the parties hereto written notice
thereof shall forthwith be given by the terminating party to the other parties
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated, none of the parties hereto nor any of their respective
directors, officers or affiliates, as the case may be, shall have any liability
or further obligation to any of the other parties or any of their respective
directors, officers or affiliates, as the case may be.
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<PAGE> 15
IN WITNESS WHEREOF, the TAG Stockholders and the Principals have each
executed this Agreement and TAG and AAC have each caused this Agreement to be
executed by its duly authorized officer, each as of the date first above
written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
----------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
and Chief Operating Officer
TRUST ADVISORY GROUP, INC.
By: /s/ Mark R. Tonucci
----------------------------------
Name: Mark R. Tonucci
Title: President
TAG STOCKHOLDERS:
/s/ Mark R. Tonucci
-------------------------------------
Name: Mark R. Tonucci
Address: 142 Bennett Road
East Haven, Connecticut 06513
/s/ Michael E. Portnoy
-------------------------------------
Name: Michael E. Portnoy
Address: 14 Winding Brook Road
Newtown, Connecticut 06470
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<PAGE> 16
PRINCIPALS:
/s/ Bruce H. Lipnick
____________________________________
Name: Bruce A. Lipnick
Address: 1148 Fifth Avenue, Apt. 5C
New York, New York 10128
/s/ Arnold L. Mintz
____________________________________
Name: Arnold L. Mintz
Address: 200 East 82nd Street, Apt. 27G
New York, New York 10028
- 16 -
<PAGE> 1
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of March 11, 1997, among Asset
Alliance Corporation, a Delaware corporation ("AAC"), Silverado Capital
Management LLC, a Delaware limited liability company ("Silverado"), and Jeffrey
Cohen ("Cohen").
R E C I T A L S
WHEREAS, pursuant to the terms of a Limited Liability Company Operating
Agreement (the "Operating Agreement"), dated as of March 11, 1997 among Asset
Alliance Holding Corp. ("AAHC") and Cohen, Silverado has acquired and may
hereafter acquire shares of the Common Stock, par value $0.01 per share, of AAC
("AAC Common Stock") and options to purchase shares of AAC Common Stock
("Options"); and
WHEREAS, pursuant to the Operating Agreement, Silverado may pay to
Cohen and other employees of Silverado shares of AAC Common Stock and Options
which Silverado has acquired and may hereafter acquire;
WHEREAS, AAC has agreed to grant to Silverado and the employees of
Silverado certain registration rights with respect to any shares of AAC Common
Stock and Options acquired by Silverado or the employees of Silverado pursuant
to the terms of the Operating Agreement; and
WHEREAS, the parties hereto desire to define the registration rights of
Silverado and the employees of Silverado on the terms and subject to the
conditions herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the respective
meanings set forth below:
<PAGE> 2
Commission: shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act;
Employee Holders: shall mean all employees of Silverado holding
Registrable Securities;
Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended;
Person: shall mean an individual, partnership, joint-stock company,
corporation, trust or unincorporated organization, and a government or agency or
political subdivision thereof;
Principals: shall mean Bruce H. Lipnick and Arnold L. Mintz;
Qualified Public Offering: shall mean the closing of an underwritten
public offering by AAC pursuant to a registration statement filed and declared
effective under the Securities Act covering the offer and sale of AAC Common
Stock for the account of AAC;
register, registered and registration: shall mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (and any post-effective amendments filed or required to be filed)
and the declaration or ordering of effectiveness of such registration statement;
Registrable Securities: shall mean (A) any shares of AAC Common Stock
contributed by AAHC to Silverado pursuant to Section 2.1 of the Operating
Agreement (whether held by Silverado or paid to Cohen or the other employees of
Silverado as contemplated by the Operating Agreement), and (B) any shares of AAC
Common Stock acquired by employees of Silverado upon exercise of the Options,
and (C) any shares of AAC Common Stock issued to Silverado or employees of
Silverado as a dividend or other distribution with respect to, or in exchange
for or in replacement of, the shares of AAC Common Stock referred to in clause
(A) or (B); provided, that Registrable Securities shall not include (i)
securities with respect to which a registration statement with respect to the
sale of such securities has become effective under the Securities Act and all
such securities have been disposed of in accordance with such registration
statement, or (ii) such securities as are actually sold pursuant to Rule 144 (or
any successor provision thereto) under the Securities Act;
Registration Expenses: shall mean all expenses incurred by AAC in
compliance with Article 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for AAC, blue sky fees and
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<PAGE> 3
expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of AAC,
which shall be paid in any event by AAC);
Security, Securities: shall have the meaning set forth in Section 2(1)
of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as amended; and
Selling Expenses: shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Silverado and the Employee Holders.
2. REGISTRATION RIGHTS
(a) AAC agrees that if at any time after the consummation of its first
Qualified Public Offering it shall determine to register any additional
securities for its own account or for the account of any shareholder exercising
registration rights, other than a registration relating solely to employee
benefit plans on Form S-8 or any successor form, or a registration on any
registration form which does not permit secondary sales or does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, AAC will:
(i) Promptly give Silverado and the Employee Holders written
notice thereof (which shall include the number of shares AAC proposes
to register and, if known, the name of the proposed underwriter); and
(ii) Within thirty (30) days after the date of delivery of the
written notice from AAC described in clause (i) above, use all
reasonable efforts to include in such registration all the Registrable
Securities specified in a written request or requests made by Silverado
and the Employee Holders (the "Requesting Stockholders"). If the
underwriter advises AAC that marketing considerations require a
limitation on the number of shares offered pursuant to any registration
statement, then AAC may offer all of the securities it proposes to
register for its own account and for the accounts of the parties to the
Shareholders Agreement (the "Shareholders Agreement") among AAC, Arthur
J. Gallagher & Co. and the Principals, or the maximum amount that the
underwriter considers saleable and such limitation on any remaining
securities that may, in the opinion of the underwriter, be sold will be
imposed pro rata among such other shareholders (including the
Requesting Stockholders) who request inclusion of securities in such
registration according to the number of securities each such
shareholder requested to be included in such registration.
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<PAGE> 4
(iii) The Requesting Stockholders acknowledge and agree that
AAC shall select the underwriter for an offering made pursuant to these
provisions.
(b) The Requesting Stockholders acknowledge and agree that AAC need not
effect a registration under these provisions if (i) in the written opinion of
counsel for AAC, the Requesting Stockholders may sell without registration under
the Securities Act all Registrable Securities for which the Requesting
Stockholders requested registration under the provisions of the Act and in the
manner and in the quantity in which the Registrable Securities were proposed to
be sold, or (ii) AAC shall have obtained from the Commission a "no-action"
letter to that effect. AAC agrees that all Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to these
provisions shall be paid by AAC, other than Selling Expenses consisting of the
fees and expenses of the Requesting Stockholders' legal counsel and underwriting
discounts or commissions with respect to the Requesting Stockholder's
Registrable Securities.
(c) Notwithstanding the foregoing, if, at any time after giving such
written notice of its intention to effect such registration and prior to the
effective date of the registration statement filed in connection with such
registration, AAC shall determine for any reason not to register such equity
securities AAC may, at its election, give written notice of such determination
to the Requesting Stockholders and thereupon AAC shall be relieved of its
obligation to register such Registrable Securities in connection with the
registration of such equity securities.
(d) If the registration of which AAC gives notice is for a registered
public offering involving an underwriting, AAC shall so advise Silverado and
Cohen as a part of the written notice given pursuant to Section 2(a) above. In
such event, the right of the Requesting Stockholders to registration pursuant to
this Article 2 shall be conditioned upon such Requesting Stockholders'
participation in such underwriting and the inclusion of such Requesting
Stockholders' Registrable Securities in the underwriting to the extent provided
herein. The Requesting Stockholders whose Registrable Securities are to be
included in such registration shall (together with AAC and the other
stockholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for the underwriting by AAC or such
shareholder of AAC as shall have requested such registration, as the case may
be. Such underwriting agreement will contain such representations and warranties
by AAC and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution and the provision of opinions
of counsel and accountants' letters, and the representations and warranties by,
and the other agreements on the part of, AAC to and for the benefit of such
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<PAGE> 5
underwriters shall also be made to and for the benefit of the Requesting
Stockholders whose Registrable Securities are to be included in such
registration. Notwithstanding any other provision of this Article 2, if the
representative determines that marketing factors require a limitation on the
number of shares to be underwritten, AAC shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated as set forth in Section 2(a) hereof. If the Requesting Stockholder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to AAC and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
(e) Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Article 2 shall be borne by AAC, and all Selling Expenses shall be borne by each
Requesting Stockholder of the Registrable Securities so registered pro rata on
the basis of the number of its or his Registrable Securities so registered;
provided that if AAC agrees to pay the fees and costs of one counsel for one or
more AAC stockholders (other than the parties to the Shareholders Agreement)
whose shares are also being registered, then AAC shall pay the fees and costs of
such counsel with respect to such counsel representing Silverado and the
Employee Holders.
(f) Termination. The registration rights set forth herein shall not be
available to a Requesting Stockholder if, in the opinion of counsel to AAC, all
of the Registrable Securities then owned by such Requesting Stockholder could be
sold in any 90-day period pursuant to Rule 144 (without giving effect to the
provisions of Rule 144(k)).
3. REGISTRATION PROCEDURES.
In the case of each registration effected by AAC pursuant to Section 2,
AAC will keep the Requesting Stockholders advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, AAC will:
(a) furnish to the Requesting Stockholders, and to any underwriter
before filing with the Commission, copies of any registration statement
(including all exhibits) and any prospectus forming a part thereof and any
amendments and supplements thereto (including all documents incorporated or
deemed incorporated by reference therein prior to the effectiveness of such
registration statement and including each preliminary prospectus, any summary
prospectus or any term sheet (as such term is used in Rule 434 under the
Securities Act)) and any other prospectus filed under Rule 424 under the
Securities Act, which documents, other than documents incorporated or deemed
incorporated by reference, will be subject to the review of the Requesting
Stockholders and any such underwriter for
5
<PAGE> 6
a period of at least five business days, and AAC shall not file any such
registration statement or such prospectus or any amendment or supplement to such
registration statement or prospectus to which either Requesting Stockholder or
any such underwriter shall reasonably object within five business days after the
receipt thereof; a Requesting Stockholder or such underwriter(s), if any, shall
be deemed to have reasonably objected to such filing only if the registration
statement, amendment, prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(b) furnish to the Requesting Stockholders and to any underwriter, such
number of conformed copies of the applicable registration statement and of each
amendment and supplement thereto (in each case including all exhibits) and such
number of copies of the prospectus forming a part of such registration statement
(including each preliminary prospectus, any summary prospectus or any term sheet
(as such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, including without
limitation documents incorporated or deemed to be incorporated by reference
prior to the effectiveness of such registration, as either Requesting
Stockholder or any such underwriter, from time to time may reasonably request;
(c) to the extent practicable, promptly prior to the filing of any
document that is to be incorporated by reference into any registration statement
or prospectus forming a part thereof subsequent to the effectiveness thereof,
and in any event no later than the date such document is filed with the
Commission, provide copies of such document to the Requesting Stockholders, if
requested, and to any underwriter, make representatives of AAC available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as the
Requesting Stockholders or any such underwriter reasonably may request;
(d) make available at reasonable times for inspection by the Requesting
Stockholders, any underwriter participating in any disposition pursuant to such
registration and any attorney or accountant retained by the Requesting
Stockholder or any such underwriter, all financial and other records, pertinent
corporate documents and properties of AAC and cause the officers, directors and
employees of AAC to supply all information reasonably requested by either
Requesting Stockholder and any such underwriters, attorneys or accountants in
connection with such registration subsequent to the filing of the applicable
registration statement and prior to the effectiveness of the applicable
registration statement;
(e) use its reasonable best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration under
such other securities or blue sky laws of such States of the United States of
America where an exemption is not
6
<PAGE> 7
available and as the sellers of Registrable Securities covered by such
registration shall reasonably request, (y) to keep such registration or
qualification in effect for so long as the applicable registration statement
remains in effect, and (z) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the disposition in
such jurisdictions of the Registrable Securities to be sold by such sellers,
except that AAC shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction where it is not so
qualified, or to subject itself to taxation in any such jurisdiction, or to
execute a general consent to service of process in effecting such registration,
qualification or compliance, unless AAC is already subject to service in such
jurisdiction and except as may be required by the Securities Act or applicable
rules or regulations thereunder;
(f) use its reasonable best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to AAC and counsel to the holders of Registrable
Securities to enable the holders thereof to consummate the disposition of such
Registrable Securities;
(g) promptly notify each holder of Registrable Securities covered by a
registration statement (A) upon discovery that, or upon the happening of any
event as a result of which, the prospectus forming a part of such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any 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, (B) of the issuance by the Commission of any stop
order suspending the effectiveness of such registration statement or the
initiation of proceedings for that purpose, (C) of any request by the Commission
for (1) amendments to such registration statement or any document incorporated
or deemed to be incorporated by reference in any such registration statement,
(2) supplements to the prospectus forming a part of such registration statement
or (3) additional information, (D) of the receipt by AAC of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation of any proceeding for such purpose, and at the request of any
such holder promptly prepare and furnish to it a reasonable number of copies of
a supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
7
<PAGE> 8
(h) use its reasonable best efforts to obtain the withdrawal of any
order suspending the effectiveness of any such registration, or the lifting of
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction;
(i) if requested by either Requesting Stockholder, or any underwriter,
promptly incorporate in such registration statement or prospectus, pursuant to a
supplement or post-effective amendment if necessary, such information as the
Requesting Stockholder and any underwriter may reasonably request to have
included therein, including, without limitation, information relating to the
"plan of distribution" of the Registrable Securities, information with respect
to the principal amount or number of shares of Registrable Securities being sold
to such underwriter, the purchase price being paid therefor and any other terms
of the offering of the Registrable Securities to be sold in such offering and
make all required filings of any such prospectus supplement or post-effective
amendment as soon as practicable after AAC is notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(j) furnish to the Requesting Stockholders, addressed to them, an
opinion of counsel for AAC, dated the date of the closing under the underwriting
agreement, if any, or the date of effectiveness of the registration statement if
such registration is not an underwritten offering, and use its reasonable best
efforts to furnish to the Requesting Stockholders, addressed to them, a "cold
comfort" letter signed by the independent certified public accountants who have
certified AAC's financial statements included in such registration, covering
substantially the same matters with respect to such registration (and the
prospectus included therein) and, in the case of such accountants' letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of securities and
such other matters as the Requesting Stockholders may reasonably request;
(k) provide promptly to the Requesting Stockholders upon request any
document filed by AAC with the Commission pursuant to the requirements of
Section 13 and Section 15 of the Exchange Act; and
(l) use its reasonable best efforts to cause all Registrable Securities
included in any registration pursuant hereto to be listed on each securities
exchange on which securities of the same class are then listed or, if not then
listed on any securities exchange, to be eligible for trading in any
over-the-counter market or trading system in which securities of the same class
are then traded.
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<PAGE> 9
4. INDEMNIFICATION.
(a) AAC will indemnify the Requesting Stockholders, as applicable, with
respect to each registration which has been effected pursuant to this Agreement,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other document (including any related registration statement, notification or
the like) incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by AAC of the Securities Act or the Exchange Act or
any rule or regulation thereunder applicable to AAC and relating to action or
inaction required of AAC in connection with any such registration, qualification
or compliance, and will reimburse the Requesting Stockholders for any legal and
any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, provided that AAC
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to AAC by a Requesting
Stockholder specifically for use in such prospectus, offering circular or other
document.
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<PAGE> 10
(b) Each Requesting Stockholder will, if Registrable Securities held by
him are included in the securities as to which such registration, qualification
or compliance is being effected, indemnify AAC, each of its directors and
officers and each underwriter, if any, of AAC's securities covered by such a
registration statement, each person who controls AAC or such underwriter, each
other stockholder of AAC and each of their officers, directors, members and
partners, and each person controlling such other stockholder against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document made by such Requesting Stockholder, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements by such Requesting Stockholder therein not
misleading, and will reimburse AAC and such other stockholders, directors,
officers, partners, members, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to AAC by such Requesting
Stockholder and stated to be specifically for use therein; provided, however,
that the obligations of each Requesting Stockholder hereunder shall be limited
to an amount equal to the net proceeds to each Requesting Stockholder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 4 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of one such counsel for all Indemnified Parties shall be at
the expense of the Indemnifying Party), and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 4 unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party (which consent shall not be unreasonably withheld or
delayed), consent to entry of any judgment or enter
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<PAGE> 11
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. Each Indemnified Party
shall furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 4 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged omission) to
state a material fact relates to information supplied by the Indemnifying Party
or by the Indemnified Party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission.
(e) The foregoing indemnity agreement of AAC and the Requesting
Stockholders is subject to the condition that, insofar as they relate to any
loss, claim, liability or damage made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement in question becomes effective or the amended
prospectus filed with the Commission pursuant to Commission Rule 424(b) (the
"Final Prospectus"), such indemnity or contribution agreement shall not inure to
the benefit of any underwriter or Requesting Stockholder (but only if the
Requesting Stockholder was required to deliver such Final Prospectus) if a copy
of the Final Prospectus was furnished to the underwriter and was not furnished
to the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
5. MISCELLANEOUS.
(a) This Agreement may be amended, modified or supplemented only by a
written instrument executed by all of the parties hereto.
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(b) Except as otherwise provided in this Agreement, any failure of any
of the parties to comply with any obligation, covenant, agreement or condition
herein may be waived by the party entitled to the benefits thereof only by a
written instrument signed by the party granting such waiver, but any such
waiver, or the failure to insist upon strict compliance with any obligation,
covenant, agreement or condition herein, shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure or breach.
(c) Each and every representation, warranty, covenant and agreement
contained in this Agreement or in any document delivered pursuant to or in
connection with this Agreement shall not be affected by any investigation made
by any party.
(d) All notices and other communications hereunder shall be in writing
and shall be deemed given if delivered personally or by facsimile transmission,
telexed or mailed by reputable overnight delivery service or by registered or
certified mail (return receipt requested), postage prepaid, to the parties at
the following addresses (or at such other address as any party shall specify by
like notice; provided that notices of a change of address shall be effective
only upon receipt thereof):
(i) if to Cohen, at his address as set forth
on the signature pages hereof:
with a copy (which shall not constitute notice) to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019-6092
Attention: Morton A. Pierce, Esq.
Telecopier No.: 212-259-6333
(ii) if to AAC to:
Asset Alliance Corporation
800 Third Avenue, 16th Floor
New York, New York 10022
Attention: Mr. Arnold L. Mintz
Telecopier No.: 212-207-8785
12
<PAGE> 13
with a copy (which shall not constitute notice) to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
Telecopier No.: 212-732-3232
(iii) if to Silverado, to its principal office address.
with a copy (which shall not constitute notice) to:
Carter, Ledyard & Milburn
Two Wall Street
New York, New York 10005
Telecopier: (212) 732-3232
Attention: James E. Abbott, Esq.
(iv) if to any Employee Holder, at such
Employee Holder's address as it shall
appear in the records of Silverado.
(e) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
executors, personal representatives, successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party hereto without the prior written consent of the
other parties (other than any assignment by AAC to any party which purchases all
of the capital stock or substantially all of the assets of AAC or any successor
to the business of AAC, which may be made without any such consents). Any
purported assignment in violation of the provisions hereof shall be void.
(f) This Agreement shall be governed by the laws of the State of New
York (regardless of the laws that might otherwise govern under applicable
conflict of laws principles) as to all matters, including but not limited to
matters of validity, construction, effect, performance and remedies.
(g) The parties agree that any action or proceeding relating in any way
to this Agreement shall be brought and enforced in the Supreme Court of the
State of New York for the County of New York or in the United States District
Court for the Southern District of New York, and the parties hereby waive any
objection to jurisdiction or venue, and any
13
<PAGE> 14
right to a trial before a jury, in any such proceeding commenced in or removed
to such courts.
(h) This Agreement may be executed in any number of counterparts, and
by any party on separate counterparts, each of which as so executed and
delivered shall be deemed an original, but all of which together shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement as to any party hereto to produce or account for more
than one such counterpart executed and delivered by such party.
(i) This Agreement embodies the entire agreement and understanding of
the parties hereto in respect of the transactions contemplated by this Agreement
and supersedes all prior agreements and understandings between the parties with
respect thereto.
(j) This Agreement may be terminated: (i) at any time by the written
agreement of all of the parties hereto; (ii) upon the redemption, disposal or
cancellation of all shares of AAC Common Stock (and all agreements and
instruments convertible or granting rights to acquire shares of AAC Common
Stock) owned by Cohen.
(k) In the event of termination of this Agreement and abandonment of
the transactions contemplated hereby by any of the parties hereto written notice
thereof shall forthwith be given by the terminating party to the other parties
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated, none of the parties hereto nor any of their respective
directors, officers or affiliates, as the case may be, shall have any liability
or further obligation to any of the other parties or any of their respective
directors, officers or affiliates, as the case may be.
(The remainder of this page is left blank intentionally.)
14
<PAGE> 15
IN WITNESS WHEREOF, Cohen has executed this Agreement and AAC
and Silverado have caused this Agreement to be executed by their duly authorized
representative, each as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
-----------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
and Chief Operating Officer
SILVERADO CAPITAL MANAGEMENT LLC
By: Asset Alliance Manager Corp.,
its Manager
By: /s/ Arnold L. Mintz
-----------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
By: /s/ Jeffrey Cohen
-----------------------------------------
Name: Jeffrey Cohen
Title: Manager
/s/ Jeffrey Cohen
----------------------------------------
Name: Jeffrey Cohen
Address: 33 Grift Mill Lane
Upper Saddle River, N.J. 07458
<PAGE> 1
Exhibit 4.8
FORM OF
SUBSCRIPTION AGREEMENT
, 1996
Asset Alliance Corporation
800 Third Avenue
16th Floor
New York, New York 10022
Gentlemen:
The Undersigned hereby subscribes for and agrees to purchase the number of
units (the "Units") set forth above the signature of the Undersigned at the end
of this Agreement, at a price of $250,000 per Unit. Each Unit consists of (a)
87,500 shares of the Common Stock, par value $0.01 per share (the "Common
Stock"), of Asset Alliance Corporation, a Delaware corporation (the "Company"),
and (b) 17,500 Redeemable Common Stock Purchase Warrants, each to purchase one
share of Common Stock (the "Warrants") . The Common Stock and Warrants being
hereby subscribed for are hereinafter referred to collectively as the
"Securities."
The Company shall have the right to reject this subscription in its sole
discretion, in whole or in part, and shall have the right to accept
subscriptions in an order other than that in which they are received.
1
<PAGE> 2
1. In order to induce the Company to accept this offer and to issue the
Securities to the Undersigned, the Undersigned hereby represents and warrants
to the Company that:
(a) The Undersigned is able (i) to bear the economic risk of investment
in the Securities, (ii) to afford a complete loss of such investment, and
(iii) to hold the Securities indefinitely.
(b) The Undersigned is acquiring the Securities for the Undersigned's
sole account (or, where applicable, in a fiduciary capacity), as
principal, for investment and without any intention of selling, pledging
or otherwise transferring all or any of the Securities; the Undersigned
has entered into no agreement or other arrangement with any person to
sell, pledge or otherwise transfer any of the Securities; the Undersigned
has no reason to anticipate any change in the Undersigned's circumstances,
financial or otherwise, or any other particular occasion or event that
would cause the Undersigned to sell, pledge or otherwise transfer, or
necessitate or require the sale, pledge or other transfer of, any of the
Securities; and no one other than the Undersigned has any beneficial
interest in the Securities.
(c) The Undersigned is an "Accredited Investor" within the meaning of
Regulation D under the Securities Act of 1933, as amended (the "Act"), as
evidenced, if the Undersigned is a natural person, by the Purchaser
Questionnaire being submitted herewith. If the Undersigned is an entity,
it is an Accredited Investor inasmuch as (i) it is an organization
described in Section 501(c)(3) of the
2
<PAGE> 3
Internal Revenue Code, or a corporation, or a Massachusetts or similar
business trust, or a partnership, (ii) it was not formed for the specific
purpose of acquiring the Securities, and (iii) it has total assets in
excess of $5,000,000.
(d) IF THE UNDERSIGNED IS A RESIDENT OF, OR HAS ITS PRINCIPAL OFFICE
IN, THE STATE OF ILLINOIS, the total subscription price for the Securities
does not exceed 20% of the Undersigned's net worth or, if the Undersigned
is a natural person, 20% of the Undersigned's joint net worth with the
Undersigned's spouse.
(e) If the Undersigned is a corporation, partnership, trust or other
entity, (i) it is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has all the
requisite power and authority to enter into this Agreement and purchase
the Units as provided herein, (ii) such purchase will not result in any
violation of, or conflict with, any term of the charter or by-laws or
similar documents of the Undersigned, or any instrument to which it is
bound or any law or regulation applicable to it, (iii) such purchase has
been duly authorized by all necessary action on behalf of the Undersigned,
and (iv) this Agreement has been duly executed and delivered on behalf of
the Undersigned and constitutes a legal, valid and binding agreement
enforceable against the Undersigned in accordance with its terms.
2. The Undersigned acknowledges that the Undersigned, alone or with its
advisors, (a) has read, carefully considered and fully understood the
Company's Confidential Private Placement Memorandum (the "Placement
Memorandum"), relating to the offer of the Units, (b) has had satisfactory
access to other information concerning the Company and an investment in the
Units, and (c) has been afforded full and satisfactory opportunity to ask
questions to representatives of the Company regarding the Company and an
investment in the Units, and all such questions have been answered to the
full satisfaction of the Undersigned.
3
<PAGE> 4
3. The Undersigned acknowledges that it is not purchasing any Units as a
result of any form of general or public solicitation or general advertising,
including (a) publicly disseminated advertisements or sales literature,
through the mails or otherwise, (b) any advertisements, articles, notices or
other communications published in any newspaper, magazine or similar media
or broadcast over radio or television, or (c) any seminar or meeting whose
attendees have been invited by general solicitation or general advertising.
4. The Undersigned acknowledges that (a) the Securities have not been and
will not be registered under the Act or the securities laws of any state and
are being offered and sold in reliance upon exemptions from registration
provided by the Act and such laws and the rules and regulations thereunder,
(b) the Securities may not be offered, sold, pledged or otherwise
transferred except in compliance with the Act and such laws and the rules
and regulations thereunder, (c) the Securities must be held indefinitely
unless they are subsequently registered for resale or other transfer under
the Act or unless an exemption from such registration is available, (d)
except as provided in paragraph 5 hereof, the Company is under no obligation
to register the Securities for such resale or transfer, and (e) the Company
has not agreed or represented to the Undersigned that information with
respect to the Company as described in Rule 144(c) under the Act will ever
be made publicly available so as to permit the Undersigned to rely on Rule
144 for resales of the Securities.
5. The Company agrees that if at any time after the consummation of its first
Qualified Public Offering (as hereinafter defined) it shall determine to
register any addi-
4
<PAGE> 5
tional securities for its own account or for the account of any shareholder
exercising registration rights, other than a registration relating solely to
employee benefit plans on Form S-8 or any successor form, or a registration
on any registration form which does not permit secondary sales or does not
include substantially the same information as would be required to be
included in a registration statement covering the sale of Securities, the
Company will:
(i) Promptly give the Undersigned written notice thereof (which shall
include the number of shares the Company proposes to register and, if
known, the name of the proposed underwriter); and
(ii) Within thirty (30) days after the date of delivery of the written
notice from the Company described in clause (i) above, use all reasonable
efforts to include in such registration all the Securities specified in a
written request or requests made by the Undersigned. If the underwriter
advises the Company that marketing considerations require a limitation on
the number of shares offered pursuant to any registration statement, then
the Company may offer all of the securities it proposes to register for
its own account and for the accounts of the parties to the Shareholders
Agreement described in the Placement Memorandum or the maximum amount that
the underwriter considers saleable and such limitation on any remaining
securities that may, in the opinion of the underwriter, be sold will be
imposed pro rata among such other shareholders (including the Undersigned)
who request inclusion of Securities in such registration according to the
number of Securities each such shareholder requested to be included in
such registration.
5
<PAGE> 6
(iii) The Undersigned acknowledges and agrees that the Company shall
select the underwriter for an offering made pursuant to this paragraph 5.
The Undersigned acknowledges and agrees that the Company need not effect a
registration under this paragraph 5 if (i) in the written opinion of counsel for
the Company, the Undersigned may sell without registration under the Act all
Securities for which the Undersigned requested registration under the provisions
of the Act and in the manner and in the quantity in which the Securities were
proposed to be sold, or (ii) the Company shall have obtained from the Securities
and Exchange Commission a "no-action " letter to that effect. The Company agrees
that all registration expenses incurred in connection with any registration,
qualification or compliance pursuant to this paragraph 5 shall be paid by the
Company, other than fees and expenses of the Undersigned's legal counsel and
underwriting discounts or commissions with respect to the Undersigned's
Securities.
For purposes hereof, "Qualified Public Offering" shall mean the closing of an
underwritten public offering by the Company pursuant to a registration statement
filed and declared effective under the Act covering the offer and sale of Common
Stock for the account of the Company.
6. In no event will the Undersigned offer, sell, pledge or otherwise
transfer any of the Securities unless (i) the Company shall have received
from the Undersigned an opinion (in form satisfactory to the Company) of
counsel satisfactory to the Company that registration under the Act, and
under then applicable state law would not be required, or (ii) the
Securities shall have been so registered and/or qualified and an appropriate
prospectus, if required, shall then be in effect and current.
7. The Undersigned consents to the placing of a "stop transfer" order
against the Securities on the records of the Company.
6
<PAGE> 7
8. The Undersigned understands and agrees that any certificates
representing the Securities will bear a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE REGISTERED
HOLDER OF THESE SECURITIES HAS AGREED THAT NO SALE, PLEDGE OR OTHER
TRANSFER OF ANY OF SAID SECURITIES MAY BE MADE WITHOUT REGISTRATION
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE
HOLDER SHALL DELIVER TO THE ISSUER AN OPINION (IN FORM SATISFACTORY
TO THE ISSUER) OF COUNSEL SATISFACTORY TO THE ISSUER THAT NO SUCH
REGISTRATION IS REQUIRED.
9. The Undersigned understands that upon the acceptance by the Company of
its subscription, the Undersigned must make payment for the Units in
immediately available funds within three business days after the Company's
acceptance hereof. SUCH PAYMENT, IN THE AMOUNT OF $250,000 PER UNIT, MADE
PAYABLE TO THE ORDER OF ASSET ALLIANCE CORPORATION, MAY BE DELIVERED TO MR.
ARNOLD L. MINTZ AT THE COMPANY'S ADDRESS GIVEN ABOVE, OR IT MAY BE WIRED TO
THE COMPANY'S ACCOUNT AT CITIBANK, NYCABA# 021000089 FOR CREDIT TO ACCOUNT
# , ATTENTION: SUZANNE DENKER, TELEPHONE (212) 248-6800. If such
payment is not made, the
7
<PAGE> 8
Company may revoke its acceptance of this offer and sell any or all of the
Securities for which the Undersigned has subscribed to other persons.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
11. This Agreement constitutes the entire agreement between the Company and
the Undersigned with respect to the subject matter hereof, and may e amended
only by a writing executed by the Company and the Undersigned.
12. The Undersigned will complete any other documents, and provide such
further information as is reasonably requested by the Company in its
discretion, in order that the Company may evaluate the suitability of the
Units as an investment for the Undersigned.
IN WITNESS WHEREOF, the Undersigned has hereby executed this Agreement as of
the date first set forth above.
No. of Units Subscribed for __________________
Purchase Price Payable
With Subscription: $250,000 x ______________ = $________________
8
<PAGE> 9
(No. of Units)
Manner in which Units are to be held (check one):
__________ Joint Tenancy with Right of Survivorship
__________ Tenancy-in-Common __________ Trust
__________ Community Property __________ Corporation
__________ Individual Ownership __________ Other (please indicate)
__________ Partnership
IF THE SUBSCRIBER IS AN INDIVIDUAL, PLEASE SIGN BELOW:
________________________________________ ______________________________
Print Name of Subscriber Signature of Subscriber
IF THE UNITS WILL BE HELD BY JOINT TENANTS OR TENANTS IN COMMON, OR AS
COMMUNITY PROPERTY, PLEASE HAVE THE CO-SUBSCRIBER SIGN BELOW:
<TABLE>
<S> <C>
________________________________________ ________________________________
Print Name of Spouse or Other Subscriber Signature of Spouse or Other Subscriber
</TABLE>
9
<PAGE> 10
IF THE SUBSCRIBER IS A PARTNERSHIP, CORPORATION, TRUST OR OTHER ENTITY, PLEASE
SIGN BELOW:
_______________________________________
Print Name of Partnership, Corporation,
Trust or Other Entity
By:____________________________________ ______________________________________
Print Name of Authorized Representative Signature of Authorized Representative
Print Title:__________________________
The foregoing subscription is hereby accepted as of ____ day of
_____________, 1996.
ASSET ALLIANCE CORPORATION
By:______________________________
Arnold L. Mintz
Executive Vice President
10
<PAGE> 11
ASSET ALLIANCE CORPORATION
Purchaser Questionnaire
Units (the "Units"), each consisting of (a) 87,500 shares of the Common
Stock, par value $0.01 per share, and (b) warrants to purchase 17,500 shares of
such Common Stock, of Asset Alliance Corporation, a Delaware corporation (the
"Company"), are being offered without registration under the Securities Act of
1933, as amended, in reliance on the private offering exemption provided in
Section 4(2) of the Act and Regulation D promulgated thereunder. The purpose of
this Questionnaire is to assure the Company that you are eligible to purchase
Units in this private offering.
THE COMPANY WILL NOT SELL UNITS TO ANY INDIVIDUAL WHO HAS NOT FILLED OUT,
AS THOROUGHLY AS POSSIBLE, THIS PURCHASER QUESTIONNAIRE. IF THE ANSWER TO ANY
QUESTION IS "NO," "NONE," OR "NOT APPLICABLE," PLEASE SO STATE.
Your answers will be kept strictly confidential at all times and will not
be disclosed except to Company management and its counsel, to governmental,
regulatory and similar authorities, if required, and to such other persons as
the Company deems appropriate if called upon to establish the availability of an
exemption of the Units from registration under the Securities Act or state law.
If you intend to hold Units as a joint tenant or tenant in common, your
prospective co-owner other than a spouse must also complete a copy of this
Questionnaire.
11
<PAGE> 12
General Information
Name
Age ___ Social Security Number
Residence address
Residence Telephone Number
Occupation
Employer
Business Address
Business Telephone Number
Accredited Investor Status.
2.1 Did your annual income(1), not including the income of
your spouse, during each of the two most recent years (1995
and 1994) exceed $200,000, and do you reasonably expect
your annual income during 1996 to exceed $200,000?
___ Yes ___ No
2.2 Did your joint annual income* with your spouse during each
of the two most recent years (1995 and 1994) exceed $300,000,
and do you reasonably expect your joint annual income during
1996 to exceed $300,000?
12
<PAGE> 13
___ Yes ___ No
2.3 Does your individual or joint (together with your spouse)
net worth(2) exceed $1,000,000?
____Yes ____ No
Financial Sophistication. Please respond to the following questions, supplying
as much detail as possible in order to make your answers complete:
__________________
1 For this purpose, your income is the amount of your adjusted gross income (as
reported in your federal income tax return), increased by the following amounts:
(a) any amount by which income from long-term capital gains has been reduced in
arriving at adjusted gross income; (b) any deduction claimed for depletion; (c)
the amount of any tax-exempt interest income received; (d) the amount of any
losses claimed as a limited partner in a limited partnership; (e) vested
contributions to a profit-sharing plan or pension plan; and (f) alimony paid. A
person's income does not include unrealized capital appreciation.
2 For this purpose, net worth means the excess of total assets over total
liabilities.
3.1 Do you consider yourself to have such knowledge and
experience in financial and business matters that you are
capable of evaluating the merits and risks of an investment in
the Units?
___ Yes ___ No
If "Yes," please set forth below the principal bases for your answer
(e.g., investment or business experience, profession, past review of other
investments, etc.).
13
<PAGE> 14
3.2 Please list all of the educational institutions you have
attended (including high schools, colleges, and specialized
training schools), and indicate the dates attended and the
degree(s) (if any) obtained from each.
From To Institution Degree
---- -- ----------- ------
3.3 Please list any professional licenses or registrations
held by you, including bar admissions, accounting
certificates, real estate brokerage licenses, investment
adviser registrations and SEC or state broker-dealer
registrations.
3.4 Indicate your principal business experience or other
occupations during the last ten years. (Please list your
present, or most recent, position first and the others in
reverse chronological order.)
From To Name of Employer Position
---- -- ---------------- --------
14
<PAGE> 15
3.5 Describe in greater detail your present or most recent
business or occupation, as listed in your answers to Question
3.4. Please indicate such information as the nature of your
employment, the principal business of your employer, the
principal activities under your management or supervision and
the scope (e.g., dollar volume, industry rank, etc.) of such
activities.
3.6 Describe any significant business you engage in or intend
to engage in other than as specified above.
3.7 Indicate by check mark which of the following categories
best describes the extent of your prior experience in the
areas of investment listed below.:
Substantial
experience Little or no
or knowledge experience
------------ ----------
Marketable securities
------------ ----------
Government securities
------------ ----------
Municipal (tax-exempt) securities
------------ ----------
Foreign securities
------------ ----------
Foreign currencies
------------ ----------
Stock options
------------ ----------
Commodities
------------ ----------
Securities for which no market exists
------------ ----------
Limited partnerships
------------ ----------
Venture capital funds
------------ ----------
Real estate programs
------------ ----------
Tax deferred investments
------------ ----------
15
<PAGE> 16
3.8 For those investments as to which you indicated
"substantial experience or knowledge" above, please answer the
following additional questions by checking the appropriate
answer:
3.8.1 Do you make your own investment decisions
with respect to such investments?
______ Always ______ Sometimes
______ Usually ______ Rarely
3.8.2 What are your principal sources of
investment knowledge or advice? (You may check more
than one.)
______ First hand experience with industry
______ Financial publication(s)
______ Trade or industry publication(s)
______ Banker(s)
______ Broker(s)
______ Investment adviser(s)
______ Attorney(s)
______ Accountant(s)
3.8.3 How many years of experience do you have
with each of the following types of investments?
Marketable Securities:Number of years ___
Securities for which
no market exists: Number of years ___
Limited partnerships:Number of years ___
Venture capital funds:Number of years ___
16
<PAGE> 17
3.9 Indicate by check mark whether you maintain any of the
following types of accounts over which you, rather than a
third-party, exercise investment discretion, and the length of
time you have maintained each type of account.
Securities
(cash) __ Yes __ No Number of years ___
Securities
(margin) __ Yes __ No Number of years ___
Commodities __ Yes __ No Number of years ___
3.10 Have you ever previously purchased securities which were
sold in reliance upon the private offering exemption provided
in Section 4(2) of the Securities Act?
___ Yes ___ No
3.11 In connection with your evaluation of the merits and
risks of a prospective investment in the Units, will you be
relying in part on the advice of a purchaser representative or
representatives?
___ Yes ___ No
If "Yes," give the name and address of such purchaser
representative or representatives.
3.12 Please provide in the space below any additional
information which would indicate that you have sufficient
knowledge and experience in financial and business matters so
that you are capable of evaluating the merits and risks of
investing in securities of an enterprise such as the Company.
17
<PAGE> 18
The undersigned understands that the Company will be relying on the accuracy and
completeness of the undersigned's response to the foregoing questions and the
undersigned represents and warrants to the Company as follows:
(i) The answers to the above questions are complete and correct and may be
relied upon by the Company in determining whether the offering and sale of the
Units to the undersigned is exempt from registration under the Securities Act of
1933, pursuant to Regulation D, or otherwise. If, prior to the closing of the
sale of Units to the undersigned, there should be any change in the information
stated herein, or any of such information should become incorrect or incomplete,
the undersigned agrees promptly to supply corrective information to the Company.
(ii) The undersigned has read and is familiar with the Confidential
Private Placement Memorandum of the Company relating to the offer and sale of
the Units, and understands that the undersigned is invited to ask questions of,
and receive answers from, authorized officers and other representatives of the
Company concerning the Company or the proposed investment in the Units by the
undersigned, and to obtain any additional information, to the extent that the
Company possesses such information or can acquire it without unreasonable
expense, necessary to verify the accuracy of the information concerning the
Company which is in the Confidential Private Placement Memorandum.
In witness whereof, I have executed this Questionnaire this ____ day of
_______, 1996.
Signature:______________________________________
Print name:____________________________________
18
<PAGE> 1
Exhibit 4.9
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. THE REGISTERED HOLDER OF THIS WARRANT HAS AGREED THAT NO SALE,
PLEDGE OR OTHER TRANSFER OF THIS WARRANT OR ANY OF SAID SHARES MAY BE MADE
WITHOUT REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAW, UNLESS THE HOLDER SHALL DELIVER TO THE ISSUER AN OPINION (IN FORM
SATISFACTORY TO THE ISSUER) OF COUNSEL SATISFACTORY TO THE ISSUER THAT NO
SUCH REGISTRATION IS REQUIRED.
FORM OF
ASSET ALLIANCE CORPORATION
REDEEMABLE COMMON STOCK PURCHASE WARRANT
Warrant No.______ _______ Shares
This certifies that, for value received,
or his assigns, are entitled, subject to the terms and conditions hereinafter
set forth, at or before 5:00 p.m., New York time, on July 30, 2001, but not
thereafter, to purchase up to ________shares (the "Shares") of Common Stock, par
value $.01 per share ("Common Stock"), of Asset Alliance Corporation, a Delaware
corporation (the "Company"). The purchase price payable upon the exercise of
this Warrant shall initially be $_______ per share, said amount being subject to
adjustment as described herein (the "Warrant Price").
Upon delivery of this Warrant with the Purchase Form attached hereto duly
executed, together with payment of the Warrant Price for the shares of Common
Stock thereby purchased, at the principal office of the Company or at such other
address as the Company may designate by notice in writing to the registered
holder hereof (the "Holder"), the Holder shall be entitled to receive a
certificate or certificates for the Shares so purchased. All Shares issued upon
the exercise of this Warrant will, upon issuance, be fully paid and
nonassessable and free from all taxes, liens and charges with respect thereto.
This Warrant is one of a duly authorized issue of Redeemable Common Stock
Purchase Warrants (the "Redeemable Warrants") to purchase up to a maximum
aggregate of ____________ shares of Common Stock.
1
<PAGE> 2
The Redeemable Warrants are each subject to the following terms and conditions:
SECTION 1. TRANSFERABILITY AND FORM OF WARRANT
1.1. Registration. The Redeemable Warrants are numbered and registered on
the books of the Company. The Company shall be entitled to treat the Holder as
the sole owner of this Warrant for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in this Warrant on the
part of any other person, and shall not be liable for any registration of
transfer of this Warrant which is to be registered in the name of a fiduciary or
the nominee of a fiduciary unless made with actual knowledge that a fiduciary or
nominee is committing a breach of trust in requesting such registration of
transfer.
1.2. Transfer. This Warrant shall be transferable only on the books of the
Company maintained at its principal office in New York, New York, or wherever
its principal office may then be located, upon delivery of this Warrant either
duly endorsed by the Holder or by the Holder's duly authorized attorney or
representative, or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney, the original
letter of attorney, duly approved, or an official copy thereof, duly certified,
shall be deposited and remain with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited and remain with the Company in its discretion. Upon any
registration of transfer, the Company shall execute and deliver a new Warrant to
the person entitled thereto.
SECTION 2. EXCHANGE OF WARRANT CERTIFICATE
This Warrant certificate may be exchanged for another certificate or
certificates entitling the Holder to purchase a like aggregate number of Shares
as this certificate then entitles the Holder to purchase. Any Holder of this
Warrant desiring to exchange this Warrant certificate shall make such request in
writing delivered to the Company, and shall surrender this certificate, properly
endorsed, to the Company. Thereupon, the Company shall execute and deliver to
the person entitled thereto a new Warrant certificate or certificates, as the
case may be, as so requested.
