<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1998
REGISTRATION NO. 333-48723
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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. [ ]
------------------------
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.
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<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 MAY 13, 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 Common Stock has been approved for
inclusion on the Nasdaq National Market under the symbol "AACO."
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF ALL MATERIAL
RISK 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 as of March 31, 1998. Pie chart indicates that event
driven/opportunistic, long/short equity, diversified arbitrage, stable value,
hedged mortgage-backed securities trading, diversified market neutral equity,
and convertible and merger arbitrage represented 24%, 21%, 21%, 18%, 10%, 4% and
2% of assets under management on a pro forma basis at March 31, 1998
respectively.]
PRO FORMA GROSS REVENUES
[A bar graph depicting gross revenues on a pro forma basis at December 31,
1994, 1995, 1996 and 1997. The left vertical axis indicates the dollar amount of
the gross revenues (in millions).]
PRO FORMA ASSETS UNDER MANAGEMENT
[A bar graph depicting assets under management on a pro forma basis at
December 31 of 1994, 1995, 1996 and 1997. The left vertical axis indicates the
dollar amount of assets under management (in millions).]
[The tables contain two footnotes: (1) A general footnote stating that "Pro
Forma assets under management and gross revenues data gives effect to the
acquisition of each of the Affiliated Firms including MET (the acquisition of
which is expected to be completed within 30 days following the Offering) as of
each date for which data is presented.
(2) A footnote to the Assets Under Management by Investment Style pie chart
indicating that "Event Driven, Opportunistic" assets included are "Upon
completion of the acquisition of MET."]
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.
<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 organized on
February 1, 1996 to acquire 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 completion of the MET Acquisition, Asset Alliance will have
acquired preferred interests in six Alternative Managers with aggregate assets
under management of approximately $1.3 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 approximately 3,000 Alternative Managers with aggregate assets under
management in excess of $350 billion representing a compound annual growth rate
in excess of 38% since 1990. 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 who are generally the key employees and owners of a
substantial majority of the equity of an Alternative Manager. As used in this
Prospectus, the term "Alternative Managers" refers to investment managers of the
type in which the Company is interested in acquiring interests, and the term
"Affiliated Firms" refers to those Alternative Managers in which the Company has
acquired or contracted to acquire an interest. Acquisitions ordinarily are
structured to allocate all net income of an Affiliated Firm, after payment of
the Preferred Revenue Share to Asset Alliance, to the Principals, thereby
permitting them to
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<PAGE> 5
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. Asset Alliance, however, retains rights of consent on major matters.
In addition, Asset Alliance has the right to appoint 50% or more of the members
of the management board of the Affiliated Firms, and in certain limited
circumstances has the right to appoint up to all of such members. Although the
exercise of the right to appoint up to all such members could result in
substantial payments to the affected Principals. The Principals of each
Affiliated Firm 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 to a greater extent on their primary
expertise -- portfolio management. See "Business -- Growth Strategy -- Product
Development and Marketing/Operational Support."
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 $1.3 billion as of March 31, 1998,
representing a compound annual growth rate of 48%. On a pro forma basis for the
year ended December 31, 1997 and for the three months ended March 31, 1998, the
Company had gross revenues of $25.6 million and $7.4 million, respectively, net
(loss) income of ($207,000) and $752,000, respectively, earnings before
interest, income taxes, depreciation, amortization and extraordinary items
("EBITDA") of $17.5 million and $5.7 million, respectively, and 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 ("EBITDA as adjusted") of $10.9 million and
$3.5 million, respectively. On a historical basis for the year ended December
31, 1997 and for the three months ended March 31, 1998, the Company had gross
revenues of $7.9 million and $2.8 million, respectively, net income of $564,000
and $410,000, respectively, EBITDA of $1.3 million and $1.2 million,
respectively, and EDITDA as adjusted of $852,000 and $745,000, respectively.
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" and "Business -- Growth Strategy."
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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 list 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, from which Asset Alliance has
obtained not only significant financial backing, but also, under employment
agreements with Asset Alliance, the services of two of Asset Alliance's
executive officers and directors, who also are employees of AJG Co., and (vi)
the quality of the Affiliated Firms in which the Company has already acquired a
preferred interest and of their Principals. The Company believes that the
Offering increases the Company's ability to acquire Alternative Managers by
providing additional capital for such acquisitions and by establishing a trading
market for the Common Stock, which will enhance the attractiveness of the Common
Stock and Common Stock equivalents 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.
------------------------
5
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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 existing Alternative Managers and
established one new Alternative Manager (an "Experienced Manager Launch"). In
1998, the Company acquired two Alternative Managers, and has entered into
definitive agreements to acquire one additional Alternative Manager. 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, Metropolitan Capital
Managers II LLC and Metropolitan Capital Advisors LLC (collectively, the "MET
Acquisition"). The Company closed the JMG-Pacific Acquisition in April 1998 and
currently anticipates that the MET Acquisition will close within 30 days after
the Offering. Such acquisitions have, or will be, accounted for under the equity
method. 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(2)/ EQUITY OWNERSHIP MARCH 31, 1998
AFFILIATED FIRM INVESTMENT STYLE(1) DATE ACQUIRED PERCENTAGE (IN MILLIONS)
- --------------- ------------------- ---------------- ---------------- ----------------
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Milestone Global Advisors L.P....... Hedged May 1993/ 99% $ 139
("Milestone") New York, NY Mortgage-Backed July 1996
Securities Trading
Trust Advisors LLC ("Trust
Advisors")........................ Market Neutral July 1989/ 50% 242
Westport, CT Long/Short Equity; October 1996
Stable Value
Silverado Capital Management LLC.... Convertible and March 1997/ 50% 20
("Silverado") Saddle Brook, NJ Merger Arbitrage March 1997
Bricoleur Capital Management LLC.... Long/Short October 1993/ 50% 304
("Bricoleur") San Diego, CA Equity February 1998
JMG Capital Management LLC.......... Diversified March 1992(3)/ 50% 282
and Pacific Assets Management Market Neutral April 1998
LLC (collectively, "JMG-Pacific") Arbitrage
Los Angeles and San Francisco, CA
Metropolitan Capital Managers
LLC,.............................. Event Driven, July 1992/ 50% 306
Metropolitan Capital Managers II
LLC Opportunistic Pending
and Metropolitan Capital Advisors
LLC (collectively, "MET") New
York, NY ------
TOTAL.................................................................................... $1,293
======
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(1) The general terms "arbitrage," "hedging" and "market neutral," as used
herein, have the following meanings: (i) arbitrage means purchasing
securities while selling short other related securities to attempt to
exploit a perceived pricing inefficiency; (ii) hedging means establishing
investment positions the performance of which will tend to offset that of
other investment positions in an effort to reduce the effect of broad market
movements or other factors affecting securities prices; and (iii) market
neutral means a strategy which focuses on obtaining returns with low or no
correlation to the market.
(2) Date Affiliated Firm or predecessor firm formed.
(3) JMG Capital Management LLC's predecessor firm was formed in March 1992 and
Pacific Assets Management LLC's predecessor firm was formed in April 1996.
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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) (approximately $30.0 million), to finance
the cash portion of the MET Acquisition (approximately $18.4
million), to repay the Citco Loan (as defined herein) ($5.0
million) and the balance (approximately $ ) for working
capital needs and other general corporate purposes, including
future acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol...................... AACO
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- ---------------
(1) Assumes that the Underwriters' option to purchase up to an additional
shares to cover over-allotments is not exercised.
(2) The shares of Common Stock to be outstanding after the Offering
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." Such outstanding shares include (i) an aggregate of 6,444,308 shares
of Common Stock issuable upon the conversion of (A) $39.6 million aggregate
principal amount of the Company's outstanding subordinated convertible
debentures upon consummation of the Offering and (B) approximately $17.85
million aggregate 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 almost entirely 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.
Although investment performance of the Affiliated Firms and the
investment funds managed by them generally has been favorable in the
past, there can be no assurance that such performance will be favorable
in the future.
- 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
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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 (which magnifies
losses to the extent the leverage costs more than the return on the
assets supported by the leverage) and other investment techniques by the
Affiliated Firms may increase the volatility of the Affiliated Firms'
performance and the possibility of poor 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 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 affecting
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.
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<PAGE> 10
- The Company does not plan to declare or pay dividends, and the terms of
its existing credit agreement (the "Credit Agreement") with Bank of
America National Trust and Savings Association (the "Lending Bank") and
the terms of its new credit facility (the "New Credit Facility") with 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.
BENEFITS TO RELATED PARTIES
AJG Financial Services, Inc. ("AJG"), which will be the beneficial owner of
approximately 17.9% of the outstanding 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 under the Credit Agreement. The Citco Group Limited (the "Citco
Group"), which will be the beneficial owner of 2.6% of the outstanding 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 was
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."
9
<PAGE> 11
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain historical and pro forma financial
data for the Company. The historical financial data 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, have been derived from the
audited consolidated financial statements of the Company included elsewhere
herein, which statements have been audited by Ernst & Young LLP, independent
auditors, as indicated in their report included elsewhere herein. The historical
financial data as of March 31, 1998 and for the three months ended March 31,
1997 and 1998 are derived from the unaudited consolidated financial statements
of the Company included elsewhere herein and include all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary for
a fair presentation of the financial position as of, and the results for, such
interim periods. The results of operations for the three months ended March 31,
1998 are not necessarily indicative of the results for any future interim period
or for the year ending December 31, 1998. 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>
<CAPTION>
HISTORICAL
--------------------------------------------------- THREE MONTHS
PERIOD FROM YEAR ENDED ENDED
FEBRUARY 1, DECEMBER 31, 1997 MARCH 31, 1998
1996 THREE MONTHS ---------------------- ----------------------
(DATE OF ENDED
INCEPTION) YEAR ENDED MARCH 31, PRO FORMA PRO FORMA
TO DECEMBER 31, DECEMBER 31, ------------------ PRO AS PRO AS
1996 1997 1997 1998 FORMA(1) ADJUSTED(2) FORMA(1) ADJUSTED(2)
--------------- ------------ ------- -------- -------- ----------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Management and incentive
fees (including equity
interests from
preferred revenue
share)................. $ 914 $7,923 $ 1,086 $ 2,843 $25,555 $ 25,555 $ 7,427 $ 7,427
Amortization expense
associated with portion
of equity interest..... (22) (201) (38) (315) (9,902) (9,902) (2,480) (2,480)
Other.................... 86 339 55 56 339 339 56 56
------ ------ ------- -------- ------- -------- ------- -------
Net revenues.............. 978 8,061 1,103 2,584 15,992 15,992 5,003 5,003
------ ------ ------- -------- ------- -------- ------- -------
Expenses:
Sub-advisory fee......... 529 4,864 654 951 4,864 4,864 951 951
Compensation and related
expenses............... 297 1,412 195 645 2,715 2,715 702 702
Other operating
expenses............... 228 900 128 205 1,090 1,090 251 251
------ ------ ------- -------- ------- -------- ------- -------
Total expenses........... 1,054 7,176 977 1,801 8,669 8,669 1,904 1,904
------ ------ ------- -------- ------- -------- ------- -------
Operating (loss) income... (76) 885 126 783 7,323 7,323 3,099 3,099
Interest income(expense),
net...................... 55 36 18 (23) (6,619) (2,788) (1,591) (633)
------ ------ ------- -------- ------- -------- ------- -------
Income (loss) before
income taxes............. (21) 921 144 760 704 4,535 1,508 2,466
Provision for income
taxes.................... 38 357 55 350 911 2,443 756 1,139
------ ------ ------- -------- ------- -------- ------- -------
Net (loss) income......... (59) 564 89 410 (207) 2,092 752 1,327
Preferred stock dividend
requirement.............. 60 125 31 156 625 -- 156 --
------ ------ ------- -------- ------- -------- ------- -------
Net (loss) income
available to common
stockholders............. $ (119) $ 439 $ 58 $ 254 $ (832) $ 2,092 $ 596 $ 1,327
====== ====== ======= ======== ======= ======== ======= =======
Net (loss) income per
share available to common
stockholders:
Basic.................... $(0.03) $ 0.10 $ 0.01 $ 0.05 $ (0.11) $ 0.12 $ 0.08 $ 0.08
====== ====== ======= ======== ======= ======== ======= =======
Diluted.................. $(0.03) $ 0.09 $ 0.01 $ 0.04 $ (0.11) $ 0.12 $ 0.07 $ 0.07
====== ====== ======= ======== ======= ======== ======= =======
Shares used to compute net
(loss) income per share:
Basic.................... 3,837 4,471 4,467 5,477 7,351 16,926 7,365 16,940
====== ====== ======= ======== ======= ======== ======= =======
Diluted.................. 3,837 4,631 4,467 6,824 7,351 17,110 15,049 23,749
====== ====== ======= ======== ======= ======== ======= =======
OTHER FINANCIAL DATA:
Assets under management
(at period end, in
millions)................ $ 293 $ 391 $ 330 $ 705 $ 1,177 $ 1,177 $ 1,293 $ 1,293
EBITDA(5)................. 51 1,285 216 1,241 17,452 17,452 5,727 5,727
EBITDA as adjusted(6)..... -- 852 148 745 10,894 13,193 3,528 4,103
Cash flow used in
operating activities..... (2,734) (1,732) (358) (237)
Cash flow used in
investing activities..... (877) (1,124) (717) (15,938)
Cash flow from financing
activities............... 6,834 11,802 (31) 10,460
(see footnotes on
following page)
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------- PRO FORMA AS ADJUSTED
DECEMBER 31, ---------- ------------
----------------- MARCH 31, MARCH 31, MARCH 31,
1996 1997 1998 1998(3) 1998(4)
------ ------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $6,518 $20,629 $ 13,477 $ 8,510 $ 46,746
Investments in equity interests from preferred revenue
share...................................................... 1,921 3,956 47,690 137,630 137,630
Total assets................................................ 8,696 24,822 61,691 146,759 184,900
Current liabilities......................................... 720 4,227 2,313 2,313 2,218
Long-term debt.............................................. 750 2,690 19,631 104,616 51,259
Total liabilities........................................... 1,493 7,021 22,036 107,021 53,569
Total stockholders' equity.................................. 7,203 17,801 39,655 39,738 131,331
</TABLE>
- ---------------
(1) Gives effect to (i) the Bricoleur Acquisition, the JMG-Pacific Acquisition
and the MET Acquisition as if such acquisitions had occurred as of the
beginning of the respective periods, (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 (the "Pro Forma
MET Indebtedness") of $18.4 million representing the cash portion of the
purchase price for the MET Acquisition and related transaction expenses. See
the Unaudited Pro Forma Consolidated Financial Information and the notes
thereto included elsewhere in this Prospectus.
(3) Gives effect to the JMG-Pacific Acquisition and the MET Acquisition as if
they had occurred as of March 31, 1998 and the related financing of such
acquisitions, including (i) $20.0 million of additional indebtedness under
the Credit Agreement, (ii) $5.0 million of indebtedness under the Citco Loan
and (iii) the Pro Forma MET 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 7,700,000 shares of Common Stock in the
Offering (at an assumed initial public offering price of $13.00 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 ($30.0 million), the Citco Loan ($5.0 million)
and the Pro Forma MET Indebtedness ($18.4 million) 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.
11
<PAGE> 13
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 loss 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 performance
requirements during a particular period, no incentive performance fee is earned
for that period.
Most of the investment funds managed by the Affiliated Firms are subject to
loss earnback requirements and a limited number of such investment funds are
subject to a minimum performance level. If a particular fund managed by an
Affiliated Firm has a loss earnback requirement and the fund loses 5% in a
particular year, the Affiliated Firm will not earn any performance fee for that
year and the fund must earn more than 5% subsequent to that year before the
Affiliated Firm will be entitled to any additional performance fee. Accordingly,
revenues from incentive compensation can vary substantially from year to year
depending upon investment performance. Because the Company's revenues consist
almost entirely of the Preferred Revenue Shares received from the Affiliated
Firms, a failure by the Affiliated Firms to earn performance fees would
adversely affect 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. See "Business -- Industry Focus." Although
investment performance of the funds managed by the Affiliated Firms generally
has been favorable in the past, there can be no assurance that such performance
will be favorable in the future.
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
12
<PAGE> 14
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 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. Through the Affiliated Firms, the Company operates in
several sectors within the alternative investment segment of the investment
management industry. By acquiring Affiliated Firms that use investment styles or
asset classes that exhibit low correlation to those investment styles and asset
classes of other Affiliated Firms, the Company seeks to reduce its dependence on
favorable financial markets. However, inasmuch as all of the Affiliated Firms
acquired to date invest solely in the financial markets, the Company believes
that its revenues inevitably will be directly affected to a significant extent
by conditions in the financial markets.
The financial markets and the investment management industry in general
have experienced record performance and record growth in recent years. For
example, between December 31, 1990 and December 31, 1997, the Standard & Poor's
500 Index (the "S&P 500") appreciated at a compound annual rate in excess of 16%
and the Lehman Long Bond Index appreciated at a compound annual rate in excess
of 11%. According to Hedge Fund Research, LLC ("HFR"), a leading data source for
the alternative investment management industry, aggregate assets under
management of Alternative Managers grew at a compound annual rate in excess of
38% 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 Company's income from its Preferred Revenue
Shares and, therefore, the Company's revenues.
Alternative Managers also typically use leverage as part of their
investment strategy. Leverage involves borrowing or acquiring specially designed
instruments that increase an investor's exposure to changes in the value of the
underlying investment. Any particular Alternative Manager may also use other
investment techniques, some of which are used to hedge -- that is, reduce the
risks of underlying investments. Hedges may not, however, perform in the manner
anticipated. Accordingly, 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 Affiliated Firms. Messrs.
Lipnick and Mintz are subject to five-year employment and non-competition
agreements with the Company.
13
<PAGE> 15
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, and lead to the loss of, client accounts at such Affiliated
Firm or investors in pooled products managed by the 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 equity
ownership, 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. In addition, the enforcement of
employment agreements and non-competition agreements may be subject, in certain
circumstances, to an arbitrator's interpretation of the reasonableness of the
terms of such agreements. While the Company believes the terms of the applicable
agreements would be found to be enforceable by an arbitrator, there can be no
assurance in this regard. 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.
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 in certain limited
circumstances has the right to appoint up to all of the members of the
management board of Affiliated Firms, although the exercise of such right could
result in substantial payments to the affected Principals, 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.
14
<PAGE> 16
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. The Company believes there are approximately 3,000 domestic
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, the reputation of
its Principals and client service. Of lesser importance are fee levels,
marketing and distribution. There can be no assurance that the 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, including the breach of an
agreement by, or severe regulatory problems involving, one of its Principals. 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 generally accrue annual incentive compensation on a
quarterly basis based on performance through the end of the then current quarter
and the Company, through the Preferred Revenue Shares, records its share of such
accruals. Where the performance measurement period for incentive compensation is
longer than one quarter, realization of the accrued quarterly amounts by an
Affiliated Firm is subject to such Affiliated Firm maintaining positive
investment performance through the end of the applicable period, which is
usually annual. If an Affiliated Firm fails to maintain positive investment
performance or its performance falls below any applicable hurdle rate,
subsequent incentive fee accruals will be negative and will reduce or reverse
prior positive incentive fee accruals. Therefore, the Affiliated Firms' revenues
from incentive compensation may vary substantially from one period to another
and this variation may 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
15
<PAGE> 17
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. The Company has, however, received a commitment letter for the New
Credit Facility of up to $100 million, subject to the consummation of the
Offering and customary and usual conditions precedent. 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 has, however, received a
commitment letter from the Lending Bank to provide the New Credit Facility,
subject to the consummation of the Offering and customary and usual conditions
precedent, in an amount of $50 million, which commitment may be increased at the
option of the Company by up to an additional $50 million provided that no
default under such New Credit Facility has occurred. Borrowings under the New
Credit Facility will be available in connection with future acquisitions of
preferred interests in Alternative Managers and for general corporate purposes.
As a result, the Company is and will continue to be subject to risks normally
associated with debt financing. Accordingly, the Company is and will continue to
be subject to the risk that a substantial portion of the Company's cash flow may
be required to be dedicated to the payment of the Company's debt service
obligations or even that its cash flow will be insufficient to meet required
payments of principal and interest. The failure to make any required debt
service payments or to comply with any restrictive or financial covenants
contained in the Credit Agreement or expected to be contained in the New Credit
Facility 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 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 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
68% of the Company's assets at March 31, 1998 on a pro forma basis. The
Company's future borrowings under the New Credit Facility may be used to acquire
preferred interests in Alternative Managers and for general corporate purposes.
The Company's borrowings under the New Credit Facility will be collateralized by
pledges of all of the tangible and intangible assets of the Company and its
material subsidiaries (including all interests in the Affiliated Firms which are
directly held
16
<PAGE> 18
by the Company, as well as all of the interests in the Affiliated Firms which
are indirectly held by the Company through its wholly-owned subsidiaries). The
Credit Agreement contains, and the New Credit Facility is expected to 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, and the New Credit Facility is expected to restrict,
the Company and its subsidiaries from, among other things, incurring material
indebtedness, incurring liens, disposing of assets and engaging in extraordinary
transactions. The Company also 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). The New
Credit Facility is expected to contain similar financial covenants with which
the Company must comply and which could limit the Company's ability to pay
dividends and other distributions to stockholders. In addition, indebtedness
under the Credit Agreement bears interest at variable rates and indebtedness
under the New Credit Facility also will 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 incurred 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 March 31, 1998, the Company's total assets were
approximately $146.8 million, of which approximately $137.6 million were
investments in Affiliated Firms including amounts allocated to contracts or
other intangibles, which represent the excess of the purchase price of the
Company's investments over the Company's underlying equity in such investments.
There can be no assurance that the value of such intangible assets will ever be
realized by the Company. The portions of the Company's investments allocated to
these contracts and other intangible assets are being amortized on a
straight-line basis over periods ranging from seven to twenty years. Pro forma
amortization of such portion of all investments in Affiliated Firms to date in
accordance with the chosen amortization schedules would have resulted in a
charge to operations of approximately $9.9 million for the year ended December
31, 1997 and $2.5 million for the three months ended March 31, 1998. 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 March 31, 1998 the net
unamortized balance of portion of the investments 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 due to impairment 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
Share 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 require 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 could become subject to limitations under
applicable bankruptcy
17
<PAGE> 19
and insolvency laws and regulatory requirements applicable to the Affiliated
Firm and claims of creditors of the Affiliated Firm. See
"Business -- Regulation."
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 New Credit
Facility is expected to have substantially similar terms to those contained in
the Credit Agreement. In the event of a default under the Credit Agreement or
the New Credit Facility, 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."
FAILURE TO ACHIEVE YEAR 2000 COMPATIBILITY COULD CAUSE SIGNIFICANT LOSSES
As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
change. 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 accept four
digit entries in order to distinguish 21(st) century dates from 20(th) century
dates. As a result, computer systems 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 and is working with software vendors to prepare the Company
and the Affiliated Firms for "Year 2000" compliance. The Company does not expect
that the cost to modify information technology infrastructure to be Year 2000
compliant will be material to the financial condition or results of operations
of the Company or the Affiliated Firms, nor does it anticipate any material
disruption in the operations of the Company or the Affiliated Firms as a result
of any failure of the Company or the Affiliated Firms to be Year 2000 compliant.
Nonetheless, there can be no assurance in this regard until such systems are
operational in the year 2000.
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
trading, the pricing of securities and account services. While in certain
instances service providers to the Company and the Affiliated Firms have advised
the Company or the Affiliated Firms that they believe Year 2000 compliance has
been achieved, in other instances such service providers believe they have not
yet achieved such compliance. To the extent the Company's, the Affiliated Firms'
or such third parties' systems are not fully Year 2000 compliant, there can be
no assurance that potential systems interruptions or the cost necessary to
update software will not have a material adverse effect on the Company's
business, financial condition, results of operations, or business prospects.
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."
18
<PAGE> 20
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 17.9%, 2.6%,
16.0% and 21.3%, 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
March 31, 1998, was ($10.35). Purchasers of the shares of Common Stock sold in
the Offering will experience immediate and substantial pro forma net tangible
book value dilution of $13.23 per share (assuming an initial public offering
price of $13.00 per share). See "Dilution."
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
326,926 shares are currently exercisable, (ii) warrants to purchase 957,500
shares of Common Stock, all of which are currently exercisable, and (iii) $39.6
million aggregate principal amount of subordinated convertible debentures which
are convertible into 4,659,308 shares of Common Stock. In connection with the
MET Acquisition, the Company expects to issue $17.85 million aggregate principal
19
<PAGE> 21
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 6,817,368 shares (including 1,875,000 shares issuable upon the
conversion of the Series A Preferred Stock and Series B Preferred Stock and
457,368 shares issuable upon the conversion of subordinated convertible
debentures) 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 2,805,000 shares of
Common Stock and approximately $53.55 million aggregate principal amount of
subordinated convertible debentures which are convertible into 5,976,940 shares
of Common Stock (including $17.85 million aggregate principal amount of
subordinated convertible debentures convertible into 1,785,000 shares of Common
Stock which the Company expects to issue in connection with the MET Acquisition)
(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 (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) 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 10,157,284 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) have the right
to include all or a portion of their shares in certain circumstances in a
subsequent registration statement filed by the Company. These registration
rights may enable 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."
20
<PAGE> 22
USE OF PROCEEDS
The total proceeds of the Offering are expected to be approximately $100.1
million ($115.1 million if the Underwriters' overallotment option is exercised
in full), assuming an initial public offering price of $13.00 per share. Of the
net proceeds to the Company of approximately $91.6 million ($105.6 million if
the Underwriters' overallotment option is exercised in full), the Company
intends to use approximately $30 million to repay all indebtedness 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 (6.5%
per annum at March 31, 1998). Borrowings under the Credit Agreement were used to
pay the cash portion of the purchase price for the Bricoleur Acquisition and 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, which was 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 $18.4 million of the net
proceeds of the Offering to finance the cash portion of the purchase price for
the MET Acquisition, as well as related transaction expenses. 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. In addition, the Company has
received a commitment letter from the Lending Bank for the New Credit Facility
of up to $100 million, subject to the consummation of the Offering and customary
and usual conditions precedent. Borrowings under the New Credit Facility will be
available for use towards the financing of future acquisitions of Alternative
Managers and for general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." 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. The New Credit Facility will contain similar
financial covenants which could limit 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 and the New Credit Facility, capital requirements and such
other factors as the Board of Directors deems relevant.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth: (i) the actual capitalization of the
Company at March 31, 1998; (ii) the pro forma capitalization as of such date
after giving effect to the JMG-Pacific Acquisition and the MET Acquisition, the
borrowing of an additional $25.0 million 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 $13.00 per share) and the application of the estimated
net proceeds therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt........................................... $19,631 $104,616(1) $ 51,259
Minority interest........................................ 9 9 9
------- -------- --------
Stockholders' equity(2)(3):
Series A Preferred Stock, $.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, $.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, $.01 par value, 100,000,000 shares
authorized, 4,485,000 shares issued and outstanding,
actual; 7,365,000 issued and outstanding, pro forma;
16,940,000 issued and outstanding pro forma as
adjusted............................................ 74 74 170
Additional paid-in capital............................. 39,058 39,141 130,878
Retained earnings...................................... 521 521 283
------- -------- --------
Total stockholders' equity............................... 39,655 39,738 131,331
------- -------- --------
Total capitalization..................................... $59,295 $144,363 $182,599
======= ======== ========
</TABLE>
- ---------------
(1) Includes the Pro Forma MET 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 103,594 shares are currently
issuable upon the exercise of outstanding stock options with exercise prices
ranging from $5.00 to $10.00, (iii) 6,434,308 shares of Common Stock
reserved for issuance upon conversion of an aggregate of $57.3 million
principal amount of subordinated convertible debentures (including
subordinated convertible debentures to be issued in connection with the MET
Acquisition) with conversion prices ranging from $7.50 to $15.00 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, $.01
par value per share, none of which will be issued and outstanding. See
"Description of Capital Stock -- Preferred Stock."
22
<PAGE> 24
DILUTION
The unaudited pro forma net tangible book value (deficit) of the Company at
March 31, 1998 after giving effect to the JMG-Pacific Acquisition and the MET
Acquisition was ($95.7) million, or ($10.35) per share. After giving effect to
the sale of the 7,700,000 shares of Common Stock in the Offering at an assumed
initial public offering price of $13.00 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 March 31, 1998 would
have been ($3.8) million, or ($0.23) per share. This represents an immediate
increase in net tangible book value of $10.12 per share to the Company's
existing stockholders and an immediate dilution in net tangible book value of
$13.23 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............. $ 13.00
Pro forma net tangible book value (deficit) per share
before the Offering.................................. $(10.35)
Increase in pro forma net tangible book value (deficit)
per share attributable to the Offering............... 10.12
-------
Pro forma net tangible book value (deficit) per share after
the Offering.............................................. (0.23)
-------
Dilution in pro forma net tangible book value (deficit) per
share to new investors.................................... $ 13.23
=======
</TABLE>
Assuming the Underwriters' over-allotment option is exercised in full, the
pro forma net tangible book value at March 31, 1998 would be $10.1 million or
$0.56 per share, the immediate increase in pro forma net tangible book value of
shares owned by existing stockholders would be $10.91 per share, and the
immediate dilution to purchasers of shares of Common Stock in the Offering would
be $12.44 per share.
The following table summarizes, at March 31, 1998, after giving effect to
the sale of the shares of Common Stock in the Offering at an assumed initial
public offering price of $13.00 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)............. 9,240,000 54.5% $ 39,772,600 28.4% $ 4.30
New investors........................ 7,700,000 45.5 100,100,000 71.6 $13.00
---------- ----- ------------ -----
Total...................... 16,940,000 100.0% $139,872,600 100.0%
========== ===== ============ =====
</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 103,594 shares are currently
issuable upon exercise of outstanding stock options with exercise prices
ranging from $5.00 to $10.00, (iii) 6,434,308 shares of Common Stock
reserved for issuance upon conversion of an aggregate of $57.3 million
principal amount of subordinated convertible debentures (including
subordinated convertible debentures to be issued in connection with the MET
Acquisition) with conversion prices ranging from $7.50 to $15.00 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.
23
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth certain historical financial data for the
Company. The historical financial data 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, have been derived from the audited
consolidated financial statements of the Company included elsewhere herein,
which statements have been audited by Ernst & Young LLP, independent auditors,
as indicated in their report included elsewhere herein. The historical financial
data as of March 31, 1998 and for the three months ended March 31, 1997 and 1998
are derived from the unaudited consolidated financial statements of the Company
included elsewhere herein and include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the financial position as of, and the results for, such interim
periods. The results of operations for the three months ended March 31, 1998 are
not necessarily indicative of results for any future interim period or for the
year ending December 31, 1998. 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 THREE MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, -----------------
1996 1997 1997 1998
------------------- ------------ ------ --------
(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 $1,086 $ 2,843
Amortization expense associated with portion of equity
interest............................................ (22) (201) (38) (315)
Other................................................. 86 339 55 56
------ ------- ------ --------
Net revenues............................................ 978 8,061 1,103 2,584
------ ------- ------ --------
Expenses:
Sub-advisory fee...................................... 529 4,864 654 951
Compensation and related expenses..................... 297 1,412 195 645
Other operating expenses.............................. 228 900 128 205
------ ------- ------ --------
Total expenses........................................ 1,054 7,176 977 1,801
------ ------- ------ --------
Operating (loss) income................................. (76) 885 126 783
Interest income, net.................................... 55 36 18 (23)
------ ------- ------ --------
Income (loss) before income taxes....................... (21) 921 144 760
Provision for income taxes.............................. 38 357 55 350
------ ------- ------ --------
Net (loss) income....................................... (59) 564 89 410
Preferred stock dividend requirement.................... 60 125 31 156
------ ------- ------ --------
Net (loss) income available to common stockholders...... $ (119) $ 439 $ 58 $ 254
====== ======= ====== ========
Net (loss) income per share available to common
stockholders:
Basic................................................. $(0.03) $ 0.10 $ 0.01 $ 0.05
====== ======= ====== ========
Diluted............................................... $(0.03) $ 0.09 $ 0.01 $ 0.04
====== ======= ====== ========
Shares used to compute net (loss) income per share:
Basic................................................. 3,837 4,471 4,467 5,477
====== ======= ====== ========
Diluted............................................... 3,837 4,631 4,467 6,824
====== ======= ====== ========
OTHER FINANCIAL DATA:
Assets under management (at period end,
in millions).......................................... $ 293 $ 391 $ 330 $ 705
EBITDA(1)............................................... 51 1,285 216 1,241
EBITDA as adjusted(2)................................... -- 852 148 745
Cash flow used in operating activities.................. (2,734) (1,732) (358) (237)
Cash flow used in investing activities.................. (877) (1,124) (717) (15,938)
Cash flow from financing activities..................... 6,834 11,802 (31) 10,460
</TABLE>
(see footnotes on following page)
24
<PAGE> 26
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------- ---------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............................................. $6,518 $20,629 $13,477
Investments in equity interests from preferred revenue
share..................................................... 1,921 3,956 47,690
Total assets................................................ 8,696 24,822 61,691
Current liabilities......................................... 720 4,227 2,313
Long-term debt.............................................. 750 2,690 19,631
Total liabilities........................................... 1,493 7,021 22,036
Total stockholders' equity.................................. 7,203 17,801 39,655
</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.
25
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet at March 31, 1998 sets
forth the historical consolidated balance sheet of the Company adjusted for the
JMG-Pacific Acquisition and the MET Acquisition as if they had occurred as of
March 31, 1998 and the related financing of such acquisitions, including (i)
$20.0 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 (the "Pro Forma MET Indebtedness") representing the cash portion of the
purchase price for the MET Acquisition and related transaction expenses.
The unaudited pro forma, as adjusted, consolidated balance sheet at March
31, 1998 further reflects (i) the sale of 7,700,000 shares of Common Stock in
the Offering (at an assumed initial public offering price of $13.00 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 statements of operations for the year
ended December 31, 1997 and for the three months ended March 31, 1998 set 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 as of the beginning of the
respective periods, (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 Pro Forma MET Indebtedness, but does not reflect the
repricing of certain stock options described in Note (I) to the unaudited pro
forma consolidated balance sheet.
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.
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.
26
<PAGE> 28
ASSET ALLIANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(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............. $ 6,456 $43,357(B) $ 1,489 $91,593(E) $ 39,725
(12)(C) (53,357)(F)
(48,312)(D)
Investment in limited
partnerships............ 4,681 -- 4,681 -- 4,681
Fees and other
receivables............. 2,230 -- 2,230 -- 2,230
Other current assets....... 110 -- 110 -- 110
------- ------- -------- ------- --------
Total current assets......... 13,477 (4,967) 8,510 38,236 46,746
Investments in equity
interests from preferred
revenue share.............. 47,690 89,940(D) 137,630 -- 137,630
Property and
equipment -- net........... 362 -- 362 -- 362
Organization costs -- net.... 142 -- 142 -- 142
Other........................ 20 95(C) 115 (95)(G) 20
------- ------- -------- ------- --------
Total assets....... $61,691 $85,068 $146,759 $38,141 $184,900
======= ======= ======== ======= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities.......... $ 2,313 $ -- $ 2,313 $ (95)(I) $ 2,218
Deferred income taxes........ 27 -- 27 -- 27
Deferred rent................ 56 -- 56 -- 56
Long-term debt............... 19,631 43,357(B) 104,616 (53,357)(F) 51,259
41,628(D)
Minority interest............ 9 -- 9 -- 9
Stockholders' equity:
Preferred stock, Series A
Convertible
Redeemable.............. 1 -- 1 (1)(H) --
Preferred stock, Series B
Convertible
Redeemable.............. 1 -- 1 (1)(H) --
Common stock............... 74 -- 74 77(E) 170
19(H)
Additional paid-in
capital................. 39,058 83(C) 39,141 91,516(E) 130,878
(17)(H)
238(I)
Retained earnings.......... 521 -- 521 (95)(G) 283
(143)(I)
------- ------- -------- ------- --------
Total stockholders'
equity........... 39,655 83 39,738 91,593 131,331
------- ------- -------- ------- --------
Total liabilities
and stockholders'
equity........... $61,691 $85,068 $146,759 $38,141 $184,900
======= ======= ======== ======= ========
</TABLE>
See accompanying notes (A)-(I) to this
unaudited pro forma consolidated balance sheet.
27
<PAGE> 29
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(J) 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(K) $25,555 $ -- $25,555
Amortization expense associated
with portion of equity
interest..................... (201) (9,701)(L) (9,902) -- (9,902)
Realized and unrealized
appreciation on investment in
limited partnership............. 339 -- 339 -- 339
---------- ------- ------- ------ -------
Net revenues...................... 8,061 7,931 15,992 -- 15,992
Expenses:
Sub-advisory fee................ 4,864 -- 4,864 -- 4,864
Compensation and related
expenses..................... 1,412 1,303(M) 2,715 -- 2,715
Other operating expenses........ 900 190(N) 1,090 -- 1,090
---------- ------- ------- ------ -------
Total expenses.................... 7,176 1,493 8,669 -- 8,669
---------- ------- ------- ------ -------
Operating income.................. 885 6,438 7,323 -- 7,323
Interest income (expense) net..... 36 (6,655)(O) (6,619) 3,831(T) (2,788)
---------- ------- ------- ------ -------
Income before income taxes........ 921 (217) 704 3,831 4,535
Provision for income taxes........ 357 554(P) 911 1,532(P) 2,443
---------- ------- ------- ------ -------
Net income........................ 564 (771) (207) 2,299 2,092
Preferred stock dividend
requirement..................... 125 500(Q) 625 (625)(U) --
---------- ------- ------- ------ -------
Net income (loss) available to
common stockholders............. $ 439 $(1,271) $ (832) $2,924 $ 2,092
========== ======= ======= ====== =======
Net income (loss) per share
available to common
stockholders(V):
Basic........................... $ 0.10 $ (0.11) $ 0.12
========== ======= =======
Diluted......................... $ 0.09 $ (0.11) $ 0.12
========== ======= =======
Shares used to compute net income
(loss) per share:
Basic........................... 4,471 7,351 16,926
========== ======= =======
Diluted......................... 4,631 7,351 17,110
========== ======= =======
Assets under management (at period
end, in millions)............... $ 391 $ 1,177 $ 1,177
========== ======= =======
EBITDA(R)......................... $ 1,285 $17,452 $17,452
========== ======= =======
EBITDA as adjusted(S)............. $ 852 $10,894 $13,193
========== ======= =======
</TABLE>
See accompanying notes (K)-(V) to this
unaudited pro forma consolidated statement of operations.
28
<PAGE> 30
ASSET ALLIANCE CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA
HISTORICAL(J) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Management and incentive fees
and equity interest from
preferred revenue share...... $ 2,843 $ 4,584(K) $ 7,427 $ -- $ 7,427
Amortization expense associated
with portion of equity
interest..................... (315) (2,165)(L) (2,480) -- (2,480)
Realized and unrealized
appreciation on investment in
limited partnership............. 56 -- 56 -- 56
---------- ------- ------- ------ -------
Net revenues...................... 2,584 2,419 5,003 -- 5,003
Expenses:
Sub-advisory fee................ 951 -- 951 -- 951
Compensation and related
expenses..................... 645 57(M) 702 -- 702
Other operating expenses........ 205 46(N) 251 -- 251
---------- ------- ------- ------ -------
Total expenses.................... 1,801 103 1,904 -- 1,904
---------- ------- ------- ------ -------
Operating income.................. 783 2,316 3,099 -- 3,099
Interest income (expense) net..... (23) (1,568)(O) (1,591) 958(T) (633)
---------- ------- ------- ------ -------
Income before income taxes........ 760 748 1,508 958 2,466
Provision for income taxes........ 350 406(P) 756 383(P) 1,139
---------- ------- ------- ------ -------
Net income........................ 410 342 752 575 1,327
Preferred stock dividend
requirement..................... 156 -- 156 (156)(U) --
---------- ------- ------- ------ -------
Net income (loss) available to
common stockholders............. $ 254 $ 342 $ 596 $ 731 $ 1,327
========== ======= ======= ====== =======
Net income (loss) per share
available to common
stockholders(V):
Basic........................... $ 0.05 $ 0.08 $ 0.08
========== ======= =======
Diluted......................... $ 0.04 $ 0.07 $ 0.07
========== ======= =======
Shares used to compute net income
(loss) per share:
Basic........................... 5,477 7,365 16,940
========== ======= =======
Diluted......................... 6,824 15,049 23,749
========== ======= =======
Assets under management (at period
end, in millions)............... $ 705 $ 1,293 $ 1,293
========== ======= =======
EBITDA(R)......................... $ 1,241 $ 5,727 $ 5,727
========== ======= =======
EBITDA as adjusted(S)............. $ 745 $ 3,528 $ 4,103
========== ======= =======
</TABLE>
See accompanying notes (K)-(V) to this
unaudited pro forma consolidated statement of operations.
29
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the historical consolidated balance sheet of the Company at March
31, 1998.
(B) Reflects borrowings necessary to complete the JMG-Pacific Acquisition and
the MET Acquisition as follows:
<TABLE>
<S> <C>
Indebtedness under the Credit Agreement..................... $20,000,000
Citco Loan.................................................. 5,000,000
Pro Forma MET Indebtedness.................................. 18,357,000
-----------
$43,357,000
===========
</TABLE>
(C) 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.
(D) Reflects the purchase price for the JMG-Pacific Acquisition and the MET
Acquisition, inclusive of estimated transaction costs as follows:
<TABLE>
<CAPTION>
SUBORDINATED
CONVERTIBLE
INVESTMENT CASH DEBENTURES
----------- ----------- ------------
<S> <C> <C> <C>
JMG-Pacific Acquisition............................ $56,386,000 $29,955,000 $26,431,000
MET Acquisition.................................... 33,554,000 18,357,000 15,197,000
----------- ----------- -----------
Pro forma adjustment to investments in equity
interests from preferred revenue share........... $89,940,000 $48,312,000 $41,628,000
=========== =========== ===========
</TABLE>
(E) Reflects net proceeds of $91,593,000 from the Offering.
(F) Reflects repayment of indebtedness outstanding under the Credit Agreement,
the Citco Loan and the Pro Forma MET Indebtedness (includes amount in Note
(B) above plus $10,000,000 reflected in the historical consolidated balance
sheet used for Bricoleur Acquisition).
(G) Reflects write-off of financing costs relating to debt repaid.
(H) 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.
(I) Reflects $238,000 representing a non-recurring charge related to the
repricing of 36,594 stock options upon the consummation of the Offering to
one-half of the public offering price per share, less related tax benefit
of $95,000 (see Note 10 to the Company's Consolidated Financial
Statements).
30
<PAGE> 32
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(J) Reflects the historical consolidated statement of operations of the Company
for the year ended December 31, 1997 and for the three months ended March
31, 1998, which includes, in the case of the three months ended March 31,
1998, the results of the Bricoleur Acquisition from the date of
acquisition.
(K) In the case of the year ended December 31, 1997, represents, as detailed in
the following table, 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 for Bricoleur but are not reflected in Bricoleur's historical
financial statements) 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. In the case of the three months
ended March 31, 1998, represents, as detailed in the following table, the
sum of (i) 50% of the management and incentive fees earned by Bricoleur for
the period from January 1, 1998 through February 28, 1998, the date of the
Bricoleur Acquisition, (ii) 50% of the management and incentive fees earned
by JMG-Pacific for the three months ended March 31, 1998 and (iii) 40% of
the management and incentive fees earned by MET for the three months ended
March 31, 1998.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1997 1998
------------ ---------------
<S> <C> <C>
Bricoleur....................................... $ 6,198,000 $1,050,000
JMG-Pacific..................................... 5,969,000 2,095,000
MET............................................. 5,465,000 1,439,000
----------- ----------
$17,632,000 $4,584,000
=========== ==========
</TABLE>
(L) Reflects the increase in amortization of intangible assets in connection
with the Bricoleur Acquisition, the JMG-Pacific Acquisition and the MET
Acquisition, which intangible assets are being amortized over periods from
seven to twenty years, as detailed in the following tables:
31
<PAGE> 33
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
-------------------------------
AMORTIZATION YEAR ENDED THREE MONTHS
PERIOD DECEMBER 31, ENDED MARCH 31,
IN YEARS 1997 1998
------------ ------------ ---------------
<S> <C> <C> <C> <C>
BRICOLEUR
Contracts 25%..... $ 10,675,000 7 $1,525,000 $ 254,000(*)
Goodwill 75%..... 32,025,000 20 1,601,000 267,000(*)
------------ ---------- ----------
$ 42,700,000 $3,126,000 $ 521,000(*)
============ ========== ==========
JMG-PACIFIC
Contracts 25%..... $ 14,063,000 7 $2,009,000 $ 502,000
Goodwill 75%..... 42,188,000 20 2,109,000 528,000
------------ ---------- ----------
$ 56,251,000 $4,118,000 $1,030,000
============ ========== ==========
MET
Contracts 25%..... $ 8,389,000 7 $1,199,000 $ 300,000
Goodwill 75%..... 25,165,000 20 1,258,000 314,000
------------ ---------- ----------
$ 33,554,000 $2,457,000 $ 614,000
============ ========== ==========
TOTALS
Contracts.................. $ 33,127,000 $4,733,000 $1,056,000
Goodwill................... 99,378,000 4,968,000 1,109,000
------------ ---------- ----------
$132,505,000 $9,701,000 $2,165,000
============ ========== ==========
</TABLE>
(*) Excludes the period following February 28, 1998, the date of the
Bricoleur Acquisition, for which information is recorded in the
Company's historical consolidated statement of operations.
(M) Reflects increased compensation to executives of the Company under new
employment arrangements.
(N) Reflects (i) $162,000 and $41,000 in increased rent expense for the year
ended December 31, 1997 and for the three months ended March 31, 1998,
respectively, and (ii) $28,000 and $5,000 in increased depreciation of fixed
assets acquired in the Bricoleur Acquisition for the year ended December 31,
1997 and for the three months ended March 31, 1998, respectively.
(O) 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 Pro Forma MET Indebtedness, as follows:
<TABLE>
<CAPTION>
INTEREST EXPENSE
------------------------------
YEAR ENDED THREE MONTHS
BEGINNING PRINCIPAL DECEMBER 31, ENDED MARCH 31,
AMOUNT WEIGHTED AVERAGE RATE 1997 1998
------------------- --------------------- ------------ ---------------
<S> <C> <C> <C> <C>
Credit Agreement............ $ 30,000,000 7.107% $2,132,000 $ 475,167(*)
Citco Loan.................. 5,000,000 8.500% 425,000 106,250
Subordinated convertible
debentures................ 47,477,808 5.946% 2,823,236 668,272(*)
Pro Forma MET Indebtedness.. 18,207,000 7.000% 1,274,490 318,623
------------ ----- ---------- ----------
Total............. $100,684,808 6.609% $6,654,726 $1,568,312
============ ===== ========== ==========
</TABLE>
(*) Excludes the interest expense associated with $10.0 million of
indebtedness under the Credit Agreement and $5,850,000 of subordinated
convertible debentures for the period following February 28, 1998, the
date of the Bricoleur Acquisition, for which information is recorded
in the Company's historical consolidated statement of operations
32
<PAGE> 34
(P) Reflects the tax effect of the pro forma adjustments described in Notes (I)
through (O) and the offering adjustment described in Note (T). The
amortization adjustment related to Bricoleur Acquisition goodwill (See Note
(L)) is not tax effected.
(Q) Reflects the preferred stock dividend requirement on the Series B Preferred
Stock, as if preferred stock was outstanding as of the beginning of the
year.
(R) 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.
(S) 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.
(T) Reflects the elimination of interest expense in connection with the Credit
Agreement, the Citco Loan and the Pro Forma MET Indebtedness, giving effect
to the repayment of such indebtedness with the net proceeds of the
Offering. See Note (O).
(U) Reflects reversal of preferred dividend requirements resulting from
conversions of Series A Preferred Stock and Series B Preferred Stock upon
consummation of the Offering.
(V) Net income (loss) per share available to common stockholders is computed in
accordance with Financial Accounting Standards Board No. 128, Earnings Per
Share, which is 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.
33
<PAGE> 35
Pro forma net income (loss) per share is calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
----------------------- ------------------------
PRO FORMA PRO FORMA
PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
NUMERATOR:
Numerator for pro forma basic net income
(loss) per share --
Pro forma net income available to
common stockholders.................. $ (832) $ 2,092 $ 596 $ 1,327
Effect of dilutive securities:
Subordinated convertible debentures
issued in acquisitions (net
interest)............................ --* --* 418 418
Preferred stock dividend requirement.... --* N/A 31 N/A
------ ------- ------ -------
Numerator for pro forma diluted net
income (loss) per share.............. $ (832) $ 2,092 $1,045 $ 1,745
====== ======= ====== =======
DENOMINATOR:
Historical weighted average shares of
Common Stock for respective
periods.............................. 4,471 4,471 5,477 5,477
Shares issued upon conversion of Series
A Preferred Stock and
Series B Preferred Stock............. --* 1,875 -- 1,875
Shares issued for acquisitions.......... 2,880 2,880 1,888(**) 1,888(**)
Shares issued in Offering............... -- 7,700 -- 7,700
------ ------- ------ -------
Denominator for pro forma basic net
income (loss) per share.............. 7,351 16,926 7,365 16,940
Effect of dilutive securities
Series A Preferred Stock............. --* N/A 875 N/A
Stock options........................ --* 58 100 100
Warrants............................. --* 126 372 372
Subordinated convertible
debentures......................... --* --* 6,337 6,337
------ ------- ------ -------
Denominator for pro forma diluted net
income (loss) per share.............. 7,351 17,110 15,049 23,749
------ ------- ------ -------
</TABLE>
- ---------------
*Anti-dilutive.
**Represents the 2,880,000 shares issued in the Bricoleur Acquisition on
February 28, 1998 less 992,000 shares included in the historical weighted
average shares for the three months ended March 31, 1998.
34
<PAGE> 36
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 completion of the MET
Acquisition, Asset Alliance will have acquired preferred interests in six
Alternative Managers with aggregate assets under management of approximately
$1.3 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 who generally are the key employees and owners of a
substantial majority of the equity of an Alternative Manager. As used in this
Prospectus, the term "Alternative Managers" refers to investment managers of the
type in which the Company is interested in acquiring interests, and the term
"Affiliated Firms" refers to those Alternative Managers in which the Company has
acquired or contracted to acquire interests. Acquisitions ordinarily are
structured to allocate all net income of an Affiliated Firm, after payment of
the Preferred Revenue Share to Asset Alliance, 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. Asset Alliance retains rights of consent on major matters. In
addition, Asset Alliance has the right to appoint 50% or more of the members of
the management board of the Affiliated Firms, and in certain limited
circumstances has the right to appoint up to all of such members, although the
exercise of the right to appoint up to all such members could result in
substantial payments to the affected Principals. The Principals of each
Affiliated Firm 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
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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 to a greater extent on their primary
expertise -- portfolio management. See "-- Growth Strategy -- Product
Development and Marketing/Operational Support."
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 $1.3 billion as of March 31, 1998,
representing a compound annual growth rate of 48%. On a historical basis for the
year ended December 31, 1997 and for the three months ended March 31, 1998, the
Company had gross revenues of $7.9 million and $2.8 million, respectively, net
income of $564,000 and $410,000, respectively, EBITDA of $1.3 million and $1.2
million, respectively, and EBITDA as adjusted of $852,000 and $745,000,
respectively. On a pro forma basis for the year ended December 31, 1997 and for
the three months ended March 31, 1998, the Company had gross revenues of $25.6
million and $7.4 million, respectively, net (loss) income of ($207,000) and
$752,000, respectively, EBITDA of $17.5 million and $5.7 million, respectively,
and EBITDA as adjusted of $10.9 million and $3.5 million, respectively.
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, based upon information provided by HFR, that the
domestic alternative investment management business currently consists of
approximately 3,000 Alternative Managers with aggregate assets under management
in excess of $350 billion. As of December 31, 1990, there were estimated to be
approximately 650 Alternative Managers with total net assets under management of
approximately $39 billion. Thus, over the seven-year period from December 31,
1990 to December 31, 1997, the total net assets under management by Alternative
Managers grew at a compound annual rate in excess of 38%. 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 Company believes such demand
will be fueled in part by the increasing wealth of investors. A recent study by
Merrill Lynch International and Gemini Consulting concluded that total global
wealth of high net worth investors (defined as individuals with a net worth of
at least $1 million) is $17.4 trillion, as of year end 1997 and is expected to
grow to $23.1 trillion by the year 2000. 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.
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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. The investment specialities of the Affiliated Firms and of
Alternative Managers in which the Company 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 investments in Alternative Managers offer
a higher, although potentially more volatile, revenue stream than ownership
interests in traditional investment managers. 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 Affiliated Firm or Alternative Manager receives any
additional incentive fee or profit allocation. Hurdle rate provisions require
that the client's account achieve a specified return before the Affiliated Firm
or Alternative Manager receives an incentive fee or profit allocation. Sometimes
hurdle rate and high water mark provisions are combined. A substantial majority
of the Affiliated Firm's assets under management are subject to high water mark
limitations and a limited number of such investment funds are subject to a
hurdle rate. These limitations could reduce the Company's revenues from a
particular Affiliated Firm not only during periods of underperformance but also
during subsequent period of positive performance required to recoup the prior
underperformance. The existence of hurdle and high water mark 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 styles and asset classes exhibit a low correlation with those 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. 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 normalized historical revenues, and
the multiple is based in large part on the expected growth rate of the firm's
revenues from the normalized level. 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.
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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 Documents"), which include
provisions regarding the use of the Affiliated Firm's revenues and the
management of the Affiliated Firm.
The management provisions in each of the Organizational Documents 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
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 right to appoint
50% or more of the members of the management board of the Affiliated Firms and
in certain limited circumstances has the right to appoint up to all of such
members, although the exercise of the right to appoint up to all of such
members, could result in substantial payments to the affected Principals. 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 Documents of each Affiliated Firm also contain 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, any excess 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 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 following diagram depicts a typical allocation of the Affiliated Firms'
revenues.
[Description of Flow Diagram:]
[Diagram demonstrating the flow of revenues from an affiliated Firm to the
Company, to Principals of Affiliated Firms, and to pay operating expenses of the
Affiliated Firms.]
[Diagram begins with a rectangle with "Affiliated Firm" written inside; an
arrow moves from top to bottom, beginning on the bottom side of the rectangle,
and connects to rectangle entitled "Equity and Revenue Sharing Agreement".]
[Two arrows originate from the rectangle, one on the left side of the
rectangle and one on the right. The arrow on the left side with the percentage
"50%" written on the arrow, moves left then down to a rectangle with "AAC's"
Preferred Revenue Share" written inside; the arrow on the right side moves right
and then down to a rectangle with "Principals' Allocation" written inside.]
[Two arrows originate from the bottom of the rectangle titled "Principals'
Allocation"; one arrow moves diagonally downwards and to the left and connects
with another rectangle shape entitled "Employee Compensation; Other Operating
Expenses"; the second arrow moves diagonally downwards and to the right to a
rectangle entitled "Principals of Affiliated Firms".]
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
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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.
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.
In addition, 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 that the Company considers
are the background and experience of the Principals of such firms, historical
investment performance, investment style, amount of assets under
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management, historical annual growth rates, earnings and cash flows 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.
Correlation is measured over the entire period for which the relevant
Alternative Manager's performance is available using either a quantitative
measure such as correlation coefficients or a less formal comparison of
investment returns for an Alternative Manager versus contemporaneous returns of
an appropriate benchmark or of present Affiliated Firms. 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. Additional quantitative measures,
which support Asset Alliance's qualitative assessment, include risk adjusted
performance (sometimes called "alpha"), standard deviation of return (a measure
of risk), the Sharpe ratio (which compares investment return to the standard
deviation of return) and the frequency and severity of declines in any periods
of negative investment return. 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, through its review of industry data from sources such as
Managed Accounts Reports Inc., Van Hedge Fund Advisors, Inc., HFR and TASS
Management Ltd., that there are presently several hundred firms that would be
potentially attractive candidates for the Company's acquisition program. There
can be no assurance that any of such firms would be receptive to an acquisition
by the Company or that the Company will be successful in acquiring any of the
Alternative Managers which the Company determines to be attractive acquisition
candidates.
GROWTH STRATEGY
Active Acquisition Program
The core growth strategy of the Company is to acquire preferred interests
in high quality Alternative Managers. Upon completion of the MET Acquisition,
Asset Alliance will have acquired preferred interests in six Affiliated Firms
with aggregate assets under management of approximately $1.3 billion. Through
careful industry research and an active calling program, Asset Alliance believes
it has generated a strong list 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 providing additional capital for such
acquisitions and by establishing a trading market for the Common Stock, which
will enhance the attractiveness of the Common Stock and Common Stock equivalents
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
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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 uses specialized accounting and legal services to assist it in
this process. The due diligence process includes extensive in person interviews
of key investment professionals, and a thorough analysis of performance records,
financial statements, business procedures, operating practices, including risk
monitoring systems, and tax reports. With the consent of the key investment
professionals, Asset Alliance conducts both exploratory discussions with
personal, professional and investor references and detailed background
investigations. Legal due diligence includes an extensive review of business,
operational and compliance matters.
When Asset Alliance considers acquiring an interest in an Alternative
Manager, it evaluates whether the firm's historical revenues and expenses 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 through their retained interests. 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. Using 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 of generally at least eight years and who, in the Company's
judgment, have the ability and desire to manage and increase the size and
profitability of an 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 a useful 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, which may be linked to the Company's
Common Stock 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
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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 allocates investors' assets under management 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
are 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, consistent positive performance). Asset Alliance participates
directly in any increase in the revenues of an Affiliated Firm through the
Preferred Revenue Share. To the extent positive investment performance can be
maintained by an Affiliated Firm, a compounding effect will occur 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 Affiliated Firms, it does perform a detailed due
diligence on each potential Affiliated Firm's investment performance track
record and, most importantly, on the variability of each potential Affiliated
Firm's returns. Asset Alliance actively seeks Affiliated Firms with Principals
that have records of consistent returns across market cycles and that the
Company believes are capable of achieving internal growth in assets through
positive 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 Company's income
42
<PAGE> 44
from its Preferred Revenue Share. 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..................................... $ 648 $ 1,177
Net new sales............................................. 356 65
Investment performance.................................... 173 51
Assets under management --
-------- --------
End of period........................................... $ 1,177 $ 1,293
======== ========
</TABLE>
THE AFFILIATED FIRMS
<TABLE>
<CAPTION>
ASSETS UNDER
EQUITY MANAGEMENT AS OF
DATE FORMED(2)/ OWNERSHIP MARCH 31, 1998
AFFILIATED FIRM INVESTMENT STYLE(1) DATE ACQUIRED PERCENTAGE (IN MILLIONS)
--------------- ---------------------- --------------- ---------- ----------------
<S> <C> <C> <C> <C>
Milestone...................... Hedged Mortgage- May 1993/ 99% $ 139
New York, NY Backed Securities July 1996
Trading
Trust Advisors................. Market Neutral July 1989/ 50% 242
Westport, CT Long/Short Equity; October 1996
Stable Value
Silverado...................... Convertible and Merger March 1997/ 50% 20
Saddle Brook, NJ Arbitrage March 1997
Bricoleur...................... Long/Short Equity October 1993/ 50% 304
San Diego, CA February 1998
JMG-Pacific.................... Diversified Market March 1992(3)/ 50% 282
Los Angeles and Neutral Arbitrage April 1998
San Francisco, CA
MET(4)......................... Event Driven, July 1992/ 50% 306
New York, NY Opportunistic Pending(4)
------
TOTAL....................................................................... $1,293
======
</TABLE>
- ---------------
(1) The paragraphs below provide descriptions of the Affiliated Firms and their
investment styles. The general terms "arbitrage," "hedging" and "market
neutral," as used herein, have the following meanings: (i) arbitrage means
purchasing securities while selling short other related securities to
attempt to exploit a perceived pricing inefficiency; (ii) hedging means
establishing investment positions the performance of which will tend to
offset that of other investment positions in an effort to reduce the effect
of broad market movements or other factors affecting securities prices; and
(iii) market neutral means a strategy which focuses on obtaining returns
with low or no correlation to the market.
(2) Date Affiliated Firm or predecessor firm formed.
(3) JMG Capital Management LLC's predecessor firm was formed in March 1992 and
Pacific Assets Management LLC's predecessor firm was formed in April 1996.
(4) On March 24, 1998, the Company entered into a definitive agreement to
acquire preferred interests in the MET management entities. The Company
presently anticipates that the MET Acquisition will close within 30 days
after the Offering.
43
<PAGE> 45
The following table sets forth consolidated assets under management of the
Affiliated Firms by type of investor on a pro forma basis as of March 31, 1998
(dollars in millions):
<TABLE>
<CAPTION>
ASSETS UNDER
MANAGEMENT CLIENTS
------------------- -----------------
AMOUNT PERCENT NUMBER PERCENT
-------- ------- ------ -------
<S> <C> <C> <C> <C>
Institutions:
Domestic............................................ $ 359 27.8% 83 13.2%
Offshore............................................ 209 16.2 88 14.0
High Net Worth Investors:
Domestic............................................ 322 24.9 225 35.9
Offshore............................................ 31 2.4 43 6.9
Fund of Funds......................................... 372 28.7 188 30.0
-------- ----- --- ------
$1,293 100.0% 627 100.0%
======== ===== === ======
</TABLE>
The Affiliated Firms are described below in order of their respective dates
of acquisition or pending 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 and securities of U.S.
government agencies which are not guaranteed by the U.S. government, 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.
44
<PAGE> 46
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
======== ========== ==========
1998 First Quarter..................... $139,000,000 $277,813 $ 974,775 $1,252,588
======== ========== ==========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Milestone in each
quarter.
** Total 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 and for the first
quarter of 1998 of $950,600.
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
45
<PAGE> 47
Advisors allocates the capital of Equity Plus among Alternative Managers
unaffiliated with the Company 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.
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..................... $261,000,000 $172,728 -- $ 172,728
Second Quarter.................... 255,000,000 187,779 -- 187,779
Third Quarter..................... 241,000,000 238,166 -- 238,166
Fourth Quarter.................... 243,000,000 202,533 -- 202,533
-------- -------- ----------
ANNUAL TOTAL.................................... $801,206 $ -- $ 801,206
======== ======== ==========
1997 First Quarter..................... $249,000,000 $211,015 $ 71,650 $ 282,665
Second Quarter.................... 245,000,000 232,424 159,382 391,806
Third Quarter..................... 245,000,000 251,000 542,906 793,906
Fourth Quarter.................... 241,000,000 258,763 193,504 452,267
-------- -------- ----------
ANNUAL TOTAL.................................... $953,202 $967,442 $1,920,644
======== ======== ==========
1998 First Quarter..................... $242,000,000 $275,019 $270,315 $ 545,334
======== ======== ==========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Trust Advisors in each
quarter. The Company assisted in the conversion of Trust Advisors from a
traditional manager to an Alternative Manager in the first quarter of 1997.
Prior to such time, Trust Advisors did not charge performance fees.
46
<PAGE> 48
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.
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
======= ======== ========
1998 First Quarter........................ $20,000,000 $47,776 $ 32,406 $ 80,182
======= ======== ========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by Silverado in each quarter.
Bricoleur Capital Management LLC
Bricoleur's predecessor firm 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 selling short companies which it believes are currently
overvalued.
47
<PAGE> 49
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
========== =========== ===========
1998 First Quarter................... $304,000,000 $ 540,630 $ 3,971,626 $ 4,512,256
========== =========== ===========
</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 as of and for the years ended December 31, 1996 and
1997 included elsewhere in this Prospectus. Effective January 1, 1998, such
amounts are 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
The predecessor firm of JMG Capital Management LLC ("JMG Capital") was
founded in March 1992 by its principal, Jonathan M. Glaser. The predecessor firm
of Pacific Assets Management LLC ("Pacific" and, collectively with JMG Capital,
"JMG-Pacific") was founded in April 1996 by its principals, Jonathan M. Glaser,
Roger Richter and Daniel David. In general, JMG-Pacific provides investment
advisory services domestically through JMG 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 portfolios to take advantage of market
volatility and price anomalies between highly correlated or substantially
similar securities. In creating its investment portfolios, 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.
48
<PAGE> 50
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 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
========== ========== ===========
1998 First Quarter.................... $282,000,000 $1,032,748 $3,208,785 $ 4,241,533
========== ========== ===========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by JMG-Pacific in each
quarter.
Metropolitan Capital Managers LLC, Metropolitan Capital Managers II LLC and
Metropolitan Capital Advisors LLC
The predecessor firms of Metropolitan Capital Managers LLC ("Metropolitan
Managers"), Metropolitan Capital Managers II LLC ("Metropolitan Managers II")
and Metropolitan Capital Advisors LLC ("Metropolitan Advisors" and, collectively
with Metropolitan Managers and Metropolitan Managers II, "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.
49
<PAGE> 51
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 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, seeking to provide 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, METROPOLITAN CAPITAL MANAGERS II 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
========== ========== ===========
1998 First Quarter.................... $306,000,000 $1,267,274 $2,331,540 $ 3,598,814
========== ========== ===========
</TABLE>
- ---------------
* Performance fee figures represent amounts earned by MET in each quarter.
50
<PAGE> 52
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. The Company believes there are approximately 3,000 domestic
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, (ii) the abilities, performance records and
reputation of their Principals and (iii) the level of client service offered. Of
lesser importance are (i) the level of performance allocations and management
fees, and (ii) 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 31, 1998, the Company employed twelve persons, nine 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 June 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,
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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. Federal laws applicable to one or more of the
Affiliated Firms include the Advisers Act, ERISA, the Exchange Act and certain
exceptions to registration of investment funds under 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.
TRADEMARKS
The Company has filed applications for trademarks for "Asset Alliance
Corporation" and the Company's logo, "Trust Advisers Equity Plus" and its logo
and "Preferred Manager Trust" with the United States Patent and Trademark
Office. The Company anticipates that federal registration of such marks will be
granted.
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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 instead of 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 period, which is generally annual. If an Affiliated Firm fails
to maintain the positive investment performance or the
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investment 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 by the Company with respect to that particular Affiliated
Firm.
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 substantially all 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 investment management 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 employee compensation, rent and
professional fees; and (v) taxes paid by the Company.
RECENT AND PENDING ACQUISITIONS
Bricoleur Capital Management LLC
On February 28, 1998, the Company acquired a preferred interest in
Bricoleur. The purchase price paid for Bricoleur (the "Bricoleur Purchase
Price") was $17.55 million in cash, 2,880,000 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 Preferred Revenue Share in Bricoleur entitles the
Company to a 50% equity ownership interest and a 50% preferred share of the
gross revenues of Bricoleur.
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 are less than 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 recent average trading price or a minimum price, whichever is greater.
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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 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 April 28, 1998, the Company acquired a preferred interest in
JMG-Pacific. The purchase price paid for JMG-Pacific (the "JMG-Pacific Purchase
Price") was $29.85 million in cash, $14.93 million principal amount of the
Company's Series A Subordinated Convertible Debentures (the "Series A
Debentures") and $14.93 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 Preferred
Revenue Share in JMG-Pacific entitles the Company to a 50% equity ownership
interest and a 50% preferred share of the gross revenues of JMG-Pacific.
The Series A Debentures mature on April 30, 2003 and are initially
convertible into 1,705,970 shares of Common Stock at the option of the
Principals of JMG-Pacific at any time after April 28, 1999. The Series B
Debentures mature on April 30, 2003 and are initially convertible into 1,705,970
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
the 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 recent average trading price.
The JMG-Pacific Purchase Price is also subject to a one-time reduction
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.
In connection with the JMG-Pacific Acquisition, the Principals of
JMG-Pacific entered into five-year employment agreements with JMG-Pacific under
which the Company is a third-party beneficiary. The
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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 Managers LLC, Metropolitan Capital Managers II 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 the Company's interests in the MET entities
(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 the MET entities will entitle the Company to a 50%
equity ownership interest and a 40% preferred share of the gross revenues of the
MET entities.
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 the MET entities as of the closing of the MET Acquisition do
not fall within a specified range. Similarly, the conversion price 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 $13.00 per share, no adjustment to the
conversion price of the MET Debentures would be made. Similarly, 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 the MET entities to which the Company is entitled
through June 30, 2000. If such revenues fall short of a minimum benchmark, the
Principals of the MET entities 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 the minimum benchmark, the Principals of the
MET entities 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 $5.0 million.
In connection with the MET Acquisition, the Principals of the MET entities
are expected to enter into five-year employment agreements with the MET entities
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
the MET entities.
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 one-half of the outstanding capital
stock of Milestone Investment Group Inc. ("MIG") from Messrs. Lipnick and Mintz.
The remainder of the capital stock of MIG was contributed to the Company by
Messrs. Lipnick and Mintz as a capital contribution. 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. No contingent earn-out payments were made
and no contingent stock options
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were issued in 1996. Contingent earn-out payments for 1997 were $637,500, and
contingent stock options for 21,250 shares were issued for 1997. No further
earn-out payments or contingent stock option issuances are payable under 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 of 50% preferred interests are accounted for,
or, with respect to 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 and other intangibles, which represent the excess
of the purchase price of the investments over the underlying equity in such
investments. 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 retention 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
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
The Company had net income of $410,000 for the three months ended March 31,
1998, compared to net income of $89,000 for the three months ended March 31,
1997. Net revenues for the three months ended March 31, 1998 increased to $2.6
million from $1.1 million for the three months ended March 31, 1997. The revenue
increase was primarily due to an increase in Milestone's assets under management
resulting in revenues of $1.3 million for the three months ended March 31, 1998
compared to $938,000 for the three months ended March 31, 1997 and the inclusion
of the Preferred Revenue Share from Bricoleur of $1.2 million for the period
from February 28, 1998, the date of the Bricoleur Acquisition.
Sub-advisory fees paid increased to $951,000 for the three months ended
March 31, 1998, from $654,000 for the three months ended March 31, 1997. The
fees paid for the first quarter of 1998 consisted entirely of fees paid by
Milestone to Westside and for the first quarter of 1997 consisted entirely of
fees paid by Milestone to BSIA. Compensation and related expense increased by
$450,000 for the three months ended March 31, 1998, to $645,000 from $195,000
for the three months ended March 31, 1997, as a result of new employment
agreements with the Company's senior executives, and an increased level of
staffing. Similarly, other operating expenses increased to $205,000 for the
three months ended March 31, 1998 from $128,000 for the three months ended March
31, 1997.
Net interest income (expense) was not significant for either the three
months ended March 31, 1998 or the three months ended March 31, 1997.
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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 by 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
for the foreseeable future Milestone will continue to pay a comparable
percentage of its revenues as sub-advisory expense. 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-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 March 31, 1998, the Company had cash and cash equivalents of $6.5
million, compared to $12.2 million at the end of 1997 and $3.2 million at the
end of 1996. As of March 31, 1998 and December 31, 1997, the Company had $4.7
million and $3.9 million, respectively, primarily 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, and
$237,000 and $358,000 for the three months ended March 31, 1998 and 1997,
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, and
$15.9 million and $717,000 for the three months ended March 31, 1998 and 1997,
respectively. Such amounts were used primarily to acquire preferred interests in
Trust Advisors in 1996, Silverado in 1997 and Bricoleur in February 1998. Net
cash provided by financing activities was $11.8 million and $6.8 million for the
periods ended December 31, 1997 and 1996, respectively, and $10.5 million and
$31,000 for the three months ended March 31, 1998 and 1997, respectively. The
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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. Borrowings under the Credit Agreement were the
principal source of the net cash provided by operating activities in the three
months ended March 31, 1998.
In February 1998, the Company completed the Bricoleur Acquisition, which
required approximately $17.7 million in cash (including transaction costs). In
April 1998, the Company completed the JMG-Pacific Acquisition, which required
approximately $30.0 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 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 (and $10.0 million of
such borrowings as of March 31, 1998), (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.
The Facility A and Facility B term loans can be prepaid without penalty at
any time. Principal payments on the term loans, if not otherwise made from the
proceeds of the Offering, are required in aggregate annual amounts of $5.0
million during the first two years of the loans to repay the Facility A term
loans and $6.7 million during the third, fourth and fifth years of the loans to
repay the Facility B term loans.
The Company has utilized borrowings under the Credit Agreement to finance
the cash portion of the Bricoleur Acquisition and 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 68% of the Company's assets
at March 31, 1998 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 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 the proceeds
therefrom, the Company will not have any borrowing capacity available under the
Credit Agreement. See "Use of Proceeds." Following the consummation of the
Offering, the Company expects to have additional borrowing capacity under the
New Credit Facility.
On May 8, 1998, the Company received a commitment letter from the Lending
Bank for the New Credit Facility, subject to consummation of the Offering and
customary and usual conditions precedent, which will have terms substantially
similar to those contained in the Credit Agreement.
The Company is currently negotiating definitive documentation for the New
Credit Facility. The following summary of the principal terms of the New Credit
Facility does not purport to be complete and is qualified in its entirety by
reference to the provisions of a definitive credit agreement and other related
documents that the Company expects to be finalized prior to completion of the
Offering. The New Credit
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Facility will consist of a $50 million senior revolving credit facility, which
amount may be increased at the option of the Company by up to an additional $50
million, provided that no default under such New Credit Facility has occurred,
with a five year maturity date. The New Credit Facility will be available on a
revolving basis for up to three years, after which time outstanding borrowings
under the facility will automatically convert to a two year term loan facility.
Interest on the revolving credit borrowings will be calculated, at the option of
the Company, at LIBOR or the Base Rate (the greater of the Lending Bank's
reference rate or the Federal Funds Rate plus 0.50%), plus in either case the
applicable margin, which applicable margin initially will be at least 2.0% per
annum for borrowings at LIBOR and 0.75% per annum for borrowings at the Base
Rate and will fluctuate depending upon the financial performance of the Company.
Advances made at the Base Rate may be prepaid at any time on one business day's
notice. Advances made based on LIBOR require three business days' notice for
prepayment. Commencing in year four, the Company will be required, under certain
circumstances, to make mandatory prepayments of the outstanding indebtedness
under the New Credit Facility. The Company will pay a commitment fee which
initially will be at least 0.45% per annum on the unused portion of the New
Credit Facility. Such fee changes depending on the financial performance of the
Company.
The Company's borrowings under the New Credit Facility may be used to
acquire preferred interests in Alternative Managers and for general corporate
purposes. The Company's borrowings will be collateralized by the pledge of all
of the assets of the Company and its material subsidiaries, including their
interests in the Affiliated Firms. The New Credit Facility will contain a number
of covenants similar to those contained in the Credit Agreement. The New Credit
Facility also will require the Company to comply with certain financial
covenants which are expected to be similar to those contained in the Credit
Agreement and which could limit the Company's ability to pay dividends and other
distributions to stockholders. The Company's ability to borrow under the New
Credit Facility will be conditioned upon its compliance with the requirements of
that agreement, and any non-compliance with those requirements could give rise
to a default entitling the lenders to accelerate all outstanding borrowings
under that agreement.
As part of the Recent Financing, 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 bears interest 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 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, including the New Credit Facility, 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 accept four digit
entries in order to distinguish 21(st) century dates from 20(th) century dates.
As a result, computer systems 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 and is working with software vendors to prepare the Company and the
Affiliated
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<PAGE> 62
Firms for "Year 2000" compliance. The Company does not expect that the cost to
modify information technology infrastructure to be Year 2000 compliant will be
material to the financial condition or results of operations of the Company or
the Affiliated Firms nor does it anticipate any material disruption in the
operations of the Company or the Affiliated Firms as a result of any failure by
the Company or the Affiliated Firms to be Year 2000 compliant. Nonetheless,
there can be no assurance in this regard until such systems are operational in
the year 2000.
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
trading, the pricing of securities and account services. While in certain
instances service providers to the Company and the Affiliated Firms have advised
the Company or the Affiliated Firms that they believe Year 2000 compliance has
been achieved, in other instances such service providers believe they have not
yet achieved such compliance. 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 almost entirely of distributions of the
Preferred Revenue Shares from the 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. 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 Shares.
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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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 Chief Financial
Officer
David R. Long............................. 46 Senior Vice President, Acquisitions and
Director(1)
Jeffrey M. Moses.......................... 38 Senior Vice President and General Counsel
Mark P. Strauch........................... 43 Senior Vice President, Treasurer and
Director(1)
Joseph Lagnado............................ 47 Controller
Jefferson F. Allen........................ 53 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. In May 1998, Mr. Ervine became Chief Financial Officer
of the Company. 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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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 and Director of Asset
Alliance since July 1996. Mr. Strauch also served as Chief Financial Officer of
Asset Alliance from July 1996 to May 1998 and now serves as Treasurer. 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 May 1997 and has served as Chief Financial
Officer of Tosco since June 1990. From June 1990 until May 1997, Mr. Allen was
Executive Vice President of Tosco and served as Treasurer from June 1990 until
October 1995.
HARVEY SILVERMAN is 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 as soon as
practicable following the consummation of the Offering.
The Company's Board of Directors will, upon consummation of the Offering,
consist of six 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. Long
and Strauch, Class II -- Messrs. Mintz and Silverman and Class III -- Messrs.
Lipnick and Allen. 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 and Long.
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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. See "-- Compensation
Committee Interlocks and Insider Participation."
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> 66
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 $100,000 for the fiscal year ended December 31, 1997
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) 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 $637,500 made to
Messrs. Lipnick and Mintz pursuant to the terms of the Milestone Agreement.
See "Certain Relationships and Related Party Transactions."
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<PAGE> 67
STOCK OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options during the fiscal year ended December 31, 1997 by the Company to
the Named Executive Officers. As of the date hereof, the Company has not granted
any stock appreciation rights.
OPTIONS GRANTED IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#) FISCAL 1997 ($/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.
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 $84,500 $279,000
Arnold L. Mintz...................... 8,333 36,667 84,500 279,000
</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 $13.00 per share.
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
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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 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 his
Employment Agreement and for two years thereafter, he shall not engage in
competing ventures, subject to exception for certain existing activities, 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.
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
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<PAGE> 69
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
employee's 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.
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 646,250 shares of Common
Stock, or approximately % of the outstanding Common Stock after giving
effect to the Offering, to members of senior management and directors, (ii)
awarded options to purchase up to 115,344 shares of Common Stock, or
approximately % of the outstanding Common Stock after giving effect to the
Offering, to Principals of the Affiliated Firms or consultants and advisors of
the Company, and (iii) reserved 1,556,594 shares, or approximately % of the
outstanding Common Stock after giving effect to the Offering (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 and directors 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 after giving effect to the Offering. 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.
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<PAGE> 70
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 April 30,
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.
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 April 30,
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 April 30, 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.
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<PAGE> 71
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, Mintz, Strauch and Long
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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<PAGE> 72
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In July 1996, the Company acquired one-half of the outstanding capital
stock of MIG from Messrs. Lipnick and Mintz. The remainder of the capital stock
of MIG was contributed to the Company by Messrs. Lipnick and Mintz as a capital
contribution. 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 and
21,250 contingent stock options under the terms of the Milestone Agreement and
are therefore no longer entitled to earn-out payments or stock options under the
Milestone Agreement. The contingent stock options are ten-year options to
purchase Common Stock and were 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
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. Contingent stock options granted to Messrs.
Lipnick and Mintz 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 2.6% of the outstanding Common Stock
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 March 1998, the Company obtained a $5.0 million unsecured loan from
Citco Banking Corporation N.V., an affiliate of the Citco Group 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
issued 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."
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 defined in
"Description of Capital Stock -- Registration Rights") 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.
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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<PAGE> 73
17.9% of the outstanding 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 April 30, 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 17.8% 9.8%
Arnold L. Mintz(4).......................................... 988,419 10.5 5.8
David R. Long(5)............................................ 28,333 * *
Mark P. Strauch(6).......................................... 28,333 * *
Jefferson F. Allen.......................................... -- -- --
Harvey Silverman(7)......................................... 3,400 * *
John I. Bloomberg(8)........................................ 1,094,200 11.5 6.4
Daniel P. Wimsatt(9)........................................ 1,830,000 19.0 10.6
Robert M. Poole(10)......................................... 549,000 5.9 3.2
AJG Financial Services, Inc.(11)............................ 3,100,000 32.3 17.9
The Citco Group Limited(12)................................. 437,500 4.7 2.6
All directors and executive officers as a group (9
persons)(13).............................................. 2,802,016 28.6% 16.0%
</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 I. 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, warrants and convertible
subordinated debentures held by that person that are currently exercisable
or that become exercisable within 60 days of April 30, 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, warrants or convertible subordinated debentures 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 April 30,
1998 includes (i) 7,365,000 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
April 30, 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 April 30,
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<PAGE> 75
1998. Excludes 100,000 shares held by the Oxford Trust II and 100,000
shares held by the 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 April 30, 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 April 30, 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 April 30, 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 April 30, 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.
(8) 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.
(9) 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.
(10) 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.
(11) Includes (i) 175,000 shares issuable upon exercise of a currently
exercisable warrant, (ii) 875,000 shares of Common Stock issuable upon the
automatic conversion upon consummation of the Offering of 100,000 shares of
Series A Preferred Stock and 175,000 shares of Common Stock issuable upon
exercise of a warrant to be issued upon such conversion of Series A
Preferred Stock and (iii) 1,000,000 shares of Common Stock issuable upon
the automatic conversion upon consummation of the Offering of 100,000
shares of Series B Preferred Stock.
(12) 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.
(13) Includes (i) 322,500 shares of Common Stock issuable upon exercise of
currently exercisable warrants, (ii) 247,982 shares issuable upon exercise
of outstanding stock options exercisable within 60 days of April 30, 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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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 $.01 per share (the "Preferred Stock").
As of April 30, 1998, there were 7,365,000 shares of Common Stock
outstanding. As of April 30, 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 1,109,426 shares of Common Stock were then exercisable. As
of April 30, 1998, there were $39.6 million principal amount of subordinated
convertible debentures outstanding, which may be converted into an aggregate of
4,659,308 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 16,940,000
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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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 will hold office until the first annual
meeting of stockholders following the Offering, the directors in Class II will
hold office until the second annual meeting of stockholders following the
Offering, and the directors in Class III will 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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<PAGE> 78
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;
provided, however, that certain provisions of the Certificate may only be
amended or repealed with the approval of the holders of 80% of total votes
eligible to be cast 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 80% 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
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<PAGE> 79
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, 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 a 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 9,107,284 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, including those subordinated convertible debentures which the
Company expects to issue in connection with the MET Acquisition) 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> 80
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 6,817,368 shares (including 1,875,000
shares issuable upon the conversion of the Series A Preferred Stock and Series B
Preferred Stock and 457,368 shares issuable upon the conversion of subordinated
convertible debentures) of the Restricted Shares will be eligible for sale in
the public market pursuant to Rule 144 (excluding the Principal Shares). See
"Underwriting."
In connection with the Company's acquisitions, certain Principals holding
an aggregate of approximately 2,805,000 shares of Common Stock and approximately
$53.55 million aggregate principal amount of subordinated convertible debentures
which are convertible into 5,976,940 shares of Common Stock (including $17.85
million aggregate principal amount of subordinated convertible debentures
convertible into 1,785,000 shares of Common Stock, which the Company expects to
issue in connection with the MET Acquisition) 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 103,594 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.
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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 $39.6 million
aggregate principal amount of subordinated convertible debentures which are
convertible into 4,659,308 shares of Common Stock (excluding $17.85 million
aggregate principal amount of subordinated convertible debentures convertible
into 1,785,000 shares of Common Stock which the Company expects to issue in
connection with the MET Acquisition).
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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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, subject to certain exceptions, 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. The Common Stock has been approved for inclusion
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-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998 (unaudited)........ F-4
Consolidated Statements of Operations for the period from February 1, 1996 to December 31, 1996, the year
ended December 31, 1997 and for the three months ended March 31, 1997 (unaudited) and 1998
(unaudited)........................................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the period from February 1, 1996 to
December 31, 1996, for the year ended December 31, 1997 and for the three months ended March 31, 1998
(unaudited)........................................................................................... F-6
Consolidated Statements of Cash Flows for the period from February 1, 1996 to December 31, 1996, for the
year ended December 31, 1997 and for the three months ended March 31, 1997 (unaudited) and 1998
(unaudited)........................................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
BRICOLEUR CAPITAL MANAGEMENT, LLC
Successor of Bricoleur Capital Management, Inc.
