<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 29, 1999.
REGISTRATION NO. 333-51023
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GABELLI ASSET MANAGEMENT INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NEW YORK 6211 13-4007862
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(914) 921-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES E. MCKEE, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
GABELLI ASSET MANAGEMENT INC.
ONE CORPORATE CENTER
RYE, NEW YORK 10580
(914) 921-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD T. PRINS, ESQ. GARY S. SCHPERO, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SIMPSON THACHER & BARTLETT
919 THIRD AVENUE 425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 735-3000 (212) 455-2000
</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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
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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- --------------------------------------------------------------------------------
* THE REGISTRANT IS CURRENTLY NAMED ALPHA G, INC. PRIOR TO THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT, THE REGISTRANT WILL AMEND ITS CERTIFICATE OF
INCORPORATION TO CHANGE ITS NAME TO "GABELLI ASSET MANAGEMENT INC."
<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
PRELIMINARY PROSPECTUS DATED JANUARY 29, 1999
PROSPECTUS
6,000,000 SHARES
GABELLI ASSET MANAGEMENT INC.
CLASS A COMMON STOCK
------------------------
All of the 6,000,000 shares of Class A Common Stock (the "Class A Common
Stock") offered hereby (the "Offering") are being offered by Gabelli Asset
Management Inc. (the "Company"). The Company has two classes of authorized
common stock, consisting of Class A Common Stock and Class B Common Stock (the
"Class B Common Stock" and, together with the Class A Common Stock, the "Common
Stock"). Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock entitles its holder to ten votes.
Following the Offering, Mario J. Gabelli ("Mr. Gabelli") will indirectly
beneficially own shares of Common Stock having approximately 97.6% of the
combined voting power of the outstanding shares of Common Stock (97.2% if the
Underwriters' over-allotment option is exercised in full). See "Ownership of the
Common Stock."
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
per share of Class A Common Stock will be between $16.00 and $19.00. For a
discussion of the factors to be considered in determining the initial public
offering price, see "Underwriting." The Class A Common Stock has been approved
for listing, subject to official notice of issuance, on the New York Stock
Exchange under the symbol "GBL."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
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Per Share................................... $ $ $
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Total(3).................................... $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including certain liabilities under the Securities
Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option to purchase up to an
additional 900,000 shares of Class A Common Stock, exercisable within 30
days after the date hereof, 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 Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the Underwriters and 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 Class A Common Stock will be made in New York, New
York on or about , 1999.
------------------------
Joint Book-Running Managers
MERRILL LYNCH & CO. SALOMON SMITH BARNEY
------------------
GABELLI & COMPANY, INC.
------------------------
The date of this Prospectus is , 1999.
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
THE CLASS A COMMON STOCK OF THE COMPANY TO COVER SYNDICATE SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<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
(including notes) appearing elsewhere in this Prospectus. The Company was formed
in connection with a reorganization of Gabelli Funds, Inc. ("GFI"), whereby
prior to the Offering, the Company will issue 24 million shares of its Class B
Common Stock, representing all of its then issued and outstanding shares of
Common Stock, to GFI for substantially all of the operating assets and
liabilities of GFI relating to its institutional and retail asset management,
mutual fund advisory, underwriting and brokerage business, at which time GFI
will be renamed "Gabelli Group Capital Partners, Inc." ("Gabelli Partners").
Unless otherwise indicated, the information (other than historical financial
information) contained in this Prospectus (i) gives effect to the Formation
Transactions described under "Certain Relationships and Related
Transactions -- The Formation Transactions," which will have been consummated
prior to or concurrently with the Offering, and (ii) assumes no exercise of the
Underwriters' over-allotment option. Unless the context otherwise requires,
references to the "Company" mean Gabelli Asset Management Inc., its predecessors
and its consolidated subsidiaries.
THE COMPANY
The Company is a widely recognized provider of investment advisory and
brokerage services to mutual fund, institutional and high net worth investors,
primarily in the United States. The Company generally manages assets on a
discretionary basis and invests in a variety of U.S. and international
securities through various investment styles. The Company's revenues are largely
based on the level of assets under management in its business, rather than its
total assets, as well as the level of fees associated with its various
investment products. At September 30, 1998, the Company had total assets under
management of approximately $13.9 billion. On a pro forma basis after giving
effect to the Formation Transactions, for the nine months ended September 30,
1998, the Company had total revenues of approximately $102.3 million and net
income of approximately $21.7 million. On a pro forma basis after giving effect
to the Formation Transactions, at September 30, 1998, the Company had total
assets of approximately $111.5 million.
At December 31, 1998, the Company had approximately $16.3 billion of assets
under management, 88% of which were invested in equity securities. The Company's
assets under management are organized principally in three groups: Mutual Funds,
Separate Accounts and Partnerships.
- - MUTUAL FUNDS: At December 31, 1998, the Company had $8.2 billion of assets
under management in open-end mutual funds and closed-end funds, representing
approximately 50% of the Company's total assets under management. The Company
currently provides advisory services to (i) the Gabelli family of funds, which
consists of 14 open-end mutual funds and three closed-end funds; (ii) The
Treasurer's Fund, consisting of three open-end money market funds (the
"Treasurer's Funds"); and (iii) the Gabelli Westwood family of funds,
consisting of six open-end mutual funds, five of which are managed on a
day-to-day basis by an unaffiliated subadviser (collectively, the "Mutual
Funds"). The Mutual Funds have a long-term record of achieving high returns,
relative to similar investment products. At December 31, 1998, approximately
99% of the assets under management in the open-end Mutual Funds having an
overall rating from Morningstar, Inc. ("Morningstar") were in open-end Mutual
Funds ranked "three stars" or better, with 36% of such assets in open-end
Mutual Funds ranked "five stars" and 38% of such assets in open-end Mutual
Funds ranked "four stars" on an overall basis (i.e., based on three-, five-
and ten-year risk adjusted average returns). The Gabelli family of funds was
honored as the top performing mutual fund family by Mutual Funds Magazine for
1997.
- - SEPARATE ACCOUNTS: At December 31, 1998, the Company had $8.0 billion of
assets in approximately 975 separate accounts, representing approximately 49%
of the Company's total assets under management. The Company currently provides
advisory services to a broad range of investors, including corporate pension
and profit sharing plans, foundations, endowments, jointly trusteed plans,
municipalities, and high net worth individuals, and also serves as subadviser
to certain other third-party investment funds (collectively, the "Separate
Accounts"). At December 31, 1998, high net worth accounts (accounts of
individuals and related parties in general having a minimum account balance of
$1 million) comprised approximately 79%
3
<PAGE> 5
of the number of Separate Accounts and approximately 25% of the assets, with
institutional investors comprising the balance. Each Separate Account portfolio
is managed to meet the specific needs and objectives of the particular client by
utilizing investment strategies and techniques within the Company's areas of
expertise.
- - PARTNERSHIPS: The Company also provides alternative investments through its
majority-owned subsidiary, Gabelli Securities, Inc. ("GSI"). These alternative
investment products consist primarily of risk arbitrage and merchant banking
limited partnerships and offshore companies (collectively, the
"Partnerships"). The Partnerships had $146 million of assets, or approximately
1% of total assets under management, at December 31, 1998.
Investment advisory and incentive fees relating to the Mutual Funds, the
Separate Accounts, and the Partnerships generated approximately 84% and 85% of
the Company's total revenues for the nine months ended September 30, 1998 and
the year ended December 31, 1997, respectively.
The following table sets forth total assets under management by product
type as of the dates shown and the compound annual growth rates ("CAGR"):
ASSETS UNDER MANAGEMENT
BY PRODUCT TYPE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
AT DECEMBER 31, TO
-------------------------------------------- DECEMBER 31, 1998
1994 1995 1996 1997 1998 CAGR(a)
------ ------ ------ ------- ------- -----------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY:
Mutual Funds........................ $3,391 $3,875 $3,969 $ 5,313 $ 7,159 20.5%
Separate Accounts................... 4,276 5,051 5,200 6,085 7,133 13.7
------ ------ ------ ------- ------- ----
Total Equity................ 7,667 8,926 9,169 11,398 14,292 16.9
------ ------ ------ ------- ------- ----
FIXED INCOME:
Money Market Mutual Funds........... 208 236 235 827 1,030 49.2
Bond Mutual Funds................... 5 5 5 6 8 12.5
Separate Accounts................... -- -- -- 928 824 --
------ ------ ------ ------- ------- ----
Total Fixed Income.......... 213 241 240 1,761 1,862 71.9
------ ------ ------ ------- ------- ----
PARTNERSHIPS:
Partnerships........................ 103 112 116 138 146 9.1
------ ------ ------ ------- ------- ----
Total Assets Under Management(b).. $7,983 $9,279 $9,525 $13,297 $16,300 19.5%
====== ====== ====== ======= ======= ====
BREAKDOWN OF TOTAL ASSETS
UNDER MANAGEMENT:
Mutual Funds........................ $3,604 $4,116 $4,209 $ 6,146 $ 8,197 22.8%
Separate Accounts................... 4,276 5,051 5,200 7,013 7,957 16.8
Partnerships........................ 103 112 116 138 146 9.1
------ ------ ------ ------- ------- ----
Total Assets Under Management(b).. $7,983 $9,279 $9,525 $13,297 $16,300 19.5%
====== ====== ====== ======= ======= ====
</TABLE>
- ---------------
(a) Compound annual growth rate.
(b) Effective April 14, 1997 the Company increased its ownership of Gabelli
Fixed Income, LLC from 50% to 80.1%, thereby causing Gabelli Fixed Income,
LLC to become a consolidated subsidiary of the Company. Accordingly, for
periods after April 14, 1997, the assets managed by Gabelli Fixed Income,
LLC are included in the Company's assets under management. If the assets
managed by Gabelli Fixed Income, LLC had been included for all periods
presented, assets under management would have been $9,004, $10,793 and
$11,082 at December 31, 1994, 1995 and 1996, respectively, and the CAGR for
total assets would have been 16.0%.
4
<PAGE> 6
The Company's subsidiary, Gabelli & Company, Inc. ("Gabelli & Company"), is
a registered broker-dealer and a member of the National Association of
Securities Dealers, Inc. (the "NASD") and acts as underwriter and distributor of
the open-end Mutual Funds and provides brokerage, trading, underwriting and
research services.
The Company was incorporated in April 1998 as "Alpha G, Inc." under the
laws of the state of New York. Prior to the consummation of the Offering, the
Company will be renamed "Gabelli Asset Management Inc." The Company's principal
executive offices are located at One Corporate Center, Rye, New York 10580 and
the telephone number is (914) 921-3700.
BUSINESS DESCRIPTION
The Company was originally founded in 1976 as an institutional
broker-dealer and entered the separate accounts business in 1977 and the mutual
fund business in 1986. In its early years, the Company's investment philosophy
was value-oriented. Starting in the mid-1980s, the Company began building upon
its core of value-oriented equity investment products by adding new investment
strategies designed for clients seeking to invest in growth-oriented equities,
convertible securities and fixed income products. Since then, the Company has
continued to build its franchise by expanding its investment management
capabilities through the addition of industry specific, international, global,
and real asset oriented product offerings. Throughout its 22-year history, the
Company has marketed most of its products under the "Gabelli" brand name.
The Company manages assets in the following wide spectrum of investment
products and strategies, many of which are focused on fast-growing areas:
SUMMARY OF INVESTMENT PRODUCTS AND STRATEGIES
---------------------------------------------------
<TABLE>
<CAPTION>
U.S. EQUITIES: U.S. FIXED INCOME: GLOBAL AND INTERNATIONAL EQUITIES:
-------------- ------------------ ----------------------------------
<S> <C> <C>
All Cap Value Corporate International Growth
Large Cap Value Government Global Value
Large Cap Growth Municipals Global Telecommunications
Mid Cap Value Asset-backed Global Multimedia
Small Cap Value Intermediate Gold(b)
Small Cap Growth Short-term
Micro Cap
Real Estate(a)
</TABLE>
<TABLE>
<CAPTION>
CONVERTIBLE SECURITIES: U.S. BALANCED: ALTERNATIVE PRODUCTS:
----------------------- -------------- ---------------------
<S> <C> <C>
U.S. Convertible Securities Balanced Growth Risk Arbitrage
Global Convertible Securities Balanced Value Merchant Banking
Fund of Funds
</TABLE>
- ---------------
(a) Invested primarily in publicly-traded real estate investment trusts and
managed by Westwood Management.
(b) Invested primarily in publicly-traded equities of U.S. and international
gold companies.