SECTION 3. TERM OF WARRANT; EXERCISE OF WARRANT
Subject to the terms of this Warrant, the Holder shall have the right, at
any time during the period commencing at 9:00 a.m., New York time, on the date
hereof, until 5:00 p.m., New York time, on June 30, 2001, (the "Termination
Date"), to purchase from the Company the number of fully paid and nonassessable
Shares to which the Holder may at the time be entitled to purchase pursuant to
this Warrant, upon surrender, to the Company at this principal office, of this
Warrant certificate, together with the Purchase Form attached hereto duly
completed and signed, and upon payment to the Company of the Warrant Price for
the number of Shares in respect of which this Warrant is then being exercised.
Payment of the aggregate Warrant Price shall be made in cash or by certified or
cashier's check.
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Upon surrender of this Warrant and payment of the Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch, to or upon the written order of the Holder and (subject to the
restrictive legend on the first page of this Warrant) in such name or names as
the Holder may designate, a certificate or certificates for the number of full
Shares so purchased upon the exercise of this Warrant, together with cash, as
provided in Section 9 hereof, in respect of any fractional Shares otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Shares as of the date of the
surrender of this Warrant and payment of the Warrant Price as aforesaid;
provided that if, at the date of surrender of this Warrant and payment of such
Warrant Price, the transfer books for the Shares or other class of stock
purchasable upon the exercise of this Warrant shall be closed, the certificates
for the Shares in respect of which this Warrant is then exercised shall be
issuable as of the date on which such books shall next be opened (whether before
or after the Termination Date) and until such date the Company shall be under no
duty to deliver any certificate for such Shares; and provided further that the
transfer books of record, unless otherwise required by law, shall not be closed
at any one time for a period longer than twenty days. The rights of purchase
represented by this Warrant shall be exercisable, at the election of the Holder,
either in full or from time to time in part and, in the event that this Warrant
is exercised in respect of fewer than all of the Shares at any time prior to the
date of expiration of this Warrant, a new Warrant certificate to purchase the
remaining Shares will be issued.
SECTION 4. PAYMENT OF TAXES
The Company will pay all documentary stamp taxes, if any, attributable to
the initial issuance of Shares upon the exercise of this Warrant; provided that
the Company shall not be required to pay any tax or taxes which may be payable
in respect of any transfer involved in such issuance.
SECTION 5. MUTILATED OR MISSING WARRANT
In case the certificate evidencing this Warrant shall be mutilated, lost,
stolen or destroyed, the Company may, in its discretion, issue and deliver in
exchange and substitution for and upon cancellation of this certificate if it is
mutilated, or in lieu of and substitution for this certificate if it is lost,
stolen or destroyed, a new Warrant certificate of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory to
the Company of such loss, theft or destruction of this Warrant and indemnity, if
requested, also satisfactory to the Company. Applicants for such substitute
Warrant certificate shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company may prescribe.
SECTION 6. RESERVATION OF SHARES
There have been reserved, and the Company shall at all times keep
reserved, out of its authorized Common Stock a number of shares of Common Stock
sufficient to provide for the exercise of the rights of purchase represented by
this Warrant.
Any transfer agent for the Common Stock or for any other shares of the
Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid will be irrevocably authorized and
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directed at all times to reserve such number of authorized shares as shall be
requisite for such purpose. The Company will keep a photocopy of this Warrant on
file with any transfer agent for the Common Stock or for any shares of the
Company's capital stock issuable upon the exercise of the rights of purchase
represented by this Warrant.
SECTION 7. PURCHASE OR REDEMPTION BY THE COMPANY
7.1. Purchase of Warrant. The Company shall have the right, except as
limited by law, other agreements or herein, to purchase or otherwise acquire
this Warrant at such times, in such manner and for such consideration as it may
deem appropriate.
7.2. Redemption of Warrant by the Company. The Company shall have the
right, except as limited by law, other agreements or herein, to redeem this
Warrant, in whole or from time to time in part, on thirty days notice at $.05
per Share at any time after June 30, 1997, if the average closing bid price of
the Common Stock (or closing price if then traded on a national securities
exchange) for any thirty consecutive trading days has equalled or exceeded
$10.00. Notice of any such redemption will be mailed by the Company to the
Holder. Unless, prior to the expiration of such thirty-day notice period, the
Holder exercises his right to purchase the Shares covered by this Warrant, the
Holder will forfeit his right to do so, and will be entitled only to the
redemption price of this Warrant if redeemed.
SECTION 8. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES
8.1 Adjustments. The Warrant Price and the number and kind of securities
purchasable upon the exercise of this Warrant shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) In case the Company shall (i) pay a dividend in shares of Common Stock
or make a distribution in shares of Common Stock, (ii) subdivide its outstanding
shares of Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
the number of Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder of this Warrant shall be entitled
to receive the kind and number of Shares or other securities of the Company
which he would have owned or have been entitled to receive after the happening
of any of such event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event.
(b) In case the Company shall issue rights, options or warrants to all or
substantially all holders of its shares of Common Stock, without any charge to
such holders, entitling them to subscribe for or purchase shares of Common Stock
at a price per share which is lower at the record date mentioned below than the
Current Market Price per share of
Common Stock (as defined in paragraph (d) below), the number of Shares
thereafter purchasable upon the exercise of this Warrant shall be determined by
multiplying the number of Shares theretofore
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purchasable upon exercise of this Warrant by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on the date of
issuance of such rights, options or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
which the aggregate offering price of the total number of shares of Common Stock
so offered would purchase at such Current Market Price. Such adjustment shall be
made whenever such rights, options or warrants are issued, and shall become
effective retroactively immediately after the record date for the determination
of stockholders entitled to receive such rights, options or warrants.
(c) In case the Company shall distribute to all or substantially all
holders of its shares of Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights, options
or warrants or convertible securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referred to in paragraph (b)
above), then in each such case the number of Shares thereafter purchasable upon
the exercise of this Warrant shall be determined by multiplying the number of
Shares theretofore purchasable upon exercise of this Warrant by a fraction, of
which the numerator shall be the then Current Market Price per share of Common
Stock (as defined in paragraph (d) below) on the date of such distribution, and
of which the denominator shall be such Current Market Price per share of Common
Stock, less the then fair value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive) of the portion of the assets
or evidences of indebtedness so distributed or of such subscription rights,
options or warrants, or of such convertible securities applicable to one share
of Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of distribution retroactive to the
record date for the determination of shareholders entitled to receive such
distribution.
(d) For the purposes of this Warrant, the Current Market Price per share
of Common Stock of the Company at any date shall be deemed to be (i) if the
shares of Common Stock are traded in the over-the-counter market and not on any
national securities exchange and not in the NASDAQ National Market System, the
average of the mean between the bid and asked price per share, as reported by
The National Quotation Bureau, Incorporated, or an equivalent generally accepted
reporting service, for the twenty (20) consecutive trading days immediately
preceding the date for which the determination of Current Market Price is to be
made, or, (ii) if the shares of Common Stock are traded on a national securities
exchange or in the NASDAQ National Market System, the average daily per share
closing price on the principal national securities exchange on which they are so
listed or in the NASDAQ National Market System, as the case may be, for the
twenty (20) consecutive trading days immediately preceding the date for which
the determination of Current Market Price is to be made. The closing price
referred to in clause (ii) above shall be the last reported sales price or, in
case no such reported sale takes place on such day, the average of the reported
closing bid and asked prices, in either case on the principal national
securities exchange on which the shares of Common Stock are then listed or in
the NASDAQ National Market System.
(e) No adjustment in the number of shares purchasable hereunder shall be
required unless such adjustment would require an increase or decrease of at
least 1 percent in the number of Shares
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purchasable upon the exercise of this Warrant; provided that any adjustments
which by reason of this paragraph (e) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(f) Whenever the number of Shares purchasable upon the exercise of this
Warrant is adjusted as herein provided, the Warrant Price per Share payable upon
exercise of this Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Shares purchasable upon the exercise of this Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
(g) In case the Company shall sell and issue shares of Common Stock, or
rights, options, warrants or convertible securities containing the right to
subscribe for or purchase shares of Common Stock, at a price per share of Common
Stock (determined in the case of such rights, options, warrants or convertible
securities, by dividing (i) the total amount received or receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants or convertible securities, plus the total consideration payable to the
Company upon exercise or conversion thereof, by (ii) the total number of shares
of Common Stock covered by such rights, options, warrants or convertible
securities) lower than the Current Market Price (as defined in paragraph (d)
above) in effect immediately prior to such sale and issuance, then the Warrant
Price shall be reduced to a price (calculated to the nearest cent) determined by
dividing (i) an amount equal to the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such sale and issuance multiplied by the
then existing Warrant Price, plus (2) the consideration received by the Company
upon such sale and issuance, by (ii) the total number of shares of Common Stock
outstanding immediately after such sale and issuance; provided that adjustments
pursuant to this paragraph (g) shall only be made if such sale or issuance is to
an officer, director or other affiliate of the Company, or any relative of any
of the above, and if no adjustment for such sale or issuance is made pursuant to
paragraph (c) above. The number of Shares purchasable upon the exercise of each
Warrant shall be determined by multiplying the number of Shares issuable upon
exercise immediately prior to such adjustment by a fraction, of which the
numerator is the Warrant Price in effect immediately prior to such adjustment
and the denominator is the Warrant Price as so adjusted. For the purposes of
such adjustments, the shares of Common Stock which the holders of any such
rights, options, warrants or convertible securities shall be entitled to
subscribe for or purchase shall be deemed to be issued and outstanding as of the
date of such sale and issuance, and the consideration received by the Company
therefor shall be deemed to be the consideration received by the Company for
such rights, options, warrants or convertible securities, plus the consideration
or premiums stated in such rights, options, warrants, or convertible securities
to be paid for the shares of Common Stock covered thereby. In case the Company
shall sell and issue shares of Common Stock, or rights, options, warrants, or
convertible securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share of Common Stock" and the "consideration received by the Company" for
purposes of the first sentence of this paragraph (g), the Board of Directors
shall
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determine, in its discretion, the fair value of said property and such
determination, if made in good faith, shall be binding upon the Holder of this
Warrant. There shall be no adjustment of the Warrant Price pursuant to this
paragraph (g) if the amount of such adjustment would be less than $.05 per
Share; provided that any adjustment which by reason of this provision is not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.
(h) When the number of Shares purchasable upon the exercise of this
Warrant or the Warrant Price is adjusted as herein provided, the Company shall
promptly mail to the Holder by first class mail, postage prepaid, notice of such
adjustment or adjustments together with a certificate of a firm of independent
public accountants selected by the Board of Directors of the Company (who may be
the regular accountants employed by the Company) setting forth the number of
Shares purchasable upon the exercise of this Warrant and the Warrant Price of
such Shares after such adjustment, a brief statement of the facts requiring such
adjustment and the computation by which such adjustment was made. Such
certificate shall be conclusive evidence of the correctness of such adjustment.
The Company shall be entitled to rely on such certificate and shall be under no
duty or responsibility with respect to any such certificate, except to exhibit
the same, from time to time, to the Holder during reasonable business hours.
(i) For the purpose of this subsection 8.1, the term "shares of Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company on the date of this Warrant, or (ii) any other class of stock resulting
from successive changes or reclassifications of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to this subsection 8.1, the Holder shall become entitled to purchase
any shares of the Company other than shares of Common Stock, thereafter the
number of such other shares so purchasable upon exercise of this Warrant, and
the Warrant Price of such shares, shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Shares contained in paragraphs (a) through (h),
inclusive, above, and the provisions of Section 3 and subsections 8.2 through
8.4, inclusive, with respect to the shares shall apply on like terms to any such
other shares.
(j) Upon the expiration of any rights, options, warrants or conversion
privileges, if any thereof shall not have been exercised, the number of shares
purchasable upon exercise of this Warrant and the Warrant Price, to the extent
this Warrant shall not then have been exercised, shall, upon such expiration, be
readjusted and shall thereafter be such as they would have been had it been
originally adjusted (or had the original adjustment not been required, as the
case may be) on the basis of (1) the only shares of Common Stock so issued were
the shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion rights and (2) such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company for the issuance, sale or grant of all of such rights,
options, warrants or conversion rights, whether or not exercised; provided that
no such readjustment shall have the effect of increasing the Warrant Price by an
amount in excess of the amount of the adjustment initially made in respect of
the issuance, sale or grant of such rights, options, warrants or convertible
rights.
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8.2. No Adjustment for Dividends. Except as provided in subsection 8.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrants or upon the exercise of this Warrant.
8.3. No Adjustment in Certain Cases. No adjustments shall be made pursuant
to this Section 8, in connection with the issuance of (a) up to 1,750,000 shares
of Common Stock being offered and sold in units with the Redeemable Warrants,
(b) any securities upon exercise of any of the Redeemable Warrants, (c) any
securities upon the conversion of the Company's Series A Convertible Redeemable
Preferred Stock (or exercise of the warrants issuable upon conversion thereof),
(d) up to 2,500,000 shares in the aggregate to Bruce H. Lipnick and Arnold L.
Mintz, (e) up to 350,000 shares of Common Stock (subject to adjustment in
certain events) issuable at an initial price of $5.00 per share (subject to
adjustment in certain events) upon exercise of redeemable common stock purchase
warrants being issued to Bruce H. Lipnick and Arnold L. Mintz, (f) such number
of shares of Common Stock (as adjusted for all stock dividends, stock splits,
subdivisions and combinations) as are issued to employees, officers, directors,
consultants or members of the Board of Advisors of the Company, or other persons
performing services for the Company, pursuant to any stock option plan, stock
purchase plan or management incentive plan, agreement or arrangement approved by
the Board, and/or upon exercise of redeemable common stock purchase warrants
(issued to any such persons as approved by the Board) substantially identical
(except as to exercise price) to the redeemable common stock purchase warrants
referred to in clause (e) above, and (g) any shares of Common Stock (or
securities convertible into shares of Common Stock) as consideration for the
acquisition by the Company of interests in any entity engaged primarily in the
business of investment management or related services.
8.4. Preservation of Purchase Rights upon Reclassification, Consolidation,
etc. In case of any consolidation of the Company with or merger of the Company
into another corporation or in case of any sale or conveyance to another
corporation of the property, assets or business of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation, as the case may be, shall execute an agreement with the Holder that
the Holder shall have the right thereafter upon payment of the Warrant Price in
effect immediately prior to such action to purchase upon exercise of this
Warrant the kind and amount of Shares and other securities and property which he
would have owned or have been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had this Warrant been exercised
immediately prior to such action. Such agreement shall provide for adjustments,
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 8. The Company shall mail an executed copy of any
such agreement by first class mail, postage prepaid, to the Holder. The
provisions of this subsection 8.4 shall similarly apply to successive
consolidations, mergers, sales, or conveyances.
SECTION 9. FRACTIONAL INTERESTS
The Company shall not be required to issue fractional Shares on the
exercise of this Warrant. If more than one of the Redeemable Warrants shall be
presented for exercise in full at the same time by the same Holder, the number
of full Shares which shall be issuable
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upon the exercise thereof shall be computed on the basis of the aggregate number
of Shares represented by this Warrant and the other Redeemable Warrants so
presented. If any fraction of a Share would, except for the provisions of this
Section 9, be issuable on the exercise of this Warrant (or specified portion
thereof), the Company shall pay an amount in cash equal to the Current Market
Price per Share (as defined in paragraph 8.1(d) above) multiplied by such
fraction.
SECTION 10. NO RIGHT AS STOCKHOLDERS; NOTICES TO HOLDER
Nothing contained in this Warrant shall be construed as conferring upon
the Holder or the Holder's transferees the right to vote or to receive dividends
or to consent or to receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter,
or any rights whatsoever as stockholders of the Company. If, however, at any
time prior to the expiration of this Warrant and prior to its exercise, any of
the following events shall occur:
(a) any action which would require an adjustment pursuant
to subsections 8.1 or 8.4, or
(b) a dissolution, liquidation, or winding up of the Company
(other than in connection with a consolidation, merger, or sale of
all or substantially all of its property, assets, and business as an
entirety) shall be proposed;
the Company shall in each such case give notice in writing of such event to the
Holders as provided in Section 11 hereof. Failure to publish or mail such notice
or any defect therein or in the publication or mailing thereof shall not affect
the validity of any action taken in connection with such dividend, distribution,
or subscription rights. or proposed dissolution, liquidation or winding up.
SECTION 11. NOTICES
(a) Any notice to the Company pursuant to this Warrant shall be in writing
and shall be deemed to have been duly given if delivered or mailed certified
mail, return receipt requested, to the Company at Suite 820, 90 Broad Street,
New York, New York 10004, Attention: Executive Vice President. The Company may
from time to time change the address to which such notices are to be delivered
or mailed hereunder by notice to the Holder in accordance with paragraph (b)
below.
(b) Any notice pursuant to this Warrant by the Company to the Holder shall
be in writing and shall be deemed to have been duly given if mailed, postage
prepaid, to the Holder at the Holder's address on the books of the Company.
SECTION 12. SUPPLEMENTS AND AMENDMENTS
The Company may from time to time supplement or amend this Warrant,
without the approval of the Holder, in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions
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herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company may deem necessary or desirable and which
shall not be inconsistent with the provisions of this Warrant and which shall
not adversely affect the interest of the Holder.
SECTION 13. SUCCESSORS
All the covenants and provisions of this Warrant by or for the benefit of
the Company or the Holder shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION 14. MERGER OR CONSOLIDATION OF THE COMPANY
The Company will not merge or consolidate with or into any other entity
unless the entity resulting from such merger or consolidation (if not the
Company) shall expressly assume the due and punctual performance and observance
of each and every covenant and condition of this Warrant to be performed and
observed by the Company.
SECTION 15. APPLICABLE LAW
This Warrant shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of said state.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its President and its corporate seal to be affixed thereto.
Date: December 30, 1996
ASSET ALLIANCE CORPORATION
ATTEST:
By: ____________________________
Bruce H. Lipnick
_____________________________ President
Arnold L. Mintz
Secretary
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ASSET ALLIANCE CORPORATION
REDEEMABLE COMMON STOCK PURCHASE WARRANT
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______________ shares (the "Shares") provided for therein, and
requests that certificates for the Shares be issued in the name of:
_____________________________
(Please Print or Type Name, Address and Social Security Number)
_____________________________
_____________________________
_____________________________
and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant Certificate for the balance of the unpurchased Shares be
registered in the name of the undersigned Warrantholder as below indicated and
delivered to the address stated below:
(Please Print)
Dated: _________________
Name of Warrantholder: _________________________________________
Address: ________________________________
________________________________
Signature: ______________________________
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Note: The above signature must correspond with the name as written upon
the face of this Warrant Certificate in every particular, without
alteration or enlargement or any change whatever.
Signature Guaranteed: ____________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
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Exhibit 4.10
ASSET ALLIANCE CORPORATION
(INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE)
CONVERTIBLE SUBORDINATED DEBENTURE
DUE JUNE 30, 2001
THE TRANSFER OF THIS DEBENTURE OR ANY INTEREST HEREIN IS GOVERNED BY SECTION
10.3 HEREOF. THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 ("THE ACT"). NO SALE, HYPOTHECATION OR TRANSFER OF THIS DEBENTURE OR ANY
INTEREST HEREIN MAY BE MADE UNLESS (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR (B) THE COMPANY HAS RECEIVED AN OPINION SATISFACTORY
TO IT FROM COUNSEL TO THE HOLDER HEREOF THAT SUCH DISPOSITION MAY BE MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.
------------------------------
Asset Alliance Corporation., a corporation duly organized and existing
under the laws of the State of Delaware (hereinafter called the "Company"), for
value received, hereby promises to pay to Trust Advisory Group, Inc., a
Connecticut corporation (the "Holder"), or registered assigns, the principal
amount and interest set forth herein in accordance with and subject to the terms
hereof. Payments of principal and interest shall be made in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public or private debts, at the Company's office at 90
Broad Street, Suite 820, New York, New York 10004.
1. Interest
1.1 The unpaid portion of the principal amount of this Debenture
outstanding from time to time shall bear simple interest at an annual rate of
6.93%, from the date hereof until this Debenture is paid in full. Reference is
made to Section 4.2(a) below with respect to the deemed full or partial payment
by reason of conversion of this Debenture or part thereof. Such interest shall
be computed on the basis of a 365-day year.
1.2 Accrued interest on the unpaid principal amount of this Debenture
shall be due quarterly and payable in arrears on the last business day of each
calendar quarter (e.g. March 31st, June 30th, September 30th and December 31st)
commencing on December 31, 1996 (the "Interest Payment Dates"), provided that
the final interest payment (the "Final Interest Payment") shall be due and
payable on the date on which the remaining principal balance hereof is due and
payable hereunder.
<PAGE> 2
2. Principal
The principal amount of this Debenture is $750,000, which shall be due and
payable on June 30, 2001.
3. Subordination
3.1 The payment of the principal of and interest on this Debenture is
expressly subordinated in right of payment to the prior payment in full of all
Senior Indebtedness (as hereinafter defined) to the extent and in the manner
provided for in this Section 3. For purposes hereof, "Senior Indebtedness" shall
mean the principal of, premium, if any, and interest on (a) all indebtedness
(including any extension, renewal and refunding thereof) for money now or
hereafter borrowed by the Company for the corporate benefit of the Company or
any member of the Company Group (as hereinafter defined), and (b) indebtedness
(including any extension, renewal and refunding thereof) for money now or
hereafter borrowed by any person to the extent such indebtedness is borrowed for
the corporate benefit of the Company or any member of the Company Group and
guaranteed, directly or indirectly, by the Company, unless, in any case, by the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such indebtedness is not superior in right of
payment to this Debenture. For purposes hereof, the "Company Group" shall mean
the Company, all direct and indirect parents and subsidiaries of the Company and
all entities in which the Company has a direct or indirect equity ownership
interest.
3.2 Upon the acceleration (and for so long as such acceleration is
unwaived or uncured and continues to exist), pursuant to the terms thereof, of
the maturity of any Senior Indebtedness or any distribution of assets of the
Company pursuant to any dissolution, winding up, liquidation or reorganization
of the Company, whether in bankruptcy, insolvency or receivership proceedings or
upon an assignment for the benefit of creditors or any other marshalling of the
assets and liabilities of the Company, the holders of all Senior Indebtedness
shall first be entitled to receive payment in full of all of the Senior
Indebtedness before the Holder becomes entitled to receive any payment upon the
principal of or interest on the indebtedness evidenced by this Debenture; and
upon the occurrence of any of the above-described events, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than securities of the Company as reorganized or
readjusted or securities of the Company or any other corporation provided for by
a plan of reorganization or readjustment, the payment of which is subordinated
to the payment of all Senior Indebtedness which may at any time be outstanding)
to which the Holder would be paid (if not for the provisions of this Section 3)
by the liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, shall be paid directly to the holders of Senior Indebtedness or
their representative or representatives or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any of such Senior
Indebtedness may have been issued, ratably according to the aggregate amounts
remaining unpaid on account of the principal of and premium, if any, and
interest on the Senior Indebtedness held or represented by each, to the extent
necessary
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<PAGE> 3
to pay in full all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution to the holders of such Senior
Indebtedness.
3.3 No payment of, or on account of, principal or interest on this
Debenture shall be made if any unwaived or uncured event of default in respect
of any Senior Indebtedness has occurred and is then continuing. No payment of,
or on account of, principal of or interest on this Debenture shall be made,
either directly or indirectly, by the Company, if, at the time of such payment
or purchase, or immediately after giving effect thereto, there shall be an
unwaived or uncured event of default under any Senior Indebtedness, unless
simultaneously with making such payment, full payment of amounts which are, or
with the lapse of time or the giving of notice or both would become, due as a
result of such default has been made. Nothing contained herein shall be deemed
to preclude or prohibit the Company from making any payment of principal or
interest under this Debenture at a time when such an event of default is not
continuing or would not result from such payment.
Notwithstanding the provisions of this Section 3, the Holder shall not be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment of moneys to or by the Holder, or the taking of any other
action by the Holder, unless and until the Holder shall have received written
notice thereof from the Company, or the holder or representative of any class of
Senior Indebtedness.
3.4 In the event any direct or indirect payment or distribution of
principal or interest shall be received by the holder of this Debenture in
contravention of the provisions of this Section 3, then such payment or
distribution shall be held in trust for the benefit of the holders of Senior
Indebtedness and shall be paid over by the holder of this Debenture in the same
manner as provided in Section 3.2.
3.5 Subject to the subordination provisions of this Debenture, nothing
contained in this Debenture shall affect the obligation of the Company to make
or shall prevent the Company from making payments of principal of, or interest
on, this Debenture in accordance with the provisions hereof.
3.6 Subject to the payment in full of all Senior Indebtedness, the Holder
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of assets of the Company applicable to the
Senior Indebtedness until the principal of and interest on this Debenture shall
be paid in full and no payments or distributions to the holders of Senior
Indebtedness pursuant to the provisions of this Section 3 which otherwise would
have been made to the Holder (or its assigns) shall, as between the Company, its
creditors other than the holders of the Senior Indebtedness, and the Holder, be
deemed to be a payment by the Company to or on account of Senior Indebtedness,
it being understood that the provisions of this Section 3 are intended solely
for the purpose of defining the relative rights of the Holder, on the one hand,
and the holders of the Senior Indebtedness, on the other hand, and nothing
contained in this Section 3 or elsewhere in this Debenture is intended to or
shall impair, as between the Company, its creditors other than the
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<PAGE> 4
holders of Senior Indebtedness, and the Holder, the obligation of the Company
which is unconditional and absolute to pay to the Holder the principal of and
interest on this Debenture as and when the same shall become due and payable in
accordance with its terms, or to affect the relative rights of the Holder and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein prevent the Holder (or its assigns) from exercising all
remedies otherwise permitted by applicable law or this Debenture upon default,
subject to the rights, if any, under this Section 3 of the holders of the Senior
Indebtedness in respect of cash, property or securities of the Company received
upon the exercise of such remedy.
3.7 The Holder irrevocably authorizes and empowers each holder of the
Senior Indebtedness or such holder's representative to file, vote and prove all
claims in any bankruptcy, dissolution, liquidation (or similar case or
proceeding) with respect to the Company if such holder reasonably determines
that the Holder will not timely file and prove such claim(s).
3.8 The Company shall not, and shall not permit any affiliate to, directly
or indirectly, enter into any agreement which prevents the payment of this
Debenture in a manner more restrictive than the provisions of this Section 3.
3.9 Anything contained in this Section 3 to the contrary notwithstanding,
the subordination provided for in this Section 3 shall not apply to (A) the
Specified Collateral, or any payments or distributions of or on this Debenture
derived from or otherwise resulting from the Specified Collateral, and nothing
contained in this Section 3 shall, or shall be interpreted to, impair or limit
the rights of the Holder (or its assigns) to (i) the Specified Collateral and/or
(ii) receive payments therefrom and/or (iii) exercise its rights and remedies
with respect to the Specified Collateral or (B) any payment by reason of
conversion under Section 4 below and nothing contained in this Section 3 shall,
or shall be interpreted to, impair or limit the rights of the Holder (or its
assigns) to convert this Debenture (or part thereof). "Specified Collateral"
shall mean the Policies (as defined below) and any and all rights, benefits and
privileges thereunder, including without limitation any and all proceeds
thereof.
4. Conversion.
4.1 Subject to the provisions for adjustment hereinafter set forth, this
Debenture shall be convertible at the option of the Holder at any time after the
date hereof into shares of the Company's Common Stock, par value $.01 per share
("AAC Common Stock"), at an initial conversion price (the "Conversion Price") of
$15.00 in principal amount of this Debenture per share of AAC Common Stock. The
Conversion Price shall be adjusted in certain instances as provided in this
Section 4.
4.2 (a) Conversion of this Debenture may be effected by the Holder upon
surrender to the Company at the office of the Company designated for notices in
accordance with Section 8.3 hereof, of the Debenture to be converted,
accompanied by a written notice (a "Conversion Notice") stating that the Holder
elects to convert all or a specified portion of the outstanding principal amount
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<PAGE> 5
of the Debenture in accordance with the provisions of this Section 4. As
promptly as practicable, and in any event within 7 business days after the
surrender of this Debenture and the receipt by the Company of such Conversion
Notice relating thereto, the Company shall deliver or cause to be delivered (i)
a certificate representing the number of validly issued, fully paid and
nonassessable full shares of AAC Common Stock to which the Holder shall be
entitled and (ii) if less than the entire outstanding principal amount of the
Debenture is being converted, a new Debenture in the principal amount which
remains outstanding upon such partial conversion. Such conversion shall be
deemed to have been made at the close of business on the date of giving of such
Conversion Notice so that the rights of the Holder as to the Debenture (or
portion thereof) shall cease except for the right to receive shares of AAC
Common Stock in accordance herewith, and the Holder shall be treated for all
purposes as having become the record holder of such shares of AAC Common Stock
at such time, so long as Holder's Debenture is delivered to the Company within
two business days after the date of the giving of a Conversion Notice.
(b) In case the Debenture is prepaid in full pursuant to Section 5
below, the right of conversion set forth herein shall continue through and until
the close of business on the business day preceding the date fixed for
prepayment, whereupon such conversion right shall cease and terminate unless the
Company shall default in payment for this Debenture on such date or unless the
Holder has given notice to the Company of his election to convert all or any
portion of the Debenture prior to the date fixed for prepayment.
(c) Promptly upon conversion, the Company shall pay to the Holder an
amount equal to any accrued and unpaid interest on the Debenture.
4.3 The Company shall at all times reserve and keep available for issuance
upon conversion of this Debenture, free from any preemptive rights, such number
of its authorized shares of AAC Common Stock as will from time to time be
sufficient to permit conversion of the entire outstanding principal amount of
the Debenture into AAC Common Stock. If at the time of conversion, the AAC
Common Stock is listed on a national securities exchange, or is designated as a
"national market system security" on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), the Company shall take all
action necessary to cause the shares of AAC Common Stock issuable upon
conversion of this Debenture to be listed on such exchange, subject to official
notice of issuance or authorized for quotation on such system, as the case may
be.
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<PAGE> 6
4.4 The Conversion Price will be subject to adjustment from time to time
as follows:
(a) In case the Company shall at any time or from time to time after
the date hereof (A) pay a dividend, or make a distribution, on the outstanding
shares of AAC Common Stock; (B) subdivide the outstanding shares of AAC Common
Stock; (C) combine the outstanding shares of AAC Common Stock into a smaller
number of shares; or (D) issue by reclassification of the shares of AAC Common
Stock any shares of capital stock of the Company, then, and in each such case,
the Conversion Price in effect immediately prior to such event or the record
date therefor, whichever is earlier, shall be adjusted so that the Holder shall
be entitled to receive upon conversion of this Debenture for each $100 of
outstanding principal amount of this Debenture, the number of shares of AAC
Common Stock of the Company which the Holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such $100 principal amount of this Debenture been surrendered for conversion
immediately prior to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this clause (a) shall
become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of AAC Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective. No adjustment shall be made pursuant to this clause
(a) in connection with any transaction to which Section 4.5 applies.
(b) If at any time following the date hereof, the Company shall
issue shares of AAC Common Stock (or options, rights, warrants or other
securities convertible into or exchangeable for shares of AAC Common Stock
(collectively "Convertible Securities")) to shareholders of AAC existing on the
date hereof (other than upon exercise of currently outstanding warrants and
Preferred Stock, warrants issued to investors in the current private placement
offering being made by the Company, and other than options and warrants issued
as incentives to employees, directors and consultants to AAC) without
consideration or at a price per share (or having a conversion price per share)
less than the Conversion Price then in effect, then the Conversion Price shall
be adjusted by multiplying (A) the Conversion Price in effect on the day
immediately prior to such date by (B) a fraction, the numerator of which shall
be the sum of (1) the number of shares of AAC Common Stock outstanding on such
date and (2) the number of shares of AAC Common Stock purchasable at the then
current Conversion Price per share with the aggregate consideration receivable
by the Company for the total number of shares of AAC Common Stock so issued (or
into which the Convertible Securities may convert), and the denominator of which
shall be the sum of (x) the number of shares of AAC Common Stock outstanding on
such date and (y) the number of additional shares of AAC Common Stock issued (or
into which the Convertible Securities may convert).
An adjustment made pursuant to this Section 4.4(b) shall be made on the next
Business Day following the date on which any such issuance is made and shall be
effective retroactively to the close of business on the date of such issuance.
For purposes of this Section 4.4(b), the aggregate consideration receivable by
the Company in connection with the issuance of shares of AAC
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<PAGE> 7
Common Stock or of Convertible Securities shall be deemed to be equal to the sum
of the aggregate offering price (before deduction of underwriting discounts or
commissions and expenses payable to third parties) of all such AAC Common Stock
and Convertible Securities plus the minimum aggregate amount, if any, payable
upon exercise or conversion of any such Convertible Securities. The issuance or
reissuance of any shares of AAC Common Stock (whether treasury shares or newly
issued shares) pursuant to (i) a dividend or distribution on, or subdivision,
combination or reclassification of, the outstanding shares of AAC Common Stock
requiring an adjustment in the Conversion Price pursuant to Section 4.4(a), or
(ii) any stock option plan, stock purchase plan or other benefit program of the
Company or executive compensation package approved by the Company's Board of
Directors involving the grant of options to employees or directors of the
Company, shall not be deemed to constitute an issuance of AAC Common Stock or
Convertible Securities by the Company to which this Section 4.4(b) applies. Upon
the expiration unexercised of any Convertible Securities for which an adjustment
has been made pursuant to this Section 4.4(b), the adjustments shall forthwith
be reversed to effect such rate of conversion as would have been in effect at
the time of such expiration or termination had such Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued. No adjustment shall be made pursuant to this Section 4.4(b)
in connection with any transaction to which Section 4.5 applies.
(c) In the case the Company shall at any time or from time to time
after the date hereof declare, order, pay or made a dividend or other
distribution (including, without limitation, any distribution of stock or other
securities or property or Convertible Securities of the Company or any of its
Subsidiaries by way of dividend or spinoff), on AAC Common Stock, then, and in
each such case, the Conversion Price shall be adjusted by multiplying (1) the
applicable Conversion Price on the date immediately prior to the record date
fixed for the determination of stockholders entitled to receive such dividend or
distribution by (2) a fraction, the numerator of which shall be the fair market
value (as determined in good faith by the Board of Directors, a certified
resolution with respect to which shall be mailed to each holder of Debentures)
of such dividend or distribution, and the denominator of which shall be the
Current Market Price of the AAC Common Stock. No adjustment shall be made
pursuant to this Section 4.4(c) in connection with any transaction to which
Section 4.5 applies.
(d) For purposes of this Section 4.4, the number of shares of AAC
Common Stock at any time outstanding shall not include any shares of AAC Common
Stock then owned or held by or for the account of the Company.
(e) The term "dividend" as used in this Section 4.4, shall mean a
dividend or other distribution upon stock of the Company.
(f) Anything in this Section 4.4 to the contrary notwithstanding,
the Company shall not be required to give effect to any adjustments in the
Conversion Price unless and until the net effect of one or more adjustments
(each of which shall be carried forward), determined as above
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<PAGE> 8
provided, shall have resulted in a change of the Conversion Price by at least
one percent, and when the cumulative net effect of more than one adjustment so
determined shall be to change the Conversion Price by at least one percent, such
change in Conversion Price shall thereupon be given effect.
(g) The certificate of any firm of independent public accountants of
recognized national standing selected by the Board of Directors (which may be
the firm of independent public accountants regularly employed by the Company)
shall be presumptively correct for any computation made under this Section 4.4.
(h) If the Company shall take a record of the holders of its AAC
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the number of shares of AAC
Common Stock issuable upon exercise of the rights of conversion granted by this
Section 4.4 or in the Conversion price then in effect shall be required by
reason of the taking of such record.
4.5 In the case of any consolidation or merger of the Company with or into
another person, corporation or entity, or in case of any sale or conveyance to
another person, corporation or entity of all or substantially all of the assets
or property of the Company (each of the foregoing being referred to as a
"Transaction") occurring in each case at any time, this Debenture shall
thereafter be convertible into, in lieu of the AAC Common Stock issuable upon
such conversion prior to consummation of such Transaction, the kind and amount
of shares of stock and other securities and property receivable (including cash)
upon the consummation of such Transaction by the holder of that number of shares
of AAC Common Stock into which the outstanding Principal balance of this
Debenture was convertible immediately prior to such Transaction. In case
securities or property other than AAC Common Stock shall be issuable or
deliverable upon conversion as aforesaid, then all references in this Section 4
shall be deemed to apply, so far as appropriate and nearly as may be, to such
other securities or property whether or not the person, corporation or entity
shall have expressly assumed the obligations under this Debenture.
4.6 In case at any time or from time to time the Company shall pay any
stock dividend or make any other non-cash distribution to the holders of its AAC
Common Stock, or shall offer for subscription pro rata to the holders of its AAC
Common Stock any additional shares of stock of any class or any other right, or
there shall be any capital reorganization or reclassification of the AAC Common
Stock or consolidation or merger of the Company with or into another
corporation, or any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, or there shall be a
voluntary or involuntary dissolution, liquidation or winding up of the Company,
then, in any one or more of said cases the Company shall give at least 20 days'
prior written notice (the time of mailing of such notice shall be deemed to be
the time of giving thereof) to the Holder at the address determined pursuant to
Section 8.3 hereof as of the date on which (i) a record shall be taken for such
stock dividend, distribution or subscription rights or (ii)
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<PAGE> 9
such reorganization, reclassification, consolidation, merger, sales or
conveyance, dissolution, liquidation or winding up shall take place, as the case
may be, provided that in the case of any Transaction to which Section 4.5
applies the Company shall give at least 30 days' prior written notice as
aforesaid. Such notice shall also specify the date as of which the holders of
the AAC Common Stock of record shall participate in said dividend, distribution
or subscription rights or shall be entitled to exchange their AAC Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale or conveyance or participate in
such dissolution, liquidation or winding up, as the case may be. Failure to give
such notice shall not invalidate any action so taken.
4.7 Upon any adjustment of the Conversion Price then in effect and any
increase or decrease in the number of shares of AAC Common Stock issuable upon
the operation of the conversion provisions set forth in this Section 4, then,
and in each such case, the Company shall promptly deliver to the Holder a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
setting forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Conversion
Price then in effect following such adjustment, and shall set forth in
reasonable detail the method of calculation of each and a brief statement of the
facts requiring such adjustment. Where appropriate, such notice to the Holder
may be given in advance and included as part of the notice required under the
provisions of Section 4.6.
4.8 The Company will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Debenture, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of shares of AAC
Common Stock issuable upon conversion of this Debenture against impairment.
Without limiting the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on the conversion of
the Debenture above the amount payable therefor on such conversion, and (b) will
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable shares of
stock on the conversion of the Debenture from time to time outstanding. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of AAC Common Stock, solely for the purpose of effecting the
conversion of this Debenture, such number of its shares of AAC Common Stock as
shall from time to time be sufficient to effect the conversion of this
Debenture, and if at any time the number of authorized but unissued shares of
AAC Common Stock shall not be sufficient to effect the conversion of this
Debenture, the Company shall take such corporate action as may be necessary to
increase its authorized but unissued shares of AAC Common Stock to such number
of shares as shall be sufficient for such purpose.
5. Prepayment.
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<PAGE> 10
5.1 (a) Subject to the provisions of Section 3 and the Holder's right to
conversion set forth in Section 4, the Company shall have the option,
exercisable in its sole discretion, without premium or penalty, to prepay at any
time after the six month anniversary of an underwritten initial public offering
of the Company's AAC Common Stock, par value $.01 per share, all or any portion
of the principal amount of this Debenture outstanding on the date of such
prepayment, together with accrued interest on the amount of prepaid principal to
the date of prepayment. Written notice of such prepayment shall be given by the
Company to the Holder not less than 30 nor more than 60 days prior to the date
fixed for prepayment.
(b) The Company shall prepay principal in the amount equal to the lesser
of (x) 50% of the then outstanding principal hereof and (y) $375,000, plus, in
either case, all interest thereon, within 60 days after the death of either Mark
R. Tonucci or Michael E. Portnoy. Without limiting the generality of the
Company's obligations under the immediately preceding sentence, the Company
shall use the proceeds of any key-man life insurance policies (the "key-man
policies" or "policies") maintained by the Company pursuant to the Interest
Purchase Agreement to make such prepayment(s) or shall hold such proceeds in
trust for such purpose.
5.2 The Company may in writing require the Holder, as a condition
precedent to making any prepayment of less than the entire principal amount
hereof, to present the same at its offices for the making of a notation thereon
by or on behalf of the Company as to the amount of such prepayment.
5.3 Any prepayments hereunder shall be applied first to interest and then
to principal. In the case of prepayment of this Debenture, the aggregate
principal amount to be prepaid shall mature and become due and payable on the
date fixed by the notice of prepayment, together with interest accrued, if any,
to such date on such principal amount. From and after such date, unless the
Company shall fail to pay such principal and interest when so due and payable,
interest on such principal amount shall cease to accrue.
6. Covenants.
The Company covenants and agrees that so long as this Debenture is
outstanding:
6.1 The Company shall keep in full force and effect the corporate
existence of the Company; provided, however, that the Company may merge with,
consolidate with, sell substantially all of its assets to or combine with any
other company, so long as such surviving entity assumes the Company's
obligations under this Debenture.
6.2 In the event that the Company has merged into, consolidated with, sold
substantially all of its assets to, or combined with, another company, the
surviving entity will, at the request of the Holder hereof, exchange this
Debenture for a new instrument with substantially the same terms and covenants,
preserving all significant rights of the Holder hereof, executed by such
surviving
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<PAGE> 11
entity and in which the surviving entity assumes all of the Company's rights
and obligations hereunder.
6.3 The Company shall pay and discharge promptly, or cause to be paid and
discharged promptly, when due and payable, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or upon any of
its assets, as well as all claims of any kind (including claims for labor,
materials and supplies) which are material to the Company and which, if unpaid,
might by law become a lien or charge upon its assets; provided, however, that
the Company shall not be required to pay any such tax, assessment, charge, levy
or material claims while the Company shall be currently contesting in good faith
by appropriate proceedings the amount, applicability or validity thereof, as
long as the Company shall have set aside on its books reserves required by
generally accepted accounting principles with respect thereto.
6.4 The Company and its subsidiaries shall comply with all applicable laws
and all obligations under all contracts except to the extent that failure to
comply therewith could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the Company and its subsidiaries
taken as a whole.
6.5 The Company shall furnish to the Holder, prompt written notice of any
of the following: (i) the occurrence of any default or any event which with the
giving of notice or passage of time, or both, would become a default; (ii) the
commencement of any material adverse actions, suits or proceedings or
investigations in any court or before any arbitrator of any kind or by or before
any governmental or non-governmental body against or in any other way relating
adversely to, or affecting, the Company or its subsidiaries or their businesses
or properties; and (iii) any amendment of the certificate of incorporation or
by-laws or other organizational documents of the Company.
6.6 The Company shall furnish to the Holder, to the extent and at the
times the same are furnished to any stockholder of the Company in their capacity
as such, the audited annual financial statements and unaudited quarterly
financial statements of the Company.
7. Representations and Warranties.
To induce the Holder to make the loan evidenced by this Debenture, the
Company hereby represents and warrants to the Holder that:
(a) The execution, delivery and performance by the Company of this
Debenture and any other agreement, instrument or other documents relating to the
debt evidenced hereby (the "Financing Documents") to which the Company is a
party have been duly authorized by all necessary corporate action of the
Company. The execution, delivery and performance of this Debenture and any other
Financing Document to which the Company is a party are and will be within the
Company's powers, corporate and otherwise, and do not and will not (i) violate
any applicable law or the Company's certificate of incorporation or by-laws or
(ii) result in the breach of, conflict with, constitute a default
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<PAGE> 12
under, give rise to the right of acceleration or mandatory prepayment under, any
existing note, security agreement, mortgage, or contract or any judgment, decree
or order which is binding upon the Company or any of its subsidiaries or to
which they or any of their properties may be subject, or result in the creation
of any lien (other than in favor of the Holder) upon any property or assets of
the Company pursuant to, any contract or any such judgment, decree or order.
This Debenture and each other Financing Document to which the Company is a party
has been, duly executed and delivered on behalf of the Company. This Debenture
and each other Financing Document to which the Company is a party constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its respective terms. No governmental approval is or
will be required in connection with the execution, delivery and performance of
this Debenture or any other Financing Document.