Report of Independent Accountants........................................................................ F-21
Statements of Financial Condition as of December 31, 1996 and 1997 and as of March 31, 1998
(unaudited)........................................................................................... F-22
Statements of Income for the years ended December 31, 1995, 1996 and 1997 and for the three months ended
March 31, 1997 (unaudited) and 1998 (unaudited)....................................................... F-23
Statement of Shareholders'/Members' Equity for the years ended December 31, 1995, 1996
and 1997 and for the three months ended March 31, 1998 (unaudited).................................... F-24
Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the three months
ended March 31, 1997 (unaudited) and 1998 (unaudited)................................................. F-25
Notes to Financial Statements............................................................................ F-26
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
Report of Independent Auditors........................................................................... F-32
Combined Balance Sheet as of December 31, 1996 and 1997 and as of March 31, 1998 (unaudited)............. F-33
Combined Statements of Operations for the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 (unaudited) and 1998 (unaudited).......................................... F-34
Combined Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1996 and
1997 and for the three months ended March 31, 1998 (unaudited)........................................ F-35
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 (unaudited) and 1998 (unaudited).......................................... F-36
Notes to Combined Financial Statements................................................................... F-37
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
Report of Independent Auditors........................................................................... F-41
Combined Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998 (unaudited)............ F-42
Combined Statements of Income for the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 (unaudited) and 1998 (unaudited).......................................... F-43
Combined Statements of Changes in Partners' Capital for the years ended December 31, 1995, 1996 and 1997
and for the three months ended March 31, 1998 (unaudited)............................................. F-44
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 (unaudited) and 1998 (unaudited).......................................... F-45
Notes to Combined Financial Statements................................................................... F-46
</TABLE>
F-1
<PAGE> 86
<TABLE>
<S> <C>
TRUST ADVISORS LLC
Report of Independent Auditors........................................................................... F-50
Balance Sheets as of December 31, 1996 and 1997 and as of March 31, 1998 (unaudited)..................... F-51
Statements of Income for the three months ended December 31, 1996, for the year ended December 31, 1997
and for the three months ended March 31, 1997 (unaudited) and 1998 (unaudited)........................ F-52
Statements of Changes in Members' Equity for the three months ended December 31, 1996, for the year ended
December 31, 1997 and for the three months ended March 31, 1998 (unaudited)........................... F-53
Statements of Cash Flows for the three months ended December 31, 1996, for the year ended December 31,
1997 and for the three months ended March 31, 1997 (unaudited) and 1998 (unaudited)................... F-54
Notes to Financial Statements............................................................................ F-55
</TABLE>
F-2
<PAGE> 87
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-3
<PAGE> 88
ASSET ALLIANCE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $3,225,655 $12,171,578 $ 6,456,090
Investment in limited partnership, at market value
(cost $2,500,000, $3,450,000 and $4,200,000 in 1996,
1997 and 1998, respectively)........................ 2,585,989 3,875,235 4,680,947
Fee and other receivables.............................. 700,849 4,546,282 2,230,049
Other current assets................................... 5,008 36,010 110,299
---------- ----------- -----------
Total current assets..................................... 6,517,501 20,629,105 13,477,385
Investments in equity interests from preferred revenue
share.................................................. 1,921,251 3,955,520 47,690,104
Property and equipment -- net............................ 62,470 82,516 362,070
Organization costs -- net................................ 193,718 153,327 141,940
Other.................................................... 1,500 1,500 19,500
---------- ----------- -----------
Total assets................................... $8,696,440 $24,821,968 $61,690,999
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Debentures payable..................................... $ -- $ 600,000 $ --
Accounts payable to investment advisors................ 558,931 3,181,853 1,089,866
Other payables and accrued expenses.................... 99,941 127,605 667,500
Dividends payable...................................... 31,250 31,250 156,250
Income taxes payable................................... 30,000 256,100 395,100
Due to affiliates...................................... -- 29,872 4,350
---------- ----------- -----------
Total current liabilities................................ 720,122 4,226,680 2,313,066
Loan payable............................................. -- -- 10,000,000
Deferred income taxes.................................... -- 26,900 26,900
Deferred rent............................................ 20,736 57,932 56,206
Debentures payable....................................... 750,000 2,689,904 9,631,041
Minority interest........................................ 2,030 19,187 8,357
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 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 1,000
Common stock, $0.01 par value, 100,000,000 shares
authorized (15,000,000 in 1996), 4,425,000 (1996),
4,485,000 (1997) and 7,365,000 (1998) shares issued
and outstanding..................................... 44,250 44,850 73,650
Additional paid-in capital............................. 7,317,250 17,487,250 39,058,450
Retained earnings (accumulated deficit)................ (158,948) 267,265 521,329
---------- ----------- -----------
Total stockholders' equity..................... 7,203,552 17,801,365 39,655,429
---------- ----------- -----------
Total liabilities and stockholders' equity..... $8,696,440 $24,821,968 $61,690,999
========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 89
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM THREE MONTHS ENDED
FEBRUARY 1, 1996 YEAR ENDED MARCH 31,
(DATE OF INCEPTION) TO DECEMBER 31, -----------------------
DECEMBER 31, 1996 1997 1997 1998
---------------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Management and incentive fees, including
$110,691 for the period ended
December 31, 1996, $1,132,499 for the
year ended December 31, 1997,
$172,225 for the three months ended
March 31, 1997 and $1,525,796 for the
three months ended March 31, 1998 of
the equity interest from preferred
revenue share........................ $ 914,624 $7,922,284 $1,085,538 $2,842,502
Amortization expense associated
with portion of equity
interest........................ (22,500) (200,731) (37,779) (314,573)
Realized and unrealized appreciation on
investment in limited partnership.... 85,989 339,246 55,524 55,712
---------- ---------- ---------- ----------
Net revenues.............................. 978,113 8,060,799 1,103,283 2,583,641
Expenses:
Sub-advisory fee........................ 529,351 4,864,150 654,230 950,599
Compensation and related expenses....... 296,578 1,412,413 194,311 645,203
Other operating expenses................ 228,294 899,618 128,259 204,380
---------- ---------- ---------- ----------
Total expenses............................ 1,054,223 7,176,181 976,800 1,800,182
---------- ---------- ---------- ----------
Operating income (loss)................... (76,110) 884,618 126,483 783,459
Interest income, net of interest expense
of $13,100 for the period ended December
31, 1996, $76,091 for the year ended
December 31, 1997, $12,816 for the three
months ended March 31, 1997 and $146,328
for the three months ended March 31,
1998.................................... 55,153 36,595 17,519 (23,145)
---------- ---------- ---------- ----------
Income (loss) before income taxes......... (20,957) 921,213 144,002 760,314
Provision for income taxes................ 37,900 357,000 55,219 350,000
---------- ---------- ---------- ----------
Net income (loss)......................... (58,857) 564,213 88,783 410,314
Preferred stock dividend requirement...... 59,783 125,000 31,250 156,250
---------- ---------- ---------- ----------
Net income (loss) available to common
stockholders............................ $ (118,640) $ 439,213 $ 57,533 254,064
========== ========== ========== ==========
Net income (loss) per share available to
common stockholders:
Basic................................... $ (0.03) $ 0.10 $ 0.01 $ 0.05
========== ========== ========== ==========
Diluted................................. $ (0.03) $ 0.09 $ 0.01 $ 0.04
========== ========== ========== ==========
Shares used to compute net income (loss)
per share:
Basic................................... 3,837,228 4,470,833 4,466,667 5,477,000
========== ========== ========== ==========
Diluted................................. 3,837,228 4,630,830 4,466,667 6,824,037
========== ========== ========== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 90
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PERIOD FROM FEBRUARY 1, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, YEAR ENDED DECEMBER 31, 1997
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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
Issuance of common stock
for acquisition of
investment in Bricoleur
(unaudited).............. -- -- -- 2,880,000 28,800 21,571,200 -- 21,600,000
Dividends on preferred
stock -- $0.3125 per
Series A share and $.125
per Series B share....... -- -- -- -- -- -- -- (156,250) (156,250)
Net income (unaudited)..... -- -- -- -- -- -- -- 410,314 410,314
------- ------ ------- ------ --------- ------- ----------- --------- -----------
Balance at March 31, 1998
(unaudited).............. 100,000 $1,000 100,000 $1,000 7,365,000 $73,650 $39,058,450 $ 521,329 $39,655,429
======= ====== ======= ====== ========= ======= =========== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 91
ASSET ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 1, 1996 THREE MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED MARCH 31,
TO DECEMBER 31, DECEMBER 31, --------------------------
1996 1997 1997 1998
------------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................... $ (58,857) $ 564,213 $ 88,783 $ 410,314
Adjustments to reconcile net income (loss)
to net cash used in operating
activities:
Depreciation and amortization........... 36,992 87,034 20,648 20,012
Equity interest from preferred revenue
share................................. (88,191) (931,768) (134,446) (1,211,223)
Distributions of equity interest from
preferred revenue share............... 44,657 525,978 34,800 193,904
Realized and unrealized appreciation on
investment in limited partnership..... (85,989) (339,246) (55,524) (55,712)
Deferred income taxes................... -- 26,900 -- --
Deferred rent........................... 20,736 37,196 41,675 (1,726)
Minority interest....................... (1,101) 17,157 2,033 (10,830)
Changes in operating assets and
liabilities:
Investment in limited partnership..... (2,500,000) (950,000) -- --
Fee and other receivables............. (521,837) (3,645,433) (929,766) 2,116,233
Other current assets.................. (5,008) (31,002) (10,627) (74,289)
Other................................. (1,500) -- -- (18,000)
Accounts payable to investment
advisors........................... 503,735 2,622,922 561,594 (2,091,987)
Other payables and accrued expenses... (107,769) 27,664 34,548 372,630
Income taxes payable.................. 30,000 226,100 (11,281) 139,000
Due to affiliates..................... -- 29,872 -- (25,522)
----------- ----------- ----------- ------------
Net cash used in operating activities..... (2,734,132) (1,732,413) (357,563) (237,196)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Organization costs........................ (207,640) -- -- --
Investments in equity interest from
preferred revenue share................. (604,650) (885,479) (697,380) (16,050,000)
Additions to property and equipment....... (64,437) (38,089) (19,157) (88,179)
Other..................................... -- (200,000) -- 200,000
----------- ----------- ----------- ------------
Net cash used in investing activities..... (876,727) (1,123,568) (716,537) (15,938,179)
----------- ----------- ----------- ------------
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 -- 1,091,137
Proceeds from loan payable................ -- -- -- 10,000,000
Payment of debenture...................... -- -- -- (600,000)
Cash dividend paid........................ (28,533) (125,000) (31,250) (31,250)
Cash distribution to former owners of
Milestone Investment Group, Inc. ....... (637,500) (13,000) -- --
----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities.............................. 6,833,967 11,801,904 (31,250) 10,459,887
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents............................. 3,223,108 8,945,923 (1,105,350) (5,715,488)
Cash and cash equivalents at beginning of
period.................................. 2,547 3,225,655 3,225,655 12,171,578
----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period.................................. $ 3,225,655 $12,171,578 $ 2,120,305 $ 6,456,090
=========== =========== =========== ============
Interest paid............................. $ 13,100 $ 63,000 $ -- $ 13,151
=========== =========== =========== ============
Income taxes paid......................... $ 7,900 $ 104,000 $ 66,500 $ 301,200
=========== =========== =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 92
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 provides for a Preferred Revenue Share to the Company and
requires 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
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1998 and the for the
three months ended March 31, 1997 and 1998 have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
as of March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1997 and 1998 have been made. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
eliminated.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1998.
F-8
<PAGE> 93
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 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."
F-9
<PAGE> 94
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
INVESTMENT IN LIMITED PARTNERSHIP, AT MARKET VALUE
The Company has invested 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.
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 50% equity interest 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 with such shares and warrants 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 50% equity interest 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-10
<PAGE> 95
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 -- gross.............. $ 110,691 $ 101,266 $ 9,425 $1,132,499 $ 960,322 $ 87,635 $ 84,542
Amortization expense
associated with portion of
equity interest............. (22,500) (22,500) -- (200,731) (126,119) (74,612) --
---------- ---------- ------- ---------- ---------- ---------- --------
Equity interest in income from
preferred revenue
share -- net................ $ 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 convertible into 258,654 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
F-11
<PAGE> 96
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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 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.
F-12
<PAGE> 97
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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.
F-13
<PAGE> 98
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
The following table sets forth the computation of basic and dilutive
earnings per share for the periods ended December 31, 1996 and 1997 and for the
three months ended March 31, 1997 and 1998:
<TABLE>
<CAPTION>
PERIOD ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net (loss) income............... $ (58,857) $ 564,213 $ 88,783 $ 410,314
Preferred stock dividend
requirement.................. (59,783) (125,000) (31,250) (156,250)
---------- ---------- ---------- ----------
Numerator for basic earnings per
share-net income (loss)
available for common
stockholders................. 118,640 439,213 57,533 254,064
Preferred stock dividend
requirement for Series A
Preferred Stock which is
dilutive for the three months
ended March 31, 1998......... -- -- -- 31,250
---------- ---------- ---------- ----------
Numerator for diluted earnings
per share.................... $ (118,640) $ 439,213 $ 57,533 $ 285,314
========== ========== ========== ==========
Denominator:
Denominator for basic earnings
per share-weighted average
shares....................... 3,837,228 4,470,833 $4,466,667 5,477,000
Effect of dilutive securities:
Series A Preferred Stock..... -- -- -- 875,000
Stock options................ -- 57,806 -- 100,260
Warrants, including for March
1998, 69,958 shares related
to Series A Preferred Stock
conversion................. -- 102,191 -- 371,777
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions.................. 3,837,228 4,630,830 4,466,667 6,824,037
========== ========== ========== ==========
Net (loss) income per share:
Basic........................ $ (0.03) $ 0.10 $ 0.01 $ 0.05
========== ========== ========== ==========
Diluted...................... $ (0.03) $ 0.09 $ 0.01 0.04
========== ========== ========== ==========
</TABLE>
F-14
<PAGE> 99
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
The following securities have been excluded from the dilutive per share
computation as they are antidilutive:
<TABLE>
<CAPTION>
PERIOD ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Preferred stock -- Series A --
convertible into 875,000 shares
of common stock and 175,000
warrants........................ 1,050,000 1,050,000 1,050,000 --
Preferred stock -- Series B....... -- 1,000,000 -- 1,000,000
Subordinated convertible
debentures...................... 50,000 308,654 50,000 681,350
Stock options..................... 140,000 110,000 150,000 488,000
Warrants.......................... 735,000 -- 735,000 --
</TABLE>
For additional information on the above securities, see Notes 1, 3, 4, 7
and 10. See Note 12 for information on certain Common Stock and subordinated
convertible debentures issued subsequent to December 31, 1997.
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), resulting in
875,000 shares. 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)
resulting in 1,000,000 shares. 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
F-15
<PAGE> 100
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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>
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>
F-16
<PAGE> 101
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 an 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.
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>
F-17
<PAGE> 102
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 options have 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.
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
F-18
<PAGE> 103
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 pursuant to
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 28, 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 purchase price is subject to adjustment based
on the aggregate revenues of the LLC through December 31, 1999, with a cap of
$5,000,000 in Common Stock. The principals of BCMI entered into five-year
employment agreements and non-competition agreements with the LLC. The
transactions closed on February 27, 1998.
In April 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. ("JMG-Pacific") for an aggregate of $29,850,000 in
cash, $14,930,000 principal amount of the Company's Series A subordinated
convertible debentures, which bear interest at 3.09% per annum, are convertible
into 1,705,970 shares of the Company's Common Stock and mature on April 30, 2003
and $14,930,000 principal amount of the Company's Series B subordinated
convertible debentures, which bear interest at 3.09% per annum, are convertible
into 1,705,970 shares of the Company's Common Stock and mature on April 30,
2003. The definitive agreement provides for the Company to receive 50% of
revenues. The purchase price is subject to adjustment based on the aggregate
revenues of JMG-Pacific through December 31, 1999, with a cap of $5,250,000 in
common stock. In addition the purchase price is subject to a one-time reduction
based on the revenues of Pacific Capital Management as of July 1998, with a cap
of $5,200,000 in cash and a portion of the debentures. The principals of
JMG-Pacific entered into five-year employment agreements and non-competition
agreements.
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. (collectively "MET") 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 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
entitles the Company to a 50% equity ownership interest and a 40% preferred
share of gross revenues. The purchase price is subject to adjustment based on
the level of assets under management as of the closing date in Common Stock. In
addition, the final purchase price is subject to adjustment based on the
aggregate revenues of MET through June 30, 2000, with a cap of $5,000,000 in
Common Stock or certain cases cash.
The Company will account for these investments under the equity method.
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
F-19
<PAGE> 104
ASSET ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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, with 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 a 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-20
<PAGE> 105
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-21
<PAGE> 106
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash................................................. $ 80,497 $ 45,888 $ 86,671
Management fee receivable.......................... 360,674 497,419 606,535
Performance fee receivable......................... 2,984,730 7,069,078 4,251,656
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 -- 280,585
---------- ----------- -----------
Total current assets....................... 4,073,218 10,101,757 5,225,447
---------- ----------- -----------
Furniture, equipment and leasehold improvements,
net................................................ 114,202 202,324 194,425
Other assets
Organization costs, net............................ 5,267 1,867 107,892
Investment in limited partnership.................. 666,975 927,393 1,062,524
Security deposits.................................. -- 4,507 4,507
---------- ----------- -----------
Total assets............................... $4,859,662 $11,237,848 $ 6,594,795
---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........... $ 811 $ 57,144 $ 44,713
Current portion of long-term debt.................. 100,000 -- --
Notes payable...................................... -- -- 300,000
Accrued commissions payable........................ 2,950,000 6,900,000 774,681
Income tax payable................................. 321,957 846,800 --
Deferred tax liabilities........................... 166,700 286,300 --
---------- ----------- -----------
Total current liabilities.................. 3,539,468 8,090,244 1,119,394
---------- ----------- -----------
Other long-term liabilities
Deferred tax liabilities........................... 23,800 16,600 --
---------- ----------- -----------
Total liabilities.......................... 3,563,268 8,106,844
Shareholders'/members' 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
Members' equity.................................... -- -- 5,475,401
---------- ----------- -----------
Total shareholders'/members' equity........ 1,296,394 3,131,004 5,475,401
---------- ----------- -----------
Total liabilities and
shareholders'/members' equity............ $4,859,662 $11,237,848 $ 6,594,795
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 107
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Performance fees.................. $1,667,284 $4,184,779 $ 9,336,155 $1,341,550 $3,971,626
Asset management fees............. 272,170 807,473 1,457,238 265,348 540,630
Principal transactions............ 1,079,351 1,506,745 1,216,578 104,624 (20)
Partnership income................ 103,091 233,400 260,418 46,951 85,131
Interest and dividends............ 7,224 9,818 13,125 789 182
Other income...................... 24,225 3,928 47,768 -- --
---------- ---------- ----------- ---------- ----------
3,153,345 6,746,143 12,331,282 1,759,262 4,597,549
---------- ---------- ----------- ---------- ----------
Expenses
Employee compensation and
benefits....................... 1,936,765 5,560,014 9,378,502 1,494,381 990,305
Brokerage, administrative and
registration fees.............. 7,181 9,241 2,406 324 4,105
Communications and data
processing..................... 19,337 39,359 100,790 11,197 9,479
Occupancy......................... 19,443 25,904 44,383 9,261 14,209
Depreciation and amortization..... 15,611 21,868 46,244 5,350 17,185
Other expenses.................... 114,072 158,943 311,739 47,898 193,965
---------- ---------- ----------- ---------- ----------
2,112,409 5,815,329 9,884,064 1,568,411 1,229,248
---------- ---------- ----------- ---------- ----------
Operating income.................... 1,040,936 930,814 2,447,218 190,851 3,368,301
Other expense
Interest.......................... (1,611) (6,207) (5,430) (103) --
Loss on investment................ -- (17,500) -- -- --
---------- ---------- ----------- ---------- ----------
Income before income taxes.......... 1,039,325 907,107 2,441,788 190,748 3,368,301
Provision for income taxes.......... 365,212 476,396 813,476 (14,993) (265,600)
---------- ---------- ----------- ---------- ----------
Net income.......................... $ 674,113 $ 430,711 $ 1,628,312 $ 205,741 $3,633,901
========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 108
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENT OF SHAREHOLDERS'/MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TOTAL TOTAL
--------------- RETAINED COMPREHENSIVE SHAREHOLDERS' MEMBERS'
SHARES AMOUNT EARNINGS INCOME EQUITY EQUITY
------ ------- ---------- ------------- ------------- -----------
<S> <C> <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 --
COMPREHENSIVE INCOME
Net income................. 1,247,658 1,247,658 --
Unrealized gain, net....... 210,496 210,496 --
------ ------- ---------- -------- ---------- -----------
50,000 50,000 4,104,355 434,803 4,589,158 --
Net effect of merger......... (50,000) (50,000) (4,104,355) (434,803) (4,589,158) 4,589,158
Withdrawal................... (1,500,000)
Net income................... 2,386,243
------ ------- ---------- -------- ---------- -----------
Balance at March 31, 1998.... -- $ -- $ -- $ -- $ -- $ 5,475,401
====== ======= ========== ======== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 109
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $ 674,113 $ 430,711 $1,628,312 $ 205,740 $3,633,901
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization....... 15,611 21,868 46,244 5,350 17,185
Gain (loss) on investments.......... (1,079,351) (1,506,745) (1,216,578) -- 20
Loss on disposal of assets.......... 1,589 -- -- --
Increase in investment in
partnership....................... (103,091) (233,400) (260,418) (37,470) (135,131)
Decrease (increase) in operating assets
Management and performance fees
receivable........................ (1,331,115) (1,807,582) (4,221,093) 1,491,413 2,708,306
Securities owned, net............... 1,011,201 1,454,360 1,398,338 (44,209) --
Deferred tax assets................. (20,000) (1,700) (6,000) 9,600 27,700
Prepaid and other assets............ 17,512 (9,641) 5,134 5,671 (280,585)
Increase (decrease) in operating
liabilities
Commission payable.................. 738,049 2,013,281 3,950,000 (1,586,000) (6,125,319)
Income tax payable.................. 118,809 185,957 524,843 18,143 (846,800)
Deferred tax liabilities............ 230,953 (77,600) (213,700) (72,740) (133,309)
Accounts payable and accrued
expenses.......................... (7,233) (10,705) 56,333 21,781 (12,431)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities............................. 265,458 460,393 1,691,415 17,279 (1,146,463)
CASH FLOWS FROM INVESTING ACTIVITIES
Contributions to investment in
partnership......................... (200,778) -- -- -- --
Purchase of long-term investment....... -- (403,107) (1,495,058) (1,473) (21,844)
Payment for organization costs......... -- -- -- -- (112,500)
Purchase of capital assets............. (33,003) (65,164) (130,966) -- (2,811)
Proceeds from sale of investment....... -- -- -- -- 1,024,401
---------- ---------- ---------- ---------- ----------
Net cash used in investing activities.... (233,781) (468,271) (1,626,024) (1,473) 887,246
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of long-term debt.............. (5,333) (100,000) (100,000) -- --
Proceeds from long-term debt........... -- -- -- 75,000 300,000
---------- ---------- ---------- ---------- ----------
Net cash used in financing activities.... (5,333) (100,000) (100,000) 75,000 300,000
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.......... 26,344 (107,878) (34,609) 90,806 40,783
Cash, beginning of year.................. 162,031 188,375 80,497 80,497 45,888
---------- ---------- ---------- ---------- ----------
Cash, end of year........................ $ 188,375 $ 80,497 $ 45,888 $ 171,303 $ 86,671
========== ========== ========== ========== ==========
Supplemental Disclosures of Cash Flow
Information:
Interest paid.......................... $ 1,611 $ 6,207 $ 5,430 $ 103 $ --
========== ========== ========== ========== ==========
Income taxes paid...................... $ 35,450 $ 369,739 $ 338,733 $ 68,862 $ 967,385
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 110
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
Interim Financial Statements
The consolidated financial statement as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
March 31, 1998 and the results of operations and cash flows for the three months
ended March 31, 1997 and 1998 have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or eliminated.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1998.
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
F-26
<PAGE> 111
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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.
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 0.75% and 0.58% equity
interest in the Partnership as of December 31, 1996 and 1997, respectively.
F-27
<PAGE> 112
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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>
F-28
<PAGE> 113
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
<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>
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.
F-29
<PAGE> 114
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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>
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"
F-30
<PAGE> 115
BRICOLEUR CAPITAL MANAGEMENT LLC
SUCCESSOR OF
BRICOLEUR CAPITAL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 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.
F-31
<PAGE> 116
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-32
<PAGE> 117
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 115,612 $ 578,220 $ 611,494
Management and incentive fees receivable........... 63,856 -- --
Interest receivable................................ 64,023 -- --
---------- ----------- -----------
Total current assets................................. 243,491 578,220 611,494
Fixed assets, net of accumulated depreciation of
$7,845, $22,196 and $23,936 in 1996, 1997 and 1998,
respectively....................................... 31,682 56,064 57,122
Deferred management and incentive fees............... 288,098 4,845,697 6,771,479
Investments in limited partnerships, at equity....... 5,858,387 8,051,443 5,671,157
---------- ----------- -----------
Total assets............................... $6,421,658 $13,531,424 $13,111,252
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses................................... $ 10,851 $ 20,690 $ 33,040
---------- ----------- -----------
Total current liabilities............................ 10,851 20,690 33,040
Deferred income taxes................................ 37,958 126,559 133,858
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)........................................... 225,000 225,000 225,000
Common stock of Pacific Capital Management, Inc.
($.01 par value, 1000 shares authorized; 200
issued and outstanding in 1996 and 1997)........ 2 2 2
Note receivable from shareholder................... (200,000) -- --
Retained earnings.................................. 6,347,847 13,159,173 12,719,352
---------- ----------- -----------
Total shareholders' equity................. 6,372,849 13,384,175 12,944,354
---------- ----------- -----------
Total liabilities and shareholders'
equity................................... $6,421,658 $13,531,424 $13,111,252
========== =========== ===========
</TABLE>
See accompanying notes.
F-33
<PAGE> 118
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Management and incentive fees... $ 388,485 $1,120,277 $ 5,919,209 $ 807,336 $ 2,399,828
Equity interest in income of
limited partnerships......... 2,288,840 4,073,276 6,631,554 1,352,141 2,007,293
Unrealized appreciation on
deferred revenues............ -- -- 383,774 -- --
Interest income................. 14,642 19,690 29,226 592 1,479
Other revenues.................. 68,099 129,511 77,701 -- 3,588
---------- ---------- ----------- ----------- -----------
Total revenues.................... 2,760,066 5,342,754 13,041,464 2,160,069 4,412,188
Expenses:
Compensation and related
expenses..................... 318,440 414,982 649,531 63,927 68,105
Other operating expenses........ 84,449 183,462 710,409 108,515 214,273
---------- ---------- ----------- ----------- -----------
Total expenses.................... 402,889 598,444 1,359,940 172,442 282,378
---------- ---------- ----------- ----------- -----------
Income before income tax.......... 2,357,177 4,744,310 11,681,524 1,987,627 4,129,810
Income tax........................ 35,000 71,000 175,000 7,472 33,273
---------- ---------- ----------- ----------- -----------
Net income........................ $2,322,177 $4,673,310 $11,506,524 $ 1,980,155 $ 4,096,537
========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-34
<PAGE> 119
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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
Net income (unaudited).............. -- -- 4,096,537 4,096,537
Dividends paid (unaudited).......... -- -- (36,358) (36,358)
Shareholders' distributions
(unaudited)...................... -- -- (4,500,000) (4,500,000)
-------- --------- ----------- -----------
Balance at March 31, 1998
(unaudited)......................... $225,002 $ -- $12,719,352 $12,944,354
======== ========= =========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE> 120
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income....................... $2,322,177 $ 4,673,310 $11,506,524 $ 1,933,975 $ 4,096,537
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation................ 589 5,906 14,351 8,449 1,740
Equity interest in income of
limited partnerships
including incentive fee
allocation................ (2,288,840) (4,073,276) (6,631,554) (1,352,141) (2,007,293)
Unrealized appreciation on
deferred revenues......... -- -- (383,774) -- --
Distributions from
investments in limited
partnerships.............. 700,000 1,500,000 4,493,498 2,500,000 4,500,000
Deferred income taxes....... 18,685 19,273 88,601 (25,322) 7,299
Changes in operating assets
and liabilities:
Interest receivable....... (13,300) (13,337) 64,023 64,023 --
Management and incentive
fees receivable........ -- (351,954) (4,109,970) (436,385) (1,925,782)
Deposits.................. 1,194 -- -- -- --
Accrued expenses.......... 32,341 (43,899) 9,840 16,692 12,350
---------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities..................... 772,846 1,716,023 5,051,539 2,709,291 4,684,851
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Investments in limited
partnerships................... (66,617) (177,030) (55,000) -- (137,421)
Sale to shareholder of limited
partnership interest........... -- -- -- -- 25,000
Additions to fixed assets........ (2,420) (33,826) (38,733) (8,733) (2,798)
---------- ----------- ----------- ----------- -----------
Net cash used in investing
activities..................... (69,037) (210,856) (93,733) (8,733) (115,219)
---------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment received on note
receivable..................... -- -- 200,000 -- --
Principal payment on notes
payable........................ (365,165) -- -- -- --
Issuance of common stock......... -- 2 -- -- --
Dividends paid................... -- -- -- -- (36,358)
Shareholders' distributions...... (335,089) (1,400,000) (4,695,198) (2,500,000) (4,500,000)
---------- ----------- ----------- ----------- -----------
Net cash used in financing
activities..................... (700,254) (1,399,998) (4,495,198) (2,500,000) (4,536,358)
---------- ----------- ----------- ----------- -----------
Net increase in cash............. 3,555 105,169 462,608 200,558 33,274
Cash at beginning of year........ 6,888 10,443 115,612 115,612 578,220
---------- ----------- ----------- ----------- -----------
Cash at end of year.............. $ 10,443 $ 115,612 $ 578,220 $ 316,170 $ 611,494
========== =========== =========== =========== ===========
Income taxes paid................ $ 16,315 $ 50,891 $ 85,282 $ -- $ --
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-36
<PAGE> 121
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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
INTERIM FINANCIAL STATEMENTS
The combined financial statements at March 31, 1998 and for the three
months ended March 31, 1997 and 1998 have been prepared by the Corporations
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, as of March 31, 1998 and the results of operations and cash flows for
the three months ended March 31, 1997 and 1998 have been made. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or eliminated.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1998.
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.
F-37
<PAGE> 122
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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>
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-38
<PAGE> 123
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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-39
<PAGE> 124
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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, JMG received a $5,878,000 distribution from JMGCP of which
$5,000,000 was distributed to JMG's president and the remainder was invested in
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-40
<PAGE> 125
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-41
<PAGE> 126
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 704,858 $ 1,704,274 $ 292,517
Fees and other receivables.......................... 767,856 1,393,005 541,238
Due from broker..................................... -- -- 346,145
Prepaid expenses.................................... -- -- 148,938
Investment in securities, at market value
(cost -- $50,000)................................ -- 165,584 226,914
---------- ----------- ----------
Total current assets.................................. 1,472,714 3,262,863 1,555,752
Fixed assets -- net of accumulated depreciation of
$5,109, $9,345 and $10,457 in 1996, 1997 and 1998,
respectively........................................ 8,045 11,207 18,743
Investment in limited partnership, at equity.......... 6,344,550 8,136,914 3,174,056
Management and incentive fees receivable.............. 168,819 3,182,553 4,614,933
Other assets.......................................... 65,371 54,183 54,019
---------- ----------- ----------
Total assets................................ $8,059,499 $14,647,720 $9,417,503
========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accrued expenses.................................... $1,198,094 $ 2,118,512 $ 510,040
Securities sold, but not yet purchased, at market
value............................................ -- -- 226,914
Due to affiliates................................... 22,500 -- 6,250
---------- ----------- ----------
Total current liabilities............................. 1,220,594 2,118,512 743,204
Partners' capital..................................... 6,838,905 12,529,208 8,674,299
---------- ----------- ----------
Total liabilities and partners' capital..... $8,059,499 $14,647,720 $9,417,503
========== =========== ==========
</TABLE>
See accompanying notes.
F-42
<PAGE> 127
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Management fees................... $1,319,695 $2,792,061 $ 7,322,214 $1,590,735 $2,292,817
Equity interest in income of
limited partnership............ 2,670,761 5,456,671 6,741,651 1,658,214 1,378,165
Unrealized appreciation on
investments in securities and
deferred revenues.............. -- -- 202,164 35,479 115,890
Realized gains on investments in
securities..................... -- -- -- -- 72,474
Interest income................... -- 7,371 14,035 9,050 7,057
Other revenues.................... 5,750 78,727 66,945 1,298 3,257
---------- ---------- ----------- ---------- ----------
Total revenues...................... 3,996,206 8,334,830 14,347,009 3,294,776 3,869,660
Expenses:
Compensation and related
expenses....................... 415,807 1,324,980 2,287,354 510,201 599,463
Other operating expenses.......... 532,265 644,891 860,860 147,187 224,287
---------- ---------- ----------- ---------- ----------
Total expenses...................... 948,072 1,969,871 3,148,214 657,388 823,750
---------- ---------- ----------- ---------- ----------
Net income.......................... $3,048,134 $6,364,959 $11,198,795 $2,637,388 $3,045,910
========== ========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-43
<PAGE> 128
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 AND
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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
Capital contributions (unaudited)................... -- 212,500 212,500
Distributions (unaudited)........................... (70,582) (7,042,737) (7,113,319)
Net income (unaudited).............................. 32,856 3,013,054 3,045,910
-------- ----------- -----------
Partners' capital at March 31, 1998 (unaudited)....... $159,175 $ 8,515,124 $ 8,674,299
======== =========== ===========
</TABLE>
See accompanying notes.
F-44
<PAGE> 129
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income...................... $ 3,048,134 $ 6,364,959 $11,198,795 $ 2,637,388 $ 3,045,910
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization............... 1,880 3,447 4,889 528 1,112
Equity interest in income of
limited partnership........ (2,670,761) (5,456,671) (6,741,651) (1,658,214) (1,378,165)
Unrealized appreciation on
investments in securities
and deferred revenues...... -- -- (202,164) (35,479) (115,890)
Changes in operating assets
and liabilities:
Receivables................ (281,801) (654,874) (3,552,303) (132,555) (426,268)
Due from broker............ -- -- -- -- (346,145)
Prepaid expenses........... -- -- -- (49,286) (148,938)
Investments in
securities............... -- -- (50,000) (350,000) --
Other assets............... (44,709) (17,613) 10,535 10,698 164
Accrued expenses........... 432,839 765,255 920,418 (461,427) (1,608,472)
Securities sold, but not
yet purchased............ -- -- -- -- 127,129
Due to affiliates.......... -- 22,500 (22,500) 6,250 6,250
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.................... 485,582 1,027,003 1,566,019 (32,097) (843,313)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Distributions from investments
in limited partnership........ 410,012 2,264,467 5,149,287 5,148,696 6,341,023
Contributions to investment in
limited partnership........... (50,000) -- (200,000) (200,000) --
Additions to property and
equipment..................... (13,154) -- (7,398) (7,398) (8,648)
Other assets.................... -- (3,267) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by investing
activities.................... 346,858 2,261,200 4,941,889 4,941,298 6,332,375
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Capital contributions........... 157,327 383,640 600,000 550,000 212,500
Cash distributions.............. (693,652) (3,263,100) (6,108,492) (5,148,696) (7,113,319)
----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities.................... (536,325) (2,879,460) (5,508,492) (4,598,696) (6,900,819)
----------- ----------- ----------- ----------- -----------
Net increase in cash............ 296,115 408,743 999,416 310,505 (1,411,757)
Cash and cash equivalents at
beginning of period........... -- 296,115 704,858 704,858 1,704,274
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end
of period..................... $ 296,115 $ 704,858 $ 1,704,274 $ 1,015,363 $ 292,517
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-45
<PAGE> 130
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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
INTERIM FINANCIAL STATEMENTS
The combined financial statements as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 have been prepared by the Partnerships
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial position
as of March 31, 1998 and the results of operations and cash flows for the three
months ended March 31, 1997 and 1998 have been made. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
eliminated.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1998.
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 earned, approximately $169,000 and $3,014,000 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.
F-46
<PAGE> 131
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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.
F-47
<PAGE> 132
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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.
F-48
<PAGE> 133
METROPOLITAN CAPITAL ADVISORS, L.P.
METROPOLITAN CAPITAL PARTNERS II, L.P.
METROPOLITAN CAPITAL PARTNERS III, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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 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-49
<PAGE> 134
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-50
<PAGE> 135
TRUST ADVISORS LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1996 1997 1998
------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $10,311 $ -- $ 39,431
Investment in investment company, at market value,
which approximates cost............................. -- 100,000 181,631
Accounts receivable.................................... 54,169 962,542 1,252,840
Other current assets................................... 2,540 -- --
------- ---------- ----------
Total current assets..................................... 67,020 1,062,542 1,473,902
Equipment -- net of accumulated depreciation of $6,139,
$7,776 and $8,140 in 1996, 1997 and 1998,
respectively........................................... 4,565 2,928 2,564
Organization costs -- net of accumulated amortization of
$250 and $1,250 in 1996 and 1997, respectively......... 4,750 3,750 3,500
------- ---------- ----------
Total assets................................... $76,335 $1,069,220 $1,479,966
======= ========== ==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accrued expenses....................................... $20,451 $ 49,125 $ 37,999
Due to bank............................................ -- 9,663 --
Due to affiliate....................................... 5,000 5,000 84,000
------- ---------- ----------
Total current liabilities................................ 25,451 63,788 121,999
Members' equity:
Preferred interests.................................... 59,119 578,731 751,110
Other interests (deficit).............................. (8,235) 426,701 606,857
------- ---------- ----------
Total members' equity.......................... 50,884 1,005,432 1,357,967
------- ---------- ----------
Total liabilities and members' equity.......... $76,335 $1,069,220 $1,479,966
======= ========== ==========
</TABLE>
See accompanying notes.
F-51
<PAGE> 136
TRUST ADVISORS LLC
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Investment advisory fees............... $184,533 $1,848,644 $ 277,093 $ 531,912
Administrative fees.................... 18,000 72,000 18,000 18,000
Realized and unrealized appreciation on
investment in investment company.... -- -- -- 2,631
Other revenues......................... -- 76,863 19,216 41,889
-------- ---------- ---------- ----------
Total revenues........................... 202,533 1,997,507 314,309 594,432
Expenses:
Compensation and related expenses...... 88,140 438,366 86,138 95,030
Other operating expenses............... 25,872 161,883 151,369 42,974
-------- ---------- ---------- ----------
Total expenses........................... 114,012 600,249 237,507 138,004
-------- ---------- ---------- ----------
Net income............................... $ 88,521 $1,397,258 $ 76,802 $ 456,428
======== ========== ========== ==========
</TABLE>
See accompanying notes.
F-52
<PAGE> 137
TRUST ADVISORS LLC
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 1996,
YEAR ENDED DECEMBER 31, 1997
AND THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<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
Contributions (unaudited)..............................
Net Income (unaudited)................................. 276,272 180,156 456,428
Distributions (unaudited).............................. (103,893) -- (103,893)
--------- -------- ----------
Members' equity at March 31, 1998 (unaudited)............ $ 751,110 $606,857 $1,357,967
========= ======== ==========
</TABLE>
See accompanying notes.
F-53
<PAGE> 138
TRUST ADVISORS LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------
1996 1997 1997 1998
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income..................................... $ 88,521 $1,397,258 $ 76,802 $ 456,428
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................ 705 2,637 659 614
Realized and unrealized appreciation on
investment in investment company.......... -- -- -- (2,631)
Changes in operating assets and liabilities:
Investment in investment company.......... -- (100,000) --
Accounts receivable....................... (54,169) (908,373) (23,079) (290,298)
Other current assets...................... (540) 2,540 -- --
Due from affiliate........................ -- -- 2,540
Accrued expenses.......................... 20,451 28,674 (12,448) (11,126)
-------- ---------- ---------- ----------
Net cash provided by operating activities...... 54,968 422,736 44,474 152,987
-------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to bank.................................... -- 9,663 -- (9,663)
Contributions.................................. -- 50,000 -- --
Distributions.................................. (44,657) (492,710) (34,803) (103,893)
-------- ---------- ---------- ----------
Net cash used in financing activities.......... (44,657) (433,047) (34,803) (113,556)
-------- ---------- ---------- ----------
Net increase (decrease) in cash................ 10,311 (10,311) 9,671 39,431
Cash and cash equivalents at beginning of
period....................................... -- 10,311 10,311 --
-------- ---------- ---------- ----------
Cash and cash equivalents at end of period..... $ 10,311 $ -- $ 19,982 $ 39,431
======== ========== ========== ==========
</TABLE>
See accompanying notes.
F-54
<PAGE> 139
TRUST ADVISORS LLC
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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
INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
March 31, 1998 and the results of operations and cash flows for the three months
ended March 31, 1997 and 1998 have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or eliminated.
The results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future interim
period or for the year ending December 31, 1998.
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
F-55
<PAGE> 140
TRUST ADVISORS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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.
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.
F-56
<PAGE> 141
TRUST ADVISORS LLC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
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-57
<PAGE> 142
======================================================
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............................ 12
Use of Proceeds......................... 21
Dividend Policy......................... 21
Capitalization.......................... 22
Dilution................................ 23
Selected Historical Financial Data...... 24
Unaudited Pro Forma Consolidated
Financial Information................. 26
Business................................ 35
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 53
Management.............................. 62
Certain Relationships and Related Party
Transactions.......................... 71
Principal Stockholders.................. 73
Description of Capital Stock............ 75
Shares Eligible for Future Sale......... 79
Underwriting............................ 81
Legal Matters........................... 82
Experts................................. 82
Additional Information.................. 83
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]
[leaders in alternative investment management LOGO]
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
BEAR, STEARNS & CO. INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1998
======================================================
<PAGE> 143
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.......................... 95,000
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> 144
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 June 10, 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> 145
(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 May 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 April 1, 1998, the Company issued an
aggregate of $3,106,041 in principal amount of adjustable rate
subordinated convertible debentures (convertible into an aggregate of
approximately 414,139 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 between the Company and Citco
Banking Corporation N.V.
(12) On April 28, 1998, the Company issued an aggregate of $29,854,477
principal amount of subordinated convertible debentures (convertible
into approximately 3,411,940 shares of Common Stock) in connection
with the Company's investment in JMG Capital Management LLC and
Pacific Assets Management LLC.
II-3
<PAGE> 146
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 Managers II 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).
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 April 28, 1998 by
and among the Company, JMG Capital Management, Inc., Pacific
Capital Management, Inc., Jonathan M. Glaser, Roger Richter
and Daniel A. David.
4.8** Form of Asset Alliance Corporation Subscription Agreement.
4.9** Form of Asset Alliance Corporation Redeemable Common Stock
Purchase Warrant.
</TABLE>
II-4
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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.
4.13 Form of Asset Alliance Corporation Series A Subordinated
Convertible Debenture due April 30, 2003 issued in
connection with the Company's investment in JMG Capital
Management LLC and Pacific Assets Management LLC.
4.14 Form of Asset Alliance Corporation Series B Subordinated
Convertible Debenture due April 30, 2003 issued in
connection with the Company's investment in JMG Capital
Management LLC and Pacific Assets Management LLC.
4.15 Form of Asset Alliance Corporation Subordinated Convertible
Debenture to be issued in connection with the Company's
investment in Metropolitan Capital Managers LLC,
Metropolitan Capital Managers II LLC and Metropolitan
Capital Advisors LLC.
4.16 Form of Registration Rights Agreement to be executed in
connection with the Company's investment in Metropolitan
Capital Managers LLC, Metropolitan Capital Managers II LLC
and Metropolitan Capital Advisors 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
Agreement dated February 27, 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
Agreement dated April 28, 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).
10.8** 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.
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.
</TABLE>
II-5
<PAGE> 148
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
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).
27.1** Financial Data Schedule as of and for the year ended
December 31, 1997.
27.2 Financial Data Schedule as of and for the three months ended
March 31, 1998.
99.1** Consent of Jefferson F. Allen.
99.2** Consent of Harvey Silverman.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
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> 149
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the 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 May 13, 1998.
ASSET ALLIANCE CORPORATION
By: /s/ ARNOLD L. MINTZ
------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
and Chief Operating
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on May 13, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President, Chief Executive Officer and
- ----------------------------------------------------- Chairman of the Board (Principal Executive
Bruce H. Lipnick Officer)
* 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
* Senior Vice President, Acquisitions and
- ----------------------------------------------------- Director
David R. Long
* Senior Vice President and Treasurer
- -----------------------------------------------------
Jeffrey J. Ervine
* By /s/ Arnold L. Mintz
- -----------------------------------------------------
Arnold L. Mintz
Attorney-in-fact
</TABLE>
[/R]
<PAGE> 150
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------- -----------
<C> <S> <C>
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 Managers II 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).
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 April 28, 1998 by
and among the Company, JMG Capital Management, Inc., Pacific
Capital Management, Inc., Jonathan M. Glaser, Roger Richter
and Daniel A. David.
4.8** Form of Asset Alliance Corporation Subscription Agreement.
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
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.
4.13 Form of Asset Alliance Corporation Series A Subordinated
Convertible Debenture due April 30, 2003 issued in
connection with the Company's investment in JMG Capital
Management LLC and Pacific Assets Management LLC.
4.14 Form of Asset Alliance Corporation Series B Subordinated
Convertible Debenture due April 30, 2003 issued in
connection with the Company's investment in JMG Capital
Management LLC and Pacific Assets Management LLC.
4.15 Form of Asset Alliance Corporation Subordinated Convertible
Debenture to be issued in connection with the Company's
investment in Metropolitan Capital Managers LLC,
Metropolitan Capital Managers II LLC and Metropolitan
Capital Advisors LLC.
4.16 Form of Registration Rights Agreement to be executed in
connection with the Company's investment in Metropolitan
Capital Managers LLC, Metropolitan Capital Managers II LLC
and Metropolitan Capital Advisors 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
Agreement dated February 27, 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
Agreement dated April 28, 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).
10.8** 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> 152
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S> <C>
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).
27.1** Financial Data Schedule as of and for the year ended
December 31, 1998.
27.2 Financial Data Schedule as of and for the three months ended
March 31, 1998
99.1** Consent of Jefferson F. Allen.
99.2** Consent of Harvey Silverman.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
<PAGE> 1
EXHIBIT 2.1
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
================================================================================
MERGER AGREEMENT
by and among
ASSET ALLIANCE CORPORATION
ASSET ALLIANCE BRICOLEUR MERGER CO. INC.
BRICOLEUR CAPITAL MANAGEMENT, INC.
BRICOLEUR CAPITAL MANAGEMENT LLC
JOHN I. BLOOMBERG
ROBERT M. POOLE
DANIEL P. WIMSATT
STEVEN A. BRASE
and
RICHARD J. HORNBUCKLE
Dated as of: February 20, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions............................................1
ARTICLE II.
THE MERGER; CLOSING, EFFECTIVE TIME; RELATED MATTERS
Section 2.1. The Merger............................................8
Section 2.2. The Closing...........................................8
Section 2.3. The Effective Time....................................8
Section 2.4. Further Actions.......................................8
Section 2.5. Certificate of Incorporation..........................9
Section 2.6. By-laws...............................................9
Section 2.7. Officers and Directors................................9
Section 2.8. Merger Consideration; Conversion of Shares............9
ARTICLE III.
RELATED TRANSACTIONS
Section 3.1. Qualification of LLC.................................13
Section 3.2. Employment Agreements; Noncompetition Agreements.....13
Section 3.3. Transfer of Assets to LLC............................13
Section 3.4. LLC Agreement........................................13
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
Section 4.1. Organization and Related Matters.....................14
Section 4.2. Authority; No Violation; Consents....................15
Section 4.3. Assets Under Management..............................16
Section 4.4. Financial Statements.................................16
Section 4.5. Compliance with Applicable Law.......................17
Section 4.6. Books and Records....................................18
Section 4.7. Ineligible Persons...................................18
Section 4.8. Company Assets.......................................18
Section 4.9. Company Contracts....................................19
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Section 4.10. Technology and Intellectual Property................19
Section 4.11. Legal Proceedings...................................19
Section 4.12. Taxes and Tax Returns...............................20
Section 4.13. Insurance...........................................21
Section 4.14. Labor and Employment Matters........................21
Section 4.15. Benefit Plan Obligations............................22
Section 4.16. No Broker...........................................23
Section 4.17. Absence of Changes..................................23
Section 4.18. The Shareholders....................................23
Section 4.19. Additional Representations Regarding Pooled
Products .........................................24
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PARENT
Section 5.1. Organization.........................................25
Section 5.2. Authority............................................26
Section 5.3. No Actions, Suits or Proceedings.....................26
Section 5.4. Financial Statements.................................27
Section 5.5. Capitalization; Merger Consideration.................27
Section 5.6. Compliance with Applicable Law.......................28
Section 5.7. Eligibility..........................................28
Section 5.8. Financial Ability....................................29
Section 5.9. No Broker............................................29
Section 5.10. Newco................................................29
ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business..................................29
Section 6.2. Advisory Contract Consents and Approvals and Other
Actions ...........................................30
Section 6.3. Confidentiality and Announcements....................31
Section 6.4. Expenses.............................................31
Section 6.5. Release of the Company...............................31
Section 6.6. Covenants of the Parent..............................32
Section 6.7. Access; Certain Communications.......................32
Section 6.8. Regulatory Matters; Third Party Consents.............32
Section 6.9. Insurance............................................32
Section 6.10. Notification of Certain Matters......................33
Section 6.11. No Solicitation......................................33
Section 6.12. Registration Rights; Lockup Agreements...............33
Section 6.13. Cooperation as to Tax Matters........................34
Section 6.14. Tax Treatment........................................34
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ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's and Newco's Obligations...34
Section 7.2. Conditions to the Company's and the Shareholders'
Obligations .......................................36
Section 7.3. Mutual Condition.....................................37
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders......................37
Section 8.2. Obligations of the Parent............................38
Section 8.3. Procedure............................................38
Section 8.4. Notice of Non-Third Party Claims.....................40
Section 8.5. Survival of Indemnity................................40
Section 8.6. Adjustments to Indemnification Obligations...........40
Section 8.7. Limitation on Indemnification........................40
Section 8.8. Purchase Price Adjustment............................41
Section 8.9. Exclusive Remedy.....................................41
ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation......................................42
Section 9.2. Tax Returns..........................................42
Section 9.3. Liability for Taxes..................................42
Section 9.4. Procedures Related to Tax Claims.....................43
Section 9.5. Survival of Tax Claims and Section 4.12
Representation ....................................44
Section 9.6. Exclusive Remedy.....................................44
Section 9.7. Payments for Indemnification under Article IX........44
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination.........................................44
Section 10.2. Effect of Termination...............................45
Section 10.3. Survival of Representations and Warranties..........45
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes............................................46
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Section 11.2. Amendments; Extension; Waiver.......................46
Section 11.3. Entire Agreement....................................46
Section 11.4. Specific Performance; Injunctive Relief.............47
Section 11.5. Interpretation......................................47
Section 11.6. Severability........................................47
Section 11.7. Notices.............................................47
Section 11.8. Binding Effect; Persons Benefitting; No Assignment..49
Section 11.9. Counterparts........................................49
Section 11.10. Governing Law.......................................49
Section 11.11. Jurisdiction........................................49
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MERGER AGREEMENT
MERGER AGREEMENT, dated as of February 20, 1998 (this "Agreement"),
by and among Asset Alliance Corporation, a Delaware corporation (the "Parent"),
Asset Alliance Bricoleur Merger Co. Inc., a Delaware corporation ("Newco"),
Bricoleur Capital Management Co. LLC, a Delaware limited liability company
("LLC"), Bricoleur Capital Management, Inc., a Utah corporation (the "Company"),
and John I. Bloomberg, Steven A. Brase, Richard J. Hornbuckle, Robert M. Poole
and Daniel P. Wimsatt, (the "Shareholders").
RECITALS:
WHEREAS, the Shareholders own all of the capital stock of the
Company and Parent owns all of the capital stock of Newco;
WHEREAS, the Parent and Newco, on the one hand, and the Shareholders
and the Company, on the other hand, wish to have the Company merge with Newco on
the terms and conditions and for the consideration described in this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
merger qualify as a reorganization within the meaning of section 368(a) of the
Code and that this Agreement is intended to be and hereby is adopted as a plan
of reorganization within the meaning of section 368 of the Code;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
the parties contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this Agreement,
the following terms shall have the respective meanings set forth in this Section
1.1 (such definitions to be equally applicable to both the singular and plural
forms of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC thereunder.
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"Affiliate" means any corporation, partnership, entity or other
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the person specified.
"Applicable Law" means any statute, law, ordinance, rule, public
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority applicable
to the Company, any Pooled Product, or any of their respective properties,
assets, officers, directors, employees or agents.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banks in the city of New York are generally closed for regular
banking business.
"Closing" means the completion of the transactions contemplated by
Sections 2.1, 3.3 and 3.4 of this Agreement and the effectiveness of the
Agreements contemplated in Section 3.2 of this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Assets" means all assets of the Company as of the date
hereof or as of the Effective Time, as applicable, including, but not limited
to, the Company Contracts, Furniture, Fixtures and Equipment, Intellectual
Property, Leased Properties, Real Property, Records, Software and any other
material assets of the Company.
"Company Contract" means any written investment advisory agreement
to which the Company is a party and any lease, license or other agreement
relating to the use by the Company of any Furniture, Fixtures and Equipment,
Intellectual Property, Software and Technology Systems, and all rights and
interests of the Company arising thereunder or in connection therewith.
"Effective Time" means the time of the filing of the Certificate of
Merger by the Department of State of the State of Delaware or at such later time
which the parties to this Agreement have theretofore agreed upon and designated
in such filing as the effective time of the Merger.
"Encumbrance" means any lien, pledge, security interest, claim,
charge, easement, limitation, commitment, encroachment, restriction or
encumbrance of any kind or nature whatsoever.
"Environmental Law" means all applicable foreign, federal and state
laws, rules, regulations, common law, ordinances, decrees, orders, contracts and
other binding
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obligations relating to pollution (including the treatment, storage and disposal
of wastes and the cleanup of releases and threatened releases of materials), the
preservation of the environment or the exposure to materials in the environment
or workplace.
"Equity Securities" means capital stock or other equity interests of
any Person or any securities convertible into or exchangeable for capital stock
or other equity interests or any other rights, warrants or options to acquire
any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Furniture, Fixtures and Equipment" means all furniture, fixtures
and equipment that are located in the ordinary course at any Operating Site.
"GAAP" means, with respect to the Company, generally accepted
accounting principles as used in the United States of America as in effect at
the time any applicable financial statements were prepared or any act requiring
the application of GAAP was performed, applied on a consistent basis.
"Governmental Authority" means any nation, state, territory,
province, county, city or other unit or subdivision thereof or any entity,
authority, agency, department, board, commission, instrumentality, court or
other judicial body authorized on behalf of any of the foregoing to exercise
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any governmental or non-governmental self-regulatory
organization of which any party hereto is a member.
"Immediate Family" means, with respect to any individual, such
individual's spouse, parents and children (and estates, trusts, partnerships and
other entities and legal relationships of which a substantial majority in
interest of the beneficiaries, members, owners, investors or participants at all
times in question are, directly or indirectly, one or more of the Persons
described above and/or such individual).
"Indemnifiable Claim" means any Loss for which a Person is entitled
to indemnification under this Agreement.
"Indemnified Party" means a Person entitled to the benefits of
indemnification hereunder.
"Indemnifying Party" means a Person obligated to provide
indemnification hereunder.
"Independent Accounting Firm" means any accounting firm of
recognized national standing, except for any such firm that serves as the
independent public
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<PAGE> 9
accountants of any of the parties or any of their respective Affiliates;
provided, however, that if there exists no accounting firm that meets the
qualifications set forth above in this definition, then the term "Independent
Accounting Firm" shall mean any accounting firm designated as such by the Parent
and the Company.
"Intellectual Property" means all domestic and foreign letters
patent, patents, software, know-how, trade names, common law and other
trademarks, service marks, copyright registrations and applications and state or
federal common law usages, and all registrations or applications for
registration of any of the foregoing.
"Investment Company Act" means the Investment Company Act of 1940,
as amended, and all rules and regulations of the SEC thereunder.
"IRS" means the Internal Revenue Service.
"Lease" means any of the real estate leases or subleases, or a
sublease of the Company with respect to any Operating Site.
"Leased Properties" means all leasehold interests of the Company in
real property.
"Loss" means any and all claims, losses, liabilities, costs,
penalties, fines and expenses (including reasonable attorney's, accountant's,
consultant's and expert's fees and expenses), damages, obligations to third
parties, expenditures, proceedings, judgments, awards or demands that are
imposed upon or otherwise incurred or suffered by the relevant Person.
"Manager" means Asset Alliance Management Corp., a Delaware
corporation.
"Membership Interest" means the limited liability company interest
of a member of the LLC at any particular time, including any and all rights and
benefits to which such member is entitled under the LLC Agreement and the
Delaware Limited Liability Company Act, together with the obligations of such
member under the LLC Agreement and such Act.
"Operating Sites" means all offices at which the Company conducts
business.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Permitted Encumbrances" means all Encumbrances which are:
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<PAGE> 10
(1) Encumbrances set forth on Schedule 1.1(b);
(2) Taxes or assessments that are not yet due and payable;
(3) matters which would be shown on an accurate survey and any other
defect or exception which would be disclosed by a search of title, which
in each case does not materially impair the use, operation, value or
marketability of the Company Asset to which it relates;
(4) liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the Ordinary
Course of Business for sums not yet due and payable; or
(5) other liens or imperfections on Company Assets which
individually or in the aggregate do not exceed $25,000 and do not
materially detract from the value of or materially impair the existing use
of the Company Assets affected by such liens or imperfections.
"Person" means any individual, corporation, company, limited
liability company, partnership (limited or general), joint venture, association,
trust or other entity.
"Pooled Products" means each vehicle for collective investment (in
whatever form of organization, including in the form of a corporation, company,
limited liability company, partnership (limited or general), association, trust
or other entity and including each separate portfolio of any of the foregoing)
with respect to which the Company (in the case of representations in Article IV)
or an affiliate of the Parent (in the case of representations in Article V) acts
as the sponsor, general partner, managing member, investment manager, investment
adviser or in a similar capacity but shall not include Aventine International
Fund Limited ("Aventine").
"Real Property" means all real property, appurtenances thereto,
fixtures and improvements, rights in connection therewith, or any interest
therein, including, without limitation, leasehold estates, of the Company.
"Records" means all records and original documents in the Company's
possession which pertain to or are utilized by the Company to administer,
reflect, monitor, evidence or record information respecting the business or
conduct of the Company including: (1) all such records maintained on electronic
or magnetic media, or in the electronic data base system of the Company, and (2)
all such records and original documents respecting the Company Contracts as
necessary to comply with any Applicable Law, including any and all records kept
in accordance with, or documents filed pursuant to, any Securities Laws.
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<PAGE> 11
"Related Agreements" means each of the Employment Agreements and
Noncompetition Agreements, the Transfer Agreement, the LLC Agreement, the
Debentures and the Options.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means all reports and registration statements filed,
or required to be filed, by law, by contract or otherwise, by an entity pursuant
to the Securities Laws.
"Securities Laws" means the Securities Act of 1933, as amended; the
Securities Exchange Act of 1934, as amended; the Investment Company Act; the
Advisers Act; the published rules and regulations of the SEC promulgated
thereunder; and the securities or "blue sky" laws of any state or territory of
the United States.
"Software" means all computer programs, software, firmware and
related documentation used in the operation of the Technology Systems.
"Subsidiary" means, when used with respect to any Person which is
not a natural person, any corporation, association or other business entity a
majority of the voting or similar power of which is at the time owned by such
Person or by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Taxes" mean all federal, provincial, territorial, state, municipal,
local, foreign or other taxes, imposts, rates, levies, assessments and other
charges including, without limitation, all income, franchise, gains, capital,
real property, goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property, production, sales,
use, license, stamp, documentary stamp, mortgage recording, excise, employment,
payroll, social security, unemployment, disability, estimated or withholding
taxes, and all customs and import duties, together with any interest, additions,
fines or penalties with respect thereto or in respect of any failure to comply
with any requirement regarding Tax Returns and any interest in respect of such
additions, fines or penalties.
"Tax Return" means any return, report, information statement,
schedule or other document (including any related or supporting information)
with respect to Taxes.
"Treasury Regulations" means the regulations promulgated under the
Code.
"Value Per Share" means (1) if the Parent Common Stock is not listed
on a national securities exchange or in the National Market portion of the
National Association of Securities Dealers' Automated Quotation System
("publicly traded") on the date of
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determination, $7.50 (subject to adjustment in accordance with Section 2.8(j))
in the case of Section 2.8(b) or Section 2.8(c) and such amount as shall be
determined to be the fair value thereof by a valuation expert chosen by the
Shareholders and the Parent in the case of Section 2.8(d) and (2) if the Parent
Common Stock is publicly traded on the date of determination, the average
closing price per share of Parent Common Stock for the ten trading days
immediately preceding such date of determination (or, if no trades were reported
for a particular day or the Parent Common Stock is traded in a market for which
closing prices are not reported, the average of the most recent bid and ask
price per share of Company Common Stock).
(b) The following terms shall have the meaning specified in the
indicated section of this Agreement:
Term Section
---- -------
Agreement...................... Recitals
Company........................ Recitals
Company Balance Sheet.......... Section 4.4
Company Financial Statements... Section 4.4
Confidentiality Agreement...... Section 6.3(a)
Debentures..................... Section 2.8(a)
Effective Time................. Section 2.3
Employment Agreement........... Section 3.2
ERISA Affiliate................ Section 4.15(a)
First Benchmark................ Section 2.8(b)
LLC............................ Opening Paragraph
LLC Agreement.................. Section 3.4
Material Adverse Effect........ Section 4.1
Merger......................... Section 2.1
Merger Consideration........... Section 2.8(a)
Newco.......................... Opening Paragraph
Noncompetition Agreement....... Section 3.2
Non-Third Party Claim.......... Section 8.4
Options........................ Section 2.8(d)
Parent......................... Opening Paragraph
Parent Balance Sheet........... Section 5.4
Parent Common Stock............ Section 2.8(a)
Parent Financial Statements.... Section 5.4
Parent Material Adverse Effect. Section 5.1
Permits........................ Section 4.5
Plans.......................... Section 4.15(a)
Release........................ Section 6.5
Shares......................... Section 2.8(a)
Shareholders................... Opening Paragraph
Subsequent Benchmark........... Section 2.8(d)
Tax Claim...................... Section 9.3(a)
Technology Systems............. Section 4.10
Third Party Claim.............. Section 8.3(a)
Transfer Agreement............. Section 3.3
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ARTICLE II.
THE MERGER; CLOSING, EFFECTIVE TIME; RELATED MATTERS
Section 2.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time the Company shall be merged with and into Newco
and the separate corporate existence of the Company shall thereupon cease (the
"Merger"). Newco shall be the surviving corporation in the Merger and shall
continue to be governed by the laws of the State of Delaware, and the separate
corporate existence of Newco with all its rights, privileges, powers,
immunities, purposes and franchises shall continue unaffected by the Merger. The
Merger shall have the effects specified in the Delaware General Corporation Law
(the "GCL").
Section 2.2. The Closing. The Closing shall take place (i) at the
office of Skadden, Arps, Slate, Meagher & Flom LLP, 300 South Grand Avenue, Los
Angeles, California, at 10:00 a.m., Los Angeles time, on the first business day
immediately following the day on which the last to be fulfilled or waived of the
conditions set forth in Article VII hereof shall be fulfilled or waived in
accordance herewith or (ii) at such other time and place and/or on such other
date as the Company and Parent may agree.
Section 2.3. The Effective Time. If all the conditions to the merger
set forth in Article VII shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated in accordance with
Article X, the parties hereto shall cause a certificate of merger meeting with
the requirements of Section 251 of the GCL and articles of merger stating the
information required by ss.16-10a-1107 of the Revised Business Corporation Act
of Utah to be properly executed and filed in accordance with such laws on the
Closing Date. The Merger shall become effective at the Effective Time.
Section 2.4. Further Actions. If at any time after the Effective
Time, Newco shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in Newco its right,
title or interest in, to or under any of the rights, properties or assets of
either of the corporations party to the Merger acquired or to be acquired by
Newco as a result of, or in connection with, the Merger or otherwise to carry
out this Agreement, the officers and directors of Newco shall be authorized to
execute and deliver, in the name and on behalf of each of the corporations party
to the Merger or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each corporation
party to the merger or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in Newco or
otherwise to carry out this Agreement.
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Section 2.5. Certificate of Incorporation. The Certificate of
Incorporation of Newco in effect immediately prior to the Effective Time shall
remain the Certificate of Incorporation of Newco as the surviving corporation
except that the name of the surviving corporation shall be changed to "Asset
Alliance Bricoleur Holding Corp.", until duly amended in accordance with the
terms and the GCL.
Section 2.6. By-laws. The By-laws of Newco in effect immediately
prior to the Effective Time shall be the By-laws of Newco as the surviving
corporation, until duly amended in accordance with their terms and the GCL.
Section 2.7. Officers and Directors. The directors and officers of
Newco immediately prior to the Effective Time shall, from and after the
Effective Time, be the directors and officers, respectively, of Newco as the
surviving corporation until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the surviving corporation's Certificate of Incorporation and By-laws.
Section 2.8. Merger Consideration; Conversion of Shares. The manner
of converting shares of the Company and Newco in the Merger shall be as follows:
(a) At the Effective Time, each Shareholder shall surrender to Newco
the certificates representing all of his shares of the Common Stock, par
value $1.00 per share (the "Shares"), of the Company, duly endorsed in
blank, and upon such surrenders all of the Shares issued and outstanding
immediately prior to the Effective Time shall, be converted into, and
Newco shall deliver to the Shareholders pro rata in accordance with their
interests in the Shares immediately prior to the Effective Time, 2,880,000
shares of Common Stock, par value $.01 per share, of Parent ("Parent
Common Stock"), $17,550,000 in cash and $5,850,000 in principal amount of
convertible subordinated debentures (the "Debentures") of the Parent in
the form annexed hereto as Exhibit 2.8(a) hereto and (subject to the
Merger Consideration Adjustment described in Section 2.8(b) below) the
right to receive such Shareholder's pro rata portion of the contingent
share payment, the contingent option payment and the special cash payment
described in Sections 2.8(c), 2.8(d) and 2.8(e) below, each to the extent
provided therein, all without interest (collectively, the "Merger
Consideration"); provided, however, that (i) ****[The remainder of this
subsection (approximately half a page) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
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(b) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(c) If the aggregate amount of the revenues of the LLC to which
Newco is entitled pursuant to Section 3.3 of the LLC Agreement for the
period from the Closing Date through December 31, 1999 is greater than the
First Benchmark, the Parent will deliver to the Shareholders, pro rata in
accordance with their interests in the Shares immediately prior to the
Effective Time, that number of shares of Parent Common Stock equal to the
quotient obtained by dividing the amount by which such entitlement to
revenues is greater than the First Benchmark by the Value Per Share on
December 31, 1999 or $7.50 (as adjusted) per share, at the option of
Parent; provided, however, that in no event shall the Parent be obligated
to deliver to the Shareholders (i) shares of Parent Common Stock having an
aggregate value (taken at such Value Per Share) in excess of $5 million or
(ii) in excess of 666,666 shares (taken at such Value Per Share) of Parent
Common Stock, whichever occurs first.
(d) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(e) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(f) At the Effective Time, each Share, if any, held in the treasury
of the Company or by the Parent or its Subsidiaries prior to the Effective
Time shall be cancelled.
(g) After the Effective Time there will be no transfers on the stock
transfer books of the Company or Newco of the Shares which were issued and
outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to Newco, they shall be
cancelled without further consideration.
(h) Upon the effectiveness of the Merger, all Shares, by virtue of
the Merger and without any action on the part of the holders thereof,
shall no longer be outstanding and shall be cancelled and retired and
shall cease to exist, and each holder of a certificate representing any
shares shall thereafter cease to have any rights with respect to such
shares, except the right of holders (other than the Parent and its
Subsidiaries) to receive, without interest, the Merger
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Consideration, upon the surrender of such Certificate in accordance with Section
2.8(a).
(i) At the Effective Time, each share of Common Stock of Newco
issued and outstanding immediately prior to the Effective Time shall
remain outstanding.
(j) If between the date hereof and the date on which the Parent is
obligated to deliver or repurchase, or any Shareholder is obligated to
return, any shares of Parent Common Stock or Options, the shares of Parent
Common Stock are subdivided or combined or a dividend is paid in such
shares in respect of such shares, the number and maximum number of such
shares subject to such obligation, or the amount of cash due on any such
repurchase, shall be proportionally adjusted to reflect such occurrence.
(k) Each certificate representing shares of Parent Common Stock,
each Debenture, each Option and each evidence of Membership Interests in
the LLC shall bear a suitable legend regarding restrictions on transfer
under Applicable Law and the LLC Agreement as applicable. In addition,
certificates representing 666,666 shares of Parent Common Stock (i.e., the
maximum number of shares subject to Section 2.8(b)) shall bear appropriate
legends prohibiting transfer of any interest therein without the prior
written consent of the Parent prior to the 30th day after the obligations
of the Shareholders under Section 2.8(b) are finally determined.
(l) The determinations required by Section 2.8(b), (c) and (d) above
shall be made by the parties as promptly as practicable, and in any event
within 45 days, after the applicable measurement date.
(m) Parent intends to issue shares of Parent Common Stock to the
public pursuant to a "firm underwriting" public offering registered with
the Securities and Exchange Commission prior to the third anniversary of
the Closing Date. In the event Parent fails to complete such an offering
prior to such third anniversary, each Shareholder shall have the right, at
any time during the 90 day period after such third anniversary on not less
than 30 days notice, to require Parent to purchase, and the Parent shall
be obligated to complete such repurchase, for cash at $7.50 per share of
Parent Common Stock (subject to adjustment as provided by Section 2.8(j))
any or all of the shares of Parent Common Stock received by such
Shareholder as Merger Consideration and owned by such Shareholder at that
time.
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ARTICLE III.
RELATED TRANSACTIONS
Section 3.1. Qualification of LLC. As promptly as practicable after
the date hereof, at the joint expense of the Parent and the Company, the Parent
will make all appropriate regulatory and other filings necessary for the LLC to
continue the business of the Company after the Merger. Each of Parent and the
Company will accrue its portion of such expenses as of a point in time prior to
the Closing.
Section 3.2. Employment Agreements; Noncompetition Agreements.
Contemporaneously herewith each of the Shareholders other than John Bloomberg is
executing and delivering to the LLC and Newco an Employment Agreement (each, an
"Employment Agreement") in substantially the form annexed hereto as Exhibit
3.2(a) and John Bloomberg is executing and delivering to the LLC and Newco a
Noncompetition Agreement (a "Noncompetition Agreement") in substantially the
form annexed hereto as Exhibit 3.2(b).
Section 3.3. Transfer of Assets to LLC. Immediately after the
Effective Time, (a) Newco shall take such steps as are necessary under the terms
of the limited partnership agreement of each of the Pooled Products which is a
partnership to cause the LLC to be admitted as a general partner, (b) Newco
shall transfer to LLC substantially all of its business and assets in exchange
for all of the membership interests in the LLC and the assumption by LLC of all
of the liabilities of Newco received by Newco from the Company in the Merger
other than any items for which any Shareholder has paid or is obligated to pay
to Parent or Newco any amount under Article VIII or IX of this Agreement, or
would be obligated to pay Parent or Newco under either such article but for the
limitations in Section 8.7, 9.3(a)(ii) or 10.3 hereof and (c) Newco shall resign
as general partner of each such partnership; provided, however, that such assets
shall include general partner interests and other investments in the Pooled
Products only in an amount equal to the lesser of $750,000 or the amount of such
general partner interests at the date of such transfer and shall not include any
portion of the Company's investment in Aventine.
Section 3.4. LLC Agreement. Immediately after the Closing, the LLC
shall commence operations in accordance with the LLC Agreement (the "LLC
Agreement") in substantially the form annexed hereto as Exhibit 3.4.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDERS
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Except as set forth in writing in a Schedule by reference to the
appropriate section, subsection or clause hereof and delivered to the Parent
prior to the date hereof, each Shareholder represents and warrants to the Parent
as follows:
Section 4.1. Organization and Related Matters. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Utah. Each Pooled Product has been duly organized as a
corporation, general partnership, limited partnership or group trust, as the
case may be, and is validly existing and, if applicable, in good standing under
the laws of its jurisdiction of organization. The Company and each Pooled
Product has the corporate or other requisite power and authority to carry on its
business as it is now being conducted, to own, lease and operate all of its
properties and assets, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned, leased or operated by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed would not have a material adverse effect on the
business, assets, financial condition or results of operations of the Company or
any of the Pooled Products individually or taken as a whole, or on the ability
of any of the parties to complete the transactions contemplated hereby (a
"Material Adverse Effect"). The charter and by-laws or comparable organizational
documents and any amendments thereto of the Company and each Pooled Product,
complete and correct copies of which as currently in effect have heretofore been
delivered or made available to the Parent, have been filed with or notified to
any applicable Governmental Authority in accordance with all Applicable Law.
Other than the Shares, all of which are duly and validly authorized, issued,
outstanding, fully paid, nonassessable and owned of record and beneficially by
the Shareholders, the Company has no outstanding securities, is not subject to
any obligation, contingent or otherwise, to issue any securities to any Person
and is not subject to any preemptive or similar rights in favor of any Person in
the event of the issuance of any securities by the Company. None of the Shares
has been issued in violation of any Applicable Law. The Company does not have
any Subsidiaries and does not own any Equity Securities other than Equity
Securities issued by the Pooled Products or any other securities other than
short-term high quality money market securities.
Section 4.2. Authority; No Violation; Consents.
(a) The Company and such Shareholder has full power, right and
authority to execute and deliver this Agreement and each Related Agreement to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and each Related Agreement
to which the Company or such Shareholder is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly approved
by all requisite
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action on the part of the Company and each of the Shareholders, including their
duly executed irrevocable written consent to the Merger annexed hereto as
Exhibit 4.2(a), and no other proceedings on the part of the Company or the
Shareholders are necessary to approve this Agreement or any Related Agreement or
to consummate the transactions contemplated hereby or thereby. This Agreement
has been duly executed and delivered by the Company and such Shareholder.
Assuming the due authorization, execution and delivery of this Agreement by the
Parent and Newco and of each Related Agreement by the other parties thereto,
this Agreement (and upon execution and delivery thereof each Related Agreement)
constitutes the legal, valid and binding obligation of the Company and such
Shareholder, enforceable against each of them in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution, delivery and performance of this
Agreement or any Related Agreement by the Company or such Shareholder nor the
consummation by them of the transactions contemplated hereby, will (i) violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or the creation of any Encumbrance upon any of the Company Assets or the
Shares under any of the terms, conditions or provisions of (x) the
organizational documents of the Company or any of the Pooled Products, or (y)
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company, such Shareholder or any of
the Pooled Products is a party or by or to which it or any of its properties may
be bound or subject; or (ii) violate any Applicable Law.
(c) No material notice to, filing with, authorization of, exemption
by, or consent or approval of, any Governmental Authority is necessary for the
consummation by the Company of the transactions contemplated by this Agreement
or any Related Agreement.
(d) Such Shareholder is acquiring its portion of the Merger
Consideration constituting securities for such Shareholder's own account and
such Shareholder has no intention of selling, granting any participation in or
otherwise distributing any of the Merger Consideration constituting securities
other than to Canterbury Advisors, Inc.
Section 4.3. Assets Under Management. The aggregate amount of assets
under management by the Company, and the name of the client and amount of assets
under management by the Company for each client (investors in the Pooled
Products in their capacity as such not being clients for this purpose) for which
the Company
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manages more than $5 million, as of June 30, 1997, July 1, 1997, December 31,
1997 and January 1, 1998 are accurately set forth in Annex 4.3 hereto, together
with a brief summary of the fee or profit allocation arrangements in effect with
respect to each such client. There are no agreements or understandings pursuant
to which the Company has capped, waived or reimbursed or will under any
circumstances cap, waive or reimburse any or all fees, profit allocations or
charges payable by or allocable from any of such clients or any investors in any
such client.
Section 4.4. Financial Statements. (a) The Shareholders have
previously delivered to the Parent copies of the audited balance sheets of the
Company as of December 31 for the fiscal years 1994, 1995 and 1996, and the
related unaudited statements of income, changes in stockholders' equity and cash
flows for the fiscal years 1994, 1995 and 1996, inclusive, together with the
related notes thereto, in each case accompanied by the audit report of Peterson
& Company, independent public accountants with respect to the Company, and have
delivered or will prior to the Closing deliver to the Parent the unaudited
balance sheet of the Company as of December 31, 1997, together with related
notes thereto (the "Company Balance Sheet") and the related unaudited statements
of income for the fiscal year then ended (collectively, the statements referred
to in clauses (i)-(ii) above being referred to as the "Company Financial
Statements"). The audited balance sheets of the Company referred to in the
previous sentence (including the related notes) fairly present the financial
position of the Company as of the dates thereof, and the other Company Financial
Statements fairly present (subject, in the case of the unaudited statements, to
recurring adjustments normal in nature and amount) the results of the
operations, cash flows and changes in stockholders' equity of the Company for
the respective fiscal periods therein set forth; and each of such statements of
the Company (including the related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the periods involved.
(b) Except for (i) liabilities or items set forth in Annex 4.4, (ii)
liabilities that are fully reflected in the Company Financial Statements or
fully reserved against on the Company Balance Sheet, (iii) liabilities that were
incurred in the Ordinary Course of Business on or prior to the date of the
Company Balance Sheet which are not required by GAAP to be reflected in the
Company Financial Statements or which were fully reserved against on the Company
Balance Sheet, (iv) liabilities incurred since the date of the Company Balance
Sheet, none of which, individually or in the aggregate, are material to the
business or operations of the Company, (v) liabilities the incurrence of which
is expressly permitted by this Agreement or authorized by the Parent in writing,
and (vi) nonmonetary obligations arising under the terms of any agreement other
than obligations arising as a result of a breach thereof or default thereunder,
the Company does not have any liabilities, whether absolute, accrued, contingent
or otherwise and whether known or unknown or due or to become due.
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Section 4.5. Compliance with Applicable Law. (a) Except for
instances of failure that would not have a Material Adverse Effect, the Company,
each Pooled Product and each employee of the Company holds, and has at all
pertinent times held, all licenses, franchises, permits, qualifications and
authorizations (collectively, "Permits") necessary for the lawful ownership and
use of the respective properties and assets of the Company and each such Pooled
Product and the conduct of the respective businesses of the Company and each
such Pooled Product under and pursuant to every, and have complied with each,
and are not in default in any material respect under any, Applicable Law
relating to the Company, any Pooled Product or any of their respective assets,
properties or operations, and neither the Company nor any Shareholder knows of
any violations of any of the above or has received notice asserting any such
violation. To the Shareholders' knowledge, all such Permits are valid and in
good standing and are not subject to any proceeding for the suspension,
modification or revocation thereof or proceedings related thereto.
(b) Except for normal examinations conducted by any Governmental
Authority in the regular course of the business of the Company, no Governmental
Authority has initiated any pending proceeding or, to the knowledge of such
Shareholder, any pending investigation into the business or operations of the
Company or any of their officers, directors or employees. There is no unresolved
violation, criticism, or exception by any Governmental Authority with respect to
any examination of the Company or any Pooled Product.
(c) The Company has at all times rendered investment advisory
services to investment advisory clients, including Pooled Products, with whom
the Company is or was a party to an investment advisory agreement or similar
arrangement in material compliance with all applicable requirements as to
portfolio composition and portfolio management including, but not limited to,
the terms of such investment advisory agreements, written instructions from such
investment advisory clients, the organizational documents of such investment
advisory clients made available to the Company, prospectuses, board of director
or trustee directives and Applicable Law.
(d) Except for such instances of failure to make filings or payments
which, either individually or in the aggregate, would not have a Material
Adverse Effect, the Company and each Pooled Product have timely filed all
reports, registration statements and other documents, together with any
amendments required to be made with respect thereto, that they were required to
file with any Governmental Authority, in a form which was accurate and have paid
all fees and assessments due and payable in connection therewith.
(e) As of their respective dates, the SEC Documents of the Company
complied in all material respects with the requirements of the Securities Laws
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applicable to such SEC Documents. The Company has previously delivered or made
available to the Parent a complete copy of each SEC Document filed by the
Company since December 31, 1994 and prior to the date hereof (including a
composite Form ADV for the Company, as in effect on the date hereof) and will
deliver to the Parent at the same time as the filing thereof a complete copy of
each SEC Document filed after the date hereof and prior to the Closing Date with
respect to the Company.
Section 4.6. Books and Records. The Company and each Pooled Product
have at all times since formation maintained Records which accurately reflect
all their transactions in reasonable detail, and have at all times maintained
accounting controls, policies and procedures reasonably designed to provide that
such transactions are (i) executed in accordance with its management's general
or specific authorization, as applicable, and (ii) recorded in a manner which
permits the preparation of financial statements in accordance with GAAP and
applicable regulatory accounting requirements and other account and financial
data, including performance results, in accordance with applicable regulatory
requirements, and the documentation pertaining thereto is retained, protected
and duplicated in accordance with applicable regulatory requirements, including
the Advisers Act and the Investment Company Act.
Section 4.7. Ineligible Persons. None of the Company or any
"affiliated person" (as defined in the Investment Company Act) thereof is
ineligible pursuant to Section 9(a) or 9(b) of the Investment Company Act to
serve as an investment adviser (or in any other capacity contemplated by the
Investment Company Act) to a registered investment company. None of the Company
or any "associated person" (as defined in the Advisers Act or the Exchange Act)
thereof, is ineligible pursuant to Section 203 of the Advisers Act to serve as a
registered investment adviser or broker-dealer or as an associated person to a
registered investment adviser. None of the Company or any "affiliated person"
(as defined in the Investment Company Act) thereof is subject to a "statutory
disqualification" pursuant to Section 3(a)(39) of the Exchange Act.
Section 4.8. Company Assets. The Company has good and marketable
title to all material Company Assets and good and insurable leasehold interests
in the Leased Property, in each case free and clear of all Encumbrances other
than Permitted Encumbrances. Annex 4.8 contains a true and complete list of all
Operating Sites. The Company does not own any Real Property.
Section 4.9. Company Contracts. Annex 4.9 lists under separate
headings, and the Company has made available to Parent copies of: (a) each
Company Contract that is not cancellable without penalty by the Company upon 90
days or less notice or that involves the receipt or payment by the Company in
any of the two prior fiscal years (or is reasonably likely to involve the
receipt of payment by the Company in the current or any future fiscal year) of
an amount in excess of $50,000, (b) each Company Contract with one or more of
the Shareholders or members of their immediate
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families or entities in which any of them have greater than a 5% equity
interest, and (c) each other Company Contract material to the Company's
business, governance, operations or financial condition, true, correct and
complete copies of each of which, including all amendments and supplements
thereto, have previously been made available to the Parent. The Company has made
available to the Parent copies of all sales, marketing and account solicitation
agreements and material marketing arrangements of the Company. The Company has
duly performed all its material obligations under each other Company Contract,
in each case, to the extent that such obligations have accrued; no breach or
default, alleged breach or default, or event which constitutes or would (with
the passage of time, notice or both) constitute a breach or default thereunder,
or would permit termination or acceleration thereof by any party thereto, has
occurred, or, as a result of this Agreement or the performance by the Company of
any of its covenants or obligations hereunder, will occur, and to such
Shareholder's knowledge, each Company Contract is valid and binding on the
Company and on all of the other parties thereto, is in full force and effect and
is enforceable in accordance with its terms.
Section 4.10. Technology and Intellectual Property. The electronic
data processing, information, communications, telecommunications and computer
systems, databases, Software and Intellectual Property which are used by the
Company in its business (collectively, the "Technology Systems") are adequate
for their intended use and for the operation of the Operating Sites as currently
operated and the Company owns or has the right to use all components of the
Technology Systems. There has not been any material malfunction with respect to
any of the Technology Systems which has had or could have a Material Adverse
Effect.
Section 4.11. Legal Proceedings. Neither the Company nor any Pooled
Product is a party to any, and there are no pending or, to such Shareholder's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against the Company, any Pooled Product or any of their respective properties,
assets, directors, officers or employees which, if adversely determined,
individually or in the aggregate, would have a Material Adverse Effect, or that
challenges any of the transactions contemplated by this Agreement, and there is
no injunction, order, judgment, decree, or regulatory restriction imposed upon
the Company, any Pooled Product or any of their respective properties, assets,
officers or employees which, individually or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect.
Section 4.12. Taxes and Tax Returns.
(a) The Company has timely filed all Tax Returns required by
Applicable Law to be filed by them on or before the date hereof, taking into
account any extensions of the time within which to file such returns. All such
Tax Returns are true, complete and correct in all material respects.
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(b) All Taxes attributable to the Company that are or were due
and payable (without regard to whether such Taxes have been assessed) have been
paid. The Company has made adequate provisions on its books and records in
accordance with prior accounting practices, consistently applied, for the
payment of all Taxes reasonably expected to be due and payable with respect to
the current and any prior tax periods.