The Company believes that its growth to date can be largely credited to the
following:
- - LONG-TERM FUND PERFORMANCE: The Company has a long-term record of achieving
relatively high returns for its Mutual Fund and Separate Account clients when
compared to similar investment products. The Company believes that its
performance record is a competitive advantage and a recognized component of
its franchise.
- - WIDELY RECOGNIZED "GABELLI" BRAND NAME: For much of its history, the Company
has advertised in a variety of financial print media, including in
publications such as the Wall Street Journal, Money Magazine,
5
<PAGE> 7
Barron's and Investor's Business Daily. The Company believes that the breadth
and consistency of its advertising has enhanced investor awareness of its
product offerings and of the "Gabelli" brand name.
- - DIVERSIFIED PRODUCT OFFERINGS: Since the inception of its investment
management activities, the Company has sought to expand the breadth of its
product offerings. The Company currently offers a wide spectrum of investment
products and strategies, including product offerings in U.S. equities, U.S.
fixed income, global and international equities, convertible securities, U.S.
balanced and alternative products.
- - STRONG INDUSTRY FUNDAMENTALS: According to data compiled by the U.S. Federal
Reserve, the investment management industry has grown faster than more
traditional segments of the financial services industry, including the banking
and insurance industries. The Company believes that demographic trends and the
growing role of money managers in the placement of capital compared to the
traditional role played by banks and life insurance companies will result in
continued growth of the investment management industry.
BUSINESS STRATEGY
The Company intends to grow its franchise by leveraging its competitive
asset management strengths, including its long-term performance record, brand
name, diverse product offerings and experienced research, client service and
investment staff. In order to achieve continued growth in assets under
management and profitability, the Company will continue to pursue its business
strategy, the key elements of which include:
- - BROADENING AND STRENGTHENING THE GABELLI BRAND. The Company believes that the
Gabelli brand name is one of the more widely recognized brand names in the
U.S. investment management industry. The Company intends to continue to
strengthen its brand name identity by, among other things, increasing its
marketing and advertising to provide a uniform global image. The Company
believes that with its brand name recognition, it has the capacity to create
new products and services around the core Gabelli brand to complement its
existing product offerings. For example, in 1998, the Company launched the
Gabelli Global Opportunity Fund, a global equity fund, and the Gabelli
Westwood Mighty Mites(SM) Fund, a micro cap equity fund.
- - EXPANDING MUTUAL FUND DISTRIBUTION. The Company intends to continue expanding
its distribution network through programs sponsored by third-party
intermediaries that offer their mutual fund customers a variety of competing
products and administrative services ("Third-Party Distribution Programs"),
including, in particular, programs with no transaction fees payable by the
customer ("NTF Programs"), also commonly referred to as "mutual fund
supermarkets." In recent years, the Company has realized significant growth in
its mutual fund assets under management through alliances with "mutual fund
supermarkets" and other Third-Party Distribution Programs, through which its
Mutual Funds are made available to investors. As of December 31, 1998, the
Company was participating in 63 Third-Party Distribution Programs, including
the Charles Schwab and Fidelity Investments "mutual fund supermarket"
programs. In addition, the Company intends to develop a marketing strategy to
increase its presence in the 401(k) market for its Mutual Funds. Additionally,
the Company expects to soon offer investors the ability to purchase mutual
fund shares directly through the Internet. The Company has also entered into
various marketing alliances and distribution arrangements with leading
national brokerage and investment houses and has commenced development of
additional classes of shares for several of its mutual funds for sale through
national brokerage and investment houses and other third-party distribution
channels on a commission basis.
- - INCREASING PENETRATION IN HIGH NET WORTH MARKET. The Company's high net worth
business focuses, in general, on serving clients who have established an
account relationship of $1 million or more with the Company. According to
certain industry estimates, the number of households with over $1 million in
investable assets will grow from approximately 2.5 million in 1996 to over 15
million by 2010. With the Company's 22-year history of serving this segment,
its long-term performance record and brand name recognition, the Company
believes that it is well positioned to capitalize on the growth opportunities
in this market.
6
<PAGE> 8
- - INCREASING MARKETING FOR INSTITUTIONAL SEPARATE ACCOUNTS. The institutional
Separate Accounts business has been primarily developed through direct
marketing channels. Historically, third-party pension consultants and
financial consultants have not been a major source of new institutional
Separate Accounts business for the Company. However, these consultants have
significantly increased their presence among institutional investors. As a
result, the Company intends both to add marketing personnel to target pension
and financial consultants and to expand its efforts through its traditional
marketing channels.
- - ATTRACTING AND RETAINING EXPERIENCED PROFESSIONALS. Following the Offering,
the availability of the publicly-traded Class A Common Stock will enhance the
Company's ability to attract and retain top performing investment
professionals. The ability to attract and retain highly experienced investment
and other professionals with a long-term commitment to the Company and its
clients has been, and will continue to be, a significant factor in its
long-term growth. As the Company continues to increase the breadth of its
investment management capabilities, it plans to add portfolio managers and
other investment personnel in order to foster expansion of its products.
- - CAPITALIZING ON ACQUISITIONS AND STRATEGIC ALLIANCES. The Company intends to
selectively and opportunistically pursue acquisitions and alliances that will
broaden its product offerings and add new sources of distribution. The Company
believes that it will be better positioned to pursue acquisitions and
alliances after the Offering because it will be one of a relatively few
publicly-traded investment management firms. At present, the Company has no
plans, arrangements or understandings relating to any specific acquisitions or
alliances.
7
<PAGE> 9
THE OFFERING
Class A Common Stock Offered.... 6,000,000 shares
Common Stock to be Outstanding
After the Offering.............. 6,000,000 shares of Class A Common Stock(1)
and 24,000,000 shares of Class B Common
Stock(2)
----------------------------------------------
30,000,000 shares(1)
----------------------------------------------
----------------------------------------------
Use of Proceeds................. The Company intends to use the net proceeds
from the Offering for general corporate
purposes, including working capital and the
expansion of its business through new
investment product offerings, enhanced
distribution and marketing of existing
investment products, upgraded management
information systems and strategic
acquisitions as opportunities arise. The
Company currently does not intend to use any
of the net proceeds from the Offering to pay
debt service on the $50 million payable to
Mr. Gabelli under the terms of his Employment
Agreement. See "Use of Proceeds."
Voting Rights................... The rights of holders of shares of Common
Stock are substantially identical, except
that holders of Class B Common Stock will be
entitled to ten votes per share, while
holders of Class A Common Stock will be
entitled to one vote per share.
NYSE Symbol..................... GBL
- ---------------
(1) Excludes 1,500,000 shares of Class A Common Stock reserved for issuance
under the 1999 Stock Award and Incentive Plan of the Company, including
1,200,000 shares of Class A Common Stock subject to outstanding options that
will be granted at an exercise price equal to the initial public offering
price of the Class A Common Stock (net of the discount payable to the
Underwriters). See "Management -- 1999 Stock Award and Incentive Plan."
(2) All of the Class B Common Stock is owned by Gabelli Partners, which is
approximately two-thirds owned by Mr. Gabelli, with the balance owned by the
Company's professional staff and other individuals.
RISK FACTORS
Purchasers of the Class A Common Stock in the Offering should carefully
consider the risk factors set forth under the caption "Risk Factors" and the
other information included in this Prospectus prior to making an investment
decision. See "Risk Factors" beginning on page 12.
8
<PAGE> 10
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
General
The following is a summary of certain consolidated financial information
relating to the Company. The summary has been derived in part from, and should
be read in conjunction with, the audited Consolidated Financial Statements of
Gabelli Funds, Inc. and subsidiaries ("GFI") and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus. All financial information for the nine months ended September
30, 1997 and 1998, which has not been audited, has been derived from the
unaudited Consolidated Financial Statements of GFI included elsewhere in this
Prospectus, and, in the opinion of management, reflects all adjustments, which
are of a normal recurring nature, necessary to present fairly such information
for the periods presented. Operating results for the nine months ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998.
The unaudited pro forma income statement data gives effect to (i) the
Formation Transactions, including the reduction in net gain from investments,
the reduction in interest and dividend income, the lower management fee and the
increase in interest expense as if the Employment Agreement (as defined herein)
(see Note Q to the Consolidated Financial Statements) had been in effect for the
year ended December 31, 1997 and nine months ended September 30, 1998, and (ii)
the additional income taxes which would have been recorded if GFI had been a "C"
corporation instead of an "S" corporation based on tax laws in effect for the
respective periods.
The unaudited pro forma financial data does not purport to represent the
results of operations or the financial position of the Company which actually
would have occurred had the Formation Transactions been consummated on the
aforesaid dates, or project the results of operations or the financial position
of the Company for any future date or period. See "Selected Historical and Pro
Forma Financial Data" and "Certain Relationships and Related Transactions -- The
Formation Transactions" and the Unaudited Pro Forma Consolidated Statements of
Income and Financial Condition of the Company included elsewhere in this
Prospectus.
Impact of $50 Million Non-Recurring Charge ($1.01 per share) to be Recorded in
First Quarter of 1999
Under the terms of the Employment Agreement, Mr. Gabelli, who indirectly
beneficially owns shares of Common Stock having 97.6% of the combined voting
power of the Company, will receive, in addition to his portfolio management
compensation and account executive fees, an annual incentive-based management
fee of 10% of the aggregate pre-tax profits of the Company (before consideration
of the management fee) and a deferred payment of $50 million on January 2, 2002,
with interest payable quarterly on such deferred amount at an annual rate of 6%.
The $50 million deferred payment is expected to be charged to the Company's
earnings upon the effective date of the Employment Agreement, which is expected
to occur in the first quarter of 1999. This payment, net of tax benefit, will
reduce earnings by $1.01 per share (based on the expected weighted average
number of shares outstanding in the first quarter of 1999 of 30 million). The
$50 million payment is not reflected in the pro forma income statement data
because it is a one-time event directly related to the Offering; however, it is
reflected, net of tax benefit, in pro forma stockholders' equity.
9
<PAGE> 11
GABELLI FUNDS, INC. AND SUBSIDIARIES SUMMARY HISTORICAL AND PRO FORMA DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997(1) 1998(1)
-------- -------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Investment advisory and
incentive fees.............. $ 61,110 $ 71,759 $ 77,302 $84,244 $ 89,684 $64,107 $ 86,302
Commission revenue............ 5,555 5,003 5,706 6,667 7,496 5,613 6,197
Distribution fees and other
income...................... 3,716 4,683 6,302 7,257 8,096 5,100 9,810
-------- -------- -------- ------- -------- ------- --------
Total revenues.............. 70,381 81,445 89,310 98,168 105,276 74,820 102,309
-------- -------- -------- ------- -------- ------- --------
Expenses:
Compensation costs............ 31,750 36,235 39,384 41,814 45,260 33,138 41,702
Management fee................ 3,618 6,904 9,423 10,192 10,580 7,425 8,533
Other operating expenses...... 12,592 16,435 18,709 19,274 18,690 13,943 18,072
-------- -------- -------- ------- -------- ------- --------
Total expenses.............. 47,960 59,574 67,516 71,280 74,530 54,506 68,307
-------- -------- -------- ------- -------- ------- --------
Operating income................ 22,421 21,871 21,794 26,888 30,746 20,314 34,002
-------- -------- -------- ------- -------- ------- --------
Other income:
Net gain (loss) from
investments................. 9,199 (1,724) 10,105 8,783 7,888 6,803 (3,910)
Gain on sale of PCS licenses, net.. -- -- -- -- -- -- 17,430
Interest and dividend
income...................... 2,596 4,692 5,853 5,406 4,634 3,168 3,252
Interest expense.............. (337) (868) (679) (879) (1,876) (1,183) (1,355)
Other......................... 195 119 147 331 (109) (52) 79
-------- -------- -------- ------- -------- ------- --------
Total other income, net..... 11,653 2,219 15,426 13,641 10,537 8,736 15,496
-------- -------- -------- ------- -------- ------- --------
Income before income taxes and
minority interest............. 34,074 24,090 37,220 40,529 41,283 29,050 49,498
Income taxes.................. 12,831 9,198 7,769 7,631 3,077 2,369 3,004
Minority interest............. 1,750 2,060 2,555 2,727 1,529 759 1,043
-------- -------- -------- ------- -------- ------- --------
Net income...................... $ 19,493 $ 12,832 $ 26,896 $30,171 $ 36,677 $25,922 $ 45,451
======== ======== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997(1) 1998(1)
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA (UNAUDITED)
Assets under management (at
period end)(2):
Mutual Funds............... $ 3,684 $ 3,604 $ 4,116 $ 4,209 $ 6,146 $ 5,892 $ 7,034
Separate Accounts.......... 4,460 4,276 5,051 5,200 7,013 6,760 6,720
Partnerships............... 67 103 112 116 138 134 147
-------- -------- -------- -------- -------- -------- --------
Total................... $ 8,211 $ 7,983 $ 9,279 $ 9,525 $ 13,297 $ 12,786 $ 13,901
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
---------------------------------------------------------
PRO FORMA FOR PRO FORMA FOR
ACTUAL FORMATION TRANSACTIONS(1)(3) OFFERING(1)(3)
-------- ---------------------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA
Investment in securities........................ $ 78,597 $ 23,233 $ 23,233
Investment in partnerships...................... 47,081 15,163 15,163
PCS licenses.................................... 33,985 -- --
Total assets.................................... 241,487 111,501 208,501
Total liabilities and minority interest......... 61,385 96,671 96,671
Total stockholders' equity...................... 180,102 14,830 111,830
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
UNAUDITED PRO FORMA DATA(1)(3)(4)
Revenues:
Investment advisory and incentive fees.................. $ 89,684 $ 86,302
Commission revenue...................................... 7,496 6,197
Distribution fees and other income...................... 8,096 9,810
-------- --------
Total revenues..................................... 105,276 102,309
Expenses:
Compensation costs...................................... 45,260 41,702
Management fee.......................................... 4,424 4,216
Other operating expenses................................ 16,901 17,541
-------- --------
Total expenses..................................... 66,585 63,459
Operating income........................................ 38,691 38,850
-------- --------
Other income:
Net gain from investments............................... 3,004 756
Interest and dividend income............................ 1,115 605
Interest expense........................................ (3,000) (2,271)
Total other income, net............................ 1,119 (910)
-------- --------
Income before income taxes and minority interest.......... 39,810 37,940
Income taxes............................................ 15,735 15,047
Minority interest....................................... 1,677 1,228
-------- --------
Net income................................................ $ 22,398 $ 21,665
======== ========
Pro forma net income per share:
Basic and diluted......................................... $ 0.75 $ 0.72
======== ========
Pro forma weighted average shares outstanding:
Basic and diluted......................................... 30,000 30,000
======== ========
</TABLE>
- ---------------
(1) Unaudited.