8. Default.
The term "default" wherever used in this Debenture shall mean one of the
following events:
8.1 The failure of the Company to pay any principal or any installment of
interest on this Debenture, within ten (10) days after the same shall become due
and payable or the failure of the Company to pay the principal of this Note on
the final maturity date referred to in Section 1.3 above.
8.2 The continued breach by the Company of any of the covenants contained
in Section 6 or in any other Section hereof or in any Financing Document, which
breach shall not have been cured within thirty (30) days after the Company has
received written notice thereof from the Holder.
8.3 The acceleration, pursuant to the terms thereof, of the maturity of
any Senior Indebtedness.
8.4 The Company making an assignment for the benefit of creditors, filing
a petition in bankruptcy, petitioning or applying to any tribunal for the
appointment of a custodian, receiver or any trustee for it or a substantial part
of its assets, or commencing any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or the
filing of such petition or application, or the commencing of any such proceeding
against it, in which an order for relief is entered or which remains undismissed
for a period of sixty (60) days or more; or the Company by any act or omission
indicating its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its properties,
or the Company suffering any such custodianship, receivership or trusteeship to
continue undischarged for a period of sixty (60) days or more; or the Company
shall generally not be paying its debts when they become due or admits its
inability to pay the same when due.
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<PAGE> 13
Upon the occurrence and any time during the continuance of any
default, the Holder (or its permitted assigns) shall have the right to declare
the entire unpaid balance of the principal amount hereof, and any accrued
interest thereon, immediately due and payable and upon such declaration same
shall become immediately due and payable, all without the need for presentment,
protest or other notice or demand of any kind all of which are hereby waived.
9. Miscellaneous.
9.1 Default Rate.Anything contained in this Debenture to the contrary
notwithstanding, during any period in which a default is continuing, the
interest rate hereunder shall, at the option of the Holder, be increased to a
rate per annum equal to the rate which would otherwise apply plus two (2%)
percent, and all interest accruing at such rate shall be payable upon demand by
the Holder. Anything contained in this Debenture to the contrary
notwithstanding, the Holder does not intend to charge and the Company shall not
be required to pay interest or other charges in excess of the maximum rate
permitted by applicable law. Any payments in excess of such maximum shall be
refunded to the Company or credited against principal.
9.2 Expenses. The Company shall pay the Holder, on demand, for all
reasonable costs and expenses, including, but not limited to, reasonable
attorneys' fees and court costs, incurred in the collection of this Debenture or
in otherwise enforcing (or attempting to enforce) the provisions of this
Debenture.
9.3 Exchange of Debenture. If at any time, or from time to time, the
outstanding principal balance of this Debenture shall be reduced as a result of
a prepayment of principal in accordance with Section 5 or partial conversion in
accordance with Section 4 hereof, then within ten (10) days after the receipt of
a written request from the Company, the registered Holder hereof shall tender
this Debenture to the Company in exchange for a Debenture of like tenor but
indicating the then outstanding principal balance hereof.
9.4 Assignment. This Debenture may not be assigned or transferred by the
Holder without the consent of the Company, provided, however, that the Holder
shall be entitled to assign this Debenture or any part thereof to an entity
controlling, controlled by or under common control with the Holder, to a trustee
of the IRA of such shareholder or to any member of his immediate family or to a
trustee of a Trust which has one or more members of the assignor's immediate
family as the principal beneficiaries, subject to compliance by the assignor
with federal securities laws, and other applicable law. The Company may not
assign or delegate its duties or rights hereunder without the express prior
written consent of the Holder.
9.5 Notices. Any notice required or contemplated by this Debenture shall
be deemed sufficiently given if transmitted by registered or certified mail,
return receipt requested, to the Company at its office designated above or to
the Holder hereof at the registered address of the Holder on the books of the
Company or at such other address as is designated by the Company or
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<PAGE> 14
the Holder by notice given as aforesaid. Nothing contained herein shall be
interpreted to prevent any other method of delivering or giving any notice
hereunder.
9.6 Successors and Assigns. All covenants, representations, warranties and
agreements in this Debenture contained by, or on behalf of, any of the parties
hereto, shall bind and inure to the benefit of their respective heirs, legal
representatives successors and assigns, whether herein so expressed or not.
9.7 Governing Law. The Debenture shall be governed by and construed in
accordance with the laws of the State of New York without regard to the conflict
of laws principles thereof.
9.8 Modifications, Amendments and Changes. The provisions hereof may only
be modified, changed or supplemented by a written instrument signed by a duly
authorized officer of the Company, and agreed to in writing by the Holder
hereof.
9.9 Non-Waiver. No failure or delay on the part of the Company or the
Holder in exercising rights, powers or privileges thereunder shall operate as a
waiver thereof or of any other exercise of such right, power or privilege or
preclude any other or further exercise of any other right, power or privilege.
9.10 Certain Waivers. The Company and any guarantor hereof and each of
them waive(s) presentment, diligence, protest, demand, notice of demand, notice
of acceptance or reliance, notice of non-payment, notice of dishonor, notice of
protest and all other notices to parties in connection with the delivery,
acceptance, performance, default or enforcement of this Debenture, except
notices or demands expressly provided for herein.
9.11 Commercial Transaction; Jury Waiver. THE COMPANY ACKNOWLEDGES THAT
THE TRANSACTION OF WHICH THIS DEBENTURE IS A PART IS A COMMERCIAL TRANSACTION
AND THE COMPANY HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY AND THE
RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND, ARISING UNDER OR OUT OF,
OR OTHERWISE RELATED TO OR OTHERWISE CONNECTED WITH THIS DEBENTURE OR ANY OTHER
FINANCING DOCUMENT.
9.12 Cumulative Rights. The rights, remedies and powers provided to the
Holder herein or in any other Financing Document are cumulative, may be
exercised singly or concurrently and are not exclusive of and shall be in
addition to all other rights, remedies, or powers provided by applicable law or
any other agreement, instrument or other document.
9.13 Submission to Jurisdiction. The Company hereby irrevocably and
unconditionally:
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<PAGE> 15
(a) submits for the Company and the Company's property in any legal action
or proceeding arising out of or otherwise related to or connected with this
Debenture or any of the other Financing Documents, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive personal
jurisdiction of any state or federal court located in the City of New York,
State of New York;
(b) consents that any such action or proceeding may be brought in such
courts, and waives any objection that the Company may now or hereafter have to
the venue of any such action or proceeding in any such court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;
(c) agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof in the manner contemplated by Section 9.5
above; and
(d) agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right of the
Holder (or its assigns) to bring any legal action or proceeding in any other
jurisdiction.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as of the 1st day of October, 1996.
ASSET ALLIANCE CORPORATION
ATTEST: By /s/ Arnold L. Mintz
______________________________
Name: Arnold L. Mintz
Title: Executive Vice President
/s/ James E. Abbott and Chief Operating Officer
___________________________
Assistant Secretary
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<PAGE> 1
Exhibit 4.11
FORM OF
ASSET ALLIANCE CORPORATION
Subordinated Debenture
due February 27, 2000
(U.S.)
February 27, 1998
ASSET ALLIANCE CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware ("AAC" or the "Company," which
term includes any successor entity), for value received promises to pay to or
assigns (the "Holder"), the principal sum of _______ on February 27, 2000 (the
"Principal Payment Date") upon presentment and surrender of this Debenture (the
"Debenture"), or on such other date or dates as the then relevant principal sum
may become payable in accordance with the provisions hereof.
See Article 9 for certain definitions.
1. Payment of Interest. The Company promises to pay interest
on the unpaid principal amount hereof (computed on the basis of twelve, 30-day
months and the actual number of days involved for partial months), for each
Interest Period, until maturity, at the interest rate per annum equal to SEVEN
AND SEVEN-TENTHS PERCENT (7.7%).
The Company shall pay interest at the close of business on
August 31, 1998, February 28, 1999 and each August 31 and February 28 thereafter
(or, if such day is not a Business Day, on the next succeeding Business Day)
(each an "Interest Payment Date") until the Principal Payment Date. Interest
payable on any Interest Payment Date shall accrue from and including the
immediately preceding Interest Payment Date (or the date of original issue in
the case of the first Interest Payment Date) to and excluding such Interest
Payment Date. Notwithstanding anything to the contrary contained in this
Debenture, AAC shall have no right to pay any of the principal or interest on
the Debenture in Common Stock or equity of a related party (it being understood
that no redemption of the Debenture or any portion thereof shall constitute any
such right.)
<PAGE> 2
2. Method of Payment. The Company shall pay interest on this
Debenture to the Holder on each Interest Payment Date, notwithstanding any
transfer or exchange subsequent to such Interest Payment Date and prior to the
next succeeding Interest Payment Date. Unless the Company agrees in writing with
the Holder to a different method of payment, (a) the Holder must surrender this
Debenture to the Company to collect payments of principal and (b) payments of
principal and interest shall be made by check mailed to the Holder. The Company
shall pay principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts.
3. Transfers or Exchanges; Restrictions on Transfer;
Cancellation.
3.1 Transfer or Exchange. Subject to any consent required
hereby, the Holder of this Debenture, or of any Debenture or Debenture issued
upon transfer or exchange of this Debenture or in substitution for this
Debenture pursuant to the provisions of this Article 3 hereof, may surrender the
same for transfer or exchange at an office or agency maintained by the Company
for such purpose and, within a reasonable time thereafter and without expense
(other than transfer taxes and other governmental charges, if any, the payment
of which by the Holder shall have been established to the reasonable
satisfaction of the Company) subject to having provided any consent required
hereby, receive in exchange therefor one or more duly executed debentures dated
as of the date to which interest has most recently been paid, and payable to
such Person or Persons, all as may be designated by such Holder, for the same
aggregate principal amount as the then unpaid principal amount of the Debenture
so surrendered. Subject to having provided any consent required hereby, the
Company covenants and agrees to take and cause to be taken all action reasonably
necessary to effect such transfers and exchanges. The Company hereby designates
as its office where the Debenture may be presented for transfer, redemption,
conversion, or exchange, its principal office, which shall be initially at the
address in the Notice section herein.
No service charge shall be made before any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any stamp or transfer tax or other similar governmental charge that may be
imposed in connection with any registration of transfer or exchange of the
Debenture.
No Holder shall transfer to any other Person the Debenture or
any interest therein without having such transfer registered under all
applicable U.S. Federal and state securities laws or having demonstrated to the
satisfaction of the Company that such registration is not required for such
transfers.
3.2 Cancellation. If the Debenture is surrendered for the
purpose of payment, redemption, conversion, exchange or registration of
transfer, it shall, if surrendered to the Company or any Paying Agent, be
promptly cancelled by the Company, and no other
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<PAGE> 3
debenture shall be issued in lieu thereof except as expressly permitted by any
of the provisions contained herein.
4. Default.
4.1 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default (other than an Event of Default described in clause (4) or (5)
of Section 7.1) occurs and is continuing, then and in every such case the Holder
may declare the principal of all the Debenture to be due and payable
immediately, by a notice in writing to the Company, and upon any such
declaration such principal shall become immediately due and payable. In the case
of an Event of Default described in clause (4) or (5) of Section 7.1, the
Debenture shall become due and payable immediately without any declaration or
act on the part of the Holder.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained against the Company as hereinafter in this Article provided, the Holder
by written notice to the Company, may rescind and annul
such declaration and its consequences if
(1) the Company has paid or deposited with any Paying Agent a
sum sufficient to pay
(A) all overdue installments of interest on the
Debenture,
(B) the principal of and premium, if any, on the
Debenture which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Debenture,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Debenture,
(D) the reasonable compensation, expenses,
disbursements and advances of the Holder and any of their
agents and counsel;
and
(2) all Events of Default, other than the non-payment of the
principal of the Debenture which have become due solely by such
acceleration, have been cured or waived as provided in Section 7.7.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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<PAGE> 4
5. Consolidation, Merger, Conveyance or Other Transfer; Other
Covenants
5.1 Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate with or merge into any other corporation or sell
or transfer all or substantially all of its properties and assets to another
Person, unless:
(1) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires such properties and
assets shall be a corporation organized and existing under the laws of
the United States of America or any state thereof or the District of
Columbia and shall expressly assume, by an assumption agreement, the
due and punctual payment of the principal of and interest on the
Debenture and the performance of every material covenant contained
herein on the part of the Company to be performed or observed; and
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and be
continuing.
5.2 Successor Corporation Substituted. Upon any consolidation
or merger, or any sale or transfer of all or substantially all of the Company's
properties and assets in accordance with Section 5.1, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such sale or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under terms of the Debenture
with the same effect as if such successor corporation had been named as the
Company herein and thereafter the predecessor corporation shall be relieved from
all obligations under the Debenture.
5.3 Payment of Debenture. The Company shall pay the principal
of and interest on the Debenture on the dates and in the manner provided in the
Debenture. An installment of principal or interest shall be considered paid on
the date due if the Paying Agent holds on that date money designated for and
sufficient to pay the installment.
5.4 Corporate Existence. Except as otherwise permitted by
Section 5.1 hereof and except in connection with termination of the Company, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and the rights (charter and
statutory), licenses and franchises of the Company; provided that the Company
shall not be required to preserve any such right, license or franchise, if the
preservation thereof is no longer desirable in the conduct of the business of
the Company.
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<PAGE> 5
5.5 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before any penalty accrues thereon,
(i) all material taxes, assessments and governmental charges levied or imposed
upon the Company or upon the income, profits or property of the Company, and
(ii) all material lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the property of the Company; provided
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claims the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
6. Conversion.
6.1 Right to Convert. Subject to and upon compliance with the
provisions of this Debenture, the Holder shall have the right at its option, at
any time and from time to time during normal business hours on any Business Day
on or prior to the Principal Payment Date, to convert the principal amount of
this Debenture, or any portion of such principal amount which is no less than
$100,000 and is an integral multiple of $10,000, into that number of fully paid
and non-assessable shares of the Common Stock (as such shares shall then be
constituted) obtained by dividing the principal amount of the Debenture or
portion thereof surrendered for conversion by the Conversion Price, by surrender
the Debenture so to be converted in whole or in part in the manner provided in
Section 6.2. A Holder is not entitled by reason of this Debenture to any rights
of a holder of Common Stock (a "Shareholder") until such Holder has converted
the Debenture to Common Stock, and only to the extent the Debenture is deemed to
have been converted to Common Stock under this Article 6.
6.2 Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to the Debenture, the Holder shall surrender
the Debenture, duly endorsed, at the Company's office which shall be initially
at the address set forth in section 10.1, accompanied by a signed written notice
of conversion stating to the Company that the Holder elects to convert the
Debenture or such portion thereof specified. Such notice shall also state the
name or names (with address) in which the certificate or certificates for Common
Stock which shall be issuable on such conversion shall be issued, and shall be
accompanied by transfer taxes, if required pursuant to Section 6.7. The
Debenture surrendered for conversion shall, unless the shares of Common Stock
issuable on conversion are to be issued in the same name as the Holder of the
Debenture, be duly endorsed by, or be accompanied by instruments of transfer in
a form satisfactory to the Company duly executed by the Holder or its duly
authorized attorney. The Common Stock shall be subject to the same restrictions
on transfer as the Debenture.
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<PAGE> 6
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, the Company shall issue and shall
deliver to such Holder at the Company's office, which shall be initially at the
address set forth in Section 10.1, a certificate or certificates for the number
of full shares of Common Stock issuable upon the conversion of the Debenture or
portion thereof in accordance with the provisions of this Article and a check or
cash in respect of any fractional interest in shares of Common Stock upon such
conversion, as provided in Section 6.3. In case of any partial conversion, and
subject to Article 3, the Company shall execute and deliver to the Holder
without charge to such Holder, a new Debenture in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Debenture.
Each conversion shall be deemed to have been effected as to
the Debenture (or portion thereof) on the date on which the requirements set
forth above in this Section 6.2 have been satisfied as to the Debenture (or
portion thereof), and the person in whose name any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become on said date the Shareholder of record of the Common Stock
represented thereby; provided, however, that any such surrender on any date when
the share transfer books of the Company shall be closed shall be deemed to occur
on the next succeeding day on which such share transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which the
Debenture shall be surrendered. Notwithstanding anything to the contrary
contained in the Debenture, AAC shall have no right to convert (or to force a
conversion of) the Debenture into shares of Common Stock (it being understood
that no redemption of the Debenture or any portion thereof shall constitute any
such right).
6.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock shall be issued upon conversion of the Debenture. If any
fractional shares otherwise would be issuable upon the conversion of the
Debenture, the Company shall make an adjustment therefor in cash at the current
market value thereof to the Holder. For these purposes, the current market value
of Common Stock shall be the Closing Price on the Trading Day immediately
preceding the day on which the Debenture (or specified portions thereof) are
deemed to have been converted and such Closing Price shall be determined as
provided in Section 6.5(f).
6.4 Conversion Price. The conversion price shall initially be
$7.50 per share of Common Stock, subject to adjustment as provided in this
Article 6 (as adjusted, the "Conversion Price").
6.5 Adjustment of Conversion Price. The Conversion Price
shall be adjusted from time to time by the Company as follows:
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<PAGE> 7
(a) Stock Dividends and Distributions. In case the Company
shall hereafter pay a dividend or make a distribution to all holders of
the outstanding Common Stock in Common Stock, the Conversion Price
shall be multiplied by a dilution adjustment equal to a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Record Date (as defined in
Section 6.5(f)) fixed for such determination and the denominator shall
be the sum of the number of shares of Common Stock outstanding at the
close of business on the Record Date fixed for such determination and
the total number of shares constituting such dividend or other
distribution, such adjustment to become effective immediately after the
opening of business on the day following the Record Date. If any
dividend or distribution of the type described in this Section
6.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect
if such dividend or distribution had not been declared.
(b) Right or Warrant Issuance. In case the Company shall issue
rights or warrants to all holders of its outstanding Common Stock
entitling them to subscribe for or purchase Common Stock at a price per
share less than the Current Market Price (as defined in Section 6.5(f))
on the Record Date fixed for the determination of Shareholders entitled
to receive such rights or warrants, the Conversion Price shall be
multiplied by a dilution adjustment equal to a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at
the close of business on the Record Date plus the number of additional
shares of Common Stock which the aggregate offering price of the total
number of shares of Common Stock so offered for subscription or
purchase would purchase at such Current Market Price (which shall be
determined by multiplying the total number of shares so offered for
subscription or purchase by the exercise price of such rights or
warrants and dividing the product so obtained by the Current Market
Price), and of which the denominator shall be the number of shares of
Common Stock outstanding on the close of business on the Record Date
plus the total number of additional shares of Common Stock so offered
for subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the
Record Date fixed for determination of Shareholders entitled to receive
such rights or warrants. To the extent that Common Stock is not
delivered pursuant to such rights or warrants, upon the expiration or
termination of such rights or warrants the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect had
the adjustments made upon the issuance of such rights or warrants been
made on the basis of delivery of only the number of shares of Common
Stock actually delivered. In determining whether any rights or warrants
entitle the holders to subscribe for or purchase Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such Common Stock, there shall be taken into
account any
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<PAGE> 8
consideration received for such rights or warrants, the value of such
consideration if other than cash, to be determined by the Board of
Directors.
(c) Stock Splits. In case the outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the
day following the day upon which such subdivision becomes effective
shall be proportionately reduced, and conversely, in case outstanding
shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) Distribution of Other Assets. In the case the Company (i)
shall, by dividend or distribution to all holders of Common Stock, of
evidences of its indebtedness or other non-cash assets (excluding any
dividends or distributions referred to in Section 6.5(a) above) or (ii)
shall issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its Common Stock (other than rights or
warrants referred to in Section 6.5(b) above) or other assets and the
value of which (such as in the case of contingent value rights) is
calculated by reference to changes in the value of the Common Stock or
any other reference, then, in each such case, the Conversion Price
shall be multiplied by a dilution adjustment equal to a fraction of
which the numerator shall be the Current Market Price less the fair
market value as of the time the adjustment is effected of the portion
of the assets or evidences of indebtedness so distributed or of such
subscription rights or warrants or other assets or amount of value
applicable to one share of Common Stock, and of which the denominator
shall be the Current Market Price. If the distribution is not so paid
or the rights or warrants are not exercised then the Conversion Price
shall again be adjusted to the Conversion Price which would then be
in effect if such distribution had not been declared or such right or
warrant had not been issued.
(e) Cash Dividends; Excess Purchase Payments. In case the
Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 6.6 applies), or makes an
Excess Purchase Payment in an aggregate amount that, combined together
with the aggregate amount of any other such distributions to all
holders of Common Stock made exclusively in cash within the twelve (12)
months preceding the date of payment of such distribution has been
made, exceeds 10.0% of the product of the Current Market Price
(determined as provided in Section 6.5(f)) on the Record Date with
respect to such distribution times the number of shares of
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<PAGE> 9
Common Stock outstanding on such date, then and in each such case,
immediately after the close of business on such date, the Conversion
Price shall be multiplied by a dilution adjustment equal to a fraction
(i) the numerator of which shall be equal to the Current Market Price
on the Record Date less an amount equal to the quotient of (x) the
excess of such combined amount over such 10.0% and (y) the number of
shares of Common Stock outstanding on the Record Date and (ii) the
denominator of which shall be equal to the Current Market Price on such
date; provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record
Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Holder shall have the right to receive upon
conversion (or any portion thereof) the amount of cash such Holder
would have received had such Holder converted the Debenture (or portion
thereof) immediately prior to such Record Date. "Excess Purchase
Payment" means the excess, if any, of (x) the cash or the value of all
other consideration paid by the Company with respect to one share of
Common Stock acquired in any share repurchase (excluding share
repurchases by the Company effected in compliance with rule 10b-18
under the Securities Exchange Act of 1934, as amended) whether made by
the Company in the open market, by private purchase by tender offer, by
exchange offer or otherwise, over (y) the Current Market Price of the
Common Stock. In the event that such dividend or distribution is not so
paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(f) For purposes of this Section 6.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on
any day shall mean the closing sale price regular way on such
day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, in each case on the Nasdaq National Market or New York
Stock Exchange, as applicable, or, if such security is not
listed or admitted to trading on such National Market or
Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted
to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, a price determined in good
faith by the Board of Directors,
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<PAGE> 10
whose determination shall be conclusive and described in the Board Resolutions.
(2) "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten
(10) consecutive Trading Days immediately prior to the date in
question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 6.5(a),
(b), (c), (d) or (e) occurs during such ten (10) consecutive
Trading Days, the Closing Price for each Trading Day prior to
the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same dilution adjustment
by which the Conversion Price is so required to be adjusted as
a result of such other event, (2) if the "ex" date for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the Conversion
Price pursuant to Section 6.5(a), (b), (c), (d) or (e) occurs
on or after the "ex" date for the issuance or distribution
requiring such computation and prior to the day in question,
the Closing Price for each Trading Day on and after the "ex"
date for such other event shall be adjusted by multiplying
such Closing Price by the reciprocal of the dilution
adjustment by which the Conversion Price is so required to be
adjusted as a result of such other event, and (3) if the "ex"
date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into
account any adjustment required pursuant to clause (1) or (2)
of this proviso, the Closing Price for each Trading Day on or
after such "ex" date shall be adjusted by adding thereto the
amount of any cash and the fair market value (as determined by
the Board of Directors in a manner consistent with any
determination of such value for purposes of Section 6.5(d),
whose determination shall be conclusive and described in the
Board Resolutions) of the evidences of indebtedness, shares of
capital stock or assets being distributed applicable to one
share of Common Stock as of the close of business on the day
before such "ex" date. For purposes of this paragraph, the
term "ex" date, (1) when used with respect to any issuance or
distribution, means the first date on which the Common Stock
trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the
right to receive such issuance or distribution, (2) when used
with respect to any subdivision or combination of Common
Stock, means the first date on which the Common Stock trades
regular way on such exchange or in such market after the time
at which such subdivision or combination becomes effective,
and (3) when used with respect to any tender or exchange offer
means the first date on which the Common Stock trades regular
way on such exchange or in such market after the expiration
time of such offer. Notwithstanding the foregoing, whenever
successive adjustments
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<PAGE> 11
to the Conversion Price are called for pursuant to this
Section 6.5, such adjustments shall be made to the Current
Market Price as may be necessary or appropriate to effectuate
the intent of this Section 6.5 and to avoid unjust or
inequitable results as determined in good faith by the Board
of Directors.
(3) "fair market value" shall mean the amount, as
determined by the Board of Directors, which a willing buyer
would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of shareholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York
Stock Exchange or such other national security exchange, a day
on which the New York Stock Exchange or another national
security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market, a
day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(g) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 6.5(a), (b), (c), (d)
or (e), as the Board of Directors considers to be advisable to avoid or
diminish any income tax to Shareholders of Common Stock or rights to
purchase Common Stock resulting from any dividend or distribution of
shares (or rights to acquire shares) or from any event treated as such
for income tax purposes.
(h) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 6.5(h) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article 6 shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
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<PAGE> 12
share, as the case may be. No adjustment need be made for a change in
the par value or no par value of the Common Stock. In addition, no
adjustment in the Conversion Price shall be required in connection with
the issuance of options or Common Stock pursuant to an employee stock
option plan adopted by the Board of Directors.
(i) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the Holder within twenty (20) days of the effective
date of such adjustment. Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.
(j) In any case in which this Section 6.5 provides that an
adjustment shall become effective immediately after a Record Date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the Holder of the Debenture converted after such Record Date
and before the occurrence of such event the additional Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to
such holder any amount in cash in lieu of any fraction pursuant to
Section 6.3.
(k) For purposes of this Section 6.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company. The Company will not pay any dividend or
make any distribution on Common Stock held in the treasury of the
Company.
6.6 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which Shareholders of Common
Stock shall be entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock or (iii)
any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute a supplemental Debenture providing that such
Debenture shall be convertible into the kind and amount of shares of stock and
other securities or property or assets (including cash) receivable upon such
reclassification, change,
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<PAGE> 13
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of the Debenture (assuming,
for such purposes, a sufficient number of authorized shares of Common Stock
available to convert the Debenture) immediately prior to such reclassification,
change, consolidation, merger, combination, sale or conveyance assuming such
holder of Common Stock did not exercise its rights of election, if any, as to
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance (provided that, if
the kind or amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not the same
for each share of Common Stock in respect of which such rights of election shall
not have been exercised ("non-electing shares"), then for the purposes of this
Section 6.6 the kind and amount of securities, cash or other property receivable
upon such consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share by a plurality of the non-electing shares). Such supplemental Debenture
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. If, in the case of
any such reclassification, change, consolidation, merger, combination, sale or
conveyance, the shares or other securities and assets receivable thereupon by a
holder of Common Stock includes shares of stock or other securities and assets
of a corporation other than the successor or purchasing corporation, as the case
may be, in such reclassification, change, consolidation, merger, combination,
sale or conveyance, then such supplemental Debenture shall also be executed by
such other corporation and shall contain such additional provisions to protect
the interests of the Holder as the Board of Directors shall reasonably consider
necessary.
The Company shall cause notice of the execution of such
supplemental Debenture to be mailed to the Holder within twenty (20) days after
execution thereof. Failure to deliver such notice shall not affect the legality
or validity of such supplemental debenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 6.6 applies to any event or occurrence,
Section 6.5 shall not apply to such event or occurrence.
6.7 Taxes on Shares Issued. The issue of share certificates on
conversions of the Debenture shall be made without charge to the converting
Holder for any tax in respect of the issue thereof. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in any name other
than that of the Holder of the Debenture converted, and the Company shall not be
required to issue or deliver any such share certificate unless and until the
person or
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<PAGE> 14
persons requesting the issue thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
6.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
Common Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued Common Stock or Common Stock held in treasury,
sufficient Common Stock to provide for the conversion of the Debenture from time
to time as the Debenture is presented for conversion.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the Common
Stock issuable upon conversion of the Debenture, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue Common Stock at such adjusted
Conversion Price.
The Company covenants that all Common Stock issued upon
conversion of the Debenture will be fully paid and non-assessable by the Company
and free from all taxes, liens and charges with respect to the issue thereof.
7. Events of Default and Remedies.
7.1 Events of Default. "Event of Default", wherever used
herein means any one of the following events (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon the Debenture
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of the Debenture
at its maturity; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company contained in the Debenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 30 days after there has been
given, by registered or certified mail, to the Company by the Holder a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
14
<PAGE> 15
(4) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company bankrupt or
insolvent, or the entry of an order for relief in any case or
proceeding for reorganization, arrangement, adjustment or composition
of or in respect of the Company under the Federal Bankruptcy Code or
any other applicable Federal or State law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 90
consecutive days; or
(5) the institution by the Company of proceedings to be
adjudicated bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable
Federal or State law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or of
any substantial part of its property.
7.2 Restoration of Rights and Remedies. If the Holder has
instituted any proceeding to enforce any right or remedy under the Debenture and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such Holder, then and in every such case the Company and
the Holder shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Holder shall continue as though no such
proceeding had been instituted.
7.3 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Holder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
7.4 Delay or Omission Not Waiver. No delay or omission of the
Holder to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
7 or by law to the Holder may be exercised from time to time, and as of often as
may be deemed expedient, by any such Holder, as the case may be.
15
<PAGE> 16
7.5 Control by Holder. The Holder shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Holder, provided that such direction shall not be in conflict
with any rule of law or with the Debenture.
7.6 Waiver of Past Defaults. The Holder may waive any past
default hereunder and its consequences. Upon any such waiver, such default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of the Debenture; but no such waiver shall
extend to any subsequent or other default or impair any right consequent
thereon. Any such waiver shall be in writing to be effective. There shall be no
implied waivers of any kind.
7.7 Waiver of Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of the
Debenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Holder, but will suffer and permit the execution of every such power as
though no such law had been enacted.
8. Amendments, Supplements and Waivers.
8.1 Without Consent of Holder. The Company, when authorized by
a Board Resolution, at any time and from time to time, may amend or supplement
this Debenture without notice to or consent of Holder for any of the following
purposes:
(1) to evidence the succession of another corporation to the
Company, solely in accordance with the terms herein, and the assumption
by any such successor of the covenants of the Company herein contained;
or
(2) to add to the covenants of the Company or to add Events of
Default, for the benefit of the Holder, or to surrender any right or
power herein conferred upon the Company; or
(3) to modify the Conversion Price as provided in Article 6.
8.2 With Consent of Holder. With the written consent of the
Holder and when authorized by a Board Resolution, the Company may amend or
supplement the Debenture for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Debenture or of
modifying in any manner the rights
16
<PAGE> 17
of the Holder; provided, however, that no such supplement or amendment shall,
without the consent of the Holder:
(1) change the stated maturity date of the principal of, or
any installment of interest on, the Debenture, or reduce the principal
amount thereof or the interest thereon, or the coin or currency in
which, the Debenture or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after
the due date thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) modify any of the provisions of this Section or Section
7.7, except to increase any such percentage or to provide that certain
other provisions of the Debenture cannot be modified or waived without
the consent of the Holder.
Before an amendment, supplement or waiver under this Section 8
becomes effective, the Company shall mail to the Holder a notice briefly
describing the amendment, supplement or waiver. Any other amendment, supplement
or waiver not specifically referred to herein shall have no force and effect
until the written consent of Holder shall have been made.
8.3 Effect of Supplement or Amendment. Upon the execution of
any supplement or amendment properly adopted under this Article, the Debenture
shall be modified in accordance therewith, and such supplement or amendment
shall form a part of the Debenture for all purposes; and every Holder
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
9. Certain Definitions.
For all purposes of the Debenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person,
17
<PAGE> 18
directly or indirectly whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolutions" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" shall mean a day on which the New York Stock
Exchange is open for trading and which is not a Saturday, Sunday or other day on
which banks in The City of New York, New York are authorized or obligated by law
or executive order to close.
"Common Stock" means shares of the common stock of Asset
Alliance Corporation at $.01 par value per share.
"Company" means Asset Alliance Corporation, a corporation duly
organized and existing under the laws of the State of Delaware named as the
"Company" in the first paragraph of this instrument until a successor entity
shall have become such pursuant to the applicable provisions of the Debenture,
and thereafter "Company" shall mean such successor entity.
"Interest Period" shall mean the period beginning on and
including the Debenture issue date and ending on and including each August 31
and February 28 thereafter until repayment.
"Maturity" when used with respect to the Debenture means the
date on which the principal of the Debenture becomes due and payable as therein
or herein provided, whether at the stated maturity or by declaration of
acceleration, call for redemption or otherwise.
"Paying Agent" means any Person (other than the Company)
authorized by the Company to pay the principal of or interest on the Debenture
on behalf of the Company, which may include any subsidiary of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
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<PAGE> 19
"Redemption Date" when used with respect to the
Debenture or portion thereof to be redeemed means the date of such redemption.
"SEC" means the United States Securities and
Exchange Commission.
10. Miscellaneous.
10.1 Notices. Except as otherwise expressly provided for
herein, all notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given
to such party at its address or facsimile number set forth below, or such other
address or facsimile number as such party may hereinafter specify for the
purpose (in the case of the Company, by notice in accordance herewith to the
Holder or, in the case of the Holder, by notice in accordance herewith to the
Company). Each such notice, request or other communication shall be effective
(i) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section or, (ii) if given by mail, 36 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or, (iii) if given by any other means, when delivered at
the address specified in this Section 10.1. Notices shall be addressed as
follows:
if to the Company:
Asset Alliance Corporation
800 Third Avenue, 16th Floor
New York, New York 10022
Attn: Arnold Mintz or Bruce Lipnick
Facsimile No.: (212) 207-8785
with a copy to:
Richard T. Prins
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
(212) 735-2790
if to the Holder:
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<PAGE> 20
If a notice or communication is delivered in the manner
provided above, it is duly given, whether or not the addressee receives it.
10.2 Successors. All agreements of the Company in the
Debenture shall bind its respective successors.
10.3 Delaware Law. THE DEBENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
10.4 Separability. In case any provision in the Debenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions thereof shall not in any way be
affected or impaired thereby.
20
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed as of the date first above written.
ASSET ALLIANCE CORPORATION
Dated: By:
------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
Attest:
By:
- ------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER U.S. STATE SECURITIES
LAWS. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE CONDITIONS SPECIFIED IN THE OFFERING MEMORANDUM DATED SEPTEMBER 22, 1997
AND ARTICLE 4 HEREOF. A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY ASSET
ALLIANCE CORPORATION TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE. THESE SECURITIES MAY NOT BE RESOLD OR TRANSFERRED UNLESS SUCH CONDITIONS
ARE COMPLIED WITH AND UNLESS REGISTERED OR EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
FORM OF
ASSET ALLIANCE CORPORATION
Adjustable Rate Subordinated Convertible Debenture
due ,
No. 00- $ (U.S.)
199
ASSET ALLIANCE CORPORATION, a corporation duly organized and
existing under the laws of the State of Delaware (the "Company," which term
includes any successor entity), for value received promises to pay to ---------
or registered assigns, the principal sum of DOLLARS , on
(the "Principal Payment Date") upon presentment and surrender of this
Security, or on such other date or dates as the then relevant principal sum may
become payable in accordance with the provisions hereof.
See Article 10 for certain definitions.
1. Payment of Interest. The Company promises to pay interest on the unpaid
principal amount hereof (computed on the basis of twelve 30 day months and the
actual number of days involved for partial months), for each Interest Period,
until maturity, at the interest rate per annum equal to one-year Libor, reset
annually each June 30.
<PAGE> 2
The Company shall pay interest on June 30 and December 31 of
each year (or, if such day is not a Business Day, on the next succeeding
Business Day), commencing the first such date to occur after issuance hereof and
at the Principal Payment Date (each an "Interest Payment Date"). Interest
payable on any Interest Payment Date shall accrue from and including the
immediately preceding Interest Payment Date (or the date of original issue in
the case of the first Interest Payment Date with respect to any particular
Security) to and excluding such Interest Payment Date. Notwithstanding anything
to the contrary contained in this Agreement, AAC shall have no right to pay any
of the principal or interest on the Securities in Common Stock or equity of a
related party (it being understood that no redemption of the Securities or any
portion thereof shall constitute any such right.)
2. Method of Payment. The Company shall pay interest on this
Security to the Person who is the registered holder (the "Holder") of this
Security at the close of business on June 15 or December 15, as the case may be
(each, a "Record Date"), notwithstanding any registration of transfer or
exchange subsequent to the Record Date and prior to the next succeeding Interest
Payment Date. Unless the Company agrees in writing with a particular Holder to a
different method of payment, (a) the Holder must surrender this Security to the
Company to collect payments of principal and (b) payments of principal and
interest shall be made by check mailed to the Holder. The Company shall pay
principal and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts.
3. Register of Holders. The Company shall keep at its
principal office a register (the "Register") in which shall be entered the names
and addresses of the registered holders of the Securities and particulars of the
respective Securities held by them and all transfers and exchanges of such
Securities. References herein to the "Holder" of a Security shall mean the
Person listed in the Register as the payee of such Security unless the payee
shall have presented such Security to the Company for transfer and the
transferee shall have been entered in the Register as a subsequent holder, in
which case the term shall mean such subsequent holder. The ownership of the
Securities shall be proven by the Register. For the purpose of paying principal
and interest on the Securities, the Company shall be entitled to rely on the
names and addresses in the Register and, notwithstanding anything to the
contrary contained in this Security, no Event or Default shall occur under
Article 8 hereof if payment of principal and interest is made to, and in
accordance with, the names and addresses and other particulars contained in the
Register.
4. Transfers or Exchanges; Restrictions on Transfer;
Cancellation.
4.1 Transfer or Exchange. Subject to any consent required
hereby, the Holder of this Security, or of any Security or Securities issued
upon transfer or exchange of this Security or in substitution for this Security
pursuant to the provisions of this Article 4 or
D-2
<PAGE> 3
of Section 11.8 hereof, may surrender the same for transfer or exchange at an
office or agency maintained by the Company for such purpose and, within a
reasonable time thereafter and without expense (other than transfer taxes and
other governmental charges, if any, the payment of which by the Holder shall
have been established to the satisfaction of the Company) subject to having
provided any consent required hereby, receive in exchange therefor one or more
duly executed printed or typewritten Securities, each in the principal amount of
$100,000 or an integral multiple of $10,000 over that base amount thereof (or in
the case of any Security so surrendered that is in a principal amount less than
$100,000, in an equal principal amount) dated as of the date to which interest
has most recently been paid, and payable to such Person or Persons, all as may
be designated by such Holder, for the same aggregate principal amount as the
then unpaid principal amount of the Security or Securities so surrendered.
Subject to having provided any consent required hereby, the Company covenants
and agrees to take and cause to be taken all action reasonably necessary to
effect such transfers and exchanges. The Company hereby designates as its office
where the Register will be maintained and the Securities may be presented for
transfer, redemption, conversion, or exchange, its principal office, which shall
be initially at the address set forth in Section 11.1 hereof.
No service charge shall be made before any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any stamp or transfer tax or other similar governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Securities.
4.2 Consent by Company. Notwithstanding anything to the
contrary herein, prior to completion of an offering of the Company's common
stock designated by the Company as its initial public offering, no Holder shall
transfer to any other Person any Security or any interest therein without the
prior written consent of the Company. Subsequent to completion of such initial
public offering, no Holder shall transfer to any other Person any Security or
any interest therein without having such transfer registered under all
applicable U.S. Federal and state securities laws or having demonstrated to the
satisfaction of the Company that such registration is not required for such
transfers.
4.3 Restrictions on Transfer. Each Holder by his acceptance of
this Security covenants and agrees to take and cause to be taken all action
necessary to ensure compliance with the restrictions on transfer of the
Securities by such Holder as set forth herein and in the Offering Memorandum.
Notwithstanding Section 4.1 hereof, the Company shall not be obligated to
register the transfer of any Security or reissue any Security unless such
restrictions on transfer shall have been complied with to the satisfaction of
the Company, in its sole discretion.
D-3
<PAGE> 4
4.4 Cancellation of Securities Paid, etc. All Securities
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer shall, if surrendered to the Company or any Paying
Agent be promptly cancelled by the Company, and no Securities shall be issued in
lieu thereof except as expressly permitted by any of the provisions contained
herein.
5. Redemption.
5.1 Acceleration of Maturity; Rescission and Annulment. If an
Event of Default (other than an Event of Default described in clause (5) or (6)
of Section 8.1) occurs and is continuing, then and in every such case the
Holders of no less than 25% in aggregate principal amount of the Securities then
Outstanding may declare the principal of all the Securities to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal shall become immediately due and payable. In the case
of an Event of Default described in clause (5) or (6) of Section 8.1, the
Securities then Outstanding shall become due and payable immediately without any
declaration or act on the part of the Holders.
At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained against the Company as hereinafter in this Article provided, the
Holders of a majority in aggregate principal amount of the Securities then
Outstanding, by written notice to the Company, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with any Paying Agent a
sum sufficient to pay
(A) all overdue installments of interest on all
Securities,
(B) the principal of and premium, if any, on any
Securities which have become due otherwise than by such
declaration of acceleration and interest thereon at the rate
borne by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by
the Securities,
(D) the reasonable compensation, expenses,
disbursements and advances of the Holders and any of their
agents and counsel;
and
D-4
<PAGE> 5
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such
acceleration, have been cured or waived as provided in Section 8.7.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
5.2 Redemption at the Company's Option. (a) If the Closing
Price (as defined in Section 7.5(f) of the Common Stock has exceeded the
Conversion Price by (as defined in Section 7.4) more than 50% on each of the
preceding 30 Trading Days, the Company may, upon not less than 30 calendar days'
notice by mail, redeem all of the Securities on the Interest Payment Date next
succeeding the date of such notice at a price equal to the Redemption Price.
Once payment of such redemption price has bee made in the manner herein
provided, Holders of the Securities may not exercise their option to convert the
Securities into Common Stock as provided in Article 7 hereof.
(b) If the Company, in its sole discretion, determines
that the continued ownership of Securities by a Holder is or would be
detrimental to the Company, the Company may, upon not less than 5 calendar days'
notice by mail, redeem all of the Securities of such Holder on the Interest
Payment Date next succeeding the date of such notice at a price equal to the
Redemption Price, plus interest accrued to but excluding the date fixed for
redemption. Once notice has been delivered in the manner herein provided, such
Holder of the Securities may not exercise its option to convert the Securities
into Common Stock as provided in Article 7 hereof.
5.3 Notice of Redemption; Selection of Securities. (a) Prior
to any mandatory or optional redemption, the Company shall mail, within the
respective time period referred to in Section 5.1 and 5.2, a notice to the
Holders of Securities to be redeemed at their last addresses as the same appear
on the Register. The notice if delivered in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, failure to give such notice or any defect in
the notice to the Holder of any Security designated for redemption shall not
affect the validity of the proceedings for the redemption of any other Security.
(b) Each such notice of redemption shall specify (i)
whether such redemption is pursuant to Section 5.1 or Section 5.2 hereof, (ii)
the Redemption Date, (iii) the Redemption Price, (iv) the place of payment, (v)
that payment will be made upon presentation and surrender of such securities,
(vi) that the Securities will cease to be convertible, and (vii) that on and
after said Redemption Date interest thereon or on the portions thereof to be
redeemed will cease to accrue.
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5.4 Payment of Securities Called for Redemption. If notice of
redemption has been give as provided in Section 5.3, the Securities with respect
to which such notice has been given shall become due and payable on the
Redemption Date and at the place stated in such notice at the Redemption Price,
together with interest accrued to but excluding the date fixed for redemption,
and on and after said date (unless the Company shall default in the payment of
such Securities at the Redemption Price, together with interest accrued to said
date) interest on the Securities or portions of Securities so called for
redemption shall cease to accrue. On presentation and surrender of such
Securities at the place of payment in said notice specified, the said Securities
or the specified portions thereof shall be paid and redeemed by the Company at
the Redemption Price, together with interest accrued thereon to the Redemption
Date.