(c) The Company has complied (and until the Closing will
comply) in all material respects with all Applicable Laws relating to the
payment and withholding of Taxes by the Company (including, without limitation
withholding of Taxes pursuant to Code sections 1441 and 1442 or similar
provisions under any state or foreign law) and has, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all material amounts required to be so withheld
and paid over under all Applicable Laws.
(d) Neither the Company nor any predecessor company has
executed or filed with the IRS or any other Taxing Authority any agreement or
other document extending, or having the effect of extending, the period for the
assessment or collection of any Taxes.
(e) There are no Encumbrances for Taxes upon any of the
Company Assets other than Encumbrances for Taxes not yet due or payable.
(f) No power of attorney has been granted by the Company with
respect to any matter relating to Taxes which is currently in force.
(g) The Company is not a party to or bound by any agreement
providing for the allocation or sharing or indemnification of any Taxes.
(h) There are no claims, audits, suits, proceedings, or
investigations now pending against or with respect to the Company with respect
to any Taxes.
(i) Neither the Company nor any predecessor has been a member
of an affiliated group filing a consolidated, combined, or unitary Tax Return.
(j) The Company does not and will not have any liability for
the Taxes of any other Person (including, but not limited to, by reason of Code
section 1502 and the Treasury Regulations promulgated thereunder (or any similar
provision of state, local or foreign law)), or as a transferee or successor, or
otherwise.
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(k) The Company has not filed and will not file a consent
pursuant to Code section 341(f) or agreed to have Code section 341(f)(2) apply
to any disposition of a subsection (f) asset (as such term is defined in Code
section 341(f)(4)).
(l) The Company is not a party to any agreements, contracts,
or arrangements that would result, separately or in the aggregate, in the
payment of any "excess parachute payments" within the meaning of Code section
280G. The consummation of the transactions contemplated hereby will not cause
any payments to be made by the Company to become subject to the limitations
imposed under Code section 280G.
(m) The Company is not a personal holding company within the
meaning of Code section 542.
Section 4.13. Insurance. The Company maintains with reputable
insurers insurance and indemnity bonds providing coverage for the Company
against all risks normally insured or bonded against by companies in similar
lines of business.
Section 4.14. Labor and Employment Matters. (a) (1) The Company has
not engaged in any unfair labor practice which could reasonably be expected to
result in any material liability to the Company; (2) there is no labor strike,
dispute, slowdown or stoppage pending or threatened against the Company; (3) no
union is currently certified or recognized, there is no union representation
question, no employee representative body or bodies and no union or other
organizational activity that would be subject to the National Labor Relations
Act (29 U.S.C. ss. 151 et seq.) exists or, to the Shareholders' knowledge, is
threatened with respect to the operations of the Company; (4) no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending and, to such Shareholder's knowledge, no claims therefor exist or are
threatened with respect to the operations of the Company; (5) the Company is not
delinquent in any material respect in payments to any of its current or former
officers, directors, employees, consultants, or agents for any wages, salaries,
commissions, bonuses, benefits, expenses or other compensation for any services
performed by them or amounts required to be reimbursed to them; and (6) in the
event of termination of the employment of any employee of the Company, neither
the Company or the LLC nor the Parent or any of its Affiliates will be liable to
any such employee under any agreement in effect at the Closing for so-called
"severance pay," incentive pay, liquidated damages or any other payments or
benefits, including, without limitation, post-employment health care, pension or
insurance benefits.
(b) The Company has not had any claim made against it by any
Person before any Governmental Authority in respect of employment with the
Company or discrimination or harassment on account of sex, race or other
characteristic
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protected by law and there are no pending or to such Shareholder's knowledge,
threatened proceedings in relation thereto.
Section 4.15. Benefit Plan Obligations. (a) Annex 4.15(a) contains a
true and complete list of each commission, bonus, deferred compensation,
incentive compensation, stock purchase, stock option, share scheme, equity-based
award, severance, redundancy or termination pay, hospitalization or other
medical, accident, disability, life or other insurance, supplemental
unemployment benefits, fringe, other welfare benefit, profit-sharing, pension,
or retirement plan, program, agreement, or arrangement, and each other employee
benefit plan, program, agreement, or arrangement (a "Plan") as of the date
hereof sponsored, maintained, or contributed to or required to be contributed to
by the Company or any ERISA Affiliate (as defined below) for the benefit of any
employee or terminated employee of the Company, or any ERISA Affiliate. No
proposal has been announced to establish any other program for providing such
benefits. For purposes of this Agreement, "ERISA Affiliate" means any entity or
Person that together with the Company would be deemed a "single employer" within
the meaning of section 4001 of ERISA or would be considered as being "members"
of a controlled group of corporations within the meaning of section 414 of the
Code with the Company. Each Plan may be modified or terminated by the Company,
or the applicable ERISA Affiliate, without liability to the Company, or its
ERISA Affiliates, subject only to claims filed or occurred prior to such
modification or termination. True and correct copies of each written agreement,
declaration of trust or other document pursuant to which a Plan was formed or
the Company's obligations under a Plan have been established, all amendments
thereto, any written interpretations thereof distributed to employees, and all
contracts relating thereto or the funding thereof (including, without
limitation, all trust or other funding agreements and the most recent financial
statements thereof, insurance contracts, administration contracts, and
investment management agreements), summary plan descriptions, the two most
recent annual reports (Form 5500 including, if applicable, Schedule B thereto),
the most recent actuarial valuation report and the most recent report prepared
in connection with any Plan in accordance with Statement of Financial Accounting
Standards No. 87, Employer's Accounting for Pensions, and the most recent
determination letter received form the IRS with respect to each Plan intended to
qualify under Section 401 of the Code have been made available to the Parent.
(b) Neither the Company nor any ERISA Affiliate (i) has ever
maintained any Plan which has been subject to Title IV of ERISA or (ii) has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of Subtitle B
of title I of ERISA) or has ever agreed to provide such post-termination
benefits.
(c) No Plan is a "multi-employer pension plan," as defined in
section 3(37) of ERISA.
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(d) Each Plan which is intended to be "qualified" within the
meaning of section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust maintained
thereunder is exempt from taxation under section 501(a) of the Code.
(e) There is no matter pending (other than routine
qualification determination filings, copies of which have been furnished to the
Parent, or will be promptly furnished to the Parent when made) with respect to
any of the Plans before the IRS or Department of Labor. There are no pending,
or, to the knowledge of the Shareholders, threatened or anticipated actions,
suits, or claims by or on behalf of any Plan, by any employee or beneficiary
covered thereunder, or otherwise involving any such Plan (other than routine
claims for benefits).
Section 4.16. No Broker. The Shareholders will be responsible for
all fees and costs due to Jeffrey Silver or any of his Affiliates. No other
broker, finder or similar intermediary has acted for or on behalf of, or is
entitled to any broker's, finder's or similar fee or other commission from the
Company or any of the Shareholders in connection with this Agreement or the
transactions contemplated hereby.
Section 4.17. Absence of Changes. Since December 31, 1997, except as
contemplated by this Agreement, neither the Company nor any Pooled Product, has
taken any action or suffered to exist any condition which, had it been taken or
suffered after the date hereof, would have been prohibited by or in violation of
Section 6.1 hereof.
Section 4.18. The Shareholders. Neither such Shareholder nor any
member of the Immediate Family of such Shareholder (a) is a competitor of, or a
party to any transaction or contract or arrangement with, the Company, (b)
serves as an officer, director, employee, consultant, partner, member or similar
capacity of any competitor of the Company or any Person which has a contract or
agreement with the Company or (c) owns directly or indirectly (other than in or
through beneficial ownership of less than 5% of the outstanding securities of a
publicly traded company) any interests in any competitor or any Person that has
a material contract or agreement with the Company.
Section 4.19. Additional Representations Regarding Pooled Products.
(a) True, correct and complete copies of any offering
documents, subscription agreements, administrative services distribution and
solicitation agreements and custody agreements pertaining to each of the Pooled
Products have been made available to the Parent. Such offering materials did
not, at any time such materials were made available to investors or prospective
investors, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein
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or necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading,
(b) True, correct and complete copies of the audited financial
statements, prepared in accordance with GAAP, of each of the Pooled Products for
the fiscal years from inception or 1994, whichever is later, through 1996 have
been made available to the Parent. Each of such financial statements is
consistent with the books and records of the applicable Pooled Product, and
presents fairly the consolidated financial position of such Pooled Product in
accordance with GAAP applied on a consistent basis (except as otherwise noted
therein) at the respective date of such financial statements and the results of
operations and cash flows for the respective periods indicated, except in the
case of the interim financial statements which are subject to normal year-end
adjustments which in the aggregate are not material. Such financial statements
reflect and disclose all material changes in accounting principles and practices
adopted by the applicable Pooled Product during the periods covered by each such
financial statement. The books of account of each Pooled Product fairly reflect
its transactions.
(c) There are no special restrictions, consent judgments or
orders of any Governmental Authority on, or with regard to, any Pooled Product.
Since inception, each Pooled Product has been excluded from the definition of an
investment company under the Investment Company Act by virtue of Section 3(c)(1)
or Section 3(c)(7) thereof, as applicable. Since inception each Pooled Product
has been duly registered and in good standing under the laws of each
jurisdiction in which such qualification has been necessary, except where the
failure to be duly registered and in good standing would not have a Material
Adverse Effect.
(d) All interests of each Pooled Product were sold pursuant to
a valid and effective exemption from registration under the Securities Act and
each other Applicable Law and have been duly authorized and are validly issued.
(e) All consent solicitation materials to be prepared for use
by the Pooled Products in connection with the transactions contemplated by this
Agreement at the time such information is provided or used, as then amended or
supplemented, in each case, will, insofar as it contains or consists of
information supplied by the Company, be accurate and complete and will not
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(f) Each Pooled Product has timely filed or will file or cause
to be filed on a timely basis all Tax Returns required by Applicable Law to be
filed by it
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on or before the Closing Date, taking into account any extensions of the time
within which to file such returns.
(g) No facts have come to the attention of the Shareholders
that have caused them to believe that any of the representations in this Section
4.19 that would be applicable to Aventine if it were a Pooled Product would be
untrue.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PARENT
Except as set forth in writing in a Schedule delivered to the
Shareholders prior to the date hereof, by reference to the appropriate section,
subsection or clause hereof, the Parent represents and warrants to the
Shareholders as follows:
Section 5.1. Organization. Each of the Parent and Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Delaware. Each of the Parent and Newco has the corporate or
other requisite power and authority to carry on its business as it is now being
or is currently proposed to be conducted, to own or use the properties and
assets that it purports to or currently proposes to own or use, and is duly
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or use of the properties used by it
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business of Parent or Newco or on the
ability of Parent or Newco to complete the transactions contemplated hereby
("Parent Material Adverse Effect"). The charter and by-laws and any amendments
thereto of Parent and Newco, complete and correct copies of which are currently
in effect, have heretofore been delivered or made available to the Company and
each Shareholder, have been filed with or notified to any applicable
Governmental Authority in accordance with all statutes, laws, ordinances, rules,
public administrative interpretations, regulations, orders, writs, injunctions,
directives, judgments, decrees or other requirements of any Governmental
Authority applicable to Parent, Newco and their respective properties, assets,
officers, directors, employees and agents ("Legal Requirements"). Parent is and
will be on the Closing Date the beneficial owner of all of the outstanding
capital stock of Newco. None of the Parent Common Stock has been issued in
violation of any Applicable Law.
Section 5.2. Authority; No Violation; Consents.
(a) Each of the Parent and Newco has full power, right and
authority to execute and deliver this Agreement and the Related Agreements to
which it
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is a party and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and such Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly approved by all requisite action on the part of the Parent and Newco
and no other proceedings on the part of the Parent and Newco are necessary to
approve this Agreement or such Related Agreements or to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and such
Related Agreements has been duly and validly executed and delivered by the
Parent and Newco. Assuming the due authorization, execution and delivery of this
Agreement by the other parties hereto, each of this Agreement and such Related
Agreements constitutes a legal, valid and binding obligation of the Parent and
Newco, enforceable against them in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution, delivery and performance of this
Agreement or any Related Agreement by Parent or Newco nor the consummation by
them of the transactions contemplated hereby, will (i) violate, conflict with,
or result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or the creation of any
Encumbrance upon any of the assets of Parent other than its interests in Newco
and the LLC as of the date hereof or as of the Effective Time, as applicable
("Parent Assets") under any of the terms, conditions or provision of (x) the
organizational documents of Parent, or (y) any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Parent is a party or by or to which it or any of its properties may be
bound or subject; or (ii) violate any Legal Requirement.
(c) No material notice to, filing with, authorization of,
exemption by, or consent or approval of, any Governmental Authority is necessary
for the consummation by Parent or Newco of the transactions contemplated by this
Agreement or any Related Agreement.
Section 5.3. No Actions, Suits or Proceedings. There is no pending
action, suit or proceeding, nor, to the knowledge of the Parent, has any
litigation been threatened, against the Parent or any of its subsidiaries,
properties, assets, directors, officers or employees before any Governmental
Authority or otherwise which, if adversely determined, individually or in the
aggregate, would have a Parent Material Adverse Effect, or that questions the
validity or legality of this Agreement or any of the Related Agreements or of
the transactions contemplated hereby or thereby, or which seeks to prevent the
consummation of the transactions contemplated hereby or thereby and there is no
injunction, order, judgment, decree or regulatory restriction imposed
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upon the Parent or any of its Affiliates which, individually or in the
aggregate, has had or could reasonably be expected to have a Parent Material
Adverse Effect.
Section 5.4. Financial Statements. The Parent has previously
delivered to the Shareholders copies of (i) the audited balance sheets of the
Parent on a consolidated basis as of December 31 for the fiscal year 1996 and
the related audited statements of income, changes in stockholders' equity and
cash flows for the fiscal year 1996, inclusive, together with the related notes
thereto, in each case accompanied by the audit report of Ernst & Young LLP,
independent public accountants with respect to the Parent, and (ii) the
unaudited balance sheet of the Parent on a consolidated basis as of December 31,
1997, together with related notes thereto (the "Parent Balance Sheet") and the
related unaudited statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended (collectively, the statements referred to
in clauses (i)-(ii) above being referred to as the "Parent Financial
Statements"). The audited balance sheets of the Parent referred to in the
previous sentence (including the related notes) fairly present the financial
position of the Parent on a consolidated basis as of the dates thereof, and the
other Parent Financial Statements fairly present (subject, in the case of the
unaudited statements, to recurring adjustments normal in nature and amount) the
results of the operations, cash flows and changes in stockholders' equity of the
Parent on a consolidated basis for the respective fiscal periods therein set
forth; and each of such statements of the Parent (including the related notes,
where applicable) has been prepared in accordance with GAAP consistently applied
during the periods involved. As of the respective dates of such financial
statements, Parent had no known liabilities of the type required to be reflected
as liabilities on a balance sheet prepared in accordance with GAAP (whether
absolute, accrued, contingent or otherwise), except for liabilities reflected or
reserved against in the Parent Balance Sheet.
Section 5.5. Capitalization; Merger Consideration. As of the date
hereof, the Parent has authorized capital stock consisting of (a) 100,000,000
shares of Parent Common Stock, of which 4,495,000 shares are outstanding and
3,558,316 shares are reserved for issuance and (b) 2,000,000 shares of preferred
stock, par value $.01 per share, of which 200,000 shares are outstanding. As of
the date hereof, the Parent has outstanding options to purchase an aggregate of
360,000 shares of Parent Common Stock. Parent acknowledges that in addition to
the foregoing amount, it will deliver 2,880,000 shares (as adjusted) of Parent
Common Stock at the Closing against delivery of all Shares and that it will
reserve for issuance an aggregate of 1,446,666 shares of Parent Common Stock for
potential issuance upon conversion of the Debenture and in connection with
Section 2.8(c). Each outstanding share of Parent Common Stock is, and upon
issuance and delivery thereof in accordance with the terms of Section 2.8 hereof
each share constituting Merger Consideration or obtainable upon conversion or
exercise of Merger Consideration will be, duly and validly authorized and
issued, fully paid and nonassessable.
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Section 5.6. Compliance with Applicable Law.
(a) Except for instances of failure that would not have a
Parent Material Adverse Effect, the Parent and each employee of the Parent
holds, and has at all pertinent times held, all licenses, franchises, permits,
qualifications and authorizations (collectively, "Permits") necessary for the
lawful ownership and use of the respective properties and assets of the Parent
and the conduct of the business of the Parent and under and pursuant to every,
and have complied with each, and are not in default in any material respect
under any, Applicable Law relating to the Parent or any of its assets,
properties or operations, and the Parent does not know of any violations of any
of the above and has not received notice asserting any such violation. To the
Parent's knowledge, all such Permits are valid and in good standing and are not
subject to any proceeding for the suspension, modification or revocation thereof
or proceedings related thereto.
(b) Except for normal examinations conducted by any
Governmental Authority in the regular course of the business of the Parent and
its Subsidiaries, no Governmental Authority has initiated any pending proceeding
or, to the knowledge of the Parent, any pending investigation into the business
or operations of the Parent or any of its officers, directors or employees or,
to the knowledge of Parent, any pending proceeding or investigation into the
business or operations of the Parent's Subsidiaries. There is no unresolved
violation, criticism, or exception by any Governmental Authority with respect to
any examination of the Parent.
Section 5.7. Eligibility. None of the Parent or any "affiliated
person" (as defined in the Investment Company Act) thereof is ineligible
pursuant to Section 9(a) or 9(b) of the Investment Company Act to serve as an
investment adviser (or in any other capacity contemplated by the Investment
Company Act) to a registered investment company. None of the Parent or any
"associated person" (as defined in the Advisers Act or the Exchange Act)
thereof, is ineligible pursuant to Section 203 of the Advisers Act to serve as a
registered investment adviser or broker-dealer or as an associated person to a
registered investment adviser. None of the Parent or any "affiliated person" (as
defined in the Investment Company Act) thereof is subject to a "statutory
disqualification" pursuant to Section 3(a)(39) of the Exchange Act.
Section 5.8. Financial Ability. Parent has sufficient cash or other
liquid assets, and on the Closing Date Newco will have, sufficient cash and
authorized and unissued shares of Parent Common Stock and Debentures, to
consummate the Merger as contemplated by this Agreement.
Section 5.9. No Broker. No broker, finder or similar intermediary
has acted for or on behalf of, or is entitled to any broker's, finder's or
similar fee or other commission from the Parent or its Affiliates in connection
with this Agreement or the
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transactions contemplated hereby, it being understood and agreed that the fees
and costs due to Jeffrey Silver or any of his Affiliates shall be the sole
responsibility of the Shareholders.
Section 5.10. Newco. Except as contemplated pursuant to this
Agreement and the Related Agreements, prior to the Closing Date, Newco has not
conducted any business or incurred any obligations or liabilities.
ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business. (a) During the period from the
date of this Agreement and continuing through the Closing Date, except as
required by Applicable Law and disclosed to the Parent, as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Parent, the Company shall, and the Company shall cause each Pooled Product
to: (i) carry on their respective business in the Ordinary Course of Business
consistent with prudent business practice; (ii) use commercially reasonable
efforts to preserve its respective present business organization and
relationships; (iii) use commercially reasonable efforts to keep available the
present services of its employees it deems necessary (it being understood and
agreed that the Company (x) shall not be obligated to increase the compensation
or benefits of any person or (y) shall not be restricted in terminating the
employment of any Person, if such termination is consistent with prudent
business practice); (iv) use commercially reasonable efforts to preserve and
enhance its assets under management and profitability and the goodwill and
relations of its customers and others with whom business relationships exist;
(v) not enter into any business venture, contract, agreement, understanding or
any other arrangement, whether written or oral, (except for normal, recurring
expenditures incurred in the Ordinary Course of Business) in any amount in
excess of $50,000 in respect of any individual arrangement or contract,
agreement, understanding or any other arrangement, whether written or oral, with
any of the Shareholders or members of their Immediate Family or any Affiliates
thereof; (vi) not take or omit any action that would or could result in any of
their representations and warranties set forth herein or in any of the Related
Agreements being or becoming untrue in any material respect or any of their
agreements herein or therein being breached in any material respect; (vii) not
take or omit any action if such action or omission would require consent of the
Manager under Section 2.2(c) of the LLC Agreement, if the LLC Agreement were in
effect at the time of such action or omission; (viii) not amend the certificate
of incorporation, by-laws or any similar organizational documents of the Company
or any Pooled Product; (ix) not declare or pay any dividend in respect of any of
its securities or pay any compensation to any employee if after giving effect
thereto the tangible shareholders' equity of the Company would be less
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than $2,250,000 or the investment of the Company in the Pooled Products would be
less than $750,000; (x) not grant, issue or sell any security of which the
Company is the issuer; (xi) not effect any recapitalization, reclassification,
stock dividend, stock split or like change in capitalization of the Company;
(xii) not capitalize any lease obligation of the Company regardless of when such
lease obligation was entered into; and (xiii) not enter into any agreement or
understanding with respect to any of the foregoing matters.
(b) From time to time prior to the Closing Date the
Shareholders shall update or cause to be updated each of the Schedules and
Annexes to this Agreement required pursuant to Article I or Article IV hereof to
reflect changes to the information set forth therein occurring through a date
not more than two days prior to the Closing Date. For purposes of determining
the accuracy of the representations and warranties of the Shareholders contained
in Article IV in order to determine the fulfillment of the condition set forth
in Section 7.1(a), the Schedules and Annexes delivered by the Shareholders shall
be deemed to include only that information contained therein on the date of this
Agreement and shall be deemed to exclude any information contained in any
subsequent supplement or amendment thereto. For purposes of determining the
accuracy of the representations and warranties of the Shareholders contained in
Article IV in order to determine any indemnification obligation of the
Shareholders pursuant to Article VIII, the Schedules and Annexes delivered by
the Shareholders shall not be deemed to include any information contained in any
subsequent supplement or amendment thereto.
(c) The Shareholders shall cause the Company to prepare and
deliver to the Parent (i) within 15 days after the end of each month after the
date hereof and prior to the Closing Date an unaudited balance sheet of the
Company and the related unaudited statement of income of the Company, together
with notes describing significant differences between the information therein
and the requirements of GAAP and (ii) promptly upon receipt thereof and the
audit report related thereto, the audited balance sheet and unaudited statements
of income, changes in stockholders' equity and cash flows as at and for the year
ended December 31, 1997.
Section 6.2. Advisory Contract Consents and Approvals and Other
Actions. As soon as reasonably practicable and in any event by the 10th Business
Day following the date hereof, the Shareholders shall cause the Company (a) to
inform the general partner or other controlling body of each Pooled Product and
the investors in each of the Pooled Products and to inform each other investment
advisory client of the transactions contemplated by this Agreement, (b) to
request the written consent of the general partner or similar controlling body
of each Pooled Product and each other investment advisory client (it being
understood and agreed that investors in the Pooled Products are not clients of
the Company) to the assignment of their investment advisory agreements deemed to
occur as a result of the consummation of such transactions, (c) to use
reasonable efforts to obtain such consents and (d) to use reasonable efforts to
obtain
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the consent (which may consist of the failure to object, to the extent permitted
by the applicable agreement) of the limited partners of each Pooled Product that
is a partnership to the substitution of the LLC for the Company as the general
partner of such Pooled Product.
Section 6.3. Confidentiality and Announcements.
(a) None of the parties or any of their respective Affiliates,
except as otherwise required by Applicable Law, shall disclose publicly any of
the contents hereof other than as required by Section 6.2 or by Applicable Law
upon prior notice to the Company or the Parent, as the case may be.
(b) The Company and the Parent shall agree with each other on
behalf of all the parties as to the form and substance of any press release
related to this Agreement and the Related Agreements or the transactions
contemplated hereby and thereby, prior to the earlier to occur of the Closing
Date or termination of this Agreement pursuant to Section 10.1 hereof; provided,
however, that nothing contained herein shall prohibit any party, following
notification to the other parties if practicable, from making any disclosure
which its counsel concludes is required by law.
Section 6.4. Expenses. Except as provided elsewhere herein, the
Shareholders and the Company shall bear the direct and indirect expenses of the
Shareholders and the Company, respectively, and the Parent and Newco shall bear
the direct and indirect expenses of the Parent and Newco, respectively, incurred
in connection with the negotiation and preparation of this Agreement and the
Related Agreements and the consummation of the transactions contemplated hereby
and thereby.
Section 6.5. Release of the Company. At the Closing, each of the
Shareholders shall deliver to the Company for the benefit of the LLC, Newco and
the Parent a Release (each, a "Release") in the form annexed hereto as Exhibit
6.5 releasing and forever discharging the Company from any and all causes of
action, rights or claims that any such person may have had in the past, may now
have or may have in the future related to, connected with, or arising out of
such Shareholder's status as a stockholder of the Company prior to the Effective
Time.
Section 6.6. Covenants of the Parent. During the period from the
date of this Agreement and continuing through the Closing Date, except as
required by Applicable Law or with the prior written consent of the Company, the
Parent shall not take any action, or fail to take any action, that would, or
could reasonably be expected to (i) result in any of the Parent's
representations and warranties set forth in this Agreement or any of the Related
Agreements being or becoming untrue in any material respect; (ii) result in a
material violation of any provision of this Agreement or any of
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the Related Agreements; or (iii) adversely affect or materially delay the
receipt of any of the requisite regulatory approvals.
Section 6.7. Access; Certain Communications. Between the date of
this Agreement and the Closing Date, subject to Applicable Laws relating to the
exchange of information, the Company and each of the Shareholders shall afford
to the others and their authorized agents and representatives complete access,
upon reasonable notice and during normal business hours, to contracts, documents
and information of or relating to the assets, liabilities, business, operations,
personnel and such similar aspects of the business of the Company and the Pooled
Products as the Parent shall reasonably request or of the business of the Parent
as the Shareholders shall reasonably request; provided, however, that such
investigations shall be conducted in a manner which does not unreasonably
interfere with the other party's normal operations, customers and employee
relations. No investigation pursuant to this Section 6.7 or otherwise shall
affect or limit the representations and warranties of the Shareholders or the
Parent, as the case may be, set forth herein.
Section 6.8. Regulatory Matters; Third Party Consents. (a) The
Company and the Parent shall cooperate with each other and use all reasonable
efforts promptly to prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals, waivers and authorizations of all
third parties and Governmental Authorities and to satisfy all conditions which
are necessary to consummate the transactions contemplated by this Agreement (it
being understood that the Company shall be responsible for obtaining all such
approvals, waivers and consents from such parties with whom the Company is in
contractual privity including all investment advisory clients). If any required
consent of or waiver by any third party (excluding any Governmental Authority
and consents of clients under investment advisory agreements) is not obtained
prior to the Closing, the Company and the Shareholders or Newco and the Parent,
as the case may be each without cost, expense or liability to the other (except
as provided in Article VII hereof), shall cooperate in good faith to seek an
alternative arrangement to achieve the economic results intended.
Section 6.9. Insurance. The Company will maintain in effect at least
until and including the Closing Date all casualty, public liability and other
policies of insurance maintained by the Company on the date hereof, including
directors' and officers' and errors and omissions liability policies, relating
to the business of the Company, the Operating Sites and the other Company
Assets, or will procure comparable replacement policies and maintain such
replacement policies in effect at least until and including the Closing Date.
Section 6.10. Notification of Certain Matters. Each party shall give
prompt notice to the other parties of (i) the occurrence, or failure to occur,
of any event
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or existence of any condition that has caused or could reasonably be expected to
cause any representations or warranties made by it in this Agreement or any
Related Agreement to be untrue or inaccurate in any material respect at any time
after the date of this Agreement, up to and including the Closing Date, and (ii)
any failure on its part to comply with or satisfy, in any material respect, with
any of its covenants or agreements in this Agreement or any Related Agreement
and any failure of any condition to another party's obligation to complete the
transactions contemplated hereby to be satisfied.
Section 6.11. No Solicitation. Except as permitted herein or
contemplated hereby, until the termination of this Agreement pursuant to Section
10.1, none of the Company, the Shareholders or the Company's officers,
directors, employees, agents or representatives will, directly or indirectly,
solicit, encourage, assist, initiate discussions or engage in negotiations with,
provide any information to, or enter into any agreement or transaction with, any
Person relating to the possible acquisition of any equity interests in or assets
of the Company by any Person other than the Parent and its Affiliates.
Section 6.12. Registration Rights; Lockup Agreements. *****[This
section (approximately one-third of a page) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]*****
Section 6.13. Cooperation as to Tax Matters. Each of the Parent,
Newco, the Company and the Shareholders shall cooperate with each other in order
that the Parent may obtain the opinion of Skadden, Arps, Slate, Meagher & Flom
LLP, counsel to the Parent, dated as of the Effective Time, to the effect that
the Merger will constitute a reorganization within the meaning of section 368(a)
of the Code. In connection therewith, each of the Parent, Newco, the Company and
the Shareholders shall deliver to Skadden, Arps, Slate, Meagher & Flom LLP
customary representation
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letters in form and substance reasonably satisfactory to such counsel (the
representation letters referred to in this sentence are collectively referred to
as the "Tax Certificates").
Section 6.14. Tax Treatment. Each of the Parent, the Company and the
Shareholders shall use all commercially reasonable efforts to cause the Merger
to qualify as a reorganization within the meaning of section 368(a) of the Code.
ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's and Newco's Obligations. The
obligations of the Parent and Newco to effect the Merger and the other
transactions contemplated hereby shall be subject to the following conditions
any one or more of which may be waived in writing by the Parent in whole or in
part:
(a) Each of the representations and warranties of the
Shareholders set forth in this Agreement, any Related Agreement or any Schedule,
Exhibit or Annex hereto or thereto shall be true and correct in all material
respects as of the date of this Agreement and (except to the extent any such
representation or warranty speaks as of or is limited to an earlier date) as of
the Closing Date as though made on and as of the Closing Date; provided,
however, that solely for purposes of determining the satisfaction of the
conditions contained in this Section 7.1(a) and not for purposes of determining
liability under Section 8 hereof or otherwise, no effect shall be given to any
exception in such representations and warranties relating to knowledge,
materiality, or a Material Adverse Effect, and such representations and
warranties shall be deemed to be true, correct and complete in all material
respects only if the failures of such representations and warranties to be so
true, correct and complete without regard to knowledge, materiality, and
Material Adverse Effect exceptions do not represent in the aggregate a Material
Adverse Effect;
(b) The Company and the Shareholders shall have performed and
complied in all material respects with all agreements, covenants, obligations
and conditions required by this Agreement, any Related Agreement or any
Schedule, Exhibit or Annex hereto or thereto to be performed or complied with by
them at or prior to the Closing Date;
(c) The Shareholders shall have delivered to the Parent a
certificate dated as of the Closing Date, confirming the satisfaction of the
conditions contained in paragraphs (a) and (b) of this Section 7.1;
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(d) The Company shall have obtained (i) from each of the
Pooled Products a written consent and (ii) from the limited partners of each
Pooled Product that is a partnership any necessary consent or approval for the
substitution of the LLC for the Company as the general partner thereof, each in
accordance with Section 6.2 hereof;
(e) The LLC shall be registered as an investment adviser under
the Advisers Act or the California Corporate Securities Law of 1968 or the staff
of the SEC shall have indicated that the LLC may be treated as the successor of
the Company for purposes of the Advisers Act and each applicable employee of the
Company shall be registered as an investment adviser representative of the LLC
under the laws of each state where such registration may be necessary to enable
each employee to conduct the former business of the Company through the LLC
immediately after the transfer contemplated by Section 3.3 hereof;
(f) Each of the Shareholders shall have executed and delivered
to the Parent the LLC Agreement and a Release and the Shareholders and the
Company shall have terminated the Business Organizational Agreement, dated as of
October 1, 1993, between John I. Bloomberg and Daniel P. Wimsatt;
(g) Each of the Employment Agreements and Noncompetition
Agreements shall be in full force and effect without any breach thereof by the
individual party thereto;
(h) No requisite regulatory approval shall impose any term,
condition or restriction upon the Parent or any of its Affiliates that the
Parent reasonably determines would so materially adversely affect the economic
or business benefits of the transactions contemplated by this Agreement to the
Parent as to render inadvisable in the reasonable good faith judgment of the
Parent the consummation of the transactions contemplated hereby;
(i) Since December 31, 1997, no event shall have occurred
which has had or could reasonably be expected to have, individually or in the
aggregate with any other event, a Material Adverse Effect; provided, however,
that any decrease in assets under management shall not cause a failure of this
condition to be satisfied, it being agreed that decreases in net assets shall be
treated in accordance with Section 2.8(a);
(j) The Parent shall have received the opinion of counsel to
the Company and the Shareholders dated the Closing Date and substantially in the
form annexed hereto as Exhibit 7.1(k)(i) and the Parent shall have received the
opinion of counsel to the Parent to the effect that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and Parent,
Newco and the Company will
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each be a party to such reorganization within the meaning of Section 368(b) of
the Code;
(k) The Parent shall have received evidence that Daniel P.
Wimsatt and Robert M. Poole are insurable with respect to both key-man life
insurance and disability insurance policies.
Section 7.2. Conditions to the Company's and the Shareholders'
Obligations. The obligation of the Company and the Shareholders to effect the
Merger and the other transactions contemplated hereby shall be subject to the
following additional conditions which may be waived in writing by the Company:
(a) Each of the representations and warranties of the Parent
contained in this Agreement, any Related Agreement or any schedule, Exhibit or
Annex hereto or thereto shall be true in all material respects as of the date of
this Agreement and (except to the extent any such representation or warranty
speaks as of or is limited to an earlier date) as of the Closing Date with the
same effect as though made on and as of the Closing Date; provided, however,
that solely for purposes of determining the satisfaction of the conditions
contained in this Section 7.2(a) and not for purposes of determining liability
under Section 8 hereof or otherwise, no effect shall be given to any exception
in such representations and warranties relating to knowledge, materiality, or a
Parent Material Adverse Effect, and such representations and warranties shall be
deemed to be true, correct and complete in all material respect only if the
failure or failures of such representations and warranties to be so true,
correct and complete without regard to knowledge, materiality, and Parent
Material Adverse Effect exceptions do not represent in the aggregate a Parent
Material Adverse Effect;
(b) The Parent and Newco shall have performed and complied in
all material respects with all covenants, obligations and conditions required by
this Agreement, any Related Agreement or any Schedule, Exhibit or Annex hereto
or thereto to be performed or complied with by them at or prior to the Closing
Date;
(c) The Parent shall have delivered to the Shareholders a
certificate, dated as of the Closing Date, from an officer of the Parent
confirming the satisfaction of the conditions contained in paragraphs (a) and
(b) of this Section 7.2;
(d) No requisite regulatory approval shall have imposed any
term, condition or restriction upon the LLC that the Company reasonably
determines would so materially adversely affect the economic or business
benefits to the Shareholders of the transactions contemplated by the Agreement
as to render inadvisable in the reasonable good faith judgment of the Company
the consummation of the transactions contemplated hereby;
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(e) The Shareholders shall have received the opinion of
counsel to the Parent, dated the Closing Date, substantially in the form annexed
hereto as Exhibit 7.2(e) and the Parent shall have received the opinion of
counsel to the Parent referred to in Section 7.1(j).
(f) Newco and the Manager shall have executed and tendered the
LLC Agreement to the Non-Manager Members.
Section 7.3. Mutual Condition. The obligations of each of the
Shareholders and the Company, on the one hand, and the Parent and Newco, on the
other hand, to effect the Closing shall be subject to the condition that no
order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the transactions contemplated by this Agreement shall be in effect, that no
proceeding initiated by any Governmental Authority seeking an injunction shall
be pending and that no statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any Governmental
Authority which prohibits, restricts or makes illegal consummation of the
transactions contemplated hereby.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders. From and after the
Closing Date, the Shareholders hereby agree, severally in proportion to their
interests in the Shares immediately prior to the Effective Time, to indemnify,
defend and hold harmless the Parent and its employees, officers, partners and
other Affiliates (other than the LLC) from and against any and all Losses (other
than any Losses for or relating to Taxes, which shall be subject to the
provisions of Article IX of this Agreement) which any of them may suffer, incur
or sustain arising out of, attributable to, or resulting from: (a) any
inaccuracy in or breach or nonperformance of any of the representations or
warranties of the Shareholders, or any covenant or agreement of the Company or
the Shareholders, made in or pursuant to this Agreement or any Related Agreement
(it being agreed that solely for purposes of establishing whether any matter is
indemnifiable pursuant to this clause (a), no effect shall be given to any
qualification regarding knowledge (other than with respect to Section 4.19(g)),
materiality, Material Adverse Effect or Parent Material Adverse Effect) and (b)
the activities, conduct, business or operation of the Company or any of the
Pooled Products prior to the Effective Time, or arising out of facts, events or
circumstances regarding the Company or any Pooled Product existing prior to the
Effective Time.
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<PAGE> 42
Section 8.2. Obligations of the Parent. From and after the Closing
Date, the Parent shall indemnify, defend and hold harmless the Shareholders from
and against any Losses which they may suffer, incur, or sustain arising out of,
attributable to or resulting from any inaccuracy in or breach or nonperformance
of any of the representations, warranties, covenants or agreements made by the
Parent or Newco in or pursuant to this Agreement or any Related Agreement prior
to the Closing (it being agreed that solely for purposes of establishing whether
any matter is indemnifiable pursuant to this Section 8.2, no effect shall be
given to any qualification regarding knowledge (other than with respect to
Section 5.6(b)) or materiality).
Section 8.3. Procedure. (a) Notice of Third Party Claims. Any
Indemnified Party seeking indemnification for any Loss or potential Loss arising
from a claim asserted by a third party against the Indemnified Party (a "Third
Party Claim") shall give written notice to the Indemnifying Party. Written
notice to the Indemnifying Party of the existence of a Third Party Claim shall
be given by the Indemnified Party within 15 days after its receipt of a written
assertion of liability from the third party; provided, however, that the
Indemnified Party shall not be foreclosed from seeking indemnification pursuant
to this Article VIII by any failure to provide timely notice of the existence of
a Third Party Claim to the Indemnifying Party except and only to the extent that
the Indemnifying Party actually incurs an incremental out-of-pocket expense or
otherwise has been materially damaged or prejudiced as a result of such delay.
(b) Defense. Except as otherwise provided herein, the
Indemnifying Party may elect to compromise or defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (which counsel
shall be reasonably satisfactory to the Indemnified Party), any Third Party
Claim. If the Indemnifying Party elects to compromise or defend such Third Party
Claim, it shall, within 30 days after receiving notice of the Third Party Claim,
notify the Indemnified Party of its intent to do so, and the Indemnified Party
shall cooperate, at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Third Party Claim. If the Indemnifying Party elects not
to compromise or defend against the Third Party Claim, or fails to notify the
Indemnified Party of its election to do so as herein provided, or otherwise
abandons the defense of such Third Party Claim, (i) the Indemnified Party may
pay (without prejudice of any of its rights as against the Indemnifying Party),
compromise or defend such Third Party Claim and (ii) the costs and expenses of
the Indemnified Party incurred in connection therewith shall be indemnifiable by
the Indemnifying Party pursuant to the terms of this Agreement. Notwithstanding
anything to the contrary contained herein, in connection with any Third Party
Claim in which the Indemnified Party shall reasonably conclude, based upon the
written advice of its counsel, that (x) there is a conflict of interest between
the Indemnifying Party and the Indemnified Party in the conduct of the defense
of such Third Party Claim, or (y) there are specific defenses available to the
Indemnified Party which are different from or additional to those available to
the Indemnifying Party and
37
<PAGE> 43
which could be materially adverse to the Indemnifying Party, then the
Indemnified Party shall have the right to assume and direct the defense and
compromise of such Third Party Claim insofar as it relates to the Indemnified
Party. In such an event, the Indemnifying Party shall pay the fees and
disbursements of counsel to the Indemnifying Party or Parties and the
Indemnified Party provided that the Indemnifying Party shall not be liable for
the fees and expenses of more than one counsel for the Indemnified Parties other
than local counsel. Notwithstanding the foregoing, neither the Indemnifying
Party nor the Indemnified Party may settle or compromise any claim (unless the
sole relief payable to a third party in respect of such Third Party Claim is
monetary damages that are paid in full by the party settling or compromising
such claim and the settlement or compromise includes a complete release of the
other party or parties hereto) over the objection of the other, provided,
however, that consent to settlement or compromise shall not be unreasonably
withheld. In any event, except as otherwise provided herein, the Indemnified
Party and the Indemnifying Party may each participate, at its own expense, in
the defense of such Third Party Claim. If the Indemnifying Party chooses to
defend any claim, the Indemnified Party shall make available to the Indemnifying
Party any personnel or any books, records or other documents within its control
that are reasonably necessary or appropriate for such defense, subject to the
receipt of appropriate confidentiality agreements.
(c) Settlement. If a settlement offer solely for money damages
is made by a third party claimant, and the Indemnifying Party notifies the
Indemnified Party in writing of the Indemnifying Party's willingness to accept
the settlement offer and pay the amount called for by such offer, and the
Indemnified Party declines to accept such offer, the Indemnified Party may
continue to contest such claim, free of any participation by the Indemnifying
Party, and the amount of any ultimate liability with respect to such
Indemnifiable Claim that the Indemnifying Party has an obligation to pay
hereunder shall be limited to the lesser of (A) the amount of the settlement
offer that the Indemnified Party declined to accept plus the costs and expenses
of the Indemnified Party prior to the date the Indemnifying Party notifies the
Indemnified Party of the Indemnifying Party's willingness to settle or
compromise such Third Party Claim and (B) the aggregate Losses of the
Indemnified Party with respect to such claim.
(d) Miscellaneous. The procedures set forth in this Section
8.3 shall not apply to any Tax Claim, which instead shall be resolved in
accordance with the procedures set forth in Article IX. The procedures set forth
in this Section 8.3 shall apply solely with respect to Third Party Claims and
shall not be deemed to apply to, or otherwise affect or limit, an Indemnified
Party's rights under this Agreement with respect to any claim other than a Third
Party Claim.
Section 8.4. Notice of Non-Third Party Claims. Any Indemnified Party
seeking indemnification for any Loss or potential Loss arising from a claim
asserted by any party to this Agreement against the Indemnified Party (a
"Non-Third Party Claim")
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<PAGE> 44
shall give written notice to the Indemnifying Party. Written notice to the
Indemnifying Party of the existence of a Non-Third Party Claim shall be given by
the Indemnified Party promptly after discovery of the potential claim; provided,
however, that the Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to this Article VIII by any failure to provide timely
notice of the existence of a Non-Third Party Claim to the Indemnifying Party
except and only to the extent that the Indemnifying Party actually incurs an
incremental out-of-pocket expense or otherwise has been materially damaged or
prejudiced as a result of such delay.
Section 8.5. Survival of Indemnity. Any matter as to which a claim
has been specifically asserted in writing that is pending or unresolved at the
end of any applicable limitation period set forth in Section 10.3 hereof shall
continue to be covered by this Article VIII notwithstanding any applicable
statute of limitations (which the parties hereby waive) until such matter is
finally terminated or otherwise resolved in accordance with this Agreement and
any amounts payable hereunder are finally determined and paid.
Section 8.6. Adjustments to Indemnification Obligations. The amount
which any Indemnifying Party is or may be required to pay any Indemnified Party
pursuant to this Article VIII shall be reduced by an amount equal to any
insurance proceeds actually realized and increased by any adverse insurance
consequences incurred (such as premium adjustments and other detriments) that
affect the overall economic impact of the Losses to the Indemnified Party.
Section 8.7. Limitation on Indemnification. ****[This section
(approximately one page) has been omitted pursuant to the confidential treatment
request referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
Section 8.8. Purchase Price Adjustment. Any indemnification payment
required to be made by Parent or the Shareholders pursuant to the terms of this
Article VIII may be made, in whole or in part, at the election of the
Indemnified Party ,first through a reduction of the contingent giveback
described in Section 2.8(b) or the contingent consideration described in Section
2.8(c), (d) and (e), as the case may be, which the Indemnifying Party was
previously entitled to receive. Any indemnification payments made to an
Indemnified Party through reduction of the contingent giveback or consideration
described in Section 2.8(b), (c), (d) and (e) shall be considered adjustments to
the Merger Consideration.
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<PAGE> 45
Section 8.9. Exclusive Remedy. After the Closing the sole and
exclusive remedy of any party for any inaccuracy, untruth, violation or breach
of any representation, warranty, agreement or obligation made in connection with
this Agreement and required to be performed prior to the Closing shall be,
subject to Section 11.4 hereof, the indemnification contained in this Article
VIII and Article IX.
ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation. The Shareholders and the Parent shall
each: (a) cooperate in the preparation of any Tax Returns; (b) cooperate fully
in preparing for any audits of, or disputes with taxing authorities regarding,
any Tax liability of the Company (including, as it may relate to Newco, the
Parent or the LLC); (c) make available to the other and to any taxing authority,
as reasonably requested, all information, records, and documents relating to any
Tax; (d) provide timely notice to the other in writing of any written notice
received concerning any pending or threatened audits or assessments relating to
any Tax liability of the Company for which the other may have liability pursuant
to Section 9.3 hereunder; and (e) furnish the other with copies of all
correspondence received from any taxing authority in connection with any audit
or information request with respect to any Tax for which the other may have
liability pursuant to Section 9.3 hereunder.
Section 9.2. Tax Returns. The Shareholders shall be responsible for
preparing and filing (or causing the preparation and filing of) any Tax Returns
required to be filed by the Company as to any period ending on or before the
Closing Date. Parent or Newco shall be responsible for preparing and filing (or
causing the preparation and filing of) any Tax Returns required to be filed by
the Company as to any period beginning on or after the Closing Date. The parties
agree with respect to such Tax Returns to determine the income, gain, expenses,
losses, deductions, and credits of the Company in a manner consistent with prior
practices of the Company and in a manner that apportions such income, gain,
expenses, loss, deductions and credits equitably from period to period;
provided, however, that in all events such Tax Returns shall be prepared in a
manner consistent with Applicable Law and without prejudice to the rights of
indemnification of any party (other than the LLC) hereunder with respect to any
Tax Claim. No amended return may be filed by or on behalf of the Company with
respect to any period ending on or prior to the Closing Date without the written
consent of the Shareholders and Parent which consent shall not unreasonably
delayed or withheld.
Section 9.3. Liability for Taxes.
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<PAGE> 46
(a) From and after the Closing Date, the Shareholders
(severally, in proportion to their interests in the Shares immediately prior to
the Effective Time) shall indemnify the Parent and its Affiliates (other than
the LLC), and hold them harmless from and against, any Taxes imposed on the
Company (or its successor in interest) for any taxable period of the Company
ending on or before the Closing Date; provided that such indemnification shall
not apply or extend to any Taxes which are (i) properly reflected as a liability
on the financial records of the Company in accordance with prior practice as of
the Closing Date or (ii) imposed on the Company (x) due to failure of the Merger
to qualify as a reorganization pursuant to Section 368(a)(1)(A) of the Code
except if such failure results from and is attributable to any knowing
misrepresentation by the Shareholders or the Company included in the
representation letters provided by the Shareholders or the Company to counsel to
the Parent rendering the opinion referred to in Section 7.1(j), or (y) due to
any transfer of assets or equity interests undertaken in accordance with the
Related Transactions described in Article III of this Agreement except if such
imposition results from and is attributable to any knowing misrepresentation by
the Shareholders or the Company included in the representation letters provided
by the Shareholders or the Company to counsel to the Parent rendering the
opinion referred to in Section 7.1(j). For purposes of clause (ii) of this
Section 9.3(a), a breach of a representation will be considered "knowing" only
to the extent (a) the party who made the representation had actual knowledge at
the time the representation was made that the representation was materially
inaccurate and (b) neither Parent nor Newco had knowledge of the facts from
which the inaccuracy of the representation arose.
(b) To the extent Newco or Parent receives any refund or
credit for Taxes previously paid by or on behalf of the Company (other than any
refund or credit reflected on the financial records of the Company in accordance
with prior practice as of the Closing Date), the benefit of such refund or
credit shall be promptly paid to the Shareholders as additional Merger
Consideration.
Section 9.4. Procedures Related to Tax Claims.
(a) If any claim for Taxes shall be made by any Taxing
Authority against the Company (or its successor in interests) or against the
Shareholders in respect of the Company the party receiving such claim shall
promptly notify the other parties.
(b) If such Tax Claim, if successful, might require the
Shareholders to make an indemnity payment pursuant to Section 9.3(a), the
Shareholders shall have the sole right (but not the obligation) to control,
defend, settle, compromise, or contest in any manner such Tax Claim; provided,
however, that (i) the Shareholders shall keep Newco fully informed of any
proceedings in connection with such Tax Claim and (ii) Newco shall be entitled
to receive copies of all correspondence
41
<PAGE> 47
and documents related to such Tax Claim and may, at its option, observe such
proceedings (including any meetings or conferences). No such Tax Claim may be
settled by the Shareholders without the consent of Newco, which consent shall
not unreasonably be withheld or delayed. Such consent shall not be necessary to
the extent the Shareholders have indemnified Newco and Parent with respect to
the economic consequences of such settlement. The costs and expenses incurred in
contesting any such Tax Claim shall be borne by the Shareholders.
Section 9.5. Survival of Tax Claims and Section 4.12 Representation.
Any Tax Claim to be made pursuant to this Article IX shall survive indefinitely.
The representations and warranties made by the Shareholders in Section 4.12
shall not survive the Closing Date.
Section 9.6. Exclusive Remedy. Notwithstanding any other provision
of this Agreement to the contrary, the provisions of this Article IX shall be
the exclusive means by which any party may recover damages from any other party
with respect to any claim based on Taxes pertaining to the Company or the tax
treatment of the Merger.
Section 9.7. Payments for Indemnification under Article IX.
****[This section (approximately 17 lines) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination. (a) This Agreement may be terminated at
any time prior to the Closing as follows:
(1) by the mutual written consent of the Parent and the
Company;
(2) by the Company or by the Parent if it has become
reasonably and objectively certain that any of the conditions to such
Person's obligation to close the transactions contemplated by this
Agreement will not be satisfied on or prior to the date set forth in
Section 10.1(a)(5) below;
(3) by the Company, on the one hand, or by the Parent,
on the other hand, if there shall have been a breach of any of the
representations and warranties set forth in this Agreement on the part of
the other party, which breach would entitle the party receiving such
representation or
42
<PAGE> 48
warranty not to consummate the transactions contemplated hereby under
Section 7.1(a) (in the case of a breach of representation or warranty by
the Company) or Section 7.2(a) (in the case of a breach of representation
or warranty by Parent) and which breach by its nature cannot be cured
prior to the date set forth in Section 10.1(a)(5) below;
(4) by the Company on the one hand, or by the Parent, on
the other hand, if there shall have been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of the
Parent or Newco (in the case of termination by the Company) or on the part
of the Company or the Shareholders (in the case of termination by the
Parent), which breach shall not have been cured within 20 Business Days
following receipt by the breaching party of written notice of such breach
from the other; and
(5) at the election of the Parent or the Company, if the
Closing Date shall not be on or before March 2, 1998.
Notwithstanding Section 10.1(a)(2)-(5) hereof, a party who is in
material breach of any of its obligations or representations and warranties
hereunder shall not have the right to terminate this Agreement pursuant to
Section 10.1(a)(2)-(5).
(b) The termination of this Agreement shall be effectuated by
the delivery by the party terminating this Agreement to the other party of a
written notice of such termination. If this Agreement so terminates, it shall
become null and void and have no further force or effect, except as provided in
Section 10.2.
Section 10.2. Effect of Termination. In the event of termination of
this Agreement as provided in Section 10.1, this Agreement shall forthwith
become void and have no effect except (i) the confidentiality provisions
contained in Section 6.4 shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
Section 10.3. Survival of Representations and Warranties. Except as
provided in Sections 8.5 and 9.5, the respective representations and warranties
of the Shareholders and the Parent contained herein and in the certificates of
the Shareholders and the Parent to be delivered at the Closing, and the right of
any Person to initiate a claim under Article VIII, shall expire and be
terminated and extinguished.***** Following the appropriate expiration date for
any representation or warranty referred to in the previous sentence, except as
provided in Sections 8.5 and 9.5, no party shall have any
43
<PAGE> 49
liability whatsoever with respect to any such referenced representation or
warranty or any other claim under Article VIII except with respect to claims
previously asserted pursuant to Article VIII or IX hereof.
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes. Except for requests for injunctive relief,
specific performance or enforcement of the award of an arbitrator, all disputes
arising in connection with this Agreement shall be resolved by binding
arbitration in accordance with the applicable rules of the American Arbitration
Association. The arbitration shall be held, in the State of New York if a
Shareholder has initiated such arbitration or in the State of California if
Parent initiates such arbitration, before a single arbitrator selected in
accordance with Section 12 of the American Arbitration Association Commercial
Arbitration Rules who shall have substantial business experience in the
investment advisory industry, and shall otherwise be conducted in accordance
with such association's Commercial Arbitration Rules. The award of such
arbitrator shall be enforceable in any court having jurisdiction over the
parties to such arbitration.
Section 11.2. Amendments; Extension; Waiver. Subject to compliance
with Applicable Law, this Agreement may be amended, altered or modified by
written instrument executed by each of the parties hereto: provided, however,
that the Company (prior to the Closing) or the Shareholders (after the Closing)
may waive in writing the performance by the Parent, Newco or the LLC of any of
its representations, warranties, covenants or other agreements and that the
Parent may waive in writing the performance by any of the Shareholders or the
Company of any of its representations, warranties, covenants or other agreements
and that any party may waive any of the conditions to its obligations to close
the transactions contemplated hereby.
Section 11.3. Entire Agreement. This Agreement (including Schedules,
certificates and lists referred to herein, and any documents executed by the
parties simultaneously herewith or pursuant hereto) and the Related Agreements
constitutes the entire understanding and agreement of the parties hereto, except
as provided herein, and supersedes all prior agreements and understandings,
written and oral, among the parties with respect to the subject matter hereof.
Section 11.4. Specific Performance; Injunctive Relief. Each party
understands and agrees that it will be irreparably damaged in the event this
Agreement is not specifically enforced. Each party, therefore, agrees that in
the event of a breach of any material provision of this Agreement, the aggrieved
party may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific
44
<PAGE> 50
performance or to enjoin the continuing breach of this Agreement. Such remedies
shall, however, be cumulative and not exclusive, and shall, except as provided
in Section 8.9, be in addition to any other remedy which a party may have.
Section 11.5. Interpretation. When a reference is made in this
Agreement to a Section, Exhibit, Annex or Schedule, such reference shall be to a
Section of or Exhibit, Annex or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the words "to the knowledge of" a
specified Person or terms of similar import, are used in this Agreement, they
shall be deemed to be followed by the words "and after due inquiry by the
officers of" such Person. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms and the singular form of nouns and pronouns shall include the plural and
vice versa. The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement.
Section 11.6. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 11.7. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if (a) delivered in
person, (b) transmitted by telecopy (with confirmation), (c) mailed by certified
or registered mail (return receipt requested) or (d) delivered by an express
courier (with confirmation) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Parent or Newco:
Asset Alliance Corporation
800 Third Avenue
New York, New York 10022
Telecopy: (212) 207-8785
Attention: Bruce Lipnick, President
45
<PAGE> 51
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Richard T. Prins, Esq.
If to the Shareholders or the Company:
Bricoleur Capital Management LLC
8910 University Center Lane
San Diego, California 92122
Telecopy: (619) 597-1708
Attention: Daniel P. Wimsatt
With a copy to:
Howard, Rice, Nemerovski, Canady, Falk &
Rabkin, A Professional Corporation
Three Embarcadero Center, 7th Floor
San Francisco, California 94111
Telecopy: (415) 399-3041
Attention: Mark D. Whatley
If to the LLC:
Bricoleur Capital Management LLC
8910 University Center Lane
San Diego, California 92122
Telecopy: (619) 597-1708
Attention: Daniel P. Wimsatt
With a copy to:
Asset Alliance Corporation
800 Third Avenue
New York, New York 10022
Telecopy: (212) 207-8785
Attention: Bruce Lipnick, President
Section 11.8. Binding Effect; Persons Benefitting; No Assignment.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and the
46
<PAGE> 52
respective heirs, legal representatives, estates, executors, successors and
permitted assigns of the parties and such persons. Nothing in this Agreement is
intended or shall be construed to confer upon any entity or person other than
the parties hereto and their respective heirs, legal representatives, estates,
executors, successors and permitted assigns any right, remedy or claim under or
by reason of their Agreement or any part hereof. Without the prior written
consent of each of the other parties hereto, this Agreement may not be assigned
by any of the parties hereto. Notwithstanding the foregoing, the Parent may
assign to any Affiliate of the Parent all or any portion of the Parent's rights
hereunder whether prior to or after the Parent exercises such right, provided
that in the event of any such assignment such assignee shall be deemed to have
all of the rights and obligations of the Parent set forth herein. No assignment
shall release the Parent from any liability or obligation under this Agreement
Section 11.9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same agreement, it being understood
that all of the parties need not sign the same counterpart.
Section 11.10. Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS
BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, SHALL BE
GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF.
Section 11.11. Jurisdiction. Subject to Section 11.1 hereof, each of
the parties hereto agrees to personal jurisdiction in any action brought in any
court, federal or state, within the state of California, Delaware or New York
having subject matter jurisdiction over matters arising under this Agreement.
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<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ASSET ALLIANCE CORPORATION BRICOLEUR CAPITAL
MANAGEMENT INC.
By: /s/ Bruce H. Lipnick By: /s/ Daniel P. Wimsatt
- ------------------------------------- --------------------------------------
Name: Bruce H. Lipnick Name: Daniel P. Wimsatt
Title: President and Chief Executive Title: Chief Operating Officer and
Officer Chief Investment Officer
ASSET ALLIANCE BRICOLEUR BRICOLEUR CAPITAL
MERGER CO. INC. MANAGEMENT, LLC
By: /s/ Bruce H. Lipnick By: /s/ Bruce H. Lipnick
- ------------------------------------- ---------------------------------------
Name: Bruce H. Lipnick Name: Bruce H. Lipnick
Title: President and Chief Executive Title: President and Chief
Officer Executive Officer
/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
48
<PAGE> 1
EXHIBIT 2.2
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
STOCK PURCHASE AGREEMENT
among
ASSET ALLIANCE CORPORATION,
ASSET ALLIANCE HOLDING CORP.
and
THE SHAREHOLDERS OF
MILESTONE INVESTMENT GROUP INC.
-----------------------------------
Dated as of July 8, 1996
<PAGE> 2
TABLE OF CONTENTS
STOCK PURCHASE AGREEMENT.....................................................1
SUMMARY OF TRANSACTION.......................................................1
ARTICLE I..............................................................1
SALE OF STOCK AND TERMS OF PAYMENT...............................1
1.01 The Sale.............................................1
1.02 Consideration.........................................1
ARTICLE II.............................................................3
REPRESENTATIONS AND WARRANTIES OF SELLERS .......................3
2.01 Organization; Qualification..........................3
2.02 Capitalization.......................................3
2.03 Title to Stock.......................................3
2.04 Investments..........................................3
2.05 Authority Relative to this Agreement.................4
2.06 Consents and Approvals; No Violation.................4
2.07 Financial Statements.................................4
2.08 Undisclosed Liabilities..............................4
2.09 Title and Condition of Assets........................5
2.10 No Real Property.....................................5
2.11 Certain Contracts and Arrangements...................5
2.12 Legal Proceedings, Etc...............................5
2.13 Taxes................................................6
2.14 Compliance with Law..................................6
2.15 Full Disclosure......................................6
ARTICLE III............................................................7
REPRESENTATIONS AND WARRANTIES OF BUYER..........................7
3.01 Organization.........................................7
3.02 Authority Relative to this Agreement.................7
3.04 Acquisition of Stock for Investment..................7
i
<PAGE> 3
ARTICLE IV.............................................................7
THE CLOSING AND CERTAIN CLOSING DELIVERIES.......................7
4.01 Time and Place of Closing............................7
4.02 Deliveries by Sellers................................7
4.03 Deliveries by Buyer..................................8
ARTICLE V..............................................................8
POST-CLOSING COVENANTS...........................................8
5.01 Expenses.............................................8
5.02 Further Assurances...................................8
5.03 Indemnification......................................9
ARTICLE VI ............................................................9
MISCELLANEOUS PROVISIONS.........................................9
6.01 Amendment and Modification...........................9
6.02 Waiver of Compliance.................................9
6.03 Survival.............................................9
6.04 Notices.............................................10
6.05 Assignment..........................................10
6.06 Governing Law.......................................10
6.07 Suits in New York...................................11
6.08 Counterparts........................................11
6.09 Entire Agreement....................................11
-----------------------------------
ii
<PAGE> 4
EXHIBITS AND SCHEDULES
Page and Section
Exhibits Description Reference
- -------- ----------- ----------------
A Stock Ownership 1 [ss.1.01]
B Gross Revenue Targets 1 [ss.1.02(b)]
Page and Section
Schedules Description Reference
- --------- ----------- ----------------
2.07 Financial Statements 4 [ss.2.07]
2.11 Certain Contracts 4 [ss.2.11]
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of July 8, 1996, among Bruce H.
Lipnick and Arnold L. Mintz (collectively "Sellers" and each individually a
"Seller"), Asset Alliance Corporation, a Delaware corporation ("AAC"), and Asset
Alliance Holding Corp., a Delaware corporation ("Buyer").
SUMMARY OF TRANSACTION
Buyer owns 50% of the issued and outstanding shares of capital stock
of Milestone Investment Group Inc., a Delaware corporation (the "Company"), and
Sellers own 50% of the issued and outstanding shares of capital stock of the
Company. Buyer desires to purchase, and Sellers desire to sell, all 300 of the
shares of the Company's common stock, $.01 par value ("Common Stock") held by
Sellers, upon the terms and subject to the satisfaction of the conditions set
forth in this Agreement.
To effect such transaction and in consideration of the mutual
covenants, representations, warranties and agreements hereinafter set forth, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE OF STOCK AND TERMS OF PAYMENT
1.01 The Sale. Upon the terms and subject to the satisfaction of the
conditions contained in this Agreement, at the Closing (as hereinafter defined)
each Seller will sell, assign, transfer and deliver to Buyer, and Buyer will
purchase and acquire from each Seller, the number of shares of Common Stock (the
"Purchase Shares") set forth opposite each Seller's name on Exhibit A hereto.
1.02 Consideration. (a) Upon the terms and subject to the
satisfaction of the conditions contained in this Agreement, in consideration of
the aforesaid sale, assignment, transfer and delivery of the Purchase Shares,
Buyer will pay to Sellers an aggregate purchase price of $637,500 (the "Purchase
Price") plus any Earn-Out payments made pursuant to subparagraph (b) hereof plus
any options issued pursuant to subparagraph (c) hereof. Bruce H. Lipnick
("Lipnick") shall receive eighty percent (80%) of the Purchase Price ($510,000)
and of any Earn-Out payments under subparagraph (b) hereof, and Arnold L. Mintz
shall receive twenty percent (20%) of the Purchase Price ($127,500) and of any
Earn- Out payments under subparagraph (b) hereof. In addition, within 45 days
after the Closing, Buyer shall pay to the Sole Stockholders an aggregate of
$22,975 (representing the Company's cash capital account in the Partnership, as
hereinafter defined) in such proportions and in such manner as the Sole
Stockholders shall designate in writing to Buyer.
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(b) Earn-Out Payments. In the event that the Company's aggregate
gross revenues (without deduction for any liabilities, obligations, costs,
expenses, accruals or reserves of the Company) for the period from the date
hereof through December 31, 1996 and for calendar years 1997 and 1998 exceed the
gross revenue targets for such periods reflected in Exhibit B hereto (for each
such period, the "Target Revenue Amount"), Buyer shall make Earn-Out payments
under this subparagraph (b) to Sellers (80% to Lipnick and 20% to Mintz),
promptly after the Company receives its year-end financial statements for each
such period, in an aggregate amount equal to one-half of the amount by which the
Company's gross revenues for each such period exceeds the Target Revenue Amount
for such period (provided that if and when the aggregate of all revenues
relating to any such period that are actually received in cash by the Company
during such period on a non-refundable basis exceeds the Target Revenue Amount
for such period then the Company shall during the remainder of such period pay
to Sellers their one-half share of the excess of such actually received revenues
over the Target Revenue Amount on a monthly basis through the end of such
period, with these payments to be adjusted and an adjusting payment made after
receipt of the year-end financial statements for such period). Notwithstanding
the foregoing, the maximum aggregate amount of all Earn-Out payments that Buyer
shall be obligated to make to Sellers under this Section 1.02(b) shall not
exceed $637,500. (c) AAC Stock Options. In connection with the Sellers' sale of
the Purchase Shares to Buyer and as additional consideration therefor, Buyer
agrees that each of the Sellers will be granted a contractual right to receive
ten-year options ("Options") to purchase shares of AAC's Common Stock, par value
$.01 per share ("AAC Common Stock") covering such number of shares as shall be
determined as hereinafter contemplated by reference to the increases in the
Company's gross revenues with respect to each calendar year commencing with 1996
and continuing each year thereafter (the "Relevant Years") over the Baseline
Amount. For such purpose, the "Baseline Amount" shall mean the greater of (a)
$637,500 (the "Initial Baseline Amount"), or (b) the Company's greatest amount
of revenues generated in any single prior Relevant Year. After receipt of
financial statements of the Company for each of the Relevant Years, if the gross
revenues of the Company in such Relevant Year exceed the Baseline Amount (the
amount by which such gross revenues exceed the Baseline Amount being referred to
as the "Revenue Increase"), then the Sellers shall receive Options (two-thirds
of which shall be issued to Lipnick and one-third of which shall be issued to
Mintz) to purchase such number of shares of AAC Common Stock as are determined
by multiplying the Revenue Increase by 0.25 and dividing the resulting amount by
the then applicable Option exercise price (as hereafter described).
Notwithstanding the foregoing, the Sellers shall receive no additional Options
with respect to Revenue Increases which relate to revenues in any Relevant Year
which exceed two times the Initial Baseline Amount. The exercise price of any of
the Options issued prior to completion of an underwritten initial public
offering of AAC Common Stock (the "IPO") shall be equal to $7.50 per share,
provided, however, that if the IPO thereafter occurs at an offering price per
share (the "Offering Price") other than $15, the exercise price of such Options
shall be adjusted to equal one half (1/2) of the Offering Price). Options
granted by AAC after the IPO shall have an exercise price equal to the market
price of AAC's Common Stock on the date of grant. AAC agrees to issue Options to
the Sellers in accordance with the foregoing provisions in satisfaction of
Buyer's obligation to deliver such Options hereunder.
ARTICLE II
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<PAGE> 7
REPRESENTATIONS AND WARRANTIES
OF SELLERS
As an inducement to Buyer to enter into this Agreement, each Seller
jointly and severally represents and warrants to Buyer that as of the date
hereof.
2.01 Organization; Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now conducted.
The Company is qualified or registered as a foreign corporation in each of the
jurisdictions in which it conducts business.
2.02 Capitalization. The total authorized capital stock of the
Company consists of 3,000 shares of Common Stock, of which 600 shares are issued
and outstanding. Each Seller represents as to himself that he owns beneficially
and of record such number of shares of Common Stock as are set forth opposite
his name in Exhibit A hereto. Other than this Agreement, there is no
subscription, option, warrant, call, right, agreement or commitment relating to
the issuance, sale, delivery or transfer (including any right of conversion or
exchange under any outstanding security or other instruments) by the Company, or
by any Seller, of the Common Stock or other capital stock of the Company. There
are no outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock of the Company.
2.03 Title to Stock. Each Seller represents as to himself that he
owns the shares of Common Stock listed opposite his name in Exhibit A hereto
free and clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims, options or limitations affecting his ability to vote such
shares or to transfer such shares to Buyer. At the Closing each Seller will
transfer, assign and deliver good title to such shares of Common Stock to Buyer,
free and clear of all pledges, security interests, liens, charges, encumbrances,
equities, claims, options or limits of whatever nature.
2.04 Investments. Except for a 99% limited partnership interest in
Milestone Global Advisors L.P., a Delaware limited partnership (the
"Partnership"), the Company has no equity or similar investments, directly or
indirectly, in or with any subsidiary, corporation, partnership, association,
joint venture or other entity. Except as described in the Amended and Restated
Agreement of Limited Partnership of the Partnership, such investment in the
Partnership (i) is not subject to any restriction (contractual, statutory or
otherwise) which would impair the Company's ability to dispose of such
investment at any time, and (ii) is owned free and clear of any lien, claim,
charge, pledge, security interest, option or other legal or equitable
encumbrance.
2.05 Authority Relative to this Agreement. Each Seller represents
and warrants, as to himself, (a) that he has full legal power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, and (b) that this Agreement has been duly and validly
executed and delivered by such Seller and constitutes a valid and binding
obligation of such Seller, enforceable against him in accordance with its terms.
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2.06 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by Sellers, the sale by Sellers of the Purchase
Shares pursuant to this Agreement nor the consummation of the transactions
contemplated by this Agreement will (a) conflict with or result in any breach of
any provision of the Certificate of Incorporation or By-Laws (or other similar
governing documents) of the Company, (b) require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority other than those that have been made or obtained; (c)
result in a default (or give rise to any right of termination, cancellation or
acceleration) under the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which the Company is a party or by which the Company or any of its assets may be
bound; (d) result in the creation of any encumbrance, security interest, equity
or right of others upon any of the properties or assets of the Company or under
the terms, conditions or provisions of any agreement, instrument or obligation
to which the Company or any of its assets may be bound or affected; or (e)
violate any order, writ, injunction, decree, law, statute, rule or regulation
applicable to the Sellers or the Company or any of its assets.
2.07 Financial Statements. Sellers have previously furnished to
Buyer the financial information and statements attached hereto as Schedule 2.07
(collectively referred to hereinafter as the "Financial Statements"). The
balance sheets included in the Financial Statements (including the related notes
thereto) present fairly the financial position of the Company or of Milestone
Plus Partners L.P., as the case may be, as of their respective dates, and the
related income statements included in the Financial Statements (including the
related notes thereto) present fairly the gross revenues or the results of
operations of the Company or of Milestone Plus Partners L.P., as the case may
be, for the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis, except as otherwise noted
therein.
2.08 Undisclosed Liabilities. Neither the Company nor the
Partnership has any liabilities or obligations, secured or unsecured (whether
absolute, accrued, contingent or otherwise, and whether due or to become due),
which are not fully reflected or reserved against in the Financial Statements,
except those which have been incurred in the ordinary course of business since
the date thereof, and neither of the Sellers know of any basis for any claim
against the Company or the Partnership of any liability or obligation of such
nature not fully reflected or reserved against in the Financial Statements.
2.09 Title and Condition of Assets. The Company and the Partnership
each has good and marketable title to all of the properties and assets which it
purports to own, including, without limitation, the properties reflected in the
Financial Statements (other than those which have been disposed of since the
date of the Financial Statements in the ordinary course of business consistent
with the practices of the Company or the Partnership in the last fiscal year),
free and clear of all liabilities, obligations, mortgages, security interests,
liens, claims, charges, title defects or other encumbrances.
2.10 No Real Property. Neither the Partnership nor the Company owns
or leases any real property.
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<PAGE> 9
2.11 Certain Contracts and Arrangements. Except as listed in
Schedule 2.11 hereto or as reflected in the Financial Statements, neither the
Company nor the Partnership is a party to or bound by any written or oral: (a)
employment, consulting, compensation or similar agreement or understanding which
is not terminable at will by the Company or the Partnership, as the case may be,
(without penalty or liability on the part of the Company or the Partnership) on
30 or fewer days' notice; (b) indenture, mortgage, note, installment obligation,
agreement or other instrument relating to the borrowing of money in excess of
$1000 in any one case or $5,000 in the aggregate by the Company or the
Partnership or the guaranty of any obligation for the borrowing of money in
excess of $1000 in any one case or $5,000 in the aggregate by the Company or the
Partnership; or (c) agreement which (i) is not terminable by the Company or the
Partnership on 30 or fewer days' notice at any time without penalty, (ii) has a
remaining term, as of the date of this Agreement, of over one year in length of
obligation on the part of the Company or the Partnership; or (iii) involves the
receipt or payment by the Company or the Partnership on or after the date hereof
of more than $5,000. There is not, under any of the aforesaid obligations, any
default or event which, with notice or lapse of time, or both, would constitute
a default on the part of the Company or the Partnership, except such events of
default and other events as to which requisite waivers or consents have been
obtained or which would not, in the aggregate, have a material adverse effect on
the business, results of operations or financial condition of the Company or the
Partnership. Neither the Company nor the Partnership has any employees or
consultants.
2.12 Legal Proceedings, Etc. There is no claim, action, proceeding
or investigation which is pending or, to the best of Sellers' knowledge, any
basis for or any threatened claim, action, proceeding or investigation, against
or relating to the Company or the Partnership before any court, arbitrator or
governmental or regulatory authority or body acting in an investigative or
adjudicative capacity and neither the Company nor the Partnership is subject to
any outstanding order, writ, injunction or decree which adversely affects the
business, operations or financial condition of the Company or the Partnership.
2.13 Taxes.
(a) (i) All Tax Returns (as hereinafter defined) required to be
filed on or before the Closing Date have been filed by or on behalf of the
Company and all Taxes (as hereinafter defined) shown to be due on such Tax
Returns have been paid or provided for in full; (ii) all accruals or reserves
for Taxes reflected in the Financial Statements are adequate to cover Taxes
accruing with respect to or payable by the Company through the date thereof and
the Company has not incurred or accrued any liability for Taxes subsequent to
the periods covered by such Financial Statements other than in the ordinary
course of business; (iii) all Tax Returns filed or required to be filed on or
before the Closing by the Company are or will be true, correct and complete in
all material respects; (iv) no Tax Return of the Company has been audited by the
relevant authorities, and the Company has not received any notice that any Tax
Return is under examination; (v) no extension of the statute of limitations with
respect to any claim for Taxes has been granted by the Company; and (vi) there
are no liens for Taxes upon the assets of the Company except liens for Taxes not
yet due.
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<PAGE> 10
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, excise, property, sales, transfer, gains,
use, value added, withholding, license, occupation, privileges, payroll and
franchise taxes, imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof; and such term shall include any
interest, penalties or additions to tax attributable to such assessments. For
purposes of this Agreement, the term "Tax Return" shall mean any report,
statement, return or other information required to be supplied by the Company to
a taxing authority in connection with Taxes.
2.14 Compliance with Law. The Company and the Partnership have each
conducted their business in compliance with, and are in compliance with, all
applicable foreign, federal, state and local laws and regulations and all
orders, judgments, decrees or rules of any foreign, federal or state court or
governmental authority, or regulatory agency or authority.
2.15 Full Disclosure. All information furnished in the Schedules
hereto is correct and complete in all respects. No representation or warranty of
any Seller and no information, Schedule or certificate furnished or to be
furnished by or on behalf of any Seller to Buyer, its affiliates or its agents
pursuant to or in connection with this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statement contained herein or therein not
misleading.
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<PAGE> 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
3.01 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now conducted.
3.02 Authority Relative to this Agreement. Buyer has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by requisite corporate action taken on the part of Buyer and
no other corporate proceedings on the part of Buyer are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms.
3.04 Acquisition of Stock for Investment. Buyer is acquiring the
shares of Common Stock for investment and not with a view toward, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling such shares of Common Stock. Buyer agrees that such
shares of Common Stock may not be sold, transferred, offered for sale, pledged,
hypothecated or otherwise disposed of without registration under the Securities
Act of 1933, as amended, except pursuant to an exemption from registration
available under such Act.
ARTICLE IV
THE CLOSING AND CERTAIN CLOSING DELIVERIES
4.01 Time and Place of Closing. Upon the terms and subject to
satisfaction or waiver of the conditions contained in this Agreement, the
closing of the transactions contemplated by this Agreement (the "Closing") is
subject in all respects to and will take place simultaneously with (or as
promptly as practical after) the closing of the transactions contemplated by the
Securities Purchase Agreement dated the date hereof among AAC, the Sellers and
AJG Financial Services, Inc. The effective time of the Closing is hereinafter
referred to as the "Closing Date".
4.02 Deliveries by Sellers. At the Closing, Sellers will deliver to
Buyer the following:
(a) One or more stock certificates representing all of the Purchase
Shares, accompanied by stock powers duly executed in blank or duly executed
instruments of transfer and any other documents that are necessary to transfer
to Buyer good and marketable title to the Purchase Shares;
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<PAGE> 12
(b) The stock books, stock ledger, minute books and corporate seal
of the Company; and
(c) All other documents, instruments and writings required to be
delivered by Sellers pursuant to this Agreement or otherwise required in
connection herewith.
4.03 Deliveries by Buyer. At the Closing, Buyer will deliver the
following to or for the account of Sellers:
(a) The Purchase Price to be paid to Sellers at Closing as
contemplated by Section 1.03(a) by wire transfer in immediately available funds;
and
(b) All other documents, instruments and writings required to be
delivered by Buyer pursuant to this Agreement or otherwise required in
connection herewith.
ARTICLE V
POST-CLOSING COVENANTS
5.01 Expenses. Except as otherwise provided herein, Sellers and
Buyer shall each bear their own costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby. Specifically,
acquisition-related expenses will be paid by the party for whose benefit the
expenses were incurred and not by the Company.
5.02 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use all reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the sale of the Purchase Shares and the other
transactions contemplated by this Agreement. From time to time after the date
hereof Sellers will, at their own expense and without further consideration,
execute and deliver such documents to Buyer as Buyer may reasonably request in
order more effectively to vest in Buyer good title to the Purchase Shares and to
more effectively consummate the transactions contemplated by this Agreement.
5.03 Indemnification.
(a) Sellers jointly and severally agree to save, defend and
indemnify Buyer against and hold it harmless from any and all claims,
liabilities, losses, costs and expenses, of every kind, nature and description,
fixed or contingent (including, without limitation, counsel's fees and expenses
in connection with any action, claim or proceeding relating thereto or seeking
enforcement of Sellers' obligations hereunder) ("Losses"), arising out of any
breach of any representation, warranty, covenant or agreement made by Sellers
under this Agreement.
8
<PAGE> 13
(b) Buyer agrees to save, defend and indemnify Sellers against and
hold them harmless from any and all claims, liabilities, losses, costs and
expenses, of every kind, nature and description, fixed or contingent (including,
without limitation, counsel's fees and expenses in connection with any action,
claim or proceeding relating thereto), arising out of any breach of any
representation, warranty, covenant or agreement made by Buyer under this
Agreement.
(c) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a written instrument executed by all of Sellers
and Buyer.
6.02 Waiver 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 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.
6.03 Survival. 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. Neither party will, however,
have any liability to the other arising out of the breach of any representation
or warranty contained in Article II or III hereof unless the party claiming that
such breach occurred delivers to the other parties written notice and a
reasonably full explanation of the alleged breach on or before the second
anniversary of the date of this Agreement.
6.04 Notices. 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):
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<PAGE> 14
(a) if to any of Sellers, at such
person's address as set forth on the
signature pages hereof;
(b) if to Buyer or AAC to:
Asset Alliance Holding Corp.
90 Broad Street
New York, New York 10005
Attention: Mr. Bruce H. Lipnick
Telecopier No.: 212-480-4149
with a copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Attention: James E. Abbott, Esq.
Telecopier No.: 212-732-3232
6.05 Assignment. 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 Buyer to an
affiliate of Buyer or to any party which purchases all of the capital stock or
substantially all of the assets of the Company or any successor to the business
of the Company, which may be made without any such consents). Any purported
assignment in violation of the provisions hereof shall be void.
6.06 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, as to all matters, including but not limited to matters of validity,
construction, effect, performance and remedies.
6.07 Suits in New York. The parties agree that any action or
proceeding relating in any way to this Agreement or the transactions
contemplated hereby shall, if Buyer so elects, 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 in any such
proceeding commenced in or removed to such courts.
6.08 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> 15
6.09 Entire Agreement. This Agreement including the schedules,
exhibits, documents, certificates and instruments referred to herein embody the
entire agreement and understanding of the parties hereto in respect of the
transactions contemplated hereby and supersede all prior agreements and
understandings between the parties with respect thereto.
IN WITNESS WHEREOF, Sellers have executed this Agreement and Buyer
and AAC have each caused this Agreement to be executed by its duly authorized
officer, each as of the date first above written.
BUYER:
ASSET ALLIANCE HOLDING CORP.
By: /s/ Arnold L. Mintz
-------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
SELLERS:
/s/ Bruce H. Lipnick
-----------------------------------
Name: Bruce H. 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, Apr. 27G
New York, New York 10028
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As to Section 1.02(c) Only:
ASSET ALLIANCE CORPORATION
By: /s/ Arnold L. Mintz
-------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
12
<PAGE> 1
EXHIBIT 2.3
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
=====================================================================
PURCHASE AGREEMENT
by and among
ASSET ALLIANCE CORPORATION
JMG CAPITAL MANAGEMENT LLC
PACIFIC ASSETS MANAGEMENT LLC
JMG CAPITAL MANAGEMENT, INC.
PACIFIC CAPITAL MANAGEMENT, INC.
JONATHAN GLASER
ROGER RICHTER
and
DANIEL DAVID
Dated as of: March 26, 1998
=====================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions...........................................1
ARTICLE II.
RELATED TRANSACTIONS
Section 2.1. Qualification of LLC..................................7
Section 2.2. Employment Agreements.................................7
Section 2.3. Transfer of Assets to LLCs............................7
Section 2.4. LLC Agreements........................................8
ARTICLE III.
PURCHASE AND SALE; CLOSING; RELATED MATTERS
Section 3.1. Purchase and Sale.....................................8
Section 3.2. Purchase Price........................................9
Section 3.3. The Closing..........................................12
Section 3.4. Further Actions......................................12
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE ADVISORS AND EQUITYHOLDERS
Section 4.1. Organization and Related Matters.....................13
Section 4.2. Authority; No Violation; Consents....................13
Section 4.3. Assets Under Management..............................14
Section 4.4. Financial Statements.................................15
Section 4.5. Compliance with Applicable Law.......................16
Section 4.6. Books and Records....................................17
Section 4.7. Ineligible Persons...................................17
Section 4.8. Company Assets.......................................17
Section 4.9. Company Contracts....................................18
Section 4.10. Technology and Intellectual Property................18
Section 4.11. Legal Proceedings...................................18
Section 4.12. Taxes and Tax Returns...............................19
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Section 4.13. Insurance...........................................20
Section 4.14. Labor and Employment Matters........................20
Section 4.15. Benefit Plan Obligations............................21
Section 4.16. No Broker...........................................22
Section 4.17. Absence of Changes..................................22
Section 4.18. The Equityholders...................................22
Section 4.19. Additional Representations Regarding
Pooled Products ....................................23
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE PARENT
Section 5.1. Organization.........................................24
Section 5.2. Authority; No Violation; Consents....................24
Section 5.3. No Actions, Suits or Proceedings.....................25
Section 5.4. Financial Statements.................................25
Section 5.5. Capitalization.......................................26
Section 5.6. Stockholders.........................................26
Section 5.7. Financing............................................26
Section 5.8. Compliance with Applicable Law.......................27
Section 5.9. Eligibility..........................................27
Section 5.10. No Broker...........................................27
ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business..................................28
Section 6.2. Advisory Contract Consents and Approvals and
Other Actions .......................................29
Section 6.3. Confidentiality and Announcements....................30
Section 6.4. Expenses.............................................30
Section 6.5. Release of Each Advisor..............................30
Section 6.6. Covenants of the Parent..............................30
Section 6.7. Access; Certain Communications.......................31
Section 6.8. Regulatory Matters; Third Party Consents.............31
Section 6.9. Insurance............................................31
Section 6.10. Notification of Certain Matters.....................31
Section 6.11. No Solicitation.....................................32
Section 6.12. Lockup Agreements...................................32
Section 6.13. Standstill..........................................32
Section 6.14. Noncompetition Agreements...........................33
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ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's Obligations...............33
Section 7.2. Conditions to the Equityholders' and
Advisor's Obligations ...............................35
Section 7.3. Mutual Condition.....................................36
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders......................37
Section 8.2. Obligations of the Parent............................37
Section 8.3. Procedure............................................37
Section 8.4. Notice of Non-Third Party Claims.....................39
Section 8.5. Survival of Indemnity................................39
Section 8.6. Reserved.............................................40
Section 8.7. Limitation on Indemnification........................40
Section 8.8. Purchase Price Adjustment............................40
Section 8.9. Exclusive Remedy.....................................41
ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation......................................41
Section 9.2. Tax Returns..........................................41
Section 9.3. Liability for Taxes..................................42
Section 9.4. Procedures Related to Tax Claims.....................42
Section 9.5. Survival of Tax Claims and Section 4.12
Representation ......................................43
Section 9.6. Exclusive Remedy.....................................43
Section 9.7. Payments for Indemnification under Article IX........43
Section 9.8. Code Section 754 Election............................43
Section 9.9. Interim Closing of the Books.........................43
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination.........................................43
Section 10.2. Effect of Termination...............................44
Section 10.3. Survival of Representations and Warranties..........45
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ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes............................................45
Section 11.2. Amendments; Extension; Waiver.......................45
Section 11.3. Entire Agreement....................................46
Section 11.4. Specific Performance; Injunctive Relief.............46
Section 11.5. Interpretation......................................46
Section 11.6. Severability........................................46
Section 11.7. Notices.............................................46
Section 11.8. Binding Effect; Persons Benefitting; No Assignment..48
Section 11.9. Counterparts........................................49
Section 11.10. Governing Law......................................49
Section 11.11. Jurisdiction.......................................49
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 26, 1998 (this "Agreement"),
by and among Asset Alliance Corporation, a Delaware corporation (the "Parent"),
JMG Capital Management LLC, a Delaware limited liability company ("LLC-1"),
Pacific Assets Management LLC, a Delaware limited liability company ("LLC-2"),
JMG Capital Management, Inc., a California corporation ("JMG"), Pacific Capital
Management, Inc., a Delaware corporation ("Pacific" and, together with JMG, the
"Advisors"), Jonathan Glaser ("Glaser"), Roger Richter ("Richter") and Daniel
David ("David" and, collectively with Glaser and Richter, the "Equityholders").