(2) Effective April 14, 1997, Gabelli Fixed Income, LLC was restructured such
that the Company's ownership increased from 50% to 80.1%, thereby causing
Gabelli Fixed Income, LLC to become a consolidated subsidiary of the
Company. Accordingly, for periods after April 14, 1997, the assets managed
by Gabelli Fixed Income, LLC are included in the Company's assets under
management. If the assets managed by Gabelli Fixed Income, LLC had been
included for all periods presented, assets under management for 1993, 1994,
1995 and 1996 would have been approximately $11.1 billion, $9.0 billion,
$10.8 billion and $11.1 billion, respectively.
(3) The unaudited pro forma data presented above gives effect to the Formation
Transactions and the additional income taxes payable if GFI had been a "C"
corporation instead of an "S" corporation, but does not give effect to the
use of the proceeds received from the Offering. See the Unaudited Pro Forma
Consolidated Financial Statements.
(4) The disclosure requirements of Statements of Financial Accounting Standards
No. 123 require the use of an option valuation model to compute a fair value
of employee stock options. The valuation model used by the Company was not
developed for use in valuing employee stock options and the Company's
employee stock option characteristics vary significantly from those of
traded options. As a result, changes in the subjective input assumptions can
materially affect the fair value estimate. The pro forma compensation
expense, net of tax benefit, related to the Stock Award and Incentive Plan
for the year ended December 31, 1997 and the nine months ended September 30,
1998 is $1,600,000 and $1,200,000, respectively, based on 1,200,000 options
outstanding on the Offering Date.
11
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors relating
to the Company and the Class A Common Stock before making an investment in the
Class A Common Stock offered by this Prospectus.
CONTROL BY MR. GABELLI; CONFLICTS OF INTEREST
Upon completion of the Offering, Mr. Gabelli, through his approximately
two-thirds ownership of Gabelli Partners, will beneficially own all of the
Company's outstanding Class B Common Stock, representing approximately 97.6% of
the combined voting power of all classes of voting stock of the Company (97.2%
if the Underwriters' over-allotment option is exercised in full). As long as Mr.
Gabelli indirectly beneficially owns a majority of the combined voting power of
the Common Stock, he will have the ability to elect all of the members of the
Board of Directors and thereby control the management and affairs of the
Company, including determinations with respect to acquisitions, dispositions,
borrowings, issuances of Common Stock or other securities of the Company, and
the declaration and payment of dividends on the Common Stock. In addition, Mr.
Gabelli will be able to determine the outcome of matters submitted to a vote of
the Company's shareholders for approval and will be able to cause or prevent a
change in control of the Company. As a result of Mr. Gabelli's control of the
Company, none of the Company's agreements with Mr. Gabelli and other companies
controlled by him have been arrived at through "arm's-length" negotiations,
although the Company believes that the parties endeavored to implement
market-based terms. There can be no assurance that the Company would not have
received more favorable terms from an unaffiliated party. See "Certain
Relationships and Related Transactions."
In order to minimize conflicts and potential competition with the Company's
investment management business, Mr. Gabelli has entered into a written agreement
to limit his activities outside of the Company. Mr. Gabelli has undertaken that
so long as he is associated with the Company or for a period of five years from
the consummation of the Offering, whichever is longer, he shall not provide
investment management services for compensation other than in his capacity as an
officer or employee of the Company except for (a) those investment funds and
accounts currently managed by Mr. Gabelli outside the Company under performance
fee arrangements, but only to the extent that any such investment fund or
account consists solely of one or more of the persons who were investors as of
the date of the consummation of the Offering and (b) successor funds and
accounts which serve no investors other than those in the funds and accounts
referred to in clause (a) or those investors' successors, heirs, donees or
immediate families, which funds and accounts operate according to an investment
style similar to such other accounts or funds, which style is not used at the
Company as of the date of consummation of the Offering, and which are subject to
performance fee arrangements. References to the "Permissible Accounts" mean the
funds and accounts managed outside the Company which are permitted under the
agreement described above in this paragraph. To the extent that such activities
are not prohibited under the foregoing agreement, Mr. Gabelli intends to
continue devoting time to activities outside the Company, including managing his
own assets and his family's assets, managing or controlling companies in other
industries and managing assets for other investors through the Permissible
Accounts (approximately $110 million as of September 30, 1998). These activities
may present conflicts of interest or compete with the Company. The Certificate
of Incorporation of the Company expressly provides in general that Mr. Gabelli,
members of his immediate family who are officers or directors of the Company and
entities controlled by such persons have an obligation to present corporate
opportunities to the Company and resolve conflicts of interest through one of
the processes described in the Certificate of Incorporation, which include
independent director or independent shareholder approval. See "Description of
Capital Stock -- Certificate of Incorporation and Bylaw Provisions -- Overview
of Corporate Opportunity and Conflict of Interest Policies." As of the date of
the consummation of the Offering, it is expected that there will be no members
of Mr. Gabelli's immediate family who are officers or directors of the Company.
The Company will not derive any income from activities outside the Company
by Mr. Gabelli or members of his immediate family who are officers or directors
of the Company and may not be able to take advantage of business and investment
opportunities that could later prove to be beneficial to the Company and its
shareholders, either because such opportunities were not Company opportunities
at the time they arose or
12
<PAGE> 14
because the Company did not pursue them. Where a conflict of interest involves a
transaction between Mr. Gabelli or members of his immediate family who are
officers or directors of the Company or their affiliates and the Company, there
can be no assurance that the Company would not receive more favorable terms if
it were dealing with an unaffiliated party, although the Company will seek to
achieve market-based terms in all such transactions. See "Description of Capital
Stock -- Certificate of Incorporation and Bylaw Provisions -- Overview of
Corporate Opportunity and Conflict of Interest Policies."
DEPENDENCE ON MARIO J. GABELLI AND OTHER KEY PERSONNEL
The Company is dependent on the efforts of Mr. Gabelli, its Chairman of the
Board, Chief Executive Officer, Chief Investment Officer and the primary
portfolio manager for a significant majority of the Company's assets under
management. The loss of Mr. Gabelli's services would have a material adverse
effect on the Company.
In addition to Mr. Gabelli, the future success of the Company depends to a
substantial degree on its ability to retain and attract other qualified
personnel to conduct its investment management business. The market for
qualified portfolio managers is extremely competitive and has grown more so in
recent periods as the investment management industry has experienced growth. The
Company anticipates that it will be necessary for it to add portfolio managers
and investment analysts as the Company further diversifies its investment
products and strategies. See "Business -- Business Strategy." There can be no
assurance, however, that the Company will be successful in its efforts to
recruit and retain the required personnel. In addition, the investment
professionals as well as the senior marketing personnel have direct contact with
the Company's Separate Account clients, which can lead to a strong client
relationship. The loss of these personnel could jeopardize the Company's
relationships with certain Separate Account clients, and result in the loss of
such accounts. The loss of key management professionals or the inability to
recruit and retain sufficient portfolio managers and marketing personnel could
have a material adverse effect on the Company's business.
POTENTIAL ADVERSE EFFECTS ON THE COMPANY'S PERFORMANCE PROSPECTS FROM A DECLINE
IN THE PERFORMANCE OF THE SECURITIES MARKETS
The Company's results of operations are affected by many economic factors,
including the performance of the securities markets. During recent years,
unusually favorable and sustained performance of the U.S. securities markets,
and the U.S. equity market, in particular, has attracted substantial inflows of
new investments in these markets and has contributed to significant market
appreciation which has, in turn, led to an increase in assets under management
and revenues for the Company. At September 30, 1998, approximately 88% of the
Company's assets under management were invested in portfolios consisting
primarily of equity securities. More recently, the securities markets in general
have experienced significant volatility, with declines in value experienced
during the third quarter of 1998. Any further decline in the securities markets,
in general, and the equity markets, in particular, could further reduce the
Company's assets under management and consequently reduce the Company's
revenues. In addition, any such continuing decline in the equity markets,
failure of these markets to sustain their prior levels of growth, or continued
short-term volatility in these markets could result in investors withdrawing
from the equity markets or decreasing their rate of investment, either of which
would be likely to further adversely affect the Company. The Company's growth
rate has varied from year to year, and there can be no assurance that the
average growth rates sustained in the recent past will continue. From time to
time, a relatively high proportion of the assets managed by the Company may be
concentrated in particular industry sectors. A general decline in the
performance of securities in those industry sectors could have an adverse effect
on the Company's assets under management and revenues.
13
<PAGE> 15
FUTURE INVESTMENT PERFORMANCE COULD REDUCE REVENUES AND OTHER INCOME
Success in the investment management and mutual fund businesses is
dependent on investment performance as well as distribution and client
servicing. Good performance generally stimulates sales of the Company's
investment products and tends to keep withdrawals and redemptions low, which
generates higher management fees (which are based on the amount of assets under
management). Conversely, relatively poor performance tends to result in
decreased sales, increased withdrawals and redemptions in the case of the open-
end Mutual Funds, and in the loss of Separate Accounts, with corresponding
decreases in revenues to the Company. Many analysts of the mutual fund industry
believe that investment performance is the most important factor for the growth
of no-load Mutual Funds, such as those offered by the Company. Failure of the
Company's investment products to perform well could, therefore, have a material
adverse effect on the Company.
LOSS OF SIGNIFICANT SEPARATE ACCOUNTS COULD AFFECT REVENUES
The Company had approximately 950 Separate Accounts as of September 30,
1998, of which the ten largest accounts generated approximately 7% of the
Company's total revenues during the nine months ended September 30, 1998. Loss
of these accounts for any reason would have an adverse effect on the Company's
revenues. Notwithstanding good performance, the Company has from time to time
lost large Separate Accounts as a result of corporate mergers and
restructurings, and the Company could continue to lose accounts under these or
other circumstances.
COMPLIANCE FAILURES AND CHANGES IN REGULATION COULD ADVERSELY AFFECT THE COMPANY
The Company's investment management activities are subject to client
guidelines and its Mutual Fund business involves compliance with numerous
investment, asset valuation, distribution and tax requirements. A failure to
adhere to these guidelines or satisfy these requirements could result in losses
which could be recovered by the client from the Company in certain
circumstances. Although the Company has installed procedures and utilizes the
services of experienced administrators, accountants and lawyers to assist it in
adhering to these guidelines and satisfying these requirements, and maintains
insurance to protect it in the case of client losses, there can be no assurance
that such precautions or insurance will protect the Company from potential
liabilities.
The Company's businesses are subject to extensive regulation in the United
States, including by the Securities and Exchange Commission (the "Commission")
and the NASD. The Company is also subject to the laws of non-U.S. jurisdictions
and non-U.S. regulatory agencies or bodies. The failure of the Company to comply
with applicable laws or regulations could result in fines, suspensions of
personnel or other sanctions, including revocation of the registration of the
Company or any of its subsidiaries as an investment adviser or broker-dealer.