6. Consolidation, Merger, Conveyance or Other Transfer; Other
Covenants
6.1 Company May Consolidate, etc., Only on Certain Terms. The
Company shall not consolidate with or merge into any other corporation or sell
or transfer all or substantially all of its properties and assets to another
Person, unless:
(1) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires such properties and
assets shall be a corporation organized and existing under the laws of
the United States of America or any state hereof or the District of
Columbia and shall expressly assume, by an assumption agreement, the
due and punctual payment of the principal of and interest on all the
Securities and the performance of every material covenant contained
herein on the part of the Company to be performed or observed; and
(2) immediately after giving effect to such transaction, no
Event of Default, and no event which, after notice or lapse of time, or
both, would become an Event of Default, shall have happened and be
continuing.
6.2 Successor Corporation Substituted. Upon any consolidation
or merger, or any sale or transfer of all or substantially all of the Company's
properties and assets in accordance with Section 6.1, the successor corporation
formed by such consolidation or into which the Company is merged or to which
such sale or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under terms of the Securities
with the same effect as if such successor corporation had been named as the
Company herein and thereafter the predecessor corporation shall be relieved from
all obligations under the Securities.
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6.3 Payment of Securities. The Company shall pay the principal
of and interest on the Securities on the dates and in the manner provided in the
Securities. An installment of principal or interest shall be considered paid on
the date due if the Paying Agent holds on that date money designated for and
sufficient to pay the installment.
6.4 Corporate Existence. Except as otherwise permitted by
Section 6.1 hereof and except in connection with termination of the Company, the
Company will do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence and the rights (charter and
statutory), licenses and franchises of the Company; provided that the Company
shall not be required to preserve any such right, license or franchise, if the
preservation thereof is no longer desirable in the conduct of the business of
the Company.
6.5 Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before any penalty accrues thereon,
(i) all material taxes, assessments and governmental charges levied or imposed
upon the Company or upon the income, profits or property of the Company, and
(ii) all material lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon the property of the Company; provided
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claims the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
7. Conversion.
7.1 Right to Convert. Subject to and upon compliance with the
provisions of this Security, the Holder shall have the right only on the earlier
of an initial public offering of Common Stock or Maturity, at its option (except
that, with respect to any Security which shall be called for redemption, such
right shall terminate as provided in Article 5 hereof unless the Company shall
default in payment due upon redemption thereof) to convert the principal amount
of any such Security, or any portion of such principal amount which is no less
than $100,000 and is an integral multiple of $10,000, into that number of fully
paid and non-assessable shares of the Common Stock (as such shares shall then be
constituted) obtained by dividing the principal amount of the Security or
portion thereof surrendered for conversion by the Conversion Price, by surrender
of the Security so to be converted in whole or in part in the manner provided in
Section 7.2. A Holder of Securities is not entitled to any rights of a holder of
Common Stock (a "Shareholder") until such Holder has converted its Securities to
Common Stock, and only to the extent such Securities are deemed to have been
converted to Common Stock under this Article 7.
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7.2 Exercise of Conversion Privilege; Issuance of Common Stock
on Conversion; No Adjustment for Interest or Dividends. In order to exercise the
conversion privilege with respect to any Security, the Holder of such Security
to be converted in whole or in part shall surrender such Security, duly
endorsed, at the Company's office which shall be initially at the address set
forth in Section 11.1 hereof, accompanied by a signed written notice of
conversion stating to the Company that the Holder elects to convert such
Security or such portion thereof specified. Such notice shall also state the
name or names (with address) in which the certificate or certificates for
Common Stock which shall be issuable on such conversion shall be issued, and
shall be accompanied by transfer taxes, if required pursuant to Section 7.7.
Each such Security surrendered for conversion shall, unless the Common Stock
issuable on conversion are to be issued in the same name as the Holder of such
Security, be duly endorsed by, or be accompanied by instruments of transfer in a
form satisfactory to the Company duly executed by the Holder or its duly
authorized attorney. In the case of the conversion of any Security within one
year (or such other holding period as required by applicable law) after the
original issuance of such Security, the Common Stock issued upon such conversion
will not be issued or delivered in a name other than that of the Holder of the
Security unless the applicable restrictions on transfer have been satisfied. The
Common Stock shall be subject to the same restrictions on transfer as the
Securities.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to compliance with any
restrictions on transfer if Common Stock issuable on conversion are to be issued
in a name other than that of the Holder, the Company shall issue and shall
deliver to such Holder at the Company's office, which shall be initially at the
address set forth in Section 11.1 hereof, a certificate or certificates for the
number of full shares of Common Stock issuable upon the conversion of such
Security or portion thereof in accordance with the provisions of this Article
and a check or cash in respect of any fractional interest in shares of Common
Stock upon such conversion, as provided in Section 7.3. In case any Security of
a denomination greater than $100,000 shall be surrendered for partial
conversion, and subject to Article 4, the Company shall execute and deliver to
the Holder of the Security so surrendered, without charge to such Holder, a new
Security or Securities in authorized denominations in an aggregate principal
amount equal to the unconverted portion of the surrendered Security.
Each conversion shall be deemed to have been effected as to
any Security (or portion thereof) on the date on which the requirements set
forth above in this Section 7.2 have been satisfied as to such Security (or
portion thereof), and the person in whose name any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become on said date the Shareholder of record of the Common Stock
represented thereby; provided, however, that any such surrender on any date when
the share transfer books of the Company shall be closed shall be deemed to occur
on the next succeeding day on which such share transfer books are open, but
such conversion shall be at the
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Conversion Price in effect on the date upon which such Security shall be
surrendered. Notwithstanding anything to the contrary contained in this
Agreement, AAC shall have no right to convert (or to force a conversion of) the
Securities into shares of Common Stock (it being understood that no redemption
of the Securities or any portion thereof shall constitute any such right).
7.3 Cash Payments in Lieu of Fractional Shares. No fractional
shares of Common Stock shall be issued upon conversion of Securities. If more
than one Security shall be surrendered for conversion at one time by the same
Holder, the number of full shares which shall be issuable upon conversion shall
be computed on the basis of the aggregate principal amount of the Securities
(or specified portions thereof to the extent permitted hereby) so surrendered
for conversion. If any fractional shares otherwise would be issuable upon the
conversion of any Security or Securities, the Company shall make an adjustment
therefor in cash at the current market value thereof to the Holder of
Securities. For these purposes, the current market value of Common Stock shall
be the Closing Price on the Trading Day immediately preceding the day on which
the Securities (or specified portions thereof) are deemed to have been converted
and such Closing Price shall be determined as provided in Section 7.5(f).
7.4 Conversion Price. The conversion price shall initially be
$7.50 per share of Common Stock, subject to adjustment as provided in this
Article 7 (the "Conversion Price").
7.5 Adjustment of Conversion Price. The Conversion Price shall
be adjusted from time to time by the Company as follows:
(a) Stock Dividends and Distributions. In case the Company
shall hereafter pay a dividend or make a distribution to all
Shareholders of the outstanding Common Stock in Common Stock, the
Conversion Price shall be multiplied by a dilution adjustment equal to
a fraction of which the numerator shall be the number of shares of
Common Stock outstanding at the close of business on the Record Date
(as defined in Section 7.5(f)) fixed for such determination and the
denominator shall be the sum of the number of shares of Common Stock
outstanding at the close of business on the Record Date fixed for such
determination and the total number of shares constituting such dividend
or other distribution, such adjustment to become effective immediately
after the opening of business on the day following the Record Date. If
any dividend or distribution of the type described in this Section
7.5(a) is declared but not so paid or made, the Conversion Price shall
again be adjusted to the Conversion Price which would then be in effect
if such dividend or distribution had not been declared.
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(b) Right or Warrant Issuance. In case the Company shall issue
rights or warrants to all shareholders of its outstanding Common Stock
entitling them to sub scribe for or purchase Common Stock at a price
per share less than the Current Market Price (as defined in Section
7.5(f)) on the Record Date fixed for the determination of Shareholders
entitled to receive such rights or warrants, the Conversion Price
shall be multiplied by a dilution adjustment equal to a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Record Date plus the number
of additional shares of Common Stock which the aggregate offering price
of the total number of shares of Common Stock so offered for
subscription or purchase would purchase at such Current Market Price
(which shall be determined by multiplying the total number of shares so
offered for subscription or purchase by the exercise price of such
rights or warrants and dividing the product so obtained by the Current
Market Price), and of which the denominator shall be the number of
shares of Common Stock outstanding on the close of business on the
Record Date plus the total number of additional shares of Common Stock
so offered for subscription or purchase. Such adjustment shall become
effective immediately after the opening of business on the day
following the Record Date fixed for determination of Shareholders
entitled to receive such rights or warrants. To the extent that Common
Stock is not delivered pursuant to such rights or warrants, upon the
expiration or termination of such rights or warrants the Conversion
Price shall be readjusted to the Conversion Price which would then be
in effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of
shares of Common Stock actually delivered. In determining whether any
rights or warrants entitle the holders to subscribe for or purchase
Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such Common Stock, there
shall be taken into account any consideration received for such rights
or warrants, the value of such consideration if other than cash, to be
determined by the Board of Directors.
(c) Stock Splits. In case the outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common
Stock, the Conversion Price in effect at the opening of business on the
day following the day upon which such subdivision becomes effective
shall be proportionately reduced, and conversely, in case outstanding
shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
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(d) Distribution of Other Assets. In the case the Company (i)
shall, by dividend or distribution to all holders of Common Stock, of
evidences of its indebtedness or other non-cash assets (excluding any
dividends or distributions referred to in Section 7.5(a) above) or (ii)
shall issue to all holders of Common Stock rights or warrants to
subscribe for or purchase any of its Common Stock (other than rights or
warrants referred to in Section 7.5(b) above) or other assets and the
value of which (such as in the case of contingent value rights) is
calculated by reference to changes in the value of the Common Stock or
any other reference, then, in each such case, the Conversion Price
shall be multiplied a dilution adjustment equal to a fraction of which
the numerator shall be the Current Market Price less the fair market
value as of the time the adjustment is effected of the portion of the
assets or evidences of indebtedness so distributed or of such
subscription rights or warrants or other assets or amount of value
applicable to one share of Common Stock, and of which the denominator
shall be the Current Market Price. If the distribution is not so paid
or the rights or warrants are not exercised then the Conversion Price
shall again be adjusted to the Conversion Price which would then be in
effect if such distribution had not been declared or such right or
warrant had not been issued.
(e) Cash Dividends; Excess Purchase Payments. In case the
Company shall, by dividend or otherwise, distribute to all Shareholders
of its Common Stock cash (excluding any cash that is distributed upon a
merger or consolidation to which Section 7.6 applies), or makes an
Excess Purchase Payment in an aggregate amount that, combined together
with the aggregate amount of any other such distributions to all
Shareholders of Common Stock made exclusively in cash within the twelve
(12) months preceding the date of payment of such distribution has been
made, exceeds 10.0% of the product of the Current Market Price
(determined as provided in Section 7.5(f)) on the Record Date with
respect to such distribution times the number of shares of Common Stock
outstanding on such date, then and in each such case, immediately
after the close of business on such date, the Conversion Price shall be
multiplied by a dilution adjustment equal to a fraction (i) the
numerator of which shall be equal to the Current Market Price on the
Record Date less an amount equal to the quotient of (x) the excess of
such combined amount over such 10.0% and (y) the number of shares of
Common Stock outstanding on the Record Date and (ii) the denominator of
which shall be equal to the Current Market Price on such date;
provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record
Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Holder shall have the right to receive upon
conversion of a Security (or any portion thereof) the amount of cash
such Holder would have received had such Holder converted such Security
(or portion thereof) immediately prior to such Record Date. "Excess
Purchase Payment" means
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the excess, if any, of (x) the cash or the value of all other
consideration pad by the Company with respect to one share of Common
Stock acquired in any share repurchase (excluding share repurchases by
the Company effected in compliance with rule 10b-18 under the
Securities Exchange Act of 1934, as amended) whether made by the
Company in the open market, by private purchase by tender offer, by
exchange offer or otherwise, over (y) the Current Market Price of the
Common Stock. In the event that such dividend or distribution is not so
paid or made, the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect if such dividend or
distribution had not been declared.
(f) For purposes of this Section 7.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any securities on
any day shall mean the closing sale price regular way on such
day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, in each case on the Nasdaq National Market or New York
Stock Exchange, as applicable, or, if such security is not
listed or admitted to trading on such National Market or
Exchange, on the principal national security exchange or
quotation system on which such security is quoted or listed or
admitted to trading, or, if not quoted or listed or admitted
to trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, or a price determined in good
faith by the Board of Directors, whose determination shall be
conclusive and described in a Board Resolution.
(2) "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten
(10) consecutive Trading Days immediately prior to the date
in question; provided, however, that (1) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or
distribution requiring such computation) that requires an
adjustment to the Conversion Price pursuant to Section 7.5(a),
(b), (c), (d) or (e) occurs during such ten (10) consecutive
Trading Days, the Closing Price for each Trading Day prior to
the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the same dilution adjustment
by which the Conversion Price is so required to be adjusted as
a result of such other event, (2) if the "ex" date for any
event (other than the issuance or distribution requiring such
computation) that requires an adjustment to the
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Conversion Price pursuant to Section 7.5(a), (b), (c), (d) or
(e) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day
in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the
dilution adjustment by which the Conversion Price is so
required to be adjusted as a result of such other event, and
(3) if the "ex" date for the issuance, distribution requiring
such computation is prior to the day in question, after
taking into account any adjustment required pursuant to clause
(1) or (2) of this proviso, the Closing Price for each Trading
Day on or after such "ex" date shall be adjusted by adding
thereto the amount of any cash and the fair market value (as
determined by the Board of Directors in a manner consistent
with any determination of such value for purposes of Section
7.5(d), whose determination shall be conclusive and described
in a Board Resolution) of the evidences of indebtedness,
shares of capital stock or assets being distributed applicable
to one share of Common Stock as of the close of business on
the day before such "ex" date. For purposes of this paragraph,
the term "ex" date, (1) when used with respect to any issuance
or distribution, means the first date on which the Common
Stock trades regular way on the relevant exchange or in the
relevant market from which the Closing Price was obtained
without the right to receive such issuance or distribution,
(2) when used with respect to any subdivision or combination
of Common Stock, means the first date on which the Common
Stock trades regular way on such exchange or in such market
after the time at which such subdivision or combination
becomes effective, and (3) when used with respect to any
tender or exchange offer means the first date on which the
Common Stock trades regular way on such exchange or in such
market after the expiration time of such offer.
Notwithstanding the fore going, whenever successive
adjustments to the Conversion Price are called for pursuant to
this Section 7.5, such adjustments shall be made to the
Current Market Price as may be necessary or appropriate to
effectuate the intent of this Section 7.5 and to avoid unjust
or inequitable results as determined in good faith by the
Board of Directors.
(3) "fair market value" shall mean the amount, as
determined by the Board of Directors, which a willing buyer
would pay a willing seller in an arm's length transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted
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into any combination of cash, securities or other property,
the date fixed for determination of shareholders entitled to
receive such cash, securities or other property (whether such
date is fixed by the Board of Directors or by statute,
contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is listed or admitted for trading on the New York
Stock Exchange or such other national security exchange, a day
on which the New York Stock Exchange or another national
security exchange is open for business or (y) if the
applicable security is quoted on the Nasdaq National Market,
a day on which trades may be made thereon or (z) if the
applicable security is not so listed, admitted for trading
or quoted, any day other than a Saturday or Sunday or a day
on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(g) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 7.5(a), (b), (c), (d)
or (e), as the Board of Directors considers to be advisable to avoid or
diminish any income tax to Shareholders of Common Stock or rights to
purchase Common Stock resulting from any dividend or distribution of
shares (or rights to acquire shares) or from any event treated as such
for income tax purposes.
(h) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments which
by reason of this Section 7.5(h) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Article 7 shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. No adjustment need be made for a change in
the par value or no par value of the Common Stock. In addition, no
adjustment in the Conversion Price shall be required in connection with
the issuance of options or Common Stock pursuant to an employee stock
option plan adopted by the Board of Directors.
(i) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly prepare a notice of such
adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the Holder of each Security at its last address
appearing on the Security Register within twenty (20) days of the
effective date of such adjustment. Failure to deliver such notice shall
not affect the legality or validity of any such adjustment.
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(j) In any case in which this Section 7.5 provides that an
adjustment shall become effective immediately after a Record Date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the Holder of any Security converted after such Record Date
and before the occurrence of such event the additional Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Stock issuable upon such con-
version before giving effect to such adjustment and (ii) paying to such
holder any amount in cash in lieu of any fraction pursuant to Section
7.3.
(k) For purposes of this Section 7.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company. The Company will not pay any dividend or
make any distribution on Common Stock held in the treasury of the
Company.
7.6 Effect of Reclassification, Consolidation, Merger or Sale.
If any of the following events occur, namely (i) any reclassification or change
of the outstanding Common Stock (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), (ii) any consolidation, merger or combination of
the Company with another corporation as a result of which Shareholders of
Common Stock shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common Stock or
(iii) any sale or conveyance of the properties and assets of the Company as, or
substantially as, an entirety to any other corporation as a result of which
holders of Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, then the Company or the successor or purchasing corporation, as
the case may be, shall execute a supplemental Security providing that such
Security shall be convertible into the kind and amount of shares of stock and
other securities or property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or conveyance
by a Shareholder of a number of shares of Common Stock issuable upon conversion
of such Securities (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock available to convert all such Securities)
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming such Shareholder of Common Stock did
not exercise its rights of election, if any, as to the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided that, if the kind or amount of
securities, cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance is not the same for each share of Common
Stock in respect of which such rights of election shall not have been exercised
("non-electing shares"), then for the purposes of this Section 7.6 the kind and
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance for each
non-electing share shall be deemed to be the kind and amount so receivable per
share
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by a plurality of the non-electing shares). Such supplemental Security shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article. If, in the case of
any such reclassification, change, consolidation, merger, combination, sale or
conveyance, the shares or other securities and assets receivable thereupon by a
Shareholder of Common Stock includes shares of stock or other securities and
assets of a corporation other than the successor or purchasing corporation, as
the case may be, in such reclassification, change, consolidation, merger,
combination, sale or conveyance, then such supplemental Security shall also be
executed by such other corporation and shall contain such additional provisions
to protect the interests of the Holders of the Securities as the Board of
Directors shall reasonably consider necessary.
The Company shall cause notice of the execution of such
supplemental debenture to be mailed to each Holder of Securities, at its address
appearing on the Register within twenty (20) days after execution thereof.
Failure to deliver such notice shall not affect the legality or validity of such
supplemental debenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 7.6 applies to any event or occurrence,
Section 7.5 shall not apply.
7.7 Taxes on Shares Issued. The issue of share certificates on
conversions of Securities shall be made without charge to the converting Holder
for any tax in respect of the issue thereof. The Company shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of Common Stock in any name other than that of the
Holder of any Security converted, and the Company shall not be required to issue
or deliver any such share certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
7.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
Common Stock. The Company shall provide, free from preemptive rights, out of its
authorized but unissued Common Stock or Common Stock held in treasury,
sufficient Common Stock to provide for the conversion of the Securities from
time to time as such Securities are presented for conversion.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the Common
Stock issuable upon conversion of the Securities, the Company will take all
corporate action which may, in the
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opinion of its counsel, be necessary in order that the Company may validly and
legally issue Common Stock at such adjusted Conversion Price.
The Company covenants that all Common Stock issued upon
conversion of Securities will be fully paid and non-assessable by the Company
and free from all taxes, liens and charges with respect to the issue thereof.
8. Events of Default and Remedies.
8.1 Events of Default. "Event of Default", wherever used
herein means any one of the following events (whatever the reason for such Event
of Default and whether it shall be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days; or
(2) default in the payment of the principal of any Security at
its maturity; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company contained in this Security (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of
such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Holders
of at least 25% in aggregate principal amount of the Securities then
Outstanding, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(4) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company bankrupt or
insolvent, or the entry of an order for relief in any case or
proceeding for reorganization, arrangement, adjustment or composition
of or in respect of the Company under the Federal Bankruptcy Code or
any other applicable Federal or State law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 90
consecutive days; or
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(5) the institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the
institution of bankruptcy or insolvency proceedings against it, or the
filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable
Federal or State law, or the consent by it to the filing of any such
petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Company or of
any substantial part of its property.
8.2 Restoration of Rights and Remedies. If any Holder has
instituted any proceeding to enforce any right or remedy under this Security and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to such Holder, then and in every such case the Company and
the Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Holders shall continue as though no such
proceeding had been instituted.
8.3 Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to any Holder is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative an in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
8.4 Delay or Omission Not Waiver. No delay or omission of any
Holder to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this
Article 8 or by law to any Holder may be exercised from time to time, and as of
often as may be deemed expedient, by any such Holder, as the case may be.
8.5 Control by Holders. The Holders of a majority in aggregate
principal amount of the Outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to any Holders, provided that such direction shall not be in conflict with any
rule of law or with this Security.
8.6 Waiver of Past Defaults. The Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding may on
behalf of the Holders of all the Securities waive any past default hereunder and
its consequences, except a default
(1) in the payment of the principal of or interest on any
Security, or
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(2) in respect of a covenant or provision hereof which under
Article 9 cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected, or
(3) the termination of the Company by the Company's
shareholders.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Security; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
8.7 Waiver of Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Security; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
any Securityholder, but will suffer and permit the execution of every such power
as though no such law had been enacted.
9. Amendments, Supplements and Waivers.
9.1 Without Consent of Holders. The Company, when authorized
by a Board Resolution, at any time and from time to time, may amend or
supplement the Securities without notice to or consent of any Holder for any of
the following purposes:
(1) to evidence the succession of another corporation to the
Company, and the assumption by any such successor of the covenants of
the Company herein contained; or
(2) to add to the covenants of the Company or to add Events of
Default, for the benefit of the Holders of the Securities, or to
surrender any right or power herein conferred upon the Company; or
(3) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Security which shall not be inconsistent
with the provisions of this Security, provided such action shall not
adversely affect the interest of the Holders of the Securities in any
material respect; or
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<PAGE> 20
(4) to modify the Conversion Price as provided in Article 7.
9.2 With Consent of Holders. With the consent of the Holders
of not less than a majority in aggregate principal amount of the Securities
Outstanding and when authorized by a Board Resolution, the Company may amend or
supplement the Securities for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Securities or
of modifying in any manner the rights of the Holders of the Securities;
provided, however, that no such supplement or amendment shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) change the stated maturity date of the principal of, or
any installment of interest on, any Security, or reduce the principal
amount thereof or the interest thereon, or the coin or currency in
which, any Security or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment after
the due date thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplement or amendment, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of the
Securities or certain defaults hereunder and their consequences)
provided for in the Securities, or
(3) modify any of the provisions of this Section or Section
8.7, except to increase any such percentage or to provide that certain
other provisions of the Securities cannot be modified or waived without
the consent of the Holder of each Security affected thereby.
Before an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver.
9.3 Effect of Supplement or Amendment. Upon the execution of
any supplement or amendment properly adopted under this Article, the Securities
(including this Security) shall be modified in accordance therewith, and such
supplement or amendment shall form a part of this Security for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
10. Certain Definitions.
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For all purposes of this Security, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly
whether through the ownership of voting securities, by contract or other wise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolutions" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification.
"Business Day" shall mean a day on which the New York Stock
Exchange is open for trading and which is not a Saturday, Sunday or other day on
which banks in The City of New York, New York are authorized or obligated by law
or executive order to close.
"Common Stock" means shares of the common stock of Asset
Alliance Corporation at par value per share.
"Company" means Asset Alliance Corporation, a corporation duly
organized and existing under the laws of the State of Delaware named as the
"Company" in the first paragraph of this instrument until a successor entity
shall have become such pursuant to the applicable provisions of this Security,
and thereafter "Company" shall mean such successor entity.
"Event of Default" has the meaning specified in Article 8.
"Interest Period" shall mean the period beginning on and
including the Security issue date and ending on and including each June 30 and
each December 31 thereafter.
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<PAGE> 22
"Maturity" when used with respect to any Security means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the stated maturity or by declaration of
acceleration, call for redemption or otherwise.
"Offering Memorandum" means either the Private Confidential
Offering Memorandum of units of membership interest in Asset Alliance Preferred
Manager Trust LLC and convertible debentures of Asset Alliance corporation dated
September 22, 1997, as supplemented from time to time or the Private
Confidential Offering Memorandum of shares of common stock of Asset Alliance
Preferred Manager Fund Limited, a Cayman Islands Company and convertible
debentures of Asset Alliance Corporation dated September 22, 1997, as
supplemented from time to time.
"Outstanding" when used with respect to Securities means, as
of the date of determination, all Securities theretofore executed and delivered,
except:
(i) Securities which have been cancelled
pursuant to Section 4.3; and
(ii) Securities in exchange for or in lieu
of which other Securities have been executed and delivered;
provided, however, that in determining whether the Holders of the requisite
principal amount of Securities Outstanding have given any request, demand,
authorization, direction, notice, consent or waiver under the Securities,
Securities owned by the Company or any other obligor upon the Securities or any
Affiliate of the Company or such other obligor shall be disregarded and deemed
not to be Outstanding. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Holders of a majority of the Securities then Outstanding the pledgee's
right so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the Company
or such other obligor.
"Paying Agent" means any Person (other than the Company)
authorized by the Company to pay the principal of or interest on any Securities
on behalf of the Company, which may include any subsidiary of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization or government or any agency or political subdivision
thereof.
"Redemption Price" when used with respect to any Security or
portion thereof to be redeemed means 100% of the principal amount thereof.
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<PAGE> 23
"Register" has the meaning specified in Article 3.
"SEC" means the United States Securities sand Exchange
Commission.
"Securities" means the Company's Adjustable Rate Subordinated
Convertible Debentures due _________, _____ or such earlier date as may
determined in accordance with the provisions thereof.
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<PAGE> 24
11. Miscellaneous.
11.1 Notices. Except as otherwise expressly provided for
herein, all notices, requests and other communications to any party hereunder
shall be in writing (including facsimile or similar writing) and shall be given
to such party at its address or facsimile number set forth below, or such other
address or facsimile number as such party may hereinafter specify for the
purpose (in the case of the Company, by notice in accordance herewith to each
Holder or, in the case of each Holder, by notice in accordance herewith to the
Company). Each such notice, request or other communication shall be effective
(i) if given by facsimile, when such facsimile is transmitted to the facsimile
number specified in this Section or, (ii) if given by mail, 36 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or, (iii) if given by any other means, when delivered at
the address specified in this Section 11.1. Notices shall be addressed as
follows:
if to the Company:
Asset Alliance Corporation
800 Third Avenue, 16th Floor
New York, New York 10022
Attn: Arnold Mintz or Bruce Lipnick
Facsimile No.: (212) 207-8785
All notices to Holders shall be at the address set forth in
the Registrar.
Failure to deliver a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other Holders.
if a notice or communication is delivered in the manner provided above, it is
duly given, whether or not the addressee receives it.
11.2 Communications by Holders With Other Holders. Holders may
communicate with other Holders with respect to their rights under the
Securities. Each Holder shall have the right to examine the Register and receive
a list of Holders and their addresses upon request.
11.3 Successors. All agreements of the Company in the
Securities shall bind its respective successors.
11.4 New York Law. THE SECURITIES SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
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<PAGE> 25
YORK, WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
THEREOF.
11.5 Separability. In case any provision in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions thereof shall not in any way be
affected or impaired thereby.
11.6 Denominations. The Securities are in form without
coupons, and are issuable in denominations of $100,000 and in integral multiples
of $10,000.
11.7 Loss, Theft, Destruction or Mutilation of the Security.
Upon receipt by the Company of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Security, and of indemnity
or security reasonably satisfactory to the Company, and upon reimbursement to
the Company of all reasonable expenses incidental thereto, and upon surrender
and cancellation of this Security, if mutilated, the Company will make and
deliver a new Security of like tenor, in lieu of this Security. Any Security
made and delivered in accordance with the provisions of this Section 11.8 shall
be dated as of the date to which interest has been paid on this Security, or if
no interest has therefore been paid on this Security, then dated the date
hereof.
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<PAGE> 26
IN WITNESS WHEREOF, the Company has caused this Security to be
duly executed as of the date first above written.
ASSET ALLIANCE CORPORATION
Dated: By:
--------------------------------------
Name:
Title:
Attest:
By:
---------------------------------
Name:
Title:
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<PAGE> 1
Exhibit 10.8
ASSET ALLIANCE CORPORATION
1996 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This stock option plan (the "Plan") is intended to encourage
ownership of the stock of Asset Alliance Corporation, a Delaware corporation
(the "Company"), by employees, directors, consultants and advisors of the
Company and its subsidiaries, to induce qualified personnel to enter and remain
in the employ of the Company or its subsidiaries and otherwise to provide
additional incentive for optionees to promote the success of the Company's
business.
2. STOCK SUBJECT TO THE PLAN.
(a) The Common Stock, par value $.01 per share, of the Company
("Common Stock") for which options may be granted under the Plan shall be either
authorized but unissued shares or treasury shares. The number of such shares for
which options may be granted under the Plan shall not exceed four hundred
thousand (400,000) shares of Common Stock, subject to adjustment as provided in
Section 12 hereof.
(b) If an option granted or assumed hereunder shall expire,
terminate or become unexercisable for any reason without having been exercised
in full, the unpurchased shares which were subject thereto shall, unless the
Plan shall have been terminated, again be available for subsequent option grants
under the Plan.
(c) Common Stock issuable upon exercise of an option granted under
the Plan may be subject to such restrictions on transfer, repurchase rights or
other restrictions as shall be determined by the Board or, if the Board decides
to delegate its duties hereunder, by the Committee, as defined below.
<PAGE> 2
3. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board or, if the Board decides
to delegate its duties hereunder, by a committee (the "Committee") appointed by
the Board consisting of two or more members of the Board.
The Board may from time to time appoint a member or members of the
Committee in substitution for or in addition to the member or members then in
office and may fill vacancies on the Committee however caused. The Committee
shall choose one of its members as Chairman and shall hold meetings at such
times and places as it shall deem advisable. A majority of the members of the
Committee shall constitute a quorum and any action may be taken by a majority of
those present and voting at any meeting. Any action may also be taken without
the necessity of a meeting by a written instrument signed by all of the
Committee's members.
The decision of the Board or, if it is appointed by the Board, the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Board or the
Committee shall have the authority to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan. The Board or the Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any option agreement granted
hereunder in the manner and to the extent it shall deem expedient to carry the
Plan into effect and shall be the sole and final judge of such expediency. No
Board or Committee member shall be liable for any action or determination made
in good faith.
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<PAGE> 3
4. TYPE OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by action
of the Board or the Committee and may be designated as either incentive stock
options ("incentive stock options") meeting the requirements of Section 422 of
the Internal Revenue Code of 1986 (the "Code") or options which are not intended
to meet the requirements of such Section 422 of the Code ("non-qualified
options"), the designation to be in the sole discretion of the Board or the
Committee.
5. ELIGIBILITY.
Options designated as incentive stock options may be granted only to
officers who are employees of the Company or any subsidiary corporation (herein
called "subsidiary" or "subsidiaries"), as defined in Section 424(f) of the
Code and the Treasury Regulations promulgated thereunder (the "Regulations"),
and other employees of the Company or of any subsidiary who are designated as
"key employees" by the Board or the Committee.
Options designated as non-qualified options may be granted to
officers, other employees, directors, consultants and advisors of the Company or
of any of its subsidiaries, provided that bona fide services shall be rendered
by consultants or advisors, and such services must not be in connection with the
offer and sale of securities in a capital-raising transaction.
In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
individual, the Board or the Committee shall take into account the position and
responsibilities of the individual being considered, the nature and the value to
the Company or its subsidiaries of his or her service and accomplishments, his
or her present and potential contribution to the success of the Company or its
subsidiaries, and such other factors as the Committee may deem relevant.
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<PAGE> 4
No option designated as an incentive stock option shall be granted
to any employee of the Company or any subsidiary if such employee owns,
immediately prior to the grant of the option, stock representing more than 10%
of the total combined voting power of all classes of stock of the Company or a
parent or a subsidiary, unless the purchase price for the stock under such
option shall be at least 110% of its fair market value at the time such option
is granted and the option, by its terms, shall not be exercisable more than five
years from the date it is granted. In determining the stock ownership under this
paragraph, the provisions of Section 424(d) of the Code shall apply. In
determining the fair market value under this paragraph, the provisions of
Section 7 hereof shall apply.
6. OPTION AGREEMENT.
Each option shall be evidenced by an option agreement (the
"Agreement") duly executed on behalf of the Company and by the optionee to whom
such option is granted, which Agreement shall comply with and be subject to the
terms and conditions of the Plan. The Agreement shall set forth the number of
shares of Common Stock to which it applies, and the conditions and circumstances
under which the option may be exercised. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Board or the Committee, provided that options designated as
incentive stock options shall meet all of the conditions for incentive stock
options as defined in Section 422 of the Code. The date of grant of an option
shall be as determined by the Board or the Committee. More than one option may
be granted to an individual.
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<PAGE> 5
7. OPTION PRICE.
The option price or prices of shares of Common Stock for incentive
stock options shall be the fair market value of such Common Stock at the time
the option is granted as determined by the Board or the Committee in accordance
with the Regulations promulgated under Section 422 of the Code. The fair market
value per share shall be the mean of the bid and asked prices of the Common
Stock in the over-the-counter market on the date of grant, as reported in The
Wall Street Journal (or, if not so reported, as otherwise reported by the
National Association of Securities Dealers Automated Quotation ("NASDAQ")
System) or, in the event that the Common Stock is traded on the NASDAQ National
Market System or listed on a stock exchange, the fair market value per share
shall be the closing price on the principal such system or exchange on the date
of grant of the option, as reported in The Wall Street Journal, provided,
however, that if such market or exchange is closed on the date of the grant of
the option then the fair market value per share shall be based on the most
recent date on which such trading occurred immediately prior to the date of the
grant of the option; and provided, further, that if the fair market value cannot
be determined in accordance with the forgoing, it shall be determined in good
faith by the Board or the Committee. The option price or prices of shares of
Common Stock for non-qualified stock options shall be at least 85% of the fair
market value on the date of grant, such value to be determined by the Board or
the Committee in accordance with the preceding two sentences.
8. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of
the exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such options, (ii) a
promissory note in an amount equal to the exercise price of
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<PAGE> 6
such options, (iii) shares of Common Stock owned by the optionee having a fair
market value equal in amount to the exercise price of the options being
exercised, or (iv) any combination of (i), (ii) and (iii), provided, however,
that payment of the exercise price by delivery of a promissory note or Common
Stock owned by such optionee may be made only under such circumstances, if any,
and on such terms as may from time to time be established by the Board or the
Committee. The fair market value of shares of Common Stock which may be
delivered upon exercise of an option shall be determined by the Board or the
Committee in accordance with Section 7 hereof.
(b) To the extent that the right to purchase shares under an option
has vested and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person
exercising the option, to the Company stating the number of shares with respect
to which the option is being exercised, accompanied by payment in full for such
shares as provided in subparagraph (a) above. Until such time as the Company
completes an offering of its Common Stock registered under the Securities Act of
1933, as amended (the "Securities Act"), optionees shall be required (unless the
Board or Committee shall decide otherwise) upon exercise of an option to execute
and deliver a stockholders agreement in substantially the form of Exhibit A
hereto with such changes as the Board or the Committee shall approve. Upon such
exercise and, if required, the execution and delivery of such stockholders
agreement, delivery of a certificate for paid-up non-assessable shares shall be
made to the person exercising the option within thirty (30) days from the date
of receipt of the notice by the Company, or at such time, place and manner as
may be agreed upon by the Company and the person exercising the option.
9. EXERCISE OF OPTIONS.
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<PAGE> 7
Each option granted under the Plan shall, subject to Section 10(b)
and Section 12 hereof, be exercisable at such time or times and during such
period as shall be set forth in the Agreement; provided, however, that no option
granted under the Plan shall have a term in excess of ten (10) years from the
date of grant.
To the extent that a vested option is not exercised in full by an
optionee, it shall not expire but shall be carried forward and shall be
exercisable, on a cumulative basis, until the expiration of the exercise period.
No partial exercise may be made for less than ten (10) whole shares of Common
Stock.
10. TERM OF OPTIONS; EXERCISABILITY.
(a) Term.
(1) Each option shall expire not more than ten (10) years from the
date of the granting thereof, but shall be subject to earlier termination as
herein provided.
(2) Except as otherwise provided in this Section 10, an option
granted to any employee or director of the Company or any of its subsidiaries
shall terminate immediately on the date such optionee ceases to be an employee
or director of the Company or any of its subsidiaries.
(3) If such termination is because the optionee has become
permanently disabled (within the meaning of Section 22(e)(3) of the Code), such
option shall terminate on the first anniversary of the date of termination, or
on the date on which the option expires by its terms, whichever occurs first.
(4) If such termination is within six months of the date on which
there occurs a hostile Change in Control of the Company (as defined in Section
12(b) below), such option (or any replacement option issued in connection with
such Change in Control) shall immediately become
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<PAGE> 8
exercisable in full and may be exercised by the optionee at any time during the
three-month period after the date of termination.
(5) In the event of the death of any optionee, any option granted to
such optionee shall terminate on the first anniversary of the date of death, or
on the date on which the option expires by its terms, whichever occurs first.
(6) Notwithstanding the provisions of Section 10(a)(2) but subject
to Section 10(a)(1), with respect to any particular option under the Plan, the
Board or the Committee may permit an optionee recipient to exercise an option
after termination of employment on such terms as it may determine in its sole
discretion.
(b) Exercisability.
Except as the Board or the Committee may otherwise determine is
appropriate with respect to a particular option under the Plan, an option
granted to an employee or director who ceases to be an employee or director of
the Company or any of its subsidiaries shall be exercisable only to the extent
that the right to purchase shares of Common Stock under such option has vested
and is in effect on the date such optionee ceases to be an employee or director
of the Company or any of its subsidiaries.
11. OPTIONS NOT TRANSFERABLE.
The right of any optionee to exercise any option granted to him or
her shall not be assignable or transferable by such optionee other than by will
or the laws of descent and distribution, and any such option shall be
exercisable during the lifetime of such optionee only by him or her. Any option
granted under the Plan shall be null and void and without effect upon the
bankruptcy of the optionee to whom the option is granted or upon any attempted
assignment or transfer, except as
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<PAGE> 9
herein provided, including without limitation
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option.
12. RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.
(a) In the event that the outstanding Common Stock is changed into
or exchanged for a different number or kind of shares or other securities of the
Company or of another corporation by reason of any reorganization, merger,
consolidation, recapitalization, reclassification, stock split-up, combination
of shares, or dividends payable in capital stock, appropriate adjustment shall
be made in the number and kind of securities as to which options may be granted
under the Plan and as to which outstanding options or portions thereof then
unexercised shall be exercisable, to the end that the proportionate interest of
the optionee shall be maintained as before the occurrence of such event; such
adjustment in outstanding options shall be made without change in the total
price applicable to the unexercised portion of such options and with a
corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Board or the
Committee in its sole discretion, in the case of any (i) sale or conveyance to
another entity of all or substantially all of the property and assets of the
Company or (ii) Change in Control (as hereinafter defined) of the Company, the
purchaser(s) of the Company's assets or stock or new controlling person(s) may,
in his, her or its discretion, deliver to each optionee under the Plan the same
kind of consideration that is delivered to the holders of Common Stock as a
result of such sale, conveyance or Change in Control, which consideration shall
be equal in value to the value of those shares of stock or other securities the
optionee would have received had the option been exercised in full and no
disposition
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of the shares acquired upon such exercise been made prior to such sale,
conveyance or Change in Control, less the option price therefor. Upon receipt of
such consideration by all optionees, all options under the Plan shall
immediately terminate and be of no further force and effect. The value of the
stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Board or the Committee,
and in the case of Common Stock, in accordance with the provisions of Section 7
hereof. The Board or the Committee shall also have the power and right, but not
the obligation, to accelerate the exercisability of any options, notwithstanding
any limitations in this Plan or in the Agreement, in anticipation of or upon a
merger or consolidation in which the Company is a constituent corporation, or
upon a sale of all or substantially all of the property and assets of the
Company or a Change in Control. Upon a Change of Control, any options or portion
thereof originally designated as incentive stock options that no longer qualify
as incentive stock options under Section 422 of the Code as a result of such
Change of Control shall be redesignated as non-qualified options. In the event
of a hostile Change in Control of the Company, each outstanding option under
this Plan shall automatically accelerate in full and unvested shares shall vest
in full immediately. A "Change in Control" shall be deemed to have occurred if
any person, or any two or more persons acting as a group, and all affiliates of
such person or persons, who prior to such time owned less than fifty percent
(50%) of the then outstanding Common Stock, shall acquire such additional Common
Stock in one or more transactions, or series of transactions, such that
following such transaction or transactions, such person or group and their
affiliates beneficially own more than fifty percent (50%) of the Common Stock
outstanding. A Change of Control shall be deemed to be "hostile" for purposes
hereof if it is not approved by a
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<PAGE> 11
majority of the disinterested members of the Board in office prior to the
commencement of the tender offer, proxy contest or other actions resulting in
such Change of Control.
(c) Upon dissolution or liquidation of the Company, all options
granted under this Plan shall terminate, but each optionee shall have the right,
immediately prior to such dissolution or liquidation, to exercise his or her
option to the extent then exercisable.
(d) If by reason of a corporate merger, consolidation, acquisition
of property or stock, separation, reorganization, or liquidation, the Board or
the Committee shall authorize the issuance or assumption of a stock option or
stock options in a transaction to which Section 424(a) of the Code applies,
then, notwithstanding any other provision of the Plan, the Board or the
Committee may grant an option or options upon such terms and conditions as it
may deem appropriate for the purpose of assumption of the old option, or
substitution of a new option for the old option, in conformity with the
provisions of such Section 424(a) of the Code and the Regulations thereunder,
and any such option shall not reduce the number of shares otherwise available
for issuance under the Plan.
(e) No fraction of a share shall be purchasable or deliverable upon
the exercise of any option, but in the event any adjustment hereunder of the
number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
13. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option granted under the
Plan shall confer upon any optionee any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary),
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<PAGE> 12
subject to the terms of any separate employment agreement to the contrary, at
any time to terminate such employment or to increase or decrease the rate of
compensation of the optionee from the rate of compensation in existence at the
time of the grant of an option. Whether an authorized leave of absence, or
absence in military or government service, shall constitute termination of
employment shall be determined by the Board or the Committee at the time.
14. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
non-qualified option granted under the Plan shall be subject to the optionee's
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements. The Company and optionee may agree to withhold
shares of Common Stock purchased upon exercise of an option to satisfy the
above-mentioned withholding requirements. With the approval of the Board or the
Committee, which it shall have sole discretion to grant, and on such terms and
conditions as the Board or the Committee may impose, the optionee may satisfy
the foregoing condition by electing to have the Company withhold from delivery
to the optionee shares having a value equal to the amount of tax to be withheld.
The Board or the Committee shall also have the right to require that shares be
withheld from delivery to the optionee to satisfy such condition.
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<PAGE> 13
15. RESTRICTIONS ON ISSUE OF SHARES.
(a) Notwithstanding the provisions of Section 8, the Company may
delay the issuance of Common Stock covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities laws now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective,
and the Company shall use its best efforts to bring about compliance with the
above conditions within a reasonable time, except that the Company shall be
under no obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
16. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT REGISTRATION.
Unless the Common Stock to be issued upon exercise of an option
granted under the Plan has been effectively registered under the Securities Act,
as now in force or hereafter amended, the Company shall be under no obligation
to issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and
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<PAGE> 14
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act, or
any other applicable law, and that a legend to this effect may be endorsed upon
the securities so issued. In the event that the Company shall, nevertheless,
deem it necessary or desirable to register under the Securities Act or other
applicable statutes any shares with respect to which an option shall have been
exercised, or to qualify any such shares for exemption from the Securities Act
or other applicable statutes, then the Company may take such action and may
require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors and controlling persons from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by any untrue statement of any material fact therein or caused by the
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.
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<PAGE> 15
17. LOANS.
The Company may not make loans to optionees to permit them to
exercise options except in the event that the Board or the Committee approves
the acceptance of a promissory note as contemplated by Section 8(a)(ii).
18. MODIFICATION OF OUTSTANDING OPTIONS.
The Board or the Committee may authorize the amendment of any
outstanding option with the consent of the optionee when and subject to such
conditions as are deemed to be in the best interests of the Company and in
accordance with the purposes of this Plan.
19. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the vote of the holders of
at least a majority of the outstanding shares of the voting stock of the Company
within twelve (12) months after the adoption of the Plan by the Board and shall
take effect as of the date of adoption by the Board upon such approval. The
Board or the Committee may grant options under the Plan prior to such
shareholder approval, but any such option shall become effective as of the date
of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
20. TERMINATION AND AMENDMENT.
Unless sooner terminated as herein provided, the Plan shall
terminate on December 31, 2006. The Board may at any time terminate the Plan or
make such modification or amendment thereof as it deems advisable; provided,
however, that except as provided in this Section 20, the Board may not, without
the approval of the shareholders of the Company obtained in the manner stated in
Section 19 hereof, increase the maximum number of shares for which options may
be granted or change the designation of the class of persons eligible to receive
options under the Plan,
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<PAGE> 16
or make any other change in the Plan which requires shareholder approval under
applicable law or regulations, including any approval requirement which is a
prerequisite for exemptive relief under Section 16 of the Securities Exchange
Act of 1934.
21. RESERVATION OF STOCK.
The Company shall at all times during the term of the Plan reserve
and keep available such number of shares of Common Stock as will be sufficient
to satisfy the requirements of the Plan and shall pay all fees and expenses
necessarily incurred by the Company in connection therewith.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a shareholder
of the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail,
telecopied or delivered by hand, if to the Company, to its principal executive
offices, attention: Executive Vice President, and, if to an optionee, to the
optionee's address as appearing on the records of the Company.
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<PAGE> 17
AMENDMENT NUMBER ONE TO
ASSET ALLIANCE CORPORATION
1996 STOCK OPTION PLAN (THE "PLAN")
Section 2, paragraph (a) of the Plan is amended to read as follows:
"(a) The Common Stock, par value $.01 per share, of the Company ("Common
Stock") for which options may be granted under the Plan shall be either
authorized but unissued shares or treasury shares. The number of such shares for
which options may be granted under the Plan shall not exceed one million four
hundred thousand (1,400,000) shares of Common Stock, subject to adjustment as
provided in Section 12 hereof."
In all other respects, the Plan remains unamended and in full force and effect.
<PAGE> 1
Exhibit 10.9
STANDARD FORM OF OFFICE LEASE 2/94
The Real Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 12th day of Sept, 1996, between
JOSEPH P. DAY REALTY CORP., as agent, for 800 Third Avenue Associates,
having an office at 9 East 40th Street, New York, New York 10016
party of the first part, hereinafter referred to as OWNER, and
ASSET ALLIANCE CORPORATION, a Delaware corporation
having a place of business at 90 Broad Street, New York, New York 10004
party of the second part, hereinafter referred to as TENANT,
WITNESSETH:
Owner hereby leases to Tenant and Tenant hereby hires from Owner
a portion of the 16th Floor as shown on the attached Floor Plan
in the building known as 800 Third Avenue
in the Borough of Manhattan, City of New York, for a term of:
Ten years (or until such term shall sooner cease and expire as hereinafter
provided) to commence on November 1, 1996 (the "Commencement Date") and to end
on October 31, 2006, both dates inclusive, at an annual rental rate of: One
Hundred Thirty-one Thousand One Hundred Eighty and no/100 ($131,180.00) Dollars
per annum, subject to the concession set forth in Article 67 below,
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first monthly installment(s) on the execution hereof (unless this lease
be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in payment of rent to Owner pursuant to
the terms of another lease with Owner or with Owner's predecessor in interest,
Owner may at Owner's option and without notice to Tenant add the amount of such
arrears to any monthly installment of rent payable hereunder and the same shall
be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT: 1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY: 2. Tenant shall use and occupy the demised premises for executive
offices and for no other purpose.
TENANT ALTERATIONS: 3. Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant,
at Tenant's expense, may make alterations, installations, additions, or
improvements which are non-structural and which do not affect utility services
or plumbing and electrical lines, in or to the interior of the demised premises
by using contractors or mechanics first approved in each instance by Owner.
Tenant shall, before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals and certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
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<PAGE> 2
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises. If Tenant requests in writing that Owner
do so, Owner will state at the time Owner consents to such installation, whether
Owner elects to have such installation removed by Tenant. Owner agrees Tenant
may determine to remove or not to remove Tenant's initial installation at the
end of the term of this Lease. If Owner requires the installation to be removed
by Tenant, the same shall be removed from the premises by Tenant prior to the
expiration of the lease, at Tenant's expense. Nothing in this Article shall be
construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
MAINTENANCE AND REPAIRS: 4. Tenant shall, throughout the term of this lease,
take good care of the demised premises and the fixtures and appurtenances
therein. Tenant shall be responsible for all damage or injury to the demised
premises or any other part of the building and the systems and equipment
thereof, whether requiring structural or nonstructural repairs caused by or
resulting from carelessness, omission, neglect or improper conduct of Tenant,
Tenant's subtenants, agents, employees, invitees or licensees, or which arise
out of any work, labor, service or equipment done for or supplied to Tenant or
any subtenant or arising out of the installation, use or operation of the
property or equipment of Tenant or any subtenant. Tenant shall also repair all
damage to the building and the demised premises caused by the moving of Tenant's
fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's
expense, all repairs in and to the demised premises for which Tenant is
responsible, using only the contractor for the trade or trades in question,
selected from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Owner at the Tenant's
expense. Owner shall maintain in good working order and repair the exterior and
the structural portions of the building, including the structural portions of
its demised premises, and the public portions of the building interior and the
building plumbing, electrical, heating and ventilating systems (to the extent
such systems presently exist) serving the demised premises. Tenant agrees to
give prompt notice of any defective condition in the premises for which Owner
may be responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof. It is specifically agreed that Tenant shall not be entitled
to any setoff or reduction of rent by reason of any failure of Owner to comply
with the covenants of this or any other article of this Lease. Tenant agrees
that Tenant's sole remedy at law in such instance will be by way of an action
for damages for breach of contract. The provisions of this Article 4 shall not
apply in the case of fire or other casualty which are dealt with in Article 9
hereof. If as a result of any such repairs, alterations, additions or
improvements the demised premises become untenantable for ten or move
consecutive business days and as a result thereof Tenant ceases to conduct
Tenant's business in the demised premises, then rent and additional rent shall
be abated commencing on the eleventh such business day and continuing until the
earlier of the date that the demised premises become tenantable or Tenant
resumes the conduct of Tenant's business in the demised premises.
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<PAGE> 3
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the Labor Law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times thereafter,
Tenant, at Tenant's sole cost and expense, shall promptly comply with all
present and future laws, orders and regulations of all state, federal, municipal
and local governments, departments, commissions and boards and any direction of
any public officer pursuant to law, and all orders, rules and regulations of the
New York Board of Fire Underwriters, Insurance Services Office, or any similar
body which shall impose any violation, order or duty upon Owner or Tenant with
respect to the demised premises, whether or not arising out of Tenant's use or
manner of use thereof, (including Tenant's permitted use) or, with respect to
the building if arising out of Tenant's use or manner of use of the premises or
the building (including the use permitted under the lease). Nothing herein shall
require Tenant to make structural repairs or alterations unless Tenant has, by
its manner of use of the demised premises or method of operation therein,
violated any such laws, ordinances, orders, rules, regulations or requirements
with respect thereto. Tenant may, after securing Owner to Owner's satisfaction
against all damages, interest, penalties and expenses, including, but not
limited to, reasonable attorney's fees, by cash deposit or by surety bond in an
amount and in a company satisfactory to Owner, contest and appeal any such laws,
ordinances, orders, rules, regulations or requirements provided same is done
with all reasonable promptness and provided such appeal shall not subject Owner
to prosecution for a criminal offense or constitute a default under any lease or
mortgage under which Owner may be obligated, or cause the demised premises or
any part thereof to be condemned or vacated. Tenant shall not do or permit any
act or thing to be done in or to the demised premises which is contrary to law,
or which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner with
respect to the demised premises or the building of which the demised premises
form a part, or which shall or might subject Owner to any liability or
responsibility to any person or for property damage. Tenant shall not keep
anything in the demised premises except as now or hereafter permitted by the
Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization
or other authority having jurisdiction, and then only in such manner and such
quantity so as not to increase the rate for fire insurance applicable to the
building, nor use the premises in a manner which will increase the insurance
rate for the building or any property located therein over that in effect prior
to the commencement of Tenant's occupancy. Tenants shall pay all costs,
expenses, fines, penalties, or damages, which may be imposed upon Owner by
reason of Tenant's failure to comply with the provisions of this article and if
by reason of such failure the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent hereunder, for that portion of
all fire insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant. In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make-up" of rate for the building
or demised premises issued by the New York Fire Insurance Exchange, or other
body making fire insurance rates applicable to said premises shall be conclusive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rates then applicable to said premises. Tenant shall not place a
load upon any floor of the demised premises exceeding the floor load per square
foot area which it was designed to carry and which is allowed by law. Owner
reserves the right to prescribe the weight and position of all safes, business
machines and mechanical equipment. Such installations shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Owner's
judgement, to absorb and prevent vibration, noise and annoyance.
SUBORDINATION: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or
hereafter affect such leases or the real property of which demised premises are
a part and to all renewals, modifications, consolidations, replacements and
extensions of any such underlying leases and mortgages. This clause shall be
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<PAGE> 4
self-operative and no further instrument of subordination shall be required by
any ground or underlying lessor or by any mortgagee, affecting any lease or the
real property of which the demised premises are a part. In confirmation of such
subordination, Tenant shall from time to time execute promptly any certificate
that Owner may request.
PROPERTY 8. Owner or its agents shall not be liable for any damage to
LOSS, DAMAGE property of Tenant or of others entrusted to employees of the
REIMBURSEMENT building, nor for loss of or damage to any property of Tenant
INDEMNITY: by theft or otherwise, nor for any injury or damage to persons
or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees. Owner or its agents will not be liable for any such damage caused by
other tenants or persons in, upon or about said building or caused by operations
in construction of any private, public or quasi public work. If at any time any
windows of the demised premises are temporarily closed, darkened or bricked up
(or permanently closed, darkened or bricked up, if required by law) for any
reason whatsoever including, but not limited to Owner's own acts. Owner shall
not be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable
attorneys fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees, or licensees, of any
covenant or condition of this lease, or the carelessness, negligence or
improper conduct of the Tenant, Tenant's agents, contractors, employees,
invitees or licensees. Tenant's liability under this lease extends to the acts
and omissions of any sub-tenant, and any agent, contractor, employee, invitee
or licensee of any sub-tenant. In case any action or proceeding is brought
against Owner by reason of any such claim, Tenant, upon written notice from
Owner, will, at Tenant's expense, resist or defend such action or proceeding by
counsel approved by Owner in writing, such approval not to be unreasonably
withheld.
DESTRUCTION, 9. (a) If the demised premises or any part thereof shall be
FIRE AND OTHER damaged by fire or other casualty, Tenant shall give immediate
CASUALTY: notice thereof to Owner and this lease shall continue in full
force and effect except as hereinafter set forth. (b) If the
demised premises are partially damaged or rendered partially unusable by fire
or other casualty, the damages thereto shall be repaired by and at the expense
of Owner and the rent and other items of additional rent, until such repair
shall be substantially completed, shall be apportioned from the day following
the casualty according to the part of the premises which is usable. (c) If the
demised premises are totally damaged or rendered wholly unusable by fire or
other casualty, then the rent and other items of additional rent as hereinafter
expressly provided shall be proportionately paid up to the time of the casualty
and thenceforth shall cease until the date when the premises shall have been
repaired and restored by Owner (or sooner reoccupied in part by Tenant then
rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the
demised premises are damaged in whole or in part) if the building shall be so
damaged that Owner shall decide to demolish it or to rebuild it, then, in any
of such events, Owner may elect to terminate this lease by written notice to
Tenant, given within 90 days after such fire or casualty, or 30 days after
adjustment of the insurance claim for such fire or casualty, whichever is
sooner, specifying a date for the expiration of the lease, which date shall
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[SYMBOL OF INDEX FINGER POINTING TO THE RIGHT] RIDER TO BE ADDED IF NECESSARY.
not be more than 60 days after the giving of such notice, and upon the date
specified in such notice the term of this lease shall expire as fully and
completely as if such date were the date set forth above for the termination of
this lease and Tenant shall forthwith quit, surrender and vacate the premises
without prejudice however, to Landlord's rights and remedies against Tenant
under the lease provisions in effect prior to such termination, and any rent
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<PAGE> 5
owing shall be paid up to such date and any payments of rent made by Tenant
which were on account of any period subsequent to such date shall be returned to
Tenant. Unless Owner shall serve a termination notice as provided for herein,
Owner shall make the repairs and restorations under the conditions of (b) and
(c) hereof, with all reasonable expedition, subject to delays due to adjustment
of insurance claims, labor troubles and causes beyond Owner's control. After any
such casualty, Tenant shall cooperate with Owner's restoration by removing from
the premises as promptly as reasonably possible, all of Tenant's salvageable
inventory and moveable equipment, furniture, and other property. Tenant's
liability for rent shall resume five (5) days after written notice from Owner
that the premises are substantially ready for Tenant's occupancy. (e) Nothing
contained hereinabove shall relieve Tenant from liability that may exist as a
result of damage from fire or other casualty. Notwithstanding the foregoing,
including Owner's obligation to restore under subparagraph (b) above, each party
shall look first to any insurance in its favor before making any claim against
the other party for recovery for loss or damage resulting from fire or other
casualty, and to the extent that such insurance is in force and collectible and
to the extent permitted by law, Owner and Tenant each hereby releases and waives
all right of recovery with respect to subparagraphs (b), (d), and (e) above,
against the other or any one claiming through or under each of them by way of
subrogation or otherwise. The release and waiver herein referred to shall be
deemed to include any loss or damage to the demised premises and/or to any
personal property, equipment, trade fixtures, goods and merchandise located
therein. The foregoing release and waiver shall be in force only if both
releasors' insurance policies contain a clause providing that such a release or
waiver shall not invalidate the insurance. If, and to the extent, that such
waiver can be obtained only by the payment of additional premiums, then the
party benefiting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof. If the demised premises are totally damaged or rendered
wholly unusable by fire or other casualty and repair and restoration of the same
is not substantially completed within one hundred fifty days after such fire or
other casualty, Tenant may give Owner written notice that unless repair and
restoration of said demised premises is substantially completed within thirty
days after the date of such notice, Tenant will end the term of this Lease. In
the event such repair and restoration is not substantially completed within
thirty days after the date of such notice, Tenant may at any time thereafter and
prior to substantial completion of such repair and restoration give Owner a
second notice ending the term of this Lease, whereupon the term of this Lease
shall end on the date of such second notice as if such date was the date set
forth in this Lease for the end of the term for this Lease.
EMINENT 10. If the whole or any part of the demised premises shall be
DOMAIN: acquired or condemned by Eminent Domain for any public or quasi
public use or purpose, then and in that event, the term of this
lease shall cease and terminate from the date of title vesting in such
proceeding and Tenant shall have no claim for the value of any unexpired term of
said lease and assigns to Owner, Tenant's entire interest in any such award.
Tenant shall have the right to make an independent claim to the condemning
authority for the value of Tenant's moving expenses and personal property, trade
fixtures and equipment, provided Tenant is entitled pursuant to the terms of the
lease to remove such property, trade fixture and equipment at the end of the
term and provided further such claim does not reduce Owner's award.
ASSIGNMENT, 11. Tenant, for itself, its heirs, distributees, executors,
MORTGAGE, administrators, legal representative, successor and assigns,
ETC.: expressly covenants that it shall not assign, mortgage or
encumber this agreement, nor underlet, or suffer or permit the
demised premises or any part thereof to be used by others, without the prior
written consent of Owner in each instance. Transfer of the majority of the
stock of a corporate Tenant or the majority partnership interest of a
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partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting. See article 62
below.
ELECTRIC 12. Rates and conditions in respect to submetering
CURRENT: or rent inclusion, as the case may be, to be added in
[GRAPH OF RIDER attached hereto. Tenant covenants and
HAND POINTING] agrees that at all times its use of electric currents shall
not exceed the capacity of existing feeders to the building or
the risers or wiring installation and Tenant may not use any electrical
equipment which, in Owner's opinion, reasonably exercised, will overload such
installations or interfere with the use thereof by other tenants of the
building. The change at any time of the character of electric service shall in
no wise make Owner liable or responsible to Tenant, for any loss, damages or
expenses which Tenant may sustain.
ACCESS TO 13. Owner or Owner's agents shall have the right (but shall
PREMISES: not be obligated) to enter the demised premises in any
emergency at any time, and, at other reasonable times on prior oral notice to
examine the same and to make such repairs, replacements and improvements as
Owner may deem necessary and reasonably desirable to the demised premises or to
any other portion of the building or which Owner may elect to perform. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits in and through
the demised premises and to erect new pipes and conduits therein provided they
are concealed within the walls, floor, or ceiling. Owner may, during the
progress of any work in the demised premises, take all necessary materials and
equipment into said premises without the same constituting an eviction nor shall
the Tenant be entitled to any abatement of rent while such work is in progress
nor to any damages by reason of loss or interruption of business or otherwise.
Throughout the term hereof Owner shall have the right to enter the demised
premises at reasonable hours on prior oral notice for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
tenants. If Tenant is not present to open and permit an entry into the demised
premises, Owner or Owner's agents may enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all or substantially all of Tenant's property therefrom Owner may
immediately enter, alter, renovate or redecorate the demised premises without
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of
the building is leased hereunder, anything contained in or indicated on any
sketch, blue print or plan, or anything contained elsewhere in this lease to
the contrary notwithstanding. Owner makes no representation as to the location
of the property line of the building. All vaults and vault space and all such
areas not within the property line of the building, which Tenant may be
permitted to use and/or occupy, is to be used and/or occupied under a revocable
license, and if any such license be revoked, or if the amount of such space or
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area be diminished or required by any federal, state or municipal authority or
public utility, Owner shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall
such revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax, fee or charge of municipal authorities for such vault or
area shall be paid by Tenant.
OCCUPANCY: 15. Tenant will not at any time use or occupy the
demised premises in violation of the certificate of
occupancy issued for the building of which the demised premises are a part.
Tenant has inspected the premises and accepts them as is, subject to the riders
annexed hereto with respect to Owner's work, if any. In any event, Owner makes
no representation as to the condition of the premises and Tenant agrees to
accept the same subject to violations, whether or not of record.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the
contrary notwithstanding, this lease may be
cancelled by Owner by the sending of a written notice to Tenant within a
reasonable time after the happening of any one or more of the following events:
(1) the commencement of a case in bankruptcy or under the laws of any state
naming Tenant as the debtor; or (2) the making by Tenant of an assignment or
any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of
the premises demised but shall forthwith quit and surrender the premises. If
this lease shall be assigned in accordance with its terms, the provisions of
this Article 16 shall be applicable only to the party then owning Tenant's
interest in this lease.
(b) it is stipulated and agreed that in the event
of the termination of this lease pursuant to (a) hereof, Owner shall forthwith,
notwithstanding any other provisions of this lease to the contrary, be entitled
to recover from Tenant as and for liquidated damages an amount equal to the
difference between the rent reserved hereunder for the unexpired portion of the
term demised and the fair and reasonable rental value of the demised premises
for the same period. In the computation of such damages the difference between
any installment of rent becoming due hereunder after the date of termination
and the fair and reasonable rental value of the demised premises for the period
for which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to
any court, commission or tribunal, the amount of rent reserved upon such
re-letting shall be deemed to be the fair and reasonable rental value for the
part or the whole of the premises so re-let during the term of the re-letting.
Nothing herein contained shall limit or prejudice the right of the Owner to
prove for and obtain as liquidated damages by reason of such termination, an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
DEFAULT: 17. (1) If Tenant defaults in fulfilling any of
the covenants of this lease other than the
covenants for the payment of rent or additional rent; or if the demised
premises become vacant or deserted; or if any execution or attachment shall be
issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by someone other than Tenant; or if this
lease be rejected under section 235 of Title 11 of the U.S. Code (bankruptcy
code); or if Tenant shall fail to move into or take possession of the premises
within thirty (30) days after the commencement of the term of this lease, then,
in any one or more of such events, upon Owner serving a written 20 days notice
upon Tenant specifying the nature of said default and upon the expiration of
said 20 days, if Tenant shall have failed to comply with or remedy such default,
or if the said default or omission complained of shall be of a nature that the
same cannot be completely cured or remedied within said 20 day period, and if
Tenant shall not have diligently commenced curing such default within such 20
day period, and shall not thereafter with reasonable diligence and in good
faith, proceed to remedy or cure such default, then Owner may serve a written
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five (5) days' notice of cancellation of this lease upon Tenant, and upon the
expiration of said five (5) days this lease and the term thereunder shall end
and expire as fully and completely as if the expiration of such five (5) day
period were the day herein definitely fixed for the end and expiration of this
lease and the term thereof and Tenant shall then quit and surrender the demised
premises to Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall
have been given, and the term shall expire as aforesaid; or if Tenant shall
make default in the payment of the rent reserved herein or any item of
additional rent herein mentioned or any part of either or in making any other
payment herein required; then and in any of such events Owner may without
notice, re-enter the demised premises either by force or otherwise, and
dispossess Tenant by summary proceedings or otherwise, and the legal
representative of Tenant or other occupant of demised premises and remove their
effects and hold the premises as if this lease had not been made, and Tenant
hereby waives the service of notice of intention to re-enter or institute legal
proceedings to that end. If Tenant shall make default hereunder prior to the
date fixed as the commencement of any renewal or extension of this lease, Owner
may cancel and terminate such renewal or extension agreement by written notice.
REMEDIES OF OWNER AND 18. In case of any such default, re-entry,
WAIVER OF REDEMPTION: expiration and/or dispossess by summary proceedings
or otherwise, (a) the rent shall become due
thereupon and be paid up to the time of such re-entry, dispossess and/or
expiration, (b) Owner may re-let the premises or any part or parts thereof,
either in the name of Owner or otherwise, for a term or terms, which may at
Owner's option be less than or exceed the period which would otherwise have
constituted the balance of the term of this lease and may grant concessions or
free rent or charge a higher rental than that in this lease, and/or (c) Tenant
or the legal representatives of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's
covenants herein contained, any deficiency between the rent hereby reserved
and/or covenanted to be paid and the net amount, if any, of the rents collected
on account of the lease or leases of the demised premises for each month of the
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
reasonable attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for preparing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any suit brought to collect the amount of the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole
judgement, considers advisable and necessary for the purpose of re-letting the
demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that
the demised premises are re-let, for failure to collect the rent thereof under
such re-letting, and in no event shall Tenant be entitled to receive any
excess, if any, of such net rents collected over the sums payable by Tenant to
Owner hereunder. In the event of a breach of threatened breach by Tenant of any
of the covenants or provisions hereof, Owner shall have the right of injunction
and the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention
in this lease of any particular remedy, shall not preclude Owner from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws in the event of
Tenant being evicted or dispossessed for any cause, or in the event of Owner
obtaining possession of demised premises, by reason of the violation by Tenant
of any of the covenants and conditions of this lese, or otherwise.
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FEES AND EXPENSES: 19. If Tenant shall default in the observance or
performance of any term or covenant on Tenant's
part to be observed or performed under or by virtue of any of the terms or
provisions in any article of this lease, after notice if required and upon
expiration of any applicable grace period if any, (except in an emergency),
then, unless otherwise provided elsewhere in this lease, Owner may immediately
or at any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by Tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to reasonable attorneys' fees, in instituting, prosecuting or
defending any action or proceeding, and prevails in any such action or
proceeding then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within ten (10) days of rendition of any bill
or statement to Tenant therefor. If Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner, as damages.
BUILDING ALTERATIONS 20. Owner shall have the right at any time without
AND MANAGEMENT: the same constituting an eviction and without
incurring liability to Tenant therefor to change
the arrangement and/or location of public entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public parts of the
building and to change the name, number or designation by which the building
may be known. There shall be no allowance to Tenant for diminution of rental
value and no liability on the part of Owner by reason by inconvenience,
annoyance or injury to business arising from Owner or other Tenant making any
repairs in the building or any such alterations, additions and improvements.
Furthermore, Tenant shall not have any claims against Owner by reason of
Owner's imposition of such controls of the manner of access to the building by
Tenant's social or business visitors as the Owner may deem necessary for the
security of the building and its occupants.
NO REPRESENTATIONS 21. Neither Owner nor Owner's agents have made
BY OWNER: any representations or promises with respect to the
physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the premises
except as herein expressly set forth and no rights, easements or licenses are
acquired by Tenant by implication or otherwise except as expressly set forth in
the provisions of this lease. Tenant has inspected the building and the demised
premises and is thoroughly acquainted with their condition and agrees to take
the same "as is" and acknowledges that the taking of possession of the demised
premises by Tenant shall be conclusive evidence that the said premises and the
building of which the same form a part were in good and satisfactory condition
at the time such possession was so taken, except as to latent defects. All
understandings and agreements heretofore made between the parties hereto are
merged in this contract, which alone fully and completely expresses the
agreement between Owner and Tenant and any executory agreement hereafter made
shall be ineffective to change, modify, discharge or effect an abandonment of it
in whole or in part, unless such executory agreement is in writing and signed by
the party against whom enforcement of the change, modification, discharge or
abandonment is sought.
END OF 22. Upon the expiration or other termination of
TERM: the term of this lease, Tenant shall quit and
surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If
the last day of the term of this Lease or any renewal thereof, falls on Sunday,
this lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at noon on the preceding business day.
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QUIET 23. Owner covenants and agrees with Tenant that
ENJOYMENT: upon Tenant paying the rent and additional rent
and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 31 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE 24. If Owner is unable to give possession of the
TO GIVE demised premises on the date of the commencement
POSSESSION: of the term hereof, because of the holding-over
or retention of possession of any tenant,
undertenant or occupants or if the demised premises are located in a building
being constructed, because such building has not been sufficiently completed to
make the premises ready for occupancy or because of the fact that a certificate
of occupancy has not been procured or for any other reason, Owner shall not be
subject to any liability for failure to give possession on said date and the
validity of the lease shall not be impaired under such circumstances, nor shall
the same be construed in any wise to extend the term of this lease, but the rent
payable hereunder shall be abated (provided Tenant is not responsible for
Owner's inability to obtain possession or complete construction) until after
Owner shall have given Tenant written notice that the Owner is able to deliver
possession in condition required by this lease. If permission is given to Tenant
to enter into the possession of the demises premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such possession and/or
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease except the obligation to pay the fixed annual rent set
forth in the preamble to this lease. The provisions of this article are intended
to constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
NO WAIVER: 25. The failure of Owner to seek redress for
violation of, or to insist upon the strict
performance of any covenant or condition of this lease or of any of the Rules
or Regulations, set forth or hereafter adopted by Owner, shall not prevent a
subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
and/or additional rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this
lease shall be deemed to have been waived by Owner unless such waiver be in
writing signed by Owner. No payment by Tenant or receipt by Owner of a lesser
amount than the monthly rent herein stipulated shall be deemed to be other
than on account of the earliest stipulated rent, nor shall any endorsement or
statement of any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction, and Owner may accept such check or
payment without prejudice to Owner's right to recover the balance of such rent
or pursue any other remedy in this lease provided. No act or thing done by
Owner or Owner's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises, and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of
Owner or Owner's agent shall have any power to accept the keys of said premises
prior to the termination of the lease and the delivery of keys to any such
agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
WAIVER OF 26. It is mutually agreed by and between Owner and
TRIAL BY JURY: Tenant that the respective parties hereto shall and
they hereby do waive trial by jury in any action
proceeding or counterclaim brought by either of the
parties hereto against the other (except for personal injury or property damage)
on any matters whatsoever arising out of or in any way connected with this
lease, the relationship of Owner and Tenant, Tenant's use of or occupancy of
said premises, and any emergency statutory or any other statutory remedy. It is
further mutually agreed that in the event Owner commences any proceeding or
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action for possession including a summary proceeding for possession of the
premises, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding including a counterclaim under Article 4
except for statutory mandatory counterclaims.
INABILITY TO 27. This Lease and the obligation of Tenant to pay
PERFORM: rent hereunder and perform all of the other
covenants and agreements hereunder on part of Tenant
to be performed shall in no wise be affected, impaired or excused because Owner
is unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials if Owner is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption or restrictions or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
BILLS AND 28. Except as otherwise in this lease provided, a
NOTICES: bill, statement, notice or communication which
Owner may desire or be required to give to Tenant,
shall be deemed sufficiently given or rendered if, in writing, delivered to
Tenant personally or sent by registered or certified mail addressed to Tenant
at the building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail and addressed to Owner at the address first
hereinabove given or at such other address as Owner shall designate by written
notice.
SERVICES 29. As long as Tenant is not in default under any
PROVIDED BY of the covenants of this lease beyond the applicable
OWNERS: grace period provided in this lease for the curing
of such defaults, Owner shall provide: (a)
necessary elevator facilities on business days from 8 a.m. to 6 p.m. and have
one elevator subject to call at all other times; (b) heat to the demised
premises when and as required by law, on business days from 8 a.m. to 6 p.m.;
(c) water for ordinary lavatory purposes, but if Tenant uses or consumes water
for any other purposes or in unusual quantities (of which fact Owner shall be
the sole judge), Owner may install a water meter at Tenant's expense which
Tenant shall thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for water
consumed as shown on said meter as additional rent as and when bills are
rendered; (d) cleaning service for the demised premises on business days at
Owner's expense provided that the same are kept in order by Tenant. If, however,
said premises are to be kept clean by Tenant, it shall be done at Tenant's sole
expense, in a manner reasonably satisfactory to Owner and no one other than
persons approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall pay Owner the
cost of removal of any of Tenant's refuse and rubbish from the building; (e) If
the demised premises are serviced by Owner's air conditioning/cooling and
ventilating system, air conditioning/cooling will be furnished to tenant from
May 15th through September 30th on business days (Mondays through Fridays,
holidays excepted) from 8:00 a.m. to 6:00 p.m., and ventilation will be
furnished on business days during the aforesaid hours except when air
conditioning/cooling is being furnished as aforesaid. If Tenant requires air
conditioning/cooling or ventilation for more extended hours or on Saturdays,
Sundays or on holidays, as defined under Owner's contract with Operating
Engineers Local 94-94A, Owner will furnish the same at Tenant's expense. RIDER
to be added in respect to rates and conditions for
[HAND POINTING RIGHT] such additional service; (f) Owner reserves the
right to stop services of the heating, elevators,
plumbing, air-conditioning, electric, power systems or cleaning or other
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services, if any, when necessary by reason of accident or for repairs,
alterations, replacements or improvements necessary or desirable in the judgment
of Owner for as long as may be reasonably required by reason thereof. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner at any time may substitute automatic control elevator
service and proceed diligently with alterations necessary therefor without in
any wise affecting this lease or the obligation of Tenant hereunder.
CAPTIONS: 30. The Captions are inserted only as a matter of
convenience and for reference and in no way define,
limit or describe the scope of this lease nor the intent of any provisions
thereof.
DEFINITIONS: 31. The term "office", or "offices", wherever used
in this lease, shall not be construed to mean
premises used as a store or stores, for the sale or display, at any time, of
goods, wares or merchandise, of any kind, or as a restaurant, shop, booth,
bootblack or other stand, barber shop, or for other similar purposes or for
manufacturing. The term "Owner" means a landlord or lessor, and as used in this
lease means only the owner, or the mortgagee in possession, for the time being
of the land and building (or the owner of a lease of the building or of the land
and building) of which the demised premises form a part, so that in the event of
any sale or sales of said land and building or of said lease, or in the event of
a lease of said building, or of the land and building, the said Owner shall be
and hereby is entirely freed and relieved of all covenants and obligations of
Owner hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest, or between the parties and
the purchaser, at any such sale, or the said lessee of the building, or of the
land and building, that the purchaser or the lessee of the building has assumed
and agreed to carry out any and all covenants and obligations of Owner,
hereunder. The words "re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. The term "business days" as used in
this lease shall exclude Saturdays, Sundays and all days as observed by the
State or Federal Government as legal holidays and those designated as holidays
by the applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service. Wherever
it is expressly provided in this lease that consent shall not be unreasonably
withheld, such consent shall not be unreasonably delayed.
ADJACENT 32. If an excavation shall be made upon land
EXCAVATION- adjacent to the demised premises, or shall be
SHORING: authorized to be made, Tenant shall afford to the
person causing or authorized to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person shall deem necessary to preserve the wall or the
building of which demised premises form a part from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent.
If as a result of Tenant's compliance with this Article, the demised premises
become untenantable for ten or move consecutive business days and as a result
thereof Tenant ceases to conduct Tenant's business in the demised premises, then
rent and additional rent shall be abated commencing on the eleventh such
business day and continuing until the earlier of the date that the demised
premises become tenantable or Tenant resumes the conduct of Tenant's business in
the demised premises.
RULES AND 33. Tenant and Tenant's servant, employees,
REGULATIONS: agents, visitors, and licensees shall observe
faithfully, and comply strictly with, the Rules
and Regulations and such other and further reasonable Rules and Regulations as
Owner or Owner's agents may from time to time adopt. Notice of any additional
rules or regulations shall be given in such manner as Owner may elect. In case
Tenant disputes the reasonableness of any additional Rule or Regulation
hereafter made or adopted by Owner or Owner's agents, the parties hereto agree
to submit the question of the reasonableness of such Rule or Regulation for
decision to the New York office of the American Arbitration Association, whose
12
<PAGE> 13
determination shall be final and conclusive upon the parties hereto. The right
to dispute the reasonableness of any additional Rule or Regulation upon Tenant's
part shall be deemed waived unless the same shall be asserted by service of a
notice, in writing upon Owner within fifteen (15) days after the giving of
notice thereof. Nothing
- --------------------
[HAND POINTING RIGHT] Rider to be added if necessary.
in this lease contained shall be construed to impose upon Owner any duty or
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its
servants, employees, agents, visitors or licensees.
[graphic of pointing hand]
SECURITY: 34. Tenant has deposited with Owner the sum of $23,706.10 as
security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
(a) At any time, Tenant may furnish Owner a binding, unconditional,
irrevocable standby letter of credit in form reasonably satisfactory to
Owner, in amount equal to the security required to be deposited by Tenant
under the Lease, to be issued by a commercial bank or savings bank located
in New York City reasonably acceptable to Owner payable to Joseph P. Day
Realty Corp., as Agent for the Owner, 9 East 40th Street, New York, N.Y.
10016 and to expire not earlier than 1 year from the date of issuance
thereof (the "Letter of Credit") and to be renewed on a year to year basis
unless the bank shall have notified Owner at least 90 days before the
expiration of the Letter of Credit that it is not renewing the Letter of
Credit for the following year. The letter of credit shall have a final
expiration date at least 30 days after the date set forth in this Lease for
the expiration of the term of this Lease. Owner shall have the right to
present the Letter of Credit and draw the full amount thereof upon
submitting a written notice to the issuer specifying any of the following
events:
(i) If Tenant shall default in payment of any fixed rent,
escalations or additional rent for 10 days after the same shall
become due and such default shall not be cured;
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<PAGE> 14
(ii) If Tenant shall default in the performance or observance of
any other covenant or condition of this Lease on the part of Tenant to
be performed or observed and such default shall not be cured after
Owner shall have given Tenant written notice thereof, as provided in
this Lease; or
(iii) If Owner shall have received a notice from the bank that it is
not renewing the letter of credit for the following year and Tenant
has not delivered a substitute letter of credit to Owner.
(b) Upon receipt of the proceeds of the Letter of Credit, Owner shall hold
the same subject to the provisions of Articles 34 and 48 of this Lease, as
security for the full and faithful performance and observance by Tenant of
all the covenants and conditions of this Lease on its part to be performed
or observed (collectively, "Tenant's obligations"). Tenant shall not be
entitled to have said security deposit, or any part thereof, applied in
payment of any installments of rent or additional rent falling due under
this Lease, but only to have the same returned to it upon the expiration
or earlier termination of this Lease, provided Tenant shall not then be in
default hereunder, or if then in default, after Tenant has fully cured such
default.
(c) If the Letter of Credit shall be in effect upon the expiration or
earlier termination of this Lease, the Letter of Credit shall be
surrendered by Owner for cancellation, provided Tenant shall not then be in
default under this Lease.
(d) In the event of a sale or Lease of the Building, Owner shall have the
right to transfer the security to the vendee or lessee and Owner shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look solely to the new owner for the return
of said security; and it is agreed that the provisions hereof shall apply
to every subsequent transfer or assignment made of the security to a new
Owner.
(e) Except in connection with an assignment permitted under this Lease,
Tenant further covenants that it will not assign or encumber or attempt to
assign or encumber the letter of credit deposited herein as security and
that neither Owner nor its successors or assigns shall be bound by any such
assignment, encumbrance, attempted assignment or attempted encumbrance.
ESTOPPEL 35. Tenant, at any time, and from time to time, upon at least 10
CERTIFICATE: days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person, firm or corporation
specified by Owner, a statement certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the same is in
full force and effect as modified and stating the modifications), stating the
dates to which the rent and additional rent have been paid, and stating whether
or not there exists any default by Owner under this Lease, and, if so,
specifying each such default.
SUCCESSORS 36. The covenants, conditions and agreements contained in this
AND ASSIGNS: lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, distributees, executors,
administrators, successors, and except as otherwise provided in this lease,
their assigns. Tenant shall look only to Owner's estate and interest in the
land and building, for the satisfaction of Tenant's remedies for the collection
of a judgment (or other judicial process) against Owner in the event of any
default by Owner hereunder, and no other property or assets of such Owner (or
any partner, member, officer or director thereof, disclosed or undisclosed),
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this lease, the
relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
- ----------------
[Graphic of pointing hand] Space to be filled in or deleted.
14
<PAGE> 15
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
Witness for Owner: JOSEPH P. DAY REALTY CORP., AS AGENT FOR
800 THIRD AVENUE ASSOCIATES
(OWNER)
By: /s/ Richard Teichman
- -------------------------------- -------------------------------------
Senior Vice President
Witness for Tenant: ASSET ALLIANCE CORPORATION
(TENANT)
By: /s/ Arnold L. Mintz
- -------------------------------- -------------------------------------
Executive Vice President
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, ss.:
COUNTY OF
On this day of , 19 ,
before me personally came
to me known, who being by me duly sworn, did depose and say that
he resides in
that he is the of
the corporation described in and which executed the foregoing
instrument, as OWNER; that he knows the seal of said corporation;
the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation,
and that he signed his name thereto by like order.
--------------------------------------------------------
INDIVIDUAL OWNER
STATE OF NEW YORK, ss.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as OWNER, executed the foregoing
instrument and acknowledged to me that he
executed the same.
-------------------------------------------------------
15
<PAGE> 16
CORPORATE TENANT
STATE OF NEW YORK, ss.:
COUNTY OF
On this day of , 19 ,
before me personally came
to me known, who being by me duly sworn, did depose and say that
he resides in
that he is the of
the corporation described in and which executed the foregoing
instrument, as TENANT; that he knows the seal of said corporation;
the seal affixed to said instrument is such corporate seal; that it was
so affixed by order of the Board of Directors of said corporation,
and that he signed his name thereto by like order.
--------------------------------------------------------
INDIVIDUAL TENANT
STATE OF NEW YORK, ss.:
COUNTY OF
On this day of , 19 ,
before me personally came
to be known and known to me to be the individual
described in and who, as TENANT, executed the foregoing
instrument and acknowledged to me that he executed the same.
-------------------------------------------------------
16
<PAGE> 17
Address
Premises
==========================================================================
TO
==========================================================================
STANDARD FORM OF
Office
[Graphic] Lease [Graphic]
The Real Estate Board of New York, Inc.
(c) Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
==========================================================================
Dated 19
Rent Per Year
Rent Per Month
Term
From
To
Drawn by _________________________________
Checked by _______________________________
Entered by _______________________________
Approved by ______________________________
==========================================================================
17
<PAGE> 18
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement to
Owner making the within lease with Tenant, the undersigned guarantees to
Owner, Owner's successors and assigns, the full performance and observance
of all the covenants, conditions and agreements, therein provided to be
performed and observed by Tenant, including the "Rules and Regulations" as
therein provided, without requiring any notice of non-payment, non-performance,
or non-observance, or proof, or notice, or demand, whereby to charge the
undersigned therefor, all of which the undersigned hereby expressly waives and
expressly agrees that the validity of this agreement and the obligations of the
guarantor hereunder shall in no wise be terminated, affected or impaired by
reason of the assertion by Owner against Tenant of any of the rights or remedies
reserved to Owner pursuant to the provisions of the within lease. The
undersigned further covenants and agrees that this guaranty shall remain and
continue in full force and effect as to any renewal, modification or extension
of this lease and during any period when Tenant is occupying the premises as a
"statutory tenant." As a further inducement to Owner to make this lease and in
consideration thereof, Owner and the undersigned covenant and agree that in any
action or proceeding brought by either Owner or the undersigned against the
other on any matters whatsoever arising out of, under, or by virtue of the terms
of this lease or of this guarantee that Owner and the undersigned shall and do
hereby waive trial by jury.
Dated _______________________________________________ 19__
___________________________________________________________
Guarantor
___________________________________________________________
Witness
___________________________________________________________
Guarantor's Residence
___________________________________________________________
Business Address
___________________________________________________________
Firm Name
STATE OF NEW YORK ) ss.:
COUNTY OF )
On this day of , 19 , before me personally
came _____________________________________________ to me known and known to me
to be the individual described in, and who executed the foregoing Guaranty and
acknowledged to me that he executed the same.
__________________________________
Notary
[Graphic of Hand] IMPORTANT - PLEASE READ [Graphic of Hand]
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery
by Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
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2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window
of the building and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the building by reason of noise,
odors, and/or vibrations, or interfere in any way with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premise if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability, and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed, painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do
not present a pass to the building signed by Owner. Owner will furnish passes
to persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, explosive, or hazardous fluid,
material, chemical or substance, or cause or permit any odors of cooking or
other processes, or any unusual or other objectionable odors to permeate in or
emanate from the demised premises.
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<PAGE> 20
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on week days, and prior to 3:00 p.m. on the day prior in case
of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system
by lowering and closing venetian blinds and/or drapes and curtains when the
sun's rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees,
at its sole cost and expense, to comply with all present and future laws,
orders, and regulations of all state, federal, municipal, and local
governments, departments, commissions and boards regarding the collection,
sorting, separation and recycling of waste products, garbage, refuse and trash.
Tenant shall sort and separate such waste products, garbage, refuse and trash
into such categories as provided by law. Each separately sorted category of
waste products, garbage, refuse and trash shall be placed in separate
receptacles reasonably approved by Owner. Such separate receptacles may, at
Owner's option, be removed from the demised premises in accordance with a
collection schedule prescribed by law. Tenant shall remove, or cause to be
removed by a contractor acceptable to Owner, at Owner's sole discretion, such
items as Owner may expressly designate. (2) Owner's Rights in Event of
Noncompliance. Owner has the option to refuse to collect or accept from Tenant
waste products, garbage, refuse or trash (a) that is not separated and sorted
as required by law or (b) which consists of such items as Owner may expressly
designate for Tenant's removal, and to require Tenant to arrange for such
collection at Tenant's sole cost and expense, utilizing a contractor
satisfactory to Owner. Tenant shall pay all costs, expenses, fines, penalties,
or damages that may be imposed on Owner or Tenant by reason of Tenant's failure
to comply with the provisions of this Building Rule 15, and, at Tenant's sole
cost and expense, shall indemnity, defend and hold Owner harmless (including
reasonable legal fees and expenses) from and against any actions, claims and
suits arising from such noncompliance, utilizing counsel reasonably satisfactory
to Owner.
STANDARD LEASE RIDER
37. RIDER PROVISIONS PARAMOUNT
If and to the extent that any of the provisions of this Rider conflict or are
otherwise inconsistent with any of the preceding printed provisions of this
Lease, whether or not such inconsistency is expressly noted in this Rider, the
provisions of this Rider shall prevail, and in case of inconsistency with the
Rules and Regulations, shall be deemed a waiver of such Rules and Regulations
with respect to this Tenant to the extent of such inconsistency.