RECITALS:
WHEREAS, Glaser owns all of the outstanding capital stock of JMG and
the Equityholders own all of the outstanding capital stock of Pacific;
WHEREAS, Glaser and JMG wish to transfer substantially all of the
business, assets and goodwill of JMG to LLC-1 and the Equityholders and Pacific
wish to transfer substantially all of the business, assets and goodwill of
Pacific to LLC-2 in exchange for all of the membership interests therein on the
terms and conditions and for the consideration described in this Agreement; and
WHEREAS, the Advisors desire to sell to Parent and Parent desires to
purchase from the Advisors a membership interest in each of LLC-1 and LLC-2;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
the parties contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions.
(a) For all purposes in this Agreement, the following terms shall
have the respective meanings set forth in this Section 1.1 (such
definitions to be equally applicable to both the singular and plural forms
of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC thereunder.
"Affiliate" means any corporation, partnership, entity or other
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the Person specified.
<PAGE> 7
"Applicable Law" means any statute, law, ordinance, rule, public
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority applicable
to any Person or any of its properties, assets, officers, directors, employees
or agents.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banks in the City of New York are generally closed for regular
banking business.
"Closing" means the completion of the transactions contemplated by
Sections 2.3 and 3.1 of this Agreement and the effectiveness of the Agreements
contemplated in Sections 2.2 and 2.4 of this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Assets" means all assets of the Advisors as of the date
hereof or as of the Closing, as applicable, including, but not limited to, the
Company Contracts, Furniture, Fixtures and Equipment, Intellectual Property,
Leased Properties, Real Property, Records, Software and any other material
assets of the Advisors.
"Company Contract" means any written investment advisory agreement
or partnership agreement to which any Advisor is a party and any Lease, license
or other agreement relating to the use by any Advisor of any Furniture, Fixtures
and Equipment, Intellectual Property, Software and Technology Systems, and all
rights and interests of any Advisor arising thereunder or in connection
therewith.
"Encumbrance" means any lien, pledge, security interest, claim,
charge, easement, limitation, commitment, encroachment, restriction or
encumbrance of any kind or nature whatsoever.
"Equity Securities" means capital stock, partner interests or other
equity interests of any Person or any securities convertible into or
exchangeable for capital stock or other equity interests or any other rights,
warrants or options to acquire any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Free Cash" means the excess of cash and cash equivalents over
unpaid Operating Expenses (as defined in the LLC Agreements) and Capital
Expenditures (as defined in the LLC Agreements) accrued as of the Closing.
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<PAGE> 8
"Furniture, Fixtures and Equipment" means all furniture, fixtures
and equipment that are located in the ordinary course at any Operating Site.
"GAAP" means, with respect to any Person, generally accepted
accounting principles as used in the United States of America as in effect at
the time any applicable financial statements were prepared or any act requiring
the application of GAAP was performed, applied on a consistent basis.
"Governmental Authority" means any nation, state, territory,
province, county, city or other unit or subdivision thereof or any entity,
authority, agency, department, board, commission, instrumentality, court or
other judicial body authorized on behalf of any of the foregoing to exercise
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any governmental or non-governmental self-regulatory
organization of which any party hereto is a member.
"Immediate Family" means, with respect to any individual, such
individual's spouse, parents and children (and estates, trusts, partnerships and
other entities and legal relationships of which a substantial majority in
interest of the beneficiaries, members, owners, investors or participants at all
times in question are, directly or indirectly, one or more of the Persons
described above and/or such individual).
"Indemnifiable Claim" means any Loss for which a Person is entitled
to indemnification under this Agreement.
"Indemnified Party" means a Person entitled to the benefits of
indemnification hereunder.
"Indemnifying Party" means a Person obligated to provide
indemnification hereunder.
"Intellectual Property" means all domestic and foreign letters
patent, patents, software, know-how, trade names, common law and other
trademarks, service marks, copyright registrations and applications and state or
federal common law usages, and all registrations or applications for
registration of any of the foregoing.
"Investment Company Act" means the Investment Company Act of 1940,
as amended, and all rules and regulations of the SEC thereunder.
"IPO" means the issuance of shares of Parent Common Stock to the
public pursuant to a "firm commitment" underwritten offering registered with the
SEC.
"IRS" means the United States Internal Revenue Service.
"Lease" means any of the real estate leases or subleases, or a
sublease of any Advisor with respect to any Operating Site.
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<PAGE> 9
"Leased Properties" means all leasehold interests of any Advisor in
real property.
"Loss" means any and all claims, losses, liabilities, costs,
penalties, fines and expenses (including reasonable attorney's, accountant's,
consultant's and expert's fees and expenses), damages, obligations to third
parties, expenditures, proceedings, judgments, awards or demands that are
imposed upon or otherwise incurred or suffered by the relevant Person, in each
case without regard to the receipt of any insurance policy proceeds or any
adverse insurance consequences.
"Membership Interest" means, with respect to LLC-1 or LLC-2, the
limited liability company interest of a member of such LLC at any particular
time, including any and all rights and benefits to which such member is entitled
under the LLC Agreement relating to such LLC and the Delaware Limited Liability
Company Act, together with the obligations of such member under such LLC
Agreement and such Act.
"Operating Sites" means all offices at which any Advisor conducts
business.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Parent Convertible Debentures, Series A" means the Series A
Subordinated Convertible Debentures substantially in the form attached hereto as
Exhibit 2.4(a).
"Parent Convertible Debentures, Series B" means the Series B
Subordinated Convertible Debentures substantially in the form attached hereto as
Exhibit 2.4(b).
"Parent Convertible Debentures" means the Parent Convertible
Debentures, Series A and the Parent Convertible Debentures, Series B.
"Permitted Encumbrances" means all Encumbrances which are:
(1) Encumbrances set forth on Schedule 1.1(b);
(2) Taxes or assessments or other governmental charges that are not
yet due and payable or due and being contested in good faith by
appropriate proceedings;
(3) matters which would be shown on an accurate survey and any other
defect or exception which would be disclosed by a search of title, which
in each case does not materially impair the use, operation, value or
marketability of the Company Asset to which it relates;
(4) liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the Ordinary
Course of Business for
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<PAGE> 10
sums not yet due and payable or due and being contested in good faith by
appropriate proceedings, as set forth on Annex 1.1 hereto; or
(5) other liens on Company Assets which individually or in the
aggregate do not secure obligations in excess of $25,000 and other
imperfections of title which do not materially detract from the value of
or materially impair the existing use of the Company Assets affected by
such liens or imperfections.
"Person" means any individual, corporation, company, limited
liability company, partnership (limited or general), joint venture, association,
trust or other entity.
"Pooled Products" means each vehicle for collective investment (in
whatever form of organization, including in the form of a corporation, company,
limited liability company, partnership (limited or general), association, trust
or other entity and including each separate portfolio of any of the foregoing)
with respect to which any Advisor (in the case of representations in Article IV)
or an affiliate of the Parent (in the case of representations in Article V) acts
as the sponsor, general partner, managing member, investment manager, investment
adviser or in a similar capacity and each Subsidiary thereof.
"Real Property" means all real property, appurtenances thereto,
fixtures and improvements, rights in connection therewith, or any interest
therein, including, without limitation, leasehold estates, of any Advisor.
"Records" means all records and original documents in the possession
of any Advisor that pertain to or are utilized by any Advisor to administer,
reflect, monitor, evidence or record information respecting the business or
conduct of any Advisor including: (1) all such records maintained on electronic
or magnetic media, or in the electronic database system of any Advisor, and (2)
all such records and original documents respecting the Company Contracts as
necessary to comply with any Applicable Law, including any and all records kept
in accordance with, or documents filed pursuant to, any Securities Laws.
"Related Agreements" means each of the Employment Agreements, the
Transfer Agreements and the LLC Agreements.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means all reports and registration statements filed,
or required to be filed, by law, by contract or otherwise, by an entity pursuant
to the Securities Laws.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Laws" means the Securities Act; the Exchange Act; the
Investment Company Act; the Advisers Act; the published rules and regulations of
the SEC
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<PAGE> 11
promulgated thereunder; and the securities or "blue sky" laws of any state or
territory of the United States.
"Software" means all computer programs, software, firmware and
related documentation used in the operation of the Technology Systems.
"Subsidiary" means, when used with respect to any Person which is
not a natural person, any corporation, association or other business entity at
least 25% of the voting or similar power of which is at the time owned by such
Person or by one or more Subsidiaries of such Person or by such Person and one
or more Subsidiaries of such Person.
"Taxes" mean all federal, provincial, territorial, state, municipal,
local, foreign or other taxes, imposts, rates, levies, assessments and other
charges including, without limitation, all income, franchise, gains, capital,
real property, goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property, production, sales,
use, license, stamp, documentary stamp, mortgage recording, excise, employment,
payroll, social security, unemployment, disability, estimated or withholding
taxes, and all customs and import duties, together with any interest, additions,
fines or penalties with respect thereto or in respect of any failure to comply
with any requirement regarding Tax Returns and any interest in respect of such
additions, fines or penalties.
"Tax Return" means any return, report, information statement,
schedule or other document (including any related or supporting information)
with respect to Taxes.
"Value Per Share" means the average closing price per share of
Parent Common Stock on a national securities exchange or in the National Market
portion of the National Association of Securities Dealers' Automated Quotation
System for the ten trading days immediately preceding such date of determination
(or, if no trades were reported for a particular day or the Parent Common Stock
is traded in a market for which closing prices are not reported, the average of
the most recent bid and ask price per share of Parent Common Stock) or, if not
traded on a national securities exchange or in the National Market portion of
the NASD Automated Quotation System on the date of determination, $10.00 per
share (subject to adjustment in accordance with Section 3.2(g)).
(b) The following terms shall have the meaning specified in the
indicated section of this Agreement:
Term Section
---- -------
Advisors......................... Opening Paragraph
Agreement........................ Opening Paragraph
Average Closing Price............ Section 3.2(e)
Benchmark........................ Section 3.2(b)
Cash Consideration............... Section 3.2(a)
Claims........................... Section 3.1
Company Balance Sheets .......... Section 4.4
Company Financial Statem......... Section 4.4
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David............................ Opening Paragraph
Employment Agreement............. Section 2.2
Equityholders.................... Opening Paragraph
ERISA Affiliate.................. Section 4.15(a)
Glaser........................... Opening Paragraph
Hypothetical Revenue Rat......... Section 3.2(c)
JMG.............................. Opening Paragraph
Legal Requirements............... Section 5.1
LLC-1............................ Opening Paragraph
LLC-2............................ Opening Paragraph
LLC Agreements................... Section 2.4
Material Adverse Effect.......... Section 4.1
Measuring Period................. Section 3.2(e)
Minimum Shares................... Section 3.2(e)
Non-Third Party Claim............ Section 8.4
Pacific.......................... Opening Paragraph
Parent........................... Opening Paragraph
Parent Balance Sheet............. Section 5.4
Parent Common Stock.............. Section 3.2(b)
Parent Financial Stateme......... Section 5.4
Parent Material Adverse ......... Section 5.1
Permits.......................... Section 4.5
Plan............................. Section 4.15(a)
Purchase Price................... Section 3.2(a)
Ratable Interest................. Section 3.2(e)
Richter.......................... Opening Paragraph
Series A Debenture Consideration Section 3.2(a)
Series B Debenture Consideration Section 3.2(a)
Tax Claim........................ Section 9.4(a)
Taxing Authority................. Section 4.12(d)
Technology Systems............... Section 4.10
Third Party Claim................ Section 8.3(a)
Transfer Agreement............... Section 2.3
ARTICLE II.
RELATED TRANSACTIONS
Section 2.1. Qualification of LLC. Promptly after the date hereof,
the Equityholders will make all appropriate regulatory and other filings
necessary to form LLC-1 and LLC-2 and to enable them to continue the business of
the Advisors after the Closing.
Section 2.2. Employment Agreements. Contemporaneously with the
Closing Glaser will execute and deliver to LLC-1, and each of Glaser, Richter
and David will execute and deliver to LLC-2, an Employment Agreement (each, an
"Employment Agreement") in substantially the form annexed hereto as Exhibit
2.2(a).
Section 2.3. Transfer of Assets to LLCs. Promptly following
execution of this Agreement, the Advisors shall take such reasonable steps as
are necessary (i) under the terms of the partnership agreement of each Pooled
Product which is a partnership, to cause
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<PAGE> 13
the LLC to which such Advisor's assets are to be transferred pursuant hereto to
be admitted as the sole general partner thereof immediately prior to the Closing
Date and (ii) under the terms of each agreement or document and under Applicable
Law to which each Pooled Product is party, bound or subject, to enable LLC-1 or
LLC-2, as the case may be, commencing on the Closing Date to perform all
services now or heretofore provided by either Advisor to such Pooled Product and
to receive the corresponding fees, payments, allocations and other compensation
payable in connection therewith. Immediately prior to the Closing and pursuant
to a duly authorized, executed and delivered agreement of transfer in
substantially the form attached hereto as Exhibit 2.3 (a "Transfer Agreement")
between JMG and LLC-1, Glaser shall cause JMG to transfer the assets specified
on Annex 2.3(a) hereto which assets for the fiscal year ended December 31, 1997
produced Revenues From Operations (as defined in the LLC Agreement for LLC-1) of
not less than $7,000,000, to LLC-1 and pursuant to a duly authorized, executed
and delivered Transfer Agreement between Pacific and LLC-2 the Equityholders
shall cause Pacific to transfer the assets specified on Annex 2.3(b) hereto
which assets for the fiscal year ended December 31, 1997 produced Revenues From
Operations (as defined in the LLC Agreement for LLC- 2) of not less than
$4,900,000, to LLC-2 in exchange for Membership Interests in LLC-1 and LLC-2,
respectively, and the assumption by LLC-1 and LLC-2 of the respective
liabilities of JMG and Pacific set forth on Annexes 2.3(c) and 2.3(d) hereof,
other than any items for which and with respect to such items only to the extent
that any Equityholder or Advisor is or would be obligated to pay to Parent any
amount under Article VIII or IX hereof (without regard to the limitations in
Sections 8.7 or 10.3 hereof), and the Advisors shall resign as general partner
of each such partnership and as investment adviser, manager or other service
provider to each such Pooled Product.
Section 2.4. LLC Agreements. Immediately after the Closing, LLC-1
and LLC-2 shall commence operations in accordance with the LLC Agreements (the
"LLC Agreements") in substantially the forms annexed hereto as Exhibit 2.4(a)
and 2.4(b), respectively.
ARTICLE III.
PURCHASE AND SALE; CLOSING; RELATED MATTERS
Section 3.1. Purchase and Sale. Subject to the terms and conditions
of this Agreement, at the Closing each of the Advisors hereby agrees to sell and
deliver to Parent or any of its wholly owned subsidiaries, as determined by
Parent, free and clear of any restrictions, liens, claims, charges, security
interests, assignments, mortgages, deposit arrangements, pledges or encumbrances
of any kind or nature whatsoever (collectively, "Claims"), other than as set
forth in the LLC Agreement, and Parent hereby agrees to purchase from each
Advisor, for the price set forth in Section 3.2, 100% of such Person's
Membership Interests other than such Person's Non-Manager Member Membership
Interest (as defined in the LLC Agreements), which will include 50% of the
aggregate Capital Accounts (as defined in the LLC Agreements) in each LLC at the
time of the Closing.
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Section 3.2. Purchase Price.
(a) The aggregate purchase price for the Manager Member Interests
(as defined in the LLC Agreements) shall be $15.25 million principal
amount (subject to adjustment as provided below) of Parent Convertible
Debentures, Series A (the "Series A Debenture Consideration"), $15.25
million principal amount (subject to adjustment as provided below) of
Parent Convertible Debentures, Series B (the "Series B Debenture
Consideration"), $30,500,000 in cash (the "Cash Consideration") and
(subject to the Purchase Price adjustments described in Sections 3.2(b)
and 3.2(c) below) the right to receive such Advisor's pro rata portion of
the contingent payment described in Sections 3.2(d) and 3.2(e) below,
without interest (collectively, the "Purchase Price"); provided, however,
that the Purchase Price shall be reduced by the amount (the "Special
Reduction") equal to the aggregate amount of cash that would have been
distributed to Parent or any of its Affiliates pursuant to Section
3.3(a)(ii) of the LLC-1 LLC Agreement and Section 3.3(a)(ii) of the LLC-2
LLC Agreement on account of the 1998 fiscal quarters completed prior to
the Closing Date had LLC-1 and LLC-2 been operating the respective
businesses of JMG and Pacific at all times since January 1, 1998 with AAC
and its Affiliates owning the Membership Interests therein contemplated by
this Agreement, with such change being reflected proportionately to Series
A Debenture Consideration, Series B Debenture Consideration and Cash
Consideration based on the relative principal or cash amounts thereof. Any
adjustment required pursuant to the preceding proviso shall be estimated
for purposes of the Closing and finalized as promptly as practicable
thereafter.
(b) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(c) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(d) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(e) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(f) Reserved.
(g) If (i) between the date the value of shares of Parent Common
Stock is determined for purposes of Section 3.2(d) and the date on which
such shares are delivered to and become held of record by the Advisors or
(ii) between the date
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hereof and the date on which, pursuant to Section 3.2(e), the Average
Closing Price of the Parent Common Stock is calculated or an Advisor is
offered the opportunity to participate in an offering of Parent Common
Stock, the shares of Parent Common Stock are subdivided or combined, a
dividend is paid in such shares in respect of such class or any other
event shall occur which would result in an adjustment of the Conversion
Price of the Parent Convertible Debenture, Series A, a corresponding
adjustment shall be made to (A) the number of shares of Parent Comon Stock
payable to the Advisors pursuant to said Section 3.2(d) (in the case of an
event described in clause (i)) or (B) the amount of $12.50 for purposes of
the calculations pursuant to Section 3.2(d) (in the case of an event
described in clause (ii)).
(h) Each certificate representing shares of Parent Common Stock,
each Parent Convertible Debenture and each evidence of Membership
Interests in the LLCs shall bear a suitable legend regarding restrictions
on transfer under Applicable Law and the related LLC Agreement as
applicable. In addition, Parent Convertible Debentures, Series A and
certificates representing any Parent Common Stock issued upon conversion
thereof shall bear appropriate legends prohibiting transfer of any
interest therein without the prior written consent of the Parent prior to
the 30th day after the obligations, if any, of the Advisors under Section
3.2(b) and 3.2(c) are finally determined.
(i) The determinations required by Sections 3.2(b), 3.2(c), 3.2(d)
and 3.2(e) above shall be made by the parties as promptly as practicable,
and in any event within 45 days, after the applicable measurement date and
the payments or deliveries required thereunder shall be made as promptly
as practicable after such determinations are made, and in any event within
10 days thereafter.
(j) Each of the Equityholders and Advisors and the Parent
acknowledge and agree that the Purchase Price is allocable, in its
entirety, to (i) the cash, cash items, tangible personal property and
other balance sheet items (including liabilities appearing therein as
deducted therefrom) of the Advisors transferred to the LLCs (which shall
be valued at fair market value as of the Closing) and (ii) the goodwill
associated with the business of the Advisors (which shall represent the
residual balance of the Purchase Price after taking into account such
balance sheet items).
(k) Each of the parties hereto agrees to take no position
inconsistent with the acknowledgment and agreement set forth in Section
3.2(j) above including, without limitation, on any Tax Return or in any
audit or judicial or administrative proceedings before any Governmental
Authority or otherwise.
Section 3.3. The Closing. The Closing shall take place (i) at the
office of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York at 10:00 a.m., New York City time, on the last Business Day of the
month in which the last to be fulfilled or waived of the conditions set forth in
Article VII hereof shall be fulfilled
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or waived in accordance herewith or (ii) at such other time and place and/or on
such other date as the Advisors and Parent may agree.
Section 3.4. Further Actions. If at any time after the Closing,
Parent shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in Parent or any of its Affiliates its
right, title or interest in, to or under any of the rights, properties or assets
of any of the entities party to any of the transactions contemplated hereby
acquired or to be acquired by Parent or any of its Affiliates as a result of, or
in connection with, such transactions or otherwise to carry out this Agreement,
the officers, directors and partners of the Advisors shall be authorized to
execute and deliver, in the name and on behalf of each of the entities party to
any of such transactions or otherwise, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of each
such entity or otherwise, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in Parent or any of its
Affiliates or otherwise to carry out this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE ADVISORS AND EQUITYHOLDERS
Except as set forth in writing in a Schedule by reference to the
appropriate section, subsection or clause hereof and delivered to the Parent
prior to the date hereof, each Advisor and Equityholder represents and warrants
to the Parent as follows, it being understood that (i) representations in
respect of JMG and of Glaser as an Equityholder of JMG are made jointly and
severally by JMG and Glaser and as to representations in respect of a Pooled
Product are made only with respect to those Pooled Products as to which JMG is
general partner or investment manager and (ii) representations in respect of
Pacific and Glaser, Richter and David as Equityholders of Pacific are made
jointly and severally by Pacific and severally and not jointly by Glaser,
Richter and David and as to representations in respect of a Pooled Product are
made only with respect to those Pooled Products as to which Pacific is general
partner or investment manager.
Section 4.1. Organization and Related Matters. Each Advisor is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the its jurisdiction of organization. Each Pooled Product has been duly
organized as a corporation, general partnership, limited partnership or group
trust, as the case may be, and is validly existing and, if applicable, in good
standing under the laws of its jurisdiction of organization. Each Advisor,
Equityholder and Pooled Product has the corporate or other requisite power and
authority to carry on its business as it is now being conducted, to own, lease
and operate all of its properties and assets, and is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned,
leased or operated by it makes
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such qualification or licensing necessary, except where the failure to be so
qualified or licensed would not have a material adverse effect on the business,
assets, financial condition or results of operations of any of the Advisors, any
of the Pooled Products or any of the LLCs individually or taken as a whole, or
on the ability of any of the parties to complete the transactions contemplated
hereby (a "Material Adverse Effect"). The charter and by-laws or comparable
organizational documents and any amendments thereto of each Advisor and each
Pooled Product, complete and correct copies of which as currently in effect have
heretofore been delivered or made available to the Parent, have been filed with
or notified to any applicable Governmental Authority in accordance with all
Applicable Law. Other than the equity interests in the Advisors, all of which
are duly and validly authorized, issued, outstanding, fully paid, nonassessable
and owned of record and beneficially by the Equityholders, none of the Advisors
has any outstanding securities, is subject to any obligation, contingent or
otherwise, to issue any securities to any Person or is subject to any preemptive
or similar rights in favor of any Person in the event of the issuance of any
securities by any of the Advisors. None of the securities of the Advisors has
been issued in violation of any Applicable Law. None of the Advisors has any
Subsidiaries nor owns any Equity Securities other than Equity Securities issued
by the Pooled Products or any other securities other than short-term high
quality money market securities.
Section 4.2. Authority; No Violation; Consents.
(a) Each Advisor and such Equityholder has full power, right and
authority to execute and deliver this Agreement and each Related Agreement
to which it is a party and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and each
Related Agreement to which any Advisor or such Equityholder is a party and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly approved by all requisite action on the part of each
Advisor and each of the Equityholders, and no other proceedings on the
part of any of them are necessary to approve this Agreement or any Related
Agreement or to consummate the transactions contemplated hereby or
thereby. This Agreement has been duly executed and delivered by each
Advisor and such Equityholder. Assuming the due authorization, execution
and delivery of this Agreement by the Parent and of each Related Agreement
by the other parties thereto, this Agreement (and upon execution and
delivery thereof each Related Agreement) constitutes the legal, valid and
binding obligation of each Advisor and such Equityholder, enforceable
against each of them in accordance with its terms, except as enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditor's
rights and by general equity principles.
(b) Except as set forth on Annex 4.2, neither the execution,
delivery and performance of this Agreement or any Related Agreement by any
Advisor or such Equityholder nor the consummation by them of the
transactions contemplated hereby, will (i) violate, conflict with, or
result in a breach of any provisions of, or
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constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of,
or accelerate the performance required by, or result in a right of
termination or acceleration under, or the creation of any Encumbrance upon
any of the Company Assets or the Equity Securities issued by the Advisors
under any of the terms, conditions or provisions of (x) the organizational
documents of any Advisor or any of the Pooled Products, or (y) any note,
bond, mortgage, indenture, deed of trust, license, Lease, agreement or
other instrument or obligation to which any Advisor or such Equityholder
or any of the Pooled Products is a party or by or to which it or any of
its properties may be bound or subject; or (ii) violate any Applicable
Law.
(c) Except as set forth on Annex 4.2, no material notice to, filing
with, authorization of, exemption by, or consent or approval of, any
Governmental Authority or other person or entity is necessary for the
consummation by each Advisor and such Equityholder of the transactions
contemplated by this Agreement or any Related Agreement.
(d) Each Equityholder and Advisor is acquiring its portion of the
Purchase Price constituting securities for such Advisor's and
Equityholder's own account and not with a view toward selling, granting
any participation in or otherwise distributing any portion of the Purchase
Price constituting securities.
Section 4.3. Assets Under Management. The aggregate amount of assets
under management by the Advisors, and the name of the client and amount of
assets under management by the Advisors for each client (investors in the Pooled
Products in their capacity as such not being clients for this purpose) for which
the Advisors manage more than $5 million, as of June 30, 1997, July 1, 1997,
December 31, 1997 and January 1, 1998 are accurately set forth in Annex 4.3
hereto, together with a brief summary of the fee or profit allocation
arrangements in effect with respect to each such client. Other than fee waivers
applicable to the investments of the Equityholders in the Pooled Products, there
are no agreements or understandings pursuant to which any Advisor has capped,
waived or reimbursed or will under any circumstances cap, waive or reimburse any
or all fees, profit allocations or charges payable by or allocable from any of
such clients or any investors in any such client.
Section 4.4. Financial Statements.
(a) The Advisors and Equityholders have previously delivered to the
Parent copies of (i) the audited balance sheets of the Advisors as of
December 31 for the fiscal years 1995 and 1996, and the related audited
statements of income, changes in stockholders' equity and cash flows for
the fiscal years 1995 and 1996, inclusive, together with the related notes
thereto, in each case accompanied by the audit report of Ernst & Young
LLP, independent public accountants with respect thereto, and (ii) the
audited balance sheet of the Advisors as of December 31, 1997, together
with related notes thereto (the "Company Balance Sheets") and the related
audited statements of income for the fiscal year then ended (collectively,
the
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statements referred to in clauses (i)-(ii) above being referred to as the
"Company Financial Statements"). The audited balance sheets of the
Advisors referred to in the previous sentence (including the related
notes) fairly present the financial position of the Advisors as of the
dates thereof, and the other Company Financial Statements fairly present
the results of the operations, cash flows and changes in stockholders'
equity of the Advisors for the respective fiscal periods therein set
forth; and each of such statements of the Advisors (including the related
notes, where applicable) has been prepared in accordance with GAAP
consistently applied (except as described therein) during the periods
involved.
(b) Except for (i) liabilities or items set forth in Annex 4.4, (ii)
liabilities that are fully reflected in the Company Financial Statements
or fully reserved against on the Company Balance Sheets, (iii) liabilities
that were incurred in the Ordinary Course of Business on or prior to the
date of the Company Balance Sheets which are not required by GAAP to be
reflected in the Company Financial Statements or which were fully reserved
against on the Company Balance Sheets, (iv) liabilities incurred since the
date of the Company Balance Sheet, none of which, individually or in the
aggregate, exceed $100,000 or otherwise are material to the business or
operations of the Advisors, (v) liabilities the incurrence of which is
expressly permitted by this Agreement or authorized by the Parent in
writing, (vi) nonmonetary obligations arising under the terms of any
agreement other than obligations arising as a result of a breach thereof
or default thereunder and (vii) liabilities that are not set forth on
Annexes 2.3(c) or 2.3(d), the Advisors do not have any liabilities,
whether absolute, accrued, contingent or otherwise and whether known or
unknown or due or to become due. In addition, except for those liabilities
referred to in (i) through (vi) above, to the knowledge of the Advisors
and the Equityholders, the Advisors do not have any material liabilities,
whether absolute, accrued, contingent or otherwise whether due or to
become due.
Section 4.5. Compliance with Applicable Law.
Except as set forth on Annex 4.5:
(a) Except for instances of failure that would not have a Material
Adverse Effect (i) each Advisor, Equityholder and Pooled Product and each
employee of each of them holds, and has at all pertinent times held, all
licenses, franchises, permits, qualifications and authorizations
(collectively, "Permits") necessary for the lawful ownership and use of
the respective properties and assets of the Advisors and each such Pooled
Product, (ii) the conduct of the respective businesses of the Advisors and
each such Pooled Product under and pursuant to every, and have complied
with each, and are not in default in any material respect under any,
Applicable Law relating to the Advisors, any Pooled Product or any of
their respective assets, properties or operations, and (iii) neither any
Advisor nor any Equityholder knows of any violations of any of the above
or has received notice asserting any such violation. To the Advisors' and
Equityholders' knowledge, all such Permits are valid and in good standing
and are not subject to any proceeding
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for the suspension, modification or revocation thereof or proceedings
related thereto.
(b) Except for normal examinations conducted by any Governmental
Authority in the regular course of the business of the Advisors, no
Governmental Authority has initiated any pending proceeding or, to the
knowledge of any Advisor or such Equityholder, any pending investigation
into the business or operations of any Advisor or any of their partners,
officers, directors or employees. There is no unresolved violation,
criticism, or exception by any Governmental Authority with respect to any
examination of any Advisor or any Pooled Product.
(c) Each Advisor has at all times rendered investment advisory
services to investment advisory clients, including Pooled Products, with
whom such Advisor is or was a party to an investment advisory agreement or
similar arrangement in material compliance with all applicable
requirements as to portfolio composition and portfolio management
including, but not limited to, the terms of such investment advisory
agreements, written instructions from such investment advisory clients,
the organizational documents of such investment advisory clients made
available to such Advisor, prospectuses, board of director or trustee
directives and Applicable Law.
(d) Except for such instances of failure to make filings or payments
which, either individually or in the aggregate, would not have a Material
Adverse Effect, each Advisor and Pooled Product has timely filed all
reports, registration statements and other documents, together with any
amendments required to be made with respect thereto, that they were
required to file with any Governmental Authority, in a form which was
accurate in all material respects and have paid all fees and assessments
due and payable in connection therewith.
(e) None of the Advisors, Equityholders or employees of any of them
is obligated to be registered with or have any license or permit from any
Governmental Authority or self-regulatory body. As of their respective
dates, the SEC Documents of the Advisors and Equityholders complied in all
material respects with the requirements of the Securities Laws applicable
to such SEC Documents. The Advisors have previously delivered or made
available to the Parent a complete copy of each SEC Document filed by the
Advisors or Equityholders since December 31, 1994 and prior to the date
hereof and will deliver to the Parent at the same time as the filing
thereof a complete copy of each SEC Document filed after the date hereof
and prior to the Closing Date by or on behalf of any of them.
Section 4.6. Books and Records. Each Advisor and Pooled Product has
at all times since formation maintained Records which accurately reflect in all
material respects all its transactions in reasonable detail, and have at all
times maintained accounting controls, policies and procedures reasonably
designed to provide that such transactions are (i) executed in accordance with
its management's general or specific
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authorization, as applicable, and (ii) recorded in a manner which permits the
preparation of financial statements in accordance with GAAP and applicable
regulatory accounting requirements and other account and financial data,
including performance results, in accordance with applicable regulatory
requirements, and the documentation pertaining thereto is retained, protected
and duplicated in accordance with applicable regulatory requirements except,
with respect to the period from their respective formations through March 31,
1995, as would not individually or in the aggregate have a Material Adverse
Effect.
Section 4.7. Ineligible Persons. None of the Advisors or
Equityholders or any of their respective "affiliated persons" (as defined in the
Investment Company Act) is ineligible pursuant to Section 9(a) or 9(b) of the
Investment Company Act to serve as an investment adviser (or in any other
capacity contemplated by the Investment Company Act) to a registered investment
company. None of the Advisors or Equityholders or any of their respective
"associated persons" (as defined in the Advisers Act or the Exchange Act), is
ineligible pursuant to Section 203 of the Advisers Act to serve as a registered
investment adviser or broker-dealer or as an associated person to a registered
investment adviser. None of the Advisors or Equityholders or any of their
respective "affiliated persons" (as defined in the Investment Company Act) is
subject to a "statutory disqualification" pursuant to Section 3(a)(39) of the
Exchange Act.
Section 4.8. Company Assets. The Advisors have, and prior to the
Closing LLC-1 and LLC-2, as applicable, will have acquired, good and marketable
title to all material Company Assets and good and insurable leasehold interests
in all material Leased Property, in each case free and clear of all Encumbrances
other than Permitted Encumbrances. Annex 4.8 contains a true and complete list
of all Operating Sites. The Advisors do not own any Real Property. No Advisor
owns a direct or indirect interest in any entity that purports to be a
partnership for federal income tax purposes other than any Pooled Product.
Section 4.9. Company Contracts. Annex 4.9 lists under separate
headings, and the Advisors have made available to Parent copies of: (a) each
Company Contract that is not cancellable without penalty by the Advisor party
thereto upon 90 days or less notice or that involves the receipt or payment by
the Advisor party thereto in any of the two prior fiscal years (or is reasonably
likely to involve the receipt of payment by the Advisor party thereto in the
current or any future fiscal year) of an amount in excess of $50,000, (b) each
Company Contract with one or more of the Equityholders or members of their
immediate families or entities in which any of them has greater than a 5% equity
interest, and (c) each other Company Contract material to the business,
governance, operations or financial condition of any Advisor party thereto,
true, correct and complete copies of each of which, including all amendments and
supplements thereto, have previously been made available to the Parent. The
Advisors have made available to the Parent copies of all material sales,
marketing and account solicitation agreements and material marketing
arrangements of each Advisor. Each Advisor has duly performed all its material
obligations under each material Company Contract to which it is a party, in each
case, to the extent that such obligations have accrued; to each Advisor's
knowledge, no material breach or default,
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alleged material breach or default, or event which constitutes or would (with
the passage of time, notice or both) constitute a material breach or default
thereunder by such Advisor, or would permit termination or acceleration thereof
by any party thereto, has occurred, or, as a result of this Agreement or the
performance by any Advisor party thereto of any of its covenants or obligations
hereunder, will occur, and to the Advisors' and such Equityholder's knowledge,
each material Company Contract is valid and binding on the Advisor party thereto
and on all of the other parties thereto, is in full force and effect and is
enforceable in accordance with its terms.
Section 4.10. Technology and Intellectual Property. The electronic
data processing, information, communications, telecommunications and computer
systems, databases, Software and Intellectual Property which are used by the
Advisors in their businesses (collectively, the "Technology Systems") are
adequate for their intended use and for the operation of the Operating Sites as
currently operated and the Advisors own or have the right to use all components
of the Technology Systems. There has not been any material malfunction with
respect to any of the Technology Systems which has had or could reasonably be
expected to have a Material Adverse Effect.
Section 4.11. Legal Proceedings. Neither any Advisor or Equityholder
nor any Pooled Product is a party to any, and there are no pending or, to such
Equityholder's knowledge, threatened, legal, administrative, arbitral or other
proceedings, Claims, actions or governmental or regulatory investigations of any
nature against any Advisor or Equityholder or any Pooled Product or any of their
respective properties, assets, partners, directors, officers or employees which,
if adversely determined, individually or in the aggregate, would have a Material
Adverse Effect, or that challenges any of the transactions contemplated by this
Agreement or any of the Related Documents, and there is no injunction, order,
judgment, decree, or regulatory restriction imposed upon any Advisor or
Equityholder or any Pooled Product or any of their respective properties,
assets, officers or employees which, individually or in the aggregate, has had
or could reasonably be expected to have a Material Adverse Effect.
Section 4.12. Taxes and Tax Returns. Except (i) as reflected in the
Company Financial Statements, or (ii) which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect and (iii) as
applicable, with respect to matters contested in good faith which matters are
set forth on Annex 4.12 hereto:
(a) Each Advisor and each Pooled Product has timely filed all Tax
Returns required by Applicable Law to be filed by it on or before the date
hereof, taking into account any extensions of the time within which to
file such returns. All such Tax Returns are true, complete and accurate in
all material respects.
(b) All Taxes attributable to any Advisor or Pooled Product that are
or were due and payable (without regard to whether such Taxes have been
assessed) have been paid. Each Advisor and each Pooled Product has made
adequate provisions on its books and records in accordance with prior
accounting practices,
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consistently applied, for the payment of all Taxes reasonably expected to
be due and payable with respect to the current and any prior tax periods.
(c) Each Advisor and each Pooled Product has complied (and until the
Closing will comply) in all material respects with all Applicable Laws
relating to the payment and withholding of Taxes by such Person
(including, without limitation withholding of Taxes pursuant to Code
sections 1441 and 1442 or similar provisions under any state or foreign
law) and has, within the time and in the manner prescribed by law,
withheld from employee wages and paid over to the proper governmental
authorities all material amounts required to be so withheld and paid over
under all Applicable Laws.
(d) Neither any Advisor or Pooled Product nor any predecessor
company has executed or filed with the IRS or any other Taxing Authority
any agreement or other document extending, or having the effect of
extending, the period for the assessment or collection of any Taxes. For
purposes of this Agreement, "Taxing Authority" means the Internal Revenue
Service and any state, local, foreign or other governmental authority
responsible for the administration of any Taxes.
(e) There are no Encumbrances for Taxes upon any of the Company
Assets other than Encumbrances for Taxes not yet due or payable.
(f) No power of attorney has been granted by any Advisor or Pooled
Product with respect to such Advisor or Pooled Product with respect to
such matter relating to Taxes which is currently in force.
(g) No Advisor or Pooled Product is a party to or bound by any
agreement providing for the allocation or sharing or indemnification of
any Taxes.
(h) There are no Claims, audits, suits, proceedings, or
investigations now pending against or with respect to any Advisor or
Pooled Product with respect to any Taxes.
(i) Neither any Advisor or Pooled Product nor any predecessor has
been a member of an affiliated group filing a consolidated, combined, or
unitary Tax Return.
(j) No Advisor or Pooled Product has or will have any liability for
the Taxes of any other Person as a transferee or successor, or otherwise.
(k) Each Pooled Product that holds itself out as a partnership for
federal income tax purposes is properly treated as a "partnership" for
federal income tax purposes and not as a corporation or an association
taxable as a corporation.
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Section 4.13. Insurance. The Advisors maintain with reputable
insurers insurance and indemnity bonds providing coverage for the Advisors
against all risks normally insured or bonded against by companies in similar
lines of business.
Section 4.14. Labor and Employment Matters.
(a) (1) No Advisor has engaged in any unfair labor practice which
could reasonably be expected to result in any material liability to any
Advisor; (2) there is no labor strike, material dispute, slowdown or
stoppage pending or, to such Advisor's knowledge, threatened against any
Advisor; (3) no union is currently certified or recognized, there is no
union representation question, no employee representative body or bodies
and no union or other organizational activity that would be subject to the
National Labor Relations Act (29 U.S.C. ss. 151 et seq.) exists or, to the
Equityholders' knowledge, is threatened with respect to the operations of
any Advisor; (4) no grievance or arbitration proceeding arising out of or
under collective bargaining agreements is pending and, to such
Equityholder's knowledge, no Claims therefor exist or are threatened with
respect to the operations of any Advisor; (5) no Advisor is delinquent in
any material respect in payments to any of its current or former partners,
officers, directors, employees, consultants, or agents for any wages,
salaries, commissions, bonuses, benefits, expenses or other compensation
for any services performed by them or amounts required to be reimbursed to
them; and (6) in the event of termination of the employment of any
employee of any Advisor, neither the Advisor or LLC-1 or LLC-2 nor the
Parent or any of its Affiliates will be liable to any such employee under
any agreement in effect at the Closing for so-called "severance pay,"
incentive pay, liquidated damages or any other payments (other than
accrued salary, wages or vacation pay) or benefits, including, without
limitation, post-employment health care, pension or insurance benefits.
(b) No Advisor has had any Claim made against it by any Person
before any Governmental Authority in respect of employment with such
Advisor or discrimination or harassment on account of sex, race or other
characteristic protected by law and there are no pending or, to such
Equityholder's knowledge, threatened proceedings in relation thereto.
Section 4.15. Benefit Plan Obligations.
(a) Annex 4.15(a) contains a true and complete list of each
commission, bonus, deferred compensation, incentive compensation, stock
purchase, stock option, share scheme, equity-based award, severance,
redundancy or termination pay, hospitalization or other medical, accident,
disability, life or other insurance, supplemental unemployment benefits,
fringe, other welfare benefit, profit-sharing, pension, or retirement
plan, program, agreement, or arrangement, and each other employee benefit
plan, program, agreement, or arrangement (a "Plan") as of the date hereof
sponsored, maintained, or contributed to or required to be contributed to
by any Advisor or any ERISA Affiliate (as defined below) for the benefit
of any
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employee or terminated employee of any Advisor, or any ERISA Affiliate.
Except as set forth on Annex 4.15(a), no proposal has been announced by
any Advisor or ERISA Affiliate to establish any other program for
providing such benefits. For purposes of this Agreement, "ERISA Affiliate"
means any entity or Person that together with any Advisor would be deemed
a "single employer" within the meaning of section 4001 of ERISA or would
be considered as being "members" of a controlled group of corporations
within the meaning of section 414 of the Code with any Advisor. Except as
set forth on Annex 4.15(a), each Plan may be modified or terminated by the
Advisor party thereto, or the applicable ERISA Affiliate, without material
liability to any Advisor, or their ERISA Affiliates, subject only to
Claims filed prior to such modification or termination. True and correct
copies of each written agreement, declaration of trust or other document
pursuant to which a Plan was formed or any Advisor's obligations under a
Plan have been established, all amendments thereto, any written
interpretations thereof distributed to employees, and all contracts
relating thereto or the funding thereof (including, without limitation,
all trust or other funding agreements and the most recent financial
statements thereof, insurance contracts, administration contracts, and
investment management agreements), summary plan descriptions, the two most
recent annual reports (Form 5500 including, if applicable, Schedule B
thereto), the most recent actuarial valuation report and the most recent
report prepared in connection with any Plan in accordance with Statement
of Financial Accounting Standards No. 87, Employer's Accounting for
Pensions, and the most recent determination letter received from the IRS
with respect to each Plan intended to qualify under Section 401 of the
Code have been furnished to Parent.
(b) Neither any Advisor nor any ERISA Affiliate (i) has ever
maintained any Plan which has been subject to Title IV of ERISA or (ii)
has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by
Part 6 of Subtitle B of Title I of ERISA) or has ever agreed to provide
such post-termination benefits.
(c) No Plan is a "multiemployer plan," as defined in section 3(37)
of ERISA.
(d) Each Plan which is intended to be "qualified" within the meaning
of section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust maintained
thereunder is exempt from taxation under section 501(a) of the Code.
(e) There is no matter pending (other than routine qualification
determination filings, copies of which have been furnished to the Parent,
or will be promptly furnished to the Parent when made) with respect to any
of the Plans before the IRS or Department of Labor. There are no pending,
or, to the knowledge of the Equityholders, threatened or anticipated
actions, suits, or Claims by or on behalf of any Plan, by any employee or
beneficiary covered thereunder, or otherwise involving any such Plan
(other than routine Claims for benefits).
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(f) Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code. No Plan that is an "employee pension
plan" within the meaning of section 3(2) of ERISA or any trust established
thereunder has incurred any "accumulated funding deficiency" (as defined
in section 412 of the Code), whether or not waived, as of the last day of
the most recent fiscal year of each such Plan ended prior to the Closing
Date.
(g) The consummation of the transactions contemplated by this
Agreement will not, either alone or in combination with another event
except as expressly provided in this Agreement or the Related Agreements,
(i) entitle any current or former employee or officer of any Advisor or
any ERISA Affiliate to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer.
Section 4.16. No Broker. No broker, finder or similar intermediary
has acted for or on behalf of, or is entitled to any broker's, finder's or
similar fee or other commission from any Advisor or Equityholder in connection
with this Agreement or the transactions contemplated hereby.
Section 4.17. Absence of Changes. Since December 31, 1997, except as
contemplated by this Agreement, neither any Advisor nor any Pooled Product has
taken any action or suffered to exist any condition which, had it been taken or
suffered after the date hereof, would have been prohibited by or in violation of
Section 6.1 hereof.
Section 4.18. The Equityholders. Neither such Equityholder nor any
member of the Immediate Family of such Equityholder (a) is a competitor of, or a
party to any transaction or contract or arrangement with, any Advisor, (b)
serves as an officer, director, employee, consultant, partner, member or in any
similar capacity of any competitor of any Advisor or any Person which has a
contract or agreement with any Advisor or (c) owns directly or indirectly (other
than in or through beneficial ownership of less than 5% of the outstanding
securities of a publicly traded company) any interests in any competitor or any
Person that has a material contract or agreement with any Advisor.
Section 4.19. Additional Representations Regarding Pooled Products.
(a) True, correct and complete copies of any offering documents,
subscription agreements, administrative services distribution and
solicitation agreements and custody agreements pertaining to each of the
Pooled Products have been made available to the Parent. Such offering
materials did not, at any time such materials were made available to
investors or prospective investors, contain any 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 light of the
circumstances under which they were made, not misleading.
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(b) True, correct and complete copies of the audited financial
statements, prepared in accordance with GAAP, of each of the Pooled
Products for the fiscal years from inception or 1994, whichever is later,
through 1997 have been provided to the Parent. Each of such financial
statements is consistent with the books and records of the applicable
Pooled Product, and presents fairly the consolidated financial position of
such Pooled Product in accordance with GAAP applied on a consistent basis
(except as otherwise noted therein) at the respective date of such
financial statements and the results of operations and cash flows for the
respective periods indicated, except in the case of the interim financial
statements which are subject to normal year-end adjustments which in the
aggregate are not material. Such financial statements reflect and disclose
all material changes in accounting principles and practices adopted by the
applicable Pooled Product during the periods covered by each such
financial statement. The books of account of each Pooled Product fairly
reflect its transactions.
(c) There are no special restrictions, consent judgments or orders
of any Governmental Authority on, or with regard to, any Pooled Product.
Since inception, each Pooled Product has been excluded from the definition
of an investment company under the Investment Company Act by virtue of
Section 3(c)(1) or Section 3(c)(7) thereof, as applicable, or has been
unregulated thereunder by virtue of Section 7(d) thereof. Since inception
each Pooled Product has been duly registered and in good standing under
the laws of each jurisdiction in which such qualification has been
necessary, except where the failure to be duly registered and in good
standing would not have a Material Adverse Effect.
(d) All interests of each Pooled Product were sold pursuant to a
valid and effective exemption from registration under the Securities Act
and each other Applicable Law and have been duly authorized and are
validly issued.
(e) All consent solicitation materials to be prepared for use by the
Pooled Products in connection with the transactions contemplated by this
Agreement at the time such information is provided or used, as then
amended or supplemented, in each case, will, insofar as it contains or
consists of information supplied by any Advisor, be accurate and complete
and will not contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PARENT
Except as set forth in writing in a Schedule delivered to the
Equityholders prior to the date hereof, by reference to the appropriate section,
subsection or clause hereof, the Parent represents and warrants to the
Equityholders as follows:
Section 5.1. Organization. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. The Parent has the corporate or other requisite power and authority to
carry on its business as it is now being or is currently proposed to be
conducted, to own or use the properties and assets that it purports to or
currently proposes to own or use, and is duly qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or use of the properties used by it requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business of Parent or on the ability of Parent to complete the
transactions contemplated hereby ("Parent Material Adverse Effect"). The charter
and by-laws and any amendments thereto of Parent, as currently in effect,
complete and correct copies of which have heretofore been delivered or made
available to each Equityholder, have been filed with or notified to any
applicable Governmental Authority in accordance with all statutes, laws,
ordinances, rules, public administrative interpretations, regulations, orders,
writs, injunctions, directives, judgments, decrees or other requirements of any
Governmental Authority applicable to Parent and its properties, assets,
officers, directors, employees and agents ("Legal Requirements"). None of the
Parent Common Stock has been issued in violation of any Applicable Law.
Section 5.2. Authority; No Violation; Consents.
(a) The Parent has full power, right and authority to execute and
deliver this Agreement and the Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and such Related Agreements and
the consummation of the transactions contemplated hereby and thereby have
been duly and validly approved by all requisite action on the part of the
Parent and no other proceedings on the part of the Parent are necessary to
approve this Agreement or such Related Agreements or to consummate the
transactions contemplated hereby and thereby. Each of this Agreement and
such Related Agreements has been duly and validly executed and delivered
by the Parent. Assuming the due authorization, execution and delivery of
this Agreement and such Related Agreements by the other parties hereto,
each of this Agreement and such Related Agreements constitutes a legal,
valid and binding obligation of the Parent, enforceable against it in
accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditor's rights and by
general equity principles.
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(b) Neither the execution, delivery and performance of this
Agreement or any Related Agreement by Parent nor the consummation by them
of the transactions contemplated hereby, will (i) violate, conflict with,
or result in a breach of any provisions of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or the creation of any Encumbrance upon any of the
assets of Parent as of the date hereof or as of the Closing, as applicable
under any of the terms, conditions or provisions of (x) the organizational
documents of Parent, or (y) any note, bond, mortgage, indenture, deed of
trust, license, Lease, agreement or other instrument or obligation to
which Parent is a party or by or to which it or any of its properties may
be bound or subject; or (ii) violate any Legal Requirement.
(c) No material notice to, filing with, authorization of, exemption
by, or consent or approval of, any Governmental Authority is necessary for
the consummation by Parent of the transactions contemplated by this
Agreement or any Related Agreement.
Section 5.3. No Actions, Suits or Proceedings. There is no pending
action, suit or proceeding, nor, to the knowledge of the Parent, has any
litigation been threatened, against the Parent or any of its Subsidiaries,
properties, assets, directors, officers or employees before any Governmental
Authority or otherwise which, if adversely determined, individually or in the
aggregate, would have a Parent Material Adverse Effect, or that questions the
validity or legality of this Agreement or any of the Related Agreements or of
the transactions contemplated hereby or thereby, or which seeks to prevent the
consummation of the transactions contemplated hereby or thereby and there is no
injunction, order, judgment, decree or regulatory restriction imposed upon the
Parent or any of its Affiliates which, individually or in the aggregate, has had
or could reasonably be expected to have a Parent Material Adverse Effect.
Section 5.4. Financial Statements. The Parent has previously
delivered to the Equityholders copies of (i) the audited balance sheets of the
Parent on a consolidated basis as of December 31 for the fiscal year 1996 and
the related audited statements of income, changes in stockholders' equity and
cash flows for the fiscal year 1996, inclusive, together with the related notes
thereto, in each case accompanied by the audit report of Ernst & Young LLP,
independent public accountants with respect to the Parent, and (ii) the
unaudited balance sheet of the Parent on a consolidated basis as of December 31,
1997, together with related notes thereto (the "Parent Balance Sheet") and the
related unaudited statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended (collectively, the statements referred to
in clauses (i)-(ii) above being referred to as the "Parent Financial
Statements"). The audited balance sheets of the Parent referred to in the
previous sentence (including the related notes) fairly present the financial
position of the Parent on a consolidated basis as of the dates thereof, and the
other Parent Financial Statements fairly present (subject, in the case of the
unaudited statements, to recurring adjustments normal in nature and amount) the
results of the operations, cash flows and
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changes in stockholders' equity of the Parent on a consolidated basis for the
respective fiscal periods therein set forth; and each of such statements of the
Parent (including the related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the periods involved. As of the
respective dates of such financial statements, Parent had no known liabilities
of the type required to be reflected as liabilities on a balance sheet prepared
in accordance with GAAP (whether absolute, accrued, contingent or otherwise),
except for liabilities reflected or reserved against in the Parent Balance
Sheet.
Section 5.5. Capitalization. As of the date of this Agreement, the
Parent has authorized capital stock consisting of (a) 100,000,000 shares of
Parent Common Stock, of which 7,365,000 shares are outstanding and 4,775,180
shares are reserved for issuance and (b) 2,000,000 shares of preferred stock,
par value $.01 per share, of which 200,000 shares are outstanding. As of the
date of this Agreement, the Parent has outstanding options to purchase an
aggregate of 748,000 shares of Parent Common Stock. Parent acknowledges that in
addition to the foregoing amount, it will reserve for issuance an aggregate of
4,010,714 shares of Parent Common Stock for potential issuance in connection
with Section 3.2 and the Parent Convertible Debentures. Each outstanding share
of Parent Common Stock is, and upon issuance and delivery thereof in accordance
with the terms of Section 3.2 hereof each share constituting Purchase Price will
be, duly and validly authorized and issued, fully paid and nonassessable.
Section 5.6. Stockholders. Annex 5.6 contains a true and complete
list of: (1) each Person that, as of the date of this Agreement, holds an equity
interest in Parent of 20% or more on a fully diluted basis and (2) the amount
and percentage of such Person's ownership.
Section 5.7. Financing. As of the date of this Agreement Parent has
or has received commitments for, and will have at the Closing, all funds
necessary to consummate the transactions contemplated hereby.
Section 5.8. Compliance with Applicable Law.
(a) Except for instances of failure that would not have a Parent
Material Adverse Effect, the Parent and each employee of the Parent holds,
and has at all pertinent times held, all Permits necessary for the lawful
ownership and use of the properties and assets of the Parent and the
conduct of the business of the Parent and under and pursuant to every, and
have complied with each, and are not in default in any material respect
under any, Applicable Law relating to the Parent or any of its assets,
properties or operations, and the Parent does not know of any violations
of any of the above and has not received notice asserting any such
violation. To the Parent's knowledge, all such Permits are valid and in
good standing and are not subject to any proceeding for the suspension,
modification or revocation thereof or proceedings related thereto.
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(b) Except for normal examinations conducted by any Governmental
Authority in the regular course of the business of the Parent and its
Subsidiaries, no Governmental Authority has initiated any pending
proceeding or, to the knowledge of the Parent, any pending investigation
into the business or operations of the Parent or any of its officers,
directors or employees or, to the knowledge of Parent, any pending
proceeding or investigation into the business or operations of the
Parent's Subsidiaries. There is no unresolved violation, criticism, or
exception by any Governmental Authority with respect to any examination of
the Parent.
Section 5.9. Eligibility. None of the Parent or any "affiliated
person" (as defined in the Investment Company Act) thereof is ineligible
pursuant to Section 9(a) or 9(b) of the Investment Company Act to serve as an
investment adviser (or in any other capacity contemplated by the Investment
Company Act) to a registered investment company. None of the Parent or any
"associated person" (as defined in the Advisers Act or the Exchange Act)
thereof, is ineligible pursuant to Section 203 of the Advisers Act to serve as a
registered investment adviser or broker-dealer or as an associated person to a
registered investment adviser. None of the Parent or any "affiliated person" (as
defined in the Investment Company Act) thereof is subject to a "statutory
disqualification" pursuant to Section 3(a)(39) of the Exchange Act.
Section 5.10. No Broker. No broker, finder or similar intermediary
has acted for or on behalf of, or is entitled to any broker's, finder's or
similar fee or other commission from, the Parent or its Affiliates in connection
with this Agreement or the transactions contemplated hereby.
ARTICLE VI.
COVENANTS
To the extent that the following covenants are made by Advisors and
Equityholders, it is understood that (i) covenants in respect of JMG and of
Glaser as an Equityholder of JMG are made jointly and severally by JMG and
Glaser and as to covenants in respect of a Pooled Product are made only with
respect to those Pooled Products as to which JMG is general partner or
investment manager and (ii) covenants in respect of Pacific and Glaser, Richter
and David as Equityholders of Pacific are made jointly and severally by Pacific
and severally and not jointly by Glaser, Richter and David and as to covenants
in respect of a Pooled Product are made only with respect to those Pooled
Products as to which Pacific is general partner or investment manager.
Section 6.1. Conduct of Business.
(a) During the period from the date of this Agreement and continuing
through the Closing Date, except as required by Applicable Law and
disclosed to the Parent, as expressly contemplated or permitted by this
Agreement or with the prior written consent of the Parent, each Advisor
shall, and each Advisor shall (to
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the extent it has the power to do so) cause each Pooled Product to: (i)
carry on its respective business in the Ordinary Course of Business
consistent with prudent business practice; (ii) use commercially
reasonable efforts to preserve its respective present business
organization and relationships; (iii) use commercially reasonable efforts
to keep available the present services of its employees (it being
understood and agreed that an Advisor (x) shall not be obligated to
increase the compensation or benefits of any person and (y) shall not be
restricted in terminating the employment of any Person who is not an
Equityholder, if such termination is consistent with prudent business
practice); (iv) use commercially reasonable efforts to preserve and
enhance its assets under management and profitability and the goodwill and
relations of its clients and others with whom business relationships
exist; (v) not enter into any business venture, contract, agreement,
understanding or any other arrangement, whether written or oral (except
for normal, recurring expenditures incurred in the Ordinary Course of
Business), in any amount in excess of $50,000 in respect of any individual
arrangement or any contract, agreement, understanding or other
arrangement, whether written or oral, with any of the Equityholders, any
parent, sibling, spouse or child thereof, any parent, sibling, spouse or
child of any of the foregoing or any Affiliate of any of the foregoing;
(vi) use its reasonable efforts to not take or omit any action that would
or reasonably could result in any of their representations and warranties
set forth herein or in any of the Related Agreements being or becoming
untrue in any material respect or any of their respective agreements
herein or therein being breached in any material respect; (vii) not take
or omit any action if such action or omission would require consent of the
managing member under Section 2.2(c) of the LLC Agreements, if the LLC
Agreements were in effect at the time of such action or omission; (viii)
not amend the partnership agreement, articles of incorporation, by-laws or
any similar organizational documents of any Advisor or any Pooled Product
except to the extent necessary or appropriate to effect the transactions
contemplated hereby; (ix) not grant, issue or sell any security of which
such Advisor is the issuer; (x) not effect any recapitalization,
leveraging of its stockholders' equity, reclassification, stock dividend,
stock split or like change in capitalization of any Advisor; (xi) not
capitalize any Lease obligation of any Advisor regardless of when such
Lease obligation was entered into; and (xii) not enter into any agreement
or understanding to do any of the foregoing.
(b) From time to time prior to the Closing Date the Advisors and
Equityholders shall inform Parent of any new information material to the
business of the Advisors or the ability of any Advisor or Equityholder to
consummate the transactions contemplated hereby and at least 24 hours
prior to the Closing shall update or cause to be updated each of the
Schedules and Annexes to this Agreement required pursuant to Article I or
Article IV hereof to reflect changes to the information set forth therein
occurring through a date not more than two days prior to the Closing Date.
For purposes of determining the accuracy of the representations and
warranties of the Advisors and Equityholders contained in Article IV in
order to determine the fulfillment of the condition set forth in Section
7.1(a), the Schedules and Annexes delivered by them shall be deemed to
include
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only that information contained therein on the date of this Agreement and
shall be deemed to exclude any information contained in any subsequent
supplement or amendment thereto. For purposes of determining the accuracy
of the representations and warranties of the Advisors and Equityholders
contained in Article IV in order to determine any indemnification
obligation of the Equityholders pursuant to Article VIII, the Schedules
and Annexes delivered by the Equityholders shall not be deemed to include
any information contained in any subsequent supplement or amendment
thereto.
(c) The Advisors and Equityholders shall cause each Advisor to
prepare and deliver to the Parent within 15 days after the end of each
month after the date hereof and prior to the Closing Date an unaudited
balance sheet of such Advisor and the related unaudited statement of
income of such Advisor, together with notes describing significant
differences between the information therein and the requirements of GAAP.
The Advisors and Equityholders shall engage Ernst & Young to audit the
balance sheet and statements of income, changes in stockholders' equity
and cash flows of the Advisors as at and for the year ended December 31,
1997 and, at Parent's expense with respect to any subsequent period, as at
and for any other period required in connection with the IPO and shall
deliver such audited financial statements, and the audit reports related
thereto promptly upon receipt thereof.
(d) Immediately after the Closing Glaser shall contribute to LLC-1
and the Equityholders shall contribute to LLC-2 such respective amounts of
cash as is necessary in order for the Free Cash of LLC-1 as of Closing to
equal at least $85,000 and for the Free Cash of LLC-2 as of the Closing to
equal at least $50,000.
Section 6.2. Advisory Contract Consents and Approvals and Other
Actions. As soon as reasonably practicable and in any event by the 10th Business
Day following the date hereof, the Advisors shall and Equityholders holding
equity interests in an Advisor shall cause such Advisor (a) to inform the
general partner or other controlling body of each Pooled Product and the
investors in each of the Pooled Products and to inform each other investment
advisory client of the transactions contemplated by this Agreement, (b) to
request the written consent of the general partner or other controlling body of
each Pooled Product and each other investment advisory client (it being
understood and agreed that investors in the Pooled Products are not in such
capacity clients of the Advisor) to the assignment of their investment advisory
agreements deemed to occur as a result of the consummation of such transactions
and (c) to use best efforts to obtain such consents.
Section 6.3. Confidentiality and Announcements.
(a) None of the parties or any of their respective Affiliates,
except as otherwise required by Applicable Law, shall disclose publicly
any of the contents hereof other than as required by Section 6.2 or by
Applicable Law upon prior notice to the other parties hereto.
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(b) The Advisors and the Parent shall agree with each other on
behalf of all the parties as to the form and substance of any press
release related to this Agreement and the Related Agreements or the
transactions contemplated hereby and thereby; provided, however, that
nothing contained herein shall prohibit any party, following notification
to the other parties if practicable, from making any disclosure which its
counsel concludes is required by law.
Section 6.4. Expenses. Except as provided elsewhere herein, the
Advisors and the Equityholders shall bear the direct and indirect expenses of
the Advisors and the Advisors, respectively, and the Parent shall bear the
direct and indirect expenses of the Parent, incurred in connection with the
negotiation and preparation of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby.
Section 6.5. Release of Each Advisor. At the Closing, each of the
Equityholders shall deliver to each Advisor for the benefit of the LLCs and the
Parent a Release in the form annexed hereto as Exhibit 6.5 releasing and forever
discharging each Advisor from any and all causes of action, rights or Claims
that any such person may have had in the past, may now have or may have in the
future related to, connected with, or arising out of such Person's status as a
stockholder, creditor, employee, officer, director or client of such Advisor
prior to the Closing Date.
Section 6.6. Covenants of the Parent. During the period from the
date of this Agreement and continuing through the Closing Date, except as
required by Applicable Law or with the prior written consent of Advisors, the
Parent shall not take any action, or fail to take any action, that would, or
could reasonably be expected to (i) result in any of the Parent's
representations and warranties set forth in this Agreement or any of the Related
Agreements being or becoming untrue in any material respect except that Parent
expects to issue or agree to issue additional shares of capital stock of Parent
and securities convertible into or exchangeable for capital stock of Parent;
(ii) result in a material violation of any provision of this Agreement or any of
the Related Agreements; or (iii) adversely affect or materially delay the
receipt of any of the requisite regulatory approvals.
Section 6.7. Access; Certain Communications. Between the date of
this Agreement and the Closing Date, subject to Applicable Laws relating to the
exchange of information, the Advisors and the Equityholders shall afford to the
Parent and its authorized agents and representatives complete access, upon
reasonable notice and during normal business hours, to contracts, documents and
information of or relating to the assets, liabilities, business, operations,
personnel and such similar aspects of the business of the Advisors and the
Pooled Products as the Parent shall reasonably request and the Parent shall
afford to the Advisors and the Equityholders and their authorized agents and
representatives the same degree of access regarding the business of the Parent;
provided, however, that such investigations shall be conducted in a manner which
does not unreasonably interfere with the other party's normal operations,
customers and employee relations. No investigation pursuant to this Section 6.7
or otherwise shall affect or limit
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the representations and warranties of the Advisors and the Equityholders or of
the Parent, as the case may be, set forth herein.
Section 6.8. Regulatory Matters; Third Party Consents. The Advisors
and the Equityholders, on the one hand, and the Parent, on the other hand, shall
cooperate with each other and use all reasonable efforts promptly to prepare and
file all necessary documentation, to effect all applications, notices, petitions
and filings, to obtain as promptly as practicable all permits, consents,
approvals, waivers and authorizations of all third parties and Governmental
Authorities and to satisfy all conditions which are necessary to consummate the
transactions contemplated by this Agreement (it being understood that the
Advisors and the Equityholders shall be responsible for obtaining all such
approvals, waivers and consents from such parties with whom the Advisors are in
contractual privity including all investment advisory clients). If any required
consent of or waiver by any third party (excluding any Governmental Authority
and consents of clients under investment advisory agreements) is not obtained
prior to the Closing, the Advisors and the Equityholders or the Parent, as the
case may be, each without cost, expense or liability to the other (except as
provided in Article VII hereof), shall cooperate in good faith to seek an
alternative arrangement to achieve the economic results intended.
Section 6.9. Insurance. The Advisors will maintain in effect at
least until and including the Closing Date all casualty, public liability and
other policies of insurance maintained by the Advisors on the date hereof,
including directors' and officers' insurance policies, relating to the business
of the Advisors, the Operating Sites and the other Company Assets, or will
procure comparable replacement policies and maintain such replacement policies
in effect at least until and including the Closing Date.
Section 6.10. Notification of Certain Matters. Each party shall give
prompt notice to the other parties of (i) the occurrence, or failure to occur,
of any event or existence of any condition that, to its knowledge, has caused or
could reasonably be expected to cause any representations or warranties made by
it in this Agreement or any Related Agreement to be untrue or inaccurate in any
material respect at any time after the date of this Agreement, up to and
including the Closing Date, and (ii) any failure on its part to comply with or
satisfy, in any material respect, any of its covenants or agreements in this
Agreement or any Related Agreement and any failure of any condition to another
party's obligation to complete the transactions contemplated hereby to be
satisfied.
Section 6.11. No Solicitation. Except as permitted herein or
contemplated hereby, until the termination of this Agreement pursuant to Section
10.1, none of the Equityholders or Advisors or their officers, directors,
employees, agents or representatives of any of them will, directly or
indirectly, solicit, encourage, assist, initiate discussions or engage in
negotiations with, provide any information to, or enter into any agreement or
transaction with, any Person relating to the possible acquisition of any equity
interests in or assets of any of the Advisors by any Person other than the
Parent and its Affiliates.
Section 6.12. Lockup Agreements.
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****[This section (approximately half a page) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
Section 6.13. Standstill. Except in connection with conversion of
the Parent Convertible Debentures, each of the Advisors and Equityholders agrees
that it will not acquire beneficial ownership (whether through purchase,
formation or inclusion in a group or otherwise) of any shares of voting stock of
the Parent if such acquisition would increase the percentage of shares of voting
stock of the Parent beneficially owned by such Person.
Section 6.14. Noncompetition Agreements. The Equityholders as
stockholders acting through their controlled corporations, the Advisors, are
engaged in the asset management business, including, without limitation, the
formation of domestic and foreign investment funds specializing in active
securities and options trading, the provision of investment and management
services to such funds, serving as general partner for such funds and providing
investment management services for institutional and individual clients (whether
directly or as investors in the investment funds) located throughout the United
States and the world. The Equityholders each acknowledge that (i) the market for
their services extends throughout the United States and the world and that the
Equityholders, individually and through the Advisors, are some of the limited
number of people engaged in the investment management business specializing in
active securities and options trading and are recognized as accomplished
professionals in this business; (ii) as part of the transactions contemplated by
this Agreement, the LLC Agreements and the Related Agreements, the LLCs,
directly or indirectly, will be acquiring all or substantially all of the assets
of the Advisors, including its goodwill, and will carry on the business of the
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Advisors in the same or similar geographic locations and in the same or similar
manner, as had been carried on by the Equityholders through the Advisors; (iii)
upon the consummation of certain of the transactions contemplated by and upon
the occurrence of certain conditions in the LLC Agreements, the Equityholders
shall sell or otherwise dispose of all of their membership interests in the LLCs
and (iv) the restrictive covenants and the other agreements contained in the LLC
Agreements and Employment Agreements, the execution an delivery of which are
conditions precedent to Parent's and its Affiliates obligations hereunder, are
an essential part of this Agreement and the transactions contemplated hereby and
by the LLC Agreements and the Related Agreements.
Subject to the satisfaction or waiver of the conditions set forth
herein, the Equityholders agree to be bound by the noncompetition agreement and
the other restrictive covenants and agreements contained in the LLC Agreements
and the Employment Agreements applicable to them so long as such provisions
shall remain in effect in accordance with their terms to the maximum extent
permitted by law, it being the intent and spirit of the parties that the
noncompetition agreement and the other restrictive covenants and agreements
contained therein shall be valid and enforceable in all respects and, subject to
the terms and conditions of this Agreement, mutually dependent upon the
obligations of the Parent to pay or transfer the consideration recited herein to
the Equityholders pursuant hereto.
ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's Obligations. The obligations
of the Parent to effect the transactions contemplated hereby shall be subject to
the following conditions any one or more of which may be waived in writing by
the Parent in whole or in part:
(a) Each of the representations and warranties of the Advisors and
Equityholders set forth in this Agreement, any Related Agreement or any
Schedule, Exhibit or Annex hereto or thereto shall be true and correct in
all material respects as of the date of this Agreement and (except to the
extent any such representation or warranty speaks as of or is limited to
an earlier date) as of the Closing Date as though made on and as of the
Closing Date; provided, however, that solely for purposes of determining
the satisfaction of the conditions contained in this Section 7.1(a) and
not for purposes of determining liability under Section 8 hereof or
otherwise, no effect shall be given to any exception in such
representations and warranties relating to knowledge, materiality, or a
Material Adverse Effect, and such representations and warranties shall be
deemed to be true, correct and complete in all material respects if and
only if the failures of such representations and warranties to be so true,
correct and complete without regard to knowledge, materiality, and
Material Adverse Effect exceptions do not represent in the aggregate a
Material Adverse Effect;
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(b) The Equityholders and Advisors shall have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement, any Related Agreement or any
Schedule, Exhibit or Annex hereto or thereto to be performed or complied
with by them at or prior to the Closing Date;
(c) Each Advisor and Equityholder shall have delivered to the Parent
a certificate dated as of the Closing Date, confirming the satisfaction of
the conditions contained in Sections 7.1(a) and 7.1(b) to the extent that
the agreements, covenants, obligations and conditions referred to in such
Sections are made by the respective Advisor or Equityholder;
(d) Each Advisor shall have obtained from each of its clients any
necessary consent or approval in accordance with Section 6.2 hereof;
(e) Each of the Employment Agreements shall be in full force and
effect without any breach thereof by the individual party thereto;
(f) No requisite regulatory approval shall impose any term,
condition or restriction upon the Parent or any of its Affiliates that the
Parent reasonably determines would so materially adversely affect the
economic or business benefits of the transactions contemplated by this
Agreement to the Parent as to render inadvisable in the reasonable good
faith judgment of the Parent the consummation of the transactions
contemplated hereby;
(g) The dollar-weighted average total return net of fees and
expenses of the net assets under management by the Advisors for the period
from January 1, 1998 through the Closing shall not be worse than -5.0% and
no event shall have occurred since December 31, 1997 which has had or
could reasonably be expected to have, individually or in the aggregate
with any other event, a Material Adverse Effect;
(h) As of the Closing Date the assets under management by the
Advisors under fee and profit allocations comparable or better to those in
effect with the respective clients of the Advisors as of December 31, 1997
shall not be less than $220 million;
(i) The Parent shall have received the opinion of counsel to the
Equityholders and Advisors dated the Closing Date in form and substance
reasonably acceptable to Parent as to the matters set forth on Exhibit
7.1(i) hereto;
(j) The Parent shall have received evidence that Jonathan Glaser,
Roger Richter and Daniel David are insurable with respect to key-man life
insurance policies;
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(k) Each Equityholder shall have duly executed and delivered to
LLC-1 or LLC-2 as the case may be the Employment Agreement to be entered
into pursuant to Section 2.2 hereof;
(l) Each Equityholder and Advisor shall have duly executed and
delivered to Parent each LLC Agreement to which such Equityholder or
Advisor is a party, as indicated on the signature pages of Exhibits 2.4(a)
and 2.4(b) hereto; and
(m) The transactions contemplated by the Transfer Agreements
referred to in Section 2.3 hereof shall have been consummated.
Section 7.2. Conditions to the Equityholders' and Advisor's
Obligations. The obligation of the Equityholders and Advisors to effect the
transactions contemplated hereby shall be subject to the following conditions
which may be waived in writing by the Company:
(a) Each of the representations and warranties of the Parent
contained in this Agreement, any Related Agreement or any schedule,
Exhibit or Annex hereto or thereto shall be true in all material respects
as of the date of this Agreement and (except to the extent any such
representation or warranty speaks as of or is limited to an earlier date)
as of the Closing Date with the same effect as though made on and as of
the Closing Date; provided, however, that solely for purposes of
determining the satisfaction of the conditions contained in this Section
7.2(a) and not for purposes of determining liability under Section 8
hereof or otherwise, no effect shall be given to any exception in such
representations and warranties relating to knowledge, materiality, or a
Parent Material Adverse Effect, and such representations and warranties
shall be deemed to be true, correct and complete in all material respect
only if the failure or failures of such representations and warranties to
be so true, correct and complete without regard to knowledge, materiality,
and Parent Material Adverse Effect exceptions do not represent in the
aggregate a Parent Material Adverse Effect;
(b) The Parent shall have performed and complied in all material
respects with all covenants, obligations and conditions required by this
Agreement, any Related Agreement or any Schedule, Exhibit or Annex hereto
or thereto to be performed or complied with by them at or prior to the
Closing Date;
(c) The Parent shall have delivered to the Advisors and
Equityholders a certificate, dated as of the Closing Date, from an officer
of the Parent confirming the satisfaction of the conditions contained in
Sections 7.2(a) and 7.2(b);
(d) No requisite regulatory approval shall have imposed any term,
condition or restriction upon the LLCs that the Advisors reasonably
determine would so materially adversely affect the economic or business
benefits to the Advisors and Equityholders of the transactions
contemplated by this Agreement as
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to render inadvisable in the reasonable good faith judgment of the
Advisors the consummation of the transactions contemplated hereby;
(e) The Advisors and Equityholders shall have received the opinion
of counsel to the Parent, dated the Closing Date, in form and substance
reasonably acceptable to the Advisors and Equityholders as to the matters
set forth on Exhibit 7.2(e) hereto;
(f) The Parent shall have executed and delivered to the Advisors and
Equityholders the Registration Rights Agreement, dated the Closing Date,
substantially in the form annexed hereto as Exhibit 7.2(f); and
(g) The Parent and Asset Alliance Holding Corporation shall have
executed and delivered to each Equityholder and Advisor each LLC Agreement to
which such Equityholder or Advisor is a party, as indicated on the signature
pages of Exhibits 2.4(a) and 2.4(b) hereto.
Section 7.3. Mutual Condition. The obligations of each of the
Equityholders and Advisors, on the one hand, and the Parent, on the other hand,
to effect the Closing shall be subject to the condition that no order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
transactions contemplated by this Agreement shall be in effect, that no
proceeding initiated by any Governmental Authority seeking an injunction shall
be pending and that no statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any Governmental
Authority which prohibits, restricts or makes illegal consummation of the
transactions contemplated hereby.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders. From and after the
Closing Date, each Equityholder, severally and not jointly, in proportion to
such Equityholder's respective interest in the Advisors as a stockholder
immediately prior to the Closing, and each Advisor jointly and severally with
the Equityholders that are stockholders in such Advisor, with respect to the
representations, warranties, covenants and agreements made by each of them
(provided that each Equityholder shall also be responsible for any failure by an
Advisor in which it is a stockholder to provide any required indemnification)
hereby agree to indemnify, defend and hold harmless the Parent and its
employees, officers, partners and other Affiliates (other than the LLCs) from
and against any and all Losses (other than any Losses for or relating to Taxes,
which shall be subject to the provisions of Article IX of this Agreement) which
any of them may suffer, incur or sustain arising out of, attributable to, or
resulting from: (a) any inaccuracy in or breach or nonperformance of any of the
representations or warranties of the Advisors and the Equityholders, or any
covenant or agreement of the Advisors and the Equityholders, made in or pursuant
to this
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Agreement or any Related Agreement (it being agreed that solely for purposes of
establishing whether any matter is indemnifiable pursuant to this clause (a), no
effect shall be given to any qualification regarding knowledge, materiality,
Material Adverse Effect or Parent Material Adverse Effect) and (b) except to the
extent set forth on Annex 2.3(c) or 2.3(d) and not resulting in any breach or
violation of any representation, warranty, covenant or agreement contained in
this Agreement, the activities, conduct, business or operation of any of the
Advisors or any of the Pooled Products prior to the Closing, or arising out of
facts, events or circumstances regarding any Advisor or any Pooled Product
existing prior to the Closing.
Section 8.2. Obligations of the Parent. From and after the Closing
Date, the Parent shall indemnify, defend and hold harmless the Advisors and the
Equityholders from and against any Losses which they may suffer, incur, or
sustain arising out of, attributable to or resulting from any inaccuracy in or
breach or nonperformance of any of the representations, warranties, covenants or
agreements made by the Parent in or pursuant to this Agreement or any Related
Agreement prior to the Closing (it being agreed that solely for purposes of
establishing whether any matter is indemnifiable pursuant to this Section 8.2,
no effect shall be given to any qualification regarding knowledge, materiality,
Material Adverse Effect or Parent Material Adverse Effect.
Section 8.3. Procedure.
(a) Notice of Third Party Claims. Any Indemnified Party seeking
indemnification for any Loss or potential Loss arising from a Claim
asserted by a third party against the Indemnified Party (a "Third Party
Claim") shall give written notice to the Indemnifying Party. Written
notice to the Indemnifying Party of the existence of a Third Party Claim
shall be given by the Indemnified Party within 15 days after its receipt
of a written assertion of liability from the third party; provided,
however, that the Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to this Article VIII by any failure to provide
timely notice of the existence of a Third Party Claim to the Indemnifying
Party except and only to the extent that the Indemnifying Party actually
incurs an incremental out-of-pocket expense or otherwise has been
materially damaged or prejudiced as a result of such delay.
(b) Defense. Except as otherwise provided herein, the Indemnifying
Party may elect to compromise or defend, at such Indemnifying Party's own
expense and by such Indemnifying Party's own counsel (which counsel shall
be reasonably satisfactory to the Indemnified Party), any Third Party
Claim. If the Indemnifying Party elects to compromise or defend such Third
Party Claim, it shall, within 30 days after receiving notice of the Third
Party Claim, notify the Indemnified Party of its intent to do so, and the
Indemnified Party shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Third Party Claim.
If the Indemnifying Party elects not to compromise or defend against the
Third Party Claim, or fails to notify the Indemnified Party of its
election to do so as herein provided, or otherwise abandons the defense of
such Third Party Claim, (i) the Indemnified Party may pay (without
prejudice of any of its rights as against the Indemnifying Party),
compromise or defend such Third Party Claim and (ii) the reasonable costs
and expenses of the Indemnified Party incurred in connection therewith
shall be indemnifiable by the Indemnifying Party pursuant to the terms of
this Agreement. Notwithstanding anything to the contrary contained herein,
in connection with any Third Party Claim in which the Indemnified Party
shall reasonably conclude, based upon the written advice of its counsel,
that (x) there is a conflict of interest between the Indemnifying Party
and the Indemnified Party in the conduct of the defense of such
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Third Party Claim, or (y) there are specific defenses available to the
Indemnified Party which are different from or additional to those
available to the Indemnifying Party and which could be materially adverse
to the Indemnifying Party, then the Indemnified Party shall have the right
to assume and direct the defense and compromise of such Third Party Claim
insofar as it relates to the Indemnified Party. In such an event, the
Indemnifying Party shall pay the reasonable fees and disbursements of
counsel to the Indemnifying Party or Parties and the Indemnified Party
provided that the Indemnifying Party shall not be liable for the fees and
expenses of more than one counsel for the Indemnified Parties other than
local counsel. Notwithstanding the foregoing, neither the Indemnifying
Party nor the Indemnified Party may settle or compromise any Claim (except
that the Indemnifying Party may settle or compromise a Claim if the sole
relief payable to a third party in respect of such Third Party Claim is
monetary damages that are paid in full by the party settling or
compromising such Claim and the settlement or compromise includes a
complete release of the other party or parties hereto) over the objection
of the other, provided, however, that consent to settlement or compromise
shall not be unreasonably withheld. In any event, except as otherwise
provided herein, the Indemnified Party and the Indemnifying Party may each
participate, at its own expense, in the defense of such Third Party Claim.
If the Indemnifying Party chooses to defend any Claim, the Indemnified
Party shall make available to the Indemnifying Party any personnel or any
books, records or other documents within its control that are reasonably
necessary or appropriate for such defense, subject to the receipt of
appropriate confidentiality agreements.
(c) Settlement. If a settlement offer solely for money damages is
made by a third party claimant, and the Indemnifying Party notifies the
Indemnified Party in writing of the Indemnifying Party's willingness to
accept the settlement offer and pay the amount called for by such offer,
and the Indemnified Party declines to accept such offer, the Indemnified
Party may continue to contest such Claim, free of any participation by the
Indemnifying Party, and the amount of any ultimate liability with respect
to such Indemnifiable Claim that the Indemnifying Party has an obligation
to pay hereunder shall be limited to the lesser of (A) the amount of the
settlement offer that the Indemnified Party declined to accept plus the
reasonable costs and expenses of the Indemnified Party incurred prior to
the date the Indemnifying Party notifies the Indemnified Party of the
Indemnifying Party's willingness to settle or compromise such Third Party
Claim and (B) the aggregate Losses of the Indemnified Party with respect
to such Claim.
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(d) Miscellaneous. The procedures set forth in this Section 8.3
shall not apply to any Tax Claim (as defined herein), which instead shall
be resolved exclusively in accordance with the procedures set forth in
Article IX. The procedures set forth in this Section 8.3 shall apply
solely with respect to Third Party Claims (other than Tax Claims) and
shall not be deemed to apply to, or otherwise affect or limit, an
Indemnified Party's rights under this Agreement with respect to any Claim
other than a Third Party Claim.
Section 8.4. Notice of Non-Third Party Claims. Any Indemnified Party
seeking indemnification for any Loss or potential Loss arising from a Claim
asserted by any party to this Agreement against the Indemnified Party (a
"Non-Third Party Claim") shall give written notice to the Indemnifying Party.
Written notice to the Indemnifying Party of the existence of a Non-Third Party
Claim shall be given by the Indemnified Party promptly after discovery of the
potential Claim; provided, however, that the Indemnified Party shall not be
foreclosed from seeking indemnification pursuant to this Article VIII by any
failure to provide timely notice of the existence of a Non-Third Party Claim to
the Indemnifying Party except and only to the extent that the Indemnifying Party
actually incurs an incremental out-of-pocket expense or otherwise has been
materially damaged or prejudiced as a result of such delay.
Section 8.5. Survival of Indemnity. Any matter as to which a Claim
to which Article VIII is applicable has been specifically asserted in writing
prior to the third anniversary of the Closing Date that is pending or unresolved
at the end of any applicable limitation period set forth in Section 10.3 hereof
shall continue to be covered by this Article VIII notwithstanding any applicable
statute of limitations (which the parties hereby waive to the extent provided
herein) until (a) such matter is finally terminated or otherwise resolved in
accordance with this Agreement and any amounts payable hereunder are finally
determined and paid or (b) in the absence of such termination or resolution,
until the later of (i) the fourth anniversary of the Closing Date or (ii) the
expiration of the applicable statute of limitations (unless the party asserting
such Claim commences arbitration proceedings or litigation in a court of
competent jurisdiction prior to such expiration).