Changes in laws or regulations or in governmental policies could have a material
adverse effect on the Company. See "Business -- Regulation."
THE COMPANY'S SOURCES OF REVENUE ARE SUBJECT TO TERMINATION ON SHORT NOTICE
Substantially all of the Company's revenues are derived from investment
management agreements and distribution arrangements. Investment management
agreements and distribution arrangements with the Mutual Funds are terminable
without penalty on 60 days' notice (subject to certain additional procedural
requirements in the case of termination by a Mutual Fund) and must be
specifically approved at least annually, as required by law. Such annual renewal
requires, among other things, approval by the disinterested members of each
Mutual Fund's board of directors or trustees. See "Business -- Brokerage and
Mutual Fund Distribution." Investment advisory agreements with the Separate
Accounts are typically terminable by the client without penalty on 30 days'
notice or less. Any failure to renew or termination of a significant number of
these agreements or arrangements would have a material adverse effect on the
Company.
14
<PAGE> 16
COMPETITION AND COMPETITORS WITH GREATER RESOURCES
The investment management business is intensely competitive with low
barriers to entry and is undergoing substantial consolidation. Many
organizations in this industry are attempting to market to and service the same
clients as the Company, not only with mutual fund products and services, but
also with a wide range of other financial products and services. Many of the
Company's competitors have greater distribution capabilities, offer more product
lines and services, and may also have a substantially greater amount of assets
under management and financial resources. These competitors would tend to have a
substantial advantage over the Company during periods when the Company's
investment performance is not strong enough to counter these competitors'
greater marketing resources. See "Business -- Competition."
RELIANCE ON THIRD-PARTY DISTRIBUTION PROGRAMS
The Company has recently experienced significant growth in sales of its
open-end Mutual Funds through Third-Party Distribution Programs, most of which
is from NTF Programs. Approximately $900 million of the Company's assets under
management in the open-end Mutual Funds as of September 30, 1998 were obtained
through NTF Programs. The cost of participating in Third-Party Distribution
Programs is higher than the Company's direct distribution costs, and there can
be no assurance that the cost of Third-Party Distribution Programs will not
increase in the future. Any increase would be likely to have an adverse effect
on the Company's profit margins and results of operations. In addition, there
can be no assurance that the Third-Party Distribution Programs will continue to
distribute the Mutual Funds. At September 30, 1998, approximately 89% of the NTF
Program net assets in the Gabelli and Gabelli Westwood families of funds are
attributable to two NTF Programs. Further, 89% of the total assets in The
Treasurer's Funds are attributable to one Third-Party Distribution Program. The
decision by these Third-Party Distribution Programs to discontinue distribution
of the Mutual Funds could have an adverse effect on the Company's growth of
assets under management.
FEE PRESSURES COULD REDUCE PROFIT MARGINS
There has been a trend toward lower fees in some segments of the investment
management industry. In order for the Company to maintain its fee structure in a
competitive environment, the Company must be able to provide clients with
investment returns and service that will encourage them to be willing to pay
such fees. Accordingly, there can be no assurance that the Company will be able
to maintain its current fee structure. Fee reductions on existing or future new
business could have an adverse impact on the Company's profit margins and
results of operations.
POSSIBILITY OF LOSSES ASSOCIATED WITH UNDERWRITING, TRADING AND MARKET-MAKING
ACTIVITIES
The Company's underwriting, trading and market-making activities are
primarily conducted through its subsidiary, Gabelli & Company, both as principal
and agent. Such activities subject the Company's capital to significant risks of
loss. The risks of loss include those resulting from ownership of securities,
extension of credit, leverage, liquidity, counterparty failure to meet
commitments, client fraud, employee errors, misconduct and fraud (including
unauthorized transactions by traders), failures in connection with the
processing of securities transactions and litigation. The Company has procedures
and internal controls to address such risks but there can be no assurance that
these procedures and controls will prevent losses from occurring.
DEPENDENCE ON INFORMATION SYSTEMS
The Company operates in an industry that is highly dependent on its
information systems and technology. The Company outsources a significant portion
of its information systems operations to third parties who are responsible for
providing the management, maintenance and updating of such systems. There can be
no assurance, however, that the Company's information systems and technology
will continue to be able to accommodate the Company's growth, or that the cost
of maintaining such outsourcing arrangements will not increase from its current
level. Such a failure to accommodate growth, or an increase in costs related to
these information systems, could have a material adverse effect on the Company.
15
<PAGE> 17
FAILURE TO ACHIEVE YEAR 2000 COMPATIBILITY WOULD CAUSE SIGNIFICANT LOSSES
With the new millennium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors with date functions (including those in non-information
technology equipment and systems) use only two digits to identify a year in the
date field with the assumption that the first two digits of the year are always
"19". Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. Systems that calculate, compare or sort
using the incorrect date may malfunction.
Because the Company is dependent, to a very substantial degree, upon the
proper functioning of its computer systems, a failure of its systems to be Year
2000 compliant could have a material adverse effect on the Company. For example,
a failure of this kind could lead to incomplete or inaccurate accounting or
recording of trades in securities or result in the generation of erroneous
results or give rise to uncertainty about the Company's exposure to trading
risks and its need for liquidity. If not remedied, potential risks include
business interruption or shutdown, financial loss, regulatory actions,
reputational harm and legal liability.
In addition, the Company depends primarily upon the proper functioning of
third-party computer and non-information technology systems. These parties
include trading counterparties; financial intermediaries such as stock
exchanges, depositories, clearing agencies, clearing houses and commercial
banks; subcontractors such as third-party administrators; and vendors such as
providers of telecommunication services, quotation equipment and other
utilities. If the third parties with whom the Company interacts have Year 2000
problems that are not remedied, the following problems could result: (i) in the
case of subcontractors, in disruption of critical services such as
administration, valuation and record keeping services for its mutual funds; (ii)
in the case of vendors, in disruption of important services upon which the
Company depends, such as telecommunications and electrical power; (iii) in the
case of third-party data providers, in the receipt of inaccurate or out-of-date
information that would impair the Company's ability to perform critical data
functions, such as pricing its securities or other assets; (iv) in the case of
financial intermediaries such as exchanges and clearing agents, in failed trade
settlements, an inability to trade in certain markets and disruption of funding
flows; (v) in the case of banks and other financial institutions, in the
disruption of capital flows potentially resulting in liquidity stress; and (vi)
in the case of counterparties and customers, in financial and accounting
difficulties for those parties that expose the Company to increased credit risk
and lost business. Disruption or suspension of activity in the world's financial
markets is also possible. In addition, uncertainty about the success of
remediation efforts generally may cause many market participants to reduce the
level of their market activities temporarily as they assess the effectiveness of
these efforts during a "phase-in" period beginning in late 1999. This in turn
could result in a general reduction in trading and other market activities (and
lost revenues). Management cannot predict the impact that such reduction would
have on the Company's business.
In order to ensure that the Company will continue to operate successfully
and be able to meet its fiduciary obligations to its clients after December 31,
1999, the Company has taken numerous steps toward becoming Year 2000 compliant
in both its information technology and non-information technology systems. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Program." The Company currently estimates that the total
cost of implementing its Year 2000 program will not have a material impact on
the Company's results of operations, liquidity or capital resources. There can
be no assurance, however, that the Company's Year 2000 program will be effective
or that the Company's estimates about the cost of completing its program will be
accurate. Neither the Company nor any of its affiliates has been reviewed by
federal or state regulators for Year 2000 compliance.
POTENTIAL ADVERSE EFFECT ON CLASS A COMMON STOCK SHARE PRICE FROM DISPARATE
VOTING RIGHTS
The holders of Class A Common Stock and Class B Common Stock have identical
rights except that (i) holders of Class A Common Stock are entitled to one vote
per share, while holders of Class B Common Stock are entitled to ten votes per
share on all matters to be voted on by shareholders in general, and (ii) holders
of Class A Common Stock are not eligible to vote on matters relating exclusively
to Class B Common Stock and vice versa. The differential in the voting rights
and the ability of the Company to issue
16
<PAGE> 18
additional Class B Common Stock could adversely affect the value of the Class A
Common Stock to the extent that investors, or any potential future purchaser of
the Company, view the superior voting rights of the Class B Common Stock to have
value.
ABSENCE OF A PRIOR PUBLIC MARKET; VOLATILITY OF PRICE; NO ASSURANCE THAT AN
ACTIVE TRADING MARKET WILL DEVELOP OR BE SUSTAINED
Prior to the Offering, there has been no public market for the Class A
Common Stock and there can be no assurance that an active trading market will
develop or be sustained. The initial public offering price of the Class A Common
Stock will be determined through negotiation among the Company and the
Underwriters (other than Gabelli & Company) and may not be indicative of the
market price for the Class A Common Stock after the Offering. See
"Underwriting." The market price for the Class A Common Stock may be highly
volatile. The Company believes that factors such as announcements by the
Company, or by its competitors, of quarterly variances in financial results
could cause the market price of the Class A Common Stock to fluctuate
substantially. In addition, the stock market may experience extreme price and
volume fluctuations, which often are unrelated to the operating performance of
specific companies. Market fluctuations or perceptions regarding the Company's
industry, as well as general economic or political conditions, may adversely
affect the market price of the Class A Common Stock.
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from
the sale by the Company of Class A Common Stock offered hereby. The Company
intends to use the net proceeds primarily for general corporate purposes,
including working capital and the expansion of its business through new
investment product offerings, enhanced distribution, upgraded management
information systems and strategic acquisitions as opportunities arise.
Accordingly, management will have significant flexibility in applying the net
proceeds of the Offering. At present, the Company has no plans, agreements or
understandings relating to any specific acquisitions or alliances. Although part
of the Company's business strategy is to pursue acquisitions and alliances that
will broaden its product offerings and add new sources of distribution, there
can be no assurance that the Company will find strategic acquisition
opportunities at favorable prices, that the Company will have sufficient capital
resources to finance its acquisition strategy, or that any such acquisitions, if
consummated, will be successfully integrated with the Company's business
operations. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience
immediate dilution in net tangible book value of $13.83 per share, based on an
assumed initial public offering price of $17.50 per share. To the extent that
any options to be granted with respect to Class A Common Stock are exercised
after the vesting period expires, purchasers of Class A Common Stock will
experience additional dilution. See "Dilution" and "Management -- 1999 Stock
Award and Incentive Plan."
SHARES AVAILABLE FOR FUTURE SALE OR DISTRIBUTION
Immediately after consummation of the Offering, the Company will have
outstanding 6,000,000 shares of Class A Common Stock and 24,000,000 shares of
Class B Common Stock. Subject to the restrictions described under "Shares
Eligible for Future Sale" and applicable law and the lock-up agreement with
Gabelli Partners described below, Gabelli Partners could sell any or all of the
shares of Class B Common Stock owned by it from time to time for any reason. See
"Shares Eligible for Future Sale." Gabelli Partners has agreed with the Company
that it will not offer, sell or otherwise dispose of any shares of Class B
Common Stock for a period of three years after the date of this Prospectus
without the prior written consent of the Company. In addition, without the prior
written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Smith Barney Inc., on behalf of the Underwriters, for a period of 180
days after the date of this Prospectus (i) the Company and Gabelli Partners have
agreed with the Underwriters that they will not offer, sell or otherwise dispose
of any shares of Common Stock or any security convertible into or exchangeable
or exercisable for shares of Common Stock, except for the shares of Class A
Common Stock to be sold in the Offering and options granted in the ordinary
course of business under the Plan and (ii) shareholders of
17
<PAGE> 19
Gabelli Partners who are also officers and directors of the Company have agreed
with the Underwriters that they will not offer, sell or otherwise dispose of any
shares of capital stock of Gabelli Partners or any security convertible into or
exchangeable or exercisable for shares of capital stock of Gabelli Partners,
except in transactions between existing shareholders of Gabelli Partners and
through gifts, in each case, to persons who agree to be bound by similar
restrictions. No prediction can be made as to the effect, if any, that future
sales or distributions of Class B Common Stock by Gabelli Partners will have on
the market price of the Class A Common Stock prevailing from time to time. Sales
or distributions of substantial amounts of Class A Common Stock or Class B
Common Stock, or the perception that such sales or distributions could occur,
could adversely affect the prevailing market price for the Class A Common Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this Prospectus constitute
forward-looking statements, which involve known and unknown risks, uncertainties
and other factors that may cause the actual results, levels of activity,
performance or achievements of the Company, or industry results, to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those listed under "Risk Factors" and elsewhere
in this Prospectus. As a result of the foregoing and other factors, no assurance
can be given as to future results, levels of activity or achievements, and
neither the Company nor any other person assumes responsibility for the accuracy
and completeness of such statements.