38. BINDING EFFECT
It is specifically understood and agreed that this Lease is offered to Tenant
for signature by the managing Agent of the Building solely in its capacity as
such Agent and subject to Owner's acceptance and approval, and that Tenant
shall have affixed its signature hereto with the understanding that such act
shall not in any way, bind Owner or its Agent until such time as this Lease
shall have been approved and executed by the managing Agent or the Owner and
delivered to Tenant. If on the signing or at any time during the term of this
lease, the "Owner" is acting as such in fiduciary capacity or capacities,
then such "Owner" shall not be bound hereby or be liable hereunder or for any
covenant or warranty, expressed or implied, otherwise than in such capacity or
capacities.
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<PAGE> 21
39. REAL ESTATE TAX ESCALATION
Tenant shall pay Owner as additional rents the amounts set forth in this
Article 39.
A. The following definitions shall apply:
1. "Taxes" shall mean the real estate taxes and assessments and special
assessments imposed upon the Building and/or the land ("the Building") by any
governmental bodies or authorities for any purpose whatsoever or any other
-------
governmental charges whether general or special, ordinary or extraordinary,
foreseen or unforeseen, which may be levied or assessed with respect to the
Building during the term of this Lease or any renewal thereof whether the
increase results from a higher tax rate or an increase in the assessed value of
the Building or both or other means of increase. If at any time after the date
hereof the methods of taxation prevailing on the date hereof shall be altered so
that in lieu of, or as an addition to or as a substitute for the whole or any
part of the taxes, assessments, levies, impositions or charges now levied,
assessed or imposed on real estate and the improvements thereof, there shall be
levied, assessed and imposed (i) a tax, assessment, levy or otherwise on the
rents received therefrom, or (ii) a license fee measured by the rent payable by
Tenant to Owner, or (iii) any other additional or substitute tax, assessment,
levy, imposition or charge, then all such taxes, assessments, levies,
impositions or charges or the part thereof so measured or based shall be deemed
to be included within the term "Taxes" for the purpose hereof. Taxes shall not
include any inheritance, estate, succession, transfer, gift, franchise,
corporation, income or profit tax or excess profits that is or may be imposed
upon Owner. Tenant agrees to pay Tenant's Share of the actual costs incurred by
Owner in any tax protest or reduction proceedings, including attorneys,
accountants and appraiser's fees and any other filing or court fees or other
costs, disbursements or expenses incurred with relation to each Tax Year during
the term of this Lease.
2. "Base Tax" shall mean Taxes, as finally determined by settlement, court
decision or otherwise, for the fiscal Tax Year ending June 30, 1997.
3. "Tax Year" shall mean the fiscal year for which Taxes are levied by the
governmental authority.
4. "Tenant's Share" shall be .796 percent (.796%) throughout the term of
this Lease irrespective of the bulk of the Building and the Demised Premises
and any additions or demolition at any time during the term hereof.
5. "Building" shall mean the land and building known as 800 Third Avenue
in the borough of Manhattan, city and state of New York of which the Demised
Premises form a part.
B. 1. If, for any reason, the Taxes for any Tax Year shall be more than the
Base Tax, Tenant shall pay as additional rent for such Tax Year an amount equal
to Tenant's Share of the amount by which the Taxes for such Tax Year are greater
than the Base Tax. (The amount payable by Tenant is hereinafter called the "Tax
Payment.") Owner or Agent shall furnish Tenant with a statement showing the
calculations for any year in which a Tax Payment is due and if requested with
copies of the tax bills. The Tax Payment shall be prorated, if necessary, to
correspond with that portion of a Tax Year occurring within the term of this
Lease.
2. In the event the Base Tax is reduced as a result of settlement, court
decision or of any other appropriate proceeding or agreement, Owner shall have
the right to adjust the amount of Tax Payment due from Tenant for any Tax Year
in which Tenant is or was obligated to pay a Tax Payment hereunder to reflect
the new Base Tax, and Tenant agrees to pay the amount of said adjustment on the
next rental installment day immediately following receipt of a rent statement
from Owner setting forth the amount of said adjustment.
C. With respect to any period at the commencement or expiration of the term,
which shall constitute a partial Tax Year, Owner's statement shall apportion
the amount of the Tax Payment due hereunder.
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<PAGE> 22
D. Beginning with the first Tax Year in which Taxes are greater than the Base
Tax, the Tax Payment for that year and subsequent years shall be paid in the
same number of installments as Taxes are paid by Owner to the taxing authority,
such payments to be made by Tenant 30 days before each such installment is due
to be paid to the taxing authority.
E. Owner shall be under no obligation to contest the Taxes or the assessed
valuation of the land and the Building for any Tax Year or to refrain from
contesting the same, and may settle any such contest on such terms as Owner in
its sole judgment considers proper.
F. Owner's failure during the Lease term to prepare and deliver any statements
or bill for Tax Payment, or Owner's failure to make a demand under this Article
39 or under any other provisions of this Lease shall not in any way be deemed to
be a waiver of or cause Owner to forfeit or surrender its right to collect any
items of additional rent which may have become due pursuant to this Article 39
so long as Owner delivers to Tenant a bill for a Tax Payment within two years
after the expiration of the Tax Year for which such Tax Payment is due, or any
other article of this Lease during the term of this Lease. Tenant's liability
for the additional rent due under this Article 39 shall survive the expiration
or sooner termination of this Lease.
G. In no event shall any adjustment of Tax Payments hereunder result in a
decrease of the fixed rent or additional rent payable pursuant to any other
provisions of this Lease, it being agreed that the payment of additional rent
under this Article 39 is an obligation supplemental and in addition to Tenant's
obligation to pay fixed rent.
H. It is understood by Tenant that Owner may obtain and accept reductions in
the proposed assessed valuation of the Building in a settlement in a Tax Year
during the term of this Lease before the Owner has paid the Taxes and such
reduction will substantially reduce the real estate tax escalation for the Tax
Year due from Tenant under this Article. Tenant therefore agrees the expenses of
the Owner in obtaining such reduction, including reasonable legal fees,
accounting fees, appraisal fees and other expenses shall be deemed to be Taxes
paid for the Tax Year of said reduction.
In the event the Taxes for any Tax Year during the term of this Lease shall be
reduced after Tenant shall have paid Tenant's Share of any excess thereof in
respect of such Tax Year pursuant to this Article, Owner shall allow Tenant a
credit against future rent, or issue a refund to Tenant (if the term of this
Lease shall have expired) in the amount of Tenant's Share of the refund
(including any interest paid on such refund by the taxing authority) of such
Taxes received by Owner (after deduction of expenses, including legal fees,
accounting fees, appraisal fees and other expenses incurred by Owner in
obtaining such refund).
40. WAGE FORMULA INCREASE
If the Labor Rate for any Operation Year shall be greater than the Base Labor
Rate, the Tenant shall in case of such an excess, pay to Owner an additional
rent for the Demised Premises for such Operation Year an amount equal to the
product obtained by multiplying (i) the Wage Rate Multiple by (ii) one cent per
annum for each one cent that such Hourly Wage Rate is over the Base Labor Rate.
Any such annual adjustment payable by reason of the provisions of the preceding
sentence shall be due and payable in equal monthly installments as of the first
day of the first month of the relevant Operation Year, and Owner or Agent shall
furnish Tenant with an Escalation Statement relating to such Operation Year. The
aforesaid monthly installments shall continue until a new adjustment becomes
effective pursuant to the terms of this Article 40. If said Escalation Statement
is furnished to Tenant after the commencement of any such Operation Year, there
shall be promptly paid by Tenant to Owner an amount equal to the portion of such
adjustments allocable to the part of such Operation year which shall have
elapsed prior to the first day of the calendar month next succeeding the
calendar month in which said Escalation Statement is furnished to Tenant. Any
such adjustment billed to Tenant shall be deemed additional rent.
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As used in this Article 40, the words and terms which follow mean and include
the following:
(a) "Operation Year" shall mean each calendar year in which occurs any
part of the term of this Lease.
(b) "Wage Rate Multiple" shall be 3748.
(c) "Hourly Wage Rate" as used herein shall mean the minimum regular
hourly wage rate, social security and welfare fund contribution paid
for the porters (Others) engaged in the general maintenance and
operation of Class A. office buildings pursuant to a collective
bargaining agreement between Owner or Owner's association and Local
32B of the Building Service Employees International Union AFL-CIO (or
any successor thereto). The Hourly Wage Rate shall include but not be
limited to sums paid for fringe benefits for vacations, holidays, sick
days, birthdays, jury duty, medical check-ups, lunch hours, relief
time and other paid time off, bonuses, pensions, unemployment,
disability benefits, health, life, accident, and other types of
insurance, and other employee benefits. If any such agreement is not
entered into or such parties or their successors shall cease to
bargain collectively, the Hourly Wage Rate shall be the average of the
regular hourly wage rate and other sums aforesaid payable to or for
the benefit of porters engaged in the maintenance and operation of the
Building and payable by either Owner or the contractor furnishing such
services, but not in excess of the hourly minimum rate of wages and
other sums as aforesaid for porters engaged in the general maintenance
and operations of buildings of the same type and in the same vicinity
as the Building and, provided further, that if there is no such
agreement as of any such January 1 by which the Hourly Wage Rate for
porters is determinable, computations and payments shall thereupon be
made upon the basis of the Hourly Wage Rate being paid by Owner or by
the contractor performing the cleaning services for Owner on such
January 1 for said porters and appropriate retroactive adjustment
shall thereafter be made when the Hourly Wage Rate to be paid as of
such January 1 pursuant to such agreement for porters is finally
determined and, provided further that, if as of the last day of such
Operation Year, no such agreement covering January 1 occurring in such
Operation Year shall have been in effect, the Hourly Wage Rate paid by
Owner or by the contractor performing the cleaning services for Owner
on such January 1 for said porters as the case may be shall be for all
purposes hereof deemed to be such Hourly Wage Rate prescribed by such
agreement and in effect as of such January 1.
(d) "Base Labor Rate" shall mean the Labor Rate at December 31, 1997.
(e) "Labor Rate" for any Operation Year shall mean the Hourly Wage Rate as
defined above.
(f) "Escalation Statement" shall mean a statement in writing submitted by
Owner or Agent, setting forth the amount payable by Tenant for a
specified Operation Year pursuant to this Article 40.
With respect to any period at the commencement or expiration of the term, which
shall constitute a partial Operation Year, Owner's statement shall apportion
the amount of the Wage Formula Increase due hereunder.
Owner's failure during the Lease term to prepare and deliver any notice,
statement or bill, or Owner's failure to make a demand, shall not in any way
cause Owner to forfeit or surrender Owner's right to collect any additional rent
which may have become due during the term of this Lease under this Article 40
and Tenant's liability for amounts due under this Article 40 shall survive the
termination of this Lease.
The above Article 40 which pertains to "Wage Formula Increase" utilizes the
Hourly Wage Rate of employees as part of a formula for adjusting rent as agreed
by the parties and is not intended to reflect or be based upon the actual labor
costs or other expenses of the Building which are not relevant to the formula.
In no event shall any rent adjustment hereunder result in a decrease of the
fixed annual rate provided herein.
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41. OPERATING EXPENSE ESCALATION
Owner shall have the option in any Operation Year to impose an "Operating
Expense" increase for such Operation Year pursuant to this Article 41 in lieu of
the Wage Formula Increase for such year. In clarification of the foregoing, in
the event Owner imposes an Operating Expense increase for any Operation Year,
then Tenant shall not be required to pay a Wage Formula Increase under Article
40 for such year. As used herein, the term Operating Expense shall mean all
costs and expenses incurred by the Owner in connection with the operation,
servicing and the maintenance of the Building, except real estate taxes,
mortgage amortization and interest payments; nonmonetary items such as
depreciation; income or equivalent taxes; expenses incurred in leasing or
procuring new tenants, including leasing commissions, advertising expenses,
legal fees and expenses of renovating space for new tenants; legal expenses for
enforcing the terms of any ground Lease or any mortgage; wages, salaries and
other compensation paid to any executive employee above the grade of building
manager and the wages of any building manager shall be apportioned to the extent
the building manager supervises more than one building; capital replacements,
improvements and alterations for the building above the amount amortized by
Owner on Owner's tax return for that year; expenses for which Owner has received
insurance or condemnation proceeds; electricity to the extent that the cost is
reimbursed to Owner by tenants. In the event that the Owner should eliminate the
payment of any wages or other labor costs as a result of the installation of
labor saving devices or by any other means, then in computing the additional
rent payable for Operating Expenses as provided hereunder, the corresponding
item or items of such wages or other labor costs shall be deducted from the
Operating Expenses for the Base Year. As used herein, the term "Base Year" shall
mean the calendar year 1997. In the event that the Operating Expenses incurred
by the Owner during any Operation Year following the Base Year shall exceed the
Operating Expenses incurred by Owner during the Base Year, the Tenant shall pay
to the Owner as additional rent for such Operating Year an amount equal to .796
percent (.796%) of such excess. Within six months subsequent to the Operation
Year following the Base Year, and within six months after each Operation Year
thereafter, the Owner shall endeavor to furnish to the Tenant a statement of the
Operating Expenses for the preceding Operation Year and a statement of the
Operating Expenses for the Base Year, and any additional rent due the Owner by
reason of any increase in Operating Expenses for the Operation Year over the
Operating Expenses for the Base Year shall be paid by the Tenant within ten (10)
days after receipt of the aforesaid statement. The statement of Operating
Expenses to be furnished by the Owner shall consist of data prepared for the
Owner by a firm of Certified Public Accountants (who may be the firm currently
employed by the Owner in connection with its accounts), and the statements thus
furnished to the Tenant shall constitute a final determination as between the
Owner and the Tenant of Operating Expenses for the periods represented thereby.
The failure of Owner to submit bills in accordance with this Article 41 shall
bot be deemed a waiver of Owner's right to bill for such periods nor release
Tenant of Tenant's obligations to pay these charges. The obligation to make any
payment pursuant to this Article 41 shall survive the expiration or sooner
termination of this Lease. Owner will not exercise the option set forth in this
article more than once during the term of this Lease and will not revoke the
exercise of such option more than once during the term of this Lease.
42. HEATING COSTS
Anything to the contrary notwithstanding and in addition to billing pursuant to
Articles 40 and 41 of this Lease, Tenant agrees that in the event Heating Costs
for any calendar year shall be greater than the Heating Costs for the calendar
year 1997 as a result of but not limited to increases in or additions to the
number of units used, rates, fuel adjustments, taxes, surcharges, energy charges
or charges of any kind, Tenant agrees to pay to Owner within ten (10) days after
receipt of Owner's statement, .796 percent (.796%) of such excess for the
particular calendar year. In the event that Owner exercises its option pursuant
to Article 41 herein and during such Lease years, this Article 42 shall not
apply. Heating Costs as used in this Article 42 shall mean fuel costs if Owner
continues to use its own heating plant or the cost of outside heating or steam
if the Owner uses an off-premises heating service.
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43. LOCAL LAWS
If any alterations, installations, changes or improvements to the Building,
including, but not limited to, the Demised Premises are made by Owner in order
to comply with New York City Local Law No. 5 (fire protection) and New York City
Law No. 10 (building condition) as each may be amended or any successor or law
of like import (or any Federal, State or local law or government regulations
enacted subsequent to the date hereof), at any time after the date of the Lease
and prior to the expiration date of this Lease, the cost of any such alterations
shall, for the purposes of this Article 43, be deemed amortized by Owner in
accordance with an amortization schedule with a reasonable interest factor
included therein, determined by Owner in Owner's judgment, and during each
calendar year which shall include any part of the demised term for which such an
amortization shall be applicable, Tenant shall pay to Owner a sum equal to .796
percent (.796%) of such amortization and interest applicable to such calendar
year. Tenant shall not be required to make any payment under this article by
reason of alterations required to be made by laws in effect as of the date of
execution of this Lease.
44. ADDITIONAL RENT
All escalation rents, additional rent and any and all other payments, charges
and sums due by the Tenant to the Owner under this Lease whether or not
designated as such shall be deemed rent for all purposes hereunder and by law,
and the failure to pay any such amount shall subject the Tenant to the same
rights and remedies of the Owner including the right to commence summary
proceedings for nonpayment of rent as if such escalation rent, additional rent
and other payments, charges and sums due were Fixed Annual Base Rent hereunder.
45. ACCEPTANCE OF RENT
If Tenant is in arrears in the payment of fixed rent or additional rent, Tenant
waives its rights, if any, to designate the items in arrears against which any
payments made by Tenant are to be credited, and Owner may apply any such
payments to any such items in arrears as Owner, in its sole discretion, shall
determine, irrespective of any designation or request by Tenant as to the items
against which any such payments shall be credited. No payment by Tenant nor
receipt by Owner of a lesser amount than may be required to be paid hereunder
shall be deemed to be other than on account of any payment nor shall any
endorsement or statement on any check or any letter accompanying any check
tendered as payment be deemed an accord and satisfaction and Owner may accept
such check or payment without prejudice to Owner's right to recover the balance
of such payment due or pursue any other remedy in this Lease provided or at
law. No receipt of monies by Owner from Tenant, after any reentry or after the
cancellation or termination of this Lease in any lawful manner shall reinstate
this Lease; and after the service of notice to terminate this Lease, or after
the commencement of any action, proceeding or other remedy, Owner may demand,
receive and collect any monies due and apply this on account of Tenant's
obligations under this Lease but without in any respect affecting such notice,
action, proceeding or remedy, except that if a money judgment is being sought
in any such action or proceeding, the amount of such judgment shall be reduced
by such payment. All checks rendered to the Owner as and for the rent of the
Demised Premises shall be deemed payments for the account of the Tenant.
Acceptance by the Owner of rent from anyone other than the Tenant shall not be
deemed to operate as an attornment to the Owner by the payor of such rent or as
a consent by the Owner to an assignment or subletting by the Tenant to the
Demised Premises to such payor, or as a modification of the provisions of this
Lease.
46. LATE PAYMENT
If Tenant shall fail to pay any installment of rent, additional rent or other
charges when first due hereunder (irrespective of any grace period as may be
applicable thereto) and such payment was not received in the office of the
Owner's Agent on or before the tenth (10th) day after such payment was first
due, then interest at the rate of two percent (2%)per month for each month or
portion of a month may be charged on such sum not paid when first due and
payable hereunder, and such interest shall be deemed to accrue as additional
rent hereunder and shall be paid to Owner upon demand made from time to time,
but in any event no later than the time of payment of the delinquent sum. If
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such interest from time to time shall exceed the rate permitted under the
laws of the State of New York to be charged on late payments of sums of money
due pursuant to a lease, then the interest shall be reduced to said legal
maximum rate. Such late charge shall be without prejudice to any of Owner's
rights and remedies hereunder for nonpayment of rent and shall be in addition
thereto.
47. RENT CONTROL
If the annual base rental or any additional rent shall be or become
uncollectible, reduced or required to be refunded by virtue of any law,
governmental order or regulation, or direction of any public officer or body
pursuant to law, Tenant shall within ten (10) days of request enter into an
agreement or agreements and take such other action as Owner may request, as may
be legally permissible, to permit Owner to collect the maximum annual base rent
and additional rent which may from time to time during the continuance of such
rent restriction be legally permissible, but not in excess of the amounts of
annual base rent or additional rent payable under this Lease. Upon the
termination of such rent restriction prior to the termination of the term of
this Lease, (a) the annual base rent and additional rent, after such
termination, shall become payable under this Lease in the amount of the annual
base rent and additional rent set forth in this Lease for the period following
such termination, and (b) Tenant shall pay to Owner, to the maximum extent
legally permissible, an amount equal to (i) the annual base rent and additional
rent which would have been paid pursuant to this Lease but for such rent
restriction less (ii) the annual base rent and additional rent paid by Tenant to
Owner during the period that such rent restriction was in effect.
48. TENANT'S SECURITY
In the event Owner collects the proceeds of the Letter of Credit referred to in
footnote 7 above, or if Tenant at any time during the term of this Lease shall
deposit cash security with Owner in lieu of or in addition to a Letter of
Credit, the provisions of this Article shall apply. Owner shall, unless
prohibited by law or by the general policies of lending institutions in New York
City deposit the security in an interest-bearing account with a bank selected by
Owner. All interest which shall accrue on the security shall be held as
additional security in accordance with this Lease. Owner shall be entitled to an
administrative fee of 1% per year upon the security deposited by the Tenant.
49. [INTENTIONALLY OMITTED]
50. TENANT'S CLEANING
Owner agrees to clean the demised premises in accordance with the attached
cleaning specifications. The Tenant agrees to employ such office cleaning and
maintenance contractor as the Owner may from time to time designate for all
waxing, polishing and maintenance work in the Demised Premises above any
cleaning services which may be provided by Owner pursuant to this Lease. The
Tenant shall not employ any other contractor or individual without the Owner's
prior written consent which consent shall be in Owner's sole discretion. Tenant
recognizes that this provision is for the security of the Building. The
foregoing shall not preclude Tenant or its employees from performing any of the
foregoing work.
51. RESTRICTIONS ON USAGE
A. Tenant covenants and agrees that during the term of this Lease neither
Tenant, assignee or any subtenant (if the same are permitted pursuant to this
Lease) will use as its name or as part of its name (under which it conducts
business) any name which, regardless of the spelling thereof, has the same or
similar sound or meaning as the words "MEDICAL CENTER", "MEDICAL GROUP" or
"MEDICAL TREATMENT CENTER".
B. Notwithstanding anything to the contrary contained in this Lease, Tenant
covenants and agrees that Tenant will not use the Demised Premises or any part
thereof or permit the Demised Premises or any part thereof to be used:
(a) for banking, trust company or safe deposit business;
(b) as or by a commercial or savings bank, as or by a trust company, as or
by a savings and loan association, as or by a loan company or as or by
a credit union;
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(c) for the sale of traveler's checks and/or foreign exchange;
(d) as a restaurant and/or bar, and/or for the sale of soda and/or
beverages and/or food or sandwiches and/or ice cream and/or baked
goods;
(e) as a diagnostic medical center and/or for the practice of medicine or
health services;
(f) as a school of any kind including but not limited to the teaching of
or instructions or giving courses in either secretarial skills, and/or
languages and/or the operation of office equipment and/or business
machines;
(g) for telephone answering, messenger, photocopying, express mail
services for other than Tenant;
(h) as an employment, placement or recruiting agency or similar activity.
52. INDEMNIFICATION AND INSURANCE
Tenant agrees to indemnify and save Owner harmless from and against all damages,
liabilities, claims, costs and expenses, including reasonable attorneys' fees,
arising out of the use of the Demised Premises or the Building or the adjacent
sidewalks by Tenant or its employees, invitees, licensees, agents or contractors
or any work or thing done, or any condition created by Tenant or its employees,
licensees, Agents or contractors whether or not caused by negligence or breach
of an obligation by Tenant. This provision shall survive the termination of this
Lease. The Tenant shall, at full replacement cost, insure its alterations,
improvements, inventory, trade fixtures, personal property and equipment against
property damage for the Tenant and the Owner's benefit, as their respective
interest may appear.
Tenant covenants to provide (and deliver proof thereof) on or before the
commencement date of the term hereof and to keep in force during the whole time
period Tenant occupies Demised Premises a fully paid comprehensive general
liability insurance policy covering but not limited to all the above mentioned
items in respect of the Demised Premises and the conduct and operation of
business therein (and the sidewalks adjacent thereto) naming the Owner as a
named insured with limits of $2,000,000 for bodily injury and $250,000 property
damage including water damage and sprinkler leakage legal liability. At least 15
days prior to the expiration date of such policy, Tenant shall deliver to Owner
a fully paid renewal policy or insurance certificate.
Tenant agrees to deliver certificates of the insurance required by Article 3 of
the lease from contractors or subcontractors in reasonable amounts unless
otherwise required pursuant to Article 3.
All such policies shall be issued by companies of recognized responsibility
licensed to do business in the State of New York and shall contain a provision
whereby the same cannot be cancelled or modified unless Owner is given at least
twenty (20) days' prior written notice by certified or registered mail of such
cancellation or modification.
If Tenant defaults in obtaining or delivering any such policy or policies or
fails to pay the premiums therefor, Owner may (but shall not be required to)
secure or pay for any such policy or policies and charge Tenant as additional
rent therefor. Such additional rent shall be payable by Tenant to Owner with the
fixed rent then next accruing. If Tenant defaults in paying the same with
interest to date of payment, Owner shall have the same rights and remedies on
account thereof as it has with respect to a default in the payment of the fixed
rent, including summary proceedings.
53. COST AND EXPENSES
All costs and expenses, including attorneys' fees incurred by Owner in and about
enforcing any of the covenants and conditions of this Lease shall be paid by
Tenant as additional rent, and if not previously paid, shall be included in any
judgment rendered in Owner's favor in any court of competent jurisdiction and
against Tenant herein.
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54. SERVICE CART
Tenant expressly agrees that it shall not permit or obtain or accept the
delivery of any food or beverage by any vendor operating a service cart or
similar means of conveyance to the Demised Premises, except by any vendor as
shall be approved in advance by Owner in writing.
55. BROKER
The Tenant represents and warrants to the Owner that is has dealt with no broker
or salesperson nor been shown or introduced to the Demised Premises in
connection with this Lease by any person, except the managing Agent JOSEPH P.
DAY REALTY CORP. The Tenant hereby agrees to indemnify and hold the Owner
harmless from and against any claims, costs, expenses (including legal fees) and
other liabilities incurred by the Owner by reason of any claim or action for a
commission or fees by any other person or broker in connection with this
leasing. The provisions of this Article 55 shall survive the expiration
or earlier termination of the term of this Lease.
56. CONSTRUCTION: GOVERNING LAW
If any of the provisions of this Lease or the application thereof to any person
or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Lease or the application of such provision or provisions to
persons or circumstances other than those as to whom or which it is held invalid
or unenforceable shall not be affected thereby, and every provision of this
Lease shall be valid and enforceable to the fullest extent permitted by law.
This Lease shall be governed in all respects by the laws of the State of New
York.
57. ATTORNMENT
Tenant agrees that if a superior lessor or a mortgagee shall enter into and
become possessed of the real property of which the Demised Premises form a part,
or any part or parts of such real property either through possession or
foreclosure action or proceedings, or through the issuance and delivery of a new
lease of the premises covered by the Lease to the mortgagee, then, if this Lease
is in full force and effect at such time, Tenant shall attorn to the superior
lessor or the mortgagee, as its landlord, if such superior lessor or such
mortgagee requests Tenant to do so. In such event, such lessor or mortgagee
shall not be liable to Tenant for any defaults theretofore committed by Owner,
and no such default shall give rise to any rights or offset or deduction against
the rents payable under this Lease. If any superior lessor or any mortgagee to
which Tenant agrees to attorn, as aforesaid, reasonably requests a further
instrument expressing such attornment, Tenant agrees to execute the same
promptly, and if Tenant fails to do so, Tenant hereby appoints Owner Tenant's
attorney-in-fact to execute any such instrument for and on behalf of Tenant.
This appointment is coupled with an interest and is irrevocable.
58. TENANT'S CERTIFICATE
A. At any time and from time to time upon at least ten (10) days' prior written
notice by the Owner to the Tenant, the Tenant shall without charge execute,
acknowledge and deliver to the Owner a statement in writing, in recordable form,
addressed to such party as the Owner may designate prepared by the Owner or in
form satisfactory to the Owner certifying any of the following information as
may be requested (a) that this Lease is unmodified and in full force and effect
(or if there have been modifications, that the same is in full force and effect
as modified and stating the modifications), (b) whether the term of the Lease
has commenced and the rent and additional rent have become payable hereunder
and, if so, the dates to which they have been paid, (c) whether or not, to the
best knowledge of the Tenant, the Owner is in default in the performance of any
of the terms of this Lease and, if so, specifying each such default of which the
Tenant may have knowledge, (d) whether the Tenant has accepted possession of the
Demised Premises, (e) whether the Tenant has made any uncollected claims against
the Owner under this Lease and, if so, the nature thereof and the dollar amount,
if any, of such claims, (f) whether there exist any offsets or defenses against
enforcement of any of the terms of this Lease upon the part of the Tenant to be
performed and, if so, specifying the same and (g) such further information with
respect to the Lease or the Demised Premises as the Owner may reasonably
request, it being intended that any such statement delivered pursuant hereto may
be relied upon by any prospective purchaser of the Building or any part thereof
or of the interest of the Owner in any part thereof, by any mortgagee or
prospective mortgages thereof, by any lessor or prospective lessor thereof, by
any lessee or any prospective lessee thereof or by any prospective assignee of
any mortgage thereof.
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B. The failure of the Tenant to execute, acknowledge and deliver to the Owner
a true statement in accordance with the provisions of this Article 58 A. within
the aforesaid ten (10) day period shall constitute an acknowledgment by the
Tenant, which may be relied upon by any person who would be entitled to rely
upon such statement that such statement as submitted by the Owner is true and
correct.
59. TENANT'S REMEDIES
With respect to any provision of this Lease whereby Owner's consent or approval
is required or as to any other matter where Owner's consent is requested, Tenant
in no event shall be entitled to make nor shall Tenant make, any claim (and
Tenant hereby waives any such claim) for money damages; nor shall Tenant claim
any money damages by way of set off, counterclaim or defense, based upon any
claim or assertion by Tenant that Owner has unreasonably withheld or
unreasonably delayed any consent or approval, but Tenant's sole remedy shall be
an action or proceeding in equity to enforce any such provision or for specific
performance, injunction or declaratory judgment.
60. [INTENTIONALLY OMITTED]
61. [INTENTIONALLY OMITTED]
62. ASSIGNMENT AND SUBLETTING
(a) Tenant shall not, by operation of law or otherwise, assign, mortgage or
encumber this Lease, nor sublet all or any part of the Demised Premises or
permit the Demised Premises or any part thereof to be used by others, without
Owner's prior written consent in each instance. The consent by Owner to any
assignment or subletting in no way shall be construed to relieve Tenant from
obtaining Owner's express written consent to any other or further assignment or
subletting.
(b) If Tenant requests Owner's consent to the assignment of this Lease or the
subletting of all of the Demised Premises, it shall submit in writing to Owner,
at the time it requests such consent to the following material relating to the
proposed assignee or subtenant:
(i) the name and address;
(ii) the terms and conditions of the proposed assignment or subletting;
(iii) the nature and character of the business to be conducted in the
Demised Premises;
(iv) financial statement for the preceding two (2) years if it has been a
business for that period;
(v) banking, financial and other credit information reasonably sufficient
to enable Owner to determine the proposed assignee's or subtenant's
financial responsibility; and
(vi) such other business or financial information reasonably requested by
Owner.
(c) Owner shall have the following options, exercisable by written notice to
Tenant within ten (10) business days after Tenant's aforesaid request for
Owner's consent and the furnishing of all requested information:
(i) Owner may require Tenant to execute an assignment or sublease to
Owner or to anyone designated by Owner on the same terms as the
proposed assignment or sublease without payment of any premium
therefor; In the event of such assignment, Tenant shall be released
from any obligation under this Lease accruing after the effective
date of such assignment; in the event of a sublease, Tenant shall not
be required to pay to Owner any rent or additional rent not received
by Tenant from the subtenant during the term of the sublease;
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(ii) Owner may elect to terminate Tenant's Lease on the effective date of
the proposed assignment or sublease, and Owner shall execute and
deliver an instrument releasing and discharging the Tenant from all
obligations under this Lease accruing after the effective date of
such proposed assignment or sublet, and Tenant shall vacate and
surrender possession of the entire Demised Premises in accordance
with the Lease on or before said effective date.
(d) If the Owner shall not exercise either of its foregoing options in
subparagraph (c) hereinabove within the time set forth above, its consent to
the proposed assignment or subletting of all of the Demised Premises shall not
be unreasonably withheld, provided, however, that it may withhold consent
therein if in the reasonable exercise if its judgment it determines that:
1. The financial condition and/or general reputation of the proposed
assignee or subtenant are not consistent with the extent of the
obligations undertaken by the proposed assignment or sublease.
2. The proposed use of the Demised Premises is not appropriate for the
Building or in keeping with the character of the existing tenancies
or permitted by the Tenant's Lease.
3. The nature of the occupancy of the proposed assignee or subtenant is
not in accordance with the use provision of the Lease or will cause
excessive density of employees or traffic or make extensive demands
on the Building's services or facilities or be an assignment or
sublease to a school or employment or placement agency.
4. The Tenant proposes to assign or sublet to one who at the time is a
Tenant in possession of premises in the Building of which the Demised
Premises are a part and other comparable space is available in the
building.
5. Such proposed assignee or Subtenant would lower the value of the
dignity or the Building or adversely affect the interest of Owner.
6. The sublet is not for the entire Demised Premises.
(e) If Owner shall not exercise an option set forth in subparagraph (c) above
within the time limit provided therefor and if Owner shall not have withheld
its consent pursuant to subparagraph (d) above, its consent to the proposed
assignment or subletting shall not be withheld provided, however, that each of
the following conditions first are complied with:
(i) Tenant then shall not be in default under this Lease;
(ii) The assignee shall execute an agreement, in form reasonably
satisfactory to the Owner, whereby such proposed assignee assumes
performance of Tenant's obligations under this Lease and shall become
jointly and severally liable with the Tenant for the performance
thereof. The subletting agreement shall provide that it is expressly
subject to the terms and provisions of the Lease.
(iii) A duplicate original of the instrument of assignment and assumption
agreement or sublease duly executed by the appropriate party, shall
be delivered to the Owner before the assignee or subtenant shall be
let into possession of the Demised Premises.
(iv) Tenant shall pay any expense, including, but not limited to
reasonable attorneys' fees and fees for financial investigation
incurred in connection with the review and/or preparation and/or
execution of any documents submitted to Owner relating to the
proposed assignment or subletting including preparation of the
consent. This provision shall not apply if Owner elects to terminate
the Lease pursuant to subparagraph (c) herein.
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(f) If the Owner shall give its consent to any assignment of this Lease or to
any sublease, Tenant, in consideration therefor, shall pay to Owner, as
additional rent:
(i) In the case of an assignment, and amount equal to 50% of all sums and
other considerations paid to Tenant by the assignee for or by reason
of such assignment (including, but not limited to, sums paid for the
sale of Tenant's fixtures, leasehold improvements, equipment,
furniture, furnishings or other personal property, less, in the case
of a sale thereof, the then net undepreciated cost thereof determined
on the basis of Tenant's Federal income tax returns, brokerage
commissions and alteration expenses incurred by Tenant in connection
with such transaction; and
(ii) In the case of a sublease 50% of any rents, additional charges or
other consideration payable under the sublease and related agreements
to Tenant by the subtenant which is in excess of the fixed annual
rent and additional rent accruing during the term of the sublease
pursuant to the terms of this Lease (including, but not limited to,
sums paid for the sale or rental of Tenant's fixtures, leasehold
improvements, equipment, furniture or other personal property, less,
in the case of the sale thereof, the then undepreciated cost thereof
determined on the basis of Tenant's Federal income tax returns,
brokerage commissions and alteration expenses incurred by Tenant in
connection with such transaction.
The sums payable under this subparagraph (f) shall be paid by Tenant to Owner
as and when paid by assignee and subtenant to Tenant.
(g) Each of the foregoing provisions and conditions shall apply to each and
every further assignment or subletting. An assignment of Lease or a subletting
as above provided shall not discharge or release from liability under the Lease
the Tenant or any other person, firm or corporation which previously shall have
assumed Tenant's obligations hereunder, such liability to remain and continue
for the balance of the term and any option to renew contained in the Lease with
the same force and effect as though no assignment had been effected.
(h) Any transfer or issuance of shares which shall cause in the aggregate fifty
percent (50%) or more of the stock of Tenant or any assignee to be owned by any
party other than those parties who were Tenant's shareholders or assignee's
shareholders on the date of execution of this Lease or the effective date of the
assignment shall be deemed an assignment of this Lease and shall require Owner's
prior written consent in accordance with this Article 62.
(i) In the event that Owner exercises either of its options under subparagraph
(c) above, Owner shall have the absolute right to, and in no way shall be liable
to Tenant if it shall, lease or further sublease the Demised Premises to
Tenant's prospective assignee or subtenant, as the case may be.
(j) If Owner does not exercise its option and also withholds its consent to the
proposed assignment or subletting and it is established by a court or body
having final jurisdiction thereover that Owner has been unreasonable, the only
effect of such finding shall be that Owner shall be deemed to have given its
consent; but Owner shall not be liable to Tenant in any respect for money or
compensatory damages by reason of withholding its consent. In the case of a
claim by Tenant that Owner unreasonably withheld or delayed consent to any
sublease or assignment, Owner and Tenant hereby agree that the following
provisions shall apply: upon the written request of Tenant, the dispute either
(i) shall be submitted to the American Arbitration Association (the
"Association") for disposition pursuant to the "Expedited Procedures" of the
Association, if available, or (ii) shall be submitted to the president of the
Real Estate Board of New York, Inc. who shall appoint a single arbitrator to
decide the dispute; in the event said president refuses to do so, the dispute
shall be resolved in accordance with clause (i). If the President of the Real
Estate Board agrees to appoint an arbitrator, he shall appoint the arbitrator
within three days and the arbitrator will hold a hearing and decide the dispute
within seven days of his appointment. The decision of the arbitrator shall be
final, and all actions necessary to implement the decision of the arbitrator
shall be undertaken as soon as possible, but in no event later than ten (10)
business days after the rendering of such decision. Judgment upon the decision
or any award rendered may be entered in any court having jurisdiction thereof.
All fees payable to the Association or the Real Estate Board or the arbitrator
for services rendered in connection with the resolution of the dispute shall be
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paid for by the party suffering the adverse decision of the Association. For
purposes of this Article, the phrase "Expedited Procedures of the Association"
shall mean those procedures set forth in paragraphs 53 through 58 of that
certain booklet published by the Association and titled "Commercial Arbitration
Rules", as amended and in effect March 1, 1986.
(k) In the event that Tenant or any assignee or sublease desires to assign or
sublet, it hereby designates the managing Agent as Tenant's sole and exclusive
Agent to effect such assignment or subletting and agrees to pay said managing
Agent upon the consent to assignment or sublease a commission computed in
accordance with the commission rates then in effect. Tenant acknowledges that it
is aware that the managing Agent represents the Owner and may also act with
respect to other competing space in the building and Tenant waives any right to
make claim for conflict of interest or for other damages.
The exclusive set forth in this Article 62(k) shall continue for 90 days and if
within 270 days after the expiration of the aforesaid 90 day period there is an
assignment or sublease to a party introduced by the managing Agent within the
exclusive 90 day period, then the managing Agent shall be entitled to a
commission in accordance with its usual rates. In the event that Tenant assigns
or subleases without advertising (except in professional journals) and without
utilizing the services of a broker, finder or consultant, then the provisions of
this Article 62(k) shall not apply.
(l) In the event of a sublease or assignment, the Tenant agrees to deposit an
additional security of one month's rent, escalations and additional rent due
under this Lease at the then existing rate.
(m) No action or consent by Owner to listing of names on the Building directory
nor acceptance of rent from any party other than Tenant shall be deemed a
consent to any assignment or sublease of the Demised Premises nor a waiver or
any of the provisions hereof.
(n) Anything herein to the contrary notwithstanding, conversion of Tenant or any
successor tenant to a limited liability partnership or company during the term
of this lease constitutes an assignment of the lease which requires the Owner's
consent in its sole discretion.
(o) Provided that Tenant is not then in default under this Lease Tenant may
without Owner's consent assign this Lease to an affiliate of Tenant provided
that Tenant gives Owner prior written notice thereof, including the name of said
affiliate and furnishes Owner with a copy of the instrument of assignment and
provided further that said affiliate shall assume the obligations of Tenant
under this Lease. An affiliate of Tenant shall be deemed to be an entity
controlled by, controlling or under common control with Tenant.
(p) Provided that Tenant is not then in default under this Lease Tenant may
without Owner's consent sublet up to two offices within the demised premises
(without further demises the demised premises) provided that Tenant gives Owner
prior written notice thereof, including the name of any such subtenant, and
furnishes Owner with a copy of the sublease. In connection with any such
sublease, the other provisions of this Article shall not apply. No such
subletting under this subparagraph (p) shall be for any of the uses set forth in
Article 51 of this Lease.
63. END OF TERM
A. Tenant hereby agrees to indemnify and save Owner harmless against all costs,
expenses, claims, losses or liability resulting from delay by Tenant in
surrendering the Demised Premises upon the expiration or earlier termination of
this Lease, (Tenant's Holdover) including without limitation any claims made by
any succeeding tenant founded on such delay. Such indemnity shall survive the
expiration or earlier termination of this Lease.
B. Tenant agrees that losses to Owner resulting from Tenant's Holdover will be
very substantial, exceed the amount of Fixed Rent and additional rent payable
hereunder and be difficult of accurate measurement. Therefore, if Tenant shall
fail to vacate and surrender the Demised Premises as required hereunder, it
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shall be deemed a holdover Tenant on a month-to-month basis at a fixed monthly
rent equal to 1 1/2 times the monthly rate of all Fixed Rent and additional rent
payable for the last month of the term hereof. The collection of the aforesaid
rent shall not act to limit Owner's rights to institute summary proceedings to
obtain possession or pursuant to this Article 63 or in the Lease or at law, but
any such rent collected will be non-refundable and shall be applied against any
such damages.
64. EXHIBIT
Tenant acknowledges and agrees that the diagram of the Demised Premises annexed
hereto as Exhibit A has not been drawn to scale, is an approximation of the
actual size and location of the space involved and is not meant to be a
representation of the actual size and location of the space involved. Tenant has
had the opportunity to and has made such inspection of the leased premises as
Tenant deems necessary.
65. HEAD NOTES
The Article headings herein are only for convenience and are in no way to be
construed as a part of the agreement or as a limitation on the scope of any
provision thereof.
66. ELECTRICITY
Owner, at Owner's expense has distributed and will furnish electrical energy to
or for the use of Tenant in the Premises on a rent inclusion basis. There shall
be no charge to Tenant for such electric energy by way of measuring the same on
any meter or otherwise, such electric energy being included in Owner's services
which are covered by the annual rental reserved hereunder. Tenant agrees that
pending an electrical survey as provided in this Article, the fixed annual
rental set forth on the first page of this Lease shall be increased by
$11,056.60 per annum (the "Electrical Inclusion Factor") making a total fixed
annual rental of $142,236.60 per annum payable in equal monthly installments of
$11,853.05. Owner shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric energy furnished to the Premises
by reason of any requirement, act or omission of the public utility servicing
the Building with electricity or for any other reason not attributable to Owner.
(A) The parties agree that although the charge for the distribution and
furnishing of electrical energy is included in the rent on a so-called "Rent
Inclusion" basis, the value of such service may not be fully reflected in the
rent. Accordingly, Tenant agrees that Owner may cause an independent electrical
consulting firm, selected by Owner, to make a final determination following the
exclusion of this Lease, of the full value to Tenant of such services supplied
by Owner. The consultant's calculations and determinations of the electric
charge, hereafter referred to as "Electrical Inclusion Factor" shall be
established by the consultant by the use of this agreed upon method:
(i) The Demand factor (KW) applicable to the rate structure for each item
consuming electricity shall be arrived at by applying the Connected Load rating
of each item at 100% when related to Lighting, and at not less than 70% for
items related to Equipment.
(ii) The Energy factor (KWH) applicable to the rate structure shall be
arrived at by the method of applying the Connected Load rating of each item,
multiplied by the hours of its usage for a one month period as determined by the
consultant.
(iii) All components of Consolidated Edison Company's Service Classification
and Rate Schedule S.C. #4 Rate 1 in effect on the date of execution of this
Lease, or any successor classification reflecting similar service, shall be
utilized as the basis for the determination of the Electrical Inclusion Factor.
Tenant shall pay for electricity consumed thereby as determined and evaluated
from time to time by Owner's electrical consultant, such payment to be
additional rent, and to be equal to what Tenant would pay for such consumption
of electricity if it purchased that amount of electricity from the public
utility servicing the Building under the rate structure and/or classification as
set forth in this Section.
An additional component shall be added to the rate schedule hereafter referred
to as "Electric Service Charge" which shall reflect an adjustment to the rate
schedule at the rate of one cent per KWH to compensate the Owner for its cost
related to servicing the Electrical Inclusion Factor
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in no event shall the Electrical Inclusion Factor, as defined below, be
decreased below $11,056.60 per annum.