Section 8.6. Reserved.
Section 8.7. Limitation on Indemnification. ****[This section
(approximately one page) has been omitted pursuant to the confidential treatment
request referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
Section 8.8. Purchase Price Adjustment. Any indemnification payment
required to be made by Parent or the Advisors or Equityholders pursuant to the
terms of this Article VIII or Article IX may be made, in whole or in part, at
the election of the Indemnified Party, first through a reduction of the
contingent giveback described in Section 3.2(b) and 3.2(c) or the contingent
consideration described in Section 3.2(d) and 3.2(e), as the case may be, which
the Indemnifying Party was previously entitled to receive. Any indemnification
payments made to an Indemnified Party through reduction of the
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contingent giveback or consideration described in Sections 3.2(b) and 3.2(c) or
3.2(d) and 3.2(e) shall be considered adjustments to the Purchase Price.
Section 8.9. Exclusive Remedy. After the Closing the sole and
exclusive remedy of any party for any inaccuracy, untruth, violation or breach
of any representation, warranty, agreement or obligation made in connection with
this Agreement or required to be performed prior to the Closing shall be,
subject to Section 11.4 hereof, the indemnification contained in this Article
VIII and Article IX.
ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation. The Advisors and Equityholders and the
Parent shall each: (a) cooperate in the preparation of any Tax Returns of the
Advisors and the Pooled Products; (b) cooperate fully in preparing for any
audits of, or disputes with taxing authorities regarding, any Tax liability of
the Advisors and the Pooled Products; (c) make available to the other and to any
taxing authority, as reasonably requested, all information, records, and
documents relating to any Tax; (d) provide timely notice to the other in writing
of any written notice received concerning any pending or threatened audits or
assessments relating to any Tax liability of the Advisors and the Pooled
Products for which the other may have liability pursuant to Section 9.3
hereunder; and (e) furnish the other with copies of all correspondence received
from any taxing authority in connection with any audit or information request
with respect to any Tax for which the other may have liability pursuant to
Section 9.3 hereunder.
Section 9.2. Tax Returns. The Advisors and Equityholders shall be
responsible for preparing and filing (or causing the preparation and filing of)
any Tax Returns required to be filed by the Advisors and the Pooled Products
with respect to tax periods ending on or before the Closing Date. The parties
agree with respect to such Tax Returns to determine the income, gain, expenses,
losses, deductions, and credits of the Advisors and/or the Pooled Products in a
manner consistent with prior practices and in a manner that apportions such
income, gain, expenses, loss, deductions and credits equitably from period to
period; provided, however, that in all events such Tax Returns shall be prepared
in a manner consistent with Applicable Law and without prejudice to the rights
of indemnification of any party (other than the LLCs) hereunder with respect to
any Tax Claim. No amended return may be filed by or on behalf of any Advisor
and/or the Pooled Products with respect to any period ending on or prior to the
Closing Date without the written consent of Parent which consent shall not
unreasonably delayed or withheld.
Section 9.3. Liability for Taxes.
(a) From and after the Closing Date, each Equityholder, severally
and not jointly, in proportion to such Equityholder's respective interest
in the Advisors as a stockholder immediately prior to the Closing, and
each Advisor jointly and
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severally with the Equityholders that are stockholders in such Advisor
(provided that each Equityholder shall also be responsible for any failure
by an Advisor in which it is a stockholder to provide any required
indemnification to the extent provided herein), shall indemnify the Parent
and its Affiliates (other than the LLCs), and hold them harmless from and
against, any Losses in relation to Taxes imposed on any LLC (or their
successors in interest) relating to any taxable period of any Advisor
ending on or before the Closing Date and from any liability for Losses in
relation to Taxes resulting from a breach of any representation herein;
provided that such indemnification shall not apply or extend to any Taxes
which are properly reflected as a liability on the Company Financial
Statements in accordance with prior practice as of the Closing Date;
provided, further, that for purposes of this Section 9.3(a), any Losses or
liability for Taxes shall be reduced by the amount of any tax benefit that
accrues to the LLCs as a result of the imposition of such Taxes for which
indemnification is payable hereunder taking into account time value of
money considerations.
(b) To the extent Parent receives any refund or credit for Taxes
previously paid by or on behalf of a Advisor in respect of any tax period
ending on or before the Closing Date (other than any refund or credit
reflected on the financial records of such Advisor in accordance with
prior practice as of the Closing Date), such refund or credit shall be
promptly paid to the Advisor.
Section 9.4. Procedures Related to Tax Claims.
(a) If any Claim for Taxes shall be made by any Taxing Authority
against any Advisors (or any successor in interest) or against any
Equityholder in respect of any Advisor ("Tax Claim"), the party receiving
such Tax Claim shall promptly notify the other parties.
(b) If such Tax Claim, if successful, might require the Advisors and
Equityholders to make an indemnity payment pursuant to Section 9.3(a), the
Advisors and Equityholders shall have the sole right (but not the
obligation) to control, defend, settle, compromise, or contest in any
manner such Tax Claim; provided, however, that (i) the Advisors and
Equityholders shall keep Parent fully informed of any proceedings in
connection with such Tax Claim and (ii) Parent shall be entitled to
receive copies of all correspondence and documents related to such Tax
Claim and may, at its option, observe such proceedings (including any
meetings or conferences). No such Tax Claim may be settled by the Advisors
and Equityholders without the consent of Parent, which consent shall not
unreasonably be withheld or delayed; provided, that (x) the
indemnification obligation of the Advisors and Equityholders under Section
9.3(a) with respect to Losses arising from such Tax Claim shall be no
greater than such obligation would have been had such Tax Claim been
disposed of in the manner originally contemplated by the Equityholders and
Advisors, and (y) Parent shall indemnify, defend and hold harmless the
Advisors and Equityholders from and against any liability for Taxes
imposed upon the LLCs in excess of the liability for Taxes, if any, that
otherwise
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would have resulted had such Tax Claim been disposed of in the manner
originally contemplated by the Advisors and Equityholders. The costs and
expenses incurred in contesting any such Tax Claim shall be borne by the
Advisors and Equityholders except to the extent that Parent withholds its
consent to any proposed settlement of such Tax Claim, in which case such
costs and expenses shall be borne equally by the Advisors, Equityholders
and Parent.
Section 9.5. Survival of Tax Claims and Section 4.12 Representation.
Any Tax Claim to be made pursuant to this Article IX shall survive until the
expiration of the applicable statute of limitations in respect of such Tax
Claim. The representations and warranties made by the Advisors and Equityholders
in Section 4.12 shall survive until the expiration of the applicable statute of
limitations.
Section 9.6. Exclusive Remedy. Notwithstanding any other provision
of this Agreement to the contrary, the provisions of this Article IX shall be
the exclusive means by which any party may recover damages from any other party
with respect to any Tax Claim based on Taxes pertaining to any Advisor.
Section 9.7. Payments for Indemnification under Article IX. Any
indemnification amounts payable pursuant to this Article IX by an Advisor or
Equityholder shall be paid in the same manner as indemnification payments under
Section 8.7.
Section 9.8. Code Section 754 Election. The Advisors and
Equityholders and the Parent consent to each of the LLCs making an election
under Section 754 of the Code (and a corresponding adjustment to the tax basis
of the property owned by each of the Advisors under Section 743 of the Code).
Section 9.9. Interim Closing of the Books. The Equityholders and the
Parent agree that each of the LLCs and the Pooled Products shall undertake an
interim closing of its books on the Closing Date for purposes of determining
items of income, gain, deduction and loss.
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination.
(a) This Agreement may be terminated at any time prior to the
Closing as follows:
(1) by the mutual written consent of the Parent and the
Advisors;
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(2) by the Advisors or by the Parent if it has become
reasonably and objectively certain that any of the conditions to such
Person's obligation to close the transactions contemplated by this
Agreement will not be satisfied on or prior to the date set forth in
Section 10.1(a)(5) below;
(3) by the Advisors, on the one hand, or by the Parent, on the
other hand, if there shall have been a breach of any of the
representations and warranties set forth in this Agreement on the part of
the other party, which breach would entitle the party receiving such
representation or warranty not to consummate the transactions contemplated
hereby under Section 7.1(a) (in the case of a breach of representation or
warranty by the Advisors and the Equityholders) or Section 7.2(a) (in the
case of a breach of representation or warranty by Parent) and which breach
by its nature cannot be cured prior to the date set forth in Section
10.1(a)(5) below;
(4) by the Advisors, on the one hand, or by the Parent, on the
other hand, if there shall have been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of the
Parent (in the case of termination by the Advisor) or on the part of the
Advisors, Equityholders or Advisors (in the case of termination by the
Parent), which breach shall not have been cured within 20 Business Days
following receipt by the breaching party of written notice of such breach
from the other; and
(5) at the election of the Parent or the Advisors, if the
Closing Date shall not be on or before July 31, 1998.
Notwithstanding Section 10.1(a)(2)-(5) hereof, a party who is in
material breach of any of its obligations or representations and
warranties hereunder shall not have the right to terminate this Agreement
pursuant to Section 10.1(a)(2)-(5).
(b) The termination of this Agreement shall be effectuated by the
delivery by the party terminating this Agreement to the other party of a
written notice of such termination. If this Agreement so terminates, it
shall become null and void and have no further force or effect, except as
provided in Section 10.2.
Section 10.2. Effect of Termination. In the event of termination of
this Agreement as provided in Section 10.1, this Agreement shall forthwith
become void and have no effect except (i) the confidentiality provisions
contained in Section 6.3 and Articles VIII, IX, X and XI shall survive any
termination of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement. In the event of termination of this Agreement each party shall
upon request return to any other party that supplied written information in
connection herewith, or destroy, any or all of such written information so
provided and shall not retain any copy or duplicate thereof (except as may be
required by law or as may be a part of the record of any Board of Director or
committee meeting or action) and shall not use or
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furnish any such information for any purposes other than the evaluation of the
Advisors, the Equityholders, the Pooled Products and the transactions
contemplated hereby, provided that such party may retain such information or
copies and use such information in connection with the evaluation and pursuit or
defense of any action, Claim, proceeding or demand hereunder or in connection
herewith.
Section 10.3. Survival of Representations and Warranties. Except as
provided in Sections 8.5 and 9.5, the respective representations and warranties
of the Advisors and the Equityholders and the Parent contained herein and in the
certificates of the Advisors and the Equityholders and the Parent to be
delivered at the Closing, and the right of any Person to initiate a Claim under
Article VIII, shall expire and be terminated and extinguished.***** Following
the appropriate expiration date referred to in the previous sentence, except as
provided in Sections 8.5 and 9.5, no party shall have any liability whatsoever
with respect to any such referenced representation or warranty or any other
Claim under Article VIII except with respect to Claims specifically asserted
in writing pursuant to Article VIII hereof.*****
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes. Except for requests for injunctive relief,
specific performance or enforcement of the award of an arbitrator, all disputes
arising in connection with this Agreement shall be resolved by binding
arbitration in accordance with the applicable rules of the American Arbitration
Association. The arbitration shall be held, in the State of New York before a
single arbitrator selected in accordance with Section 12 of the American
Arbitration Association Commercial Arbitration Rules who shall have substantial
business experience in the investment advisory industry, and shall otherwise be
conducted in accordance with such association's Commercial Arbitration Rules.
The award of such arbitrator shall be enforceable in any court having
jurisdiction over the parties to such arbitration.
Section 11.2. Amendments; Extension; Waiver. Subject to compliance
with Applicable Law, this Agreement may be amended, altered or modified by
written instrument executed by each of the parties hereto; provided, however,
that the Advisors may waive in writing the performance by the Parent of any of
its representations, warranties, covenants or other agreements and that the
Parent may waive in writing the performance by any of the Advisors or
Equityholders of any of its representations, warranties, covenants or other
agreements and that any party may waive any of the conditions to its obligations
to close the transactions contemplated hereby.
Section 11.3. Entire Agreement. This Agreement (including Schedules,
certificates and lists referred to herein, and any documents executed by the
parties simultaneously herewith or pursuant hereto) and the Related Agreements
constitutes
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the entire understanding and agreement of the parties hereto, except as provided
herein, and supersedes all prior agreements and understandings, written and
oral, among the parties with respect to the subject matter hereof.
Section 11.4. Specific Performance; Injunctive Relief. Each party
understands and agrees that it will be irreparably damaged in the event this
Agreement is not specifically enforced. Each party, therefore, agrees that in
the event of a breach of any material provision of this Agreement, the aggrieved
party may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
of this Agreement. Such remedies shall, however, be cumulative and not
exclusive, and shall, except as provided in Section 8.9, be in addition to any
other remedy which a party may have.
Section 11.5. Interpretation. When a reference is made in this
Agreement to a Section, Exhibit, Annex or Schedule, such reference shall be to a
Section of or Exhibit, Annex or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the words "to the knowledge of" a
specified Person or terms of similar import, are used in this Agreement, they
shall be deemed to be followed by the words "and after due inquiry by the
officers of" such Person. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms and the singular form of nouns and pronouns shall include the plural and
vice versa. The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement.
Section 11.6. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 11.7. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if (a) delivered in
person, (b) transmitted by telecopy (with confirmation), (c) mailed by certified
or registered mail (return receipt requested) or (d) delivered by an express
courier (with confirmation) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Parent:
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Asset Alliance Corporation
800 Third Avenue
New York, New York 10022
Telecopy: (212) 207-8785
Attention: Bruce Lipnick, President
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108
Telecopy: (617) 573-4822
Attention: Thomas A. DeCapo, Esq.
If to the Equityholders or the Advisors:
Jonathan Glaser
c/o JMG Capital Management, Inc.
1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Telecopy: (310) 201-2759
Daniel David
c/o Pacific Capital Management Inc.
One Sansome Street, 39th Floor
San Francisco, California 94104
Telecopy: (415) 288-2313
Roger Richter
c/o Pacific Capital Management Inc.
One Sansome Street, 39th Floor
San Francisco, California 94104
Telecopy: (415) 288-2313
JMG Capital Management, Inc.
1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Telecopy: (310) 201-2759
Attention: Jonathan Glaser
Pacific Capital Management Inc.
One Sansome Street, 39th Floor
San Francisco, California 94104
Telecopy: (415) 288-2313
Attention: Roger Richter
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With a copy to:
John L. Savva, Esq.
Sullivan & Cromwell
444 S. Flower Street
Los Angeles, California 90071
Telecopy: (213) 683-0457
If to the LLCs:
JMG Capital Management LLC
1999 Avenue of the Stars, Suite 2530
Los Angeles, California 90067
Telecopy: (310) 201-2759
Attention: Jonathan Glaser
Pacific Assets Management LLC
One Sansome Street, 39th Floor
San Francisco, California 94104
Telecopy: (415) 288-2313
Attention: Roger Richter
With a copy to:
Asset Alliance Corporation
800 Third Avenue
New York, New York 10022
Telecopy: (212) 207-8785
Attention: Bruce Lipnick, President
Section 11.8. Binding Effect; Persons Benefitting; No Assignment.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and the respective heirs, legal representatives, estates, executors,
successors and permitted assigns of the parties and such persons. Nothing in
this Agreement is intended or shall be construed to confer upon any entity or
person other than the parties hereto and their respective heirs, legal
representatives, estates, executors, successors and permitted assigns any right,
remedy or Claim under or by reason of their Agreement or any part hereof.
Without the prior written consent of each of the other parties hereto, this
Agreement may not be assigned by any of the parties hereto. Notwithstanding the
foregoing, the Parent may assign to any Affiliate of the Parent all or any
portion of the Parent's rights hereunder whether prior to or after the Parent
exercises such right, provided that in the event of any such assignment such
assignee shall be deemed to have all of the rights and obligations of the Parent
set forth herein. No assignment shall release the Parent from any liability or
obligation under this Agreement
46
<PAGE> 52
Section 11.9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same agreement, it being understood
that all of the parties need not sign the same counterpart.
Section 11.10. Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS
BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, SHALL BE
GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF.
Section 11.11. Jurisdiction. Subject to Section 11.1 hereof, each of
the parties hereto agrees to personal jurisdiction in any action brought in any
court, federal or state, within the state of Delaware or New York having subject
matter jurisdiction over matters arising under this Agreement.
47
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ASSET ALLIANCE CORPORATION JMG CAPITAL MANAGEMENT, INC.
By: /s/ Arnold L. Mintz By: /s/ Jonathan M. Glaser
------------------------------- ---------------------------------
Name: Arnold L. Mintz Name: Jonathan M. Glaser
Title: Executive Vice President Title: President
JMG CAPITAL MANAGEMENT LLC PACIFIC CAPITAL MANAGEMENT, INC.
By: /s/ Jonathan M. Glaser By: /s/ Roger Richter
------------------------------- ---------------------------------
Name: Jonathan M. Glaser Name: Roger Richter
Title: Authorized Person Title: President
PACIFIC ASSETS MANAGEMENT LLC
/s/ Jonathan M. Glaser
- ----------------------------
Jonathan M. Glaser
By: /s/ Jonathan M. Glaser
/s/ Roger Richter ---------------------------------
- ---------------------------- Name: Jonathan M. Glaser
Roger Richter Title: Authorized Person
/s/ Daniel A. David
- ----------------------------
Daniel A. David
<PAGE> 1
EXHIBIT 2.4
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
====================================================================
PURCHASE AGREEMENT
by and among
ASSET ALLIANCE CORPORATION
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
Dated as of: March 24, 1998
====================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions..............................................2
ARTICLE II.
RELATED TRANSACTIONS
Section 2.1. Qualification of LLC.....................................9
Section 2.2. Employment Agreements....................................9
Section 2.3. Transfer of Assets to LLC................................9
Section 2.4. LLC Agreements...........................................9
ARTICLE III.
PURCHASE AND SALE; CLOSING; RELATED MATTERS
Section 3.1. Purchase and Sale.......................................10
Section 3.2. Purchase Price..........................................11
Section 3.3. The Closing.............................................13
Section 3.4. Further Actions.........................................13
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE HOLDING COMPANIES AND EQUITYHOLDERS
Section 4.1. Organization and Related Matters........................15
Section 4.2. Authority; No Violation; Consents.......................16
Section 4.3. Assets Under Management.................................17
Section 4.4. Financial Statements....................................17
Section 4.5. Compliance with Applicable Law..........................18
Section 4.6. Books and Records.......................................19
Section 4.7. Ineligible Persons......................................19
Section 4.8. Company Assets..........................................19
Section 4.9. Company Contracts.......................................19
Section 4.10. Technology and Intellectual Property....................20
Section 4.11. Legal Proceedings.......................................20
Section 4.12. Taxes and Tax Returns...................................20
Section 4.13. Insurance...............................................22
Section 4.14. Labor and Employment Matters............................22
i
<PAGE> 3
Page
----
Section 4.15. Benefit Plan Obligations................................23
Section 4.16. No Broker...............................................24
Section 4.17. Absence of Changes......................................24
Section 4.18. The Equityholders.......................................24
Section 4.19. Additional Representations Regarding Pooled Products....24
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PARENT
Section 5.1. Organization............................................26
Section 5.2. Authority; No Violation; Consents.......................26
Section 5.3. No Actions, Suits or Proceedings........................27
Section 5.4. Financial Statements....................................27
Section 5.5. Capitalization..........................................28
Section 5.6. Compliance with Applicable Law..........................28
Section 5.7. Eligibility.............................................29
Section 5.8. No Broker...............................................29
Section 5.9. Other Instruments.......................................29
ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business.....................................30
Section 6.2. Advisory Contract Consents and Approvals and Other
Actions ................................................31
Section 6.3. Confidentiality and Announcements.......................31
Section 6.4. Expenses................................................32
Section 6.5. Release of Each Manager.................................32
Section 6.6. Covenants of the Parent.................................32
Section 6.7. Access; Certain Communications..........................32
Section 6.8. Regulatory Matters; Third Party Consents................33
Section 6.9. Insurance...............................................33
Section 6.10. Notification of Certain Matters.........................33
Section 6.11. No Solicitation.........................................33
Section 6.12. Registration Rights; Lockup Agreements..................34
Section 6.13. Standstill..............................................34
Section 6.14. Cash at Closing.........................................34
ii
<PAGE> 4
Page
----
ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's Obligations..................35
Section 7.2. Conditions to the Holding Companies',
Equityholders' and Advisors' Obligations................36
Section 7.3. Satisfaction of Conditions - IPO........................37
Section 7.4. Mutual Condition........................................37
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders.........................38
Section 8.2. Obligations of the Parent...............................38
Section 8.3. Procedure...............................................38
Section 8.4. Notice of Non-Third Party Claims........................40
Section 8.5. Survival of Indemnity...................................40
Section 8.6. Adjustments to Indemnification Obligations..............40
Section 8.7. Limitation on Indemnification...........................41
Section 8.8. Purchase Price Adjustment...............................41
Section 8.9. Exclusive Remedy........................................41
ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation.........................................42
Section 9.2. Tax Returns.............................................42
Section 9.3. Liability for Taxes.....................................42
Section 9.4. Procedures Related to Tax Claims........................43
Section 9.5. Survival of Tax Claims and Section 4.12 Representation..43
Section 9.6. Exclusive Remedy........................................43
Section 9.7. Payments for Indemnification under Article IX...........43
Section 9.8. Code Section 754 Election...............................43
Section 9.9. Interim Closing of the Books............................44
iii
<PAGE> 5
Page
----
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination.............................................44
Section 10.2. Effect of Termination...................................45
Section 10.3. Survival of Representations and Warranties..............45
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes................................................45
Section 11.2. Amendments; Extension; Waiver...........................46
Section 11.3. Entire Agreement........................................46
Section 11.4. Specific Performance; Injunctive Relief.................46
Section 11.5. Interpretation..........................................46
Section 11.6. Severability............................................46
Section 11.7. Notices.................................................47
Section 11.8. Binding Effect; Persons Benefitting; No Assignment......48
Section 11.9. Counterparts............................................48
Section 11.10 Governing Law...........................................48
Section 11.11 Jurisdiction............................................48
iv
<PAGE> 6
PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of March 24, 1998 (this "Agreement"),
by and among Asset Alliance Corporation, a Delaware corporation (the "Parent"),
Metropolitan Capital Advisors LLC, a Delaware limited liability company
("LLC-1"), Metropolitan Capital Managers LLC, a Delaware limited liability
company ("LLC-2"), Metropolitan Capital Managers II LLC ("LLC-3" and,
collectively with LLC-1 and LLC-2, the "LLCs"), Metropolitan Capital Advisors,
Inc., a New York corporation ("MCA"), KJ Advisor's, Inc., a New York corporation
("KJ"), Metropolitan Capital III, Inc., a New York corporation ("Capital" and
together with MCA and KJ the "Holding Companies"), Metropolitan Capital
Advisors, L.P., a Delaware limited partnership ("Capital Advisors"),
Metropolitan Capital Partners II, L.P., a New York limited partnership,
("Capital Partners"), Metropolitan Capital Partners III, L.P., a Delaware
limited partnership, ("Capital III" and together with Capital Advisors and
Capital Partners the "Advisors"), Jeffrey Schwarz ("Schwarz"), Karen Finerman
("Finerman") and Jeffrey Schwarz Children's Trust (the "Trust" and collectively
with Schwarz and Finerman the "Equityholders").
RECITALS:
WHEREAS, Schwarz and Finerman own all of the capital stock of the
Holding Companies and the Equityholders and the Holding Companies own all of the
general and limited partnership interests in the Advisors;
WHEREAS, the Equityholders and the Holding Companies wish to
transfer all of their interests in Capital Advisors to LLC-1 and in Capital
Partners to LLC-2 and Capital III to LLC-3 in exchange for all of the membership
interests therein on the terms and conditions and for the consideration
described in this Agreement; and
WHEREAS, the Equityholders desire to sell to Parent and Parent
desires to purchase from the Equityholders a membership interest in each of
LLC-1, LLC-2 and LLC-3;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
the parties contained in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
<PAGE> 7
ARTICLE I.
DEFINITIONS
Section 1.1. Definitions. (a) For all purposes in this Agreement,
the following terms shall have the respective meanings set forth in this Section
1.1 (such definitions to be equally applicable to both the singular and plural
forms of the terms herein defined):
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC thereunder.
"Affiliate" means any corporation, partnership, entity or other
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the Person specified
including with respect to Parent, any Subsidiary or Manager.
"Applicable Law" means any statute, law, ordinance, rule, public
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any Governmental Authority applicable
to the Parent, any Manager, any Holding Company or Advisor, any Pooled Product,
or any of their respective properties, assets, officers, directors, employees or
agents.
"Business Day" means any day other than a Saturday, a Sunday or a
day on which banks in the City of New York are generally closed for regular
banking business.
"Closing" means the completion of the transactions contemplated by
Sections 2.3 and 3.1 of this Agreement and the effectiveness of the Agreements
contemplated in Sections 2.2 and 2.4 of this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Assets" means all assets of the Advisors as of the date
hereof or as of the Closing (other than Excluded Assets), as applicable,
including, but not limited to, the Company Contracts, Furniture, Fixtures and
Equipment, Intellectual Property, Leased Properties, Real Property, Records,
Software and any other material assets of the Advisors.
"Company Contract" means any written investment advisory agreement
or partnership agreement to which any Advisor is a party and any lease, license
or other agreement relating to the use by any Advisor of any Furniture, Fixtures
and Equipment, Intellectual Property, Software and Technology Systems, together
with all amendments and
2
<PAGE> 8
supplements thereto, and all rights and interests of any Advisor arising
thereunder or in connection therewith.
"Encumbrance" means any lien, pledge, security interest, claim,
charge, easement, limitation, commitment, encroachment, restriction or
encumbrance of any kind or nature whatsoever.
"Environmental Law" means all applicable foreign, federal and state
laws, rules, regulations, common law, ordinances, decrees, orders, contracts and
other binding obligations relating to pollution (including the treatment,
storage and disposal of hazardous wastes and the cleanup of releases and
threatened releases of materials), the preservation of the environment or the
exposure to hazardous materials in the environment or workplace.
"Equity Securities" means capital stock, partner interests or other
equity interests of any Person or any securities convertible into or
exchangeable for capital stock or other equity interests or any other rights,
warrants or options to acquire any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Excluded Assets" means all cash or cash equivalents held by, or for
the account of, the Advisors as of the close of business on the Closing Date
which exceeds the product of (x) the number of days from the Closing Date
through the end of the month in which the Closing occurs, inclusive, and (y)
$2,500 and the exclusion of which would not give rise to a Purchase Price
adjustment under clause (ii) of the proviso within Section 3.2(a) as of such
date, and any assets set forth on Schedule 1.1 hereto.
"Furniture, Fixtures and Equipment" means all furniture, fixtures
and equipment that are located in the ordinary course at any Operating Site.
"GAAP" means, with respect to any Person, generally accepted
accounting principles as used in the United States of America as in effect at
the time any applicable financial statements were prepared or any act requiring
the application of GAAP was performed, applied on a consistent basis.
"Governmental Authority" means any nation, state, territory,
province, county, city or other unit or subdivision thereof or any entity,
authority, agency, department, board, commission, instrumentality, court or
other judicial body authorized on behalf of any of the foregoing to exercise
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any governmental or non-governmental self-regulatory
organization of which any party hereto is a member.
3
<PAGE> 9
"Immediate Family" means, with respect to any individual, such
individual's spouse, parents and children (and estates, trusts, partnerships and
other entities and legal relationships of which a substantial majority in
interest of the beneficiaries, members, owners, investors or participants at all
times in question are, directly or indirectly, one or more of the Persons
described above and/or such individual).
"Indemnifiable Claim" means any Loss for which a Person is entitled
to indemnification under this Agreement.
"Indemnified Party" means a Person entitled to the benefits of
indemnification hereunder.
"Indemnifying Party" means a Person obligated to provide
indemnification hereunder.
"Independent Accounting Firm" means any accounting firm of
recognized national standing, except for any such firm that serves as the
independent public accountants of any of the parties or any of their respective
Affiliates; provided, however, that if there exists no accounting firm that
meets the qualifications set forth above in this definition, then the term
"Independent Accounting Firm" shall mean any accounting firm designated as such
by the Parent and the Equityholders.
"Intellectual Property" means all domestic and foreign letters
patent, patents, software, know-how, trade names, common law and other
trademarks, service marks, copyright registrations and applications and state or
federal common law usages, and all registrations or applications for
registration of any of the foregoing.
"Investment Company Act" means the Investment Company Act of 1940,
as amended, and all rules and regulations of the SEC thereunder.
"IPO" means the issuance of shares of parent Common Stock to the
public pursuant to a "firm underwritten" offering registered with the SEC.
"IRS" means the Internal Revenue Service.
"Lease" means any of the real estate leases or subleases, or a
sublease of any Advisor with respect to any Operating Site.
"Leased Properties" means all leasehold interests of any Advisor in
real property.
"Loss" means any and all monetary claims, losses, liabilities,
costs, penalties, fines and expenses (including reasonable attorneys',
accountants', consultants' and experts'
4
<PAGE> 10
fees and expenses), damages, monetary obligations to third parties,
expenditures, monetary judgments or awards payable or due to any other party
that are imposed upon or otherwise incurred or suffered by the relevant Person.
"Manager" means any investment advisor in which Parent owns a
preferred equity interest, and any of their respective principal owners, or
officers, directors or general partners and any other Affiliate of Parent which
provides money management and investment advisory services, including by
management of a Pooled Product.
"Membership Interest" means, with respect to LLC-1, LLC-2 or LLC-3,
the limited liability company interest of a member of such LLC at any particular
time, including any and all rights and benefits to which such member is entitled
under the LLC Agreement relating to such LLC and the Delaware Limited Liability
Company Act, together with the obligations of such member under such LLC
Agreement and such Act.
"Operating Sites" means all offices at which any Advisor conducts
business.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Permitted Encumbrances" means all Encumbrances which are:
(1) Encumbrances set forth on Schedule 1.1(b);
(2) Taxes or assessments that are not yet due and payable;
(3) matters which would be shown on an accurate survey and any other
defect or exception which would be disclosed by a search of title, which
in each case does not materially impair the use, operation, value or
marketability of the asset to which it relates;
(4) liens of landlords and liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the Ordinary
Course of Business for sums not yet due and payable; or
(5) other liens or imperfections on assets which individually or in
the aggregate do not exceed $25,000 and do not materially detract from the
value of or materially impair the existing use of the assets affected by
such liens or imperfections.
"Parent Member Interests" means the membership interests owned by
AAC and its Affiliates.
5
<PAGE> 11
"Person" means any individual, corporation, company, limited
liability company, partnership (limited or general), joint venture, association,
trust or other entity.
"Pooled Products" means each vehicle for collective investment (in
whatever form of organization, including in the form of a corporation, company,
limited liability company, partnership (limited or general), association, trust
or other entity and including each separate portfolio of any of the foregoing)
with respect to which any Advisor (in the case of representations in Article IV)
or Parent, or any Manager or other affiliate of the Parent (in the case of
representations in Article V) acts as the sponsor, general partner, managing
member, investment manager, investment adviser or in a similar capacity.
"Real Property" means all real property, appurtenances thereto,
fixtures and improvements, rights in connection therewith, or any interest
therein, including, without limitation, leasehold estates, of any Advisor.
"Records" means all records and original documents in the possession
of any Holding Company or Advisor which pertain to or are utilized by any
Advisor to administer, reflect, monitor, evidence or record information
respecting the business or conduct of any Advisor including: (1) all such
records maintained on electronic or magnetic media, or in the electronic data
base system of any Advisor, and (2) all such records and original documents
respecting the Company Contracts as necessary to comply with any Applicable Law,
including any and all records kept in accordance with, or documents filed
pursuant to, any Securities Laws.
"Related Agreements" means each of the Employment Agreements and the
LLC Agreements.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means all reports and registration statements filed,
or required to be filed, by law, by contract or otherwise, by an entity pursuant
to the Securities Laws.
"Securities Laws" means the Securities Act of 1933, as amended; the
Securities Exchange Act of 1934, as amended; the Investment Company Act; the
Advisers Act; the published rules and regulations of the SEC promulgated
thereunder; and the securities or "blue sky" laws of any state or territory of
the United States.
"Software" means all computer programs, software, firmware and
related documentation used in the operation of the Technology Systems.
"Subsidiary" means, when used with respect to any Person which is
not a natural person, any corporation, association or other business entity a
majority of the voting or
6
<PAGE> 12
similar power of which is at the time owned by such Person or by one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"Taxes" mean all federal, provincial, territorial, state, municipal,
local, foreign or other taxes, imposts, rates, levies, assessments and other
charges including, without limitation, all income, franchise, gains, capital,
real property, goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property, production, sales,
use, license, stamp, documentary stamp, mortgage recording, excise, employment,
payroll, social security, unemployment, disability, estimated or withholding
taxes, and all customs and import duties, together with any interest, additions,
fines or penalties with respect thereto or in respect of any failure to comply
with any requirement regarding Tax Returns and any interest in respect of such
additions, fines or penalties.
"Tax Return" means any return, report, information statement,
schedule or other document (including any related or supporting information)
with respect to Taxes.
"Treasury Regulations" means the regulations promulgated under the
Code.
"Value Per Share" means the average closing price per share of
Parent Common Stock on a national securities exchange or in the National Market
portion of the National Association of Securities Dealers' Automated Quotation
System for the ten trading days immediately preceding such date of determination
(or, if no trades were reported for a particular day or the Parent Common Stock
is traded in a market for which closing prices are not reported, the average of
the most recent bid and ask price per share of Parent Common Stock).
(b) The following terms shall have the meaning specified in the
indicated section of this Agreement:
Term Section
---- -------
Advisors ......................... Opening Paragraph
Agreement ........................ Opening Paragraph
Benchmark ........................ Section 2.2(b)
Capital .......................... Opening Paragraph
Capital Advisors ................. Opening Paragraph
Capital Partners ................. Opening Paragraph
Capital III ...................... Opening Paragraph
Claim ............................ Section 3.1
Company Balance Sheets ........... Section 4.4
Company Financial Statements ..... Section 4.4
Debenture ........................ Section 3.2
Finerman ......................... Opening Paragraph
Employment Agreement ............. Section 2.2
Equityholders .................... Opening Paragraph
ERISA Affiliate .................. Section 4.15(a)
Holding Companies ................ Opening Paragraph
7
<PAGE> 13
KJ ............................... Opening Paragraph
LLC-1 ............................ Opening Paragraph
LLC-2 ............................ Opening Paragraph
LLC-3 ............................ Opening Paragraph
LLC Agreements ................... Section 2.4
Material Adverse Effect .......... Section 4.1
Non-Third Party Claim ............ Section 8.4
Parent ........................... Opening Paragraph
Parent Balance Sheet ............. Section 5.4
Parent Common Stock .............. Section 3.2(a)
Parent Financial Statements ...... Section 5.4
Parent Material Adverse Effect ... Section 5.1
Permits .......................... Section 4.5
Plans ............................ Section 4.15(a)
Purchase ......................... Section
Release .......................... Section 6.5
Schwarz .......................... Opening Paragraph
Tax Claim ........................ Section 9.3(a)
Technology Systems ............... Section 4.10
Third Party Claim ................ Section 8.3(a)
Transfer Agreement ............... Section 2.3
Trust ............................ Opening Paragraph
8
<PAGE> 14
ARTICLE II.
RELATED TRANSACTIONS
Section 2.1. Qualification of LLC. As promptly as practicable after
the date hereof, the Equityholders will make all appropriate regulatory and
other filings necessary to form LLC-1, LLC-2 and LLC-3 and to enable them to
continue the business of the Advisors after the Closing.
Section 2.2. Employment Agreements. At the Closing, each of Schwarz
and Finerman shall deliver to LLC-2 an executed Employment Agreement (an
"Employment Agreement") in substantially the form annexed hereto as Exhibit 2.2.
Section 2.3. Transfer of Assets to LLC. Immediately prior to the
Closing, (a) the Holding Companies and the Equityholders shall transfer all of
their partner interests in Capital Advisors to LLC-1 and all of their partner
interests in Capital Partners and Capital III to LLC-2 and LLC-3, respectively,
in exchange for all of the membership interests in LLC-2 and LLC-3 and the
assumption by LLC-1, LLC-2 and LLC-3 of all of the liabilities of Capital
Advisors, Capital Partners and Capital III, respectively, (b) LLC-1 shall cause
Capital Advisors to convert into a limited liability company under the laws of
the state of Delaware with LLC-1 as the sole member thereof and (c) LLC-2 shall
cause Capital Partners and Capital III to liquidate into LLC-2 and LLC-3,
respectively; provided, however, that the conversion set forth in paragraph (b)
shall occur only if the Parent, in good faith, determines that such transfer
will not grant the limited partners of Bedford Falls Investors, L.P. ("BFI") (i)
the right to terminate BFI or (ii) the right to consent to or approve the
transactions contemplated by this Agreement.
Section 2.4. LLC Agreements. Immediately after the Closing, LLC-1
and LLC-2 and LLC-3 shall commence operations in accordance with the LLC
Agreements (the "LLC Agreements") each in the form annexed hereto as Exhibit 2.4
except that the LLC-3 agreement shall be modified to reflect the offshore
structure involved. Notwithstanding the foregoing, each party hereto will
consider, in good faith, any changes to the LLC Agreement which are proposed as
reasonably necessary to correct any ambiguity or defect in, or to otherwise
modify the terms of, the LLC Agreements in a manner necessary to accomplish the
transactions contemplated herein; provided, however, that no party shall be
required to consent to any change which is adverse to their current or future
economic rights, or materially adverse to their governance or control rights.
9
<PAGE> 15
ARTICLE III.
PURCHASE AND SALE; CLOSING; RELATED MATTERS
Section 3.1. Purchase and Sale.
(a) Subject to the terms and conditions of this Agreement, at the
Closing each of the Equityholders hereby agrees to sell and deliver
through a series of related transactions to Parent or any of its wholly
owned subsidiaries, as determined by Parent, free and clear of any
restrictions, liens, claims, charges, security interests, assignments,
mortgages, deposit arrangements, pledges or encumbrances of any kind or
nature whatsoever (collectively, "Claims"), other than as set forth in the
LLC Agreements, and Parent hereby agrees to purchase from each
Equityholder, for the price set forth in Section 3.2, 100% of such
Person's Manager Membership Interest, but not such Person's Non-Manager
Member Membership Interest, (as defined in the LLC Agreements), which will
include an approximately 50% profits and loss participation in each LLC
and approximately 49% of the total Capital Accounts of each LLC.
Immediately thereafter, each LLC shall distribute to the Non-Manager
Members, pro rata in accordance with their Percentage Interests (as
defined in the LLC Agreements), the Excluded Assets in redemption of a
portion of such Non-Manager Members' interests in the LLCs. In connection
with such redemptive distributions, each LLC shall revalue its assets and
restate its Capital Accounts (as defined in the LLC Agreements) in
accordance with Treas. Reg. ss.1.704-1(b)(2)(iv)(f) such that, immediately
after the purchases and sales and redemptive distributions, the aggregate
Capital Accounts of the Non-Manager Members, on the one hand, and the
Manager Members, on the other, in each LLC are equal; provided, however,
that the Non- Manager Members' Capital Accounts shall be larger than the
Manager's Capital Accounts to the extent of the Gross Asset Value (as
defined in the LLC Agreements), if any, of the Received Catch-Up Revenues,
and, in connection therewith, the parties hereto agree that the purchases
and sales do not include any performance fees earned, but not yet paid,
for the period from January 1, 1998 until the Closing Date.
(b) Notwithstanding anything else herein to the contrary, the
Equityholders shall not be required to proceed with the transactions
described herein, if, prior to the Closing Date, a regulatory body
initiates a formal proceeding against the Parent or any of its Managers,
subsidiaries or any of their respective affiliates, or informs such party
they are a target of an investigation by that agency involving a violation
of law. Parent shall notify Equityholder promptly of any matter described
in this subsection. The Equityholders must provide written notice to the
Parent of their decision not to proceed under this Agreement within five
days of receiving notice of such event from the Parent.
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Section 3.2. Purchase Price.
(a) The aggregate purchase price for the Manager Membership
Interests shall be in the form one or more Subordinated Convertible
Debentures in the aggregate principal amount of $17,850,000, in the form
attached hereto as Exhibit 3.2(a) (the "Debenture") convertible in the
aggregate into 1,785,000 shares (subject to adjustment as provided below)
of Common Stock, par value $.01 per share, of Parent ("Parent Common
Stock") at a conversion price of $10 per share (the "Conversion Price"),
$17,850,000 in cash and (subject to the Purchase Price Adjustment
described in Section 3.2(b) below) the right to receive such
Equityholder's pro rata portion of the contingent payment described in
Section 3.2(c) below, without interest (collectively, the "Purchase
Price"); provided, however, that (i) ****[The remainder of this subsection
has been omitted pursuant to the confidential treatment request referenced
on the cover page hereto. The omitted portion has been filed separately
with the Commission.]****
(b) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(c) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(d) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
(e) If between the date hereof and the date on which the Parent is
obligated to deliver or repurchase, or any Equityholder is obligated to
return, any shares of Parent Common Stock, the shares of Parent Common
Stock are subdivided or combined or a dividend is paid in such shares in
respect of such shares, the number and maximum number of such shares
subject to such obligation, or the amount of cash due on any such
repurchase, shall be proportionally adjusted to reflect such occurrence.
(f) Each certificate representing shares of Parent Common Stock and
each evidence of Membership Interests in the LLCs shall bear a suitable
legend regarding restrictions on transfer under Applicable Law and the
related LLC Agreement as applicable. For so long as there may be an
adjustment due under Section 3.2(b), the Equityholders shall retain the
Debentures in an aggregate amount, pro rata among the Equityholders, equal
to the excess of $13 million over the Parent Revenue Allocation as of any
date, but in no event more than $5 million, provided, however, that
conversion of the entire Debenture may nevertheless be permitted subject
to the
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Equityholders agreeing to retain the stock thereby acquired until such
adjustment is finally determined.
(g) The determinations required by Section 3.2(b) and (c) above
shall be made by the parties as promptly as practicable, and in any event
within 45 days, after the applicable measurement date.
(h) Each of the Equityholders and Advisors and the Parent
acknowledges and agrees that the Purchase Price is allocable, in its
entirety, to (i) the cash, cash items, receivables, tangible personal
property and other balance sheet items (including liabilities appearing
therein as deducting therefrom) of the Advisors (which shall be valued at
fair market value as of the Closing) and (ii) the goodwill associated with
the business of the Advisors (which shall represent the residual balance
of the Purchase Price after taking into account such balance sheet items)
and that the allocation of the Purchase Price among and between such items
shall be as set forth on Annex 3.2(h) attached hereto.
(i) Each of the parties hereto agrees that the purchase price does
not include the capital account of Capital Advisors in BFI nor any of the
interests in the profits or losses of the interest as a general partner in
BFI, and that subsequent to the Closing, the Equityholders (and not the
Parent) shall maintain any minimum balance of such capital account
required by the governing documents of BFI; provided, however, if such
minimum balance requirement results in more than an additional $2.1
million being contributed as a result of capital contributions being made
to BFI, the parties shall mutually determine alternatives to the
maintenance of such minimum balance.
(j) Each of the parties hereto agrees to take no position
inconsistent with the acknowledgment and agreement set forth in Section
3.2(h) above including, without limitation, on any Tax return or report
(including information returns, declarations and reports) or in any audit
or judicial or administrative proceedings before any Governmental
Authority or otherwise.
Section 3.3. The Closing. The Closing shall take place (i) at the
office of Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
New York 10022 at 10:00 a.m., New York City time, no later than 31 days after
the last to be fulfilled or waived of the conditions set forth in Article VII
hereof shall be fulfilled or waived in accordance herewith or (ii) at such other
time and place and/or on such other date as the Equityholders and Parent may
agree.
Section 3.4. Further Actions. If at any time after the Closing,
Parent shall consider or be advised that any deeds, bills of sale, assignments,
assurances or any other actions or things are necessary or desirable to vest,
perfect or confirm of record or otherwise in Parent or any of its Affiliates its
right, title or interest in, to or under any of the rights,
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properties or assets of any of the entities party to any of the transactions
contemplated hereby acquired or to be acquired by Parent or any of its
Affiliates as a result of, or in connection with, such transactions or otherwise
to carry out this Agreement, the officers, directors and partners of the Holding
Companies and the Advisors shall be authorized to execute and deliver, in the
name and on behalf of each of the entities party to any of such transactions or
otherwise, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of each such entity or otherwise, all such
other reasonable actions and things as may be necessary or desirable to vest,
perfect or confirm any and all right, title and interest in, to and under such
rights, properties or assets in Parent or any of its Affiliates or otherwise to
carry out this Agreement.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE HOLDING COMPANIES AND EQUITYHOLDERS
Except as set forth in writing in a Schedule by reference to the
appropriate section, subsection or clause hereof and delivered to the Parent
prior to the date hereof, each Holding Company and Equityholder represents and
warrants to the Parent as follows:
Section 4.1. Organization and Related Matters. Each Holding Company
is a corporation, duly incorporated, validly existing and in good standing under
the laws of the state of their incorporation. Each Advisor is a limited
partnership duly formed, validly existing and in good standing under the laws of
the state of their incorporation. Each Pooled Product has been duly organized as
a corporation, general partnership, limited partnership or group trust, as the
case may be, and is validly existing and, if applicable, in good standing under
the laws of its jurisdiction of organization. Each Holding Company, Advisor,
Equityholder and Pooled Product has the corporate or other requisite power and
authority to carry on its business as it is now being conducted, to own, lease
and operate all of its properties and assets, and is duly licensed or qualified
to do business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and assets owned,
leased or operated by it makes such qualification or licensing necessary, except
where the failure to be so qualified or licensed would not have a material
adverse effect on the business, assets, financial condition or results of
operations of the Advisors taken as a whole or any of the Pooled Products, or on
the ability of any of the parties to complete the transactions contemplated
hereby (a "Material Adverse Effect"). The charter and by-laws or comparable
organizational documents and any amendments thereto of each Advisor and each
Pooled Product, complete and correct copies of which as currently in effect have
heretofore been delivered or made available to the Parent, have been filed with
or notified to any applicable Governmental Authority in accordance with all
Applicable Law. Other than the equity interests in the Advisors, all of which
are duly and validly authorized, issued, outstanding, fully paid, nonassessable
(except as required by the Delaware Limited Partnership Act) and owned of record
and beneficially by the Equityholders and the Holding Companies, none of the
Advisors has any outstanding securities or partner interests, is subject to any
obligation, contingent or otherwise, to issue any securities or partner
interests to any Person or is subject to any preemptive or similar rights in
favor of any Person in the event of the issuance of any securities or partner
interests by any of the Advisors. None of the equity interests in any of the
Advisors has been issued in violation of any Applicable Law excluding from the
foregoing violations which would not have a Material Adverse Effect. None of the
Advisors has any Subsidiaries or owns any Equity Securities other than Equity
Securities issued by the Pooled Products or any other securities other than
short-term high quality money market securities. At the Closing Date, none of
the Holding Companies shall conduct any business other than acting as the
general partner of one of the Advisors.
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Section 4.2. Authority; No Violation; Consents.
(a) Each Holding Company and Advisor and such Equityholder has full
power, right and authority to execute and deliver this Agreement and each
Related Agreement to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and each Related Agreement to which any Holding Company or Advisor or such
Equityholder is a party and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by all requisite action
on the part of each Holding Company and Advisor and each of the Equityholders,
and no other proceedings on the part of any of them are necessary to approve
this Agreement or any Related Agreement or to consummate the transactions
contemplated hereby or thereby. This Agreement has been duly executed and
delivered by each Holding Company and Advisor and such Equityholder. Assuming
the due authorization, execution and delivery of this Agreement by the Parent
and of each Related Agreement by the other parties thereto, this Agreement (and
upon execution and delivery thereof each Related Agreement) constitutes the
legal, valid and binding obligation of each Holding Company and Advisor and such
Equityholder, enforceable against each of them in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution, delivery and performance of this
Agreement or any Related Agreement by any Holding Company or Advisor or such
Equityholder nor the consummation by them of the transactions contemplated
hereby, will (i) violate, conflict with, or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration (which is not expressly waived) under, or the creation of any
Encumbrance upon any of the Company Assets or the Equity Securities issued by
the Holding Companies and the Advisors under any of the terms, conditions or
provisions of (x) the organizational documents of any Holding Company or
Advisor, the Trust or any of the Pooled Products, or (y) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which any Holding Company or Advisor or such
Equityholder or any of the Pooled Products is a party or by or to which it or
any of its properties may be bound or subject; or (ii) violate any Applicable
Law excluding from the foregoing clauses (i) and (ii), violations, conflicts,
breaches, defaults and Encumbrances which would not have a Material Adverse
Effect.
(c) No material notice to, filing with, authorization of, exemption
by, or consent or approval of, any Governmental Authority is necessary for the
consummation by each Holding Company and Advisor and such Equityholder of the
transactions contemplated by this Agreement or any Related Agreement.
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(d) Each Equityholder is acquiring its portion of the Purchase Price
constituting securities for such Equityholder's own account and such
Equityholder has no intention of selling, granting any participation in or
otherwise distributing any portion of the Purchase Price constituting
securities.
Section 4.3. Assets Under Management. The aggregate amount of assets
under management by the Advisors, amount of assets under management by the
Advisors for each client for which the Advisors manage more than $5 million, as
of June 30, 1997, July 1, 1997, December 31, 1997 and January 1, 1998 are
accurately set forth in Annex 4.3 hereto, together with a brief summary of the
fee or profit allocation arrangements in effect with respect to each such
client. Other than as set forth on Annex 4.3, there are no agreements or
understandings pursuant to which any Advisor has capped, waived or reimbursed or
will under any circumstances cap, waive or reimburse any or all fees, profit
allocations or charges payable by or allocable from any of such clients or any
investors in any such client.
Section 4.4. Financial Statements. (a) The Holding Companies and
Equityholders have previously delivered to the Parent copies of the audited
balance sheets of each Advisor as of December 31 for the fiscal years 1994, 1995
and 1996, and the related audited statements of income, changes in partners'
equity and cash flows for the fiscal years 1994, 1995 and 1996, inclusive,
together with the related notes thereto, in each case accompanied by the audit
report of Ernst & Young LLP, independent public accountants with respect
thereto, and have delivered to the Parent the audited balance sheet of each
Advisor as of December 31, 1997, together with related notes thereto (the
"Company Balance Sheets") and the related audited statements of income for the
fiscal year then ended (collectively, the statements referred to in clauses
(i)-(ii) above being referred to as the "Company Financial Statements"). The
audited balance sheets of the Advisors referred to in the previous sentence
(including the related notes) fairly present the financial position of the
Company as of the dates thereof, and the other Company Financial Statements
fairly present (subject, in the case of the unaudited statements, to recurring
adjustments normal in nature and amount) the results of the operations, cash
flows and changes in partners' equity of the Advisors for the respective fiscal
periods therein set forth; and each of such statements of the Company (including
the related notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved.
(b) Except for (i) liabilities or items set forth in Annex 4.4, (ii)
liabilities that are fully reflected in the Company Financial Statements or
fully reserved against on the Company Balance Sheets, (iii) liabilities that
were incurred in the Ordinary Course of Business on or prior to the date of the
Company Balance Sheets which are not required by GAAP to be reflected in the
Company Financial Statements or which were fully reserved against on the Company
Balance Sheets, (iv) liabilities incurred since the date of the Company Balance
Sheet, none of which, individually or in the aggregate, are material to the
business or operations of the Advisors, (v) liabilities the incurrence of which
is expressly permitted by this Agreement or authorized by the Parent in writing,
and (vi) nonmonetary obligations arising under the
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terms of any agreement other than obligations arising as a result of a breach
thereof or default thereunder, the Advisors do not have any liabilities, whether
absolute, accrued, contingent or otherwise and whether known or unknown or due
or to become due.
Section 4.5. Compliance with Applicable Law. (a) Except for
instances of failure that would not have a Material Adverse Effect, each
Advisor, Equityholder and Pooled Product and each employee of each of them
holds, and has at all pertinent times held, all licenses, franchises, permits,
qualifications and authorizations (collectively, "Permits") necessary for the
lawful ownership and use of the respective properties and assets of the Advisors
and each such Pooled Product and the conduct of the respective businesses of the
Advisors and each such Pooled Product under and pursuant to every, and have
complied with each, and are not in default in any material respect under any,
Applicable Law relating to the Advisors, any Pooled Product or any of their
respective assets, properties or operations, and neither any Advisor nor any
Equityholder knows of any violations of any of the above or has received notice
asserting any such violation. To the Holding Companies' and Equityholders'
knowledge, all such Permits are valid and in good standing and are not subject
to any proceeding for the suspension, modification or revocation thereof or
proceedings related thereto.
(b) Except for normal examinations conducted by any
Governmental Authority in the regular course of the business of the Advisors, no
Governmental Authority has initiated any pending proceeding or, to the knowledge
of any Holding Company or such Equityholder, any pending investigation into the
business or operations of any Advisor or any of their partners, officers,
directors or employees in their capacity as such with the Advisors. There is no
unresolved violation, criticism, or exception by any Governmental Authority with
respect to any examination of any Advisor or any Pooled Product.
(c) Each Advisor has at all times rendered investment advisory
services to investment advisory clients, including Pooled Products, with whom
such Advisor is or was a party to an investment advisory agreement or similar
arrangement in material compliance with all applicable requirements as to
portfolio composition and portfolio management including, but not limited to,
the terms of such investment advisory agreements, written instructions from such
investment advisory clients, the organizational documents of such investment
advisory clients made available to such Advisor, prospectuses, board of director
or trustee directives and Applicable Law.
(d) Except for such instances of failure to make filings or
payments which, either individually or in the aggregate, would not have a
Material Adverse Effect, each Holding Company, Manager and Pooled Product has
timely filed all reports, registration statements and other documents, together
with any amendments required to be made with respect thereto, that they were
required to file with any Governmental Authority, in a form which was accurate
in all material respects and have paid all fees and assessments due and payable
in connection therewith.
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(e) None of the Advisors, Equityholders or employees of any of
them is obligated to be registered with or have any license or permit from any
Governmental Authority or self-regulatory body. As of their respective dates,
the SEC Documents of the Advisors and Equityholders complied in all material
respects with the requirements of the Securities Laws applicable to such SEC
Documents. The Holding Companies have previously delivered or made available to
the Parent a complete copy of each SEC Document filed by the Advisors or
Equityholders since December 31, 1994 and prior to the date hereof and will
deliver to the Parent at the same time as the filing thereof a complete copy of
each SEC Document filed after the date hereof and prior to the Closing Date by
or on behalf of any of them.
Section 4.6. Books and Records. Each Advisor and Pooled Product has
at all times since formation maintained Records which accurately reflect all its
material transactions in reasonable detail, and have at all times maintained
accounting controls, policies and procedures reasonably designed to provide that
such transactions are executed in accordance with its management's general or
specific authorization, as applicable, and (ii) beginning with the period ending
June 30, 1997, recorded in a manner which permits the preparation of financial
statements in accordance with GAAP and applicable regulatory accounting
requirements and other account and financial data, and the documentation
pertaining thereto is retained, protected and duplicated in accordance with
applicable regulatory requirements.
Section 4.7. Ineligible Persons. None of the Advisors or
Equityholders or any "affiliated person" (as defined in the Investment Company
Act) of any thereof is ineligible pursuant to Section 9(a) or 9(b) of the
Investment Company Act to serve as an investment adviser (or in any other
capacity contemplated by the Investment Company Act) to a registered investment
company. None of the Advisors or Equityholders or any "associated person" (as
defined in the Advisers Act or the Exchange Act) of any thereof, is ineligible
pursuant to Section 203 of the Advisers Act to serve as a registered investment
adviser or broker-dealer or as an associated person to a registered investment
adviser. None of the Advisors or Equityholders or any "affiliated person" (as
defined in the Investment Company Act) of any thereof is subject to a "statutory
disqualification" pursuant to Section 3(a)(39) of the Exchange Act.
Section 4.8. Company Assets. The Advisors have good and marketable
title to all material Company Assets and good and insurable leasehold interests
in the Leased Property, in each case free and clear of all Encumbrances other
than Permitted Encumbrances. Annex 4.8 contains a true and complete list of all
Operating Sites. The Advisors do not own any Real Property.
Section 4.9. Company Contracts. Annex 4.9 lists under separate
headings, and the Holding Companies have made available to Parent copies of: (a)
each Company Contract that is not cancellable without penalty by the Advisor
party thereto upon 90 days or less notice or that involves the receipt or
payment by the Advisor party thereto in any of the two prior
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fiscal years (or is reasonably likely to involve the receipt of payment by the
Advisor party thereto in the current or any future fiscal year) of an amount in
excess of $50,000, (b) each Company Contract with one or more of the
Equityholders or members of their Immediate Families or entities in which any of
them has greater than a 5% equity interest, and (c) each other Company Contract
material to the business, governance, operations or financial condition of any
Advisor party thereto. The Holding Companies have made available to the Parent
copies of all sales, marketing and account solicitation agreements and material
marketing arrangements of each Advisor. Each Advisor has duly performed all its
material obligations under each Company Contract to which it is a party, in each
case, to the extent that such obligations have accrued; no breach or default,
alleged breach or default, or event which constitutes or would (with the passage
of time, notice or both) constitute a breach or default thereunder, or would
permit termination or acceleration thereof by any party thereto, has occurred,
or, as a result of this Agreement or the performance by any Advisor party
thereto of any of its covenants or obligations hereunder, will occur; excluding
from the foregoing any instances which would not have a Material Adverse Effect,
and to the Holding Companies' and such Equityholder's knowledge, each Company
Contract is valid and binding on the Advisor party thereto and on all of the
other parties thereto, is in full force and effect and is enforceable in
accordance with its terms.
Section 4.10. Technology and Intellectual Property. The electronic
data processing, information, communications, telecommunications and computer
systems, databases, Software and Intellectual Property which are used by the
Advisors in their businesses (collectively, the "Technology Systems") are
adequate for their intended use and for the operation of the Operating Sites as
currently operated and the Advisors own or have the right to use all components
of the Technology Systems. There has not been any material malfunction with
respect to any of the Technology Systems which has had or could have a Material
Adverse Effect.
Section 4.11. Legal Proceedings. Neither any Holding Company,
Adviser or Equityholder nor any Pooled Product is a party to any, and there are
no pending or, to such Equityholder's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against any Holding Company, Advisor
or Equityholder or any Pooled Product or any of their respective properties,
assets, partners, directors, officers or employees which, if adversely
determined, individually or in the aggregate, would have a Material Adverse
Effect, or that challenges any of the transactions contemplated by this
Agreement or any of the Related Documents, and there is no injunction, order,
judgment, decree, or regulatory restriction imposed upon any Holding Company,
Advisor or Equityholder or any Pooled Product or any of their respective
properties, assets, officers or employees which, individually or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect.
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Section 4.12. Taxes and Tax Returns.
(a) Each Advisor has timely filed all Tax Returns required by
Applicable Law to be filed by it on or before the date hereof, taking into
account any extensions of the time within which to file such returns. All such
Tax Returns are true, complete and correct in all material respects.
(b) All Taxes attributable to any Advisor that are or were due
and payable (without regard to whether such Taxes have been assessed) have been
paid. Each Advisor has made adequate provisions on its books and records in
accordance with prior accounting practices, consistently applied, for the
payment of all Taxes reasonably expected to be due and payable with respect to
the current and any prior tax periods.
(c) Each Advisor has complied (and until the Closing will
comply) in all material respects with all Applicable Laws relating to the
payment and withholding of Taxes by such Advisor (including, without limitation
withholding of Taxes pursuant to Code sections 1441 and 1442 or similar
provisions under any state or foreign law) and has, within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all material amounts required to be so withheld
and paid over under all Applicable Laws.
(d) Neither any Advisor nor any predecessor company has
executed or filed with the IRS or any other Taxing Authority any agreement or
other document extending, or having the effect of extending, the period for the
assessment or collection of any Taxes.
(e) There are no Encumbrances for Taxes upon any of the
Company Assets other than Encumbrances for Taxes not yet due or payable.
(f) No power of attorney has been granted by any Advisor or
any Holding Company with respect to any Advisor with respect to any matter
relating to Taxes which is currently in force.
(g) No Advisor is a party to or bound by any agreement
providing for the allocation or sharing or indemnification of any Taxes.
(h) There are no claims, audits, suits, proceedings, or
investigations now pending against or with respect to any Advisor with respect
to any Taxes.
(i) Each Advisor is properly treated as a "partnership" under
the Code. Neither any Advisor nor any predecessor has been a member of an
affiliated group filing a consolidated, combined, or unitary Tax Return.
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(j) No Advisor has or will have any liability for the Taxes of
any other Person as a transferee or successor, or otherwise.
(k) No Advisor has filed and none will file a consent pursuant
to Code section 341(f) or agreed to have Code section 341(f)(2) apply to any
disposition of a subsection (f) asset (as such term is defined in Code section
341(f)(4)).
(l) No Advisor is a party to any agreements, contracts, or
arrangements that would result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Code section 280G. The
consummation of the transactions contemplated hereby will not cause any payments
to be made by any Advisor to become subject to the limitations imposed under
Code section 280G.
Section 4.13. Insurance. The Advisors maintain with reputable
insurers worker's compensation, business personal property and business owners
insurance.
Section 4.14. Labor and Employment Matters. Excluding instances
which would not give rise to a Material Adverse Effect, (a) (1) No Advisor has
engaged in any unfair labor practice which could reasonably be expected to
result in any material liability to any Advisor; (2) there is no labor strike,
dispute, slowdown or stoppage pending or threatened against any Advisor; (3) no
union is currently certified or recognized, there is no union representation
question, no employee representative body or bodies and no union or other
organizational activity that would be subject to the National Labor Relations
Act (29 U.S.C. ss. 151 et seq.) exists or, to the Equityholders' knowledge, is
threatened with respect to the operations of any Advisor; (4) no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending and, to such Equityholder's knowledge, no claims therefor exist or
are threatened with respect to the operations of any Advisor; and (5) no Advisor
is delinquent in any material respect in payments to any of its current or
former partners, officers, directors, employees, consultants, or agents for any
wages, salaries, commissions, bonuses, benefits, expenses or other compensation
for any services performed by them or amounts required to be reimbursed to them;
and (6) in the event of termination of the employment of any employee of any
Advisor, neither the Advisor or LLC-1, LLC-2 or LLC-3 nor the Parent or any of
its Affiliates will be liable to any such employee under any agreement in effect
at the Closing for so-called "severance pay," incentive pay, liquidated damages
or any other payments or benefits, including, without limitation,
post-employment health care, pension or insurance benefits.
(b) No Advisor has had any claim made against it by any Person
before any Governmental Authority in respect of employment with such Advisor or
discrimination or harassment on account of sex, race or other characteristic
protected by law and there are no pending or to such Equityholder's knowledge,
threatened proceedings in relation thereto.
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Section 4.15. Benefit Plan Obligations. (a) Annex 4.15(a) contains a
true and complete list of each commission, bonus, deferred compensation,
incentive compensation, stock purchase, stock option, share scheme, equity-based
award, severance, redundancy or termination pay, hospitalization or other
medical, accident, disability, life or other insurance, supplemental
unemployment benefits, fringe, other welfare benefit, profit-sharing, pension,
or retirement plan, program, agreement, or arrangement, and each other employee
benefit plan, program, agreement, or arrangement (a "Plan") as of the date
hereof sponsored, maintained, or contributed to or required to be contributed to
by any Advisor or any ERISA Affiliate (as defined below) for the benefit of any
employee or terminated employee of any Advisor, or any ERISA Affiliate. No
proposal has been announced to establish any other program for providing such
benefits. For purposes of this Agreement, "ERISA Affiliate" means any entity or
Person that together with any Advisor would be deemed a "single employer" within
the meaning of section 4001 of ERISA or would be considered as being "members"
of a controlled group of corporations within the meaning of section 414 of the
Code with any Advisor. Each Plan may be modified or terminated by the Advisor
party thereto, or the applicable ERISA Affiliate, without liability to any
Advisor, or their ERISA Affiliates, subject only to claims filed or occurred
prior to such modification or termination. True and correct copies of each
written agreement, declaration of trust or other document pursuant to which a
Plan was formed or any Advisor's obligations under a Plan have been established,
all amendments thereto, any written interpretations thereof distributed to
employees, and all contracts relating thereto or the funding thereof (including,
without limitation, all trust or other funding agreements and the most recent
financial statements thereof, insurance contracts, administration contracts, and
investment management agreements), summary plan descriptions, the two most
recent annual reports (Form 5500 including, if applicable, Schedule B thereto),
the most recent actuarial valuation report and the most recent report prepared
in connection with any Plan in accordance with Statement of Financial Accounting
Standards No. 87, Employer's Accounting for Pensions, and the most recent
determination letter received form the IRS with respect to each Plan intended to
qualify under Section 401 of the Code have been made available to the Parent.
(b) Neither any Advisor nor any ERISA Affiliate (i) has ever
maintained any Plan which has been subject to Title IV of ERISA or (ii) has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of Subtitle B
of title I of ERISA) or has ever agreed to provide such post-termination
benefits.
(c) No Plan is a "multi-employer pension plan," as defined in
section 3(37) of ERISA.
(d) Each Plan which is intended to be "qualified" within the
meaning of section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to date, and each trust maintained
thereunder is exempt from taxation under section 501(a) of the Code.
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(e) There is no matter pending (other than routine
qualification determination filings, copies of which have been furnished to the
Parent, or will be promptly furnished to the Parent when made) with respect to
any of the Plans before the IRS or Department of Labor. There are no pending,
or, to the knowledge of the Equityholders, threatened or anticipated actions,
suits, or claims by or on behalf of any Plan, by any employee or beneficiary
covered thereunder, or otherwise involving any such Plan (other than routine
claims for benefits).
Section 4.16. No Broker. No broker, finder or similar intermediary
has acted for or on behalf of, or is entitled to any broker's, finder's or
similar fee or other commission from any Holding Company, Advisor or
Equityholder in connection with this Agreement or the transactions contemplated
hereby.
Section 4.17. Absence of Changes. Since December 31, 1997, except as
contemplated by this Agreement, neither any Advisor nor any Pooled Product has
taken any action or suffered to exist any condition which, had it been taken or
suffered after the date hereof, would have been prohibited by or in violation of
Section 6.1 hereof.
Section 4.18. The Equityholders. Neither such Equityholder nor any
member of the Immediate Family of such Equityholder (excluding for this purpose,
Lawrence Golub) (a) is a competitor of, or a party to any transaction or
contract or arrangement with, any Advisor, (b) serves as an officer, director,
employee, consultant, partner, member or in similar capacity of any competitor
of any Advisor or any Person which has a contract or agreement with any Advisor
or (c) owns directly or indirectly (other than in or through beneficial
ownership of less than 5% of the outstanding securities of a publicly traded
company) any interests in any competitor or any Person that has a material
contract or agreement with any Advisor.
Section 4.19. Additional Representations Regarding Pooled Products.
(a) True, correct and complete copies of any offering
documents, subscription agreements, administrative services distribution and
solicitation agreements and custody agreements pertaining to each of the Pooled
Products have been made available to the Parent. Such offering materials did
not, at any time such materials were made available to investors or prospective
investors, contain any 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 light of the circumstance under which they were made, not
misleading.
(b) True, correct and complete copies of the audited financial
statements, prepared in accordance with GAAP, of each of the Pooled Products for
the fiscal years from inception or 1994, whichever is later, through 1997 have
been made available to the Parent. Each of such financial statements is
consistent with the books and records of the applicable Pooled Product, and
presents fairly the consolidated financial position of such
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Pooled Product in accordance with GAAP applied on a consistent basis (except as
otherwise noted therein) at the respective date of such financial statements and
the results of operations and cash flows for the respective periods indicated,
except in the case of the interim financial statements which are subject to
normal year-end adjustments which in the aggregate are not material. Such
financial statements reflect and disclose all material changes in accounting
principles and practices adopted by the applicable Pooled Product during the
periods covered by each such financial statement. The books of account of each
Pooled Product fairly reflect its transactions.
(c) There are no special restrictions, consent judgments or
orders of any Governmental Authority on, or with regard to, any Pooled Product.
Since inception, each Pooled Product has been excluded from the definition of an
investment company under the Investment Company Act by virtue of Section 3(c)(1)
or Section 3(c)(7) thereof, as applicable, or has been unregulated thereunder by
virtue of Section 7(d) thereof. Since inception each Pooled Product has been
duly registered and in good standing under the laws of each jurisdiction in
which such qualification has been necessary, except where the failure to be duly
registered and in good standing would not have a Material Adverse Effect.
(d) All interests of each Pooled Product were sold pursuant to
a valid and effective exemption from registration under the Securities Act and
each other Applicable Law and have been duly authorized and are validly issued.
(e) All consent solicitation materials to be prepared for use
by the Pooled Products in connection with the transactions contemplated by this
Agreement at the time such information is provided or used, as then amended or
supplemented, in each case, will, insofar as it contains or consists of
information supplied by any Manager, be accurate and complete and will not
contain any untrue statement of a material fact, or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(f) Each Pooled Product has timely filed or will file or cause
to be filed on a timely basis all Tax Returns required by Applicable Law to be
filed by it on or before the Closing Date, taking into account any extensions of
the time within which to file such returns. All such Tax Returns are true,
complete and correct in all material respects and all Taxes attributable to any
Pooled Product that are or were due and payable (without regard to whether such
Taxes have been assessed) have been paid.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF
THE PARENT
Except as set forth in writing in a Schedule delivered to the
Equityholders prior to the date hereof, by reference to the appropriate section,
subsection or clause hereof, the Parent represents and warrants to the
Equityholders as follows (with each such representation and warranty as to a
Manager, its business, its officers, directors or employees or any of its
affiliated persons expressly qualified as to knowledge).
Section 5.1. Organization. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. The Parent has the corporate or other requisite power and authority to
carry on its business as it is now being or is currently proposed to be
conducted, to own or use the properties and assets that it purports to or
currently proposes to own or use, and is duly qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or use of the properties used by it requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business of Parent or on the ability of Parent to complete the
transactions contemplated hereby ("Parent Material Adverse Effect"). The charter
and by-laws and any amendments thereto of Parent, complete and correct copies of
which are currently in effect, have heretofore been delivered or made available
to each Equityholder, have been filed with or notified to any applicable
Governmental Authority in accordance with all statutes, laws, ordinances, rules,
public administrative interpretations, regulations, orders, writs, injunctions,
directives, judgments, decrees or other requirements of any Governmental
Authority applicable to Parent and its properties, assets, officers, directors,
employees and agents ("Legal Requirements"). None of the Parent Common Stock has
been issued in violation of any Applicable Law.
Section 5.2. Authority; No Violation; Consents.
(a) The Parent has full power, right and authority to execute
and deliver this Agreement and the Related Agreements to which it is a party and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and such Related Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly and validly
approved by all requisite action on the part of the Parent and no other
proceedings on the part of the Parent are necessary to approve this Agreement or
such Related Agreements or to consummate the transactions contemplated hereby
and thereby. Each of this Agreement and such Related Agreements has been duly
and validly executed and delivered by the Parent. Assuming the due
authorization, execution and delivery of this Agreement and each of the Related
Agreements by the other parties hereto, each of this Agreement and such Related
Agreements constitutes a legal, valid and binding obligation of the Parent,
enforceable against it in accordance with its terms,
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except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution, delivery and performance of this
Agreement or any Related Agreement by Parent nor the consummation by them of the
transactions contemplated hereby, will (i) violate, conflict with, or result in
a breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or the creation of any Encumbrance
upon any of the assets of Parent as of the date hereof or as of the Closing, as
applicable ("Parent Assets") under any of the terms, conditions or provision of
(x) the organizational documents of Parent, or (y) any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent is a party or by or to which it or any of its
properties may be bound or subject; or (ii) violate any Applicable Law.
(c) Except as is expressly contemplated hereby, no material
notice to, filing with, authorization of, exemption by, or consent or approval
of, any Governmental Authority is necessary for the consummation by Parent of
the transactions contemplated by this Agreement or any Related Agreement.
Section 5.3. No Actions, Suits or Proceedings. There is no pending
action, suit or proceeding, nor, to the knowledge of the Parent, has any
litigation been threatened, against the Parent or any of its subsidiaries,
properties, assets, directors, officers, employees or Affiliates before any
Governmental Authority or otherwise which, if adversely determined, individually
or in the aggregate, would have a Parent Material Adverse Effect, or that
questions the validity or legality of this Agreement or any of the Related
Agreements or of the transactions contemplated hereby or thereby, or which seeks
to prevent the consummation of the transactions contemplated hereby or thereby
and there is no injunction, order, judgment, decree or regulatory restriction
imposed upon the Parent or any of its Affiliates which, individually or in the
aggregate, has had or could reasonably be expected to have a Parent Material
Adverse Effect.
Section 5.4. Financial Statements. The Parent has previously
delivered to the Equityholders copies of (i) the audited balance sheets of the
Parent on a consolidated basis as of December 31 for the fiscal year 1996 and
the related audited statements of income, changes in stockholders' equity and
cash flows for the fiscal year 1996, inclusive, together with the related notes
thereto, in each case accompanied by the audit report of Ernst & Young LLP,
independent public accountants with respect to the Parent, and (ii) the
unaudited balance sheet of the Parent on a consolidated basis as of December 31,
1997, together with related notes thereto (the "Parent Balance Sheet") and the
related unaudited statements of income, changes in stockholders' equity and cash
flows for the fiscal year then ended (collectively, the
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statements referred to in clauses (i)-(ii) above being referred to as the
"Parent Financial Statements"). The audited balance sheets of the Parent
referred to in the previous sentence (including the related notes) fairly
present the financial position of the Parent on a consolidated basis as of the
dates thereof, and the other Parent Financial Statements fairly present
(subject, in the case of the unaudited statements, to recurring adjustments
normal in nature and amount) the results of the operations, cash flows and
changes in stockholders' equity of the Parent on a consolidated basis for the
respective fiscal periods therein set forth; and each of such statements of the
Parent (including the related notes, where applicable) has been prepared in
accordance with GAAP consistently applied during the periods involved. As of the
respective dates of such financial statements, Parent had no known liabilities
of the type required to be reflected as liabilities on a balance sheet prepared
in accordance with GAAP (whether absolute, accrued, contingent or otherwise),
except for liabilities reflected or reserved against in the Parent Balance
Sheet.
Section 5.5. Capitalization. As of the date of this Agreement, the
Parent has authorized capital stock consisting of (a) 100,000,000 shares of
Parent Common Stock, of which 7,365,000 shares are outstanding and 4,775,180
shares are reserved for issuance and (b) 2,000,000 shares of preferred stock,
par value $.01 per share, of which 200,000 shares are outstanding. As of the
date of this Agreement, the Parent has outstanding options to purchase an
aggregate of 748,000 shares of Parent Common Stock. In addition to the foregoing
amount, Parent will reserve for issuance an aggregate of 2,285,000 shares of
Parent Common Stock (subject to adjustment) upon conversion of the Debenture and
for potential issuance in connection with Section 3.2(c) and issue additional
securities convertible into shares of Parent Common Stock in connection with the
purchase of preferred equity interests in certain investment advisory firms.
Each outstanding share of Parent Common Stock is, and upon issuance and delivery
thereof in accordance with the terms of Section 3.2 hereof each share
constituting Purchase Price will be, duly and validly authorized and issued,
fully paid and nonassessable.
Section 5.6. Compliance with Applicable Law.
(a) Except for instances of failure that would not have a
Parent Material Adverse Effect, the Parent and each Affiliate of the Parent
holds, and has at all pertinent times held, all licenses, franchises, permits,
qualifications and authorizations (collectively, "Permits") necessary for the
lawful ownership and use of the respective properties and assets of their
respective business and the conduct of their respective business and under and
pursuant to every, and have complied with each, and are not in default in any
material respect under any, Applicable Law relating to any of their assets,
properties or operations, and the Parent does not know of any violations of any
of the above and has not received notice asserting any such violation. To the
Parent's knowledge, all such Permits are valid and in good standing and are not
subject to any proceeding for the suspension, modification or revocation thereof
or proceedings related thereto.
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(b) Except for normal examinations conducted by any
Governmental Authority in the regular course of the business of the Parent and
its Affiliates, no Governmental Authority has initiated any pending proceeding
or, to the knowledge of the Parent, any pending investigation into the business
or operations of the Parent or any of or any Affiliate, or of any of their
officers, directors or employees or, to the knowledge of Parent, any pending
proceeding or investigation into the business or operations of the Parent's
Subsidiaries. There is no unresolved violation, criticism, or exception by any
Governmental Authority with respect to any examination of the Parent or its
Affiliates.
Section 5.7. Eligibility. None of the Parent, its Affiliates, or any
"affiliated person" (as defined in the Investment Company Act) of any of them is
ineligible pursuant to Section 9(a) or 9(b) of the Investment Company Act to
serve as an investment adviser (or in any other capacity contemplated by the
Investment Company Act) to a registered investment company. None of the Parent,
its Affiliates, or any "associated person" (as defined in the Advisers Act or
the Exchange Act) of any of them, is ineligible pursuant to Section 203 of the
Advisers Act to serve as a registered investment adviser or broker-dealer or as
an associated person to a registered investment adviser. None of the Parent, its
Affiliates, or any "affiliated person" (as defined in the Investment Company
Act) of any of them thereof is subject to a "statutory disqualification"
pursuant to Section 3(a)(39) of the Exchange Act.
Section 5.8. No Broker. Other than George Amrhein, no broker, finder
or similar intermediary has acted for or on behalf of, or is entitled to any
broker's, finder's or similar fee or other commission from, the Parent or its
Affiliates in connection with this Agreement or the transactions contemplated
hereby, it being understood and agreed that the fees and costs due to George
Amrhein or any of his Affiliates shall be the sole responsibility of the Parent.
Section 5.9. Other Instruments. Neither AAC nor any of its
Affiliates is the issuer of any obligation of a "comparable character" to the
Debenture that is "readily tradable in an established securities market," nor is
the Debenture "part of an issue or series of issues" that are "readily tradable
in an established securities market." For purposes of this representation, the
terms quoted in the preceding sentence shall be interpreted consistently with
Treas. Reg. ss. 15A.453-1(e)(4)(ii).
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ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business. (a) During the period from the
date of this Agreement and continuing through the Closing Date, except as
required by Applicable Law and disclosed to the Parent, as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Parent, each Advisor shall, and each Advisor, to the extent within its
control and consistent with its duties thereto, shall cause each Pooled Product
to: (i) carry on its respective business in the Ordinary Course of Business
consistent with past business practice; (ii) use commercially reasonable efforts
to preserve its respective present business organization and relationships;
(iii) use commercially reasonable efforts to keep available the present services
of its employees (it being understood and agreed that an Advisor (x) shall not
be obligated to increase the compensation or benefits of any person and (y)
shall not be restricted in terminating the employment of any Person who is not
an Equityholder, if such termination is consistent with prudent business
practice); (iv) use commercially reasonable efforts to preserve and enhance its
assets under management and profitability and the goodwill and relations of its
clients and others with whom business relationships exist consistent with past
practice; (v) not enter into any business venture, contract, agreement,
understanding or any other arrangement, whether written or oral (except for
normal, recurring expenditures incurred in the Ordinary Course of Business), in
any amount in excess of $50,000 in respect of any individual arrangement or any
contract, agreement, understanding or other arrangement, whether written or
oral, with any of the Equityholders, any parent, sibling, spouse or child
thereof, any parent, sibling, spouse or child of any of the foregoing or any
Affiliate of any of the foregoing; (vi) not take or omit any action that would
or could result in any of their representations and warranties set forth herein
or in any of the Related Agreements being or becoming untrue in any material
respect or any of their agreements herein or therein being breached in any
material respect; (vii) not amend the partnership agreement, articles of
incorporation, by-laws or any similar organizational documents; (viii) not
grant, issue or sell any security of which the Company is the issuer; (ix) not
effect any recapitalization, leveraging of its partners' equity,
reclassification, stock dividend, stock split or like change in capitalization
of any Advisor; (x) not capitalize any lease obligation of any Advisor
regardless of when such lease obligation was entered into; and (xi) not enter
into any agreement or understanding with respect to any of the foregoing
matters.
(b) Upon request by Parent, from time to time prior to the
Closing Date the Holding Companies and Equityholders shall update or cause to be
updated each of the Schedules and Annexes to this Agreement required pursuant to
Article I or Article IV hereof to reflect changes to the information set forth
therein occurring through a date not more than two days prior to the Closing
Date. For purposes of determining the accuracy of the representations and
warranties of the Holding Companies and Equityholders contained in Article IV in
order to determine the fulfillment of the condition set forth in Section 7.1(a),
the Schedules and Annexes delivered by them shall be deemed to include only that
information
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contained therein on the date of this Agreement and shall be deemed to exclude
any information contained in any subsequent supplement or amendment thereto. For
purposes of determining the accuracy of the representations and warranties of
the Holding Companies and Equityholders contained in Article IV in order to
determine any indemnification obligation of the Equityholders pursuant to
Article VIII, the Schedules and Annexes delivered by the Equityholders shall not
be deemed to include any information contained in any subsequent supplement or
amendment thereto.
(c) The Holding Companies and Equityholders shall cause each
Advisor to prepare and deliver to the Parent within 15 days after the end of
each month after the date hereof and prior to the Closing Date an unaudited
balance sheet of such Advisor and the related unaudited statement of income of
such Advisor, together with notes describing significant differences between the
information therein and the requirements of GAAP. The Holding Companies and
Equityholders shall engage Ernst & Young to audit the balance sheet and
statements of income changes in partners' equity and cash flows of the Advisors
as at and for the year ended December 31, 1997 and as at and for any other
period required in connection with the IPO and shall deliver such audited
financial statements, and the audit reports related thereto promptly upon
receipt thereof.
Section 6.2. Advisory Contract Consents and Approvals and Other
Actions. As soon as reasonably practicable and in any event by the 15th Business
Day following the filing of the Draft S-1, the Holding Companies and
Equityholders shall cause the Advisors (a) to notify in writing the general
partner or other controlling body of each Pooled Product and the investors in
each of the Pooled Products and to notify in writing each other investment
advisory client of the transactions contemplated by this Agreement, and such
notification shall be provided to the Parent for its prior review, (b) to
request the written consent of the general partner controlling body of each
Pooled Product and each other investment advisory client (it being understood
and agreed that investors in the Pooled Products are not in such capacity
clients of the Company) to the assignment of their investment advisory
agreements deemed to occur as a result of the consummation of such transactions
and (c) to use reasonable efforts to obtain such consents.
Section 6.3. Confidentiality and Announcements.
(a) None of the parties or any of their respective Affiliates,
except as otherwise required by Applicable Law, shall disclose publicly any of
the contents hereof other than as required by Section 6.2 or by Applicable Law
upon prior notice to Advisors or the Parent, as the case may be.
(b) Advisors and the Parent shall agree with each other on
behalf of all the parties as to the form and substance of any press release
related to this Agreement and the Related Agreements or the transactions
contemplated hereby and thereby; provided, however, that nothing contained
herein shall prohibit any party, following notification to the
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other parties if practicable, from making any disclosure which its counsel
concludes is required by law.
Section 6.4. Expenses. Except as provided elsewhere herein, the
Holding Companies and the Equityholders shall bear the direct and indirect
expenses of the Holding Companies, Equityholders and Advisors, respectively, and
the Parent shall bear the direct and indirect expenses of the Parent, incurred
in connection with the negotiation and preparation of this Agreement and the
Related Agreements and the consummation of the transactions contemplated hereby
and thereby. In the event the IPO does not occur, the Parent shall bear the
expenses incurred in connection with the audit of the Holding Companies and
Advisors for all periods prior to the Closing.
Section 6.5. Release of Each Manager. At the Closing, each of the
Holding Companies and the Equityholders shall deliver to each Advisor for the
benefit of the LLCs, and the Parent a Release (each, a "Release") in the form
annexed hereto as Exhibit 6.5 releasing and forever discharging each Advisor
from any and all causes of action, rights or claims that any such person may
have had in the past, may now have or may have in the future related to,
connected with, or arising out of such Person's status as a partner of such
Advisor prior to the Effective Time.
Section 6.6. Covenants of the Parent. During the period from the
date of this Agreement and continuing through the Closing Date, except as
required by Applicable Law or with the prior written consent of Advisors, the
Parent shall not take any action, or fail to take any action, that would, or
could reasonably be expected to (i) result in any of the Parent's
representations and warranties set forth in this Agreement or any of the Related
Agreements being or becoming untrue in any material respect except that Parent
expects to issue or agree to issue additional shares of capital stock of Parent
and securities convertible into or exchangeable for capital stock of Parent;
(ii) result in a material violation of any provision of this Agreement or any of
the Related Agreements; or (iii) adversely affect or materially delay the
receipt of any of the requisite regulatory approvals.