18
<PAGE> 20
THE COMPANY
The Company is a holding company that was newly formed in connection with
the Offering and, accordingly, has not previously engaged in any business
operations, acquired any assets or incurred any liabilities other than in
connection with the Offering. Prior to the closing of the Offering, the Company
will issue 24 million shares of its Class B Common Stock, representing all of
its then issued and outstanding shares of common stock, to GFI for substantially
all of the operating assets and liabilities of GFI relating to its institutional
and retail asset management, mutual fund advisory, underwriting and brokerage
business, at which time GFI will be renamed "Gabelli Group Capital Partners,
Inc." As a result, Gabelli Partners, which is approximately two-thirds owned by
Mr. Gabelli with the balance owned by the Company's professional staff and other
individuals, will become the sole shareholder of the Company prior to the
consummation of the Offering. At such time, one of Gabelli Partners' most
significant assets will be its investment in the Company.
Immediately following the Offering, the Company will conduct its business
operations through its subsidiaries. After the consummation of the Offering,
Gabelli Partners will own all of the outstanding shares of Class B Common Stock,
which will represent approximately 97.6% of the combined voting power of the
outstanding Common Stock (97.2% if the Underwriters' over-allotment option is
exercised in full). The Company will continue to be controlled by Mr. Gabelli.
As part of the Formation Transactions, the Company will have entered into an
Employment Agreement with Mr. Gabelli and a Management Services Agreement with
Gabelli Partners. See "Management -- Employment Agreements" and "Certain
Relationships and Related Transactions -- The Formation Transactions."
19
<PAGE> 21
The following sets forth a simplified organizational chart for the Company
after consummation of the Offering:
[GABELLI & COMPANY ORGANIZATIONAL CHART]
- ---------------
* The 23.4% ownership interest of GSI not held by the Company is owned by the
Company's professional staff (7.2%) and by unaffiliated stockholders
(16.2%).
** The Company owns 51.1% of the Class B common stock of Gabelli Advisers,
Inc., which stock represents approximately 49.9% of the total voting power
and 40.9% of the economic interest. The remaining 48.9% of the Class B
common stock of Gabelli Advisers, Inc. is owned by members of senior
management of the Company and by their affiliates. As a result, the Company
effectively has voting control of Gabelli Advisers, Inc. All of the Class A
common stock of Gabelli Advisers, Inc., representing a 20% economic
interest, is owned by Westwood Management Corporation ("Westwood
Management"). See "Certain Relationships and Related
Transactions -- Transactions with Mr. Gabelli and Affiliates." Gabelli
Advisers, Inc. is the adviser and Westwood Management is the subadviser to
five of the six portfolios of the Gabelli Westwood family of funds.
*** The 19.9% ownership interest of Gabelli Fixed Income, LLC not held by the
Company is owned by members of senior management of Gabelli Fixed Income,
LLC.
The Company was incorporated in April 1998 under the laws of the state of
New York. The Company's principal executive offices are located at One Corporate
Center, Rye, New York 10580 and the telephone number is (914) 921-3700.
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the shares
of Class A Common Stock in the Offering at an assumed public offering price of
$17.50 per share (the midpoint of the range set forth on the cover page of this
Prospectus) after deducting underwriting commissions and discounts and the
estimated expenses of the Offering, are expected to be approximately $97 million
($112 million if the Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds from the Offering for general
corporate purposes, including working capital and the expansion of its business
through new investment product offerings, enhanced distribution and marketing of
existing investment products, upgraded management information systems and
strategic acquisitions as opportunities arise. At present, the Company has no
plans, arrangements or understandings relating to any specific acquisitions or
alliances. The Company currently does not intend to use any of the net proceeds
from the Offering to pay debt service on the $50 million payable to Mr. Gabelli
under the terms of his Employment Agreement.
DIVIDEND POLICY
The declaration and payment of dividends by the Company are subject to the
discretion of its Board of Directors. The Company currently intends to retain
earnings to finance its growth and operations and does not anticipate paying
dividends on the Common Stock in the foreseeable future. Any determination as to
the payment of dividends, including the level of dividends, will depend on,
among other things, general economic and business conditions, the strategic
plans of the Company, the Company's financial results and condition,
contractual, legal and regulatory restrictions on the payment of dividends by
the Company or its subsidiaries, and such other factors as the Board of
Directors of the Company may consider to be relevant. The Company is a holding
company, and as such, its ability to pay dividends is subject to the ability of
the subsidiaries of the Company to provide cash to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of the Common Stock at September 30,
1998 after giving effect to the Formation Transactions, but before adjustment
for the Offering, was $13.1 million, or $0.54 per share. Net tangible book value
per share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of Common Stock outstanding. After giving effect
to the sale of the 6,000,000 shares of Class A Common Stock in the Offering (at
an assumed initial public offering price of $17.50 per share (the midpoint of
the range set forth on the cover page of this Prospectus)), 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 September 30, 1998 would have
been $110.1 million, or $3.67 per share, calculated as follows:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1)................. $17.50
------
Pro forma net tangible book value per share before the
Offering............................................... $ 0.54
------
Increase in pro forma net tangible book value per share
attributable to the Offering........................... 3.13
------
As adjusted pro forma net tangible book value per share after the
Offering.......................................................... 3.67
------
Dilution in pro forma net tangible book value per share to new
investors (2)(3).................................................. $13.83
======
</TABLE>
- ---------------
(1) Assumed initial public offering price before deduction of underwriting
discounts and commissions and estimated expenses of the Offering to be paid
by the Company.
(2) Dilution is determined by subtracting the pro forma net tangible book value
per share of Class A Common Stock after the Offering from the assumed
initial Class A public offering price paid by purchasers in the Offering for
a share of Class A Common Stock.
(3) Assumes no exercise of outstanding stock options. As of the date of this
Prospectus, the Company expects that there will be options outstanding to
purchase a total of 1,200,000 shares of Class A Common Stock at an exercise
price equal to the initial public offering price of the Class A Common Stock
(net of the discount payable to the Underwriters). See "Management -- 1999
Stock Award and Incentive Plan." If any of these options were exercised,
there would be further dilution to purchasers of Class A Common Stock in the
Offering.
Assuming the Underwriters' over-allotment option is exercised in full, the
pro forma net tangible book value at September 30, 1998 would be $124.9 million
or $4.04 per share, the immediate increase in pro forma net tangible book value
of shares owned by existing shareholders would be $3.50 per share, and the
immediate dilution to purchasers of shares of Class A Common Stock in the
Offering would be $13.46 per share.
The following table summarizes at September 30, 1998, after giving effect
to the sale of the shares of Class A Common Stock in the Offering at an assumed
initial public offering of $17.50 per share (the midpoint of the range set forth
on the cover page of this Prospectus), (i) the number and percentage of shares
of Common Stock issued by the Company, (ii) the total cash consideration paid
for the Common Stock, and (iii) the average price per share of Common Stock paid
by Gabelli Partners prior to the Offering and by the public shareholders of
Class A Common Stock in the Offering:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK OWNED TOTAL CONSIDERATION AVERAGE
---------------------- --------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Gabelli Partners............ 24,000,000 80% $45,000,000(1) 30% $ 1.88(1)
Public Shareholders......... 6,000,000 20 105,000,000 70 17.50
--------- ------ ----------- ------
Total............. 30,000,000 100% $150,000,000 100%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Represents the net assets to be transferred to the Company by Gabelli
Partners in exchange for the 24 million shares of Class B Common Stock.
Immediately preceding the Offering the Company will enter into an Employment
Agreement (see "Management -- Employment Agreements") which, among other
things, provides for a one time lump sum payment to Mr. Gabelli of $50
million on January 2, 2002. This payment, net of tax benefit, is expected to
be charged to the Company's earnings in the first quarter of 1999. If it
were treated as a distribution instead of being charged to the Company's
earnings, this payment would reduce Mr. Gabelli's effective consideration to
zero.
The calculations in the tables set forth above do not reflect an aggregate
of 1,500,000 shares of Class A Common Stock reserved for issuance under the 1999
Stock Award and Incentive Plan of the Company, including 1,200,000 shares of
Class A Common Stock subject to outstanding options that will be granted at the
initial public offering price of the Class A Common Stock (net of the discount
payable to the Underwriters). See "Management -- 1999 Stock Award and Incentive
Plan."
22
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 (i) on an historical basis and (ii) as adjusted for the
Formation Transactions, the Offering and the Company's obligation under the
Employment Agreement to pay Mr. Gabelli $50 million on January 2, 2002. See
"Management -- Employment Agreements." This payment, net of tax benefit, is
expected to be charged to the Company's earnings in the first quarter of 1999.
This table should be read in conjunction with the Consolidated Financial
Statements of GFI and related notes and other financial and operating data
appearing elsewhere in this Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------
GFI COMPANY
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Payable to related party.................................. $ -- $ 50,000
Notes payable............................................. 5,876 --
Payable to Sub-S shareholders............................. 14,642 --
Capital lease obligation.................................. 3,621 3,621
-------- --------
Total debt............................................. 24,139 53,621
Minority Interest........................................... 11,754 11,754
Stockholders' Equity:
Preferred Stock, $.001 par value; authorized 10,000,000
shares; none issued.................................... -- --
Common Stock $.01 par value; authorized 1,000,000 Shares;
issued and outstanding 196,537 shares.................. 2 --
Class A Common Stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding 6,000,000
shares, as adjusted.................................... -- 6
Class B Common Stock, $.001 par value; authorized
100,000,000 shares; issued and outstanding 24,000,000
shares, as adjusted.................................... -- 24
Additional paid-in capital................................ 21,471 120,166
Retained earnings (accumulated deficit)................... 169,252 (8,366)
Notes receivable.......................................... (10,623) --
-------- --------
Total stockholders' equity............................. 180,102 111,830
-------- --------
Total capitalization.............................. $215,995 $177,205
======== ========
</TABLE>
23
<PAGE> 25
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data presented below has been derived in
part from, and should be read in conjunction with, the audited Consolidated
Financial Statements of GFI and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
Prospectus. All financial information for the nine months ended September 30,
1997 and 1998, which has not been audited, has been derived from the unaudited
Consolidated Financial Statements of GFI included elsewhere in this Prospectus,
and, in the opinion of management, reflects all adjustments, which are of a
normal recurring nature, necessary to present fairly such information for the
periods presented. Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
The unaudited pro forma income statement data gives effect to (i) the
Formation Transactions, including the reduction in net gain from investments,
the reduction in interest and dividend income, the lower management fee and the
increase in interest expense as if the Employment Agreement (see Note Q to the
Consolidated Financial Statements) had been in effect for the year ended
December 31, 1997 and nine months ended September 30, 1998, and (ii) the
additional income taxes which would have been recorded if GFI had been a "C"
corporation instead of an "S" corporation based on tax laws in effect for the
respective periods. Under the terms of the Employment Agreement, Mr. Gabelli,
who indirectly beneficially owns shares of Common Stock having 97.6% of the
combined voting power of the Company, will receive, in addition to his portfolio
management compensation and account executive fees, an annual incentive-based
management fee of 10% of the aggregate pre-tax profits of the Company (before
consideration of the management fee) and a deferred payment of $50 million on
January 2, 2002, with interest payable quarterly on such deferred amount at an
annual rate of 6%. The $50 million deferred payment is expected to be charged to
the Company's earnings upon the effective date of the Employment Agreement,
which is expected to occur in the first quarter of 1999. This payment, net of
tax benefit, will reduce earnings by $1.01 per share (based on the expected
weighted average number of shares outstanding in the first quarter of 1999 of 30
million). The $50 million payment is not reflected in the pro forma income
statement data because it is a one-time event directly related to the Offering;
however, it is reflected, net of tax benefit, in pro forma stockholders' equity.
The unaudited pro forma adjustments are based upon available information
and certain assumptions that management of the Company believes are reasonable
under the circumstances. The pro forma financial data does not purport to
represent the results of operations or the financial position of the Company
which actually would have occurred had the Formation Transactions been
consummated on the aforesaid dates, or project the results of operations or the
financial position of the Company for any future date or period. See "Certain
Relationships and Related Transactions -- The Formation Transactions" and the
Unaudited Pro Forma Consolidated Statements of Income and Financial Condition of
the Company included elsewhere in this Prospectus.