(B) Subject to the provisions of subsections below, the parties agree that the
sum of $11,056.60 per annum is included in the annual rental to cover the charge
for electricity made available to Tenant in the Premises ("Electrical Inclusion
Factor"). If the public utility rate schedule for the supply of electric current
to the Building shall be increased or decreased (using the rate in effect on the
date of execution of this Lease as the base rate), or if there occurs any other
cost adjustment resulting in an increase or decrease in electric charges, the
annual rental herein reserved shall be equitably adjusted to reflect the
increase or decrease in the Electrical Inclusion Factor and Tenant agrees to pay
Owner the new annual rental rate resulting from such adjustment of the
Electrical Inclusion Factor. In no event, however, shall the Electrical
Inclusion Factor be decreased below the sum of $11,056.60 per annum. The parties
recognize that at the time of the execution of this Lease, the Electrical
Inclusion Factor is an arbitrary figure, not necessarily representing the true
value of electricity being supplied to the Premises. A survey may be made by
Owner's consultant which shall incorporate methods for the determination of the
Electrical Inclusion Factor pursuant to Section A. When said survey is completed
and delivered to Tenant, the Electrical Inclusion Factor as set forth in said
survey shall become binding upon Tenant.
(C) If it shall be determined that the full value to Tenant of such service is
in excess of $11,056.60 per annum (such sum is referred to as the "Electrical
Inclusion Factor"), the Lease shall be deemed modified effective on the date
Owner requests such survey by increasing the Rent and the Electrical Inclusion
Factor, an annual amount equal to such excess. However, if it shall be so
determined that the full value to Tenant of such service does not exceed the
Electrical Inclusion Factor, no such agreement shall be executed and there shall
be no increase or decrease in the Rent or the Electrical Inclusion Factor by
reason of such determination. If either the quantity or character of electrical
service is changed by the public utility corporation supplying electrical
service to the Building or is no longer available or suitable for Tenant's
requirements, no such change, unavailability or unsuitability shall constitute
an actual or constructive eviction, in whole or in part, or entitle Tenant to
any abatement or diminution of rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Owner, or its Agents,
by reason of inconvenience or annoyance to Tenant, or injury to or interruption
of Tenant's business, or otherwise.
(D) Owner represents that the electrical feeder or riser capacity serving the
Premises on the Commencement Date is adequate to serve the lighting fixtures
and electrical equipment installed in the Premises initially by Tenant. Subject
to the provisions of subsections of this Lease, any additional feeders or
risers to supply Tenant's additional electrical requirements, and all other
equipment proper and necessary in connection with such feeders or risers, shall
be installed by Owner upon Tenant's request, at the sole cost and expense of
Tenant, provided that, in Owner's judgment, such additional feeders or risers
are necessary and are permissible under applicable laws (including, without
limitation, the New York State Energy Conservation Code) and insurance
regulations and the installation of such feeders or risers will not cause
permanent damage or injury to the Building or the Premises or cause or create a
dangerous or hazardous condition or entail excessive or unreasonable
alterations or interfere with or disturb other tenants or occupants of the
Building. Tenant covenants that at no time shall the use of electrical energy
in the Premises exceed the capacity of the existing feeders or wiring
installations then serving the Premises. Tenant shall not make or perform, or
permit the making or performance of, any alterations to wiring installations or
other electrical facilities in or serving the Premises or any additions to the
business machines, office equipment or other appliances in the premises which
utilize electrical energy without the prior consent of Owner in each instance.
(E) Rate Adjustment -- If the cost to Owner of electricity shall have been, or
shall be, increased from time to time by change in utility company's
electricity rates, charges, fuel adjustment, or service classification or by
taxes or charges of any kind imposed thereon, or for any other reason
("Electrical Change"), then the Electrical Inclusion Factor, which is a portion
of the fixed annual rent, shall be increased in the same percentage. Any such
percentage increase in the charge to the Owner shall be computed by the
application of an averaged monthly seasonal consumption (Demand and Energy) of
electricity which shall reasonably reflect such consumption of the entire
Building based on a period of twelve (12) full months prior to the rate change,
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other change in cost, or any changed method of or rules on billing for same, on
a consistent basis to the new rate and/or service classification. The following
method of computation shall be employed in making the percentage differential
determination applicable to the Electrical Inclusion Factor.
(i) Owner's bills from the public utility corporation providing electricity
to the Building for the twelve (12) month period immediately
preceding the Electrical Change in question shall be averaged for
demand and consumption (KW and KWH) and the rate structure in effect
immediately prior to the Electrical Change in question shall be
applied to the average demand and consumption factors of Owner's
billings for the Building for said twelve (12) month period resulting
in an agreed determination of the cost to Owner of electricity for the
Building immediately prior to the Electrical Change in question;
(ii) The new rate structure pursuant to which Owner is billed by the public
utility corporation, i.e. the rate structure which includes the
Electrical Change in question, shall be applied to the average demand
and consumption factors of Owner's billings for the Building for said
twelve (12) month period resulting in an agreed estimate of the cost to
Owner by reason of the Electrical Change in question;
(iii) The difference in the costs determined pursuant to the foregoing
subdivisions (i) and (ii) shall be deemed the amount of the estimated
annual change in cost and the amount of such estimated annual change
in cost shall be divided by the cost determined pursuant to the
foregoing subdivision (i); and
(iv) The resulting quotient shall be applied to Tenant's then current
Electrical Inclusion Factor to produce the increase or decrease in the
Rent and Electrical Inclusion Factor.
Any increase in the rent related to rate increases shall be payable by Tenant
from the date of effectiveness of the revised rate schedule. In no event,
however, shall the Electrical Inclusion Factor be decreased below the sum of
$11,056.60.
(F) Fuel and Tax Adjustment Charges -- If the cost to Owner of electricity
shall be increased from time to time by changes in the fuel adjustment and/or
any other charges imposed on the Owner by the utility company, then the Tenant
agrees to pay to Owner, as additional rent as and when billed from time to
time, an amount equal to Tenant's pro rata share of increased adjustment costs
to the Owner.
(G) Owner reserves the right to discontinue furnishing electricity to Tenant in
the Premises on not less than thirty (30) days' notice to Tenant. If Owner
exercises such right to discontinue, or is compelled to discontinue furnishing
electricity to Tenant, this Lease shall continue in full force and effect and
shall be unaffected thereby, except only that from and after the effective date
of such discontinuance, Owner shall not be obligated to furnish electricity to
Tenant and the Rent shall be reduced by an amount equal to the Electrical
Inclusion Factor. If Owner so discontinues furnishing electricity to Tenant,
Tenant shall arrange to obtain electricity directly from the public utility or
other company servicing the Building. Such electricity may be furnished to
Tenant by means of the then existing electrical facilities serving the Premises
to the extent that the same are available, suitable and safe for such purposes.
All meters and all additional panel boards, feeders, risers, wiring and other
conductors and equipment which may be required to obtain electricity, of
substantially the same quantity, quality and character, shall be installed by
Owner: (a) at Owner's expense, if Owner shall discontinue furnishing
electricity to Tenant voluntarily or shall have been compelled to do so by
reason of any act or omission of Owner in violation of any law or rule or
regulation; or (b) at Tenant's expense, if Owner shall have been compelled to
discontinue furnishing electricity to Tenant by reason of any act or omission
of Tenant in violation of any law, rule or regulation; or (c) at the equal
expense of Owner and Tenant, if each discontinuance shall have been by
compulsion of law or of any rule or regulation and not by reason of any act or
omission of Owner or Tenant in violation of any law or any rule
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or regulation. Owner shall not voluntarily discontinue furnishing electricity to
Tenant unless it likewise discontinues furnishing electricity to all tenants of
office space above the second floor of the Building or until Tenant is able to
receive electricity directly from the public utility or other company servicing
the Building but Tenant shall upon notice from Owner proceed diligently to make
provision so as to receive electricity directly.
(H) Owner shall not be liable to Tenant in any way for any interruption,
curtailment or failure, or defect in the supply or character of electricity
furnished to the Premises by reason of any requirement, act or omission of Owner
or of any public utility or other company servicing the Building with
electricity or for any other reason.
(I) The Electrical Inclusion Factor shall be subject to periodic adjustments
upon the occurrence of any increase in Tenant's electric connected load and/or
usage subsequent to the initial or any revised Electrical Inclusion Factor
currently in effect, which was partially based on demand and usage factors as
determined by Owner's consultant. Owner may, at its option, from time to time,
have its electric rate firm resurvey the Premises and adjust its Electrical
Inclusion Factor to reflect such changes, employing methods of determination as
heretofore set forth within this Rider. In no event, however, shall the
Electrical Inclusion Factor be decreased below the annual rate of $11,056.60.
(J) In the event Tenant disagrees with the Electrical Inclusion Factor as
billed by Owner, Tenant shall nevertheless pay the same as billed until the
dispute has been resolved. If the same is subsequently reduced as hereinafter
set forth, Tenant shall be allowed credit against rent for any overpayment.
Tenant's electrical consultant (paid by Tenant) and Owner's electrical
consultant (paid by Owner) shall attempt to resolve the dispute. In the event
they are unable to do so, they shall select a third electrical consultant (to
be paid one half by Owner and one half by Tenant) whose determination shall be
binding upon both parties.
67. RENT CONCESSION
Provided that Tenant shall have performed all the terms, covenants and
conditions of this Lease on the part of Tenant to be performed, the fixed rent
for the first six months of the term of this Lease shall be $921.38 per month.
Otherwise, the fixed rent shall be that set forth on the first page of this
Lease and in Article 66 above.
68. OWNER'S WORK
Owner agrees, at Owner's cost and expense, to do the work set forth in the
Workletter attached hereto.
69. TERMINATION
Provided that Tenant is not then in default under this Lease, Tenant shall have
the option to end the term of this Lease effective March 31, 2003 or at the end
of any calendar month thereafter by giving Owner no less than 120 days prior
written notice of Tenant's intention to do so. In the event Tenant exercises the
foregoing option, Tenant shall pay to Owner in consideration thereof, along with
Tenant's notice, the sum of $50,000. In the event Tenant exercises this option
effective on any date later than March 31, 2003, said consideration shall be
equal to the product obtained by multiplying $50,000 by the fraction the
numerator of which is the number of calendar months remaining in the term of
this Lease after the effective date of the exercise of Tenant's option, and the
denominator of which is 43.
70. TENANT'S SIGN
Tenant may install at Tenant's expense erect a sign on the floor and if
feasible, install colored logos on the glass plate floor indicator in the
elevator, so long as Owner consents to the size, style and content of such
signs. Owner agrees without charge to Tenant to provide 8 listings on the
building directory in the lobby for Tenants and its affiliates and sub-leases.
Tenant agrees to give Owner prior notice of the full names of any affiliates of
Tenant which may occupy the demised premises.
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71. OWNER'S WORK (CONTINUED)
Owner agrees that in doing the work set forth in the work letter referred to in
Article 68 above, Owner will comply with the Americans with Disabilities Act. In
the event asbestos is found in the demised premises which has not been
introduced into the demised premises by Tenant, Owner will remove or encapsulate
the same as required by law.
72. FREIGHT ELEVATORS
Owner agrees that Tenant may use the freight elevator for Tenant's move into the
building after regular business hours without charge. Tenant may also use the
freight elevator without charge for accepting deliveries of furniture to Tenant
within the first year of the term of this Lease.
73. FIRST OFFER
If, during the terms of this Lease, the adjoining space on the sixteenth floor
of the building becomes vacant, then provided Tenant shall not then be in
default under this Lease beyond any applicable notice and cure time, Tenant
shall have the right of first offer upon the terms and conditions set forth in
this Article for said adjoining space, when such space becomes available. Owner
shall submit to Tenant for the approval of Tenant a Lease Proposal which shall
contain the rent, electric charge, escalations and other terms for a lease term
that will expire on the termination date of this Lease. Tenant shall have 30
days to notify Owner of Tenant's acceptance of the Lease Proposal. The failure
of Tenant so to notify Owner in writing with 30 days shall be conclusively
deemed a rejection by Tenant. Tenant agrees within 30 days after notifying Owner
that Tenant accepts the Lease Proposal to execute a lease for said adjoining
space upon the terms and conditions set forth in the Lease Proposal and
otherwise upon the terms and conditions set forth in this Lease.
74. CABLE TELEVISION
The building is presently wired for cable television; Tenant shall have access
to such cable connection.
75. DEMISED PREMISES; TEMPORARY SPACE
In the event Owner's work in the demised premises has not been substantially
completed on or before November 1, 1996, Owner agrees Owner will pay any penalty
incurred by Tenant, not exceeding $5,000, in holding over in its present space
at 90 Broad Street, New York, New York, provided that Tenant shall first pay
such penalty and shall exhibit to Owner a copy of the bill from the landlord of
90 Broad Street, New York, New York and a copy of Tenant's check in payment of
the same.
In the event Owner's work in the demised premises has not been substantially
completed by December 1, 1996 Owner leases the Tenant and Tenant hires from
Owner Temporary Space consisting of the portion of the eighteenth floor of the
building that is shown on the attached floor plan (the "Temporary Space").
Tenant has inspected the Temporary Space and accepts the same "as is". All of
the other terms, comments and conditions of this Lease shall apply to the
leasing by Owner to Tenant of the Temporary Space, except that Tenant shall pay
fixed rent for the Temporary Space of $921.38 per month inclusive of
electricity, which shall be prorated for any portion of the month that Tenant
occupies the Temporary Space.
After Owner has substantially completed Owner's work in the demised premises as
set forth in the attached Work Letter, Owner shall give Tenant notice thereof
and Tenant agrees to quit and surrender the Temporary Space in accordance with
Article 22 of this Lease and move into the demised premises within ten (10) days
after such notice. The fixed annual rent provided in this Lease for the demised
premises such commence on and be prorated from the eleventh (11) day after such
notice and the rent for the Temporary Space shall be prorated to the date Tenant
quits and surrenders the Temporary Space. In the event the Tenant holds over in
the Temporary Space after the tenth (10) day following Owner's notice, Tenant
shall pay rent for the Temporary Space as set forth in this Lease for the
demised premises without giving effect to Article 67 of this Lease. Nothing in
this Article shall prevent Owner from commencing a holdover proceeding against
Tenant in the event Tenant holds over in the Temporary Space beyond the tenth
day after Owner's notice.
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Exhibit 10.10
LEASE MODIFICATION AGREEMENT
AGREEMENT made this 8th day of December 1997 between JOSEPH P. DAY
REALTY CORP., as agent for 800 Third Avenue Associates ("Owner"), 9 East 40th
Street, New York, New York 10016 and ASSET ALLIANCE CORPORATION ("Tenant"), 800
Third Avenue, New York, New York 10022;
W I T N E S S E T H :
WHEREAS, the parties are Owner and Tenant respectively under lease
dated September 12, 1996 (the "Lease") covering a portion of the 16th Floor (the
"16th Floor Space") at 800 Third Avenue, New York, New York (the "Building");
and
WHEREAS, Tenant wishes to move to larger space on another floor
of the Building;
NOW THEREFORE, the parties agree as follows:
1. Owner hereby leases to Tenant and Tenant hereby leases from Owner
the entire 22nd Floor (the "22nd Floor Space") in the Building for a term to
commence on the date (the "22nd Floor Commencement Date") five days after Owner
has completed Owner's work in the 22nd Floor Space referred to in paragraph 4
below to Tenant's reasonable satisfaction and to end on the lst day of the month
in which
<PAGE> 2
occurs the date ten years after the Commencement Date, at an annual rental rate
(in lieu of the amount set forth on page 1 of the Lease) of $376,600 per annum.
2. Except to the extent otherwise provided in this Agreement, (i)
from and after the 22nd Floor Commencement Date, the 22nd Floor Space, shall for
all purposes of the Lease constitute part of the demised premises under the
Lease, and (ii) Owner and Tenant agree that all the terms, covenants and
conditions of the Lease shall apply to the leasing of the 22nd Floor Space.
3. On execution of this Agreement, Tenant agrees to deposit the sum
of $44,350.90 as security to be held under Articles 34 and 48 of the Lease in
addition to the security presently held by Owner.
4. Owner agrees, at Owner's cost and expense, to do the work in the
22nd Floor Space set forth in the Workletter attached hereto at a cost not to
exceed $376,600. Article 71 shall apply to such work in the 22nd Floor Space.
5. Tenant agrees that the terms of the Lease with respect to the
16th Floor Space shall end on the 22nd Floor Commencement Date, as if such date
was the date set forth in the lease for the end of the term with respect to the
16th Floor Space. Each party releases any claim it may have against the other
for rent or escalations for the 16th Floor Space for the period ending on the
date of this Agreement. Owner agrees it will not assert any claim against
Tenant for repairs and
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restoration of the 16th Floor Space by reason of any damage to the 16th Floor
Space arising in connection with Tenant's move to the 22nd Floor Space.
6. Commencing on the 22nd Floor Commencement Date,
(a) Tenant shall pay real estate tax escalation for the 22nd Floor
Space pursuant to Article 39 of the Lease; the "Base Tax" shall mean Taxes, as
finally determined by settlement, court decision or otherwise, for the fiscal
Tax Year ending June 30, 1998; Tenant's share for the 22nd Floor Space shall be
2.285%;
(b) Tenant shall pay wage formula increase for the 22nd Floor Space
pursuant to Article 40 of the Lease; the Wage Rate Multiple for the 22nd Floor
Space shall be 10,760; the "Base Labor Rate" for the 22nd Floor Space shall be
the Labor Rate at December 31, 1998;
(c) in the event Owner exercises Owner's option pursuant to Article
41 of the Lease, Tenant shall pay operating expense escalation for the 22nd
Floor Space pursuant to Article 41 of the Lease; the "Base Year" referred to
therein shall be 1998; the percentage referred to therein shall be 2.285%;
(d) Tenant shall pay Heating Costs escalation for the 22nd Floor
Space pursuant to Article 42 of the Lease; the percentage referred to therein
shall be 2.285%;
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(e) Tenant shall pay Local Laws escalation for the 22nd Floor Space
pursuant to Article 43 of the Lease; the percentage referred to therein shall be
2.285%;
(f) Owner shall furnish electricity for the 22nd Floor Space
pursuant to Article 66 of the Lease; pending an electrical survey, the
Electrical Inclusion Factor for the 22nd Floor Space shall be $31,742 per annum;
the annual rental referred to in paragraph 1 above shall be increased by the
Electrical Inclusion Factor making a total annual rental of $408,342 per annum
payable in advance on the first day of each month in equal monthly installments
of $34,028.50; in no event shall the Electrical Inclusion Factor be decreased
below $31,742 per annum.
7. Article 67 of the Lease shall not apply to the 22nd Floor Space.
Provided that Tenant shall have performed all the terms, covenants and
conditions of the Lease on the part of Tenant to be performed, Tenant shall
receive a credit in the amount of $31,383.33 per month against the annual rental
due for the first six months of the 22nd Floor Term and Tenant shall receive an
additional credit (if a subtenant has not then taken possession of the
cross-hatched space on the floor plan attached hereto) in the amount of
$8,779.17 per month for the period commencing at the end of said six months and
ending on the earlier of the date 12 months after the 22nd Floor Commencement
Date or the date a subtenant takes possession of all or substantially all of
such cross hatched space.
4
<PAGE> 5
8. Articles 68, 69, 73 and 75 and the Workletter attached to the
Lease shall not apply to the 22nd Floor Space. Tenant may sublease the portion
of the 22nd Floor space shown cross-hatched on the attached floor plan after
obtaining Owner's consent in accordance with Article 62 of the Lease except that
Article 62(c), (f) and (1) shall not apply to such subleasing; Article 62(d)6
shall be modified to provide: As a result of said subletting the cross-hatched
space shall be occupied by more than one entity (or, if not further demised, by
more than five entities) or the noncross-hatched space shall be occupied by more
than two entities; Article 70 shall be modified to refer to 10 listings, in lieu
of 8.
9. This Agreement is offered to Tenant for signature by the managing
agent of the building solely in its capacity as such agent and subject to
owner's acceptance and approval. Tenant shall affix its signature hereto with
the understanding that such act shall not, in any way, bind Owner or its agent
until such time as this Agreement shall have been approved and executed by the
managing agent or the Owner and delivered to Tenant.
10. Tenant covenants, warrants and represents that there was no
broker except Joseph P. Day Realty Corp. instrumental in consummating this
Agreement and that no conversations or negotiations were had with any broker
except Joseph P. Day Realty Corp. concerning the terms of this Agreement. Tenant
agrees to hold owner harmless against any claims for a brokerage commission
arising
5
<PAGE> 6
out of any conversations or negotiations had by Tenant with any broker except
Joseph P. Day Realty Corp.
11. Except as specifically modified herein, Owner and Tenant ratify,
confirm, accept and agree to all of the terms, covenants and conditions of the
Lease.
12. This Agreement shall inure to the benefits of and bind the
parties hereto, their legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals the day and year first above written.
JOSEPH P. DAY REALTY CORP., as agent
(Owner)
By: /s/ Richard Teichman
-----------------------------
ASSET ALLIANCE CORPORATION
(Tenant)
By: /s/ Arnold L. Mintz
-----------------------------
6
<PAGE> 1
Exhibit 10.11
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is dated
as of March 4, 1998, and is entered into between Asset Alliance Corporation, a
Delaware corporation (the "Company"), and Bruce H. Lipnick (the "Employee").
WHEREAS, the Employee and the Company are parties to an Employment
Agreement, dated as of July 8, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Company have agreed to amend the Prior
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Employee shall continue to serve on the Board of Directors of the
Company (the "Board") and as President and Chief Executive Officer of the
Company and in such other executive managerial position or positions with the
Company or its subsidiaries or affiliates as shall hereafter be designated by
the Board, to perform such managerial duties consistent with the usual duties of
an officer of his status. Such employment shall be on the terms and conditions
set forth herein. The Employee hereby accepts such employment and agrees to
devote substantially all of his business time to the faithful and diligent
performance of the duties provided herein.
(b) The term of the Employee's employment by the Company shall commence as
of January 1, 1998 (the "Effective Date") and continue for a period of five
years from such date (the "Initial Employment Period"), which Initial Employment
Period shall be automatically extended for an additional one year period on each
anniversary of this Agreement (such that the remaining term as of each
anniversary shall be five years) unless and until the Employee's employment is
terminated pursuant to the terms hereof.
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base salary
of $495,000 per annum, commencing on the Effective Date and payable in
accordance with the normal payroll practices of the Company. The base salary
shall be reviewed annually and may be increased (but shall not be decreased) in
the sole discretion of the Board.
(b) Incentive Bonus. The Company shall pay Employee each year during the
Term as additional compensation amounts determined by reference to the Company's
earnings before income taxes, depreciation and amortization ("EBITDA") per share
of the Common Stock, par
<PAGE> 2
value $0.01 per share, of the Company (the "Common Stock"), as determined by the
Board and the Company's independent accountants in accordance with Exhibit A.
(c) Discretionary Bonus. Employee shall be eligible to receive a
discretionary annual bonus in the sole discretion of the Board.
(d) Stock Options. In consideration of the Employee's agreement to
substitute this Agreement for the Prior Agreement, and subject to the approval
of the Company's Board, the Company shall grant to the Employee options to
purchase 50,000 shares of the Common Stock as of the date hereof on the
following terms and such other terms as the Board or the Stock Option or
Compensation Committee thereof may determine: (1) the options shall be exercised
within ten (10) years of the date hereof; (2) the options shall vest and become
exercisable on the date of grant; and (3) the exercise price shall be $10 per
share.
(e) Benefits. The Employee shall be entitled to participate in a Company
sponsored 401(k) plan, and any Company sponsored group health, medical,
hospitalization, disability, accident and life insurance plans, all on such
terms as the Board shall determine in establishing such benefit programs as
promptly as is reasonably practicable after the date hereof, and such other
employee benefits as the Board may hereafter make available to the executives of
the Company. The Company agrees to pay to the Employee up to $10,000 per year
for the Employee to use to pay the premiums on (i) a personal life insurance
policy for Employee providing death benefits for Employee's designated
beneficiaries and (ii) a personal disability policy for the benefit of Employee.
(f) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, expenses for
a Company leased automobile and related expenses consistent with the Company's
automobile policies as adopted by the Board, and for traveling, meals, hotel
accommodations and the like upon submission by him of vouchers or an itemized
list thereof prepared in compliance with such rules relating thereto as the
Board may, from time to time, adopt and as may be required in order to permit
such payments as proper deductions to the Company under the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations adopted
pursuant thereto now or hereafter in effect.
(g) Vacations. During each year of employment, the Employee shall be
entitled to paid vacations for an aggregate of the greater of (A) four weeks, or
(B) such period as may be provided from time to time in the Company's vacation
policy.
3. TERMINATION.
(a) This Agreement shall be terminated upon the happening of any of the
following events: (i) in the case of a termination by the Company for Cause (as
defined in Section 3(e) hereof), on the date set forth in the notice of
termination; (ii) in the case of other terminations,
- 2 -
<PAGE> 3
whenever the Company or the Employee shall give at least six months' advance
written notice of termination, in which event the Agreement shall be terminated
on the date set forth in such notice; (iii) upon the death of the Employee; or
(iv) upon the Permanent Disability (as such term is defined in Section 3(f)
hereof) of the Employee.
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(e) hereof) or
is terminated by the Employee for Good Reason (as defined in Section 3(g)
hereof), then during the period from the effective date of termination through
the date on which the then-current term of this Agreement was to expire, the
Employee shall continue to receive the full amount of his then current base
salary plus all other benefits to which the Employee is entitled pursuant to
Section 2(e) hereof and otherwise (including, without limitation, the continued
vesting and exercisability during such period of all stock options held by the
Employee) and in a single lump sum within 5 days after the date of the
Employee's employment is terminated three (3) times the average of the Incentive
Bonus paid or payable to the Employee in the last two years pursuant to Section
2(b) of the Agreement, provided, however, that if such termination is the result
of a Change of Control, then the full amount which would be payable to the
Employee under this subparagraph (b) during the foregoing period through the end
of the then-current term of this Agreement will be paid to the Employee in a
single lump sum within five days after the date the Employee's employment is
terminated.
(c) In the event the Employee's employment with the Company is terminated
upon the Employee's death or Permanent Disability (as such term is defined in
Section 3(f) hereof), the Employee or his legal representative shall continue to
receive his then current base salary for a two year period and all stock options
held by Employee shall, to the extent vested, continue to be exercisable during
such period.
(d) In the event of a termination of Employee by the Company for Cause (as
defined in Section 3(e)), the Company shall not be obligated to pay Employee any
compensation or benefits after the date of termination and Employee must
exercise any vested stock options held by Employee within 30 days of such date.
(e) For purposes hereof, "Cause" shall mean any of the following: (i) the
continued, intentional failure, neglect or refusal of the Employee to
substantially fulfill his material duties as an employee after ninety (90) days'
notice of breach is received from the Company; (ii) a material breach of any
fiduciary duty or other material dishonesty by the Employee with respect to the
Company or any affiliate thereof resulting in actual material harm to the
Company or such affiliate; or (iii) the conviction of the Employee for a felony.
(f) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of six months in any twelve
month period.
- 3 -
<PAGE> 4
(g) For purposes hereof, "Good Reason" shall exist if the Company shall:
(i) be in breach of or default under any material provision of this Agreement
and not cure such breach within 30 days of receiving notice of such breach from
the Employee; (ii) change the principal work location of the Employee away from
Manhattan, New York, without the consent of the Employee, which consent may be
withheld by the Employee for any reason; (iii) materially change the duties of
the Employee without the Employee's consent, which consent may be withheld by
the Employee for any reason; (iv) reduce the Employee's base salary or benefits
without the Employee's consent, which consent may be withheld by the Employee
for any reason; (v) become insolvent or bankrupt or file a voluntary or
involuntary petition in bankruptcy or make an assignment for the benefit of
creditors or consent to the appointment of a trustee or receiver; or (vi)
undergo a Change of Control (as defined in Section 3(f) hereof).
(h) For purposes hereof, a "Change of Control" of the Company shall have
occurred if (a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the U.S. Securities Exchange Act of 1934), other than the Company or
any subsidiary of the Company or any employee benefit plan sponsored by the
Company or any subsidiary of the Company, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the U.S. Securities Exchange Act of
1934), directly or indirectly, of securities of the Company representing in
excess of 50% of the combined voting power of the Company's then outstanding
securities, or if (b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute a majority of the directors thereof,
unless each new director was elected by, or on the recommendation of, a majority
of the directors then still in office who were directors at the beginning of
such period.
(i) In the event Employee shall become subject to the excise tax imposed
by Section 4999 of the Code and any related penalties or interest (the "Excise
Tax") by reason of any compensation payable to him hereunder, as determined by
the Company's independent accountants on the request of Employee, the Company
agrees to make an additional "gross-up" payment to the Employee in an amount
such that, after payment by Employee of all taxes (including any Excise Tax,
interest and penalties) imposed upon the gross-up payment, Employee shall retain
an amount equal to the Excise Tax.
(j) Employee shall have no obligation to seek to mitigate any amounts
payable under this Section 3 and any amounts he receives from other employment
shall not be offset against or otherwise reduce the amount due Employee
hereunder.
4. NONCOMPETITION; NONINTERVENTION.
(a) While in the employ of the Company, the Employee agrees to devote
substantially all of his time, attention and energies to the performance of the
business of the Company and the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization, be actively
engaged in or
- 4 -
<PAGE> 5
concerned with any other duties or pursuits which interfere with the performance
of his duties as an employee of the Company, or which, even if noninterfering,
may be contrary to the best interests of the Company (provided, however, that
the Employee may continue his business activities involving the providing of
investment management and advisory services for a cash alternative fund and
involving market neutral strategies and convertible arbitrage programs or, with
the Board's prior consent, any other strategy which is not in competition with
the Company or its affiliates at the time such strategy commences (the "Existing
Activities")).
(b) Until two years after the termination or cessation of the Employee's
employment with the Company for any reason (including termination of employment
by the Company without Cause), the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization, engage in the business of
acquiring equity interests of, or otherwise investing in, investment management
firms other than (i) continuation of the Existing Activities, and (ii) after
termination of the Employee's employment with the Company for any reason,
investing in or acting as a partner, officer, director, employee, stockholder,
consultant or agent of any investment management firm in which the Employee is a
principal executive officer involved in management of the business on a
day-to-day basis. For a period of two years after the termination or cessation
of the Employee's employment with the Company for any reason (including
termination of employment by the Company without Cause) the Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (A) request or cause any customer of the Company or its Affiliates
who was introduced to the Company or its affiliates by the Employee to cancel or
terminate any business relationship with the Company or such affiliate, or (B)
solicit or otherwise cause any employee of the Company or its affiliates to
terminate such employee's relationship with the Company or such affiliate.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Company so far as they have come or
may come to his knowledge, except as may be required in the ordinary course of
performing his duties as an employee of the Company or except as may be in the
public domain through no fault of the Employee, and the Employee shall keep
secret all matters entrusted to him and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make, use
or permit to be used any notes, memoranda, drawings, specifications, programs,
data or other materials of any nature relating to any matter within the scope of
the business of the Company or concerning
- 5 -
<PAGE> 6
any of its dealings or affairs otherwise than for the benefit of the Company.
The Employee shall not, after the termination or cessation of his employment,
use or permit to be used any such notes, memoranda, drawings, specifications,
programs, data or other materials, it being agreed that any of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination or cessation of his employment the Employee
shall deliver all of the foregoing, and all copies thereof, to the Company, at
its main office.
6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
7. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in writing signed by
the party to be charged.
8. ARBITRATION.
(a) All disputes between Employee and the Company of any kind whatsoever,
including, without limitation, all disputes relating in any manner to the
employment or termination of Employee and all disputes arising under this
Agreement, but excluding (at the Company's option) any proceedings pursuant to
Section 9, shall be resolved by arbitration ("Arbitrable Claims"). Arbitration
shall be final and binding upon the parties and shall be the exclusive remedy
for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO
TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement. There
shall be one arbitrator selected in accordance with the AAA Employment Rules. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel arbitration
under this Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in New York, New York. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 8. The fees of
the arbitrator shall be split between both parties equally.
- 6 -
<PAGE> 7
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the arbitrator
and, if involved, the court and court staff.
(d) The rights and obligations of Employee and the Company as set forth in
this Section 8 with respect to arbitration shall survive the termination of
Employee's employment and the expiration of this Agreement.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that irreparable and immediate damage
will result to the Company if Employee breaches his obligations under Section 4
or Section 5 hereof. In the event of a breach by the Employee of Section 4 or
Section 5 hereof, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain the Employee from the violation of such
provisions. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
10. INDEMNIFICATION.
The Company shall indemnify Employee to the fullest extent permitted by
law (including, without limitation, advancement of legal fees on a current
basis) for all matters related to or arising from Employee's service as an
officer, director and/or fiduciary of any benefit plan of the Company. The
Company shall cover Employee during and after Employee's employment under the
Company's director and officer liability insurance to the greatest extent
afforded any senior officer and director of the Company.
11. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the terms
of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall survive
the termination or cessation of the Employee's employment with the Company and
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, executors, administrators, personal
representatives, successors and assigns of either of the parties to this
Agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by the
Employee shall not operate or be construed as a waiver of any subsequent breach
by the Employee.
- 7 -
<PAGE> 8
(d) Notices. All notices to be given hereunder shall be in writing and
personally delivered or sent certified mail, return receipt requested. Notices
to be given to the Employee shall be sent to the address indicated below the
Employee's signature below. Notices to be given to the Company shall be sent to
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022, to the
attention of Arnold L. Mintz, Executive Vice President. Notices of any changes
in the above addresses shall be given to the other party in writing.
(e) Severability. If any provision of this Agreement shall contravene any
law of any particular state where the Employee shall perform services for the
Company, then this Agreement shall be first construed to be limited in scope and
duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
---------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
/s/ Bruce H. Lipnick
---------------------------------
Bruce H. Lipnick
Employee's Address:
1148 Fifth Avenue, Apartment 5C
New York, New York 10128
- 8 -
<PAGE> 9
EXHIBIT A
INCENTIVE BONUS SCHEDULE
<TABLE>
<CAPTION>
EARNINGS BEFORE INCOME MAXIMUM INCENTIVE
TAXES, DEPRECIATION AND BONUS PAYMENT
AMORTIZATION ("EBITDA")
PER SHARE
- ----------------------------------------------------------------
<S> <C>
0 - <.75 0
.75 - < 1.0 $ 100,000
1.0 - <1.25 $ 200,000
1.25 - < 1.50 $ 300,000
1.50 - < 1.75 $ 400,000
1.75 - < 2.25 $ 500,000
2.25 - < 3.0 $ 600,000
3.0 - < 4.0 $ 700,000
4.0 - < 5.0 $ 800,000
5.0 - <6.0 $ 900,000
6.0 and above $1,000,000
</TABLE>
The Company's EBITDA per share shall be equitably determined by the
Board and the Company's independent accountants each year, taking into account
changes in the Company's capital structure, including by reason of stock
dividends, stock splits, recapitalizations, reorganizations, mergers and other
relevant changes in the Company's capitalization. The Incentive Bonus Payment
for EBITDA per share levels falling between the low and high range shall be
computed on a straight-line basis. For example, if EBITDA should be 2.0 (the
mid-point between 1.75 and 2.25), the Incentive Bonus Payment shall be $550,000
(the mid-point between $500,000 and $600,000).
- 9 -
<PAGE> 1
Exhibit 10.12
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is dated
as of March 4, 1998, and is entered into between Asset Alliance Corporation, a
Delaware corporation (the "Company"), and Arnold L. Mintz (the "Employee").
WHEREAS, the Employee and the Company are parties to an Employment
Agreement, dated as of July 8, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Company have agreed to amend the Prior
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Employee shall continue to serve on the Board of Directors of the
Company (the "Board") and as Executive Vice President and Chief Operating
Officer of the Company and in such other executive managerial position or
positions with the Company or its subsidiaries or affiliates as shall hereafter
be designated by the Board of Directors of the Company (the "Board"), to perform
such managerial duties consistent with the usual duties of an officer of his
status. Such employment shall be on the terms and conditions set forth herein.
The Employee hereby accepts such employment and agrees to devote substantially
all of his business time to the faithful and diligent performance of the duties
provided herein.
(b) The term of the Employee's employment by the Company shall commence as
of January 1, 1998 (the "Effective Date") and continue for a period of five
years from such date (the "Initial Employment Period"), which Initial Employment
Period shall be automatically extended for an additional one year period on each
anniversary of this Agreement (such that the remaining term as of each
anniversary shall be five years) unless and until the Employee's employment is
terminated pursuant to the terms hereof.
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base salary
of $395,000 per annum, commencing on the Effective Date and payable in
accordance with the normal payroll practices of the Company. The base salary
shall be reviewed annually and may be increased (but shall not be decreased) in
the sole discretion of the Board.
(b) Incentive Bonus. The Company shall pay Employee each year during the
Term as additional compensation amounts determined by reference to the Company's
earnings before
<PAGE> 2
income taxes, depreciation and amortization ("EBITDA") per share of the Common
Stock, par value $0.01 per share, of the Company (the "Common Stock"), as
determined by the Board and the Company's independent accountants in accordance
with Exhibit A.
(c) Discretionary Bonus. Employee shall be eligible to receive a
discretionary annual bonus in the sole discretion of the Board.
(d) Stock Options. In consideration of the Employee's agreement to
substitute this Agreement for the Prior Agreement, and subject to the approval
of the Company's Board, the Company shall grant to the Employee options to
purchase 50,000 shares of the Common Stock as of the date hereof on the
following terms and such other terms as the Board or the Stock Option or
Compensation Committee thereof may determine: (1) the options shall be exercised
within ten (10) years of the date hereof; (2) the options shall vest and become
exercisable on the date of grant; and (3) the exercise price shall be $10 per
share.
(e) Benefits. The Employee shall be entitled to participate in a Company
sponsored 401(k) plan, and any Company sponsored group health, medical,
hospitalization, disability, accident and life insurance plans, all on such
terms as the Board shall determine in establishing such benefit programs as
promptly as is reasonably practicable after the date hereof, and such other
employee benefits as the Board may hereafter make available to the executives of
the Company. The Company agrees to pay to the Employee up to $15,000 per year
for the Employee to use to pay the premiums on (i) a personal life insurance
policy for Employee providing death benefits for Employee's designated
beneficiaries and (ii) a personal disability policy for the benefit of Employee.
(f) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, expenses for
a Company leased automobile and related expenses consistent with the Company's
automobile policies as adopted by the Board, and for traveling, meals, hotel
accommodations and the like upon submission by him of vouchers or an itemized
list thereof prepared in compliance with such rules relating thereto as the
Board may, from time to time, adopt and as may be required in order to permit
such payments as proper deductions to the Company under the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules and regulations adopted
pursuant thereto now or hereafter in effect.
(g) Vacations. During each year of employment, the Employee shall be
entitled to paid vacations for an aggregate of the greater of (A) four weeks, or
(B) such period as may be provided from time to time in the Company's vacation
policy.
- 2 -
<PAGE> 3
3. TERMINATION.
(a) This Agreement shall be terminated upon the happening of any of the
following events: (i) in the case of a termination by the Company for Cause (as
defined in Section 3(e) hereof), on the date set forth in the notice of
termination; (ii) in the case of other terminations, whenever the Company or the
Employee shall give at least six months' advance written notice of termination,
in which event the Agreement shall be terminated on the date set forth in such
notice; (iii) upon the death of the Employee; or (iv) upon the Permanent
Disability (as such term is defined in Section 3(f) hereof) of the Employee.
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(e) hereof) or
is terminated by the Employee for Good Reason (as defined in Section 3(g)
hereof), then during the period from the effective date of termination through
the date on which the then-current term of this Agreement was to expire, the
Employee shall continue to receive the full amount of his then current base
salary plus all other benefits to which the Employee is entitled pursuant to
Section 2(e) hereof and otherwise (including, without limitation, the continued
vesting and exercisability during such period of all stock options held by the
Employee) and in a single lump sum within 5 days after the date of the
Employee's employment is terminated three (3) times the average of the Incentive
Bonus paid or payable to the Employee in the last two years pursuant to Section
2(b) of the Agreement, provided, however, that if such termination is the result
of a Change of Control, then the full amount which would be payable to the
Employee under this subparagraph (b) during the foregoing period through the end
of the then-current term of this Agreement will be paid to the Employee in a
single lump sum within five days after the date the Employee's employment is
terminated.
(c) In the event the Employee's employment with the Company is terminated
upon the Employee's death or Permanent Disability (as such term is defined in
Section 3(f) hereof), the Employee or his legal representative shall continue to
receive his then current base salary for a two year period and all stock options
held by Employee shall, to the extent vested, continue to be exercisable during
such period.
(d) In the event of a termination of Employee by the Company for Cause (as
defined in Section 3(e)), the Company shall not be obligated to pay Employee any
compensation or benefits after the date of termination and Employee must
exercise any vested stock options held by Employee within 30 days of such date.
(e) For purposes hereof, "Cause" shall mean any of the following: (i) the
continued, intentional failure, neglect or refusal of the Employee to
substantially fulfill his material duties as an employee after ninety (90) days'
notice of breach is received from the Company; (ii) a material breach of any
fiduciary duty or other material dishonesty by the Employee with respect to the
Company or any affiliate thereof resulting in actual material harm to the
Company or such affiliate; or (iii) the conviction of the Employee for a felony.
- 3 -
<PAGE> 4
(f) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of six months in any twelve
month period.
(g) For purposes hereof, "Good Reason" shall exist if the Company shall:
(i) be in breach of or default under any material provision of this Agreement
and not cure such breach within 30 days of receiving notice of such breach from
the Employee; (ii) change the principal work location of the Employee away from
Manhattan, New York, without the consent of the Employee, which consent may be
withheld by the Employee for any reason; (iii) materially change the duties of
the Employee without the Employee's consent, which consent may be withheld by
the Employee for any reason; (iv) reduce the Employee's base salary or benefits
without the Employee's consent, which consent may be withheld by the Employee
for any reason; (v) become insolvent or bankrupt or file a voluntary or
involuntary petition in bankruptcy or make an assignment for the benefit of
creditors or consent to the appointment of a trustee or receiver; or (vi)
undergo a Change of Control (as defined in Section 3(f) hereof).
(h) For purposes hereof, a "Change of Control" of the Company shall have
occurred if (a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the U.S. Securities Exchange Act of 1934), other than the Company or
any subsidiary of the Company or any employee benefit plan sponsored by the
Company or any subsidiary of the Company, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the U.S. Securities Exchange Act of
1934), directly or indirectly, of securities of the Company representing in
excess of 50% of the combined voting power of the Company's then outstanding
securities, or if (b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute a majority of the directors thereof,
unless each new director was elected by, or on the recommendation of, a majority
of the directors then still in office who were directors at the beginning of
such period.
(i) In the event Employee shall become subject to the excise tax imposed
by Section 4999 of the Code and any related penalties or interest (the "Excise
Tax") by reason of any compensation payable to him hereunder, as determined by
the Company's independent accountants on the request of Employee, the Company
agrees to make an additional "gross-up" payment to the Employee in an amount
such that, after payment by Employee of all taxes (including any Excise Tax,
interest and penalties) imposed upon the gross-up payment, Employee shall retain
an amount equal to the Excise Tax.
(j) Employee shall have no obligation to seek to mitigate any amounts
payable under this Section 3 and any amounts he receives from other employment
shall not be offset against or otherwise reduce the amount due Employee
hereunder.
- 4 -
<PAGE> 5
4. NONCOMPETITION; NONINTERVENTION.
(a) While in the employ of the Company, the Employee agrees to devote
substantially all of his time, attention and energies to the performance of the
business of the Company and the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization, be actively
engaged in or concerned with any other duties or pursuits which interfere with
the performance of his duties as an employee of the Company, or which, even if
noninterfering, may be contrary to the best interests of the Company (provided,
however, that the Employee may continue his business activities involving the
providing of investment management and advisory services for a cash alternative
fund and involving market neutral strategies and convertible arbitrage programs
or, with the Board's prior consent, any other strategy which is not in
competition with the Company or its affiliates at the time such strategy
commences (the "Existing Activities")).