Section 6.7. Access; Certain Communications. Between the date of
this Agreement and the Closing Date, subject to Applicable Laws relating to the
exchange of information, the Holding Companies and the Equityholders shall
afford to the Parent and its authorized agents and representatives reasonable
access, upon reasonable prior notice and during normal business hours, to
contracts, documents and information of or relating to the assets, liabilities,
business, operations, personnel and such similar aspects of the business of the
Advisors and the Pooled Products as the Parent shall reasonably request and the
Parent shall afford to the Holding Companies and the Equityholders and their
authorized agents and representatives the same degree of access regarding the
business of the Parent; provided, however, that such investigations shall be
conducted in a manner which does not unreasonably interfere with the other
party's normal operations, customers and employee relations. No investigation
pursuant to this Section 6.7 or otherwise shall affect or limit the
representations
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and warranties of the Holding Companies and the Equityholders or of the Parent,
as the case may be, set forth herein.
Section 6.8. Regulatory Matters; Third Party Consents. (a) The
Holding Companies and the Equityholders, on the one hand, and the Parent, on the
other hand, shall cooperate with each other and use all reasonable efforts
promptly to prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals, waivers and authorizations of all
third parties and Governmental Authorities and to satisfy all conditions which
are necessary to consummate the transactions contemplated by this Agreement (it
being understood that the Holding Companies and the Equityholders shall be
responsible for obtaining all such approvals, waivers and consents from such
parties with whom the Advisors are in contractual privity including all
investment advisory clients). If any required consent of or waiver by any third
party (excluding any Governmental Authority and consents of clients under
investment advisory agreements) is not obtained prior to the Closing, the
Holding Companies and the Equityholders or the Parent, as the case may be, each
without cost, expense or liability to the other (except as provided in Article
VII hereof), shall cooperate in good faith to seek an alternative arrangement to
achieve the economic results intended.
Section 6.9. Insurance. The Advisors will maintain in effect at
least until and including the Closing Date or will make all commercially
reasonable efforts to obtain all casualty, public liability and other policies
of insurance maintained by the Advisors on the date hereof, relating to the
business of the Advisors, the Operating Sites and the other Company Assets, or
will procure comparable replacement policies and maintain such replacement
policies in effect at least until and including the Closing Date.
Section 6.10. Notification of Certain Matters. Each party shall give
prompt notice to the other parties of (i) the occurrence, or failure to occur,
of any event or existence of any condition that has caused or could reasonably
be expected to cause any representations or warranties made by it in this
Agreement or any Related Agreement to be untrue or inaccurate in any material
respect at any time after the date of this Agreement, up to and including the
Closing Date, and (ii) any failure on its part to comply with or satisfy, in any
material respect, any of its covenants or agreements in this Agreement or any
Related Agreement and any failure of any condition to another party's obligation
to complete the transactions contemplated hereby to be satisfied.
Section 6.11. No Solicitation. Except as permitted herein or
contemplated hereby, until the termination of this Agreement pursuant to Section
10.1, none of the Holding Companies, Equityholders or Advisors or their
officers, directors, employees, agents or representatives of any of them will,
directly or indirectly, solicit, encourage, assist, initiate discussions or
engage in negotiations with, provide any information to, or enter into any
agreement or transaction with, any Person relating to the possible acquisition
of any equity
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interests in or assets (other than Excluded Assets) of any of the Advisors by
any Person other than the Parent and its Affiliates.
Section 6.12. Registration Rights; Lockup Agreements. ****[This
section (approximately half a page) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
Section 6.13. Standstill. Each of the Holding Companies and
Equityholders agrees that it will not acquire beneficial ownership (whether
through purchase, formation or inclusion in a group or otherwise) of any shares
of voting stock of the Parent if such acquisition would increase the percentage
of shares of voting stock of the Parent beneficially owned by such Person above
the percentage owned immediately after the Closing, including shares which may
be acquired upon the conversion of the Debentures. Each of the Holding Companies
and Equityholders agrees that it will not vote or give consent with respect to
any shares of capital stock of the Parent over which it has voting power in any
manner contrary to the recommendation of the Board of Directors of the Parent
unless the Holding Companies and Equityholders determine that such vote or
consent shall be adverse to their interests as stockholders.
Section 6.14. Cash at Closing. As of the Closing Date, the Advisors
shall have cash on hand of at least two thousand five hundred dollars ($2,500)
for each calendar day remaining, including the Closing Date, in the month during
which the Closing shall occur. For the purposes of this Section, cash shall
include cash equivalents and receivables that are presently due or due on or
before the third business day after the Closing Date and are considered by the
Advisors to be fully collectible.
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ARTICLE VII.
CONDITIONS TO CLOSING
Section 7.1. Conditions to the Parent's Obligations. The obligations
of the Parent to effect the transactions contemplated hereby shall be subject to
the following conditions any one or more of which may be waived in writing by
the Parent in whole or in part:
(a) Each of the representations and warranties of the Holding
Companies and Equityholders set forth in this Agreement, any Related Agreement
or any Schedule, Exhibit or Annex hereto or thereto shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
any such representation or warranty speaks as of or is limited to an earlier
date) as of the first business day following the IPO as though made on and as of
the first business day following the IPO (allowing for such changes thereto as
have occurred in the Ordinary Course of Business), provided, however, that
solely for purposes of determining the satisfaction of the conditions contained
in this Section 7.1(a) and not for purposes of determining liability under
Section 8 hereof or otherwise, no effect shall be given to any exception in such
representations and warranties relating to knowledge, materiality, or a Material
Adverse Effect, and such representations and warranties shall be deemed to be
true, correct and complete in all material respects only if the failures of such
representations and warranties to be so true, correct and complete without
regard to knowledge, materiality, and Material Adverse Effect exceptions do not
represent in the aggregate a Material Adverse Effect and such Material Adverse
Effect is not susceptible to cure by Seller within thirty (30) days after
written notice thereof is given by Buyer.
(b) The Holding Companies, Equityholders and Advisors shall
have performed and complied in all material respects with all agreements,
covenants, obligations and conditions required by this Agreement, any Related
Agreement or any Schedule, Exhibit or Annex hereto or thereto to be performed or
complied with by them at or prior to the Closing Date;
(c) The Holding Companies and Equityholders shall have
delivered to the Parent a certificate dated as of the Closing Date, confirming
the satisfaction of the conditions contained in paragraphs (a) and (b) of this
Section 7.1;
(d) Each Advisor shall have obtained from each of its clients
any necessary consent or approval if any in accordance with Section 6.2 hereof;
(e) Each of the Employment Agreements shall be in full force
and effect without any breach thereof by the individual party thereto;
(f) The IPO shall have occurred.
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(g) No requisite regulatory approval shall impose any term,
condition or restriction upon the Parent or any of its Affiliates that the
Parent reasonably determines would so materially adversely affect the economic
or business benefits of the transactions contemplated by this Agreement to the
Parent as to render inadvisable in the reasonable good faith judgment of the
Parent the consummation of the transactions contemplated hereby;
(h) The dollar-weighted average total return (net of fees and
expenses) of the net assets under management by the Advisors for the period from
January 1, 1998 through the first business day after the IPO shall not be worse
than -5.0% and no event shall have occurred since December 31, 1997 through the
first business day after the IPO which has had or could reasonably be expected
to have, individually or in the aggregate with any other event, a Material
Adverse Effect; provided, however, that any decrease in assets under management
shall not cause a failure of this condition to be satisfied, it being agreed
that decreases in net assets shall be treated in accordance with Section 3.2(a);
(i) The Parent shall have received the opinion of counsel to
the Holding Companies, Equityholders and Advisors dated the Closing Date and
substantially in the form annexed hereto as Exhibit 7.1(i);
(j) The Parent shall have received evidence that Jeffrey
Schwarz and Karen Finerman are insurable with respect to both key-man life
insurance and disability insurance policies.
Section 7.2. Conditions to the Holding Companies', Equityholders'
and Advisors' Obligations. The obligation of the Holding Companies,
Equityholders and Advisors to effect the transactions contemplated hereby shall
be subject to the following conditions which may be waived in writing by them:
(a) Each of the representations and warranties of the Parent
contained in this Agreement, any Related Agreement or any schedule, Exhibit or
Annex hereto or thereto shall be true in all material respects as of the date of
this Agreement and (except to the extent any such representation or warranty
speaks as of or is limited to an earlier date) as of the Closing Date with the
same effect as though made on and as of the Closing Date; provided, however,
that solely for purposes of determining the satisfaction of the conditions
contained in this Section 7.2(a) and not for purposes of determining liability
under Section 8 hereof or otherwise, no effect shall be given to any exception
in such representations and warranties relating to knowledge, materiality, or a
Parent Material Adverse Effect, and such representations and warranties shall be
deemed to be true, correct and complete in all material respect only if the
failure or failures of such representations and warranties to be so true,
correct and complete without regard to knowledge, materiality, and Parent
Material Adverse Effect exceptions do not represent in the aggregate a Parent
Material Adverse Effect;
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(b) The Parent shall have performed and complied in all
material respects with all covenants, obligations and conditions required by
this Agreement, any Related Agreement or any Schedule, Exhibit or Annex hereto
or thereto to be performed or complied with by them at or prior to the Closing
Date;
(c) The Parent shall have delivered to the Holding Companies
and Equityholders a certificate, dated as of the Closing Date, from an officer
of the Parent confirming the satisfaction of the conditions contained in
paragraphs (a) and (b) of this Section 7.2;
(d) No requisite regulatory approval shall have imposed any
term, condition or restriction upon the LLCs that the Equityholders reasonably
determine would so materially adversely affect the economic or business benefits
to the Holding Companies and Equityholders of the transactions contemplated by
this Agreement as to render inadvisable in the reasonable good faith judgment of
the Equityholders the consummation of the transactions contemplated hereby;
(e) The Holding Companies and Equityholders shall have
received the opinion of counsel to the Parent, dated the Closing Date,
substantially in the form annexed hereto as Exhibit 7.2(e).
(f) The IPO shall have occurred.
Section 7.3. Satisfaction of Conditions - IPO. Upon the occurrence
of the IPO, the conditions of all parties hereto which are or have been
satisfied as of the business day following the IPO shall be deemed to be
satisfied if such conditions are otherwise satisfied for all times thereafter
until the Closing.
Section 7.4. Mutual Condition. The obligations of each of the
Holding Companies, Equityholders and Advisors, on the one hand, and the Parent,
on the other hand, to effect the Closing shall be subject to the condition that
no order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the transactions contemplated by this Agreement shall be in effect, that no
proceeding initiated by any Governmental Authority seeking an injunction shall
be pending and that no statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any Governmental
Authority which prohibits, restricts or makes illegal consummation of the
transactions contemplated hereby. In addition, each of the parties hereto shall
promptly notify each other party hereto upon such time as, in any such party's
reasonable judgment, any of the Closing Conditions in Sections 7.1, 7.2 or 7.3
hereof are unlikely to be satisfied as of July 31, 1998.
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ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Obligations of the Shareholders. From and after the
Closing Date, the Holding Companies and the Equityholders hereby agree,
severally in proportion to their interests in the Advisors immediately prior to
the Closing (provided that each Equityholder shall also be responsible for any
failure by a Holding Company to provide any required indemnification to the
extent provided herein), to indemnify, defend and hold harmless the Parent and
its employees, officers, partners and other Affiliates (other than the LLCs or
other Managers) from and against any and all Losses (other than any Losses for
or relating to Taxes, which shall be subject to the provisions of Article IX of
this Agreement and other than intercompany obligations) which any of them may
suffer, incur or sustain arising out of, attributable to, or resulting from: (a)
any inaccuracy in or breach or nonperformance of any of the representations or
warranties of the Holding Companies and the Equityholders, or any covenant or
agreement of the Holding Companies and the Equityholders, made in or pursuant to
this Agreement or any Related Agreement (it being agreed that solely for
purposes of establishing whether any matter is indemnifiable pursuant to this
clause (a), no effect shall be given to any qualification regarding knowledge,
materiality, Material Adverse Effect or Parent Material Adverse Effect) and (b)
the activities, conduct, business or operation of any of the Advisors or any of
the Pooled Products prior to the Closing, or arising out of facts, events or
circumstances regarding any Manager or any Pooled Product existing prior to the
Closing.
Section 8.2. Obligations of the Parent. From and after the Closing
Date, the Parent shall indemnify, defend and hold harmless the Holding Companies
and the Equityholders from and against any Losses which they may suffer, incur,
or sustain arising out of, attributable to or resulting from any inaccuracy in
or breach or nonperformance of any of the representations, warranties, covenants
or agreements made by the Parent in or pursuant to this Agreement or any Related
Agreement prior to the Closing (it being agreed that solely for purposes of
establishing whether any matter is indemnifiable pursuant to this Section 8.2,
no effect shall be given to any qualification regarding knowledge other than
with respect to Sections 5.3 (to the extent it relates to Managers) and 5.6(b))
or materiality or Parent Material Adverse Effect.
Section 8.3. Procedure. (a) Notice of Third Party Claims. Any
Indemnified Party seeking indemnification for any Loss or potential Loss arising
from a claim asserted by a third party against the Indemnified Party (a "Third
Party Claim") shall give written notice to the Indemnifying Party. Written
notice to the Indemnifying Party of the existence of a Third Party Claim shall
be given by the Indemnified Party within 15 days after its receipt of a written
assertion of liability from the third party; provided, however, that the
Indemnified Party shall not be foreclosed from seeking indemnification pursuant
to this Article VIII by any failure to provide timely notice of the existence of
a Third Party Claim to the Indemnifying Party except and only to the extent that
the Indemnifying Party actually incurs an incremental
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out-of-pocket expense or otherwise has been materially damaged or prejudiced as
a result of such delay.
(b) Defense. Except as otherwise provided herein, the
Indemnifying Party may elect to compromise or defend, at such Indemnifying
Party's own expense and by such Indemnifying Party's own counsel (which counsel
shall be reasonably satisfactory to the Indemnified Party), any Third Party
Claim. If the Indemnifying Party elects to compromise or defend such Third Party
Claim, it shall, within 30 days after receiving notice of the Third Party Claim,
notify the Indemnified Party of its intent to do so, and the Indemnified Party
shall cooperate, at the expense of the Indemnifying Party, in the compromise of,
or defense against, such Third Party Claim. If the Indemnifying Party elects not
to compromise or defend against the Third Party Claim, or fails to notify the
Indemnified Party of its election to do so as herein provided, or otherwise
abandons the defense of such Third Party Claim, (i) the Indemnified Party may
pay (without prejudice of any of its rights as against the Indemnifying Party),
compromise or defend such Third Party Claim and (ii) the costs and expenses of
the Indemnified Party incurred in connection therewith shall be indemnifiable by
the Indemnifying Party pursuant to the terms of this Agreement. Notwithstanding
anything to the contrary contained herein, in connection with any Third Party
Claim in which the Indemnified Party shall reasonably conclude, based upon the
written advice of its counsel, that (x) there is a conflict of interest between
the Indemnifying Party and the Indemnified Party in the conduct of the defense
of such Third Party Claim, or (y) there are specific defenses available to the
Indemnified Party which are different from or additional to those available to
the Indemnifying Party and which could be materially adverse to the Indemnifying
Party, then the Indemnified Party shall have the right to assume and direct the
defense and compromise of such Third Party Claim insofar as it relates to the
Indemnified Party. In such an event, the Indemnifying Party shall pay the
reasonable fees and disbursements of counsel to the Indemnifying Party or
Parties and the Indemnified Party provided that the Indemnifying Party shall not
be liable for the fees and expenses of more than one counsel for the Indemnified
Parties other than local counsel. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnified Party may settle or compromise any claim
(unless the sole relief payable to a third party in respect of such Third Party
Claim is monetary damages that are paid in full by the party settling or
compromising such claim and the settlement or compromise includes a complete
release of the other party or parties hereto) over the objection of the other,
provided, however, that consent to settlement or compromise shall not be
unreasonably withheld. In any event, except as otherwise provided herein, the
Indemnified Party and the Indemnifying Party may each participate, at its own
expense, in the defense of such Third Party Claim. If the Indemnifying Party
chooses to defend any claim, the Indemnified Party shall make available to the
Indemnifying Party any personnel or any books, records or other documents within
its control that are reasonably necessary or appropriate for such defense,
subject to the receipt of appropriate confidentiality agreements.
(c) Settlement. If a settlement offer solely for money damages
is made by a third party claimant, and the Indemnifying Party notifies the
Indemnified Party in
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writing of the Indemnifying Party's willingness to accept the settlement offer
and pay the amount called for by such offer, and the Indemnified Party declines
to accept such offer, the Indemnified Party may continue to contest such claim,
free of any participation by the Indemnifying Party, and the amount of any
ultimate liability with respect to such Indemnifiable Claim that the
Indemnifying Party has an obligation to pay hereunder shall be limited to the
lesser of (A) the amount of the settlement offer that the Indemnified Party
declined to accept plus the costs and expenses of the Indemnified Party prior to
the date the Indemnifying Party notifies the Indemnified Party of the
Indemnifying Party's willingness to settle or compromise such Third Party Claim
and (B) the aggregate Losses of the Indemnified Party with respect to such
claim.
(d) Miscellaneous. The procedures set forth in this Section
8.3 shall not apply to any Tax Claim, which instead shall be resolved in
accordance with the procedures set forth in Article IX. The procedures set forth
in this Section 8.3 shall apply solely with respect to Third Party Claims and
shall not be deemed to apply to, or otherwise affect or limit, an Indemnified
Party's rights under this Agreement with respect to any claim other than a Third
Party Claim.
Section 8.4. Notice of Non-Third Party Claims. Any Indemnified Party
seeking indemnification for any Loss or potential Loss arising from a claim
asserted by any party to this Agreement against the Indemnified Party (a
"Non-Third Party Claim") shall give written notice to the Indemnifying Party.
Written notice to the Indemnifying Party of the existence of a Non-Third Party
Claim shall be given by the Indemnified Party promptly after discovery of the
potential claim; provided, however, that the Indemnified Party shall not be
foreclosed from seeking indemnification pursuant to this Article VIII by any
failure to provide timely notice of the existence of a Non-Third Party Claim to
the Indemnifying Party except and only to the extent that the Indemnifying Party
actually incurs an incremental out-of-pocket expense or otherwise has been
materially damaged or prejudiced as a result of such delay.
Section 8.5. Survival of Indemnity. Any matter as to which a claim
has been specifically asserted in writing that is pending or unresolved at the
end of any applicable limitation period set forth in Section 10.3 hereof shall
continue to be covered by this Article VIII notwithstanding any applicable
statute of limitations (which the parties hereby waive) until such matter is
finally terminated or otherwise resolved in accordance with this Agreement and
any amounts payable hereunder are finally determined and paid.
Section 8.6. Adjustments to Indemnification Obligations. The amount
which any Indemnifying Party is or may be required to pay any Indemnified Party
pursuant to this Article VIII shall be reduced by an amount equal to any
insurance proceeds actually realized and increased by any adverse insurance
consequences incurred (such as premium adjustments and other detriments) that
affect the overall economic impact of the Losses to the Indemnified Party.
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Section 8.7. Limitation on Indemnification. ****[This section
(approximately half of a page) has been omitted pursuant to the confidential
treatment request referenced on the cover page hereto. The omitted portion has
been filed separately with the Commission.]****
Section 8.8. Purchase Price Adjustment. Any indemnification payment
required to be made by Parent or the Holding Companies or Equityholders pursuant
to the terms of this Article VIII may be made, in whole or in part, at the
election of the Indemnified Party, first through a reduction of the contingent
giveback described in Section 3.2(b) or the contingent consideration described
in Section 3.2(c), as the case may be, which the Indemnifying Party was
previously entitled to receive. Any indemnification payments made to an
Indemnified Party through reduction of the contingent giveback or consideration
described in Section 3.2(b) or (c) shall be considered adjustments to the
Purchase Price.
Section 8.9. Exclusive Remedy. After the Closing the sole and
exclusive remedy of any party for any inaccuracy, untruth, violation or breach
of any representation, warranty, agreement or obligation made in connection with
this Agreement and required to be performed prior to the Closing shall be,
subject to Section 11.4 hereof, the indemnification contained in this Article
VIII and Article IX.
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ARTICLE IX.
TAX MATTERS
Section 9.1. Tax Cooperation. The Holding Companies and
Equityholders and the Parent shall each: (a) cooperate in the preparation of any
Tax Returns; (b) cooperate fully in preparing for any audits of, or disputes
with taxing authorities regarding, any Tax liability of the Advisors; (c) make
available to the other and to any taxing authority, as reasonably requested, all
information, records, and documents relating to any Tax; (d) provide timely
notice to the other in writing of any written notice received concerning any
pending or threatened audits or assessments relating to any Tax liability of the
Advisors for which the other may have liability pursuant to Section 9.3
hereunder; and (e) furnish the other with copies of all correspondence received
from any taxing authority in connection with any audit or information request
with respect to any Tax for which the other may have liability pursuant to
Section 9.3 hereunder.
Section 9.2. Tax Returns. The Holding Companies and Equityholders
shall be responsible for preparing and filing (or causing the preparation and
filing of) any Tax Returns required to be filed by the Advisors as to any period
ending on or before the Closing Date. The parties agree with respect to such Tax
Returns to determine the income, gain, expenses, losses, deductions, and credits
of the Advisors in a manner consistent with prior practices of the Advisors and
in a manner that apportions such income, gain, expenses, loss, deductions and
credits equitably from period to period; provided, however, that in all events
such Tax Returns shall be prepared in a manner consistent with Applicable Law
and without prejudice to the rights of indemnification of any party (other than
the LLCs) hereunder with respect to any Tax Claim. No amended return may be
filed by or on behalf of any Advisor with respect to any period ending on or
prior to the Closing Date without the written consent of the Shareholders and
Parent which consent shall not unreasonably delayed or withheld.
Section 9.3. Liability for Taxes.
(a) From and after the Closing Date, the Holding Companies and
the Equityholders (severally, in proportion to their interests in the Advisors
immediately prior to the Closing) shall indemnify the Parent and its Affiliates
(other than the LLCs), and hold them harmless from and against, any Taxes
imposed on any Advisor or the LLCs (or their successors in interest) for any
taxable period of any Advisor ending on or before the Closing Date; provided
that such indemnification shall not apply or extend to any Taxes which are
properly reflected as a liability on the financial records of an Advisor in
accordance with prior practice as of the Closing Date.
(b) To the extent Parent receives any refund or credit for
Taxes previously paid by or on behalf of a Advisor in respect of any tax period
ending on or before the Closing Date (other than any refund or credit reflected
on the financial records of such
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Advisor in accordance with prior practice as of the Closing Date), such refund
or credit shall be promptly paid to the Holding Companies and the Equityholders.
Section 9.4. Procedures Related to Tax Claims.
(a) If any claim for Taxes shall be made by any Taxing
Authority against any Advisors (or any successor in interest) or against any
Holding Company or Equityholder in respect of any Advisors, the party receiving
such claim shall promptly notify the other parties.
(b) If such Tax Claim, if successful, might require the
Holding Companies and Equityholders to make an indemnity payment pursuant to
Section 9.3(a), the Holding Companies and Equityholders shall have the sole
right (but not the obligation) to control, defend, settle, compromise, or
contest in any manner such Tax Claim; provided, however, that (i) the Holding
Companies and Equityholders shall keep Parent fully informed of any proceedings
in connection with such Tax Claim and (ii) Parent shall be entitled to receive
copies of all correspondence and documents related to such Tax Claim and may, at
its option, observe such proceedings (including any meetings or conferences). No
such Tax Claim may be settled by the Holding Companies and Equityholders without
the consent of Parent, which consent shall not unreasonably be withheld or
delayed. Such consent shall not be necessary to the extent the Holding Companies
and Equityholders have indemnified Parent with respect to the economic
consequences of such settlement. The costs and expenses incurred in contesting
any such Tax Claim shall be borne by the Holding Companies and Equityholders.
Section 9.5. Survival of Tax Claims and Section 4.12 Representation.
Any Tax Claim to be made pursuant to this Article IX shall survive until the
closing of the applicable statute of limitations. The representations and
warranties made by the Holding Companies and Equityholders in Section 4.12 shall
not survive the Closing Date.
Section 9.6. Exclusive Remedy. Notwithstanding any other provision
of this Agreement to the contrary, the provisions of this Article IX shall be
the exclusive means by which any party may recover damages from any other party
with respect to any claim based on Taxes pertaining to any Advisor.
Section 9.7. Payments for Indemnification under Article IX. Any
indemnification amounts payable pursuant to this Article IX by a Holding Company
or Equityholder shall be paid in the same manner as indemnification payments
under Section 8.7.
Section 9.8. Code Section 754 Election. The Holding Companies and
Equityholders and the Parent consent to each of the Advisors and the LLCs making
an election under Section 754 of the Code (and a corresponding adjustment to the
tax basis of the property owned by each of the Advisors under Section 743 of the
Code).
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Section 9.9. Interim Closing of the Books. The Holding Companies and
Equityholders and the Parent agree that each of the Advisors and the LLCs shall
undertake an interim closing of its books on the Closing Date for purposes of
allocating items of income, gain, deduction and loss among its partners and
members.
ARTICLE X.
TERMINATION/SURVIVAL
Section 10.1. Termination. (a) This Agreement may be terminated at
any time prior to the Closing as follows:
(1) by the mutual written consent of the Parent and the
Equityholders;
(2) by the Equityholders or by the Parent if it has
become reasonably and objectively certain that any of the conditions to
the other party's obligation to close the transactions contemplated by
this Agreement will not be satisfied on or prior to the date set forth in
Section 10.1(a)(5) below;
(3) by Equityholder, on the one hand, or by the Parent,
on the other hand, if there shall have been a breach of any of the
representations and warranties set forth in this Agreement on the part of
the other party, which breach would entitle the party receiving such
representation or warranty not to consummate the transactions contemplated
hereby under Section 7.1(a) (in the case of a breach of representation or
warranty by the Holding Companies and the Equityholders) or Section 7.2(a)
(in the case of a breach of representation or warranty by Parent) and
which breach by its nature cannot be cured prior to the date set forth in
Section 10.1(a)(5) below;
(4) by Equityholders on the one hand, or by the Parent,
on the other hand, if there shall have been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of the
Parent (in the case of termination by Equityholders) or on the part of the
Holding Companies, Equityholders or Advisors (in the case of termination
by the Parent), which breach shall not have been cured within 20 Business
Days following receipt by the breaching party of written notice of such
breach from the other; and
(5) at the election of the Parent or Equityholders, if
the Closing Date shall not be on or before July 31, 1998.
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Notwithstanding Section 10.1(a)(2)-(5) hereof, a party who is in
material breach of any of its obligations or representations and warranties
hereunder shall not have the right to terminate this Agreement pursuant to
Section 10.1(a)(2)-(5).
(b) The termination of this Agreement shall be effectuated by
the delivery by the party terminating this Agreement to the other party of a
written notice of such termination. If this Agreement so terminates, it shall
become null and void and have no further force or effect, except as provided in
Section 10.2.
Section 10.2. Effect of Termination. In the event of termination of
this Agreement as provided in Section 10.1, this Agreement shall forthwith
become void and have no effect except (i) the confidentiality provisions
contained in Section 6.3 shall survive any termination of this Agreement, and
(ii) notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
Section 10.3. Survival of Representations and Warranties. Except as
provided in Sections 8.5 and 9.5, the respective representations and warranties
of the Holding Companies and the Equityholders and the Parent contained herein
and in the certificates of the Holding Companies and the Equityholders and the
Parent to be delivered at the Closing, and the right of any Person to initiate a
claim under Article VIII, shall expire and be terminated and extinguished *****.
Following the appropriate expiration date for any representation or warranty
referred to in the previous sentence, except as provided in Sections 8.5 and
9.5, no party shall have any liability whatsoever with respect to any such
referenced representation or warranty or any other claim under Article VIII
except with respect to claims previously asserted pursuant to Article VIII or IX
hereof.
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Disputes. Except for requests for injunctive relief,
specific performance or enforcement of the award of an arbitrator, all disputes
arising in connection with this Agreement shall be resolved by binding
arbitration in accordance with the applicable rules of the American Arbitration
Association. The arbitration shall be held, in the State of New York before a
single arbitrator selected in accordance with Section 12 of the American
Arbitration Association Commercial Arbitration Rules who shall have substantial
business experience in the investment advisory industry, and shall otherwise be
conducted in accordance with such association's Commercial Arbitration Rules.
The award of such arbitrator shall be enforceable in any court having
jurisdiction over the parties to such arbitration.
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Section 11.2. Amendments; Extension; Waiver. Subject to compliance
with Applicable Law, this Agreement may be amended, altered or modified by
written instrument executed by each of the parties hereto: provided, however,
that the Equityholders may waive in writing the performance by the Parent of any
of its representations, warranties, covenants or other agreements and that the
Parent may waive in writing the performance by any of the Holding Companies,
Equityholders or Advisors of any of its representations, warranties covenants or
other agreements and that any party may waive any of the conditions to its
obligations to close the transactions contemplated hereby.
Section 11.3. Entire Agreement. This Agreement (including Schedules,
certificates and lists referred to herein, and any documents executed by the
parties simultaneously herewith or pursuant hereto) and the Related Agreements
constitutes the entire understanding and agreement of the parties hereto, except
as provided herein, and supersedes all prior agreements and understandings,
written and oral, among the parties with respect to the subject matter hereof.
Section 11.4. Specific Performance; Injunctive Relief. Each party
understands and agrees that it will be irreparably damaged in the event this
Agreement is not specifically enforced. Each party, therefore, agrees that in
the event of a breach of any material provision of this Agreement, the aggrieved
party may elect to institute and prosecute proceedings in any court of competent
jurisdiction to enforce specific performance or to enjoin the continuing breach
of this Agreement. Such remedies shall, however, be cumulative and not
exclusive, and shall, except as provided in Section 8.9, be in addition to any
other remedy which a party may have.
Section 11.5. Interpretation. When a reference is made in this
Agreement to a Section, Exhibit, Annex or Schedule, such reference shall be to a
Section of or Exhibit, Annex or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the words "to the knowledge of" a
specified Person or terms of similar import, are used in this Agreement, they
shall be deemed to be followed by the words "and after due inquiry by the
officers of" such Person. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms and the singular form of nouns and pronouns shall include the plural and
vice versa. The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the first paragraph of this Agreement.
Section 11.6. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
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remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 11.7. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if (a) delivered in
person, (b) transmitted by telecopy (with confirmation), (c) mailed by certified
or registered mail (return receipt requested) or (d) delivered by an express
courier (with confirmation) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to the Parent:
Asset Alliance Corporation
800 Third Avenue
New York, New York 10022
Telecopy: (212) 207-8785
Attention: Bruce Lipnick, President
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Richard T. Prins, Esq.
If to the LLC's Holding Companies, the Equityholders or the
Advisors:
Metropolitan Capital Advisors LLC
c/o Jeffrey Schwarz
660 Madison Avenue
New York, NY
With a copy to:
Lane Altman & Owens LLP
101 Federal Street
Boston, MA 02110
Telecopy: (617) 345-0400
Attention: Joseph F. Mazzella
46
<PAGE> 52
Section 11.8. Binding Effect; Persons Benefitting; No Assignment.
This Agreement shall inure to the benefit of and be binding upon the parties
hereto and the respective heirs, legal representatives, estates, executors,
successors and permitted assigns of the parties and such persons. Nothing in
this Agreement is intended or shall be construed to confer upon any entity or
person other than the parties hereto and their respective heirs, legal
representatives, estates, executors, successors and permitted assigns any right,
remedy or claim under or by reason of their Agreement or any part hereof.
Without the prior written consent of each of the other parties hereto, this
Agreement may not be assigned by any of the parties hereto. Notwithstanding the
foregoing, the Parent may assign to any Affiliate of the Parent all or any
portion of the Parent's rights hereunder whether prior to or after the Parent
exercises such right, provided that in the event of any such assignment such
assignee shall be deemed to have all of the rights and obligations of the Parent
set forth herein. No assignment shall release the Parent from any liability or
obligation under this Agreement
Section 11.9. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same agreement, it being understood
that all of the parties need not sign the same counterpart.
Section 11.10. Governing Law. THIS AGREEMENT, THE LEGAL RELATIONS
BETWEEN THE PARTIES AND THE ADJUDICATION AND THE ENFORCEMENT THEREOF, SHALL BE
GOVERNED BY AND INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF.
Section 11.11. Jurisdiction. Subject to Section 11.1 hereof, each of
the parties hereto agrees to personal jurisdiction in any action brought in any
court, federal or state, within the state of Delaware or New York having subject
matter jurisdiction over matters arising under this Agreement.
47
<PAGE> 53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
ASSET ALLIANCE CORPORATION METROPOLITAN CAPITAL
ADVISORS, INC.
By: /s/ Arnold L. Mintz By: /s/ Karen Finerman
----------------------- ----------------------
ARNOLD L. MINTZ KAREN FINERMAN
EXECUTIVE VICE PRESIDENT PRESIDENT
KJ ADVISORS, INC. METROPOLITAN CAPITAL III, INC.
By: /s/ Karen Finerman By: /s/ Karen Finerman
----------------------- ----------------------
KAREN FINERMAN KAREN FINERMAN
PRESIDENT PRESIDENT
METROPOLITAN CAPITAL METROPOLITAN CAPITAL
ADVISORS, L.P. PARTNERS II, L.P.
by: METROPLITAN CAPITAL by: KJ ADVISORS, INC.
ADVISORS, INC. its: GENERAL PARTNER
its: GENERAL PARTNER
By: /s/ Karen Finerman By: /s/ Karen Finerman
----------------------- ----------------------
KAREN FINERMAN KAREN FINERMAN
PRESIDENT PRESIDENT
48
<PAGE> 54
METROPOLITAN CAPITAL
PARTNERS III, L.P.
by: METROPOLITAN CAPITAL III,
INC.
its: GENERAL PARTNER
By: /s/ Karen Finerman
-----------------------
KAREN FINERMAN
PRESIDENT
/s/ Jeffrey E. Schwarz
-----------------------
JEFFREY E. SCHWARZ
/s/ Karen Finerman
-----------------------
KAREN FINERMAN
JEFFREY SCHWARZ
CHILDREN'S TRUST
By: /s/ Sherwood M. Schwarz
-----------------------
SHERWOOD M. SCHWARZ
TRUSTEE
By: /s/ Joel M. Greenblatt
-----------------------
JOEL M. GREENBLATT
TRUSTEE
<PAGE> 1
EXHIBIT 3.1
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
Pursuant to Sections 242 and 245 of the
Delaware General Corporation Law
Asset Alliance Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"GCL"), does hereby certify as follows:
(1) The name of the Corporation is Asset Alliance Corporation. The
Corporation was originally incorporated under the name Manager Acquisition
Company. The original certificate of incorporation of the Corporation was filed
with the office of the Secretary of State of the State of Delaware on February
9, 1996.
(2) This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board of Directors")
and by the stockholders of the Corporation in accordance with Sections 242 and
245 of the GCL.
(3) This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended or supplemented.
(4) The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: The name of the Corporation is Asset Alliance Corporation (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road in the City of Wilmington, County of New
Castle. The name of its registered agent at that address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
FOURTH: (a) Authorized Capital Stock. The total number of shares of stock
which the Corporation shall have authority to issue is 120,000,000 shares of
capital stock, consisting of (i) 100,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), and (ii) 20,000,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the
qualifications, limitations and restrictions, of the Common Stock are as
follows:
(1) Voting. Except as otherwise provided by law or in this
Amended and Restated Certificate of Incorporation, and subject to any voting
rights provided to holders of Preferred Stock at anytime
<PAGE> 2
outstanding, at each annual or special meeting of stockholders, each holder of
record of shares of Common Stock on the relevant record date shall be entitled
to cast one vote in person or by proxy for each share of the Common Stock
standing in such holder's name on the stock transfer records of the Corporation.
The holders of shares of Common Stock shall not have cumulative voting rights.
(2) Dividends; Stock Splits. Subject to the preferential
rights of the holders of Preferred Stock, if any, and subject to any other
provisions of this Amended and Restated Certificate of Incorporation, as it may
be amended from time to time, holders of shares of Common Stock shall be
entitled to receive such dividends and other distributions in cash, stock or
property of the Corporation when, as and if declared thereon by the Board of
Directors from time to time out of assets or funds of the Corporation legally
available therefor.
(3) Dissolution, Liquidation or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, after distribution in full of the preferential amounts, if any, to
be distributed to the holders of shares of Preferred Stock, unless otherwise
required by law, holders of shares of Common Stock shall be entitled to receive
all the remaining assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of shares of
Common Stock held by them respectively.
(4) No Preemptive or Subscription Rights. No holder of shares
of Common Stock shall be entitled to preemptive or subscription rights.
(c) Preferred Stock. The Board of Directors is hereby expressly
authorized to provide for the issuance of all or any shares of the Preferred
Stock in one or more classes or series, and to fix for each such class or series
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights and
such qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other class or classes or
any other series; (iii) entitled to such rights upon the dissolution of, or upon
any distribution of the assets of, the Corporation; or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(b) The number of directors that shall constitute the whole Board of
Directors shall from time to time be fixed exclusively by the Board of Directors
by a resolution adopted by a majority of the whole Board of Directors serving at
the time of that vote. In no event shall the number of directors that constitute
the whole Board of Directors be less than three. No decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Election of directors need not be by written ballot unless the By-Laws
so provide.
(c) The directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the entire
Board of Directors. The initial division of the Board of Directors into classes
shall be made by the decision of the affirmative vote of a majority of the
entire Board of Directors. The term of the initial Class I directors shall
terminate on the date of the 1999 annual meeting; the term of the initial Class
II directors shall terminate on the date of the 2000
2
<PAGE> 3
annual meeting; and the term of the initial Class III directors shall terminate
on the date of the 2001 annual meeting. At each succeeding annual meeting of
stockholders beginning in 1999, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
(d) A director shall hold office until the annual meeting for the
year in which his or her term expires and until his or her successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
(e) Subject to the terms of any one or more classes or series of
Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class. 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 predecessor.
Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of the
Corporation's then outstanding capital stock entitled to vote generally in the
election of directors. Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of Preferred Stock issued by the Corporation
shall have the right, voting separately by class or series, to elect directors
at an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Amended and Restated Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to this Article FIFTH unless expressly provided by such terms.
(f) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the GCL,
this Amended and Restated Certificate of Incorporation, and any By-Laws adopted
by the stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
SIXTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the GCL as the same exists or may hereafter be
amended. If the GCL is amended hereafter to authorize the further elimination or
limitation of the liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent authorized
by the GCL, as so amended. Any repeal or modification of this Article SIXTH by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification with respect to acts or omissions occurring prior to such repeal
or modification.
SEVENTH: The Corporation shall indemnify its directors and officers to
the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition.
3
<PAGE> 4
The Corporation may, to the extent authorized from time to
time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advancement of
expenses conferred in this Article SEVENTH shall not be exclusive of any other
right which any person may have or hereafter acquire under this Amended and
Restated Certificate of Incorporation, the By-Laws of the Corporation, any
statute, agreement, vote of stockholders or disinterested directors or
otherwise.
Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer of
the Corporation existing at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or modification.
EIGHTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
NINTH: Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
TENTH: Unless otherwise required by law, special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman of the Board of Directors, if there be one, (ii) the President or (iii)
the Board of Directors, and shall be at the request in writing of a majority of
the Board of Directors. The ability of the stockholders to call a special
meeting of stockholders is hereby specifically denied.
ELEVENTH: In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed in this Amended and
Restated Certificate of Incorporation, the Corporation's By-Laws or the GCL, and
all rights herein conferred upon stockholders are granted subject to such
reservation; provided, however, that, notwithstanding any other provision of
this Amended and Restated Certificate of Incorporation (and in addition to any
other vote that may be required by law), the affirmative vote of the holders of
at least eighty percent (80%) of the voting power of the shares entitled to vote
at an election of directors shall be required to amend, alter, change or repeal,
or to adopt any provision as part of this Amended and Restated Certificate of
Incorporation inconsistent with the purpose and intent of Articles FIFTH, EIGHTH
and ELEVENTH of this Amended and Restated Certificate of Incorporation or this
Article TWELFTH.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be executed on its behalf this ____ day of
_____, 1998.
ASSET ALLIANCE CORPORATION
By: _____________________________
Name: Arnold L. Mintz
Title: Executive Vice President
4
<PAGE> 1
EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
ASSET ALLIANCE CORPORATION
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders for the election of directors shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors.
Any other proper business may be transacted at the Annual Meeting of
Stockholders.
Section 3. Special Meetings. Unless otherwise required by law
or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), Special
Meetings of Stockholders, for any purpose or purposes, may be called by either
(i) the Chairman of the Board of Directors (if there be one), (ii) the President
or (iii) the Board of Directors, and shall be at the request in writing of a
majority of the Board of Directors. Such request shall state the purpose or
purposes of the proposed meeting. At a Special Meeting of Stockholders, only
such business shall be conducted as shall be specified in the notice of meeting
(or any supplement thereto).
Section 4. Nature of Business at Annual Meetings. No business
may be transacted at an Annual Meeting of Stockholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the Annual Meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly
<PAGE> 2
brought before the Annual Meeting by any stockholder of the Corporation (i) who
is a stockholder of record on the date of the giving of the notice provided for
in this Section 4 and on the record date for the determination of stockholders
entitled to vote at such Annual Meeting and (ii) who complies with the notice
procedures set forth in this Section 4.
In addition to any other applicable requirements, for business
to be properly brought before an Annual Meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days nor more than ninety (90) days prior
to the anniversary date of the immediately preceding Annual Meeting of
Stockholders; provided, however, that in the event that the Annual Meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the Annual Meeting was mailed or
such public disclosure of the date of the Annual Meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the Annual Meeting (i) a brief description of the business desired to be
brought before the Annual Meeting and the reasons for conducting such business
at the Annual Meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by such stockholder, (iv)
a description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the Annual Meeting to bring such
business before the meeting.
No business shall be conducted at the Annual Meeting of
Stockholders except business brought before the Annual Meeting in accordance
with the procedures set forth in this Section 4; provided, however, that, once
business has been properly brought before the Annual Meeting in accordance with
such procedures, nothing in this Section 4 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an Annual
Meeting determines that business was not properly brought before the Annual
Meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
Section 5. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Corporation, except as may be otherwise provided in
the Certificate of Incorporation with respect to the right of holders of
preferred stock of the Corporation to nominate and elect a specified number of
directors in certain circumstances. Nominations of persons for election to the
Board of Directors may be made at any Annual Meeting of Stockholders, or at any
Special Meeting of Stockholders called for the purpose of electing directors,
(a) by or at the direction of the Board of Directors (or any duly authorized
committee thereof) or (b) by any stockholder of the Corporation (i) who is a
stockholder of record on the date of the giving of the notice
<PAGE> 3
provided for in this Section 5 and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section 5.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an Annual Meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding Annual Meeting of Stockholders; provided, however, that in the event
that the Annual Meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the Annual
Meeting was mailed or such public disclosure of the date of the Annual Meeting
was made, whichever first occurs; and (b) in the case of a Special Meeting of
Stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the Special Meeting was mailed or public disclosure of the date of
the Special Meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and (iv)
any other information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder; and (b) as to the
stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by such stockholder,
(iii) a description of all arrangements or understandings between such
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
stockholder, (iv) a representation that such stockholder intends to appear in
person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 5. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 6. Notice. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
3
<PAGE> 4
Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting.
Section 7. Adjournments. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided in Section 7, until a quorum shall be present or
represented.
Section 9. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of stockholders shall be entitled to cast the number of votes as
provided in the Certificate of Incorporation. Such votes may be cast in person
or by proxy but no proxy shall be voted on or after three years from its date,
unless such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 10. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
Section 11. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 10 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
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Section 12. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the Corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The number of
directors of the Corporation shall be as from time to time fixed by or in the
manner provided in the Certificate of Incorporation. Except as otherwise
provided by law or the Certificate Incorporation, directors shall be elected by
a plurality of the votes cast at the Annual Meetings of Stockholders. Any
director may resign at any time upon written notice to the Corporation.
Directors need not be stockholders.
Section 2. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 3. Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, the President, or by a majority of the entire Board
of Directors. Notice thereof stating the place, date and hour of the meeting
shall be given to each director either by mail not less than forty-eight (48)
hours before the date of the meeting, by telephone or telegram on twenty-four
(24) hours' notice, or on such shorter notice as the person or persons calling
such meeting may deem necessary or appropriate in the circumstances.
Section 4. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
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from time to time, without notice other than announcement at the meeting of the
time and place of the adjourned meeting, until a quorum shall be present.
Section 5. Actions by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 6. Meetings by Means of Conference Telephone. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 6 shall constitute presence in person at such meeting.
Section 7. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director, payable in cash or securities. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
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by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law or the Certificate of Incorporation. The officers of the Corporation, except
in the case of the Chairman of the Board of Directors, need not be directors of
the Corporation.
Section 2. Election. The Board of Directors, at its first
meeting held after each Annual Meeting of Stockholders shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
death, resignation or removal. Any officer elected by the Board of Directors may
be removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the Chairman of the Board of
Directors (if there be one), the President or any Vice President or any other
officer authorized to do so by the Board of Directors and any such officer may,
in the name of and on behalf of the Corporation, take all such action as any
such officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors (if there be one), shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same
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power as the President to sign all contracts, certificates and other instruments
of the Corporation which may be authorized by the Board of Directors. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Directors shall also perform such other duties and may
exercise such other powers as may from time to time be assigned by these By-Laws
or by the Board of Directors.
Section 5. President. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall execute all bonds, mortgages, contracts
and other instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these By-Laws or by the Board
of Directors.
Section 6. Vice Presidents. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors and no
Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors (if there be one), the
Chief Executive Officer (if there be one) or the President, under whose
supervision the Secretary shall be. If the Secretary shall be unable or shall
refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors, the Chief Executive Officer (if
there be one) or the President may choose another officer to cause such notice
to be given. The Secretary shall have custody of the seal of the Corporation and
the Secretary or any Assistant Secretary (if there be one), shall have authority
to affix the same to any instrument requiring it and, when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest to the affixing
by such officer's signature.
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The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Chief Executive
Officer (if there be one), the President or Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Chief
Executive Officer (if there be one), the President or the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the President
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of the office of the Treasurer and for the restoration
to the Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer (if there be one), the President, any Vice President (if there be one),
or the Secretary, and in the absence of the Secretary or in the event of the
Secretary's disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer (if there be one), the President, any Vice President (if there be one),
or the Treasurer, and in the absence of the Treasurer or in the event of the
Treasurer's disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of the office of Assistant Treasurer and
for the restoration to the Corporation, in case of the Assistant Treasurer's
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the Assistant Treasurer's
possession or under the Assistant Treasurer's control belonging to the
Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be canceled before a
new certificate shall be issued. No transfer of stock shall be valid as against
the Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
providing, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date
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shall be not more than sixty (60) days prior to such action. If no record date
is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 5 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
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Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person 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 reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
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Section 3. Authorization of Indemnification. Any
indemnification under this Article VIII (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders. Such
determination shall be made, with respect to former directors and officers, by
any person or persons having the authority to act on the matter on behalf of the
Corporation. To the extent, however, that a present or former director or
officer of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith, without the necessity of authorization in the
specific case.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
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<PAGE> 14
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power or
the obligation to indemnify such person against such liability under the
provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
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<PAGE> 15
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. Subject to the voting requirements set
forth in the Certificate of Incorporation, these By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors.
Section 2. Entire Board of Directors. As used in this Article
IX and in these By-Laws generally, the term "entire Board of Directors" means
the total number of directors which the Corporation would have if there were no
vacancies.
* * *
15
<PAGE> 1
Exhibit 4.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and
entered into as of this 28th day of April, l998, by and among Asset Alliance
Corporation a Delaware corporation ("Parent"), and JMG Capital Management, Inc.,
a California corporation, Pacific Capital Management, Inc., a Delaware
corporation, Jonathan M. Glaser, Roger Richter and Daniel A. David (each a
"Shareholder" and together, the "Shareholders").
WHEREAS, Parent and the Shareholders are parties to the Purchase
Agreement, dated as of March 26, 1998, by and among Parent, the Shareholders and
certain other parties as set forth therein (the "Purchase Agreement") pursuant
to which the Shareholders will collectively receive, among other consideration,
an aggregate of $29,854,477 in principal amount of convertible subordinated
debentures (the "Debentures") of Parent in the form attached to the Purchase
Agreement. As used in this Agreement, the term "Shares" refers to any shares of
Common Stock, par value $.01 per share, of Parent ("Parent Common Stock")
acquired upon conversion of the Debentures and, if applicable, 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; and
WHEREAS, the Shareholders have requested that, in connection with
the Purchase Agreement, Parent provide a means of registering the Parent Common
Stock under the Securities Act of 1933, as amended (the "Securities Act"), and
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 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"), 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, and is at such time
authorized under the terms of the Purchase Agreement to transfer to
persons other than members of its Immediate Family, in excess of 1% of the
then outstanding Shares (each, an "Eligible Shareholder") with respect to
which (i) such Shareholder is at such time authorized under the terms of
the Purchase Agreement to make such a transfer and (ii) Parent has
received written requests for inclusion therein within 15 days after the
receipt by such Shareholder of Parent's notice.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of Parent
(whether or not also on behalf of holders of Parent's securities), and the
managing underwriters advise 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, Parent will include in such
registration (i) first, the securities Parent proposes to sell, (ii)
second, the Shares properly requested to be included in such registration,
pro rata among shareholders who are entitled to request
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<PAGE> 3
such inclusion, and (iii) third, other securities requested to be included
in such registration.
(c) Priority on Secondary Registra-tions. If a Piggyback
Registration is an underwritten secondary registration on behalf of
holders of Parent's securities, and the managing underwriters advise
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, Parent will include in such registration (i) first, the
securities 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 shareholders who are entitled to request such
inclusion and (iii) third, other securities requested to be included in
such registration.
(d) Nothing in this Section 1 will prohibit Parent, in
its sole discretion, from determining, at any time, not to file a
registration statement or, if filed, to withdraw such registration
statement or terminate the registration related thereto.
2. Selection of Underwriters. If any offering pursuant to a
Registration Statement is an underwritten offering, Parent will select a
managing underwriter or underwriters to administer the offering.
3. Registration Expenses. All expenses incident to 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 participating Shareholders) will be paid by Parent,
regardless of whether Shares are sold pursuant to any registration statement
filed pursuant to Section 1 above (a "Registration Statement").
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<PAGE> 4
4. Indemnification; Contribution.
(a) Indemnification by Parent. 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 misleading,
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 Parent by such indemnified party or its counsel
expressly for use therein. Notwithstanding the foregoing provisions of
this paragraph (a), 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
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<PAGE> 5
sale of the Shares to such person if such statement or omission was
corrected in such final prospectus and Parent has previously furnished
sufficient copies thereof to such Shareholder.
(b) Indemnification by Shareholders. In connection with the
Registration Statement, each participating Shareholder will furnish to
Parent in writing such information, including with respect to the name,
address and the amount of Shares held by such Shareholder, as Parent
reasonably requests for use in such Registration Statement or the related
prospectus and agrees to indemnify and hold harmless Parent, all other
participating holders of Common Stock, if any, 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, 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 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
5
<PAGE> 6
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
liability 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,
6
<PAGE> 7
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
7
<PAGE> 8
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 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 IPO (as defined in the Purchase 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"), 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 Parent is not required to file such reports, it
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<PAGE> 9
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 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,
Parent will deliver to such Shareholder a written statement as to whether it has
complied with such requirements.
7. Future Demand Rights. In the event that after the date hereof
Parent shall in connection with the acquisition of the assets, stock, business,
operations, revenues or properties of any Person (as defined in the Purchase
Agreement) agree in writing upon the written request of any Person (a "Seller")
to effect the registration under the Securities Act of shares of Parent Common
Stock delivered to such Seller as all or a part of the consideration paid by
Parent therefor and having an aggregate fair market value at the time of such
agreement equal to not less than $10 million, then Parent shall upon request of
each Shareholder then beneficially owning Shares representing not less than 1%
of the then outstanding shares of Parent Common Stock, or of such Shareholders
as a group, as the case may be, effect the registration under the Securities Act
of Shares then beneficially owned by them on the same terms, in the same
proportionate amounts and subject to the same limitations, conditions,
frequency, expiration and rights of Parent in connection therewith as are
applicable to any such Seller; provided, however, that Parent shall not be
required to effect the registration of
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<PAGE> 10
any Shares that a Shareholder is not then authorized to sell under the terms of
the Purchase Agreement.
8. 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.
9. 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 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.
10. 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.
11. 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.
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<PAGE> 11
12. 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.
13. 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.
14. 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 telecopied (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 Parent to:
Asset Alliance Corporation
800 Third Avenue, 16th Floor
New York, N.Y. 10022
Telephone Number: (212) 207-8786
Facsimile Number: (212) 207-8785
Attn: Arnold Mintz
with copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street, 31st Floor
Boston, Massachusetts 02108
Telephone Number: (617) 573-4800
Facsimile Number: (617) 573-4822
Attn: Thomas A. DeCapo
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<PAGE> 12
(b) If to Shareholders, to the addresses provided to Parent at the
closing of the Purchase Agreement
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.
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<PAGE> 13
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
JMG CAPITAL MANAGEMENT, INC.
By: /s/ Jonathan M. Glaser
------------------------------
Name: Jonathan M. Glaser
Title: President
PACIFIC CAPITAL MANAGEMENT, INC.
By: /s/ Roger Richter
------------------------------
Name: Roger Richter
Title: President
/s/ Jonathan M. Glaser
------------------------------
Jonathan M. Glaser
/s/ Roger Richter
------------------------------
Roger Richter
/s/ Daniel A. David
------------------------------
Daniel A. David
<PAGE> 1
Exhibit 4.13
ASSET ALLIANCE CORPORATION
Form of Series A Subordinated Convertible Debenture
due April 30, 2003
$________ (U.S.)
________ , 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 April 30, 2003
(the "Principal Payment Date"), in accordance with and subject to the terms
hereof, 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 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 the principal thereof is paid as provided herein, at the interest
rate per annum equal to [(i) one-half interest rate on 2 year Treasury notes on
the Business Day immediately preceding the Closing Date under the Purchase
Agreement + (ii) .25%] ([ ]%), subject to the terms hereof.
The Company shall pay interest at the close of business on October
31, 1998, April 30, 1999 and each October 31 and April 30 thereafter (or, if
such day is not a Business Day, on the next succeeding Business Day) (each an
"Interest Payment Date") until the principal thereof is paid as provided herein.
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 conversion 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 wire transfer to an account designated
by 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. 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 any 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
2
<PAGE> 3
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 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.
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 payment in full of all Senior Indebtedness, the
Holder shall be subrogated to the right of 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 holders of
Senior
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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.
3.6 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).
4. Transfers or Exchanges; Restrictions on Transfer; Cancellation.
4.1 Transfer or Exchange. Subject to any consent required hereby,
the Holder of this Debenture, or of any Debenture or Debentures issued upon
transfer or exchange of this Debenture or in substitution for this Debenture
pursuant to the provisions of this Article 4 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.
The Holder shall not transfer, sell, hypothecate, pledge or
otherwise encumber this Debenture or any interest herein, whether by contract,
dividend or other distribution or otherwise, without the prior written consent
of the Company.
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<PAGE> 5
4.2 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 debenture shall be issued in lieu thereof except as
expressly permitted by any of the provisions contained herein.
5. Default.
5.1 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default (as defined herein) (other than an Event of Default described in
clause (4) or (5) of Section 8.1) occurs and is continuing, then and in every
such case the Holder may declare the entire unpaid principal amount of the
Debenture, together with all accrued but unpaid interest thereon, 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 8.1, 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, together with 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) Holder's reasonable costs of collection incurred as a
result of the Event of Default giving rise to such declaration of
acceleration;
and
(2) all Events of Default, other than the non-payment of the
principal of the Debenture which has become due solely by such
acceleration, have been cured or waived as provided in Section 8.7.
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No such rescission shall affect any subsequent default or impair any right
consequent thereto.
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 and shall
not, directly or indirectly, sell, transfer, convey, lease or otherwise dispose
of 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.
6.2 Successor Corporation Substituted. Upon any consolidation or
merger, or any sale, transfer, conveyance, lease or other disposition 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 the terms of the Debenture with the same effect as if such
successor corporation had been named as the Company herein and thereafter the
Company shall be relieved and unconditionally released from all obligations
under the Debenture.
6.3 Payment of Debenture. The Company shall duly and punctually 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 (other than a subsidiary or
Affiliate of the Company) holds on that date money designated for and sufficient
to pay the installment; provided, that such Paying Agent is a bank or financial
institution having a combined capital and surplus of at least $25,000,000.
6.4 Corporate Existence. Except as otherwise permitted by Section
6.1 hereof, the Company will do or cause to be done all things necessary to
preserve and keep
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<PAGE> 7
in full force and effect its corporate existence and the material 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 Board of Directors in good faith shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and that the loss thereof is not disadvantageous in any material
respect to the Holder.
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 material tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
6.6 Maintenance of Office or Agency. The Company will maintain an
office or agency where the Debentures may be presented or surrendered for
payment, where the Debentures may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Debenture may be served. The Company will give prompt written notice to the
Holder of the location, and any change in the location, of such office or
agency.
6.7 Money for Security Payments to be Held in Trust. Whenever the
Company shall use a Paying Agent, it will, prior to each due date of the
principal of or any interest on the Debenture, deposit with the Paying Agent a
sum sufficient to pay the principal or interest so becoming due, such sum to be
held in trust for the benefit of the Holder.
7. Conversion.
7.1 (a) General 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 commencing on April 28, 1999
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 (as
defined herein), by surrender of the Debenture so to be converted in whole
or in part in the manner provided in Section 7.2.
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<PAGE> 8
(b) Special Right to Convert. (i) In the event that prior to April
28, 2002, shares of Common Stock (or other shares of stock or securities
into which the Debenture or any supplemental Debenture is then
convertible) have not been listed or admitted to trading on the New York
Stock Exchange or any other national securities exchange and have not been
authorized for quotation on the Nasdaq National Market, then, subject to
and upon compliance with the provisions of this Debenture, the Holder
shall have the right at its option, at any time prior to May 28, 2002 (the
"Special Conversion Expiration Date"), to convert the entire outstanding
principal amount of this Debenture (but not less than the entire
outstanding principal balance) into that number of fully paid and
non-assessable shares (the "Special Conversion Shares") of the Common
Stock (as such shares shall then be constituted) obtained by dividing such
outstanding principal amount of the Debenture surrendered for conversion
by an amount equal to the product of sixth-sevenths (6/7) and the
Conversion Price, by surrender prior to the Special Conversion Expiration
Date of the Debenture so to be converted in the manner provided in Section
7.2.
(ii) In the event that Holder converts all or a portion of
the principal amount of the Debenture into Special Conversion Shares in
accordance with Section 7.1(b)(i), then, subject to and upon compliance with the
provisions of this Debenture, the Holder shall have the right at its option, at
any time prior to the Special Conversion Expiration Date, to cause the Company
to purchase, and the Company shall purchase, all or any portion of the Special
Conversion Shares received by the Holder upon conversion of all or a portion of
the Debenture in accordance with Section 7.1(b)(i) hereof, at a purchase price
per share equal to the Special Repurchase Price (as defined herein), by written
notice (the "Special Repurchase Notice") delivered to the Company prior to the
Special Conversion Expiration Date specifying the number and kind of Special
Conversion Shares which the Holder shall cause the Company to purchase as
contemplated by this Section 7.1(b)(ii). The closing (the "Closing") of the
purchase and sale of Special Conversion Shares in accordance with Section
7.1(b)(ii) hereof shall take place no later than 60 days after receipt by the
Company of the Special Repurchase Notice, and at such Closing, the Company shall
deliver to Holder the payment for the Special Conversion Shares as computed by
the Company in accordance with this Section 7.1(b)(ii), against delivery of
certificates and/or other instruments representing, together with stock or other
appropriate powers duly endorsed with respect to, the Special Conversion Shares
specified in the Special Repurchase Notice, free and clear of all claims, liens
and encumbrances.
(iii) Notwithstanding anything to the contrary contained in
this Agreement, (x) the provisions of this Section 7.1(b) are non-transferable
and personal to JMG Capital Management, Inc., and in the event that the
Debenture is sold, assigned or otherwise transferred, the provisions of this
Section 7.1(b) shall be null and void, and (y) in the event that Holder converts
all or a portion of the principal amount of the Debenture into Special
Conversion Shares in accordance with Section 7.1(b)(i) and the Debenture or
portion thereof
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<PAGE> 9
is cancelled in accordance with Section 4.2 hereof, the provisions of Section
7.1(b)(ii) shall survive such cancellation of the Debenture, until the Special
Conversion Expiration Date or, in the event that Holder has delivered a Special
Conversion Notice to the Company prior to the Special Conversion Expiration
Date, until the Closing.
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 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 11.1, accompanied by a signed written notice
of conversion substantially in the form set forth in Exhibit 1 (the "Conversion
Notice"), stating to the Company that the Holder elects to convert the Debenture
or such portion thereof specified. Subject to any restrictions on transfer
contained herein, (i) 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; and (ii) 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 issuable upon conversion of the Debenture in
accordance herewith subject to the same restrictions on transfer as the
Debenture. 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 7.
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 11.1, a certificate or certificates representing the whole
number of 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 7.3. In case of any partial conversion,
and subject to Article 4, 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 7.2 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
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<PAGE> 10
the next succeeding day on which such share transfer books are open, but such
conversion shall be at the Conversion Price or Special Repurchase Price, as the
case may be, 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 conversion of
the Debenture 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 the Debenture or portion
thereof. 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 (calculated to the nearest 1/100 of a
share) to the Holder. For these purposes, the current market value of Common
Stock shall be the Closing Price (as defined herein) on the Trading Day (as
defined herein) 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 7.5(f).
7.4 Conversion Price and Special Repurchase Price. The conversion
price shall initially be $8.75 per share of Common Stock, subject to adjustment
as provided in this Article 7 (as so adjusted from time to time, the "Conversion
Price"). The special repurchase price shall initially be $13.12 per share of
Common Stock, subject to adjustment as provided in this Article 7 (as so
adjusted from time to time, the "Special Repurchase Price").
7.5 Adjustment of Conversion Price and Special Repurchase Price. The
Conversion Price and Special Repurchase Price shall be adjusted from time to
time by the Company as follows, it being understood that all references in this
Section 7.5 to adjustments in the Conversion Price shall apply equally to, and
corresponding adjustments shall be made to, the Special Repurchase Price in
accordance herewith:
(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 7.5(f)) fixed
for determination of Shareholders of record entitled to receive such
dividend or distribution 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 aggregate 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, effective as of the date the
Board of
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<PAGE> 11
Directors determines not to pay such dividend or distribution, 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 hereafter
issue rights, options 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
7.5(f)) on the Record Date fixed for the determination of Shareholders
entitled to receive such rights, options or warrants, the Conversion Price
shall be multiplied by a dilution adjustment equal to a fraction of which
the numerator shall be the sum of 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 sum of 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, options or warrants, upon the expiration or
termination of such rights, options 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 in good faith by the Board of Directors.
(c) Stock Splits. In case hereafter 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, determined by multiplying the Conversion Price in effect
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<PAGE> 12
immediately prior to the effectiveness of the Conversion Price adjustment
contemplated by this Section 7.6(c) by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding immediately
prior to such subdivision or combination and the denominator shall be the
number of shares of Common Stock outstanding immediately after giving
effect to such subdivision or combination. Such adjustment shall 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 hereafter 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, options or warrants to
subscribe for or purchase any of its Common Stock (other than rights,
options 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 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,
options 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 such rights, options
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, option or warrant had
not been issued.
(e) Cash Dividends; Excess Purchase Payments. In case the Company
shall hereafter, 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 7.6 applies), or make an Excess
Purchase Payment (as defined herein) 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 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
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(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 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 securities 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, 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
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<PAGE> 14
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 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 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 7.5(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 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.
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<PAGE> 15
(3) "fair market value" shall mean the amount, as determined
in good faith by the Board of Directors, which a willing buyer would
pay a willing seller in an arm's length transaction; provided,
however, that for purposes of determining the adjustment pursuant to
Section 7.6(d), the fair market value of any asset that is a
publicly traded security upon distribution to holders of Common
Stock shall be the average daily Closing Price of such security
during the ten (10) consecutive Trading Days following such
distribution.
(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
other national securities exchange, a day on which the New York
Stock Exchange or other national securities 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
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<PAGE> 16
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, showing in
reasonable detail the facts upon which such adjustment is based 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 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 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 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 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, 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,
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<PAGE> 17
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 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 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 7.6 applies to any event or occurrence, Section 7.5
shall not apply to such event or occurrence.
7.7 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 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.
17
<PAGE> 18
7.8 Reservation of Shares; Shares to Be Fully Paid; Listing of
Common Stock. The Company shall reserve, free from preemptive rights, out of its
authorized but unissued Common Stock or Common Stock held in treasury, a
sufficient number of shares of 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.
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 or 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) the failure of the Company to issue shares of Common Stock of
the Company upon conversion of this Debenture or any portion thereof
pursuant to the terms of this Debenture within 60 days of receipt by the
Company from the Holder of a duly executed Conversion Notice with respect
to such conversion, together with all other documents and instruments
reasonably requested by the Company in connection with such conversion; or
(4) 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
18
<PAGE> 19
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
(5) 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
(6) 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.
8.2 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.
8.3 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.
8.4 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 8 or by
law to the Holder may be
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<PAGE> 20
exercised from time to time, and as often as may be deemed expedient, by any
such Holder, as the case may be.
8.5 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.
8.6 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 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.
9.1 Amendments, Supplements and Waivers. 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 the 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 and Special Repurchase Price as
specifically provided in Article 7.
9.2 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 shall be bound
thereby.
10.0 Certain Definitions.
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<PAGE> 21
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, 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 AAC 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 October 31 and April
30 thereafter until repayment.
21
<PAGE> 22
"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 on the Principal Payment Date or by declaration of
acceleration, 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 or Affiliate 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.
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 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 and written confirmation of transmission is received 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
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<PAGE> 23
with a copy to:
Thomas A. DeCapo
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street, 31st Floor
Boston, Massachusetts 02108
Facsimile No.: (617) 573-4822
if to the Holder:
JMG Capital Management, Inc.
1999 Avenue of the Stars
Suite 2530
Los Angeles, California 90067
Attn: Jonathan M. Glaser
Facsimile No.: (310) 201-2759
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 Successors. All agreements of the Company in the Debenture
shall bind its respective successors.
11.3 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.
11.4 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.
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<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as of the date first above written.
ASSET ALLIANCE CORPORATION
By:
--------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
Attest:
By:
--------------------------
Name: Jeffrey Moses
<PAGE> 25
Exhibit 1
CONVERSION NOTICE
The undersigned Holder of this Debenture hereby irrevocably exercises the
option to convert 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 shares of
Common Stock in accordance with the terms of this Debenture, and directs that
such shares be registered in the name of and delivered, together with a check in
payment for any fractional share and any Debenture(s) representing any
unconverted principal amount hereof, be delivered to and be registered in the
name of the undersigned unless a different name has been indicated below. If
shares of Common Stock or Debenture(s) are to be registered in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Debenture.
Dated:
------------------------- -------------------------
Signature
If shares are to be registered in
the name of and delivered to a
Person other than the Holder,
please print such Person's name
and address: Please print name and address of Holder:
- ------------------------------- -------------------------------
Name Name
- ------------------------------- -------------------------------
Address Address
- ------------------------------- -------------------------------
- ------------------------------- -------------------------------
Social Security or other Taxpayer Social Security or other Taxpayer
Identification Number, if any Identification Number, if any
I-1
<PAGE> 1
Exhibit 4.14
ASSET ALLIANCE CORPORATION
Form of Series B Subordinated Convertible Debenture
due April 30, 2003
$______(U.S.)
______, 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 April 30, 2003 (the "Principal Payment Date"), in accordance with and subject
to the terms hereof, 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 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 the principal thereof is paid as provided herein, at the interest
rate per annum equal to [(i) one-half interest rate on 2 year Treasury notes on
the Business Day immediately preceding the Closing Date under the Purchase
Agreement + (ii) .25%] ([ ]%) (the "Interest Rate"), subject to adjustment as
provided herein and to the other terms hereof.
The Company shall pay interest at the close of business on October
31, 1998, April 30, 1999 and each October 31 and April 30 thereafter (or, if
such day is not a Business Day, on the next succeeding Business Day) (each an
"Interest Payment Date") until the principal thereof is paid as provided herein.
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 conversion 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 wire transfer to an account designated
by 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. Subordination
3.1 The payment of the principal of and interest on this Debenture
(including without limitation any payment by the Company in accordance with
Section 7.10 hereof) is expressly subordinated in right of payment to the prior
payment in full of all Senior Indebtedness (as defined herein) 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 defined herein), 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 any 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
(including without limitation any payment by the Company in accordance with
Section 7.10 hereof); 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
2
<PAGE> 3
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 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 (including without limitation any payment by the Company in accordance
with Section 7.10 hereof) 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 (including without limitation any payment by the Company in accordance
with Section 7.10 hereof) 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.
3.4 In the event any direct or indirect payment or distribution of
principal or interest (including without limitation any payment by the Company
in accordance with Section 7.10 hereof) 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 payment in full of all Senior Indebtedness, the
Holder shall be subrogated to the right of 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
3
<PAGE> 4
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 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.
3.6 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).
4. Transfers or Exchanges; Restrictions on Transfer; Cancellation.
4.1 Transfer or Exchange. Subject to any consent required hereby,
the Holder of this Debenture, or of any Debenture or Debentures issued upon
transfer or exchange of this Debenture or in substitution for this Debenture
pursuant to the provisions of this Article 4 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
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<PAGE> 5
transfer tax or other similar governmental charge that may be imposed in
connection with any registration of transfer or exchange of the Debenture.
The Holder shall not transfer, sell, hypothecate, pledge or
otherwise encumber this Debenture or any interest herein, whether by contract,
dividend or other distribution or otherwise, without the prior written consent
of the Company.
4.2 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 debenture shall be issued in lieu thereof except as
expressly permitted by any of the provisions contained herein.
5. Default.
5.1 Acceleration of Maturity; Rescission and Annulment. If an Event
of Default (as defined herein) (other than an Event of Default described in
clause (4) or (5) of Section 8.1) occurs and is continuing, then and in every
such case the Holder may declare the entire unpaid principal amount of the
Debenture, together with all accrued but unpaid interest thereon, 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 8.1, 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, together with 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,
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<PAGE> 6
(D) Holder's reasonable costs of collection incurred as a
result of the Event of Default giving rise to such declaration of
acceleration;
and
(2) all Events of Default, other than the non-payment of the
principal of the Debenture which has 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 thereto.
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 and shall
not, directly or indirectly, sell, transfer, convey, lease or otherwise dispose
of 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.
6.2 Successor Corporation Substituted. Upon any consolidation or
merger, or any sale, transfer, conveyance, lease or other disposition 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 the terms of the Debenture with the same effect as if such
successor corporation had been named as the Company herein and thereafter the
Company shall be relieved and unconditionally released from all obligations
under the Debenture.
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<PAGE> 7
6.3 Payment of Debenture. The Company shall duly and punctually 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 (other than a subsidiary or
Affiliate of the Company) holds on that date money designated for and sufficient
to pay the installment; provided, that such Paying Agent is a bank or financial
institution having a combined capital and surplus of at least $25 million.
6.4 Corporate Existence. Except as otherwise permitted by Section
6.1 hereof, 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
material 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 Board of Directors in good faith shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and that the loss thereof is not disadvantageous in any
material respect to the Holder.
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 material tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
6.6 Maintenance of Office or Agency. The Company will maintain an
office or agency where the Debentures may be presented or surrendered for
payment, where the Debentures may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Debenture may be served. The Company will give prompt written notice to the
Holder of the location, and any change in the location, of such office or
agency.
6.7 Money for Security Payments to be Held in Trust. Whenever the
Company shall use a Paying Agent, it will, prior to each due date of the
principal of or any interest on the Debenture, deposit with the Paying Agent a
sum sufficient to pay the principal or interest so becoming due, such sum to be
held in trust for the benefit of the Holder.
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<PAGE> 8
7. Conversion.
7.1 Right to Convert. Subject to suspension as provided herein, and
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 commencing
on April 28, 1999 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 (as defined
herein), by surrender of the Debenture so to be converted in whole or in part in
the manner provided in Section 7.2; provided, however, that notwithstanding the
foregoing, in no event shall the Holder be entitled to convert all or any
portion of the principal amount of this Debenture in accordance with this
Section 7.1 unless and until the entire principal balance of the Series A
Subordinated Debenture due April 30, 2003 of the Company held by the Holder (the
"Series A Debenture") has been converted by the Holder and the Series A
Debenture (and any other debentures issued upon the transfer, split up, exchange
of the Series A Debenture in accordance with the terms thereof) has been
cancelled in full in accordance with the terms thereof. Any conversion following
the satisfaction of this condition shall be converted at the Revised Conversion
Price (as defined herein), as set forth in Section 7.5.
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 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 11.1, accompanied by a signed written notice
of conversion substantially in the form set forth in Exhibit 1 (the "Conversion
Notice"), stating to the Company that the Holder elects to convert the Debenture
or such portion thereof specified. Subject to any restrictions on transfer
contained herein, (i) 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; and (ii) 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 issuable upon conversion of the Debenture in
accordance herewith shall be subject to the same restrictions on transfer as the
Debenture. 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 7.
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<PAGE> 9
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 11.1, a certificate or certificates representing the whole
number of 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 7.3. In case of any partial conversion,
and subject to Article 4, 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 7.2 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 conversion of the Debenture 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 the Debenture or portion
thereof. 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 (calculated to the nearest 1/100 of a
share) to the Holder. For these purposes, the current market value of Common
Stock shall be the Closing Price (as defined herein) on the Trading Day (as
defined herein) 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 7.5(f).
7.4 Conversion Price and Revised Conversion Price. The conversion
price shall initially be $8.75 per share of Common Stock, subject to adjustment
as provided in this Article 7 (as so adjusted from time to time, the "Conversion
Price"). The revised conversion price shall initially be $10.00 per share of
Common Stock, subject to adjustment as provided in this Article 7 (as so
adjusted from time to time, the "Revised Conversion Price").
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<PAGE> 10
7.5 Adjustment of Conversion Price and Revised Conversion Price. The
Conversion Price shall be adjusted from time to time by the Company as follows,
it being understood that all references in this Section 7.5 to adjustments in
the Conversion Price shall apply equally to, and corresponding adjustments shall
be made to, the Revised Conversion Price in accordance herewith:
(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 7.5(f)) fixed
for determination of Shareholders of record entitled to receive such
dividend or distribution 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 aggregate 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, effective as of the date the
Board of Directors determines not to pay such dividend or distribution, 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, hereafter,
issue rights, options 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
7.5(f)) on the Record Date fixed for the determination of Shareholders
entitled to receive such rights, options or warrants, the Conversion Price
shall be multiplied by a dilution adjustment equal to a fraction of which
the numerator shall be the sum of 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, options or
warrants and dividing the product so obtained by the Current Market
Price), and of which the denominator shall be the sum of 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, options or warrants. To the extent that Common Stock is not
delivered pursuant to such rights, options or warrants, upon the
expiration or termination of such
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rights, options 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, options 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, options or warrants, the value of such
consideration if other than cash, to be determined in good faith by the
Board of Directors.
(c) Stock Splits. In case hereafter 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, determined by multiplying the Conversion Price in effect immediately
prior to the effectiveness of the Conversion Price adjustment contemplated
by this Section 7.6(c) by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding immediately prior to such
subdivision or combination and the denominator shall be the number of
shares of Common Stock outstanding immediately after giving effect to such
subdivision or combination. Such adjustment shall 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 hereafter 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, options or warrants to
subscribe for or purchase any of its Common Stock (other than rights,
options 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 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,
options 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 such rights, options
or warrants are not exercised
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<PAGE> 12
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, option or warrant had not been issued.
(e) Cash Dividends; Excess Purchase Payments. In case the Company
shall hereafter, 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 7.6 applies), or make an Excess
Purchase Payment (as defined herein) 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 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 (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 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
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<PAGE> 13
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 securities 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, 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 defined herein) 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 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 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 7.5(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
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<PAGE> 14
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 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
in good faith by the Board of Directors, which a willing buyer would
pay a willing seller in an arm's length transaction; provided,
however, that for purposes of determining the adjustment pursuant to
Section 7.6(d), the fair market value of any asset that is a
publicly traded security upon distribution to holders of Common
Stock shall be the average daily Closing Price of such security
during the ten (10) consecutive Trading Days following such
distribution.
(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
other national securities exchange, a day on which the New York
Stock Exchange or other national securities 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.
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(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 showing in
reasonable detail the facts upon which such adjustment is based 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 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 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 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.
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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 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, 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 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 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.
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<PAGE> 17
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 to such event or occurrence.
7.7 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 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 reserve, free from preemptive rights, out of its
authorized but unissued Common Stock or Common Stock held in treasury, a
sufficient number of shares of 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.
7.9 Adjustments in the Event of Special Conversion of Series A
Subordinated Debentures. Notwithstanding anything to the contrary contained
herein, in the event that the Holder, pursuant to Section 7.1(b)(i) of the
Series A Debenture, converts all of the principal amount of the Series A
Debenture into shares of Common Stock (or other shares of stock or securities
into which the Series A Debenture is then convertible in accordance with the
terms thereof), then upon delivery by the Company to the Holder of the Special
Conversion Shares (as defined in Section 7.1 of the Series A Debenture) with
respect to such conversion pursuant to Section 7.1(b)(i) of the Series A
Debenture (the "Special Conversion Effective Time"), (i) the Interest Rate
hereunder shall be adjusted upward to a rate equal to two times the Interest
Rate in effect immediately prior to the Special Conversion Effective Time, and
all references herein to the "Interest Rate" shall thereafter be deemed to refer
to such adjusted Interest Rate,
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<PAGE> 18
and (ii) the Conversion Price in effect hereunder shall be deemed to be the
Revised Conversion Price, subject to further adjustment from time to time as
provided herein, and all references herein to "Conversion Price" shall
thereafter be deemed to refer to such Revised Conversion Price, as so adjusted
from time to time.
7.10 Change of Control Put. In the event of a Change of Control (as
defined herein), the Company hereby grants to the Holder the right, exercisable
during the period commencing upon such Change of Control and terminating on the
date 90 days after the Holder receives notice of such Change of Control, to
require the Company to purchase all or any portion that is an integral multiple
of $1,000,000 of the principal amount of the Debenture then owned by the Holder,
upon written notice (the "Put Notice") by the Holder to the Company of exercise
of such right specifying the principal amount of the Debenture with respect to
which the Holder is exercising such right. The consideration to be paid for such
portion of the principal amount shall equal the principal amount of the
Debenture to be repurchased plus accrued and unpaid interest thereon, if any, to
the date of repurchase and shall be paid by the Company within 60 days of
receipt of the Put Notice. A "Change of Control" shall be deemed to have
occurred in the event of either (i) the acquisition by any Person (including any
syndicate or group deemed to be a "person" under Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) of beneficial ownership, directly
or indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in elections of
directors, other than any such acquisition by the Company, any subsidiary of the
Company or any employee benefit plan of the Company; or (ii) any consolidation
of the Company with, or merger of the Company into, any other Person, any merger
of another Person into the Company, or any sale or transfer of all or
substantially all of the assets of the Company to another Person (other than (a)
any such transaction pursuant to which the holders of 50% or more of the total
voting power of all shares of capital stock of the Company entitled to vote
generally in elections of directors immediately prior to such transaction have,
directly or indirectly, at least 50% or more of the total voting power of all
shares of capital stock of the continuing or surviving corporation entitled to
vote generally in elections of directors of the continuing or surviving
corporation immediately after such transaction and (b) a merger (x) which does
not result in any reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company or (y) which is effected
solely to change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of Common Stock
into solely shares of common stock).
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<PAGE> 19
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 or 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) the failure of the Company to issue shares of Common Stock of
the Company upon conversion of this Debenture or any portion thereof
pursuant to the terms of this Debenture within 60 days of receipt by the
Company from the Holder of a duly executed Conversion Notice with respect
to such conversion, together with all other documents and instruments
reasonably requested by the Company in connection with such conversion; or
(4) 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
(5) 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
(6) 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
19
<PAGE> 20
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; or
(7) a default under any indebtedness for money borrowed by the
Company or any subsidiary if (A) such default either (1) results from the
failure to pay the principal of any such indebtedness at its stated
maturity or (2) relates to an obligation other than the obligation to pay
the principal of such indebtedness at its stated maturity and results in
such indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable, (B) the principal
amount of such indebtedness, together with the principal amount of any
other such indebtedness in default for failure to pay principal at stated
maturity or the maturity of which has been so accelerated, aggregates $15
million or more at any one time outstanding ($10 million at any time prior
to the completion by the Company of an initial public offering raising
proceeds of at least $60 million) and (C) such indebtedness is not
discharged, or such acceleration is not rescinded or annulled, within 30
days after written notice; or
(8) the failure of the Company to purchase the principal amount of
this Debenture specified in the Put Notice in accordance with Section 7.10
hereof in the event of a Change of Control.
8.2 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.
8.3 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.
8.4 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.
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<PAGE> 21
Every right and remedy given by this Article 8 or by law to the Holder may be
exercised from time to time, and as often as may be deemed expedient, by any
such Holder, as the case may be.
8.5 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.
8.6 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 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.
9.1 Amendments, Supplements and Waivers. 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 the 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 specifically provided in
Article 7.
9.2 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 shall be bound
thereby.
10. Certain Definitions.
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<PAGE> 22
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, 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 AAC 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 October 31 and April
30 thereafter until repayment.
22
<PAGE> 23
"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 on the Principal Payment Date or by declaration of
acceleration 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 or Affiliate 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.
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 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 and written confirmation of transmission is received 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
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<PAGE> 24
with a copy to:
Thomas A. DeCapo
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street, 31st Floor
Boston, Massachusetts 02108
Facsimile No.: (617) 573-4822
if to the Holder:
JMG Capital Management, Inc.
1999 Avenue of the Stars
Suite 2530
Los Angeles, California 90067
Attn: Jonathan M. Glaser
Facsimile No.: (310) 201-2759
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 Successors. All agreements of the Company in the Debenture
shall bind its respective successors.
11.3 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.
11.4 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.
24
<PAGE> 25
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed as of the date first above written.
ASSET ALLIANCE CORPORATION
By: ________________________________
Name: Arnold L. Mintz
Title: Executive Vice President
Attest:
By: _________________________
Name: Jeffrey Moses
<PAGE> 26
Exhibit 1
CONVERSION NOTICE
The undersigned Holder of this Debenture hereby irrevocably exercises the
option to convert 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 shares of
Common Stock in accordance with the terms of this Debenture, and directs that
such shares be registered in the name of and delivered, together with a check in
payment for any fractional share and any Debenture(s) representing any
unconverted principal amount hereof, be delivered to and be registered in the
name of the undersigned unless a different name has been indicated below. If
shares of Common Stock or Debenture(s) are to be registered in the name of a
Person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the undersigned
on account of interest accompanies this Debenture.
Dated: _________________________ ___________________________________
Signature
If shares are to be registered in
the name of and delivered to a
Person other than the Holder,
please print such Person's name
and address: Please print name and address of Holder:
________________________________ ___________________________________
Name Name
________________________________ ___________________________________
Address Address
________________________________ ___________________________________
________________________________ ___________________________________
Social Security or other Taxpayer Social Security or other Taxpayer
Identification Number, if any Identification Number, if any
I-1
<PAGE> 1
Exhibit 4.15
FORM OF
ASSET ALLIANCE CORPORATION
Subordinated Convertible Debenture
due ________, 2003
$________ (U.S.)
________, 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
__________ Shareholder or assigns (the "Holder"), the principal sum of
_________________________________, on _________ __, 2003 (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 TWO AND
TWO-TENTHS PERCENT (2.2%).
The Company shall pay interest semi-annually at the close of
business on ________ 31, 1998, ________ 31, 1999 and each _______ 31 and
__________ 31 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.)
2. Method of Payment.The Company shall pay interest on this
Debenture to the Holder on each Interest Payment Date, notwithstanding any
transfer or
<PAGE> 2
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 both (a) 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 and (b) having complied with all restrictions on transfer of the
Debentures and interests therein set forth in the Purchase Agreement.
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 debenture shall be issued in lieu thereof except as
expressly permitted by any of the provisions contained herein.
2
<PAGE> 3
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,
and
(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.
3
<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.
4
<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, commencing [366 days after the CLOSING DATE]
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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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.
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 $10.00
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:
(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
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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 consideration
received for such rights or warrants, the value of such consider ation if
other than cash, to be determined by the Board of Directors.
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(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 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
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<PAGE> 9
(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 distribu tion 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, 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,
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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 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.
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(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 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.
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(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, 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
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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 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.
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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 60 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
(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
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.
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.
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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 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.
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<PAGE> 17
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, 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.
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<PAGE> 18
"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.