24
<PAGE> 26
GABELLI FUNDS, INC. AND SUBSIDIARIES SELECTED HISTORICAL AND PRO FORMA DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997(1) 1998(1)
-------- -------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Investment advisory and
incentive fees.............. $ 61,110 $ 71,759 $ 77,302 $84,244 $ 89,684 $64,107 $ 86,302
Commission revenue............ 5,555 5,003 5,706 6,667 7,496 5,613 6,197
Distribution fees and other
income...................... 3,716 4,683 6,302 7,257 8,096 5,100 9,810
-------- -------- -------- ------- -------- ------- --------
Total revenues.............. 70,381 81,445 89,310 98,168 105,276 74,820 102,309
-------- -------- -------- ------- -------- ------- --------
Expenses:
Compensation costs............ 31,750 36,235 39,384 41,814 45,260 33,138 41,702
Management fee................ 3,618 6,904 9,423 10,192 10,580 7,425 8,533
Other operating expenses...... 12,592 16,435 18,709 19,274 18,690 13,943 18,072
-------- -------- -------- ------- -------- ------- --------
Total expenses.............. 47,960 59,574 67,516 71,280 74,530 54,506 68,307
-------- -------- -------- ------- -------- ------- --------
Operating income................ 22,421 21,871 21,794 26,888 30,746 20,314 34,002
-------- -------- -------- ------- -------- ------- --------
Other income:
Net gain (loss) from
investments................. 9,199 (1,724) 10,105 8,783 7,888 6,803 (3,910)
Gain on sale of PCS licenses,
net......................... -- -- -- -- -- -- 17,430
Interest and dividend
income...................... 2,596 4,692 5,853 5,406 4,634 3,168 3,252
Interest expense.............. (337) (868) (679) (879) (1,876) (1,183) (1,355)
Other......................... 195 119 147 331 (109) (52) 79
-------- -------- -------- ------- -------- ------- --------
Total other income, net..... 11,653 2,219 15,426 13,641 10,537 8,736 15,496
-------- -------- -------- ------- -------- ------- --------
Income before income taxes and
minority interest............. 34,074 24,090 37,220 40,529 41,283 29,050 49,498
Income taxes.................. 12,831 9,198 7,769 7,631 3,077 2,369 3,004
Minority interest............. 1,750 2,060 2,555 2,727 1,529 759 1,043
-------- -------- -------- ------- -------- ------- --------
Net income...................... $ 19,493 $ 12,832 $ 26,896 $30,171 $ 36,677 $25,922 $ 45,451
======== ======== ======== ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997(1) 1998(1)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT ASSETS UNDER MANAGEMENT)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets................... $126,161(1) $141,887 $155,541 $182,524 $232,736 $231,076 $241,487
Total liabilities and minority
interest..................... 30,612(1) 33,983 39,470 43,991 69,117 74,051 61,385
-------- -------- -------- -------- -------- -------- --------
Total stockholders' equity..... $ 95,549(1) $107,904 $116,071 $138,533 $163,619 $157,025 $180,102
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA (UNAUDITED)
Assets under management (at
period end, in millions)(2):
Mutual Funds............... $ 3,684 $ 3,604 $ 4,116 $ 4,209 $ 6,146 $ 5,892 $ 7,034
Separate Accounts.......... 4,460 4,276 5,051 5,200 7,013 6,760 6,720
Partnerships............... 67 103 112 116 138 134 147
-------- -------- -------- -------- -------- -------- --------
Total................... $ 8,211 $ 7,983 $ 9,279 $ 9,525 $ 13,297 $ 12,786 $ 13,901
======== ======== ======== ======== ======== ======== ========
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
UNAUDITED PRO FORMA DATA(1)(3)(4)
Revenues:
Investment advisory and incentive fees.................. $ 89,684 $ 86,302
Commission revenue...................................... 7,496 6,197
Distribution fees and other income...................... 8,096 9,810
-------- --------
Total revenues..................................... 105,276 102,309
Expenses:
Compensation costs...................................... 45,260 41,702
Management fee.......................................... 4,424 4,216
Other operating expenses................................ 16,901 17,541
-------- --------
Total expenses..................................... 66,585 63,459
Operating income........................................ 38,691 38,850
-------- --------
Other Income:
Net gain from investments............................... 3,004 756
Interest and dividend income............................ 1,115 605
Interest expense........................................ (3,000) (2,271)
-------- --------
Total other income, net............................ 1,119 (910)
-------- --------
Income before income taxes and minority interest.......... 39,810 37,940
Income taxes............................................ 15,735 15,047
Minority interest....................................... 1,677 1,228
-------- --------
Net income................................................ $ 22,398 $ 21,665
======== ========
Pro forma net income per share:
Basic and diluted......................................... $ 0.75 $ 0.72
======== ========
Pro forma weighted average shares outstanding:
Basic and diluted......................................... 30,000 30,000
======== ========
</TABLE>
- ---------------
(1) Unaudited.
(2) Effective April 14, 1997, Gabelli Fixed Income, LLC was restructured such
that the Company's ownership increased from 50% to 80.1%, thereby causing
Gabelli Fixed Income, LLC to become a consolidated subsidiary of the
Company. Accordingly, for periods after April 14, 1997, the assets managed
by Gabelli Fixed Income, LLC are included in the Company's assets under
management. If the assets managed by Gabelli Fixed Income, LLC had been
included for all periods presented, assets under management for 1993, 1994,
1995 and 1996 would have been approximately $11.1 billion, $9.0 billion,
$10.8 billion and $11.1 billion, respectively.
(3) The unaudited pro forma data presented above gives effect to the Formation
Transactions and the additional income taxes payable if GFI had been a "C"
corporation instead of an "S" corporation, but does not give effect to the
use of the proceeds received from the Offering. See the Unaudited Pro Forma
Consolidated Financial Statements.
(4) The disclosure requirements of SFAS No. 123 require the use of an option
valuation model to compute a fair value of employee stock options. The
valuation model used by the Company was not developed for use in valuing
employee stock options and the Company's employee stock option
characteristics vary significantly from those of traded options. As a
result, changes in the subjective input assumptions can materially affect
the fair value estimate. The pro forma compensation expense, net of tax
benefit, related to the Stock Award and Incentive Plan for the year ended
December 31, 1997 and the nine months ended September 30, 1998 is $1,600,000
and $1,200,000, respectively, based on 1,200,000 options outstanding on the
Offering Date.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of GFI and the notes thereto included
elsewhere in this Prospectus. The Consolidated Financial Statements of GFI
include the accounts of the following majority-owned or controlled subsidiaries
of the Company: Funds Adviser (100%-owned), GAMCO (100%-owned), GSI
(76.6%-owned), Gabelli & Company (76.6%-owned), Gabelli Fixed Income, Inc.
(100%-owned), Gabelli Fixed Income, LLC (80.1%-owned) and Gabelli Advisers, Inc.
(40.9%-owned, combined with the voting interests of affiliated parties,
represents voting control).
Prior to the Offering, GFI will transfer substantially all of the operating
assets and liabilities relating to its institutional and retail asset
management, mutual fund advisory, underwriting and brokerage business to Gabelli
Asset Management Inc. in exchange for 24 million shares of Class B Common Stock.
At that time, GFI will be renamed "Gabelli Group Capital Partners, Inc." After
the Offering, the Company's financial statements will reflect the financial
condition and results of operations of Gabelli Asset Management Inc. and the
historical results of GFI will be shown as predecessor company financial
statements.
OVERVIEW
The Company's revenues are largely based on the level of assets under
management in its businesses as well as the level of fees associated with its
various investment products. Growth in revenues generally depends on good
investment performance, which increases assets under management by increasing
the value of existing assets under management, contributing to higher investment
and lower redemption rates and facilitating the ability to attract additional
investors while maintaining current fee levels. Growth in assets under
management is also dependent on being able to access various distribution
channels, which is usually based on several factors, including performance and
service. Historically, the Company depended primarily on direct distribution of
its products and services, but since 1995 has increasingly participated in
Third-Party Distribution Programs, particularly NTF Programs. Fluctuations in
financial markets also have a substantial effect on assets under management and
results of operations, although the Company's extensive use of variable
compensation programs tends to moderate the effects of fluctuations in revenues.
The Company's largest source of revenues is investment advisory fees which are
based on the amount of assets under management in its Mutual Funds and Separate
Accounts businesses. Advisory fees from the Mutual Funds are computed daily or
weekly, while advisory fees from the Separate Accounts are generally computed
quarterly based on account values as of the end of the preceding quarter. These
revenues vary depending upon the level of sales compared with redemptions,
financial market conditions and the fee structure for assets under management.
Revenues derived from the equity oriented portfolios generally have higher
management fee rates than fixed income portfolios.
Commission revenues consist of brokerage commissions derived from
securities transactions executed on an agency basis on behalf of mutual funds,
institutional and high net worth clients as well as investment banking revenue,
which consists of underwriting profits, selling concessions and management fees
associated with underwriting activities.
Distribution fees and other income primarily include distribution fees
payable in accordance with Rule 12b-1 ("12b-1") of the Investment Company Act of
1940, as amended (the "Investment Company Act"), along with sales charges and
underwriting fees associated with the sale of the Mutual Funds plus other
revenues. Distribution fees fluctuate based on the level of assets under
management and the amount and type of Mutual Funds sold directly by the Company
and through various distribution channels. During 1997, the 12b-1 plans for 15
of the open-end Mutual Funds were restructured as compensation plans with annual
fees set at 25 basis points of average assets under management. Previously,
these plans were structured to only reimburse the Company for actual
distribution expenses incurred, up to 25 basis points of average assets under
management.
Compensation costs include variable and fixed compensation and related
expenses paid to the officers, portfolio managers, sales, trading, research and
all other staff members of the Company.
27
<PAGE> 29
On an historical basis, the Company has paid to Mr. Gabelli a management
fee equal to 20% of the pre-tax profits of each of the Company's operating
divisions, before consideration of the management fee. Immediately preceding the
consummation of the Offering, the Company and Mr. Gabelli will enter into an
Employment Agreement (the "Employment Agreement"). Pursuant to the Employment
Agreement, Mr. Gabelli will receive, in addition to his portfolio management
compensation and account executive fees, an incentive-based management fee of
10% of the aggregate pre-tax profits of the Company as computed for financial
reporting purposes in accordance with generally accepted accounting principles
before consideration of this fee so long as he is an executive of the Company
and devoting the substantial majority of his working time to its business.
Pursuant to the Employment Agreement, Mr. Gabelli will also receive a deferred
payment of $50 million on January 2, 2002, plus interest payable quarterly at an
annual rate of 6%. See "Management -- Employment Agreements." As a result of the
Employment Agreement, the Company expects to incur a non-recurring charge of $50
million, before a tax benefit of approximately $20 million, in the first quarter
of 1999.
Other operating expenses include product distribution and promotion costs,
clearing charges and fees for GFI's brokerage operation, rental of office space
and electronic data equipment and services, insurance, charitable contributions
and other general and administrative operating costs.
Interest and dividend income net, as well as net gain from investments
(which includes both realized and unrealized gains) is derived from proprietary
investments of GFI's capital in various public and private investments.
Net gain from investments is derived primarily from the assets to be
distributed to Gabelli Partners and also includes the results of GFI's hedging
activities. As part of an overall hedge of the risks associated with GFI's
proprietary investment portfolio, GFI entered into transactions in domestic
equity index contracts. These financial instruments represent future commitments
to sell an underlying index for specified amounts at specified future dates. In
connection with the Formation Transactions, Gabelli Partners will retain most of
the proprietary investment portfolio (which includes GFI's hedging activities).
In connection with the completion of the Offering, the Company will become
taxable as a "C" corporation for federal and state income tax purposes and will
pay taxes at an effective rate considerably higher than when GFI and certain of
its subsidiaries were treated as Subchapter "S" corporations.
Minority interest represents the share of net income attributable to the
minority stockholders, as reported on a separate company basis, of GFI's
consolidated majority-owned subsidiaries.
OPERATING RESULTS FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1997
Total revenues for the nine months ended September 30, 1998 were $102.3
million, an increase of $27.5 million, or 37%, compared to $74.8 million for the
nine months ended September 30, 1997. Investment advisory and incentive fees,
comprising 84% of total revenues, increased $22.2 million, or 35%, to $86.3
million, as GFI experienced strong growth in the level of average assets under
management in both its Mutual Funds and Separate Accounts businesses. Total
average assets under management, which is the basis for investment advisory and
incentive fees, were $14.8 billion for the nine months ended September 30, 1998,
an increase of $3.7 billion, or 33%, compared to average assets under management
of $11.1 billion in the same period a year earlier. Total assets under
management at September 30, 1998 were $13.9 billion, an increase of $1.1 billion
from assets under management of $12.8 billion at September 30, 1997. Assets
under management in Mutual Funds were $7.0 billion at September 30, 1998, an
increase of approximately $1.1 billion, or 19%, from September 30, 1997. This
increase represents approximately $1.2 billion in net cash inflows offset by $56
million from market-related depreciation. Assets under management in Separate
Accounts were $6.7 billion at September 30, 1998 and $6.8 billion at September
30, 1997. Growth in revenues was greater than growth in assets due to a greater
weighting of assets to higher fee equity portfolios.