(b) Until two years after the termination or cessation of the Employee's
employment with the Company for any reason (including termination of employment
by the Company without Cause), the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization, engage in the business of
acquiring equity interests of, or otherwise investing in, investment management
firms other than (i) continuation of the Existing Activities, and (ii) after
termination of the Employee's employment with the Company for any reason,
investing in or acting as a partner, officer, director, employee, stockholder,
consultant or agent of any investment management firm in which the Employee is a
principal executive officer involved in management of the business on a
day-to-day basis. For a period of two years after the termination or cessation
of the Employee's employment with the Company for any reason (including
termination of employment by the Company without Cause) the Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (A) request or cause any customer of the Company or its Affiliates
who was introduced to the Company or its affiliates by the Employee to cancel or
terminate any business relationship with the Company or such affiliate, or (B)
solicit or otherwise cause any employee of the Company or its affiliates to
terminate such employee's relationship with the Company or such affiliate.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Company so far as they have come or
may come to his knowledge, except as may be required in the ordinary course of
performing his duties as an employee of the Company or except as may be in the
public domain through no fault of the Employee, and the Employee shall keep
secret all matters entrusted
- 5 -
<PAGE> 6
to him and shall not use or attempt to use any such information in any manner
which may injure or cause loss or may be calculated to injure or cause loss
whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make, use
or permit to be used any notes, memoranda, drawings, specifications, programs,
data or other materials of any nature relating to any matter within the scope of
the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company. The Employee shall not, after the
termination or cessation of his employment, use or permit to be used any such
notes, memoranda, drawings, specifications, programs, data or other materials,
it being agreed that any of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination or
cessation of his employment the Employee shall deliver all of the foregoing, and
all copies thereof, to the Company, at its main office.
6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
7. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in writing signed by
the party to be charged.
8. ARBITRATION.
(a) All disputes between Employee and the Company of any kind whatsoever,
including, without limitation, all disputes relating in any manner to the
employment or termination of Employee and all disputes arising under this
Agreement, but excluding (at the Company's option) any proceedings pursuant to
Section 9, shall be resolved by arbitration ("Arbitrable Claims"). Arbitration
shall be final and binding upon the parties and shall be the exclusive remedy
for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO
TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement. There
shall be one arbitrator selected in accordance with the AAA Employment Rules. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel
- 6 -
<PAGE> 7
arbitration under this Agreement and to enforce an arbitration award. Otherwise,
neither party shall initiate or prosecute any lawsuit or administrative action
in any way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in New York, New York. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 8. The fees of
the arbitrator shall be split between both parties equally.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the arbitrator
and, if involved, the court and court staff.
(d) The rights and obligations of Employee and the Company as set forth in
this Section 8 with respect to arbitration shall survive the termination of
Employee's employment and the expiration of this Agreement.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that irreparable and immediate damage
will result to the Company if Employee breaches his obligations under Section 4
or Section 5 hereof. In the event of a breach by the Employee of Section 4 or
Section 5 hereof, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain the Employee from the violation of such
provisions. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
10. INDEMNIFICATION.
The Company shall indemnify Employee to the fullest extent permitted by
law (including, without limitation, advancement of legal fees on a current
basis) for all matters related to or arising from Employee's service as an
officer, director and/or fiduciary of any benefit plan of the Company. The
Company shall cover Employee during and after Employee's employment under the
Company's director and officer liability insurance to the greatest extent
afforded any senior officer and director of the Company.
11. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the terms
of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall survive
the termination or cessation of the Employee's employment with the Company and
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, executors,
- 7 -
<PAGE> 8
administrators, personal representatives, successors and assigns of either of
the parties to this Agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by the
Employee shall not operate or be construed as a waiver of any subsequent breach
by the Employee.
(d) Notices. All notices to be given hereunder shall be in writing and
personally delivered or sent certified mail, return receipt requested. Notices
to be given to the Employee shall be sent to the address indicated below the
Employee's signature below. Notices to be given to the Company shall be sent to
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022, to the
attention of Bruce H. Lipnick, President. Notices of any changes in the above
addresses shall be given to the other party in writing.
(e) Severability. If any provision of this Agreement shall contravene any
law of any particular state where the Employee shall perform services for the
Company, then this Agreement shall be first construed to be limited in scope and
duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Bruce H. Lipnick
---------------------------------
Name: Bruce H. Lipnick
Title: President
/s/ Arnold L. Mintz
-------------------------------------
Arnold L. Mintz
Employee's Address:
200 East 82nd Street, Apartment 27G
New York, New York 10028
- 8 -
<PAGE> 9
EXHIBIT A
INCENTIVE BONUS SCHEDULE
<TABLE>
<CAPTION>
EARNINGS BEFORE INCOME
TAXES, DEPRECIATION AND
AMORTIZATION ("EBITDA") PER MAXIMUM INCENTIVE
SHARE BONUS PAYMENT
- ----------------------------------------------------------------------
<S> <C>
0 - <.75 0
.75 - < 1.0 $ 75,000
1.0 - < 1.25 $150,000
1.25 - < 1.50 $225,000
1.50 - < 1.75 $300,000
1.75 - < 2.25 $375,000
2.25 - < 3.0 $450,000
3.0 - < 4.0 $525,000
4.0 - < 5.0 $600,000
5.0 - < 6.0 $675,000
6.0 and above $750,000
</TABLE>
The Company's EBITDA per share shall be equitably determined by the
Board and the Company's independent accountants each year, taking into account
changes in the Company's capital structure, including by reason of stock
dividends, stock splits, recapitalizations, reorganizations, mergers and other
relevant changes in the Company's capitalization. The Incentive Bonus Payment
for EBITDA per share levels falling between the low and high range shall be
computed on a straight-line basis. For example, if EBITDA should be 2.0 (the
mid-point between 1.75 and 2.25), the Incentive Bonus Payment shall be $412,500
(the mid-point between $375,000 and $450,000).
- 9 -
<PAGE> 1
Exhibit 10.13
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is dated
as of March 4, 1998, and is entered into between Asset Alliance Corporation, a
Delaware corporation (the "Company"), and Mark P. Strauch (the "Employee").
WHEREAS, the Employee and the Company are parties to an Employment
Agreement, dated as of July 8, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Company have agreed to amend the Prior
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Employee shall continue to serve as the Company's Chief Financial
Officer until such time as the Board of Directors of the Company (the "Board")
determines to appoint a full-time Chief Financial Officer and thereafter as
Senior Vice President and Treasurer, and in such other executive managerial
position or positions with the Company or its subsidiaries or affiliates as
shall hereafter be designated by the Board, to perform such managerial duties
consistent with the usual duties of an officer of his status. Such employment
shall be on the terms and conditions set forth herein. The Employee hereby
accepts such employment and agrees to devote an amount of his business time
consistent with his employment under the Prior Agreement and appropriate to the
faithful and diligent performance of the duties of his office as determined by
the Board. The Company acknowledges that the Employee is employed on a full-time
basis by Arthur J. Gallagher & Co. ("AJG") and his primary employment
responsibility and loyalty is to AJG and that he will fulfill his duties
hereunder at such location or locations as is consistent with the fulfillment of
his primary duties to AJG. Employee represents and warrants that AJG has been
apprised of this Agreement and has consented to Employee's employment hereunder
pursuant to the terms and conditions of this Agreement.
(b) The term of the Employee's employment by the Company shall commence as
of February 1, 1998 (the "Effective Date"), and continue for a period of one
year from such date unless sooner terminated pursuant to the terms hereof.
Within thirty (30) days of each anniversary of this Agreement, the Company may
elect, with the Employee's written consent, to extend the term for an additional
one year period on the same terms and conditions as are provided herein unless
otherwise specified in the election notice.
<PAGE> 2
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base salary
of $95,000 per annum, commencing on the Effective Date and payable in accordance
with the normal payroll practices of the Company.
(b) Discretionary Bonus. Employee shall be eligible to receive a
discretionary annual bonus in the sole discretion of the Board.
(c) Stock Options. In consideration of the Employee's agreement to
substitute this Agreement for the Prior Agreement, and subject to the approval
of the Company's Board, the Company shall grant to the Employee options to
purchase 20,000 shares of the Common Stock as of the date hereof on the
following terms and such other terms as the Board or the Stock Option or
Compensation Committee thereof may determine: (1) the options shall be exercised
within ten (10) years of the date hereof; (2) the options shall vest and become
exercisable on the date of grant; and (3) the exercise price shall be $10 per
share, which the Board agrees is the estimated fair market value of the
Company's shares on the date hereof.
(d) Benefits. Unless otherwise specifically approved by the Board, the
Employee shall not be entitled to participate in any Company sponsored employee
benefit programs so long as Employee is a full-time employee of AJG or another
organization.
(e) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, for
traveling, meals, hotel accommodations and the like upon submission by him of
vouchers or an itemized list thereof prepared in compliance with such rules
relating thereto as the Board may, from time to time, adopt and as may be
required in order to permit such payments as proper deductions to the Company
under the Internal Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations adopted pursuant thereto now or hereafter in effect.
3. TERMINATION.
(a) This Agreement may be terminated by the Company for any reason at any
time. The Company agrees to provide Employee ten (10) days prior notice setting
forth the date the termination will be effective, except where the termination
is for Cause (as defined in Section 3(e)).
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(e)), then
during the period from the effective date of termination through the date on
which the then-current term of this Agreement was to expire, the Employee shall
continue to receive his base salary. All stock options held by the Employee, to
the extent vested, must be exercised within thirty (30) days of the effective
date of Employee's termination.
- 2 -
<PAGE> 3
(c) In the event the Employee's employment with the Company is terminated
upon the Employee's death or Permanent Disability (as such term is defined in
Section 3(f) hereof), the Employee or his legal representative shall be entitled
to receive any accrued but unpaid base salary. All stock options held by
Employee shall, to the extent vested on the termination date, be exercisable
within one year of the termination date.
(d) In the event of Employee's voluntary termination or a termination of
Employee by the Company for Cause (as defined in Section 3(e)), the Company
shall not be obligated to pay Employee any unpaid compensation and Employee
shall forfeit any stock options held by Employee.
(e) For purposes hereof, "Cause" shall mean any of the following: (i) the
inability or refusal of the Employee to perform his duties as an employee in a
manner consistent with the provisions of Section 1(a) to the satisfaction of the
Board; (ii) a material breach of any fiduciary duty or other material dishonesty
by the Employee with respect to the Company or any affiliate thereof resulting
in actual material harm to the Company or such affiliate; or (iii) the
conviction of the Employee for a felony.
(f) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of six months in any twelve
month period.
(g) Employee shall have no obligation to seek to mitigate any amounts
payable under this Section 3 and any amounts he receives from other employment
shall not be offset against or otherwise reduce the amount due Employee
hereunder.
4. NONCOMPETITION; NONINTERVENTION
(a) Subject to the provisions of Section 1 above, while in the employ of
the Company the Employee agrees to devote a sufficient amount of his time,
attention and energies to the performance of the business of the Company to
fulfill the duties contemplated by Section 1 hereof, and the Employee shall not,
directly or indirectly, along or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned with any other duties
or pursuits (other than his employment by AJG and its affiliates) which
interfere with the performance of his duties as an Employee of the Company, or
which, even if noninterfering, may be contrary to the best interests of the
Company.
(b) Until six (6) months after the termination or cessation of the
Employee's employment with the Company for any reason (including termination of
employment by the Company without Cause), the Employee shall not, directly or
indirectly, alone or as a member of any partnership or other business
organization, or as a partner, officer, director, employee, stockholder,
consultant or agent of any corporation, partnership or business organization,
engage
- 3 -
<PAGE> 4
in the business of acquiring equity interests of, or otherwise investing in,
investment management firms (other than activities undertaken in the ordinary
course of performing his duties as an employee of AJG to the extent that such
activities do not constitute a breach of any noncompetition covenant of AJG to
the Company). For a period of six (6) months after the termination or cessation
of the Employee's employment with the Company for any reason (including
termination of employment by the Company without Cause) the Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (i) request or cause any customer of the Company or its affiliates
to cancel or terminate any business relationship with the Company or such
affiliate, or (ii) solicit or otherwise cause any employee of the Company or its
affiliates to terminate such employee's relationship with the Company or such
affiliate.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Company so far as they have come or
may come to his knowledge, except as may be required in the ordinary course of
performing his duties as an employee of the Company or in the ordinary course of
performing his duties as an employee of AJG or except as may be in the public
domain through no fault of the Employee, and the Employee shall keep secret all
matters entrusted to him and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make, use
or permit to be used any notes, memoranda, drawings, specifications, programs,
data or other materials of any nature relating to any matter within the scope of
the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company. The Employee shall not, after the
termination or cessation of his employment, use or permit to be used any such
notes, memoranda, drawings, specifications, programs, data or other materials,
it being agreed that any of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination or
cessation of his employment the Employee shall deliver all of the foregoing, and
all copies thereof, to the Company, at its main office.
6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
7. ENTIRE AGREEMENT.
- 4 -
<PAGE> 5
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto (including the agreement
dated as of March 4, 1998) and cannot be modified, amended, waived or
terminated, in whole or in part, except in writing signed by the party to be
charged.
8. ARBITRATION.
(a) All disputes between Employee and the Company of any kind whatsoever,
including, without limitation, all disputes relating in any manner to the
employment or termination of Employee and all disputes arising under this
Agreement, but excluding (at the Company's option) any proceedings pursuant to
Section 9, shall be resolved by arbitration ("Arbitrable Claims"). Arbitration
shall be final and binding upon the parties and shall be the exclusive remedy
for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO
TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement. There
shall be one arbitrator selected in accordance with the AAA Employment Rules. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel arbitration
under this Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in New York, New York. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 8. The fees of
the arbitrator shall be split between both parties equally.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the arbitrator
and, if involved, the court and court staff.
(d) The rights and obligations of Employee and the Company as set forth in
this Section 8 with respect to arbitration shall survive the termination of
Employee's employment and the expiration of this Agreement.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that irreparable and immediate damage
will result to the Company if the Employee breaches his obligations under
Section 4 or Section 5 hereof. In the event of a breach by the Employee of
Section 4 or Section 5 hereof, the Company shall be entitled to such equitable
and injunctive relief as may be available to restrain the Employee from the
violation of such provisions. The remedies provided in this Agreement shall be
deemed
- 5 -
<PAGE> 6
cumulative and the exercise of one shall not preclude the exercise of any other
remedy at law or in equity for the same event or any other event.
10. INDEMNIFICATION.
The Company shall indemnify Employee to the fullest extent permitted by
law (including, without limitation, advancement of legal fees on a current
basis) for all matters related to or arising from Employee's service as an
officer, director and/or fiduciary of any benefit plan of the Company. The
Company shall cover Employee during and after Employee's employment under the
Company's director and officer liability insurance to the greatest extent
afforded any senior officer and director of the Company.
11. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the terms
of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall survive
the termination or cessation of the Employee's employment with the Company and
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, executors, administrators, personal
representatives, successors and assigns of either of the parties to this
Agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by the
Employee shall not operate or be construed as a waiver of any subsequent breach
by the Employee.
(d) Notices. All notices to be given hereunder shall be in writing and
personally delivered or sent certified mail, return receipt requested. Notices
to be given to the Employee shall be sent to the address indicated below the
Employee's signature below. Notices to be given to the Company shall be sent to
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022, to the
attention of Arnold L. Mintz, Executive Vice President. Notices of any changes
in the above addresses shall be given to the other party in writing.
(e) Severability. If any provision of this Agreement shall contravene any
law of any particular state where the Employee shall perform services for the
Company, then this Agreement shall be first construed to be limited in scope and
duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
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<PAGE> 7
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
--------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
/s/ Mark P. Strauch
-------------------------------------
Mark P. Strauch
Employee's Address:
1116 Howard Drive
Schaumburg, Illinois 60193
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<PAGE> 1
Exhibit 10.14
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is dated
as of March 4, 1998, and is entered into between Asset Alliance Corporation, a
Delaware corporation (the "Company"), and David R. Long (the "Employee").
WHEREAS, the Employee and the Company are parties to an Employment
Agreement, dated as of July 8, 1996 (the "Prior Agreement"); and
WHEREAS, the Employee and the Company have agreed to amend the Prior
Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Employee shall continue to serve as the Company's Senior Vice
President, Acquisitions and Strategic Planning, and in such other executive
managerial position or positions with the Company or its subsidiaries or
affiliates as shall hereafter be designated by the Board of Directors of the
Company (the "Board"), to perform such managerial duties consistent with the
usual duties of an officer of his status. Such employment shall be on the terms
and conditions set forth herein. The Employee hereby accepts such employment and
agrees to devote an amount of his business time consistent with his employment
under the Prior Agreement and appropriate to the faithful and diligent
performance of the duties of his office as determined by the Board. The Company
acknowledges that the Employee is employed on a full-time basis by Arthur J.
Gallagher & Co. ("AJG") and his primary employment responsibility and loyalty is
to AJG and that he will fulfill his duties hereunder at such location or
locations as is consistent with the fulfillment of his primary duties to AJG.
Employee represents and warrants that AJG has been apprised of this Agreement
and has consented to Employee's employment hereunder pursuant to the terms and
conditions of this Agreement.
(b) The term of the Employee's employment by the Company shall commence as
of February 1, 1998 (the "Effective Date"), and continue for a period of one
year from such date unless sooner terminated pursuant to the terms hereof.
Within thirty (30) days of each anniversary of this Agreement, the Company may
elect, with the Employee's written consent, to extend the term for an additional
one year period on the same terms and conditions as are provided herein unless
otherwise specified in the election notice.
<PAGE> 2
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base salary
of $105,000 per annum, commencing on the Effective Date and payable in
accordance with the normal payroll practices of the Company.
(b) Discretionary Bonus. Employee shall be eligible to receive a
discretionary annual bonus in the sole discretion of the Board.
(c) Stock Options. In consideration of the Employee's agreement to
substitute this Agreement for the Prior Agreement, and subject to the approval
of the Company's Board, the Company shall grant to the Employee options to
purchase 20,000 shares of the Common Stock as of the date hereof on the
following terms and such other terms as the Board or the Stock Option or
Compensation Committee thereof may determine: (1) the options shall be exercised
within ten (10) years of the date hereof; (2) the options shall vest and become
exercisable on the date of grant; and (3) the exercise price shall be $10 per
share, which the Board agrees is the estimated fair market value of the
Company's shares on the date hereof.
(d) Benefits. Unless otherwise specifically approved by the Board, the
Employee shall not be entitled to participate in any Company sponsored employee
benefit programs so long as Employee is a full-time employee of AJG or another
organization.
(e) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, for
traveling, meals, hotel accommodations and the like upon submission by him of
vouchers or an itemized list thereof prepared in compliance with such rules
relating thereto as the Board may, from time to time, adopt and as may be
required in order to permit such payments as proper deductions to the Company
under the Internal Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations adopted pursuant thereto now or hereafter in effect.
3. TERMINATION.
(a) This Agreement may be terminated by the Company for any reason at any
time. The Company agrees to provide Employee ten (10) days prior notice setting
forth the date the termination will be effective, except where the termination
is for Cause (as defined in Section 3(e)).
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(e)), then
during the period from the effective date of termination through the date on
which the then-current term of this Agreement was to expire, the Employee shall
continue to receive his base salary. All stock options held by the Employee, to
the extent vested, must be exercised within thirty (30) days of the effective
date of Employee's termination.
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<PAGE> 3
(c) In the event the Employee's employment with the Company is terminated
upon the Employee's death or Permanent Disability (as such term is defined in
Section 3(f) hereof), the Employee or his legal representative shall be entitled
to receive any accrued but unpaid base salary. All stock options held by
Employee shall, to the extent vested on the termination date, be exercisable
within one year of the termination date.
(d) In the event of Employee's voluntary termination or a termination of
Employee by the Company for Cause (as defined in Section 3(e)), the Company
shall not be obligated to pay Employee any unpaid compensation and Employee
shall forfeit any stock options held by Employee.
(e) For purposes hereof, "Cause" shall mean any of the following: (i) the
inability or refusal of the Employee to perform his duties as an employee in a
manner consistent with the provisions of Section 1(a) to the satisfaction of the
Board; (ii) a material breach of any fiduciary duty or other material dishonesty
by the Employee with respect to the Company or any affiliate thereof resulting
in actual material harm to the Company or such affiliate; or (iii) the
conviction of the Employee for a felony.
(f) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of six months in any twelve
month period.
(g) Employee shall have no obligation to seek to mitigate any amounts
payable under this Section 3 and any amounts he receives from other employment
shall not be offset against or otherwise reduce the amount due Employee
hereunder.
4. NONCOMPETITION; NONINTERVENTION
(a) Subject to the provisions of Section 1 above, while in the employ of
the Company the Employee agrees to devote a sufficient amount of his time,
attention and energies to the performance of the business of the Company to
fulfill the duties contemplated by Section 1 hereof, and the Employee shall not,
directly or indirectly, along or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any other corporation, partnership or other
business organization, be actively engaged in or concerned with any other duties
or pursuits (other than his employment by AJG and its affiliates) which
interfere with the performance of his duties as an Employee of the Company, or
which, even if noninterfering, may be contrary to the best interests of the
Company.
(b) Until six (6) months after the termination or cessation of the
Employee's employment with the Company for any reason (including termination of
employment by the Company without Cause), the Employee shall not, directly or
indirectly, alone or as a member of any partnership or other business
organization, or as a partner, officer, director, employee, stockholder,
consultant or agent of any corporation, partnership or business organization,
engage
- 3 -
<PAGE> 4
in the business of acquiring equity interests of, or otherwise investing in,
investment management firms (other than activities undertaken in the ordinary
course of performing his duties as an employee of AJG to the extent that such
activities do not constitute a breach of any noncompetition covenant of AJG to
the Company). For a period of six (6) months after the termination or cessation
of the Employee's employment with the Company for any reason (including
termination of employment by the Company without Cause) the Employee shall not,
directly or indirectly, alone or as a member of any partnership or other
business organization, or as a partner, officer, director, employee,
stockholder, consultant or agent of any corporation, partnership or business
organization (i) request or cause any customer of the Company or its affiliates
to cancel or terminate any business relationship with the Company or such
affiliate, or (ii) solicit or otherwise cause any employee of the Company or its
affiliates to terminate such employee's relationship with the Company or such
affiliate.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Company so far as they have come or
may come to his knowledge, except as may be required in the ordinary course of
performing his duties as an employee of the Company or in the ordinary course of
performing his duties as an employee of AJG or except as may be in the public
domain through no fault of the Employee, and the Employee shall keep secret all
matters entrusted to him and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make, use
or permit to be used any notes, memoranda, drawings, specifications, programs,
data or other materials of any nature relating to any matter within the scope of
the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company. The Employee shall not, after the
termination or cessation of his employment, use or permit to be used any such
notes, memoranda, drawings, specifications, programs, data or other materials,
it being agreed that any of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination or
cessation of his employment the Employee shall deliver all of the foregoing, and
all copies thereof, to the Company, at its main office.
6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
7. ENTIRE AGREEMENT.
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<PAGE> 5
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto (including the agreement
dated as of March 4, 1998) and cannot be modified, amended, waived or
terminated, in whole or in part, except in writing signed by the party to be
charged.
8. ARBITRATION.
(a) All disputes between Employee and the Company of any kind whatsoever,
including, without limitation, all disputes relating in any manner to the
employment or termination of Employee and all disputes arising under this
Agreement, but excluding (at the Company's option) any proceedings pursuant to
Section 9, shall be resolved by arbitration ("Arbitrable Claims"). Arbitration
shall be final and binding upon the parties and shall be the exclusive remedy
for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO
TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement. There
shall be one arbitrator selected in accordance with the AAA Employment Rules. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel arbitration
under this Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in New York, New York. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 8. The fees of
the arbitrator shall be split between both parties equally.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the arbitrator
and, if involved, the court and court staff.
(d) The rights and obligations of Employee and the Company as set forth in
this Section 8 with respect to arbitration shall survive the termination of
Employee's employment and the expiration of this Agreement.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that irreparable and immediate damage
will result to the Company if the Employee breaches his obligations under
Section 4 or Section 5 hereof. In the event of a breach by the Employee of
Section 4 or Section 5 hereof, the Company shall be entitled to such equitable
and injunctive relief as may be available to restrain the Employee from the
violation of such provisions. The remedies provided in this Agreement shall be
deemed
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<PAGE> 6
cumulative and the exercise of one shall not preclude the exercise of any other
remedy at law or in equity for the same event or any other event.
10. INDEMNIFICATION.
The Company shall indemnify Employee to the fullest extent permitted by
law (including, without limitation, advancement of legal fees on a current
basis) for all matters related to or arising from Employee's service as an
officer, director and/or fiduciary of any benefit plan of the Company. The
Company shall cover Employee during and after Employee's employment under the
Company's director and officer liability insurance to the greatest extent
afforded any senior officer and director of the Company.
11. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the terms
of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall survive
the termination or cessation of the Employee's employment with the Company and
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, executors, administrators, personal
representatives, successors and assigns of either of the parties to this
Agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by the
Employee shall not operate or be construed as a waiver of any subsequent breach
by the Employee.
(d) Notices. All notices to be given hereunder shall be in writing and
personally delivered or sent certified mail, return receipt requested. Notices
to be given to the Employee shall be sent to the address indicated below the
Employee's signature below. Notices to be given to the Company shall be sent to
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022, to the
attention of Arnold L. Mintz, Executive Vice President. Notices of any changes
in the above addresses shall be given to the other party in writing.
(e) Severability. If any provision of this Agreement shall contravene any
law of any particular state where the Employee shall perform services for the
Company, then this Agreement shall be first construed to be limited in scope and
duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
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<PAGE> 7
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
---------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
/s/ David R. Long
-------------------------------------
David R. Long
Employee's Address:
650 Skye Lane
Barrington, Illinois 60010
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<PAGE> 1
Exhibit 10.15
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is dated as of March 12, 1998,
and is entered into between Asset Alliance Corporation, a Delaware corporation
(the "Company"), and Jeffrey John Ervine (the "Employee").
WHEREAS, the Company wishes to employ the Employee, and the Employee
wishes to be employed by the Company as a key employee of the Company.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company hereby agrees to employ the Employee to serve as the
Company's Senior Vice President and Treasurer until such time as the Board of
Directors of the Company (the "Board") shall determine, in connection with the
Company's initial public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "IPO"), to make Employee the Company's
Chief Financial Officer (which shall in no event be later than six (6) months
after completion of the IPO), and in such other executive managerial position or
positions with the Company or its subsidiaries or affiliates as shall hereafter
be designated by the Board, to perform such managerial duties consistent with
the usual duties of an officer of his status. Such employment shall be on the
terms and conditions set forth herein. The Employee hereby accepts such
employment and agrees to devote substantially all of his business time to the
faithful and diligent performance of the duties provided herein. Employee
represents and warrants that he is a Certified Public Accountant in the State of
Pennsylvania.
(b) The term of the Employee's employment by the Company shall commence as
of the date hereof and continue for a period of five years unless and until the
Employee's employment is terminated pursuant to the terms hereof.
2. COMPENSATION.
(a) Salary. The Company shall compensate the Employee with a base salary
of $175,000 per annum, commencing on the date hereof and payable in accordance
with the normal payroll practices of the Company. The base salary shall be
reviewed annually and may be increased (but shall not be decreased) in the sole
discretion of the Board.
(b) Discretionary Bonus. Employee shall be eligible to receive a
discretionary annual bonus of up to 50% of his base salary, as determined by the
Board in its sole discretion.
<PAGE> 2
(c) Stock Options. Subject to the approval of the Company's Board, the
Company shall grant to the Employee options to purchase 150,000 shares of the
Common Stock as of the date hereof on the following terms and such other terms
as the Board or the Stock Option or Compensation Committee thereof may
determine: (1) the options shall be exercised within ten (10) years of the date
hereof; (2) the options shall vest and become exercisable in accordance with the
following schedule: 50,000 shares as of the date hereof, 25,000 shares on the
first anniversary of the date hereof, 12,500 shares on the second, third, fourth
and fifth anniversaries of the date hereof, and 25,000 shares on the seventh
anniversary of the date hereof; and (3) the exercise price shall be $10 per
share.
(d) Benefits. The Employee shall be entitled to participate in a Company
sponsored 401(k) plan and any Company sponsored group health, medical,
hospitalization, disability, accident and life insurance plans, all on such
terms as the Board shall determine in establishing such benefit programs as
promptly as is reasonably practicable after the date hereof, and such other
employee benefits as the Board may hereafter make available to the executives of
the Company.
(e) Expenses. The Company shall pay or reimburse the Employee for all
expenses normally reimbursed by the Company and reasonably incurred by him in
furtherance of his duties hereunder including, without limitation, expenses for
traveling, meals, hotel accommodations and the like upon submission by him of
vouchers or an itemized list thereof prepared in compliance with such rules
relating thereto as the Board may, from time to time, adopt and as may be
required in order to permit such payments as proper deductions to the Company
under the Internal Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations adopted pursuant thereto now or hereafter in effect.
(f) Vacations. During each year of employment, the Employee shall be
entitled to paid vacations for an aggregate of the greater of (A) three weeks,
or (B) such period as may be provided from time to time in the Company's
vacation policy.
3. TERMINATION.
(a) This Agreement shall be terminated upon the happening of any of the
following events: (i) on the date the Company or the Employee shall provide
written notice of termination, in which event the Agreement shall be terminated
on such date; (ii) upon the death of the Employee; or (iii) upon the Permanent
Disability (as such term is defined in Section 3(f) hereof) of the Employee.
(b) In the event that the Employee's employment with the Company is
terminated by the Company without Cause (as defined in Section 3(e) hereof) or
is terminated by the Employee for Good Reason (as defined in Section 3(g)
hereof), then Employee shall continue to receive his then base salary (i) for
three (3) years, if such termination occurs on or before the second anniversary
of the date hereof, and (ii) for two (2) years, if such termination occurs after
the
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<PAGE> 3
second anniversary of the date hereof. In addition, all of the Employee's share
options shall immediately vest and become exercisable, and the Employee shall
have thirty (30) days to exercise such options.
(c) In the event the Employee's employment with the Company is terminated
upon the Employee's death or Permanent Disability (as such term is defined in
Section 3(f) hereof), the Employee or his legal representative shall continue to
receive his then current base salary for a two year period and all stock options
held by Employee shall continue to vest and be exercisable (to the extent they
have vested) during such period.
(d) In the event of a termination of Employee by the Company for Cause (as
defined in Section 3(e)), the Company shall not be obligated to pay Employee any
compensation or benefits after the date of termination, and the Employee shall
forfeit any stock options not previously exercised by him.
(e) For purposes hereof, "Cause" shall mean any of the following: (i) the
neglect, refusal, or inability of the Employee to perform his duties as an
employee, to the reasonable satisfaction of the Board; (ii) a material breach of
any fiduciary duty or other material dishonesty by the Employee with respect to
the Company or any affiliate thereof resulting in actual material harm to the
Company or such affiliate; or (iii) the conviction of the Employee for a felony.
(f) For purposes hereof, "Permanent Disability" shall mean the total
incapacitation of the Employee so as to preclude performance of the duties of
his employment hereunder for an aggregate period of six months in any twelve
month period.
(g) For purposes hereof, "Good Reason" shall exist if the Company shall:
(i) be in breach of or default under any material provision of this Agreement
and not cure such breach within 30 days of receiving notice of such breach from
the Employee; (ii) materially change the duties of the Employee without the
Employee's consent, which consent may be withheld by the Employee for any
reason; (iii) reduce the Employee's base salary or benefits without the
Employee's consent, which consent may be withheld by the Employee for any
reason; (iv) become insolvent or bankrupt or file a voluntary or involuntary
petition in bankruptcy or make an assignment for the benefit of creditors or
consent to the appointment of a trustee or receiver; or (v) undergo a Change of
Control (as defined in Section 3(h) hereof).
(h) For purposes hereof, a "Change of Control" of the Company shall have
occurred if (a) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the U.S. Securities Exchange Act of 1934), other than the Company or
any subsidiary of the Company or any employee benefit plan sponsored by the
Company or any subsidiary of the Company, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the U.S. Securities Exchange Act of
1934), directly or indirectly, of securities of the Company representing in
excess of 50% of the combined voting power of the Company's then outstanding
securities, or if (b) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board
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<PAGE> 4
of Directors of the Company cease for any reason to constitute a majority of the
directors thereof, unless each new director was elected by, or on the
recommendation of, a majority of the directors then still in office who were
directors at the beginning of such period.
(i) In the event Employee shall become subject to the excise tax imposed
by Section 4999 of the Code and any related penalties or interest (the "Excise
Tax") by reason of any compensation payable to him hereunder, as determined by
the Company's independent accountants on the request of Employee, the Company
agrees to make an additional "gross-up" payment to the Employee in an amount
such that, after payment by Employee of all taxes (including any Excise Tax,
interest and penalties) imposed upon the gross-up payment, Employee shall retain
an amount equal to the Excise Tax.
(j) Employee shall have no obligation to seek to mitigate any amounts
payable under this Section 3 and any amounts he receives from other employment
shall not be offset against or otherwise reduce the amount due Employee
hereunder.
4. NONCOMPETITION; NONINTERVENTION.
(a) While in the employ of the Company, the Employee agrees to devote
substantially all of his time, attention and energies to the performance of the
business of the Company and the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
other corporation, partnership or other business organization, be actively
engaged in or concerned with any other duties or pursuits which interfere with
the performance of his duties as an employee of the Company, or which, even if
noninterfering, may be contrary to the best interests of the Company (provided,
however, that the Employee may continue his business activities involving the
providing of investment management and advisory services for a cash alternative
fund and involving market neutral strategies and convertible arbitrage programs
or, with the Board's prior consent, any other strategy which is not in
competition with the Company or its affiliates at the time such strategy
commences (the "Existing Activities")).
(b) Until two years after the termination or cessation of the Employee's
employment with the Company for any reason (including termination of employment
by the Company without Cause), the Employee shall not, directly or indirectly,
alone or as a member of any partnership or other business organization, or as a
partner, officer, director, employee, stockholder, consultant or agent of any
corporation, partnership or business organization, engage in the business of
acquiring equity interests of, or otherwise investing in, investment management
firms other than (i) continuation of the Existing Activities, and (ii) after
termination of the Employee's employment with the Company for any reason,
investing in or acting as a partner, officer, director, employee, stockholder,
consultant or agent of any investment management firm in which the Employee is a
principal executive officer involved in management of the business on a
day-to-day basis. For a period of two years after the termination or cessation
of the Employee's employment with the Company for any reason (including
termination of employment by the Company without Cause)
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<PAGE> 5
the Employee shall not, directly or indirectly, alone or as a member of any
partnership or other business organization, or as a partner, officer, director,
employee, stockholder, consultant or agent of any corporation, partnership or
business organization (A) request or cause any customer of the Company or its
Affiliates who was introduced to the Company or its affiliates by the Employee
to cancel or terminate any business relationship with the Company or such
affiliate, or (B) solicit or otherwise cause any employee of the Company or its
affiliates to terminate such employee's relationship with the Company or such
affiliate.
5. CONFIDENTIAL INFORMATION.
(a) The Employee will not at any time, whether during or after the
termination or cessation of his employment, reveal to any person, association or
company any of the trade secrets or confidential information concerning the
organization, business or finances of the Company so far as they have come or
may come to his knowledge, except as may be required in the ordinary course of
performing his duties as an employee of the Company or except as may be in the
public domain through no fault of the Employee, and the Employee shall keep
secret all matters entrusted to him and shall not use or attempt to use any such
information in any manner which may injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
(b) The Employee agrees that during his employment he shall not make, use
or permit to be used any notes, memoranda, drawings, specifications, programs,
data or other materials of any nature relating to any matter within the scope of
the business of the Company or concerning any of its dealings or affairs
otherwise than for the benefit of the Company. The Employee shall not, after the
termination or cessation of his employment, use or permit to be used any such
notes, memoranda, drawings, specifications, programs, data or other materials,
it being agreed that any of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination or
cessation of his employment the Employee shall deliver all of the foregoing, and
all copies thereof, to the Company, at its main office.
6. BINDING EFFECT.
This Agreement shall inure to the benefit of and shall be binding upon the
parties hereto and the Company's successors or assigns (whether resulting from
any reorganization, consolidation or merger of the Company or any business to
which all or substantially all of the assets of the Company are sold) and the
Employee's heirs, executors and legal representatives.
7. ENTIRE AGREEMENT.
This Agreement contains the entire agreement and understanding of the
parties with respect to the subject matter hereof, supersedes all prior
agreements and understandings with respect thereto and cannot be modified,
amended, waived or terminated, in whole or in part, except in writing signed by
the party to be charged.
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<PAGE> 6
8. ARBITRATION.
(a) All disputes between Employee and the Company of any kind whatsoever,
including, without limitation, all disputes relating in any manner to the
employment or termination of Employee and all disputes arising under this
Agreement, but excluding (at the Company's option) any proceedings pursuant to
Section 9, shall be resolved by arbitration ("Arbitrable Claims"). Arbitration
shall be final and binding upon the parties and shall be the exclusive remedy
for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO
TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement. There
shall be one arbitrator selected in accordance with the AAA Employment Rules. In
any arbitration, the burden of proof shall be allocated as provided by
applicable law. Either party may bring an action in court to compel arbitration
under this Agreement and to enforce an arbitration award. Otherwise, neither
party shall initiate or prosecute any lawsuit or administrative action in any
way related to any Arbitrable Claim. All arbitration hearings under this
Agreement shall be conducted in New York, New York. The Federal Arbitration Act
shall govern the interpretation and enforcement of this Section 8. The fees of
the arbitrator shall be split between both parties equally.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by law,
the subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the arbitrator
and, if involved, the court and court staff.
(d) The rights and obligations of Employee and the Company as set forth in
this Section 8 with respect to arbitration shall survive the termination of
Employee's employment and the expiration of this Agreement.
9. RIGHT TO INJUNCTION.
The Employee acknowledges and agrees that irreparable and immediate damage
will result to the Company if Employee breaches his obligations under Section 4
or Section 5 hereof. In the event of a breach by the Employee of Section 4 or
Section 5 hereof, the Company shall be entitled to such equitable and injunctive
relief as may be available to restrain the Employee from the violation of such
provisions. The remedies provided in this Agreement shall be deemed cumulative
and the exercise of one shall not preclude the exercise of any other remedy at
law or in equity for the same event or any other event.
- 6 -
<PAGE> 7
10. INDEMNIFICATION.
The Company shall indemnify Employee to the fullest extent permitted by
law (including, without limitation, advancement of legal fees on a current
basis) for all matters related to or arising from Employee's service as an
officer, director and/or fiduciary of any benefit plan of the Company. The
Company shall cover Employee during and after Employee's employment under the
Company's director and officer liability insurance to the greatest extent
afforded any senior officer and director of the Company.
11. MISCELLANEOUS.
(a) Amendments. No amendment, modification or waiver of any of the terms
of this Agreement shall be valid unless made in writing and signed by the
Employee and the Company.
(b) Successors in Interest. All provisions of this Agreement shall survive
the termination or cessation of the Employee's employment with the Company and
shall be binding upon and inure to the benefit of and be enforceable by and
against the respective heirs, executors, administrators, personal
representatives, successors and assigns of either of the parties to this
Agreement.
(c) Waiver. The waiver by the Company of a breach of this Agreement by the
Employee shall not operate or be construed as a waiver of any subsequent breach
by the Employee.
(d) Notices. All notices to be given hereunder shall be in writing and
personally delivered or sent certified mail, return receipt requested. Notices
to be given to the Employee shall be sent to the address indicated below the
Employee's signature below. Notices to be given to the Company shall be sent to
Asset Alliance Corporation, 800 Third Avenue, New York, New York 10022, to the
attention of Arnold L. Mintz, Executive Vice President. Notices of any changes
in the above addresses shall be given to the other party in writing.
(e) Severability. If any provision of this Agreement shall contravene any
law of any particular state where the Employee shall perform services for the
Company, then this Agreement shall be first construed to be limited in scope and
duration so as to be enforceable in that state, and if still unenforceable,
shall then be construed as if such provision is not contained herein.
(f) Governing Law. This Agreement shall be governed by the laws of the
State of New York without regard to the conflict of laws principles thereof.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, and by each party on separate counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
---------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
/s/ Jeffrey John Ervine
-------------------------------------
Jeffrey John Ervine
Employee's Address:
210 East 72nd Street
New York, NY 10021
- 8 -
<PAGE> 1
Exhibit 21
<TABLE>
<CAPTION>
STATE OF PERCENTAGE
NAME: ORGANIZATION: OWNERSHIP:
<S> <C> <C>
Asset Alliance Holding Corp. Delaware 100%
Asset Alliance Advisors Inc. Delaware 100%*
Asset Alliance Investment Services Inc. Delaware 100%*
Asset Alliance Management Corp. Delaware 100%*
Milestone Investment Group Inc. Delaware 100%*
Asset Alliance Bricoleur Merger Co. Inc. Delaware 100%*
Milestone Global Advisors L.P. Delaware 99% (Limited Partnership Interest)**
Trust Advisors LLC Delaware 50%*
Silverado Capital Management LLC Delaware 50%*
Bricoleur Capital Management LLC Delaware 50%***
- -------------------
* Ownership interest through Asset Alliance Holding Corp.
** Milestone Investment Group Inc. Limited Partner
*** Ownership interest through Asset Alliance Bricoleur Merger Co. Inc.
</TABLE>
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts", "Summary
Historical and Pro Forma Financial Data" and "Selected Historical Financial
Data", and to the use of our reports dated March 26, 1998, with respect to the
financial statements of Asset Alliance Corporation, March 13, 1998, with
respect to the combined financial statements of Metropolitan Capital Advisors,
L.P., Metropolitan Capital Partners II, L.P. and Metropolitan Capital Partners
III, L.P., March 17, 1998, with respect to the combined financial statements of
JMG Capital Management, Inc. and Pacific Capital Management, Inc., and February
11, 1998, with respect to the financial statements of Trust Advisors LLC,
included in the Registration Statement (Form S-1) and related Prospectus of
Asset Alliance Corporation dated March 26, 1998.
/s/ Ernst & Young LLP
New York, New York
March 26, 1998
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the reference of our firm under the caption "Experts" and to the
incorporation by reference in the Form S-1, Registration Statement Under the
Securities Act of 1933, of our report dated March 12, 1998 on the financial
statements of Bricoleur Capital Management, Inc. (formerly Utah Capital
Corporation) for the years ended December 31, 1997, 1996 and 1995.
/s/ Peterson & Co.
PETERSON & CO.
March 26, 1998
San Diego, California
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Asset Alliance Corporation and is qualified
in its entirety by reference to such financial statements and the notes thereto.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,171,578
<SECURITIES> 3,875,235
<RECEIVABLES> 4,546,282
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,629,105
<PP&E> 102,526
<DEPRECIATION> 20,010
<TOTAL-ASSETS> 24,821,968
<CURRENT-LIABILITIES> 4,226,680
<BONDS> 2,689,904
0
2,000
<COMMON> 44,850
<OTHER-SE> 17,754,515
<TOTAL-LIABILITY-AND-EQUITY> 24,821,968
<SALES> 79,222,284
<TOTAL-REVENUES> 8,060,799
<CGS> 0
<TOTAL-COSTS> 6,276,563
<OTHER-EXPENSES> 899,618
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,091
<INCOME-PRETAX> 921,213
<INCOME-TAX> 357,000
<INCOME-CONTINUING> 564,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 564,213
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.09
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CONSENT OF JEFFERSON F. ALLEN
I hereby consent to the reference to me as a person who has been designated to
serve as a director of Asset Alliance Corporation under the heading "Management"
in the Prospectus constituting a part of the Registration Statement on Form S-1
with which this consent is filed.
/s/ Jefferson F. Allen
----------------------------------
Jefferson F. Allen
March 17, 1998
----------------------------------
Date
<PAGE> 1
EXHIBIT 99.2
CONSENT OF HARVEY SILVERMAN
I hereby consent to the reference to me as a person who has been designated to
serve as a director of Asset Alliance Corporation under the heading "Management"
in the Prospectus constituting a part of the Registration Statement on Form S-1
with which this consent is filed.
/s/ Harvey Silverman
-------------------------------
Harvey Silverman
March 18, 1998
-------------------------------
Date