"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
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<PAGE> 19
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:
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.
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<PAGE> 20
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:
Title:
Attest:
By: _________________________
Name:
Title:
<PAGE> 1
Exhibit 4.16
FORM OF
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and
entered into as of this ____ day of ________, l998, by and among Asset Alliance
Corporation ("Parent") a Delaware corporation, and Jeffrey Schwarz, Karen
Finerman, Metropolitan Capital Advisors, Inc., KJ Advisors, Inc., Metropolitan
Capital III, Inc. and Jeffrey Schwarz Children's Trust (each a "Shareholder" and
together, the "Shareholders").
WHEREAS, the Parent and the Shareholders are parties to the Purchase
Agreement, dated as of March 24, 1998, by and among the Parent, Metropolitan
Capital Advisors, L.P., Metropolitan Capital Partners II, L.P., Metropolitan
Capital Partners III, L.P., the Shareholders and certain other parties as set
forth therein (the "Purchase Agreement") pursuant to which the Shareholders will
receive, among other consideration, pro rata in accordance with their interests
in certain of the forego ing entities and $_________ in principal amount of
convertible subordinated debentures (the "Debentures") of the Parent in the form
attached to the Purchase Agree ment. As used in this Agreement, the term
"Shares" refers to any shares of Common Stock, par value $.01 per share, of
Parent ("Parent Common Stock") acquired upon conversion of the Debentures and,
if applicable, 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; and
WHEREAS, the Shareholders have requested that, in connection with
the Purchase 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;
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, the parties hereto agree as follows:
<PAGE> 2
1. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Parent proposes to
register any of its equity securities under the Securities Act, 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, and is at such
time authorized under the terms of the Purchase Agreement to transfer to
persons other than members of its Immediate Family, in excess of 1% of the
then outstanding Shares (each, an "Eligible Shareholder") with respect to
which (i) such Shareholder is at such time authorized under the terms of
the Purchase Agreement to make such a transfer and (ii) the Parent has
received written requests for inclusion therein within 15 days after the
receipt by such Shareholder 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 properly requested to be
included in such registration, pro rata among shareholders who are
entitled to request such inclusion, 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
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<PAGE> 3
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 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 shareholders who are entitled to
request such inclusion 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 statement 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 participating 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)
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<PAGE> 4
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 misleading, 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
4
<PAGE> 5
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, 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
5
<PAGE> 6
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 liability 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.
6
<PAGE> 7
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 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 3.2( ) of the Purchase 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
7
<PAGE> 8
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 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.
8
<PAGE> 9
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.
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
New York, N.Y. 10022
Telephone Number: (212) 207-8786
Facsimile Number: (212) 207-8785
Attn: Arnold Mintz
with copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Telephone Number: (212) 735-3000
Facsimile Number: (212) 735-2000
Attn: Richard T. Prins, Esq.
9
<PAGE> 10
(b) If to Shareholders, to the addresses provided to the
Parent at the closing of the Purchase Agreement.
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: _______________________________
Arnold L. Mintz
Executive Vice President
METROPOLITAN CAPITAL ADVISORS, INC.
By:___________________________
Name:
Title
KJ ADVISORS, INC.
By:___________________________
Name:
Title
METROPOLITAN CAPITAL III, INC.
By:___________________________
Name:
Title:
______________________________
JEFFREY SCHWARZ
______________________________
KAREN FINERMAN
JEFFREY SCHWARZ CHILDREN'S TRUST
______________________________
Name:
Title:
<PAGE> 12
_____________________________
12
<PAGE> 1
EXHIBIT 10.1
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
BRICOLEUR CAPITAL MANAGEMENT
LIMITED LIABILITY COMPANY
AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement" is made
and entered into as of the commencement of business on February 27, 1998 (the
"Effective Date") by and among the Persons who become signatories hereto and who
are identified from time to time on Schedule A hereto as Members.
WHEREAS, Asset Alliance Bricoleur Merger Co. Inc. ("Newco"), a
Delaware corporation wholly owned by Asset Alliance Corporation ("AAC"), has
formed Bricoleur Capital Management LLC (the "Company") as a limited liability
company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. ss.
18-101 et seq and has filed a Certificate of Formation (the "Certificate") of
the Company with the Office of the secretary of State of the State of Delaware;
WHEREAS, Newco has merged with Bricoleur Capital Management Inc.
and is the surviving corporation in such merger;
WHEREAS Newco has transferred substantially all of its assets to the
Company in exchange for all of the membership interests in the Company and the
assumption by the Company of certain liabilities of Newco; and
WHEREAS, Newco wishes to admit Asset Alliance Management Corp., a
Delaware corporation wholly owned by AAC, as the managing member (the "Manager")
and to have the Manager admit as Members those individuals identified on
Schedule A hereto as Non-Manager Members and Newco, the Manager and the
foregoing individuals wish to provide for the operation, governance, delegation
of day-to-day management to a management committee initially consisting of the
individuals identified on Schedule B hereto, allocation and distribution of
profits and losses and other matters as among the Members;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual premises contained
herein and for good and valuable consideration the receipt and adequacy of which
is hereby acknowledged, the parties hereto hereby agrees as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following capitalized
terms shall have the following meanings:
"AAC" is defined in the recitals.
"Act" means the Delaware Limited Liability Company Act.
"Adjusted Capital Account Deficit" is defined in Appendix B.
"Advisers Act" means the Investment Advisers Act of 1940, as
amended, and all rules and regulations of the SEC thereunder.
"Affiliate" means any corporation, partnership, entity or other
person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the person specified.
"Agreement" means this Limited Liability Company Agreement, as it
may be further amended, supplemented or amended from time to time in accordance
with the terms hereof.
"Allocation Year" means (i) the period beginning on the Effective
Date and ending on December 31, 1998 or (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31.
"Applicable Law" means any statute, law, ordinance, rule, public
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any governmental authority or
self-regulating organization applicable to the Compa-
2
<PAGE> 3
ny, any client, any Member or any of their respective properties, assets,
officers, directors, employees or agents.
"Assignment" means any sale, assignment, transfer, exchange,
charge, pledge, gift, hypothecation, conveyance or encumbrance (such meaning to
be equally applicable to verb and noun forms of such term), or any offer to do
any of the foregoing, of all or any portion of a Membership Interest. "Assignor"
means a Person who makes an Assignment and "Assignee" means a Person who
receives an Assignment.
"Bankruptcy" or "Bankrupt" means, with respect to any Member, such
Member making an assignment for the benefit of creditors, becoming a party to
any liquidation or dissolution action or proceeding with respect to such Member
or any bankruptcy, reorganization, insolvency or other proceeding for the relief
of financially distressed debtors with respect to such Member, or a receiver,
liquidator, custodian or trustee being appointed for such Member or a
substantial part of such Member's assets and, if any of the same occur
involuntarily, the same not being dismissed, stayed or discharged within 90
days; or the entry of an order for relief against such Member under Title 11 of
the United States Bankruptcy Code. A Member shall be deemed bankrupt if the
Bankruptcy of such Member shall have occurred and be continuing.
"Capital Account" means an account established and maintained for
each Member as provided in Section 3.1.
"Capital Contribution" shall mean, as to each Member, the aggregate
amount of cash and the Gross Asset Value of any property (net of liabilities
assumed or taken subject to by the Company, without duplication) contributed to
the capital of the Company by or in the name of such Member (or any prior
holders of the Capital Account of such Member) in connection with the issuance
of Membership Interests or otherwise.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor code thereto.
3
<PAGE> 4
"Competition" means engaging in, or being an owner, part-owner,
shareholder, partner, member, director, officer, trustee, employee, agent or
consultant, or in any other capacity, on behalf of himself or any firm,
corporation or other business organization other than the Company or permitting
his name to be used in connection with the activities of any other business or
organization, or providing any services whatsoever which compete, directly or
indirectly, with the services provided by the Company as the same shall be
constituted at any time during, or as to which the Company had definitive
documented plans for commencement within six months from termination of, such
Person's employment.
"Covered Person" shall mean a Member, any Affiliate of a Member, any
officer, director, shareholder, partner, employee or member of a Member of any
of its Affiliates, or any officer of the Company.
"Effective Date" is defined in the opening paragraph.
"Fair Market Value" shall mean the fair market value as agreed upon
by the Manager and the Management Board (or, for purposes of Section 3.4 hereof,
if there shall be no Manager, the Liquidating Trustee and the Management Board)
or, in the absence of such agreement, as determined by an appraiser selected by
the Manager and the Management Board (or, for purposes of Section 3.4 hereof, if
there shall be no Manager, the Liquidating Trustee) with the prior consent of
the Management Board, which consent will not be unreasonably withheld.
"For Cause" shall mean, with respect to the termination of a
Member's employment with the Company, any of the following:
****[The remainder of this definition (approximately half a page)
has been omitted pursuant to the confidential treatment request referenced on
the cover page hereto. The omitted portion has been filed separately with the
Commission.]****
"Gross Asset Value" is defined in Appendix B.
"Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents and
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children (and estates, trusts, partnerships and other entities and legal
relationships of which a substantial majority in interest of the beneficiaries,
owners, investors, members or participants at all times in question are,
directly or indirectly, one or more of the Persons described above and/or such
individual).
"Indebtedness" shall mean, with respect to a Person (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under any financing leases, (d) all obligations of such Person in respect of
acceptances issued or created for the account of such Persons, and (e) all other
obligations or liabilities treated as indebtedness under the most senior debt
instruments of AAC outstanding from time to time.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"Liquidating Trustee" is defined in Section 3.4 hereof.
"Management Board" is defined in Section 2.2(a) hereof.
"Manager" is defined in the recitals, subject to change in
accordance with Article 4 hereof.
"Mandatory Investments" is defined in Section 3.3(a)(ii) hereof.
"Member" shall mean any Person admitted to the Company as a "member"
within the meaning of the Act, which includes Newco, the Manager and the
Non-Manager
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<PAGE> 6
Members (excluding, for this purpose, Assignees until admitted as Members
pursuant to the provisions hereof), and includes any Person admitted as an
additional or substitute Non-Manager Member pursuant to the provisions of this
Agreement, in such Person's capacity as a Member of the Company, in each case
unless otherwise indicated. For purposes of the Act, the Members shall
constitute one (1) class or group of members.
"Membership Interest" means the limited liability company interest
of a Member in the Company at any particular time, including any and all rights
and benefits to which such Member is entitled under this Agreement and the
Act, together with the obligations of such Member under this Agreement and the
Act.
"Net Income" and "Net Loss" are defined in Appendix B.
"Newco's Unpaid Preferred Distribution" means an amount equal to the
excess of (i) 50% of Revenues From Operations (but excluding any such amounts
which constitute Received Catch-Up Revenues) for all periods of the Company
since the Effective Date over (ii) the aggregate distributions made to Newco
pursuant to Section 3.3(a)(ii).
"Non-Manager Member" shall mean any Person who is or becomes a
Member pursuant to the terms hereof other than Newco, the Manager or any of
their Affiliates.
"Non-Manager Member Percentage Interest" means, for each Non-Manager
Member, the percentage obtained by dividing such Non-Manager Member's Percentage
Interest by the sum of the Percentage Interest held by all Non-Manager Members,
and multiplying such quotient by 100%.
"Non-Manager Member Pool" for any Allocation Year shall mean the
excess of 50% of Revenues From Operations over Operations Expenses of the
Company for such Allocation Year other than compensation of the Non-Manager
Members.
"Non-Manager Members Unpaid Preferred Distribution" means an amount
equal to the excess of (i) 100% of Received Catch-Up Revenues for all periods of
the Company
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<PAGE> 7
since the Effective Date over (ii) the aggregate distributions made to the
Non-Manager Members pursuant to Section 3.3(a)(i).
"Non-Manager Members Unpaid Subordinated Distribution" means an amount
equal to the excess of (i) 100% of Revenues From Operations for all periods of
the Company since the Effective Date over (ii) the sum of (A) 100% of Operating
Expenses for all periods of the Company since the Effective Date, (B) Newco's
Unpaid Preferred Distribution, (C) the Non-Manager Members Unpaid Preferred
Distribution and (D) the aggregate distributions made to Newco and the
Non-Manager Members pursuant to Section 3.3(a)(i) and 3.3(a)(ii).
"Operating Expense" means, for any period, any expenditure,
liability or other item made or incurred during such period that is treated as
an expense of the Company (as opposed to a capital expenditure) for such period
under generally accepted accounting principles, consistently applied, but in no
event shall Operating Expenses include (i) any amount for amortization or
depreciation for such period, (ii) any compensation to any Members, (iii) any
payments on any Indebtedness or liability of Newco outstanding on the Effective
Date that is assumed by the Company in each case as of the Effective Date
(including any Indebtedness or liability of Newco attributable to the operations
of Bricoleur Capital Management, Inc. ("BCMI") and properly accrued on the books
of BCMI prior to the Effective Time in accordance with generally accepted
accounting principles) or (iv) any net decline in the aggregate value of all the
capital interests of the Company in investment funds for which the Company acts
as investment advisor, general partner or the like. Operating Expense shall be
reduced by any recoveries of previously incurred Operating Expense including
proceeds of insurance paid for out of Operating Expense. Any recoveries in
excess of Operating Expense for a particular period will be carried over to the
next period as a credit to Operating Expense.
"Percentage Interest" means the percentage set forth on Schedule A
for each Member as amended from time to time by the Manager in accordance with
the terms hereof.
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"Person" shall mean any individual, partnership (limited or
general), corporation, limited liability company, limited liability partnership,
association, trust, joint venture, unincorporated organization or any similar
entity.
"Received Catch-Up Revenues" shall mean ****[The remainder of this
definition (approximately one and a half pages) has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
"Regulations" means the Regulations promulgated under the Code.
"Revenues From Operations" shall mean, for any period, the gross
revenues (without reduction to reflect expenses) of the Company (except as set
forth herein and except as otherwise agreed by the Manager and the Management
Board in a writing making reference to this definition), determined on an
accrual basis in accordance with generally accepted accounting principles
consistently applied, but (i) adjusted upward (but only to the extent not
duplicative) for the following items; (A) the sum of the increase, if any,
during such period in the Company's capital accounts in any partnership (or
similar investment entity) on account of such capital and (B) the sum of all
cash withdrawals received during such period by the Company with respect to any
such partnership (or similar investment entity), and (ii) adjusted downward (but
only to the extent not duplicative) for the following items: (A) the sum of the
decrease, if any, during such period in the Company's capital account in any
partnership (or similar investment entity) on account of such capital, (B) the
sum of all Company cash contributed during such period to any such partnership
(or similar investment entity) and (C) the sum of all amounts by which any items
previously included in Revenues From Operations become partly or entirely
uncollectible or are collected at less than the amount previously included. For
the foregoing purposes gross revenues allocable to the capital accounts of the
Company in any partnership (or similar investment entity) other than on account
of capital (i.e. incentive or performance allocations) shall
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<PAGE> 9
be measured on an account by account basis and shall consist, for each such
account at any given point in time, of the amount thereof that would be
allocated to the Company's account if the date for calculation and allocation or
obligation to pay such allocation or fee were such point in time, the effect of
the foregoing being that at any particular time other than the point in time
that such fee or allocation is actually calculated and allocated or payable the
calculation required hereunder may result in a positive addition to Revenues
From Operations or a negative deduction from Revenues From Operations for the
period since the most recent calculation thereof hereunder; and (iii) gross
revenues from periodic investment advisory and management fees shall be accrued
on a daily, weekly, monthly or calendar quarterly basis. Notwithstanding the
foregoing, Revenues From Operations shall not include (i) proceeds (including
any gain) on the disposition of any asset of the Company, (ii) Capital
Contributions by a Member to the Company during such period, and (iii) proceeds
received in respect of any insurance policy (other than business interruption
insurance).
"Taxable Income" and "Taxable Loss" are defined in Appendix B.
1.2 Continuation of Company. The Manager shall from time to time take all
such actions as may be deemed by it to be necessary or appropriate to effectuate
and permit the continuation of the Company as a limited liability company under
the Act and qualify the Company to act in any other state or country where the
Manager deems qualification necessary or desirable. The Members shall execute
such certificates, documents and instruments and take such other action as may
be necessary to enable the Manager to fulfill its responsibility under this
Section 1.2.
1.3 Offices. The Company's registered agent and office in the State of
Delaware shall be as set forth in the Certificate, subject to change at any time
by the Manager. The principal offices of the Company shall be at 8910 University
Center Lane, San Diego, California 92122 or at such other or supplemental
location or locations as the Management Board shall determine from time to
time.
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1.4 Purpose and Powers. The Company is organized for the purpose of acting
as an investment manager and providing investment management and advisory,
consulting, marketing, administrative and other services ancillary thereto or
useful in connection therewith. The Company may also engage in any other lawful
business or activity permitted by the Act which is agreed to in writing by the
Manager and the Management Board. In pursuing such purposes, the Company shall
possess and may exercise all of the powers and privileges permitted by the Act,
together with any powers incidental thereto, including the following:
(a) to open, maintain and close bank, brokerage and other financial
accounts and to draw checks or other orders for the payment of money;
(b) to engage attorneys, accountants and such other persons as may be
necessary or advisable in connection with the foregoing objects and purposes;
(c) to purchase and sell property, to lease property, to borrow or lend
money, to make contracts, incur liabilities and give guarantees;
(d) to employ and terminate employees, consultants and other agents; and
(e) to present, defend and settle legal actions or arbitration
proceedings.
1.5 Term. The Company shall continue in perpetuity until the Company is
dissolved in accordance with the provisions of this Agreement.
1.6 Members; Limited Authority and Liability.
(a) The names and addresses of the Members, the amount of the initial
Capital Account of each Member and the Percentage Interest of each Member are
set forth in Schedule A hereto, which Schedule may be amended from time to time
to reflect any change in the identity of Members and any changes in the
Percentage Interest of the Members, it being understood that changes in Capital
Accounts shall be recorded in the books and records of the Company and not in
Schedule A. The initial Capital Account balance of Newco shall be equal to the
aggregate
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<PAGE> 11
value of the Merger Consideration (as defined in the Merger Agreement dated
February 20, 1998 by and among AAC, Newco, the initial Non-Manager Members and
Bricoleur Capital Management, Inc.), as such value may be adjusted to reflect
changes in the Merger Consideration pursuant to Section 2.8 of such Merger
Agreement, less the fair market value of any assets obtained by Newco in the
Merger and not contributed to the Company. Such aggregate fair market value
shall be allocated among such contributed assets by the Manager and the
Management Board.
(b) Although a Non-Manager Member may be required to make Capital
Contributions pursuant to Section 4.4 hereof to fund certain Operating Expenses
of the Company, and accordingly bears a substantial economic risk of loss with
respect to the operations of the Company, a Non-Manager Member is not required
to make an initial Capital Contribution to acquire Membership Interests.
Accordingly, the initial Capital Account balance of each Non-Manager Member
will be zero. The Company and each member intend that the issuance of Interests
to the Non-Manager Members be governed by the guidelines set forth in Rev. Proc.
93-27 regarding the non-taxable issuance of a "profits interest" to a service
provider. Accordingly, the Company agrees not to claim a compensation deduction
upon the issuance of such Interest or otherwise to treat the issuance of such
Interest as a compensatory transaction for income tax purposes. Notwithstanding
the fore going, if the Internal Revenue Service asserts and prevails in an
audit or other proceeding that a Non-Manager Member must report taxable
compensation income upon receipt of the Interest, (i) such Member will
immediately notify the Company of this action, and (ii) the Company will, to the
extent permitted under applicable law, specially allocate to such Member (in his
capacity as a Member) in accordance with the special allocation provisions in
Appendix B any resulting compensation deduction that the Company would be
entitled to as a consequence of the Service's proposed treatment of the issuance
of the Interest as a compensatory transaction (in whole or in part). Such Member
and the Company will cooperate and coordinate to challenge such assertion.
(c) Article 2 grants authority to the Members to take certain actions as
specified therein. Except as provided in Article 2, no Member, in its capacity
as
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<PAGE> 12
such, has the authority or the power to act for or on behalf of the Company, to
do any act that would be binding on the Company, or incur any expenditures on
behalf of the Company. No Member shall be liable for the debts, obligations or
liabilities of the Company, including under a judgment, decree or order of a
court.
1.7 No State-Law Partnership. No provisions of this Agreement (including,
without limitation, the provisions of Article 2) shall be deemed or construed
to constitute the Company a partnership (including, without limitation, a
limited partnership) or joint venture, or any Member or Manager a partner or
joint venturer of or with any other Member or Manager, for any purposes other
than tax purposes.
1.8 Status. No Member shall take any action that would require termination
of the Company for Federal or state tax purposes or registration of the Company
or any class of its securities under the Investment Company Act of 1940 or the
Securities Exchange Act of 1934 or result in the Company being taxable as a
corporation for Federal or state tax purposes.
ARTICLE 2
MANAGEMENT
2.0 Management in General. It is understood and agreed that the Management
Board provided for in Section 2.2 shall irrevocably be delegated and have the
authority to manage the day-to-day business of the Company, that certain
actions, but only to the extent expressly specified hereinafter, that are
material to the business or that affect the interests of the Manager and its
Affiliates may only be taken by the Management Board with the consent of the
Manager, that certain activities, but only to the extent expressly specified
hereinafter, in the financial and compliance areas require coordination between
the Management Board and the Manager and that for regulatory reasons the Manager
shall have the ability to alter the foregoing structure but that except in
narrowly defined circumstances any such alteration will subject the Manager to
substantial penalties.
2.1 Manager. (a) Subject to the other terms of this Agreement, including
the reservations and delega-
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tions of power and authority set forth in Section 2.2 and elsewhere herein, (i)
the management and control of the business of the Company shall be vested
generally in the Manager, who shall be a Member and a "manager" of the Company
within the meaning of the Act; (ii) the Manager, as specified or limited, as the
case may be, in Section 2.2 and elsewhere, shall have exclusive power and
authority, in the name of and on behalf of the Company, to perform all acts and
do all things which in its sole discretion it deems necessary or desirable to
conduct the business of the Company, without the vote or consent of any of the
other Members; and (iii) any action taken by the Manager, and the signature of
the Manager (or any authorized representative) on any instrument on behalf of
the Company, shall conclusively evidence the authority of the Company with
respect thereto and shall bind the Company. Notwithstanding the foregoing, the
Manager shall have no power or authority whatsoever to make recommendation with
respect to or to determine which transactions the Company shall cause or
recommend any investment advisory client of the Company to enter into, or the
time at which, the party with which or the terms on which any right, power or
privilege of the Company is exercised or performed with respect to the account
of any such client or the assets in the account of any such client.
(b) The Manager shall have the specific power and authority in its
reasonable discretion, after consultation with the Management Board to take any
of the following actions: (i) such actions as may be necessary to cause the
Company, any of its controlled Affiliates or any of its Members, employees or
agents to comply with any Applicable Law or this Agreement; (ii) such actions as
the Manager is specifically authorized by this Agreement to take (subject to
having obtained any required Management Board approval); (iii) such actions as
are necessary to prevent actions that require the Manager's consent pursuant to
the terms of this Agreement if such consent has not been given; and (iv)
termination of any Member of the Company upon termination of such Member's
employment "For Cause" after all actions and determinations required by the
definition thereof have been taken and made.
(c) The Manager shall be obligated to devote only such time to the
business and affairs of the Company as
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<PAGE> 14
it deems necessary in its sole discretion for the performance of its duties
under this Agreement.
(d) The Manager and its Affiliates may engage in other business ventures
of every nature and description, including the creation, acquisition, financing,
operation and disposition of investment managers or interests therein that are
or may be competitive with the Company's businesses. The Manager shall not be
obligated to present any opportunity to the Company even if such opportunity
would be suitable for the Company or arose because of the Manager's interest in
or operation of the Company. Neither the Company nor any of the Members other
than the Manager shall have any right in or to any such other ventures and no
such activity by the Manager or its Affiliates shall be deemed improper or
result in any liability to the Manager or its Affiliates.
(e) Any consent of the Manager required hereunder shall be in writing,
shall be obtained prior to the action sought to be taken, and shall, except as
otherwise set forth, be given or withheld in the reasonable discretion of the
Manager. The Manager shall designate in writing to the Management Board from
time to time one or more persons who shall serve as authorized representatives
of the Manager to provide such written consent and two or more alternate
representatives who are so authorized in the event the primary authorized
person is not available.
2.2 Management Board. (a) ****[This subsection (approximately half a page)
has been omitted pursuant to the confidential treatment request referenced on
the cover page hereto. The omitted portion has been filed separately with the
Commission.]****
(b) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(c) The Company shall not do, and the Management Board shall use all
reasonable efforts to prevent the Company from doing, any of the following
without the consent of the Manager:
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<PAGE> 15
(i) take any action (including with respect to legal actions,
arbitrations and administrative proceedings and including with respect to
capital expenditures) or enter into, amend, take any action under or
terminate any agreement or understanding that could reasonably be expected
to conflict with this Agreement, prevent the Company from being able to
distribute to Newco any of the distributions contemplated hereunder or
have a materially adverse effect on the condition (financial or
otherwise), operations, assets, liabilities, business, opera tions or
prospects of the Company;
(ii) create, incur, assume or suffer to exist any Indebtedness of
the Company or any Lien upon any assets of the Company;
(iii) take or omit any action which could reasonably be expected to
result in the termination of employment of any Member of the Company or
enter into, amend, take any action under or terminate any employment
agreement or noncompetition agreement with any Member of the Company;
(iv) enter into any line of business other than that set forth in
the first sentence of Section 1.4 of this Agreement or alter materially
its in vestment style (e.g., from arbitrage to short selling);
(v) except as permitted by Section 4.3(a), admit any Person as a
Member, issue or acquire any Membership Interests or other equity
interests in the Company or remove any Member;
(vi) sell or purchase any material amount of assets or any other
business, merge or consolidate the Company with any other Person or
liquidate, dissolve or terminate the Company;
(vii) invest any of the Company's assets in general partner
interests (except as required by the partnership agreements of the
partnerships of which the Company acts as the general partner from time to
time) or in securities other than high quality money market instruments;
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<PAGE> 16
(viii) use as accountants for the Company any firm other than the
independent public accountants for the Manager and its Affiliates; or
(ix) take any action which may be taken only by the Manager or
requires the consent of the Manager.
(d) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
2.3 Operations of the Business of the Company. (a) The Management Board
shall exercise its reasonable best efforts so that ****[The remainder of this
subsection has been omitted pursuant to the confidential treatment request
referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
(b) The Company will maintain in full force and effect such insurance as
is customarily maintained by companies of similar size in the same or similar
businesses (including, without limitation, errors and omissions liability
insurance but excluding key-man life insurance). The Company or the Manager may
maintain key-man life insurance and disability insurance policies on each
Member, from time to time, and the Members will use all commercially reasonable
efforts to cooperate with the Manager and the Company to effectuate the
foregoing; provided, however, that neither the Company nor the Manager shall be
obligated to maintain such insurance.
(c) Notwithstanding any of the provisions of this Agreement to the
contrary, all accounting, financial reporting and bookkeeping procedures of the
Company shall be established in conjunction with policies and procedures
determined under the supervision of the Manager. The Company shall have a
continuing obligation to keep the Manager's chief financial officer informed of
material financial developments with respect to the Company. Notwithstanding
any of the provisions of this Agreement to the contrary, all legal, compliance
and regulatory matters of the Company shall be coordinated with the
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<PAGE> 17
Manager, and the Company shall have an ongoing obligation to keep the Manager
informed of all significant legal, compliance and related activities, in
accordance with procedures to be established by the Manager and the Management
Board.
2.4 Compensation and Expenses of the Manager. The Manager and its
Affiliates may receive reimbursement of expenses and compensation for services
provided to the Company only to the extent approved by the Management Board.
2.5 Non-Competition, Non-Solicitation and Non-Disclosure.
(a) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(b) Each Member agrees that any and all presently existing investment
advisory businesses of the Company and all business developed by the Company,
including by such Member or any other employee of the Company, including
without limitation, all investment methodologies, all investment advisory
contracts, fees and fee schedules, commissions, records, data, client lists,
agreements, trade secrets, and any other incident of any business developed by
the Company or earned or carried on by the Member for the Company other than any
such matters that are in the public record (unless they are so available by
virtue of a breach of the provisions of this Section 2.5), and all trade names,
service marks and logos under which the Company does business, and any
combinations or variations thereof and all related logos, are and shall be the
exclusive property of the Company, for its sole use, and (where applicable)
shall be payable directly to the Company. In addition, each Member acknowledges
and agrees that the investment performance of the accounts managed by the
Company was attributable to the efforts of the team of professionals of the
Company and not to the efforts of any single individual, and that therefore, the
performance records of the accounts managed by the Compa ny are and shall be the
exclusive property of the Compa ny. Notwithstanding the foregoing, such Member
may be permitted to identify with such performance where in fact
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<PAGE> 18
such Member exercised the sole final decision making authority resulting in
such performance. Each Member acknowledges that, in the course of performing
services hereunder and otherwise the Member has had, and will from time to time
have, access to information of a confidential or proprietary nature, as
commonly and generally understood, including without limitation, confidential or
proprietary investment methodologies, trade secrets, proprietary or confidential
plans, client identities and information, client lists, business operations or
techniques, records and data ("Intellectual Property") owned or used in the
course of business by the Company. Each Member agrees always to keep secret and
not ever publish, divulge, furnish, use or make accessible to anyone (otherwise
than in the regular business of the Company) any Intellectual Property of the
Company that is not other wise publicly available (other than Intellectual
Property that is publicly available by virtue of a breach of the provisions of
this Section 2.5). At the termination of the Member's services to the Company,
all data, memoranda, client lists, notes, programs and other papers, items and
tangible media, and reproductions thereof relating to the foregoing matters in
the Member's possession or control, shall be returned to the Company and remain
in the Company's possession (except where the return of such items shall be
unreasonable or impracticable in relation to the importance or confidentiality
of such items).
(c) As a further condition and material inducement to admission as a
Member, each Member (other than the Manager) agrees, for the benefit of the
Company and the other Members, to enter into Non-disclosure and Non-solicitation
agreements to substantially the same effect as the provisions of Sections 2.5(a)
and (b) hereof, or into an employment agreement containing such provisions. The
provisions of this Section 2.5 shall not be deemed to limit any of the rights of
the Company or the Manager under any of such agreements or under Applicable Law,
but shall be in addition to the rights set forth in each of such agreements and
those which arise under Applicable Law.
2.6 Remedies Upon Breach.
(a) Each Member agrees that any breach of the provisions of Section 2.5 of
this Agreement or of the provisions of any agreement referred to in Section
2.5(c)
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by such Member could cause irreparable damage to the Company and the other
Members. The Company and the Manager shall have the right to seek an injunction
or other equitable relief (in addition to other legal remedies) to prevent any
violation of a Member's obligations hereunder or thereunder.
(b) In the event that a Member is terminated pursuant to Section
2.1(b)(iv), then such Member and any member of his Immediate Family shall be
obligated to sell to the other Non-Manager Members of the Company, at the
election of each of them made within 30 days after such Member's termination
becomes effective or, to the extent any such other Non-Manager Member shall fail
to make such election, at the election of the Company made within 30 days after
receiving notice of the results of elections by the other Non-Manager Members,
all of such Member's Membership Interests and to pay to the Company the
after-tax proceeds of any sale or other transfer of any portion of his
Membership Interest or any interest therein to any Person during the two
preceding years. The price at which the other Non-Manager Members or the Company
shall be entitled to purchase such Member's Membership Interest shall be (i) in
the case of termination For Cause in whole or in part on account of a violation
of Section 2.5 of this Agreement or the parallel provisions of such Member's
employment or noncompetition agreement with the Company, an amount equal to such
Member's tax basis in such Member's Membership Interests and (ii) in the case of
a termination For Cause for any reason entirely other than on account of a
violation of Section 2.5 of this Agreement or the parallel provisions of such
Member's employment or noncompetition agreement with the Company, an amount
equal to the sum of (A) the product of such Member's Percentage Interest prior
to such termination times the Non-Manager Member Pool for the Allocation Year
during which such termination occurs plus (B) the product of such Member's
Percentage Interest prior to such termination times the Non-Manager Member Pool
for the Allocation Year following the Allocation Year during which such
termination occurs. Such purchase price shall be paid as promptly as practicable
after determination thereof.
(c) Each Member agrees that the enforcement of the provisions of Sections
2.5 and 2.6 hereof, and the enforcement of the provisions of any agreement
referred to in Section 2.5(c) are necessary to ensure the protection
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<PAGE> 20
and continuity of the business, goodwill and confidential business information
of the Company for the benefit of each of the Members. Each Member agrees that,
due to the proprietary nature of the Company's business, the restrictions set
forth in Section 2.5 hereof and in such agreements are reasonable as to duration
and scope. If any provision contained in this Article 2 shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Article 2. It is the intention of the parties hereto that if any of the
restrictions or covenants contained herein is held to cover a geographic area or
to be for a length of time that is not permitted by Applicable Law, or is in any
way construed to be too broad or to any extent invalid, such provision shall not
be construed to be null, void and of no effect, but to the extent such provision
would then be valid or enforceable under applicable law, such provision shall be
construed and interpreted or reformed to provide for a restriction or covenant
having the maximum enforce able geographic area, time period and other
provisions as shall be valid and enforceable under Applicable Law.
2.7 No Employment Obligation. Each Member acknowledges that neither this
Agreement nor the provisions of any agreement referred to in Section 2.5(c)
create an obligation on the part of the Company to continue the employment of
such Member with the Company, and that such Member, unless he is a party to an
Employment Agreement, is an employee at will of the Company. Notwithstanding the
foregoing, the Management Board or its delegate shall have general authority
regarding personnel decisions and the employment status of employees.
Each Member acknowledges that the obligations and rights under Sections
2.5 and 2.6 hereof shall survive the termination of the employment of such
Member with the Company and/or the withdrawal or removal of such Member from the
Company, regardless of the manner of such termination, withdrawal or removal in
accordance with the provisions hereof and of the relevant agreements of the type
referred to in Section 2.5(c).
2.8 Liability and Indemnification
(a) No Liability
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(i) No Covered Person shall be personally liable to the Company or
other Members in acting on behalf of the Company or in its, his or her capacity
as a Covered Person in a manner believed in good faith by such Covered Person to
be within the scope of authority granted to such Covered Person hereunder,
except as otherwise required by applicable law, provided that its, his or her
actions or omissions did not constitute fraud, bad faith, gross negligence or
willful misconduct.
(ii) Each Covered Person shall be fully protected in relying in
good faith upon information, opinions, reports or statements furnished by any
Person as to matters such Covered Person reasonably believes are within such
other Person's professional or expert competence and who has been selected with
reasonable care, including information, opinions, reports or statements as to
the value and amount of assets, liabilities, profits or losses of the Company,
the valuation of transactions in which the Company engages or contemplates
engaging, the reasonableness of the terms of a transaction, and any other facts
pertinent to the existence and amount of assets from which a distribution to
Members and Assignees might properly be paid.
(b) Right to Indemnification. Subject to the limitations and conditions as
provided in this Section 2.8, each Person who was or is made a party or is
threatened to be made a party to or is involved in any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (a "Proceeding"), or any appeal in
such a Proceeding, by reason of the fact that such Person is or was a Covered
Person shall be indemnified by the Company against all costs and expenses,
including reasonable attorney's fees, the costs and expenses of investigation,
and judgments and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if such Covered Member acted in
good faith and in a manner in which such Covered Person believed in good faith
to be in the best interest of the Company.
(c) Advance Payment. The right to indemnification conferred in this
Section 2.8 shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Covered Person who was, is or is threatened to
be made a named defendant or respondent in
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a proceeding in advance of the final disposition of the proceeding and without
any determination as to the Covered Person's ultimate entitlement to
indemnification; provided, however, that the payment of such expenses incurred
by any such Person in advance of the final disposition of a Proceeding shall be
made only upon delivery to the Company of a written affirmation by such Covered
Person of such Covered Person's good faith belief that he has met the standard
of conduct necessary for indemnification under this Section 2.8 and a written
undertaking, by or on behalf of such Covered Person, to repay all amounts so
advanced if it shall ultimately be determined that such Covered Person is not
entitled to be indemnified under this Section 2.8 or otherwise.
(d) Indemnification of Employees and Agents. With the consent of the
Manager, the Company may indemnify and advance expenses to any employee or agent
of the Company to the same extent and subject to the same conditions under which
it is required to indemnify and advance expenses to Covered Persons under
Sections 2.8(b) and (c).
(e) Limitation on Indemnification. Notwithstanding anything to the
contrary contained in this Section 2.8, no Person shall be entitled to
indemnification under Section 2.8 if any such indemnification shall be deter
mined to be contrary to Applicable Law or if it is deter mined by a court of
competent jurisdiction that such Person is not entitled to indemnification
because it, he or she (i) did not act in good faith, (ii) engaged in conduct
constituting gross negligence, willful misconduct or fraud, or (iii) did not act
in a manner that it, he or she believed in good faith to be in the best interest
of the Company.
2.9 Non-Manager Member Investment and Trading Accounts. For so long as
Newco or an Affiliate of Newco is a Member of the Company, the Non-Manager
Members shall maintain investments (other than through their interests in the
Company) in investment vehicles managed by the Company in an aggregate amount
for all Non-Manager Members of at least $10 million less any reduction
attributable to market depreciation. The Non-Manager Members may also maintain
brokerage and investment accounts that are not managed by the Company so long as
(a) the aggregate amount of funds of the Non-Manager Members managed
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<PAGE> 23
by the Company is at least $10 million (less any reduction attributable to
market depreciation), (b) the maintenance and operation of such accounts
complies with Applicable Law and the Company's compliance policies and (c) the
Manager is provided reasonable opportunity to examine such accounts as required
by Applicable Law.
ARTICLE 3
CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS
3.1 Capital Accounts. (a) A single capital account ("Capital Account")
shall be maintained for each Member in accordance with the capital accounting
rules of Section 704(b) of the Code. No Member shall have the right to withdraw
any part of his Capital Account until the dissolution and winding up of the
Company, except as distributions pursuant to this Article 3 may represent
returns of capital, in whole or in part. No Member shall be entitled to receive
any interest on any Capital Account balance. No Member shall have any personal
liability for the repayment of any Capital Contribution of any other Member.
Except as may be agreed to in connection with the issuance of additional
Membership Interests, as specifically set forth herein or as may be required
under Applicable Law, no Member shall be required to make any further Capital
Contributions to the Company.
(b) Each Member's opening Capital Account shall be as stated in Schedule A
hereto. Thereafter, a Member's Capital Account shall be credited with (i) such
Member's subsequent Capital Contributions; (ii) such Member's share of the Net
Income or other income and gain of the Company as provided herein; and (iii)
such other amounts as may be required in order for the Capital Account to be
considered to be determined and maintained in accordance with the rules under
Regulation Section 1.704-1(b)(2)(iv) or any successor section of similar import.
A Member's Capital Account shall be debited with (i) such Member's share of the
Net Loss or other deductions and losses of the Company as provided herein, (ii)
distributions made to such Member (including liquidating distributions), and
(iii) such other amounts as may be required for the Capital Account to be
considered to be determined and maintained in accordance with the rules under
Regulation
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Section 1.704-1(b)(2)(iv) or any successor section of similar import.
3.2 Allocations.
(a) Net Income and Net Loss. After giving effect to the special
allocations set forth in Section 3.2(b), Net Income and Net Loss will be
allocated among the Members as follows:
(i) Net Income for any period will be allocated among the Members
first to restore any prior allocations of Net Loss to such Members (in
proportion to the amount of Net Loss previously allocated to each such Member),
and then to the Members in accordance with their Percentage Interests; and
(ii) Net Loss for any period will be allocated among the Members in
the proportion that the positive balance in each Member's Capital Account bears
to the sum of all Capital Accounts having positive balances until all such
positive Capital Account balances have been reduced to zero.
(b) ****[This subsection (approximately half a page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(c) Periods. The allocations provided in this Agreement shall be made as
of the end of each calendar quarter, and allocations for any subsequent quarter
in the same Allocation Year shall appropriately take into account adjustments
made to the Company's reported financial performance in any such prior calendar
quarter.
(d) Transferred Interests. For purposes of this Section 3.2, if any Member
transfers any Interest in the Company during any quarter of any Allocation Year,
Net Income or Net Loss attributable to such transferred Interest for that
quarter will be divided and allocated between the Transferor and Transferee in
proportion to the number of days during the quarter that each was the owner of
the Interest transferred.
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(e) Acknowledgment of Tax Consequences. The Members are aware of the
income tax consequences of the allocations made by this Section 3.2 and Appendix
B, and hereby agree to be bound by the provisions of this Agreement in
reporting their share of Taxable Income or Loss for income tax purposes.
3.3 Distributions.
(a) ****[This subsection (approximately one and a half pages) has been
omitted pursuant to the confidential treatment request referenced on the cover
page hereto. The omitted portion has been filed separately with the
Commission.]****
(b) Distributions Concerning Interests Transferred. Distributions made
under this Section 3.3 with respect to any transferred Interest will be made
only to Members of record (or assignees as provided herein) on the record date
designated by the Company.
(c) No Violations. Notwithstanding anything in this Agreement to the
contrary, the Company will not be obligated to, and will not, make any
distribution that would (i) render the Company insolvent, (ii) violate the Act
or other Applicable Law or (iii) cause any Member to have an Adjusted Capital
Account Deficit as of the end of the current Allocation year (as defined in
Appendix B).
(d) Distributions in Kind. If any assets of the Company are distributed in
kind, such assets will be distributed on the basis of the then fair market value
thereof, as reasonably determined by the Manager and the Management Board. All
such distributions will be in the same proportion as if such distribution had
been made in cash.
3.4 Distributions Upon Dissolution; Establishment of a Reserve Upon
Dissolution. (a) Upon the dissolution of the Company, after payment (or the
making of reason able provision for the payment) of all liabilities of the
Company owing to creditors, the Company, or if there is none, the Liquidating
Trustee appointed as set forth in Section 6.2 hereof, shall set up such reserves
as it deems reasonably necessary for any contingent, conditional or unmatured
liabilities or other obligations of the Company. Such reserves may be paid over
by the Company
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or Liquidating Trustee to a bank (or other third party), to be held in escrow
for the purpose of paying any such contingent, conditional or unmatured
liabilities or other obligations. The remaining assets of the Company shall be
distributed to the Members (i) in accordance with the positive balance (if any)
in their respective Capital Accounts (as determined immediately prior to each
such distribution) until all such positive Capital Account balances have been
reduced to zero (0), and (ii) thereafter, among the Members as of the date of
dissolution in accordance with their respective Percentage Interests as of the
date of dissolution.
(b) Timing of Liquidation Distributions. Distributions in liquidation
will be made by the end of the taxable year in which the liquidation occurs or,
if later, within 90 days of the liquidating event and will otherwise comply with
Regulations Section 1.704-1(b); provided, however, that the distribution of any
assets held in reserve as provided above shall be distributed at the expiration
of such time as the Company or the Liquidating Trustee deems advisable.
(c) Limitations on Payments made in Dissolution. Except as otherwise
specifically provided in this Agreement, including Section 4.4 hereof, each
Member will be entitled to look solely to the assets of the Company for the
return of his or her positive Capital Account balance and will have no recourse
for his or her Capital Contribution and/or share of Net Income, or other items
of income and gain, against the Manager or any other Member.
(d) If any assets of the Company are to be distributed in kind in
connection with such liquidation, such assets shall be distributed on the basis
of their Fair Market Value net of any liabilities encumbering such assets and,
to the greatest extent possible, shall be distributed pro-rata in accordance
with the total amounts to be distributed to each Member. Immediately prior to
the effectiveness of any such distribution-in-kind, each item of gain and loss
that would have been recognized by the Company had the property being
distributed been sold at Fair Market Value shall be determined and allocated in
accordance with Section 3.2 hereof to the Capital Accounts of those Persons who
were Members immediately prior to the effectiveness of such distribution.
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(e) Actions by the Company under this Section 3.4 shall be taken based
upon agreement by the Manager and the Management Board.
3.5 Proceeds from Key-Man Insurance. In the event the Company acquired any
key-man life insurance on the life of a Non-Manager Member, the premium expense
and any proceeds of such insurance shall be allocated, distributed and
reflected in Members' Capital Accounts as agreed by the Manager and the
Management Board.
ARTICLE 4
TRANSFER AND ISSUANCE OF INTERESTS
4.1 Limitation on Transfer of Membership Interests.
(a) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(b) Notwithstanding any other provision in this Article 4, no Assignment
or Admission shall be valid or effective unless the Assignor gives the Company
written notice before making any Assignment and, with such notice, provides the
Company with such evidence as the Company may require that such Assignment or
Admission will not violate this Agreement or Applicable Law.
(c) The Company or the Manager may require as a condition of any
Assignment that the Assignee assume all costs incurred by the Company in
connection therewith, including, but not limited to, legal fees and cost of
preparation and filing of any amendment to this Agreement if necessary or
desirable in connection therewith, and the Assignee shall execute, acknowledge
and deliver to the Company such documents or instruments in form and substance
satisfactory to the Company and the Manager as the Company and the Manager shall
deem necessary or desirable to effectuate such Assignment and to confirm the
agreement of the Assignee to be bound by all of the terms and provisions of this
Agreement. Any Assignment in contravention of any of the provisions of this
Section 4.1 shall be void ab initio and of no effect and shall not bind or be
recognized by the Company.
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(d) No Assignee shall be admitted as a Member unless: (i) the consent
requirements set forth in Section 4.1(a) shall have been satisfied, (ii) the
Assignee shall have indicated such intention in the instrument effecting the
Assignment and the Assignee expressly agrees to be bound, to the same extent as
the other Members, by the provisions of this Agreement, and any other documents
required in connection therewith and to assume the obligations of the Assignor
hereunder and become a signatory to this Agreement, (iii) the Assignor and the
Assignee shall have executed or delivered such other instruments as the Company
may deem necessary or desirable to effectuate such admission, and (iv) the
Assignee shall have agreed to pay (to the extent the Assignor shall not have
paid such costs under Section 4.1(c) hereof), as the Management Board may
determine, all reasonable expenses and legal fees relating to the Assignment and
the Assignee's Admission, including, but not limited to, the cost of any
required counsel's opinion and the preparation, filing and/or publishing of any
amendment to this Agreement necessary to effect such Admission. Upon the
Admission of the Assignee as a Member, Schedule A attached hereto shall be
amended to reflect the name and address of such Member and its Percentage
Interest and, if the Assignor has Assigned all of its Membership Interest, to
eliminate the name and address of the Assignor.
(e) No Person shall be Admitted as a Member with a Membership Interest
providing such Member with any interest in any items allocated to Newco without
the prior written consent of the Manager. No Person shall be admitted as a
Member with a Membership Interest providing such Member with any interest in any
items allocated to the Non-Manager Members without the consent of the Management
Board.
4.2 Assignees.
(a) Any Person who acquires in any manner whatsoever any Membership
Interest or portion thereof, irrespective of whether such Person has accepted
and adopted in writing the terms and provisions of this Agreement, shall be
deemed by the acceptance of the benefit of the acquisition thereof to have
agreed to be subject to and bound by all the obligations of this Agreement that
any predecessor in interest of such Person was subject to or bound by. A Person
acquiring any Membership Interest, includ-
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<PAGE> 29
ing the personal representative and heirs of a deceased Member, shall have only
such rights, and shall be subject to all the obligations as are set forth in
this Agreement; and, without limiting the generality of the forego ing such
Person shall not have any right to have the value of its Membership Interest
ascertained or receive the value of such Membership Interest or, in lieu there
of, profits attributable to any right in the Company, except as herein set
forth.
(b) Any Assignee of a Membership Interest or portion thereof pursuant to
an Assignment satisfying the conditions of Section 4.1(a) hereof shall have the
right to receive the same share of the income, gain, deduction and loss and of
the distributions of the Company to which the Assignor would have been entitled
in respect of such Membership Interest or portion thereof. If such Assignee
desires to make an Assignment of his Membership Interest, it shall be subject to
all the provisions of this Article 4 to the same extent and in the same manner
as any Member desiring to make an Assignment.
(c) Any Member who shall Assign all of its Member ship Interest shall
cease to be a Member and shall no longer have any rights or privileges of a
Member except that, unless and until his Assignee is admitted to the Company as
a substitute Member in accordance with Section 4.1(a) hereof, such Assignor
shall retain all rights and be subject to all obligations under the Act and this
Agreement.
(d) In the event that an Assignment shall be made, there shall be filed
with the Company a duly executed and acknowledged counterpart of the instrument
making such Assignment. Such instrument must evidence the written acceptance of
the Assignee to all the terms and provisions of this Agreement. If such an
instrument is not so filed, the Company need not recognize any such purported
Assignment for any purpose. The instrument so filed insofar as the Company is
concerned shall be construed as the total contract between the Assignor and the
Assignee, and the Company shall not be bound to recognize any terms not
disclosed in the instrument so filed.
4.3 Issuance of Additional Membership Interests.
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(a) ****[This subsection (approximately half a page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(b) ****[This subsection has been omitted pursuant to the confidential
treatment request referenced on the cover page hereto. The omitted portion has
been filed separately with the Commission.]****
(c) Upon the repurchase of Membership Interests or the issuance of
additional Membership Interests, the Manager shall make the appropriate
revisions to Schedule A hereto.
(d) ****[This subsection has been omitted pursuant to the confidential
treatment request referenced on the cover page hereto. The omitted portion has
been filed separately with the Commission.]****
4.4 Capital Contributions. ****[This section (approximately half a page)
has been omitted pursuant to the confidential treatment request referenced on
the cover page hereto. The omitted portion has been filed separately with the
Commission.]****
ARTICLE 5
BOOKS AND RECORDS
5.1 Bank Accounts. The bank accounts of the Compa ny shall be maintained
in such banking institutions authorized to do business in such places as the
Management Board shall determine, and withdrawals shall be made on such
signatures as the Management Board shall deter mine.
5.2 Fiscal Year. The fiscal year of the Company (the "Fiscal Year") shall
be the calendar year.
5.3 Books and Records. Complete and accurate books and records required by
Applicable Law shall be kept or caused to be kept by the Management Board. The
Company's financial books shall be kept on the accrual method of
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<PAGE> 31
accounting. All of the Company's books and records, together with an executed
copy of this Agreement and copies of all other agreements, contracts, leases,
insurance policies, employee benefit programs, securities trading records and
other instruments as any officer may execute or obtain for the Company
hereunder, including amendments thereto, shall at all times be kept at the
business office of the Company, and all such books and records shall be
available upon reasonable notice and without interference with the regular
business operations of the Company during normal business hours for inspection
by any Member or its duly authorized representative or, at the expense of any
Member, for audit by it or its duly authorized representative.
5.4 Reports to Members.
(a) Within 15 days after the end of each month and fiscal quarter of the
Company, the Management Board shall send to the Members an unaudited balance
sheet of the Company as of the end of such month and fiscal quarter and
unaudited statements of income (loss) for such fiscal quarter, each prepared in
accordance with generally accepted accounted principles consistently applied
("GAAP") except that monthly reports need not be prepared in accordance with
GAAP so long as they disclose the nature and effect of deviations from GAAP.
Except to the extent inconsistent with the sound operation of the Company's
business or not reasonably within the control of the Management Board, within 45
days after the end of each Fiscal Year or such lesser number of days as the
Manager shall inform the Management Board is necessary for AAC to announce its
financial results for such Fiscal Year, the Management Board shall send to the
Members an balance sheet of the Company as of the end of such Fiscal Year and
statements of income (loss), Members' capital and cash flow of the Company for
such Fiscal Year, all of which shall be audited by the Company's independent
certified public accountants and prepared in accordance with GAAP. In addition
to the above, the Management Board shall provide to the Members any other
reports as are reasonably requested by the Manager from time to time, including
operating budgets for the next succeeding four fiscal quarters, performance data
and any material AAC may need for any reports to shareholders or regulatory
filings.
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(b) To the extent practicable, the Management Board shall provide to each
Member by November 30 of each Fiscal Year an estimate of such Member's share of
the profits and losses for Federal and state income tax purposes for such Fiscal
Year. The Management Board shall, for each Fiscal Year, file on behalf of the
Compa ny a U.S. Federal partnership information tax return within the time
prescribed by law for such filing. The Management Board shall also file on
behalf of the Company such other tax returns and other documents from time to
time as may be required by the Federal government or by the State of Delaware or
any other state or any subdivision thereof. Except as otherwise consented to by
the Manager, all tax returns shall be prepared by the accountants for the
Company. The officers of the Company shall send a copy of the Company's tax
returns and a copy of Schedule K-1 or any successor or replacement form thereof,
and, upon request, such tax return, to each Member as soon after the expiration
of each Fiscal Year as such items are available.
(c) Each of the foregoing reports shall be subject to review and
modification by the Manager and the time periods set forth in the foregoing
provisions shall be subject to modification by the Manager to the extent
necessary to permit it to make required reports and filings on a timely basis.
5.5 Meetings. The Company and its officers shall be available to meet with
the Manager from time to time by telephone or in person to update the Manager as
to the performance, operations, business plans and prospect of the Company and
to discuss matters of mutual interest.
5.6 Tax Matters. Newco shall be the "tax matters partner" for the Company
for purposes of Sections 6221 through 6233 of the Code.
ARTICLE 6
DISSOLUTION AND LIQUIDATION
6.1 Events Causing Dissolution.
(a) The Company shall be dissolved upon the happening of any of the
following events:
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(i) The Company shall be dissolved upon the occurrence of any of the
events specified in Section 18-801 of the Act, including, without
limitation, (A) the written consent of all Members; (B) the death,
retirement, resignation, withdrawal, expulsion, Bankruptcy or dissolution
of a Member or the occurrence of any other event which terminates the
continued membership of a Member in the Company, unless there is at least
one remaining Member and the business of the Company is not discontinued
by consent of Members holding a majority in Percentage Interest within 90
days following the occurrence of the event; or (C) the entry of a decree
of judicial dissolution under Section 18-802 of the Act; or
(ii) Any event which shall make it unlawful for the existence of the
Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not cause the
Company to dissolve as provided in subparagraph (a) of this Section 6.1, such
Member shall cease to be a Member for all purposes hereunder unless upon the
consent of Members holding a majority in Percentage Interest, such Bankrupt
Member is permitted to remain a Member hereunder.
6.2 Liquidation.
(a) Upon the dissolution of the Company, the Compa ny shall be liquidated
in accordance with this Section 6.2 and Sections 18-803 and 18-804 of the Act.
The liquidation shall be conducted and supervised by the Manager and the
Management Board or, if there is no Manager and Management Board, by a person
who shall be designated for such purpose unanimously by the Members (the Manager
and the Management Board, or such person so designated, being hereinafter
referred to as the "Liquidating Trustee"). The Liquidating Trustee shall have
all of the rights in connection with the liquidation and termination of the
Company that the Manager and Management Board would have with respect to the
assets and liabilities of the Company during the term of the Company, and the
Liquidating Trustee is hereby expressly authorized and empowered to effectuate
the liquidation and termination of the Company and the transfer of any assets
and liabilities of the Company. The Liquidating Trustee shall have the right
from time to time, by revocable
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powers of attorney, to delegate to one or more persons any or all of such rights
and powers and the authority and power to execute documents in connection
therewith, and to fix the reasonable compensation of each such person, which
compensation shall be charged as an expense of liquidation. The Liquidating
Trustee is also expressly authorized to distribute the Company's property to
the Members subject to Liens.
(b) During the period of liquidation of the Compa ny, all of the
provisions of this Agreement shall continue in effect. The Capital Accounts of
the Members prior to any distributions pursuant to this Section 6.2(b) shall be
credited or charged and shall be computed in accordance with the provisions of
this Agreement. Upon the dissolution of the Company, the proceeds from the
liquidation of the Company's assets shall be applied as promptly as possible in
the following order:
(i) first, to the payment and discharge of the Company's debts and
liabilities (including loans made to the Company by the Members, and the
establishment of any necessary reserves;
(ii) second, in accordance with Section 3.4 hereof an amount equal
to the liquidation proceeds.
(c) Each Member shall be furnished with a statement prepared by the
Liquidating Trustee which shall set forth the assets and liabilities of the
Company as at the date of complete liquidation, and each Member's share thereof.
Upon compliance with the distribution plan contemplated by Section 6.2(b) and
Section 3.4 hereof, each Member shall cease to be a Member of the Company, and
the Liquidating Trustee shall execute acknowledge and cause to be filed a
certificate of cancellation of the Company.
(d) A reasonable time shall be allowed for the orderly liquidation of the
assets of the Company and the discharge of liabilities so as to minimize the
losses normally attendant upon a liquidation.
(e) At no time during continuation of the Company shall any value ever be
placed on the Company name, or the right to its use, or to the goodwill
appertaining to the company or its business, either as among the Members or for
the purpose of determining the value of any Mem-
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<PAGE> 35
bership Interest, nor shall the legal representatives of any Member have any
right to claim any such value. In the event of a termination and dissolution of
the Company as provided in this Agreement, neither the Company name, nor the
right to its use, nor the aforesaid goodwill, if any, shall be considered as an
asset of the Company and no valuation shall be put thereon for the purpose of
liquidation or distribution, or for any other purpose whatsoever; nor shall any
value ever be placed thereon as between the remaining or surviving Members and
the legal representatives of the estate of any deceased, insane, incompetent,
dissolved, liquidated or Bankrupt Member.
ARTICLE 7
MISCELLANEOUS
7.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely therein, without regard to the conflict of laws
principles thereof.
7.2 Either the Manager or the Management Board shall have the authority to
take such action as may be necessary or appropriate:
(i) To qualify or continue the Company as a limited liability
company;
(ii) Subject to Section 7.10, below, to reflect an amendment of this
Agreement;
(iii) To reflect the dissolution and termination of the Company; or
(iv) To effect Assignments, Admissions and terminations of Members
as specifically provided under the terms of this Agreement, including any
amendment to Schedule A attached hereto necessary to reflect the same.
7.3 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. The production of any
executed counterpart of this Agreement shall be
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<PAGE> 36
sufficient for all purposes without producing or account ing for any other
counterpart thereof.
7.4 Severability. Each provision of this Agreement shall be considered
separable and if for any reason any provision or provisions herein (a) are
determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid, or (b) would cause any Member to be bound by or
liable for the obligations of the Company under the laws of any state or locale
as the same may now or hereafter exist, such provision or provisions shall be
deemed void and of no effect.
7.5 Notices. All notices, demands, solicitations of consent or approval
and other communications hereunder required or permitted shall be in writing and
shall be deemed to have been given when personally delivered or five days after
the date when deposited in the United States mail and sent postage prepaid by
registered or certified mail, return receipt requested, or one day after sent by
overnight mail or courier or transmitted by facsimile, addressed as follows: if
intended for (a) the Company, to its business office or (b) the Members, to
their respective addresses set forth on Schedule A attached hereto, or to such
other address which any Member shall have given to the Company and the other
Member for such purpose by notice hereunder.
7.6 Titles. All section titles or captions contained in this Agreement
are for convenience only and shall not be deemed part of the text of this
Agreement.
7.7 Entire Understanding. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements between and among them respecting the subject matter of this
Agreement.
7.8 Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives and
permitted successors and assigns of the parties hereto as well as their
Affiliates.
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7.9 Parties in Interest. Nothing herein shall be construed to be to the
benefit of or enforceable by any third party including, but not limited to, any
creditor of the Company.
7.10 Amendments.
(a) This Agreement may be amended by the Manager or the Management Board
without the consent or approval of any Member for ministerial purposes in the
circumstances expressly permitted by this Agreement.
(b) Except as provided in Section 7.10(a) above, this Agreement may not be
amended or modified except with the consent of Members holding a majority in
Percentage Interest: provided, however, that the written consent of all Members
must be obtained to any amendment which would (i) amend this Section 7.10, (ii)
increase or extend the liability or obligation of any Member or (iii) increase
the amount of Capital Contributions payable by any Member; and, provided
further, that no amendment adversely affecting the rights or ownership interests
of the Non-Manager Members under this Agreement (taken as a whole) may be made
without the written consent of Non-Manager Members holding a majority of the
Non-Manager Member Percentage Interests.
(c) Notwithstanding any other provision of this Agreement, no action may
be taken under this Agreement unless such action is taken in compliance with the
provisions of the Act.
7.11 Further Assurances. The Members will execute and deliver such further
instruments and do such further acts and things as may be required to carry out
the intent and purposes of this Agreement.
7.12 Remedies Cumulative. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
37
<PAGE> 38
7.13 Construction. Each definition or pronoun herein shall be deemed to
refer to the singular, plural, masculine, feminine or neuter as the context
requires.
7.14 Arbitration. 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 (if arbitration is initiated by a Non-Manager Member) or Los
Angeles, California (if arbitration is initiated by the Manager) 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 7.14 shall be conducted by a
single arbitrator mutually agreeable to the Manager and the Non-Manager Member.
The written decision of the arbitrator 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
7.14 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 7.14 (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 7.14). The arbitrator shall be empowered to award equitable or
injunctive relief. The award of damages, if any, shall be
38
<PAGE> 39
limited to actual damages. The arbitrator is not empowered to award punitive
damages.
39
<PAGE> 40
IN WITNESS WHEREOF, the Members have caused this Agreement to be duly
executed and delivered as of the Effective Date.
ASSET ALLIANCE MANAGEMENT CORP.
By: /s/ Bruce H. Lipnick
-------------------------------------------------
Name: Bruce H. Lipnick
Title: President
ASSET ALLIANCE BRICOLEUR MERGER CO. INC.
By: /s/ Bruce H. Lipnick
-------------------------------------------------
Name: Bruce H. Lipnick
Title: 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
40
<PAGE> 1
EXHIBIT 10.2
MILESTONE GLOBAL ADVISORS L.P.
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Milestone
Global Advisors L.P. (the "Partnership") is made as of June 28, 1996, by the
sole general partner Milestone Fund Manager Inc., a Delaware corporation (the
"Managing General Partner"), and the sole limited partner Milestone Investment
Group Inc. (formerly Wharton Investment Group Inc.) (the "Initial Managing
General Partner" or the "Limited Partner"). The Managing General Partner and
the Limited Partner are referred to herein as the "Partners".
WHEREAS, the Partnership was originally formed between the Initial
Managing General Partner and VIK X, INC. (the "Initial Limited Partner"); and
WHEREAS, the Initial Limited Partner withdrew from the Partnership
pursuant to the terms and conditions contained in the original Limited
Partnership Agreement between the Initial Managing General Partner and the
Initial Limited Partner; and
WHEREAS, concurrently therewith, the Initial Managing Partner and The
Oxford Trust u/a/d 8/9/94 (the "Second Limited Partner") continued the
Partnership and entered into an Amended and Restated Limited Partnership
Agreement (the "Amended Agreement"); and
WHEREAS, the Second Limited Partner is concurrently herewith assigning its
interest in the Partnership to the Managing General Partner, as of the date
hereof, in accordance with the terms and conditions contained in the Amended
Agreement; and
WHEREAS, the Partners desire that the Initial Managing Partner became the
sole limited partner of the Partnership and that the Managing General Partner
became the sole general partner of the Partnership; and
WHEREAS, the Partners desire to continue the Partnership for the purposes
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and intending to be legally bound hereby, the Partners agree
as follows:
ARTICLE I
ESTABLISHMENT OF THE PARTNERSHIP
1.1. Continuation of Partnership. The Partners do hereby agree to
continue as a limited partnership under the provisions of the Delaware Revised
Uniform Limited Partnership Act (the "Act") upon the terms and conditions set
forth in this Agreement. Promptly following the execution hereof, the Managing
General Partner, on behalf of the Partnership, shall execute or cause to be
<PAGE> 2
executed (i) a Certificate of Amendment to the Certificate of Limited
Partnership of the Partnership, and (ii) an Amended and Restated Certificate of
Limited Partnership in accordance with the Act and all such other certificates
and documents conforming thereto and shall do or cause to be done all such
filings, recordings, publications and other acts as may be necessary,
appropriate or advisable from time to time to comply with all requirements for
the formation, operation and/or continuance of a limited partnership under the
Act in all jurisdictions where the Partnership desires to conduct its business.
1.2. Name. The name of the Partnership shall be "Milestone Global
Advisors L.P." or such other name selected by the Managing General Partner and
as may be acceptable to the appropriate recording officials of the State of
Delaware.
1.3 Purpose and Powers of the Partnership. The purpose of the
Partnership shall be to serve, either alone or together with other persons or
entities, mutually agreeable to the Managing General Partner, as an investor,
sponsor, general partner or manager (or a combination of such) of investment
accounts, investment partnerships and off-shore funds. In furtherance of the
purpose of the Partnership, the Partnership shall have the power to do all
things necessary or desirable in the conduct of its business to the fullest
possible extent.
1.4 Principal Place of Business and Address. The principal place of
business of the Partnership shall be located at 90 Broad Street, Suite #820,
New York, New York 10004, or at such other address or addresses as the Managing
General Partner may designate by notice to all other Partners. The Partnership
may maintain offices and other facilities from time to time at such locations,
within or without the State of New York, as may be deemed necessary or
advisable by the Managing General Partner.
1.5 Term. The existence of the Partnership commenced on the date that
the Partnership's Certificate of Limited Partnership was filed as provided in
Section 17-201 of the Act, and, unless sooner terminated or dissolved under the
provisions of this Agreement or by operation of law, the Partnership shall
terminate on December 31, 2030.
1.6 Power of Attorney. Each Limited Partner, by the execution of this
Agreement whether in counterpart, by separate instrument, by attorney-in-fact
or otherwise, does hereby irrevocably constitute and appoint the Managing
General Partner, with full power of substitution, his true and lawful attorney
and agent with full power and authority in his name, place and stead, to file,
prosecute, defend, settle or compromise any and all actions at law or suits in
equity for or on behalf of the Partnership with respect to any claim, demand or
liability asserted or threatened by or against the Partnership, and to make,
execute, sign, acknowledge, swear, deliver, record and file on each Limited
Partner's behalf (a) all certificates and other instruments (including, without
limitation, all counterparts of this Agreement, all amendments hereto, the
Partnership's Certificate of Limited Partnership and all amendments thereto)
which the Managing General Partner deems appropriate to qualify or continue the
Partnership as a limited partnership in the jurisdictions in which the
Partnership may conduct business or which may be required to be filed by
the Partnership or any of the Partners
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<PAGE> 3
under the laws of any jurisdiction; (b) all instruments which the Managing
General Partner deems appropriate to reflect a change in or modification of the
Partnership in accordance with the terms of this Agreement; (c) all conveyances
and other instruments which the Managing General Partner deems appropriate to
reflect the dissolution and termination of the Partnership; (d) certificates of
assumed name; (e) all certificates and instruments that may be appropriate to
reflect (i) a change in the name or the location of the principal place of
business of the Partnership, (ii) the disposition by a Partner of his interest
in the Partnership or any part thereof, (iii) the substitution or addition of a
person becoming a Partner of the Partnership, (iv) a distribution in reduction
of the capital contribution of a Partner, and (v) a change in the capital of
the Partnership; (f) such agreements, instruments and conveyances as the
Managing General Partner may deem, from time to time, necessary or desirable
for the promotion, conduct and development of the Partnership's business,
including agreements with affiliates or third-parties to provide investment
management services and brokerage services to the Partnership; (g) to obtain
such licenses, registrations and authorizations as may be required by the laws,
rules or regulations of any jurisdiction in which the Partnership conducts its
business; and (h) to take any and all other actions necessary or desirable to
effectuate the purposes of this Agreement.
The Power of Attorney granted herein shall be irrevocable and deemed to be
a power coupled with an interest and shall survive the death, insanity,
incompetency, legal incapacity, bankruptcy, insolvency or dissolution of any
Limited Partner or the assignment by a Limited Partner of his interest in the
Partnership. Each Limited Partner hereby agrees to be bound by any
representation made by the Managing General Partner and by any successor(s)
thereto acting in good faith pursuant to such Power of Attorney, and each
Limited Partner hereby waives any and all defenses which may be available to
contest, negate or disaffirm the actions of the Managing General Partner and
any successor(s) thereto taken in good faith and in accordance with the terms
of this Agreement and the Investment Agreement under such Power of Attorney.
In addition, each Limited Partner hereby agrees to execute and deliver to the
Managing General Partner within five days after receipt of the Managing General
Partner's request therefor, such other and further powers of attorney, and
other instruments which the Managing General Partner deems necessary to comply
with any laws, rules or regulations relating to the formation of the
Partnership or the conduct of business by the Partnership. In the event of any
conflict between this Agreement and any instruments filed by such attorney
pursuant to the Power of Attorney granted in this Section 1.6, this Agreement
shall control.
ARTICLE II
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS
2.1. Initial Capital Contributions. Each Partner shall make an initial
contribution to the capital of the Partnership, simultaneously with the
execution of this Agreement, consisting of: (i) in the case of the Managing
General Partner, its interest in the Partnership as of the date hereof, which
interest was purchased as of the date hereof from the Second Limited Partner
and has the value equal
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<PAGE> 4
to $25,500, and (ii) in the case of the Limited Partner, its interest in the
Partnership as of the date hereof, which interest has the value of $2,524,500.
2.2. Subsequent Capital Contributions. Any Partner with a deficit
balance in his capital account at the time of the liquidation of his interest
in the Partnership agrees to contribute to the capital of the Partnership an
amount of cash equal to the amount by which zero exceeds such Partner's capital
account at such time. Such amount shall be paid to the Partnership by the
later of the end of the taxable year in question or 90 days after the date of
the Partnership's liquidation and shall be available for payment to the
creditors of the Partnership or for distribution to Partners having positive
capital account balances.
2.3. Additional Contributions. No Limited Partner shall be required to
make any capital contributions in addition to those called for by Section 2.1
and Section 2.2. No General Partner will be required to contribute any capital
or lend any funds to the Partnership except as provided in Sections 2.1 and 2.2
hereof and except as may be required by applicable law or as may be necessary,
in the opinion of counsel to the Partnership, in order that the Partnership be
classified as a partnership for Federal income tax purposes.
2.4. Capital Accounts. A single capital account ("Capital Account")
shall be maintained for each Partner (regardless of whether such Partner is a
General Partner or a Limited Partner or both and regardless of the time or
manner in which such interests were acquired) in accordance with the capital
accounting rules of Section 704(b) of the Internal Revenue Code (the "Code").
Each Partner's opening Capital Account balance shall be the amount of such
Partner's initial Capital Contribution made pursuant to Section 2.1.
Thereafter, a Partner's Capital Account shall be credited with (a) such
Partner's subsequent cash capital contributions; (b) the agreed value of any
property subsequently contributed to the capital of the Partnership by such
Partner; (c) such Partner's share of partnership realized and unrealized
profits as provided in Article III; and (d) such other amounts as may be
required in order for the Capital Account to be considered to be determined and
maintained in accordance with the rules of Treas. Reg. Section
1.704-1(b)(2)(iv) (including Treas. Reg. Section 1.704-1(b)(2)(iv)(g)) or any
successor section of similar import. A Partner's Capital Account shall be
debited with (a) such Partner's share of partnership realized and unrealized
losses as provided in Article III, (b) distributions made to such Partner, and
(c) such other amounts as may be required for the Capital Account to be
considered to be determined and maintained in accordance with the rules of
Treas. Reg. Section 1.704-1(b)(2)(iv) (including Treas. Reg. Section
1.704-1(b)(2)(iv)(g)) or any successor section of similar import.
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<PAGE> 5
ARTICLE III
PROFIT AND LOSS
3.1. Definitions of Net Profit and Net Loss. Profits and losses for a
particular Operations Period shall be computed in the same manner as the
Partnership reports its income for Federal income tax purposes, except that (i)
for purposes of gain, loss, depreciation and otherwise, property shall be
considered to have a book value equal to its fair market value as most recently
determined pursuant to Section 3.2(c); (ii) income of the Partnership exempt
from tax and expenses not deductible for tax purposes under the Code shall be
included in the computation; and (iii) unrealized gain or loss shall be taken
into account as provided in Section 3.2(c) hereof. The principles of Treas.
Reg. Section 1.704-1(b)(4)(i) shall be applied when necessary to prevent
duplication or omission of Capital Account adjustments, including without
limitation those arising from deemed sales under Section 3.2(c).
3.2. Allocation of Profits and Losses. (a) The Partnership's net profits
and losses for any Operations Period shall be allocated among the Partners as
follows: All net profits and losses with respect to the business and assets on
the books of the Partnership shall be allocated 1% to the Managing General
Partner and 99% to the Limited Partner.
(b) The Partnership's items of income, gain, loss and deduction shall be
allocated for Federal, state and local income tax purposes among the Partners
proportionately to the allocation of net profits and losses among the Partners,
except that each Partner's distributive share of depreciation, amortization,
and gain or loss, as computed for tax purposes, with respect to any property
shall be determined so as properly to reflect the varying interests of the
Partners in unrealized profit or loss for prior Operations Periods, and
otherwise to take into account the variation between the adjusted basis and the
book value of the property in the same manner as under Section 704(c) of the
Code and the Treasury Regulations thereunder.
(c) On each Adjustment Date, as defined in Section 3.4, the properties of
the Partnership (including in the case of a distribution, any property being
distributed) shall be considered to have been sold at fair market value, as
determined by the Managing General Partner using its reasonable business
judgment. The deemed gain or loss for the Operations Period in question upon
such deemed sale shall be allocated in accordance with Section 3.2. The amount
of any distribution in kind shall be considered to be the fair market value of
the property, as so determined.
(d) If any interest in the Partnership is transferred during an
Operations Period, the net profit or loss attributable to such Partnership Unit
for the Operations Period shall be allocated between the transferor and
transferee on a monthly basis based on actual monthly profit or loss. For this
purpose, (i) if a transfer occurs on or before the 15th day of the month the
transferee shall be treated as the owner of the interest for the entire month
and (ii) if a transfer occurs after the 15th day of the month the transferor
shall be treated as the owner of the interest for the entire month.
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<PAGE> 6
3.3. Qualified Income Offset and Related Provisions. Notwithstanding any
other provision:
(a) Net losses for any Operations Period that would otherwise be allocated
to a Limited Partner and which would cause such Limited Partner to have an
Adjusted Capital Account Deficit shall instead be allocated to the Managing
General Partner.
(b) If any Limited Partner receives an adjustment, allocation, or
distribution described in Treas. Reg. Section 1.704-1(b)(2)(ii)(d)(4), (5), or
(6), items of Partnership gross income shall be specifically allocated to such
Limited Partner in an amount and manner sufficient to eliminate any Adjusted
Capital Account Deficit created by such adjustments, allocations, or
distributions as quickly as possible. The provisions of this Section 3.3(b) are
intended to constitute a "qualified income offset" within the meaning of Treas.
Reg. Section 1.704-1(b)(2)(ii)(d) and shall be interpreted and implemented as
therein provided.
(c) After satisfaction of any allocations required by Section 3.3(b), net
profit for an Operations Period shall be allocated to the Managing General
Partner until the Managing General Partner has received allocations of net
profit equal in the aggregate to any net losses previously allocated to the
Managing General Partner pursuant to Section 3.3(a).
(d) An "Adjusted Capital Account Deficit" exists with respect to a Limited
Partner if the Limited Partner's Capital Account, determined for this purpose
by reducing the Capital Account by the items described in Treas. Reg. Section
1.704-1(b)(2)(ii) (d), (4), (5) and (6) and by increasing the Capital Account
by the amount described in Treas. Reg. Section 1.704-1(b)(2)(ii)(c) the
Partner is obligated to restore, is a negative amount.
3.4. Adjustment Date; Operations Period.
(a) The "Adjustment Dates" of the Partnership shall be the date of
dissolution of the Partnership and each other date on which there is a
distribution in kind of property of the Partnership, a contribution of money or
other property (other than a de minimis amount) to the Partnership by a new or
existing Partner as consideration of an interest in the Partnership, or a
distribution of money (other than a de minimis amount) by the Partnership to a
retiring or continuing Partner as consideration for an interest in the
Partnership.
(b) An "Operations Period" of the Partnership shall be the period
beginning on the date hereof, the first day of a fiscal year or an Adjustment
Date (as the case may be) and ending on the earlier of the next succeeding
Adjustment Date or the last day of a fiscal year.
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ARTICLE IV
DISTRIBUTIONS
4.1. Distributions Other Than Upon Winding-Up. Realized income of the
Partnership determined at the end of each Operations Period, may in the sole
discretion of the Managing General Partner be distributed to the Partners
proportionately to the allocation of net profits and losses among the Partners.
After application of Section 3.2(c), in the discretion of the Managing General
Partner, property of the Partnership may be distributed in kind.
4.2. Distributions Upon Winding-Up. Upon the dissolution and winding up
of the Partnership, the assets of the Partnership, after application of Section
3.2(c), shall be distributed in the following order of priority:
(a) To the payment of the debts and liabilities of the Partnership and
the expenses of winding-up, including the establishment of any reserves against
liabilities or obligations of the Partnership which the Managing General
Partner in its sole discretion shall deem appropriate, such reserves to be
charged against the Partners' Capital Accounts according to the allocation of
net profits and losses as set forth in Section 3.2, and, prior to payment of
such liabilities and obligations, shall be placed in the hands of an escrow
agent for such period of time and upon such terms as the Managing General
Partner shall determine; and then,
(b) To the payment of the Capital Accounts of the Partners; and then,
(c) To the Partners proportionately to their relative Capital Accounts.
ARTICLE V
WITHDRAWALS
A Partner may withdraw from the Partnership in whole or in part with the
consent of the remaining Partner or Partners. A Partner desiring to make a
withdrawal may file a written request with the other Partner or Partners
specifying the amount of a proposed withdrawal. Such request shall be filed at
least six months prior to the date requested for such withdrawal, which date
shall be the last day of a calendar month (the "Withdrawal Date"). If the
requested withdrawal is agreed to, the Partners shall also agree to make such
adjustments as shall be appropriate to the capital accounts of the Partners and
to the interest of the Partners in future profits and losses of the
Partnership. The distribution shall consist of cash or such other property as
the Partners may agree to, and shall be made as promptly as reasonable under
the circumstances.
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ARTICLE VI
DISSOLUTION AND WINDING-UP
6.1. Events Occasioning Dissolution. The Partnership shall dissolve and
terminate upon the occurrence of any of the following, whichever shall first
occur:
(a) December 31, 2030.
(b) The unanimous written consent of all the Partners to dissolve the
Partnership.
(c) The occurrence of an event of withdrawal by the General Partner under
Section 17-402 of the Act unless the Limited Partners (or, if relevant, all
remaining Partners) within 90 days after the withdrawal agree to continue the
Partnership and agree on the terms of admission of a new General Partner or
Partners, if necessary.
(d) The entry of a decree of judicial dissolution under Section 17-802 of
the Act.
6.2. Winding-Up. The Partnership shall be allowed one year from the date
of any event occasioning dissolution for the winding-up of its affairs and
shall be allowed such additional time as may be reasonable for the orderly sale
of the Partnership's properties.
ARTICLE VII
MANAGEMENT
7.1. Management by General Partner. The business affairs of the
Partnership shall be managed by the Managing General Partner. The Managing
General Partner shall have all necessary powers to carry out the purposes of
the Partnership.
7.2. Liabilities of the General Partner; Other Interests. The Managing
General Partner and its agents shall not be liable, responsible or accountable
in damages or otherwise to the Partnership or to any of the Partners for any
acts performed or omitted to be performed in good faith. The Managing General
Partner and the Limited Partner may engage in or possess interests in other
business ventures of every nature and description, whether or not competitive
with the business of the Partnership, independently or with others, and neither
the Partnership nor any of its Partners shall, by virtue of this Agreement,
have any rights in or to such other ventures or the income or profits derived
therefrom.
7.3. Limited Partner. No person in such person's capacity as a Limited
Partner shall take part in the management of the business or affairs of the
Partnership or have the right or authority to act for or bind the Partnership.
Notwithstanding any provision of this Agreement, no Limited Partner
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<PAGE> 9
shall be liable for any of the losses, debts or liabilities of the Partnership
in excess of their respective Capital Contributions, except as otherwise
expressly provided by law.
ARTICLE VIII
SUBSTITUTION; ADDITIONAL PARTNERS
8.1. Substituted Limited Partner. The transferee of a Limited
Partnership interest shall not be admitted as a substituted Limited Partner
unless all of the following conditions have been met:
(a) The transfer is made pursuant to the written consent of the Managing
General Partner, which consent may be given or withheld in the sole discretion
of the Managing General Partner;
(b) There has been filed with the Managing General Partner a written
instrument, executed by the transferor, in form and substance satisfactory to
the Managing General Partner, transferring to the transferee all or part of the
transferor's Partnership interest;
(c) The transferee has approved and adopted all of the provisions of this
Agreement, as the same may have been amended, which approval and adoption may
be evidenced in such manner as is required by the Managing General Partner; and
(d) The transferee has paid or agreed to pay, as the Managing General
Partner may determine, all reasonable expenses relating to such admission.
8.2. Transfers of General Partnership Interest. The transferee of a
General Partnership interest may not be admitted as a substituted General
Partner without (a) the written consent of all Limited Partners which consent
shall be given or withheld in the sole discretion of a Limited Partner and (b)
satisfaction of the requirements of Section 8.1 in respect to a transfer of
Limited Partnership interest; provided, however, that if the requirements of
clause (b), but not clause (a), are met, such General Partnership interest
shall be deemed a Limited Partnership interest in the hands of the transferee,
and such transferee shall be admitted only as a substituted Limited Partner
with respect thereto, and shall not be deemed a General Partner for any purpose
but provided further, that no such transfer shall be permitted if the
Partnership would have no General Partner serving after the transfer.
8.3. Additional Partners. Additional Partnership interests may be issued
and sold by the Managing General Partner to any person, including but not
limited to a natural person, trust, corporation, partnership or other
association, for fair market value, as determined by the Managing General
Partner, using its reasonable business judgment, and under such terms as deemed
advisable by the Managing General Partner, including but not limited to terms
relating to the applicability of this Agreement to such additional Partnership
interests. Admission of any Partner shall not be a cause of dissolution.
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ARTICLE IX
ACCOUNTING
9.1. Books and Records. The Managing General Partner shall maintain the
general accounts of the Partnership. The books of the Partnership shall be
kept on a basis consistent with the provisions of this Agreement and shall be
open to the inspection and examination of all Partners, in person or by their
duly authorized representatives, at reasonable times. The books of the
Partnership shall be maintained using the accrual method of accounting.
9.2. Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
9.3. Reports. As soon as practicable after the close of each fiscal year
the Partnership shall furnish each Partner with a copy of the Partnership's
financial statements for such year and with a statement of such Partner's
Capital Account, as reflected on the books of the Partnership. Each Partner
shall also be supplied with all information with respect to the Partnership
required in connection with the preparation of such Partner's tax returns.
9.4. Federal Income Tax Elections. All elections required or permitted
to be made by the Partnership under the Internal Revenue Code shall be made by
the Managing General Partner in such manner as will, in their opinion, be most
advantageous to a majority in interest of the Limited Partner.
9.5. Tax Matters Partner. The Managing General Partner shall from time
to time designate a Tax Matters Partners pursuant to Section 6231(a)(7) of the
Code. The initial Tax Matters Partner shall be the Managing General Partner.
ARTICLE X
MISCELLANEOUS
10.1. Decisions by the Partners. Except as otherwise provided by law or
in this Agreement, whenever an action is to be taken by the Partnership or
whenever this Agreement refers to an action to be taken by the Managing General
Partner or the Limited Partner, such action shall be taken with the agreement
of a majority in interest of the Partners, the General Partners, or the Limited
Partners, as the case may be, then owning interests in the Partnership.
10.2. Amendments. This Agreement may be amended from time to time upon
the written consent of all of the Partners.
10.3. Notices. All notices to the Partnership or any Partner under this
Agreement shall be in writing, duly signed by the party giving such notice, and
transmitted postage prepaid by first class certified mail, return receipt
requested, to such Partner's address set forth on Schedule A of this
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Agreement, or to any such other address as may hereafter be designated by a
Partner upon giving notice thereof to the Partnership. All notices shall be
deemed given when dispatched.
10.4. No Delivery of Certificates. The Managing General Partner is not
required to deliver copies of any Certificate of Limited Partnership or
amendment or cancellations thereof to the Limited Partner.
10.5. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable in the case
of agreements made and to be performed entirely therein without regard to the
conflict of laws principles thereof.
* * * * *
IN WITNESS WHEREOF, the parties have hereto have executed this Agreement
as of the date first above written.
MANAGING GENERAL PARTNER
MILESTONE FUND MANAGER INC.
By: /s/ Arnold L. Mintz
__________________________
Name: Arnold L. Mintz
Title: Executive Vice President
LIMITED PARTNER
MILESTONE INVESTMENT GROUP INC.
By: /s/ Bruce H. Lipnick
__________________________
Name: Bruce H. Lipnick
Title: President
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EXHIBIT 10.3
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT
REQUEST FILED WITH THE COMMISSION. ASTERISKS (*) IDENTIFY WHERE SUCH
CONFIDENTIAL INFORMATION HAS BEEN OMITTED. THE OMITTED PORTIONS HAVE BEEN FILED
SEPARATELY WITH THE COMMISSION.