Commission revenues for the nine months ended September 30, 1998 were $6.2
million, an increase of $0.6 million, or 10%, from commission revenues of $5.6
million in the same period a year earlier. The increase principally resulted
from increased agency trading activity for accounts managed by affiliated
companies.
28
<PAGE> 30
Commission revenues derived from transactions on behalf of the Mutual Funds and
Separate Accounts clients totaled $4.9 million, or approximately 79% of total
commission revenues for the first nine months of 1998.
Distribution fees and other income increased more than 92% to $9.8 million
for the nine months ended September 30, 1998 from $5.1 million in the first nine
months of 1997. Increased 12b-1 fees, resulting from the growth in assets under
management and restructuring of the Mutual Funds' 12b-1 plans as compensation
plans, accounted for $4.1 million, or 88%, of the total increase in distribution
fees and other income during the first nine months of 1998 as compared to the
same period a year earlier.
Total expenses for the first nine months of 1998 were $68.3 million, an
increase of $13.8 million, or 25%, from $54.5 million in the comparable period
of 1997. Total expenses as a percentage of total revenues declined to 67% from
73% as fixed expenses were spread over a larger revenue base. Compensation
costs, which are largely variable in nature and increase or decrease as revenues
grow or decline, rose approximately $8.6 million, or 26%, to $41.7 million for
the nine months ended September 30, 1998 from $33.1 million for the nine months
ended September 30, 1997. Management fee expense, which is totally variable and
increases or decreases as operating profits grow or decline, was $8.5 million
for the nine months ended September 30, 1998, an increase of $1.1 million, or
15%, from $7.4 million for the nine months ended September 30, 1997. Other
operating expenses, which include general operating expenses, as well as
marketing, promotion and distribution costs, were $18.1 million for the nine
months ended September 30, 1998, an increase of approximately $4.2 million, or
30%, from $13.9 million for the comparable period in 1997. Mutual fund
administration and distribution expenses accounted for more than $3.7 million,
or 90%, of this increase and are directly related to GFI's growth of assets
under management.
Net gain from investments, which is derived from GFI's proprietary
investment portfolio, was approximately $13.5 million for the nine months ended
September 30, 1998 compared to a net gain of $6.8 million for the nine months
ended September 30, 1997. This increase reflects a net gain of approximately
$17.4 million from the sale of certain Personal Communications Services ("PCS")
licenses as well as lower losses from hedging activities, which losses declined
to $0.6 million in 1998 from a loss of $7.6 million in 1997. These gains were
partially reduced by market related losses from certain other public and private
investments. Interest and dividend income, net of interest expense, declined to
$1.9 million for the first nine months of 1998 compared to $2.0 million in the
same 1997 period. In connection with the Formation Transactions, Gabelli
Partners will retain most of the proprietary investment portfolio (which
includes GFI's remaining PCS licenses and hedging activities). The net gain
(loss) from the proprietary investment portfolio to be retained by Gabelli
Partners was ($4.7) million and $4.2 million for the nine months ended September
30, 1998 and 1997, respectively.
Income taxes increased to $3.0 million for the nine months ended September
30, 1998 from $2.4 million for the nine months ended September 30, 1997 in line
with the increase in income before income taxes and minority interest.
Minority interest increased to $1.0 million for the nine months ended
September 30, 1998 up from $0.8 million in the comparable 1997 period. This
increase is reflective of additional income attributable to the minority
interests of GFI's 76.6%-owned subsidiary, GSI, and GFI's 40.9% economic
interest in Gabelli Advisers, Inc.
OPERATING RESULTS FOR YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1996
Total revenues for GFI in 1997 increased to $105.3 million compared to
$98.2 million in 1996, an increase of approximately $7.1 million or 7%. The
largest component of revenues, investment advisory and incentive fees, increased
$5.4 million, or 6%, to $89.7 million, as total assets under management
increased by $3.8 billion or 40% to $13.3 billion from $9.5 billion at the end
of 1996. The improvements in revenues occurred as assets under management in the
Mutual Funds for 1997 increased approximately $1.9 billion, or 46% to $6.1
billion at December 31, 1997 from $4.2 billion on December 31, 1996. In
addition, assets under management in the Separate Accounts grew approximately
35% to $7.0 billion at December 31, 1997 from $5.2 billion at the end of the
prior year. Approximately 39% of the increase in total assets under management
for 1997 and 30% of the increase in investment advisory and incentive fees was
due to Gabelli Fixed Income,
29
<PAGE> 31
LLC becoming a consolidated subsidiary on April 14, 1997 when GFI increased its
ownership interest from 50% to 80.1%. The remaining 61% of the increase in total
assets under management was primarily the result of investment performance of
the equity portfolios throughout the year and net sales of the Mutual Funds from
NTF Programs in the second half of the year. Growth in assets was substantially
greater than growth in revenues, due to the consolidation of Gabelli Fixed
Income, LLC which charges relatively lower fees, the weighting of net sales
toward the end of the year and increasingly strong investment performance in the
latter part of the year.
As a result of increased agency trading activity for institutional clients,
including accounts managed by affiliated companies, commission revenues in 1997
increased 12% to $7.5 million from $6.7 million in 1996. Commissions from the
Mutual Funds and the Separate Account clients totaled $6.1 million, or
approximately 81% of total commission revenues in 1997.
Distribution fees and other income for 1997 increased approximately 12% to
$8.1 million from $7.3 million in 1996. This was the result of both increased
assets under management and the restructuring of the Mutual Funds' 12b-1 plans
as compensation plans.
Total expenses for 1997 increased to $74.5 million, from $71.3 million in
1996, an increase of $3.2 million, or approximately 4%. Approximately half of
this increase was associated with GFI's acquisition of a controlling interest in
Gabelli Fixed Income, LLC in April 1997 and the inclusion of its expenses in
GFI's 1997 results. Compensation costs rose to $45.3 million in 1997 from
$41.8 million in 1996, an increase of approximately 8%. Management fee expense
rose in line with the increase in pre-tax profits to $10.6 million in 1997 from
$10.2 million in 1996. Other operating expenses were $18.7 million in 1997
compared to $19.3 million in 1996, a decline of approximately 3%. This decline
in other operating expenses was generally due to lower mutual fund distribution
costs.
Net gain from investments, which is derived from GFI's proprietary
investment portfolio, was approximately $7.9 million in 1997, compared to $8.8
million for 1996, a decline of approximately $0.9 million. This decline was
principally due to higher costs associated with hedging activities which in 1997
resulted in hedging losses of $8.1 million compared to hedging losses of $3.7
million in 1996. Interest and dividend income, net of interest expense,
decreased by approximately $1.7 million in 1997 to $2.8 million compared with
$4.5 million in 1996. This decrease was primarily a result of GFI's change in
its mix of investments from publicly-traded securities and mutual funds which
paid interest and dividends to certain private investments which did not provide
a current return. In connection with the Formation Transactions, Gabelli
Partners will retain most of the proprietary investment portfolio (which
includes GFI's hedging activities). The net gain from the proprietary investment
portfolio to be retained by Gabelli Partners was $4.9 million and $7.6 million
for 1997 and 1996, respectively.
Income taxes decreased to $3.1 million in 1997 from $7.6 million in 1996.
This was primarily a result of GAMCO's election of Subchapter "S" corporate
status effective January 1, 1997.
Minority interest declined in 1997 by $1.2 million from $2.7 million in
1996 as a result of GAMCO becoming a wholly owned subsidiary of GFI on January
1, 1997. Minority interest of $1.5 million in 1997 represents income
attributable to the minority interests of GFI's then 76.1%-owned subsidiary,
GSI, GFI's 80.1%-owned subsidiary, Gabelli Fixed Income, LLC, and GFI's then
51.1% economic interest in Gabelli Advisers, LLC (now Gabelli Advisers, Inc.).
OPERATING RESULTS FOR YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED
DECEMBER 31, 1995
Total revenues for GFI increased to $98.2 million in 1996 from $89.3
million in 1995, an increase of approximately $8.9 million or approximately 10%.
Investment advisory and incentive fees accounted for the largest portion of this
growth, increasing by $6.9 million or approximately 9% to $84.2 million in 1996
as overall assets under management rose to $9.5 billion in 1996 from $9.3
billion in the prior year. For 1996, assets under management in the Mutual Funds
increased to $4.2 billion at December 31, 1996 from $4.1 billion at the end of
1995. Assets under management in the Separate Accounts were $5.2 billion
compared to $5.1 billion at December 31, 1995.
30
<PAGE> 32
As a result of increased agency trading activity for institutional clients,
including accounts managed by affiliated companies, commission revenues
increased to $6.7 million in 1996 from $5.7 million in 1995, an increase of
approximately 17%. Commissions from the Mutual Funds and the Separate Accounts
totaled $4.8 million in 1996, or approximately 72% of total commission revenues.
Distribution fees and other income increased to $7.3 million in 1996 from
$6.3 million in 1995, an increase of approximately 15%, reflecting GFI's
increased efforts to distribute its Mutual Funds. For 1996 and 1995,
distribution revenues were closely tied to distribution expenses, as the 12b-1
plans for the open-end Mutual Funds were then structured to reimburse GFI for
distribution expenditures incurred on behalf of such funds, subject to a
limitation of 25 basis points of average fund net assets for those funds with
12b-1 plans.
Total expenses in 1996 increased to $71.3 million, from $67.5 million in
1995, an increase of $3.8 million, or approximately 6%, primarily as a result of
increased compensation costs and costs associated with the distribution of the
Mutual Funds. Compensation costs, a significant portion of which are variable in
nature, rose approximately 6% from $39.4 million in 1995 to $41.8 million in
1996. Other operating expenses increased approximately $0.6 million or 3% to
$19.3 million in 1996 from $18.7 million in 1995.
Net gain from investments, which is derived from GFI's proprietary
investment portfolio, was approximately $8.8 million in 1996 compared to $10.1
million in 1995, a decline of approximately $1.3 million. This decline was
attributable to lower investment and market related gains from GFI's investments
including losses from hedging activities of $3.7 million. Interest and dividend
income, net of interest expense, decreased to $4.5 million in 1996 from $5.2
million in 1995, a decrease of approximately 13%. This was primarily a result of
the use of capital for certain private investments in 1996 which did not provide
a current return. In connection with the Formation Transactions, Gabelli
Partners will retain most of the proprietary investment portfolio (which
includes GFI's hedging activities). The net gain from the proprietary investment
portfolio to be retained by Gabelli Partners was $7.6 million and $6.9 million
in 1996 and 1995, respectively.
Higher net income reported on a separate company basis by both GFI's then
79.1%-owned subsidiary, GAMCO, and then 75.3%-owned subsidiary, GSI, resulted in
an increase in income attributable to the minority interests in GFI's
consolidated subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal assets consist of cash, short-term investments,
securities held for investment purposes and investments in partnerships in which
the Company is either a general or limited partner. Short-term investments are
comprised primarily of United States treasury securities with maturities of less
than one year and money market funds managed by the Company. Although
investments in investment partnerships are for the most part illiquid, the
underlying investments of such partnerships are for the most part liquid and the
valuations of the investment partnerships reflect that underlying liquidity.
The Company has historically met its cash requirements through cash
generated by its operating activities. Based upon the Company's current level of
operations and anticipated growth in net revenues and net income as a result of
implementing its business strategy, the Company expects that cash flows from its
operating activities will be sufficient to enable the Company to finance its
working capital needs for the foreseeable future. The Company has no material
commitments for capital expenditures.
Gabelli & Company is registered with the Commission as a broker-dealer and
is a member of the NASD. As such, it is subject to the minimum net capital
requirements promulgated by the Commission. Gabelli & Company's net capital has
historically exceeded these minimum requirements. Gabelli & Company computes its
net capital under the alternative method permitted by the Commission, which
requires that minimum net capital be $250,000. As of September 30, 1998 and
December 31, 1997 and 1996, Gabelli & Company had net capital, as defined, of
approximately $12.3 million, $6.6 million and $8.1 million, respectively,
exceeding the regulatory requirement by approximately $12.1 million, $6.3
million and $7.8 million, respectively. Regulatory net capital requirements
increase when Gabelli & Company is involved in underwriting activities.