JMG CAPITAL MANAGEMENT LLC
LIMITED LIABILITY COMPANY
AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement") is made
and entered into as of the commencement of business on April 28, 1998 (the
"Effective Date") by and among the Persons (as defined herein) who become
signatories hereto and who are identified from time to time on Schedule A hereto
as Members (as defined herein).
WHEREAS, JMG Capital Management, Inc. ("JMG")and Jonathan M. Glaser
have formed JMG Capital Management LLC (the "Company") as a limited liability
company pursuant to the Delaware Limited Liability Company Act, 6 Del. C. ss.
18-101 et seq and have filed a Certificate of Formation (the "Certificate") of
the Company with the Office of the Secretary of State of the State of Delaware;
WHEREAS, JMG has transferred substantially all of the business and
assets of JMG to the Company in exchange for the assumption by the Company of
certain of the liabilities of JMG and for a membership interest in the Company
with the effect that the Company will conduct the business formerly conducted by
JMG;
WHEREAS, the Company has admitted Jonathan M. Glaser as a Member of
the Company with the rights and duties set forth herein; and
WHEREAS, Asset Alliance Corporation, a Delaware corporation, has
purchased certain interests in the Company and contributed such interests to
Asset Alliance Holding Corporation, a Delaware corporation ("AAC"), and the
existing Members of the Company wish to admit AAC as a Member with the rights
and duties set forth herein and to admit Asset Alliance Management Corp., a
Delaware corporation wholly-owned by AAC, as the managing Member (the "Manager")
with the rights and duties set forth herein and AAC, the Manager and the
foregoing existing Member wish to provide for the operation, governance,
delegation of day-to-day management to a management
<PAGE> 2
committee initially consisting of the individuals identified on Schedule B
hereto, allocation and distribution of profits and losses and other matters as
among the Members;
NOW, THEREFORE, in consideration of the mutual promises contained
herein and for good and valuable consideration the receipt and adequacy of which
is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
GENERAL
1.1 Definitions. For purposes of this Agreement, the following capitalized
terms shall have the following meanings:
"AAA" is defined in Section 7.15.
"AAC" is defined in the recitals.
"AAC's Unpaid Preferred Distribution" means an amount equal to the
excess of (i) 50% of the amount by which Revenues From Operations (as defined
herein) exceeds Qualifying Shared Operating Expenses (as defined herein), in
each case for all periods of the Company since January 1, 1998 ("AAC's Preferred
Distribution Amount"), over (ii) the aggregate distributions made to AAC
pursuant to Section 3.3(a)(ii) since January 1, 1998 (for this purpose, the
Special Reduction (as defined in the Purchase Agreement) shall be deemed to be a
distribution made to AAC pursuant to Section 3.3(a)(ii)).
"Act" means the Delaware Limited Liability Company Act, Title 6,
Section 18-101, et. seq., of the Delaware Code, as the same may be amended from
time to time.
"Additional Non-Manager Members" is defined in Section 4.3(a).
"Adjusted Capital Account Deficit" means, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account (as
defined herein) as of the end of the relevant allocation period, after giving
effect to the following adjustments:
2
<PAGE> 3
(a) Crediting to such Capital Account (i) any amount which such
Member is obligated to restore following the liquidation of such Member's
Membership Interest in the Company (pursuant to the terms of this Agreement or
otherwise); (ii) the amount of such Member's share of the Company Minimum Gain
(which share will be determined in accordance with the method for determining a
partner's share of partnership minimum gain under Regulations (as defined
herein) Section 1.704-2(g)); and (iii) the amount of such Member's share of
Member-Related Minimum Gain (as defined herein) (which share will be determined
in accordance with the method for determining a partner's share of partner
nonrecourse debt minimum gain under Regulations Section 1.704-2(i)(5)); and
(b) Debiting to such Capital Account the items described in
Regulations Sections 1.704- 1(b)(2)(ii)(d)(4), (5), and (6).
This definition is intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d), and will be interpreted consistently therewith.
"Admission" is defined in Section 4.1(a).
"Adverse Change" ****[This definition has been omitted pursuant to
the confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
"Affiliate" means any Person that directly, or indirectly through
one or more intermediaries, controls or is controlled by, or is under common
control with, the Person specified and "controlled Affiliate" means any
Affiliate of a Person that is directly, or indirectly through one or more
intermediaries, controlled by such Person but does not include, for purposes of
Article 2 hereof, any investment fund for which the Company or any controlled
Affiliate serves as general partner, investment advisor, manager or in a similar
capacity. The term "control" shall mean with respect to any Person the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
3
<PAGE> 4
"Agreement" means this Limited Liability Company Agreement, as it
may be further amended, supplemented or amended from time to time in accordance
with the terms hereof.
"Allocation Year" means (i) the period beginning on the Effective
Date and ending on December 31, 1998 or (ii) any subsequent twelve (12) month
period commencing on January 1 and ending on December 31.
"Applicable Law" means any statute, law, ordinance, rule, public
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement of any governmental authority or
self-regulating organization applicable to the Company, any controlled
Affiliate, any client, any Member or any of their respective properties, assets,
officers, directors, employees or agents.
"Assignment" means any sale, assignment, transfer, exchange, charge,
pledge, gift, hypothecation, conveyance or encumbrance (such meaning to be
equally applicable to verb and noun forms of such term), or any offer to do any
of the foregoing, of all or any portion of a Membership Interest or JMG
Interest, as applicable. "Assignor" means a Person who makes an Assignment and
"Assignee" means a Person who receives an Assignment.
"Authorized Affiliate" means, with respect to the Company, any
Person controlled by the Company or by the Members and designated as an
Authorized Affiliate by the Management Board (as defined herein) and the
Manager.
"Authorizing Events" is defined in Section 2.2(e).
"Bankruptcy" or "Bankrupt" means, with respect to any Member, such
Member making an assignment for the benefit of creditors, involuntarily or
voluntarily becoming a party to any liquidation or dissolution action or
proceeding with respect to such Member or any bankruptcy, reorganization,
insolvency or other proceeding for the relief of financially distressed debtors
with respect to such Member, or a receiver, liquidator, custodian or trustee
being appointed for such Member or a substantial part of such Member's assets
and, if any of the same occur involuntarily, the same not being dismissed,
stayed
4
<PAGE> 5
or discharged within 90 days; or the entry of an order for relief against such
Member under Title 11 of the United States Bankruptcy Code. A Member shall be
deemed bankrupt if the Bankruptcy of such Member shall have occurred and be
continuing.
"Benchmark Operating Expenses" means ****.
"Book Depreciation" means, for each allocation period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to the Company's assets for such year or other period for
federal income tax purposes, except that if the Gross Asset Value of any asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year or other period, Book Depreciation with respect to such asset will
be an amount which bears the same ratio to such beginning Gross Asset Value as
the federal income tax depreciation, amortization or other cost recovery
deduction with respect to such asset for such year or other period bears to such
beginning adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction with respect to such
asset for such year is zero, Book Depreciation will be determined with reference
to such beginning Gross Asset Value using any reasonable method selected by the
Manager and the Management Board.
"Capital Account" means an account established and maintained for
each Member as provided in Section 3.1.
"Capital Contribution" means, as to each Member, the aggregate
amount of cash and the initial Gross Asset Value of any property other than cash
(net of liabilities assumed or taken subject to by the Company, without
duplication) contributed to the capital of the Company by or in the name of such
Member (or any prior holders of the Capital Account of such Member) in
connection with the issuance of Membership Interests or otherwise; provided,
however, that any contribution made by any Non-Manager Member pursuant to
Section 6.1(d) of the Purchase Agreement shall not be considered a Capital
Contribution but instead shall entitle such Non-Manager Member to the
distribution referred to in clause (i) of the final sentence of Section 3.4(a)
hereof.
5
<PAGE> 6
"Capital Expenditures" means any expenditure of the Company, and the
Company's allocable portion of any expenditure of any controlled Affiliate, that
is not considered an expense under generally accepted accounting principles,
consistently applied, other than any Mandatory Investment (as defined herein).
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor code thereto.
"Company Minimum Gain" means the sum, for all Company assets that
are subject to any Nonrecourse Liability (as defined herein), of the amounts of
income or gain that would be recognized if each such asset were disposed of in
full satisfaction of all Nonrecourse Liabilities secured by such asset (and for
no other consideration), and will be determined in accordance with the
principles set forth for determining partnership minimum gain in Regulations
Section 1.704-2(d).
"Competition" means ****[This definition has been omitted pursuant
to the confidential treatment request referenced on the cover page hereto. The
omitted portion has been filed separately with the Commission.]****
"Covered Person" shall mean a Member, any Affiliate of a Member, any
officer, director, shareholder, partner, employee or member of a Member of any
of its Affiliates, or any officer of the Company.
"Debenture Payment Default" is defined in Section 2.5(e).
"Effective Date" is defined in the opening paragraph.
"Fair Market Value" shall mean the fair market value as agreed upon
by the Manager and the Management Board (or, for purposes of Section 3.4 hereof,
if there shall be no Manager, the Liquidating Trustee (as defined herein) and
the Management Board) or, in the absence of such agreement, as determined by an
appraiser selected by the Manager (or, for purposes of Section 3.4 hereof, if
there shall be no Manager, the Liquidating Trustee) with
6
<PAGE> 7
the prior consent of the Management Board, which consent will not be
unreasonably withheld.
"Fiscal Year" is defined in Section 5.2.
"For Cause" shall mean, with respect to the termination of a
Member's employment with the Company or any controlled Affiliate, any of the
following:
****[The remainder of this definition (approximately one and a half
pages) has been omitted pursuant to the confidential treatment request
referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
"GAAP" is defined in Section 5.4(a).
"Gross Asset Value" means, with respect to any asset, the asset's
adjusted basis for federal income tax purposes, subject to the following
exceptions and adjustments:
(a) The initial Gross Asset Value of any asset contributed by a
Member to the Company will be the gross Fair Market Value of such asset, as
determined by the contributing Member and the Manager and the Management Board;
(b) The Gross Asset Value of all Company assets will be adjusted to
equal their respective gross Fair Market Values, as determined by the Manager
and the Management Board, immediately preceding the occurrence of any of the
following events: (i) a contribution of money or other property (other than a de
minimis amount) as consideration for the acquisition of an additional interest
in the Company by any new or existing Member if the Manager and the Management
Board determine that such adjustment is necessary or appropriate to reflect the
relative economic interests of the Member in the Company; (ii) the distribution
by the Company to a Member of more than a de minimis amount of money or other
property as consideration for an interest in the Company if the Manager and the
Management Board determine that such adjustment is necessary or appropriate to
reflect the relative economic interests of the Members in the Company; and (iii)
the liquidation or dissolution of the
7
<PAGE> 8
Company within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g);
(c) The Gross Asset Value of any Company asset distributed to any
Member will be the gross Fair Market Value of such asset on the date of
distribution as determined by the contributing Member and the Manager and the
Management Board;
(d) The Gross Asset Values of Company assets will be increased (or
decreased) to reflect any adjustment to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subsection (f) of the
definition of Net Income (as defined herein) or Net Loss (as defined herein);
provided, however, that Gross Asset Values will not be adjusted pursuant to this
subsection (d) to the extent the Manager and the Management Board determine that
an adjustment pursuant to subsection (b) above is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subsection (d); and
(e) If the Gross Asset Value of an asset has been determined or
adjusted pursuant to subsection (a), (b), or (d) above, such Gross Asset Value
will thereafter be adjusted by the Book Depreciation (calculated in accordance
with Regulations Section 1.704-1(b)(2)(iv)(g)) rather than depreciation or
amortization or other cost recovery deduction as determined for federal income
tax purposes, taken into account with respect to such asset for purposes of
computing Net Income and Net Loss.
"Immediate Family" shall mean, with respect to any individual, such
individual's spouse, parents and children (and estates, trusts, partnerships and
other entities and legal relationships of which a substantial majority in
interest of the beneficiaries, owners, investors, members or participants at all
times in question are, directly or indirectly, one or more of the Persons
described above and/or such individual) and any person who acquires an interest
in such individual's Membership Interest by will, intestacy laws or the laws of
descent or survivorship, by the laws of community property or
8
<PAGE> 9
otherwise pursuant to a court order upon the divorce of such individual.
"Inadequate Performance" is defined in Section 4.5(d) hereof.
"Indebtedness" shall mean, with respect to a Person (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under any financing leases, (d) all obligations of such Person in respect of
acceptances issued or created for the account of such Persons, and (e) all other
obligations or liabilities treated as indebtedness under the most senior debt
instruments of Asset Alliance Corporation outstanding from time to time.
"Intellectual Property" is defined in Section 2.5(b).
"Issuance Items" is defined in Section 3.2(b)(xiv).
"JMG Interest" with respect to any Person means that portion of the
outstanding shares of JMG common stock, no par value, directly or indirectly
beneficially owned by such Person.
"Liable Member" is defined in Section 1.8(f).
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
financing lease having substantially the same economic effect as any of the
foregoing).
"Liquidating Trustee" is defined in Section 6.2(a) hereof.
9
<PAGE> 10
"Management Board" is defined in Section 2.2(a) hereof.
"Manager" is defined in the recitals, subject to change in
accordance with Article 4 hereof.
"Manager Member Interest" means the Membership Interest of the
Manager and all rights and benefits to which the Manager, AAC and their
Affiliates are entitled under this Agreement and the Act together with the
obligations of the Manager and AAC hereunder.
"Mandatory Investments" is defined in Section 3.3(a)(i) hereof.
"Member" shall mean any Person admitted to the Company as a "member"
within the meaning of the Act, which includes AAC, the Manager and the
Non-Manager Members (as defined herein) (excluding, for this purpose, Assignees
until admitted as Members pursuant to the provisions hereof), and includes any
Person admitted as an additional or substitute Non-Manager Member pursuant to
the provisions of this Agreement, in such Person's capacity as a Member of the
Company, in each case unless otherwise indicated. For purposes of the Act, the
Members shall constitute one (1) class or group of members.
"Members Indirect Interest" shall mean with respect to any Member
other than JMG, that share of JMG's Membership Interest attributable to a Member
determined by dividing the number of shares of JMG common stock, no par value,
directly or indirectly beneficially owned by such Member by the total number of
outstanding shares of JMG common stock, no par value, and multiplying such
quotient by JMG's Membership Interest, and with respect to JMG shall mean 0.
"Members Indirect Percentage Interest" shall mean with respect to
any Member other than JMG that share of JMG's Percentage Interest (as defined
herein) attributable to a Member determined by dividing the number of shares of
JMG common stock, no par value, directly or indirectly beneficially owned by
such Member by the total number of outstanding shares of JMG common stock, no
par value, and multiplying such quotient by JMG's Percentage Interest, and with
respect to JMG shall mean 0%.
10
<PAGE> 11
"Membership Interest" means the limited liability company interest
of a Member in the Company at any particular time, including any and all rights
and benefits to which such Member is entitled under this Agreement and the Act,
together with the obligations of such Member under this Agreement and the Act.
"Member-Related Minimum Gain" means the minimum gain attributable to
Member-Related Nonrecourse Debt, determined in accordance with the rules set
forth for determining partner nonrecourse debt minimum gain in Regulations
Section 1.704-2(i)(3).
"Member-Related Nonrecourse Debt" means any nonrecourse debt of the
Company for which any Member or related person bears the economic risk of loss
(within the meaning of Regulations Section 1.752-2), and includes, for example,
nonrecourse debt with respect to which a Member or such related person is the
lender.
"Member-Related Nonrecourse Deduction" means any item of Company
loss, deduction or expense that is attributable to a Member-Related Nonrecourse
Debt, and will be determined in accordance with the rules set forth for
determining partner nonrecourse deductions in Regulations Section 1.704-2(i)(2).
"Net Income" or "Net Loss," as the case may be, for any period,
means an amount equal to the Company's Taxable Income (as defined herein) or
Taxable Loss (as defined herein) for such period, with the following
adjustments:
(a) Any income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Income and Net Loss
pursuant to this definition will be added to such Taxable Income or will reduce
such Taxable Loss;
(b) Any expenditure of the Company described in Code Section
705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Net Income or Net Loss pursuant to this definition, will reduce
such Taxable Income or increase such Taxable Loss;
11
<PAGE> 12
(c) If the Gross Asset Value of any Company asset is adjusted
pursuant to subsection (b) or (d) of the definition of Gross Asset Value, the
amount of such adjustment will be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Income or Net Loss;
(d) Gain or loss resulting from the disposition of any Company asset
with respect to which gain or loss is recognized for federal income tax purposes
will be computed by reference to the Gross Asset Value of the asset disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such Taxable Income or Loss,
there will be taken into account Book Depreciation for such allocation period;
(f) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is required
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) to be taken into account in
determining Capital Accounts as a result of a distribution other than in
liquidation of a Member's Interest, the amount of such adjustment will be
treated as an item of gain (if the adjustment increases the basis of the asset)
or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and will be taken into account for purposes of
computing Net Income or Net Loss; and
(g) Notwithstanding any other provision of this definition, any item
which is specially allocated pursuant to Section 3.2(b) of the Agreement will
not be taken into account in computing Net Income or Net Loss.
"Non-Manager Member" shall mean any Person who is or becomes a
Member pursuant to the terms hereof other than AAC, the Manager or any of their
Affiliates.
"Non-Manager Member Membership Interest" means the Membership
Interest of a Non-Manager Member and expressly excludes any Manager Member
Interest.
12
<PAGE> 13
"Non-Manager Member Percentage Interest" means, for each Non-Manager
Member, the percentage obtained by dividing such Non-Manager Member's Percentage
Interest by the sum of the Percentage Interest held by all Non-Manager Members,
and multiplying such quotient by 100%.
"Non-Manager Member Pool" for any Allocation Year shall mean the
amount added to Non-Manager Members Unpaid Subordinated Distribution (as defined
herein) for such Allocation Year prior to any distributions thereof or any
compensation by the Company or any controlled Affiliate to any Member.
"Non-Manager Members Unpaid Catch-Up Distribution" means an amount
equal to the excess of (i) the amount, if any, by which distributions made to
AAC pursuant to Section 3.3(a)(ii) since January 1, 1998 exceed AAC's Preferred
Distribution Amount for all periods of the Company from January 1, 1998 through
the most recently completed Fiscal Year, over (ii) the aggregate distributions
made to Non-Manager Members pursuant to Section 3.3(a)(i) since January 1, 1998.
"Non-Manager Members Unpaid Subordinated Distribution" means an
amount equal to the excess of (i) 100% of Revenues From Operations for all
periods of the Company since January 1, 1998 over (ii) the sum of (A) 100% of
Operating Expenses (as defined herein) and Capital Expenditures for all periods
of the Company since January 1, 1998 (B) AAC's Unpaid Preferred Distribution,
(C) the aggregate distributions made to AAC pursuant to Section 3.3(a)(ii) since
January 1, 1998 (for this purpose, the Special Reduction (as defined in the
Purchase Agreement) shall be deemed to be a distribution made to AAC pursuant to
Section 3.3(a)(ii)), (D) Non-Manager Members Unpaid Catch-Up Distribution, (E)
the aggregate distributions made to Non-Manager Members pursuant to Section
3.3(a)(i) since January 1, 1998 and (F) the aggregate amount of salary paid to
Members pursuant to any employment agreements between the Company and such
Members.
"Nonrecourse Deduction" means any item of Company loss, deduction or
expense that is attributable to a Nonrecourse Liability, and will be determined
in accordance with the rules set forth in Regulations Sections 1.704-2(c) and
1.704-2(j)(1).
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<PAGE> 14
"Nonrecourse Liability" means any Company liability (or portion
thereof) for which no Member or related Person bears the economic risk of loss
(within the meaning of Regulations Section 1.752-2).
"Obligor" is defined in Section 2.5(e).
"Operating Expense" means, for any period, any expenditure,
liability or other item made or incurred during such period that is treated as
an expense (as opposed to a capital expenditure or repayment of principal for
borrowed money, for example) of the Company (including the Company's allocable
share of any such expense of any controlled Affiliate) for such period under
generally accepted accounting principles, consistently applied, and shall also
include the sum of all amounts by which any items previously included in
Revenues From Operations become partly or entirely uncollectible or are
collected at less than the amount previously included but in no event shall
Operating Expenses include (i) any amount for amortization or depreciation for
such period, (ii) any compensation to any Members or (iii) any net decline in
the aggregate value of all the capital interests of the Company in investment
funds for which the Company acts as investment advisor, general partner or the
like and the Company's allocable share of any such net decline in the aggregate
value of all the capital interests of any controlled Affiliate in investment
funds for which such controlled Affiliate acts in such capacity. Operating
Expense shall be reduced by any recoveries of previously incurred Operating
Expense including proceeds of insurance paid for out of Operating Expense. Any
recoveries in excess of Operating Expense for a particular period will be
carried over to the next period as a credit to Operating Expense.
"Percentage Interest" means the percentage set forth on Schedule A
for each Member as amended from time to time by the Manager in accordance with
the terms hereof.
"Period Benchmark Expenses" for any period shall mean Benchmark
Expenses times a fraction the numerator of which is the number of days in such
period and the denominator of which is 365.
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<PAGE> 15
"Permanent Disability" with respect to any Non-Manager Member means
such Non-Manager Member's physical or mental disability, as certified by a
physician satisfactory to the Manager which renders such Non-Manager Member
incapable of performing his material duties and services as an employee of the
Company and which continues for more than six consecutive months during any
one-year period or more than twelve months during any two-year period.
"Person" shall mean any individual, partnership (limited or
general), corporation, limited liability company, limited liability partnership,
association, trust, joint venture, unincorporated organization or any similar
entity.
"Premium Multiple" is defined in Section 2.2(e) hereof.
"Proceeding" is defined in Section 2.8(b).
"Purchase Agreement" is defined in Section 1.8(a) hereof.
****[This definition has been omitted pursuant to the confidential
treatment request referenced on the cover page hereto. The omitted portion has
been filed separately with the Commission.]****
"Regulations" means the Regulations promulgated under the Code.
"Regulatory Allocations" is defined in Section 3.2(b)(xv).
"Resignation" is defined in Section 4.5(e) hereof.
"Revenues From Operations" shall mean, for any period, the gross
revenues (without reduction to reflect expenses) of the Company (except as set
forth herein and except as otherwise agreed by the Manager and the Management
Board in a writing making reference to this definition), determined on an
accrual basis in accordance with generally accepted accounting principles
consistently applied, but (i) adjusted upward (but only to the extent not
duplicative) for the following items; (A) the sum of
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<PAGE> 16
the increase, if any, during such period in the Company's capital accounts in
any partnership (or similar investment entity) on account of such capital, (B)
the sum of the increase, if any, during such period in the Company's allocable
share of any such increase in such capital accounts of a controlled Affiliate
and (C) the sum of all cash withdrawals received during such period by the
Company (and the Company's allocable share of any such withdrawals by a
controlled Affiliate) with respect to any such partnership (or similar
investment entity), and (ii) adjusted downward (but only to the extent not
duplicative) for the following items: (A) the sum of the decrease, if any,
during such period in the Company's capital account in any partnership (or
similar investment entity) on account of such capital, (B) the sum of the
decrease, if any, during such period in the Company's allocable share of any
such decrease in such capital accounts of a controlled Affiliate and (C) the sum
of all Company cash contributed during such period by the Company (and the
Company's allocable share of any such contributions by a controlled Affiliate)
to any such partnership (or similar investment entity). For the foregoing
purposes gross revenues allocable to the capital accounts of the Company or a
controlled Affiliate in any partnership (or similar investment entity) other
than on account of capital (i.e. incentive or performance allocations) shall be
measured on an account by account basis and shall consist, for each such account
at any given point in time, of the amount thereof that would be allocated to the
Company's account (or such controlled Affiliate's account) if the date for
calculation and allocation or obligation to pay such allocation or fee were such
point in time, the effect of the foregoing being that at any particular time
other than the point in time that such fee or allocation is actually calculated
and allocated or payable (which itself may result in a positive addition to
Revenues From Operations or a negative deduction from Revenues From Operations)
the calculation required hereunder may result in a positive addition to Revenues
From Operations or a negative deduction from Revenues From Operations for the
period since the most recent calculation thereof hereunder; and (iii) gross
revenues from periodic investment advisory and management fees, if any, shall be
accrued on a daily, weekly, monthly or calendar quarterly basis. Notwithstanding
the foregoing, Revenues From Operations shall not include (i) proceeds of
(including any gain on) the
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<PAGE> 17
disposition of any asset of the Company, (ii) Capital Contributions by a Member
to the Company during such period, and (iii) proceeds received in respect of any
insurance policy (other than business interruption insurance).
"Series A Debenture" means the Series A Subordinated Convertible
Debenture due April 30, 2003, issued by Asset Alliance Corporation to JMG.
"Series B Debenture" means the Series B Subordinated Convertible
Debenture due April 30, 2003, issued by Asset Alliance Corporation to JMG.
"Taxable Income" and "Taxable Loss", as the case may be, for any
period, means the taxable income or taxable loss of the Company for such period,
determined in accordance with Code Section 703(a), including all items of
income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1).
1.2 Formation of Limited Liability Company. The Company was formed as a
Delaware limited liability company on March 20, 1998 by the filing of the
Company's Certificate of Formation, dated March 20, 1998 (the "Certificate of
Formation"), in the Office of the Secretary of State of the State of Delaware in
accordance with the Act.
1.3 Name. The name of the Company shall be, and the business of the
Company shall be conducted under the name of, "JMG Capital Management LLC" until
such time as amendments to the Certificate of Formation changing such name have
been filed in accordance with Applicable Law.
1.4 Continuation of Company. The Manager shall from time to time take all
such actions as may be deemed by it to be necessary or appropriate to effectuate
and permit the continuation of the Company as a limited liability company under
the Act and qualify the Company to act in any other state or country where the
Manager deems qualification necessary or desirable. The Members shall execute
such certificates, documents and instruments and take such other action as may
be necessary to enable the Manager to fulfill its responsibility under this
Section 1.4.
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1.5 Offices. The Company's registered agent and office in the State of
Delaware shall be as set forth in the Certificate, subject to change at any time
by the Manager. The principal offices of the Company shall be at 1999 Avenue of
the Stars, Suite 2530, Los Angeles, CA 90067 or such other or supplemental
location or locations as the Management Board shall determine from time to time.
The Company may maintain offices at such other locations as the Management Board
may determine.
1.6 Purpose and Powers. The Company is organized for the purpose of acting
as an investment manager and providing investment management and advisory,
consulting, marketing, administrative and other services ancillary thereto or
useful in connection therewith. The Company may also engage in any other lawful
business or activity permitted by the Act that is agreed to in writing by the
Manager and the Management Board. In pursuing such purposes, the Company shall
possess and may exercise all of the powers and privileges permitted by the Act,
together with any powers incidental thereto, including the following:
(a) to conduct its business, carry on its operations and have and
exercise the powers granted to a limited liability company by the Act in any
state, territory, district or possession of the United States, or in any foreign
country that may be necessary, convenient or incidental to the accomplishment of
the purpose of the Company;
(b) to acquire by purchase, lease, contribution of property or
otherwise, own, hold, operate, maintain, finance, improve, lease, sell, convey,
mortgage, transfer, demolish or dispose of any real or personal property that
may be necessary, convenient or incidental to the accomplishment of the purpose
of the Company;
(c) to open, maintain and close bank, brokerage and other financial
accounts and to draw checks or other orders for the payment of money;
(d) to engage attorneys, accountants and such other persons as may
be necessary or advisable in connection with the foregoing objects and purposes;
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<PAGE> 19
(e) to employ and terminate employees, consultants and other agents
and define their duties and fix their compensation;
(f) to sue and be sued, to present, defend, settle legal actions or
arbitration proceedings and participate in administrative or other proceedings,
in its name;
(g) to enter into, perform and carry out contracts of any kind,
including, without limitation, contracts with any Member, any Affiliate thereof,
or any agent of the Company necessary to, in connection with, convenient to, or
incidental to the accomplishment of the purpose of the Company;
(h) to purchase, take, receive, subscribe for or otherwise acquire,
own, hold, vote, use, employ, sell, mortgage, lend, pledge, or otherwise dispose
of, and otherwise use and deal in and with, shares or other interests in or
obligations of domestic or foreign corporations, associations, general or
limited partnerships (including, without limitation, the power to be admitted as
a partner thereof and to exercise the rights and perform the duties created
thereby), trusts, limited liability companies (including, without limitation,
the power to be admitted as a Member or appointed as a Manager thereof and to
exercise the rights and perform the duties created thereby), or individuals or
direct or indirect obligations of the United States or of any government, state,
territory, governmental district or municipality or of any instrumentality of
any of them;
(i) to lend money for its proper purpose, to invest and reinvest its
funds, and to take and hold real and personal property for the payment of funds
so loaned or invested;
(j) to indemnify any Person in accordance with the Act and to obtain
any and all types of insurance;
(k) to cease its activities and cancel its Certificate of Formation;
(l) to negotiate, enter into, renegotiate, extend, renew, terminate,
modify, amend, waive, execute, acknowledge or take any other action with respect
to any
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<PAGE> 20
lease, contract or security agreement in respect of any assets of the Company;
(m) to borrow money and issue evidences of Indebtedness, and to
secure the same by a mortgage, pledge or other Lien on the assets of the
Company;
(n) to pay, collect, compromise, litigate, arbitrate or otherwise
adjust or settle any and all other claims or demands of or against the Company
or to hold such proceeds against the payment of contingent liabilities; and
(o) to make, execute, acknowledge and file any and all documents or
instruments necessary, convenient or incidental to the accomplishment of the
purpose of the Company.
1.7 Term. The Company shall continue in perpetuity until the Company is
dissolved in accordance with the provisions of this Agreement.
1.8 Members; Limited Authority and Liability.
(a) The names and addresses of the Members, the amount of the
initial Capital Account of each Member and the Percentage Interest of each
Member are set forth in Schedule A hereto, which Schedule may be amended from
time to time to reflect any change in the identity of Members and any changes in
the Percentage Interest of the Members, it being understood that changes in
Capital Accounts shall be recorded in the books and records of the Company and
not in Schedule A. The initial Capital Account balance of AAC shall be equal to
the aggregate value of the Purchase Price (as defined in the Purchase Agreement
dated March 26, 1998 by and among Asset Alliance Corporation, the initial
Non-Manager Members and other Persons, the "Purchase Agreement"), as such value
may be adjusted to reflect changes in the Purchase Price pursuant to Section 3.2
of such Purchase Agreement. Such aggregate Fair Market Value shall be allocated
among such contributed assets by the Manager and the Management Board.
(b) Article 2 grants authority to the Members to take certain
actions as specified therein. Except as provided in Article 2, no Member, in its
capacity as
20
<PAGE> 21
such, has the authority or the power to act for or on behalf of the Company, to
do any act that would be binding on the Company, or incur any expenditures on
behalf of the Company. No Member shall be liable for the debts, obligations or
liabilities of the Company of any kind whatsoever, including under a judgment,
decree or order of a court, except as provided by Applicable Law. Subject to
Section 4.4 hereof, No Member shall be required to make any contribution to the
Company by reason of any negative balance in its Capital Account. A negative
balance in a Member's Capital Account shall not create any liability on the part
of the Member to any third party.
(c) Except as otherwise provided herein or by any applicable state
law, the Members shall be liable only to make their Capital Contributions
pursuant to this Section 1.8 and as set forth in Schedule A, and no Member shall
be required to lend any funds to the Company or to make any additional Capital
Contributions to the Company. No Member shall have any personal liability for
the repayment of any Capital Contribution of any other Member.
(d) The Company shall not admit additional Member(s) except as
specifically provided herein.
(e) No Individual Authority. Subject to the provisions of this
Agreement, no Member, acting alone, shall have any authority to act for, or to
undertake or assume, any obligations, debt, duty, or responsibility on behalf
of, any other Member.
(f) No Member Responsible for Other Member's Commitment. Neither the
Company nor any Member shall be responsible or liable for any Indebtedness or
obligation that is hereafter incurred by any other Member (or any of such
Member's shareholders, partners, directors, officers or Affiliates). In the
event that a Member (or any of such Member's shareholders, partners, directors,
officers or Affiliates (collectively, the "Liable Member")), whether prior to or
after the date hereof, incurs (or has incurred) any debt or obligation for which
neither the Company nor the other Members are to have any responsibility or
liability, the Liable Member shall and does hereby indemnify and hold harmless
the Company and the
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<PAGE> 22
other Member from any liability or obligation they may incur in respect thereof.
(g) Investment Representations. Each Member represents that it is
acquiring its Membership Interest in the Company for its own account for
investment purposes only and not with a view to the distribution or resale
thereof, in whole or in part, and each Member agrees that it will not effect any
disposition of all or any portion of, or offer to effect any disposition of all
or any portion of its Membership Interest, or solicit offers to buy from or
otherwise approach or negotiate in respect thereof with any person or persons
whomsoever, all or any portion of its interest (i) in any manner which would
violate or cause the Company or any Member to violate applicable federal or
state securities laws and (ii) other than in accordance with the provisions of
this Agreement.
1.9 No State-Law Partnership. No provisions of this Agreement (including,
without limitation, the provisions of Article 2) shall be deemed or construed to
constitute the Company a partnership (including, without limitation, a limited
partnership) or joint venture, or any Member or Manager a partner or joint
venturer of or with any other Member or Manager, for any purposes other than tax
purposes.
1.10 Merger. The Company may merge with, or consolidate into, another
Delaware limited liability company or "other business entity" (as defined in
Section 18-209(a) of the Act) upon the approval of the Manager and the
Management Board.
1.11 Status. No Member shall take any action that would require
termination of the Company for Federal or state tax purposes or registration of
the Company or any class of its securities under the Investment Company Act of
1940 or the Securities Exchange Act of 1934 or result in the Company being
taxable as a corporation for Federal or state tax purposes.
1.12 Reliance by Third Parties. Except as set forth in Section 2.2(c),
Persons dealing with the Company are entitled to rely conclusively upon the
power and authority of an officer of the Company authorized to act by this
Agreement or by action of the Management Board.
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<PAGE> 23
ARTICLE 2
MANAGEMENT
2.1 Manager. It is understood and agreed that the Management Board
provided for in Section 2.2 shall irrevocably be delegated and have the
authority to manage the day-to-day business of the Company, that certain
actions, but only to the extent expressly specified hereinafter, that are
material to the business or that affect the interests of the Manager and its
Affiliates may only be taken by the Management Board with the consent of the
Manager, that certain activities, but only to the extent expressly specified
hereinafter, in the financial and compliance areas require coordination between
the Management Board and the Manager and that for regulatory reasons the Manager
shall have the ability to alter the foregoing structure through removal of the
members of the Management Board but that except in narrowly defined
circumstances any such alteration will subject the Manager to the substantial
penalties set forth in Section 2.2(e) hereof.
(a) Subject to the other terms of this Agreement, including the
reservations and delegations of power and authority set forth in Section 2.2 and
elsewhere herein, (i) the management and control of the business of the Company
shall be vested generally in the Manager, who shall be a Member and a "manager"
of the Company within the meaning of the Act; (ii) the Manager, as specified or
limited, as the case may be, in Section 2.2 and elsewhere, shall have exclusive
power and authority, in the name of and on behalf of the Company, to perform all
acts and do all things which in its sole discretion it deems necessary or
desirable to conduct the business of the Company, without the vote or consent of
any of the other Members; and (iii) any action taken by the Manager, and the
signature of the Manager (or any authorized representative) on any instrument on
behalf of the Company, shall conclusively evidence the authority of the Company
with respect thereto and shall bind the Company. Notwithstanding the foregoing,
the Manager shall have no power or authority whatsoever to make recommendations
with respect to or to determine which transactions the Company shall cause or
recommend any investment advisory clients of the Company to enter into, or the
time at which, the
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<PAGE> 24
party with which or the terms on which any right, power or privilege of the
Company is exercised or performed with respect to the account of any such client
or the assets in the account of any such client.
(b) The Manager shall have the specific power and authority in its
reasonable discretion, after consultation with the Management Board to take any
of the following actions: (i) such actions as may be necessary to cause the
Company, any of its Affiliates or any of its Members, employees or agents to
comply with any Applicable Law or this Agreement; (ii) such actions as the
Manager is specifically authorized by this Agreement to take (subject to having
obtained any required Management Board approval); (iii) such actions as are
necessary to prevent actions that require the Manager's consent pursuant to the
terms of this Agreement if such consent has not been given; and (iv) termination
of any Member of the Company upon termination of such Member's employment "For
Cause" after all actions and determinations required by the definition thereof
have been taken and made.
(c) The Manager shall be obligated to devote only such time to the
business and affairs of the Company as it deems necessary in its sole discretion
for the performance of its duties under this Agreement.
(d) The Manager and its Affiliates may engage in other business
ventures of every nature and description, including the creation, acquisition,
financing, operation and disposition of investment managers or interests therein
that are or may be competitive with the Company's businesses. The Manager and
its Affiliates shall not be obligated to present any opportunity to the Company
even if such opportunity would be suitable for the Company or arose because of
the Manager's or any of its Affiliates' interest in or operation of the Company.
Neither the Company nor any of the Members other than the Manager shall have any
right in or to any such other ventures and no such activity by the Manager or
its Affiliates shall be deemed improper or result in any liability to the
Manager or its Affiliates.
(e) Any consent of the Manager required hereunder shall be in
writing, shall be obtained prior to the action sought to be taken, and shall,
except as otherwise set forth, be given or withheld in the good faith discre-
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<PAGE> 25
tion of the Manager. The Manager shall designate in writing to the Management
Board from time to time one or more persons who shall serve as authorized
representatives of the Manager to provide such written consent and two or more
alternate representatives who are so authorized in the event the primary
authorized person is not available.
2.2 Management Board.
(a) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(b) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
(c) None of the Company, the Management Board nor any controlled
Affiliate may do, and the Management Board shall use all reasonable efforts to
prevent the Company and any controlled Affiliate from doing, any of the
following without the consent of the Manager and which if purported to have been
done without such consent shall be void ab initio with no force or effect
whatsoever:
(i) take any action (including with respect to employment
agreements, benefit plans and capital expenditures) or enter into, amend,
take any action under or terminate any agreement, plan, arrangement or
understanding that could reasonably be expected to conflict with this
Agreement, prevent the Company from being able to distribute to AAC any of
the distributions contemplated hereunder or have a materially adverse
effect on the condition (financial or otherwise), operations, assets,
liabilities, business, operations or prospects of the Company or any
controlled Affiliate;
(ii) create, incur, assume or suffer to exist any Indebtedness of
the Company or any controlled
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<PAGE> 26
Affiliate or any Lien upon any assets of the Company or any controlled
Affiliate;
(iii) take or omit any action which could reasonably be expected to
result in the termination of employment of any Member of the Company or
enter into, amend, take any action under or terminate any employment
agreement with any Member of the Company;
(iv) except as permitted by Section 4.3(a), admit any Person as a
Member, issue or acquire any Membership Interests or other equity
interests in the Company or remove any Member;
(v) issue or acquire any partner, Member, beneficial ownership,
share or other equity interests in any controlled Affiliate or remove any
partner, Member, trustee or director thereof;
(vi) invest any of the Company's assets in general partner interests
(except as required by the partnership agreements of the investment
partnerships of which the Company or any controlled Affiliate acts as the
general partner from time to time) or in securities other than high
quality money market instruments;
(vii) form or organize or hold an interest in any controlled
Affiliate;
(viii) use as accountants for the Company any firm other than the
independent public accountants for the Manager and its Affiliates;
(ix) enter into or perform any agreement with (A) any Member,(B) any
member of the Management Board, (C) any parent, sibling, spouse or child
of any Member or Management Board member or any parent, sibling, spouse or
child of any of the foregoing Persons or (D) any controlled Affiliate of
any Person in (A), (B) or (C) above;
(x) pay or cause any investment vehicle managed by the Company to
pay any compensation or remuneration to any Member or Management Board
member other than distributions to Members in re-
26
<PAGE> 27
spect of their Membership Interests and pursuant to an employment
agreement approved by the Manager; or
(xi) take any action which may be taken only by the Manager or
requires the consent of the Manager.
(xii) taking any action that would constitute an Adverse Change.
(d) Neither the Company nor any controlled Affiliate shall do any of
the following without the consent of the Manager and the Management Board:
(i) enter into transactions with Affiliates;
(ii) sell or purchase any material amount of assets or any other
business, terminate any material advantageous agreement, merge or
consolidate the Company with any other Person or liquidate, dissolve or
terminate the Company;
(iii) enter into any line of business other than that set forth in
the first sentence of Section 1.6 of this Agreement or alter its
investment style in a manner materially inconsistent with the investment
style theretofore employed by the Company or, for periods prior to the
Effective Time, by JMG;
(iv) enter into, amend in any material respect, extend or terminate
any partnership, joint venture or material investment advisory or
investment management agreement to which the Company is a party;
(v) dispose of any assets of the Company if such disposition would
result in a Code Section 704(c) allocation to the Non-Managing Members in
an aggregate amount of $150,000 or more.
(e) ****[This subsection (approximately half a page) has been
omitted pursuant to the confidential treatment request referenced on the cover
page hereto. The omitted portion has been filed separately with the
Commission.]****
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<PAGE> 28
(f) ****[This subsection (approximately half a page) has been
omitted pursuant to the confidential treatment request referenced on the cover
page hereto. The omitted portion has been filed separately with the
Commission.]****
2.3 Operations of the Business of the Company. (a) The Management Board
shall exercise its reasonable best efforts so that ****[The remainder of this
section has been omitted pursuant to the confidential treatment request
referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
(b) The Company will maintain in full force and effect such
insurance as is customarily maintained by companies of similar size in the same
or similar businesses (including, without limitation, errors and omissions
liability insurance but excluding key-man life insurance). The Company or the
Manager may maintain key-man life insurance and disability insurance policies on
each Member, from time to time, and the Members will use all commercially
reasonable efforts to cooperate with the Manager and the Company to effectuate
the foregoing; provided, however, that neither the Company nor the Manager shall
be obligated to maintain such insurance.
(c) Notwithstanding any of the provisions of this Agreement to the
contrary, all accounting, financial reporting and bookkeeping policies and
procedures of the Company shall be established in conjunction with policies and
procedures determined under the supervision of the Manager. The Company shall
have a continuing obligation to keep the Manager's chief financial officer
informed of material financial developments with respect to the Company.
Notwithstanding any of the provisions of this Agreement to the contrary, all
legal, compliance and regulatory matters of the Company shall be coordinated
with the Manager, and the Company shall have an ongoing obligation to keep the
Manager informed of all significant legal, compliance and related activities, in
accordance with procedures to be established by the Manager and the Management
Board.
(d) The Management Board shall, when accepting additional clients or
investors in its investment funds,
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<PAGE> 29
give first priority to AAC and its Affiliates (other than the Company and
Pacific Asset Management LLC) with respect to 1/3 of the amount of all
subscriptions and contributions accepted until such time as AAC and its
Affiliates (other than the Company and Pacific Asset Management LLC) have
obtained allocations of 10% of each such respective investment fund and of total
assets under management other than in investment funds.
2.4 Compensation and Expenses of the Manager. The Manager and its
Affiliates may receive reimbursement of expenses and compensation for services
provided to the Company only to the extent approved by the Management Board.
2.5 Non-Competition, Non-Solicitation and Non-Disclosure.
(a) ****[This subsection (approximately one and a half pages) has
been omitted pursuant to the confidential treatment request referenced on the
cover page hereto. The omitted portion has been filed separately with the
Commission.]****
(b) Each Member agrees that any and all presently existing
investment advisory businesses of the Company and all business developed by the
Company, including by such Member or any other employee of the Company,
including without limitation, all proprietary investment methodologies, all
investment advisory contracts, fees and fee schedules, commissions, records,
data, client lists, agreements, trade secrets, and any other incident of any
business developed by the Company or earned or carried on by the Member for the
Company other than any such matters that are in the public record (unless they
are so available by virtue of a breach of the provisions of this Section 2.5),
and all trade names, service marks and logos under which the Company does
business, and any combinations or variations thereof and all related logos, are
and shall be the exclusive property of the Company, for its sole use, and (where
applicable) shall be payable directly to the Company. In addition, each Member
acknowledges and agrees that the investment performance of the accounts managed
by the Company was attributable to the efforts of the team of professionals of
the Company and not to the efforts of any single individual, and that therefore,
the perfor-
29
<PAGE> 30
mance records of the accounts managed by the Company are and shall be the
exclusive property of the Company. Notwithstanding the foregoing, such Member
may be permitted to identify with such performance where in fact such Member
exercised the sole final decision making authority resulting in such
performance. Each Member acknowledges that, in the course of performing services
hereunder and otherwise the Member has had, and will from time to time have,
access to information of a confidential or proprietary nature, as commonly and
generally understood, including without limitation, confidential or proprietary
investment methodologies, trade secrets, proprietary or confidential plans,
client identities and information, client lists, business operations or
techniques, records and data (collectively, "Intellectual Property") owned or
used in the course of business by the Company. Each Member agrees always to keep
secret and not ever publish, divulge, furnish, use or make accessible to anyone
(otherwise than in the regular business of the Company) any Intellectual
Property of the Company that is not otherwise publicly available (other than
Intellectual Property that is publicly available by virtue of a breach of the
provisions of this Section 2.5). At the termination of the Member's services to
the Company, all data, memoranda, client lists, notes, programs and other
papers, items and tangible media, and reproductions thereof relating to the
foregoing matters in the Member's possession or control, shall be returned to
the Company and remain in the Company's possession (except where the return of
such items shall be unreasonable or impracticable in relation to the importance
or confidentiality of such items).
(c) As a further condition and material inducement to Admission as a
Member, each Member (other than the Manager, AAC and JMG) agrees, for the
benefit of the Company and the other Members, to enter into employment
agreements to substantially the same effect as the provisions of Sections 2.5(a)
and (b) hereof. The provisions of this Section 2.5 shall not be deemed to limit
any of the rights of the Company or the Manager under any of such agreements or
under Applicable Law, but shall be in addition to the rights set forth in each
of such agreements and those which arise under Applicable Law.
(d) For purposes of this Section 2.5 and Section 2.6, the term
"client" shall include any investor
30
<PAGE> 31
in any investment fund to which the Company provides or previously provided
investment management services, but shall not include members of the Immediate
Family of such Member and the term "Company" shall include each controlled
Affiliate of the Company.
(e) ****[This subsection (approximately half a page) has been
omitted pursuant to the confidential treatment request referenced on the cover
page hereto. The omitted portion has been filed separately with the
Commission.]****
2.6 Remedies Upon Breach.
(a) Each Member agrees that any breach of the provisions of Section
2.5 of this Agreement or of the provisions of any agreement referred to in
Section 2.5(c) by such Member could cause irreparable damage to the Company and
the other Members. The Company and the Manager shall have the right to seek an
injunction or other equitable relief (in addition to other legal remedies) to
prevent any violation of a Member's obligations hereunder or thereunder.
(b) In the event that a Member is terminated pursuant to Section
2.1(b)(iv), then such Member and any member of his Immediate Family shall be
obligated to sell to the other Non-Manager Members of the Company, at the
election of each of them made within 30 days after such Member's termination
becomes effective, all of such Member's Membership Interests and all of such
Member's JMG Interest and to pay to the Company the after-tax proceeds of any
sale or other transfer of any portion of his Membership Interest and JMG
Interest or any interest therein to any Person during the two preceding years.
To the extent such other Non-Manager Members shall fail to make such election,
the Company at the election of the Manager made within 30 days after receiving
notice of the results of elections by the Non-Manager Members, may purchase all
or any portion of such Member's Membership Interest and all or any portion of
such Member's Members Indirect Interest. The price at which the other
Non-Manager Members or the Company shall be entitled to purchase such Member's
Membership Interest, JMG Interest or Members Indirect Interest, as the case may
be, shall be (i) in the case of termination For Cause in whole or in part on
account of a violation of Section 2.5 of this
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<PAGE> 32
Agreement or the parallel provisions of such Member's employment or
noncompetition agreement with the Company, an amount equal to such Member's tax
basis in such Member's Membership Interests, JMG Interest or Members Indirect
Interest, as the case may be, and (ii) in the case of a termination For Cause
for any reason entirely other than on account of a violation of Section 2.5 of
this Agreement or the parallel provisions of such Member's employment agreement
with the Company, in the case of such Member's Membership Interest and Members
Indirect Interest, an amount equal to the product of the sum of such Member's
Percentage Interest and that portion of JMG's Percentage Interest represented by
the Member's Members Indirect Interest prior to such termination times the
Non-Manager Member Pool for the Allocation Year following the Allocation Year
during which such termination occurs and, in the case of such Member's JMG
Interest, an amount equal to the price that would be paid for that portion of
JMG's Membership Interest represented by the Member's Members Indirect Interest.
Such purchase price shall be paid as promptly as practicable after determination
thereof.
(c) Each Member agrees that the enforcement of the provisions of
Sections 2.5 and 2.6 hereof, and the enforcement of the provisions of any
agreement referred to in Section 2.5(c) are necessary to ensure the protection
and continuity of the business, goodwill and confidential business information
of the Company for the benefit of each of the Members. Each Member agrees that,
due to the proprietary nature of the Company's business, the restrictions set
forth in Section 2.5 hereof and in such agreements are reasonable as to duration
and scope. If any provision contained in this Article 2 shall for any reason be
held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Article 2. It is the intention of the parties hereto that if any of the
restrictions or covenants contained herein is held to cover a geographic area or
to be for a length of time that is not permitted by Applicable Law, or is in any
way construed to be too broad or to any extent invalid, such provision shall not
be construed to be null, void and of no effect, but to the extent such provision
would then be valid or enforceable under applicable law, such provision shall be
construed and interpreted or reformed to provide for a restriction or cove-
32
<PAGE> 33
nant having the maximum enforceable geographic area, time period and other
provisions as shall be valid and enforceable under Applicable Law.
2.7 No Employment Obligation. Each Member acknowledges that neither this
Agreement nor the provisions of any agreement referred to in Section 2.5(c)
create an obligation on the part of the Company to continue the employment of
such Member with the Company, and that such Member, unless he is a party to a
written employment agreement executed by the Company, is an employee at will of
the Company. Notwithstanding the foregoing, the Management Board or its delegate
shall have general authority regarding personnel decisions and the employment
status of employees who are not Members.
Each Member acknowledges that the obligations and rights under
Sections 2.5 and 2.6 hereof shall survive the termination of the employment of
such Member with the Company and/or the withdrawal or removal of such Member
from the Company, regardless of the manner of such termination, withdrawal or
removal in accordance with the provisions hereof and of the relevant agreements
of the type referred to in Section 2.5(c).
2.8 Liability and Indemnification
(a) No Liability.
(i) No Covered Person shall be personally liable to the Company or
other Members for any act or omission or for any costs, damages or
liabilities arising therefrom, performed or omitted on behalf of the
Company or in its, his or her capacity as a Covered Person in a manner
believed in good faith by such Covered Person to be within the scope of
authority granted to such Covered Person hereunder, except as otherwise
required by Applicable Law, provided that its, his or her actions or
omissions did not constitute fraud, bad faith, gross negligence or willful
misconduct.
(ii) Each Covered Person shall be fully protected in relying in good
faith upon information, opinions, reports or statements furnished by any
Person as to matters such Covered Person reasonably believes are within
such other Person's professional
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<PAGE> 34
or expert competence and who has been selected with reasonable care,
including information, opinions, reports or statements as to the value and
amount of assets, liabilities, profits or losses of the Company, the
valuation of transactions in which the Company engages or contemplates
engaging, the reasonableness of the terms of a transaction, and any other
facts pertinent to the existence and amount of assets from which a
distribution to Members and Assignees might properly be paid.
(b) Right to Indemnification. Subject to the limitations and
conditions as provided in this Section 2.8, each Person who was or is made a
party or is threatened to be made a party to or is involved in any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative (a "Proceeding"), or any appeal in
such a Proceeding, by reason of the fact that such Person is or was a Covered
Person shall be indemnified by the Company against all costs and expenses,
including reasonable attorney's fees, the costs and expenses of investigation,
and judgments and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding, if such Covered Person acted in
good faith and in a manner which such Covered Person believed in good faith to
be in the best interest of the Company.
(c) Advance Payment. The right to indemnification conferred in this
Section 2.8 shall include the right to be paid or reimbursed by the Company the
reasonable expenses incurred by a Covered Person who was, is or is threatened to
be made a named defendant or respondent in a proceeding in advance of the final
disposition of the proceeding and without any determination as to the Covered
Person's ultimate entitlement to indemnification; provided, however, that the
payment of such expenses incurred by any such Person in advance of the final
disposition of a Proceeding shall be made only upon delivery to the Company of a
written affirmation by such Covered Person of such Covered Person's good faith
belief that he has met the standard of conduct necessary for indemnification
under this Section 2.8 and a written undertaking, by or on behalf of such
Covered Person, to repay all amounts so advanced if it shall ultimately be
determined that such Covered Person is not entitled to be indemnified under this
Section 2.8 or otherwise.
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(d) Indemnification of Employees and Agents. With the consent of the
Manager, the Company may indemnify and advance expenses to any employee or agent
of the Company to the same extent and subject to the same conditions under which
it is required to indemnify and advance expenses to Covered Persons under
Sections 2.8(b) and 2.8(c).
(e) Limitation on Indemnification. Notwithstanding anything to the
contrary contained in this Section 2.8, no Person shall be entitled to
indemnification under Section 2.8 if any such indemnification shall be
determined to be contrary to Applicable Law or if it is determined by a court of
competent jurisdiction that such Person is not entitled to indemnification
because it, he or she (i) did not act in good faith, (ii) engaged in conduct
constituting gross negligence, willful misconduct or fraud, or (iii) did not act
in a manner that it, he or she believed in good faith to be in the best interest
of the Company.
2.9 Non-Manager Member Investment and Trading Accounts. For so long as AAC
or an Affiliate of AAC is a Member of the Company, the Non-Manager Members shall
maintain investments (other than through their interests in the Company) in
investment vehicles managed by the Company in an aggregate amount for all
Non-Manager Members of at least $10.0 million less any reduction attributable to
fund depreciation (in the case of Glaser individually, not less than $8.0
million). The Non-Manager Members may also maintain brokerage and investment
accounts that are not managed by the Company so long as (a) the aggregate amount
of funds of the Non-Manager Members managed by the Company is at least $10.0
million (as adjusted as aforesaid, less any reduction attributable to fund
depreciation), (b) the maintenance and operation of such accounts complies with
Applicable Law and the Company's compliance policies and (c) the Manager is
provided reasonable opportunity to examine such accounts as required by
Applicable Law and the Company's compliance policies. The Manager may limit the
amounts above $10.0 million (as increased as a result of appreciation) in the
aggregate that may be invested by Non-Manager Members in investment vehicles
managed by the Company as to which any cap, waiver or reimbursement of fees,
profit allocations or charges ordinarily applicable to an investment in such
vehicles may be granted to such Members.
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<PAGE> 36
ARTICLE 3
CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS
3.1 Capital Accounts.
(a) A single capital account ("Capital Account") shall be maintained
for each Member in accordance with the capital accounting rules of Section
704(b) of the Code. No Member shall have the right to withdraw any part of his
Capital Account until the dissolution and winding up of the Company, except as
distributions pursuant to this Article 3 may represent returns of capital, in
whole or in part. No Member shall be entitled to receive any interest on any
Capital Account balance. No Member shall have any personal liability for the
repayment of any Capital Contribution of any other Member. Except as may be
agreed to in connection with the issuance of additional Membership Interests, as
specifically set forth herein or as may be required under Applicable Law, no
Member shall be required to make any further Capital Contributions to the
Company.
(b) Each Member's opening Capital Account shall be as stated in
Schedule A hereto. Thereafter, a Member's Capital Account shall be credited with
(i) such Member's subsequent Capital Contributions; (ii) such Member's share of
the Net Income or other income and gain of the Company as provided herein; and
(iii) such other amounts as may be required in order for the Capital Account to
be considered to be determined and maintained in accordance with the rules under
Regulation Section 1.704-1(b)(2)(iv) or any successor section of similar import.
A Member's Capital Account shall be debited with (i) such Member's share of the
Net Loss or other deductions and losses of the Company as provided herein, (ii)
distributions made to such Member (including liquidating distributions), and
(iii) such other amounts as may be required for the Capital Account to be
considered to be determined and maintained in accordance with the rules under
Regulation Section 1.704-1(b)(2)(iv) or any successor section of similar import.
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<PAGE> 37
3.2 Allocations.
(a) Net Income and Net Loss. After giving effect to the special
allocations (other than with respect to provisions applying solely to
allocations for tax purposes) set forth in Section 3.2(b) and (i) - (l), Net
Income (increased by specially allocated items of deduction and loss and
decreased by specially allocated items of income and gain in Section 3.2(b)
hereof) and Net Loss(reduced by specially allocated items of deduction and loss
and increased by specially allocated items of income and gain in Section 3.2(b)
hereof) will be allocated among the Members as follows:
****[The remainder of this section (approximately seven and a half
pages) has been omitted pursuant to the confidential treatment request
referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
(b) Acknowledgment of Tax Consequences. The Members are aware of the
income tax consequences of the allocations made by this Section 3.2, and hereby
agree to be bound by the provisions of this Agreement in reporting their share
of Taxable Income or Loss for income tax purposes.
3.3 Distributions.
(a) ****[This subsection (approximately one and a half pages) has
been omitted pursuant to the confidential treatment request referenced on the
cover page hereto. The omitted portion has been filed separately with the
Commission.]****
(b) Distributions Concerning Interests Transferred. Distributions
made under this Section 3.3 with respect to any transferred Membership Interest
will be made only to Members of record (or assignees as provided herein) on the
record date designated by the Company.
(c) No Violations. Notwithstanding anything in this Agreement to the
contrary, the Company will not be obligated to, and will not, make any
distribution that would (i) render the Company insolvent, (ii) violate the Act
or other Applicable Law or (iii) cause any Member to
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<PAGE> 38
have an Adjusted Capital Account Deficit as of the end of the current Allocation
Year.
(d) Distributions in Kind. If any assets of the Company are
distributed in kind, such assets will be distributed on the basis of the then
Fair Market Value thereof, as reasonably determined by the Manager and the
Management Board. All such distributions will be in the same proportion as if
such distribution had been made in cash.
3.4 Distributions Upon Dissolution; Establishment of a Reserve Upon
Dissolution.
(a) Upon the dissolution of the Company, after payment (or the
making of reasonable provision for the payment) of all liabilities of the
Company owing to creditors, the Company, or if there is none, the Liquidating
Trustee appointed as set forth in Section 6.2 hereof, shall set up such reserves
as it deems reasonably necessary for any contingent, conditional or unmatured
liabilities or other obligations of the Company. Such reserves may be paid over
by the Company or Liquidating Trustee to a bank (or other third party), to be
held in escrow for the purpose of paying any such contingent, conditional or
unmatured liabilities or other obligations. The remaining assets of the Company
shall be distributed (i) first to any Non-Manager Member that made a
contribution to the Company pursuant to Section 6.1(d) of the Purchase Agreement
in an amount equal to such contribution and which contribution will not be
credited to such Non-Manager Member's Capital Account and (ii) second to the
Members in accordance with the positive balance (if any) in their respective
Capital Accounts.
(b) Timing of Liquidation Distributions. Distributions in
liquidation will be made by the end of the taxable year in which the liquidation
occurs or, if later, within 90 days of the liquidating event and will otherwise
comply with Regulations Section 1.704-1(b); provided, however, that the
distribution of any assets held in reserve as provided above shall be
distributed at the expiration of such time as the Company or the Liquidating
Trustee deems advisable.
(c) Limitations on Payments made in Dissolution. Except as otherwise
specifically provided in this
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Agreement, including Section 4.4 hereof, each Member will be entitled to look
solely to the assets of the Company for the return of his or her positive
Capital Account balance and will have no recourse for his or her Capital
Contribution and/or share of Net Income, or other items of income and gain,
against the Manager or any other Member.
(d) If any assets of the Company are to be distributed in kind in
connection with such liquidation, such assets shall be distributed on the basis
of their Fair Market Value net of any liabilities encumbering such assets and,
to the greatest extent possible, shall be distributed pro-rata in accordance
with the total amounts to be distributed to each Member. Immediately prior to
the effectiveness of any such distribution-in-kind, each item of gain and loss
that would have been recognized by the Company had the property being
distributed been sold at Fair Market Value shall be determined and allocated in
accordance with Section 3.2 hereof to the Capital Accounts of those Persons who
were Members immediately prior to the effectiveness of such distribution.
(e) Actions by the Company under this Section 3.4 shall be taken
based upon agreement by the Manager and the Management Board.
3.5 Proceeds from Key-Man Insurance. In the event the Company acquired any
key-man life insurance on the life of a Non-Manager Member, the premium expense
and any proceeds of such insurance shall be allocated, distributed and reflected
in Members' Capital Accounts as agreed by the Manager and the Management Board.
ARTICLE 4
TRANSFER AND ISSUANCE OF INTERESTS
4.1 Limitation on Transfer of Membership Interests.
(a) ****[This subsection (approximately one page) has been omitted
pursuant to the confidential treatment request referenced on the cover page
hereto. The omitted portion has been filed separately with the Commission.]****
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<PAGE> 40
(b) Notwithstanding any other provision in this Article 4, no
Assignment or Admission shall be valid or effective unless the Assignor gives
the Company written notice before making any Assignment and, with such notice,
provides the Company with such evidence as the Company may require that such
Assignment or Admission will not violate this Agreement or Applicable Law.
(c) The Company or the Manager may require as a condition of any
Assignment that the Assignee assume all costs incurred by the Company in
connection therewith, including, but not limited to, legal fees and cost of
preparation and filing of any amendment to this Agreement if necessary or
desirable in connection therewith, and the Assignee shall execute, acknowledge
and deliver to the Company such documents or instruments in form and substance
satisfactory to the Company and the Manager as the Company and the Manager shall
deem necessary or desirable to effectuate such Assignment and to confirm the
agreement of the Assignee to be bound by all of the terms and provisions of this
Agreement. Any Assignment in contravention of any of the provisions of this
Section 4.1 shall be void ab initio and of no effect and shall not bind or be
recognized by the Company.
(d) No Assignee shall be admitted as a Member unless: (i) the
consent requirements set forth in Section 4.1(a) shall have been satisfied, (ii)
the Assignee shall have indicated such intention in the instrument effecting the
Assignment and the Assignee expressly agrees to be bound, to the same extent as
the other Members, by the provisions of this Agreement, and any other documents
required in connection therewith and to assume the obligations of the Assignor
hereunder and become a signatory to this Agreement, (iii) the Assignor and the
Assignee shall have executed or delivered such other instruments as the Company
may deem necessary or desirable to effectuate such admission, and (iv) the
Assignee shall have agreed to pay (to the extent the Assignor shall not have
paid such costs under Section 4.1(c) hereof), as the Management Board may
determine, all reasonable expenses and legal fees relating to the Assignment and
the Assignee's Admission, including, but not limited to, the cost of any
required counsel's opinion and the preparation, filing and/or publishing of any
amendment to this Agreement necessary to effect such Admission. Upon the
Admission of the Assignee as a Member, Schedule A at-
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<PAGE> 41
tached hereto shall be amended to reflect the name and address of such Member
and its Percentage Interest and, if the Assignor has Assigned all of its
Membership Interest, to eliminate the name and address of the Assignor.
(e) No Person shall be Admitted as a Member with a Membership
Interest providing such Member with any interest in any items allocated to AAC
without the prior written consent of the Manager. No Person shall be admitted as
a Member with a Membership Interest providing such Member with any interest in
any items allocated to the Non-Manager Members without the consent of the
Management Board.
4.2 Assignees.
(a) Any Person who acquires in any manner whatsoever any Membership
Interest or portion thereof, irrespective of whether such Person has accepted
and adopted in writing the terms and provisions of this Agreement, shall be
deemed by the acceptance of the benefit of the acquisition thereof to have
agreed to be subject to and bound by all the obligations of this Agreement that
any predecessor in interest of such Person was subject to or bound by. A Person
acquiring any Membership Interest, including the personal representative and
heirs of a deceased Member, shall have only such rights, and shall be subject to
all the obligations as are set forth in this Agreement; and, without limiting
the generality of the foregoing such Person shall not have any right to have the
value of its Membership Interest ascertained or receive the value of such
Membership Interest or, in lieu thereof, profits attributable to any right in
the Company, except as herein set forth.
(b) Any Assignee of a Membership Interest or portion thereof
pursuant to an Assignment satisfying the conditions of Section 4.1(a) hereof
shall have the right to receive the same share of the income, gain, deduction
and loss and of the distributions of the Company to which the Assignor would
have been entitled in respect of such Membership Interest or portion thereof. If
such Assignee desires to make an Assignment of his Membership Interest, it shall
be subject to all the provisions of this Article 4 to the same extent and in the
same manner as any Member desiring to make an Assignment.
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<PAGE> 42
(c) Any Member who shall Assign all of its Membership Interest shall
cease to be a Member and shall no longer have any rights or privileges of a
Member except that, unless and until his Assignee is admitted to the Company as
a substitute Member in accordance with Section 4.1(a) hereof, such Assignor
shall retain all rights and be subject to all obligations under the Act and this
Agreement. For so long as a Member has any JMG Interest such Member shall not
assign all of his Membership Interest.
(d) In the event that an Assignment shall be made, there shall be
filed with the Company a duly executed and acknowledged counterpart of the
instrument making such Assignment. Such instrument must evidence the written
acceptance of the Assignee to all the terms and provisions of this Agreement. If
such an instrument is not so filed, the Company need not recognize any such
purported Assignment for any purpose. The instrument so filed insofar as the
Company is concerned shall be construed as the total contract between the
Assignor and the Assignee, and the Company shall not be bound to recognize any
terms not disclosed in the instrument so filed.
4.3 Issuance of Additional Membership Interests.
(a) ****[This subsection (approximately two-thirds of a page) has
been omitted pursuant to the confidential treatment request referenced on the
cover page hereto. The omitted portion has been filed separately with the
Commission.]****
(b) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
(c) Upon the repurchase of Membership Interests or the issuance of
additional Membership Interests, the Manager shall make the appropriate
revisions to Schedule A hereto.
(d) ****[This subsection has been omitted pursuant to the
confidential treatment request referenced on the cover page hereto. The omitted
portion has been filed separately with the Commission.]****
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4.4 Capital Contributions. ****[This section (approximately thirteen
lines) has been omitted pursuant to the confidential treatment request
referenced on the cover page hereto. The omitted portion has been filed
separately with the Commission.]****
4.5 Succession. The Members agree that it is in their best interests to
provide for an orderly succession of the day-to-day management of, and the
ownership of the Non-Manager Member Membership Interests in the Company. In
order to implement such agreement, the Members hereby agree as follows:
****[The remainder of this section (approximately four pages) has
been omitted pursuant to the confidential treatment request referenced on the
cover page hereto. The omitted portion has been filed separately with the
Commission.]****
4.6 JMG Interests. JMG agrees to comply with and enforce, and each
Non-Manager Member that is an equity holder, officer or director of JMG agrees
to comply with and to use its reasonable best efforts to cause JMG to comply
with and enforce, the provisions relating to the transfer, sale, assignment,
repurchase, redemption and issuance of securities of JMG set forth on Schedule
4.6 hereto, which Schedule 4.6 is hereby incorporated by reference herein and
made a part hereof.
ARTICLE 5
BOOKS AND RECORDS
5.1 Bank Accounts. The bank accounts of the Company shall be maintained in
such banking institutions authorized to do business in such places as the
Management Board shall determine, and withdrawals shall be made on such
signatures as the Management Board shall determine.
5.2 Fiscal Year. The fiscal year of the Company (the "Fiscal Year") shall
be the calendar year.
5.3 Books and Records. Books and records, complete and accurate in all
material respects, required by Applicable Law shall be kept or caused to be kept
by the
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Management Board. The Company's financial books shall be kept on the accrual
method of accounting. All of the Company's books and records, together with an
executed copy of this Agreement and copies of all other agreements, contracts,
leases, insurance policies, employee benefit programs, securities trading
records and other instruments as any officer may execute or obtain for the
Company hereunder, including amendments thereto, shall at all times be kept at
the business office of the Company, and all such books and records shall be
available upon reasonable notice and without interference with the regular
business operations of the Company during normal business hours for inspection
by any Member or its duly authorized representative or, at the expense of any
Member, for audit by it or its duly authorized representative.
Along with all other books and records kept pursuant to this Section
5.3, the Company shall maintain the following records:
(a) the full name and mailing address of each member of the
Management Board;
(b) a current list of the full names set forth in alphabetical order
and last known mailing address of each Member, together with the Capital
Contribution and the share of Net Income or Net Loss of each Member or
information from which such shares can be readily derived;
(c) a copy of the Certificate of Formation and all amendments
thereto or restatements thereof, together with executed copies of any powers of
attorney pursuant to which any certificate or amendment has been executed;
(d) a copy of this Agreement and any amendments thereto and any
restatements thereof; and
(e) a copy of the Company's federal, state and local income tax or
information returns and reports, if any, for the three (3) most recent Fiscal
Years.
5.4 Reports to Members.
(a) Within 15 days after the end of each month and fiscal quarter of
the Company, the Management Board
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shall send to the Members an unaudited balance sheet of the Company as of the
end of such month and, if such month coincides with the end of a fiscal quarter,
an unaudited balance sheet of the Company as of the end of such fiscal quarter
and unaudited statements of income (loss) for such fiscal quarter, each prepared
in accordance with generally accepted accounted principles consistently applied
("GAAP") except that monthly reports need not be prepared in accordance with
GAAP so long as they disclose the nature and effect of deviations from GAAP.
Except to the extent inconsistent with the sound operation of the Company's
business or not reasonably within the control of the Management Board, within 45
days after the end of each Fiscal Year or such lesser number of days as the
Manager shall inform the Management Board is necessary for AAC to announce its
financial results for such Fiscal Year in accordance with the expectations of
the financial markets, the Management Board shall send to the Members a balance
sheet of the Company as of the end of such Fiscal Year and statements of income
(loss), Members' capital and cash flow of the Company for such Fiscal Year, all
of which shall be audited by the Company's independent certified public
accountants and prepared in accordance with GAAP. In addition to the above, the
Management Board shall provide to the Members any other reports as are
reasonably requested by the Manager from time to time, including operating
budgets for the next succeeding four fiscal quarters, performance data and any
material AAC may need for any reports to shareholders or regulatory filings.
(b) To the extent practicable, the Management Board shall provide to
each Member by November 30 of each Fiscal Year an estimate of such Member's
share of the profits and losses for Federal and state income tax purposes for
such Fiscal Year. The Management Board shall, for each Fiscal Year and within
the time prescribed by law for such filing, file on behalf of the Company a U.S.
Federal partnership information tax return. The Management Board shall also file
on behalf of the Company such other tax returns and other documents from time to
time as may be required by the Federal government or by the State of Delaware or
any other state or any subdivision thereof. Except as otherwise consented to by
the Manager, all tax returns shall be prepared by the accountants for the
Company. The officers of the Company shall send a copy of the Company's tax
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<PAGE> 46
returns and a copy of Schedule K-1 or any successor or replacement form thereof,
and, upon request, such tax return, to each Member as soon after the expiration
of each Fiscal Year as such items are available.
(c) Each of the foregoing reports shall be subject to review and
modification by the Manager and the time periods set forth in the foregoing
provisions shall be subject to modification by the Manager to the extent
necessary to permit it to make required reports and filings on a timely basis.
5.5 Meetings. The Company and its officers shall be available to meet with
the Manager at the Manager's reasonable request by telephone or in person to
update the Manager as to the performance, operations, business plans and
prospect of the Company and to discuss matters of mutual interest.
5.6 Tax Matters. AAC shall be the "tax matters partner" for the Company
for purposes of Sections 6221 through 6233 of the Code. The tax matters partner
shall not be permitted to settle any assessment, deficiency action, or other
proceeding in respect of which the Company or any Member could have liability
without the consent of the Management Board.
ARTICLE 6
DISSOLUTION AND LIQUIDATION
6.1 Events Causing Dissolution.
(a) The Company shall be dissolved, its assets disposed of and its
affairs wound up upon the happening of any of the following events:
(i) The Company shall be dissolved upon the occurrence of any of the
events specified in Section 18-801 of the Act, including, without
limitation, (A) the written consent of all Members; (B) the death,
retirement, resignation, withdrawal, expulsion, Bankruptcy or dissolution
of a Member or the occurrence of any other event which terminates the
continued membership of a Member in the Company, unless there is at least
one remaining Member and the business of the Company is not discontinued
by
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<PAGE> 47
vote or written consent of all of the other Members within 180 days
following the occurrence of the event; (C) the sale of all or
substantially all of the assets of the Company; (D) the entry of a decree
of judicial dissolution under Section 18-802 of the Act; or (E) at such
earlier time as may be provided by applicable law; or
(ii) Any event which shall make it unlawful for the existence of the
Company to be continued.
(b) In the event of a Bankruptcy of a Member that does not cause the
Company to dissolve as provided in subparagraph (a) of this Section 6.1, such
Member shall cease to be a Member for all purposes hereunder unless upon the
consent of Members holding a majority in Percentage Interest, such Bankrupt
Member is permitted to remain a Member hereunder.
6.2 Liquidation.
(a) Upon the dissolution of the Company, the Company shall be
liquidated in accordance with this Section 6.2 and Sections 18-803 and 18-804 of
the Act. The liquidation shall be conducted and supervised by the Manager and
the Management Board or, if there is no Manager and Management Board, by a
person who shall be designated for such purpose unanimously by the Members (the
Manager and the Management Board, or such person so designated, being
hereinafter referred to as the "Liquidating Trustee"). The Liquidating Trustee
shall have all of the rights in connection with the liquidation and termination
of the Company that the Manager and Management Board would have with respect to
the assets and liabilities of the Company during the term of the Company, and
the Liquidating Trustee is hereby expressly authorized and empowered to
effectuate the liquidation and termination of the Company and the transfer of
any assets and liabilities of the Company. The Liquidating Trustee shall have
the right from time to time, by revocable powers of attorney, to delegate to one
or more persons any or all of such rights and powers and the authority and power
to execute documents in connection therewith, and to fix the reasonable
compensation of each such person, which compensation shall be charged as an
expense of liquidation. The Liquidating Trustee is also
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<PAGE> 48
expressly authorized to distribute the Company's property to the Members subject
to Liens.
(b) During the period of liquidation of the Company, all of the
provisions of this Agreement shall continue in effect. The Capital Accounts of
the Members prior to any distributions pursuant to this Section 6.2(b) shall be
credited or charged and shall be computed in accordance with the provisions of
this Agreement. Upon the dissolution of the Company, the proceeds from the
liquidation of the Company's assets (after making provisions for claims and
obligations as required under Section 704 of the Code) shall be applied as
promptly as possible in the following order:
(i) first, to the payment and discharge of the Company's debts and
liabilities (including loans made to the Company by the Members), in the
order of priority as provided by law (except those to Members of the
Company on account of their contributions), and the establishment of any
necessary reserves;
(ii) second, in accordance with Section 3.4 hereof an amount equal
to the liquidation proceeds.
(c) Each Member shall be furnished with a statement prepared by the
Liquidating Trustee which shall set forth the assets and liabilities of the
Company as at the date of complete liquidation, and each Member's share thereof.
Upon compliance with the distribution plan contemplated by Section 6.2(b) and
Section 3.4 hereof, each Member shall cease to be a Member of the Company, and
the Liquidating Trustee shall execute acknowledge and cause to be filed a
certificate of cancellation of the Company.
(d) A reasonable time shall be allowed for the orderly liquidation
of the assets of the Company and the discharge of liabilities so as to minimize
the losses normally attendant upon a liquidation.
(e) At no time during continuation of the Company shall any value
ever be placed on the Company name, or the right to its use, or to the goodwill
appertaining to the company or its business, either as among the Members or for
the purpose of determining the value of any Membership Interest, nor shall the
legal represen-
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tatives of any Member have any right to claim any such value. In the event of a
termination and dissolution of the Company as provided in this Agreement,
neither the Company name, nor the right to its use, nor the aforesaid goodwill,
if any, shall be considered as an asset of the Company and no valuation shall be
put thereon for the purpose of liquidation or distribution, or for any other
purpose whatsoever; nor shall any value ever be placed thereon as between the
remaining or surviving Members and the legal representatives of the estate of
any deceased, insane, incompetent, dissolved, liquidated or Bankrupt Member.
6.3 Partition. Each Member waives any and all rights that it may have to
maintain an action for partition of the Company's property.
ARTICLE 7
MISCELLANEOUS
7.1 Governing Law.
(a) This Agreement, and the rights of the Members hereunder, shall
be governed by and construed in accordance with the laws of the State of
Delaware applicable to contracts made and to be performed entirely therein,
without regard to the conflict of laws principles thereof. In particular, this
Agreement shall be construed to the maximum extent possible to comply with all
of the mandatory terms and conditions of the Act. If, nevertheless, it shall be
determined by a court of competent jurisdiction that any provision of this
Agreement shall be invalid or unenforceable under the Act or other Applicable
Law, such invalidity or unenforceability shall not invalidate the entire
Agreement. In that case, this Agreement shall be construed so as to limit any
term or provision so as to make in enforceable or valid within the requirements
of any applicable law, and, in the event such term or provision cannot be so
limited, this Agreement shall be construed to omit such invalid or unenforceable
provisions.
(b) The parties hereby consent to exclusive jurisdiction and venue
for any action arising out of this Agreement in the Delaware Court of Chancery.
Each Member consents to service of process in any action or proceed-
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ing involving the Company by the mailing thereof by registered or certified
mail, postage prepaid, to such Member's mailing address.
7.2 Administrative Actions. Either the Manager or the Management Board
shall have the authority to take such action as may be necessary or appropriate:
(i) To qualify or continue the Company as a limited liability
company;
(ii) Subject to Section 7.10, below, to reflect an amendment of this
Agreement;
(iii) To reflect the dissolution and termination of the Company; or
(iv) To effect Assignments, Admissions and terminations of Members
as specifically provided under the terms of this Agreement, including any
amendment to Schedule A attached hereto necessary to reflect the same.
7.3 Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original for all purposes, but all of
which taken together shall constitute only one agreement. In making proof hereof
it will be necessary to produce only one copy hereof signed by the party to be
charged.
7.4 Severability. Each provision of this Agreement shall be considered
separable and if for any reason any provision or provisions herein (a) are
determined to be invalid or contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid, or (b) would cause any Member to be bound by or
liable for the obligations of the Company under the laws of any state or locale
as the same may now or hereafter exist, such provision or provisions shall be
deemed void and of no effect.
7.5 Notices. All notices, demands, solicitations of consent or approval
and other communications hereunder required or permitted shall be in writing and
shall be deemed to have been given when personally delivered or five days after
the date when deposited in the United
50
<PAGE> 51
States mail and sent postage prepaid by registered or certified mail, return
receipt requested, or one day after sent by overnight mail or courier or
transmitted by facsimile, addressed as follows: if intended for (a) the Company,
to its business office or (b) the Members, to their respective addresses set
forth on Schedule A attached hereto, or to such other address which any Member
shall have given to the Company and the other Member for such purpose by notice
hereunder.
7.6 Titles. All section titles or captions contained in this Agreement are
for convenience only and shall not be deemed part of the text of this Agreement
and shall in no way affect, define, limit or describe the scope, intent or
interpretation of any provision hereof.
7.7 Entire Understanding. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements between and among them respecting the subject matter of this
Agreement.
7.8 Binding Agreement. This Agreement shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives and
permitted successors and assigns of the parties hereto as well as their
Affiliates.
7.9 Parties in Interest. Nothing herein shall be construed to be to the
benefit of or enforceable by any third party as a third party beneficiary or
otherwise including, but not limited to, any creditor of the Company.
7.10 Amendments.
(a) This Agreement may be amended by the Manager or the Management
Board without the consent or approval of any Member for ministerial purposes in
the circumstances expressly permitted by this Agreement.
(b) Except as provided in Section 7.10(a) above, this Agreement may
not be amended or modified except with the consent of Members holding a majority
in Percentage Interest: provided, however, that the written consent of all
Members must be obtained to any amendment which would (i) amend this Section
7.10, (ii) increase or
51
<PAGE> 52
extend the liability or obligation of any Member or (iii) increase the amount of
Capital Contributions payable by any Member; and, provided further, that no
amendment adversely affecting the rights or ownership interests of the
Non-Manager Members or AAC and its Affiliates under this Agreement may be made
without the consent of the Management Board or the Manager respectively, and no
amendment adversely affecting the rights or ownership interests of one or more
Non-Manager Members in a manner materially adverse to such Non-Manager Member(s)
in comparison to one or more other Non-Manager Members may be made without the
consent of Non-Manager Members holding a majority of the Non-Manager Member
Percentage Interests so affected.
(c) Notwithstanding any other provision of this Agreement, no action
may be taken under this Agreement unless such action is taken in compliance with
the provisions of the Act.
7.11 Further Assurances. The Members will execute and deliver such further
instruments and do such further acts and things as may be required to carry out
the terms, provisions, conditions, intent and purposes of this Agreement and the
transactions contemplated hereby.
7.12 Remedies Cumulative. No remedy conferred upon or reserved to the
Company or any Member by this Agreement is intended to be exclusive of any other
remedy. Each and every such remedy shall be cumulative and shall be in addition
to any other remedy given to the Company or any Member hereunder or now or
hereafter existing at law or in equity or by statute.
7.13 Construction. Each definition or pronoun herein shall be deemed to
refer to the singular, plural, masculine, feminine or neuter as the context
requires.
7.14 Consents. Any and all consents, agreements or approvals provided for
or permitted by this Agreement shall be in writing and a signed copy thereof
shall be filed and kept with the books of the Company.
7.15 Arbitration. 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
52
<PAGE> 53
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. Except to the extent disclosure is required by Applicable Law,
rule, regulation, order or agreement, or any court or government authority with
jurisdiction (in which event public disclosure thereof may be made, but only to
the extent so required, after notice by the Member making such disclosure to the
other Members), each Member shall keep confidential and not make any disclosure
to any third party (other than its employees, agents and advisors to the extent
reasonably necessary and provided such Persons agree to keep the information
disclosed confidential to the same extent as the Member making such disclosure)
of the existence of the dispute, controversy or claim or the settlement or
resolution thereof. All fees and charges of the AAA 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 7.15 shall be conducted by
a single arbitrator with substantial experience in the asset management industry
that is mutually agreeable to the Manager and the Non-Manager Member. The
written decision of the arbitrator 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 7.15
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 7.15 (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
53
<PAGE> 54
this Section 7.15). The arbitrator shall be empowered to award equitable or
injunctive relief. The award of damages, if any, shall be limited to actual
damages. The arbitrator is not empowered to award punitive damages.
54
<PAGE> 55
IN WITNESS WHEREOF, the Members have caused this Agreement to be
duly executed and delivered as of the Effective Date.
ASSET ALLIANCE MANAGEMENT CORP.
By: /s/ Arnold L. Mintz
-----------------------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
ASSET ALLIANCE HOLDING CORPORATION
By: /s/ Arnold L. Mintz
-----------------------------------------------------
Name: Arnold L. Mintz
Title: Executive Vice President
JMG CAPITAL MANAGEMENT, INC.
By: /s/ Jonathan M. Glaser
-----------------------------------------------------
Name: Jonathan M. Glaser
Title: President
/s/ Jonathan M. Glaser
- --------------------------------------------------------
Jonathan Glaser
<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%***
JMG Capital Management LLC Delaware 50%*
Pacific Assets 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 26, 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 26, 1998, with respect to the combined financial statements of JMG
Capital Management, Inc. and Pacific Capital Management, Inc., and March 26,
1998, with respect to the financial statements of Trust Advisors LLC, included
in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-48723) and
related Prospectus of Asset Alliance Corporation dated May 13, 1998.
/s/ Ernst & Young LLP
New York, New York
May 13, 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 Amendment No. 1 to 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.
May 13, 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> QUARTER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,456,090
<SECURITIES> 4,680,947
<RECEIVABLES> 2,230,049
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,477,385
<PP&E> 390,705
<DEPRECIATION> 28,635
<TOTAL-ASSETS> 61,690,999
<CURRENT-LIABILITIES> 2,313,066
<BONDS> 9,631,041
0
2,000
<COMMON> 73,650
<OTHER-SE> 39,579,779
<TOTAL-LIABILITY-AND-EQUITY> 61,690,999
<SALES> 2,842,502
<TOTAL-REVENUES> 2,583,641
<CGS> 0
<TOTAL-COSTS> 1,595,802
<OTHER-EXPENSES> 204,380
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146,328
<INCOME-PRETAX> 760,314
<INCOME-TAX> 350,000
<INCOME-CONTINUING> 410,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 410,314
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