The net proceeds of the Offering to be received by the Company, which are
expected to be approximately $97 million ($112 million if the Underwriters'
overallotment option is exercised in full), will be used for general corporate
purposes, including working capital and the expansion of its business through
new
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<PAGE> 33
investment product offerings, enhanced distribution and marketing of existing
investment products, upgraded management information systems and strategic
acquisitions as opportunities arise. At present, the Company has no plans,
arrangements or understandings relating to any specific acquisitions or
alliances. The Company currently does not intend to use any of the net proceeds
from the Offering to pay debt service on the $50 million payable to Mr. Gabelli
under the terms of his Employment Agreement.
RECENT ACCOUNTING DEVELOPMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130 ("Reporting Comprehensive
Income") and SFAS No. 131 ("Disclosure about Segments of an Enterprise and
Related Information"). These statements, which are effective for periods
beginning after December 15, 1997, expand or modify disclosures. In addition, in
1998, the FASB issued SFAS No. 133 ("Accounting for Derivative Instruments and
Hedging Activities"). SFAS No. 133 establishes standards for recognizing and
fair valuing derivative financial instruments. SFAS No. 133 is required to be
adopted for fiscal years beginning after June 15, 1999. The Company does not
expect implementation to have any significant effect on the Company's reported
financial position or results of operations.
SEASONALITY AND INFLATION
The Company does not believe its operations are subject to significant
seasonal fluctuations. The Company does not believe inflation will significantly
affect its compensation costs as they are substantially variable in nature.
However, the rate of inflation may affect Company expenses such as information
technology and occupancy costs. To the extent inflation results in rising
interest rates and has other effects upon the securities markets, it may
adversely affect the Company's financial position and results of operations by
reducing the Company's assets under management, revenues or otherwise. See "Risk
Factors -- Potential Adverse Effects on the Company's Performance Prospects from
a Decline in the Performance of the Securities Markets."
YEAR 2000 PROGRAM
With the new millennium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors with date functions (including those in non-information
technology equipment and systems) use only two digits to identify a year in the
date field with the assumption that the first two digits of the year are always
"19". Consequently, on January 1, 2000, computers that are not Year 2000
compliant may read the year as 1900. Systems that calculate, compare or sort
using the incorrect date may malfunction.
Because the Company is dependent, to a very substantial degree, upon the
proper functioning of its computer systems, a failure of its systems to be Year
2000 compliant could have a material adverse effect on the Company. For example,
a failure of this kind could lead to incomplete or inaccurate accounting or
recording of trades in securities or result in the generation of erroneous
results or give rise to uncertainty about the Company's exposure to trading
risks and its need for liquidity. If not remedied, potential risks include
business interruption or shutdown, financial loss, regulatory actions,
reputational harm and legal liability.
In addition, the Company depends primarily upon the proper functioning of
third-party computer and non-information technology systems. These parties
include trading counterparties; financial intermediaries such as stock
exchanges, depositories, clearing agencies, clearing houses and commercial
banks; subcontractors such as third-party administrators; and vendors such as
providers of telecommunication services, quotation equipment and other
utilities. If the third parties with whom the Company interacts have Year 2000
problems that are not remedied, the following problems could result: (i) in the
case of subcontractors, in disruption of critical services such as
administration, valuation and record keeping services for its mutual funds; (ii)
in the case of vendors, in disruption of important services upon which the
Company depends, such as telecommunications and electrical power; (iii) in the
case of third-party data providers, in the receipt of inaccurate or out-of-date
information that would impair the Company's ability to perform critical data
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<PAGE> 34
functions, such as pricing its securities or other assets; (iv) in the case of
financial intermediaries such as exchanges and clearing agents, in failed trade
settlements, an inability to trade in certain markets and disruption of funding
flows; (v) in the case of banks and other financial institutions, in the
disruption of capital flows potentially resulting in liquidity stress; and (vi)
in the case of counterparties and customers, in financial and accounting
difficulties for those parties that expose the Company to increased credit risk
and lost business. Disruption or suspension of activity in the world's financial
markets is also possible. In addition, uncertainty about the success of
remediation efforts generally may cause many market participants to reduce the
level of their market activities temporarily as they assess the effectiveness of
these efforts during a "phase-in" period beginning in late 1999. This in turn
could result in a general reduction in trading and other market activities (and
thus, lost revenues). Management cannot predict the impact that such reduction
would have on the Company's business.
In order to ensure that the Company will continue to operate successfully
and be able to meet its fiduciary obligations to its clients after December 31,
1999, the Company has taken numerous steps toward becoming Year 2000 compliant
in respect to both its information technology and non-information technology
systems. The Company has established a comprehensive Year 2000 program and
already has begun to implement it. To date, the Company has (i) taken inventory
of all its technology systems; (ii) performed an analysis of all internal
systems, all facilities and communications systems, and all third-party
providers' software and hardware products; and (iii) updated its internal
system, which is its only in-house developed system, for Year 2000 compliance.
In addition, the Company has identified and contacted 34 counterparties,
intermediaries, subcontractors and vendors with whom it has important financial
or operational relationships (13 of which the Company has identified as mission
critical) and has requested from them assurances that those systems either are
already Year 2000 compliant or that they are taking the necessary steps to make
such systems Year 2000 compliant. The Company has received both oral and written
responses to these requests from all third-party providers and 22 of them (6 of
which the Company has identified as mission critical) have advised the Company
that their systems are Year 2000 compliant. The remaining third parties have
advised the Company that they are in the process of achieving compliance and are
currently in the testing phase.
The Company intends to maintain ongoing communications with its third-party
providers and continue to monitor their compliance progress. The Company is also
currently in the process of testing its own updated internal system to ensure
Year 2000 compliance. The Company's subsidiaries which are registered with the
Commission as broker-dealers or investment advisers have made certain filings
with the Commission and other regulatory agencies regarding their Year 2000
compliance efforts and will be making additional filings in 1999. The Company
does not anticipate encountering any technology issue which would impede its
ability to become Year 2000 compliant; however, there has been no limitation,
contractual or otherwise, on the Company's legal remedies in the event that any
of the third parties should fail to remedy any Year 2000 problem relating to
their systems.
The Company currently estimates that the total cost of implementing its
Year 2000 program will not have a material impact on the Company's results of
operations, liquidity or capital resources. There can be no assurance, however,
that the Company's Year 2000 program will be effective or that the Company's
estimates about the cost of completing its program will be accurate. Neither the
Company nor any of its affiliates has been reviewed by federal or state
regulators for Year 2000 compliance.
33
<PAGE> 35
BUSINESS
The Company is a widely recognized provider of investment advisory and
brokerage services to mutual fund, institutional and high net worth investors,
primarily in the United States. The Company generally manages assets on a
discretionary basis and invests in a variety of U.S. and international
securities through various investment styles. At December 31, 1998, the Company
had approximately $16.3 billion of assets under management, 88% of which were
invested in equity securities. The Company's assets under management are
organized principally in three groups: Mutual Funds, Separate Accounts and
Partnerships.
- - MUTUAL FUNDS: At December 31, 1998, the Company had $8.2 billion of assets
under management in open-end mutual funds and closed-end funds, representing
approximately 50% of the Company's total assets under management. The Company
currently provides advisory services to (i) the Gabelli family of funds,
which consists of 14 open-end mutual funds and three closed-end funds; (ii)
The Treasurer's Fund, consisting of three open-end money market funds (the
"Treasurer's Funds"); and (iii) the Gabelli Westwood family of funds,
consisting of six open-end mutual funds, five of which are managed on a
day-to-day basis by an unaffiliated subadviser (collectively, the "Mutual
Funds"). The Mutual Funds have a long-term record of achieving high returns,
relative to similar investment products. At December 31, 1998, approximately
99% of the assets under management in the open-end Mutual Funds having an
overall rating from Morningstar, Inc. ("Morningstar") were in open-end Mutual
Funds ranked "three stars" or better, with 36% of such assets in open-end
Mutual Funds ranked "five stars" and 38% of such assets in open-end Mutual
Funds ranked "four stars" on an overall basis (i.e., based on three-, five-
and ten-year risk adjusted average returns). The Gabelli family of funds was
honored as the top performing mutual fund family by Mutual Funds Magazine for
1997. At December 31, 1998, approximately 60% of the Company's assets under
management in open-end, no-load equity Mutual Funds had been obtained through
direct sales relationships. The Company has further expanded its product
distribution by offering its open-end Mutual Funds through Third-Party
Distribution Programs, particularly NTF Programs, and has commenced
development of additional classes of shares for several of its mutual funds
for sale through additional third-party distribution channels on a commission
basis.
- - SEPARATE ACCOUNTS: At December 31, 1998, the Company had $8.0 billion of
assets in approximately 975 separate accounts, representing approximately 49%
of the Company's total assets under management. The Company currently
provides advisory services to a broad range of investors, including corporate
pension and profit sharing plans, foundations, endowments, jointly trusteed
plans, municipalities, and high net worth individuals, and also serves as
subadviser to certain other third-party investment funds (collectively, the
"Separate Accounts"). At December 31, 1998, high net worth accounts (accounts
of individuals and related parties in general having a minimum account
balance of $1 million) comprised approximately 79% of the number of Separate
Accounts and approximately 25% of the assets, with institutional investors
comprising the balance. Each Separate Account portfolio is managed to meet
the specific needs and objectives of the particular client by utilizing
investment strategies and techniques within the Company's areas of expertise.
At December 31, 1998, over 95% of the Company's assets in Separate Accounts
(excluding subadvisory assets) had been obtained through direct sales
relationships.
- - PARTNERSHIPS: The Company also provides alternative investments through its
majority-owned subsidiary, Gabelli Securities, Inc. ("GSI"). These
alternative investment products consist primarily of risk arbitrage and
merchant banking limited partnerships and offshore companies (collectively,
the "Partnerships"). The Partnerships had $146 million of assets, or
approximately 1% of total assets under management, at December 31, 1998.
Investment advisory and incentive fees relating to the Mutual Funds, the
Separate Accounts, and the Partnerships generated approximately 84% and 85% of
the Company's total revenues for the nine months ended September 30, 1998 and
the year ended December 31, 1997, respectively.
The Company's subsidiary, Gabelli & Company, Inc. ("Gabelli & Company"), is
a registered broker-dealer and a member of the NASD and acts as underwriter and
distributor of the open-end Mutual Funds and provides brokerage, trading,
underwriting and research services.
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<PAGE> 36
As of December 31, 1998, the Company had approximately $16.3 billion of
assets under management, consisting of $8.2 billion in the Mutual Funds, $8.0
billion in the Separate Accounts and $146 million in the Partnerships. The
Company's total assets under management grew from $2.1 billion as of December
31, 1987 to $16.3 billion as of December 31, 1998, which represents an average
annual growth rate of approximately 20.5% over the corresponding eleven year
period. The Company's growth of average assets under management has led to a
corresponding increase in operating revenues and pre-tax profitability.
The following table sets forth total assets under management by product
type as of the dates shown and the compound annual growth rates ("CAGR").
ASSETS UNDER MANAGEMENT
BY PRODUCT TYPE
(Dollars in millions)
<TABLE>
<CAPTION>
DECEMBER 31,
1994 TO
AT DECEMBER 31, DECEMBER 31,
-------------------------------------------- 1998
1994 1995 1996 1997 1998 CAGR(a)
------ ------ ------ ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
EQUITY:
Mutual Funds.............................. $3,391 $3,875 $3,969 $ 5,313 $ 7,159 20.5%
Separate Accounts......................... 4,276 5,051 5,200 6,085 7,133 13.7
------ ------ ------ ------- ------- ----
Total Equity............................ 7,667 8,926 9,169 11,398 14,292 16.9
------ ------ ------ ------- ------- ----
FIXED INCOME:
Money Market Mutual Funds................. 208 236 235 827 1,030 49.2
Bond Mutual Funds......................... 5 5 5 6 8 12.5
Separate Accounts......................... -- -- -- 928 824 --
------ ------ ------ ------- ------- ----
Total Fixed Income...................... 213 241 240 1,761 1,862 71.9
------ ------ ------ ------- ------- ----
PARTNERSHIPS:
Partnerships.............................. 103 112 116 138 146 9.1
------ ------ ------ ------- ------- ----
Total Assets Under Management(b)........ $7,983 $9,279 $9,525 $13,297 $16,300 19.5%
====== ====== ====== ======= ======= ====
BREAKDOWN OF TOTAL ASSETS UNDER MANAGEMENT:
Mutual Funds.............................. $3,604 $4,116 $4,209 $ 6,146 $ 8,197 22.8
Separate Accounts......................... 4,276 5,051 5,200 7,013 7,957 16.8
Partnerships.............................. 103 112 116 138 146 9.1
------ ------ ------ ------- ------- ----
Total Assets Under Management(b)........ $7,983 $9,279 $9,525 $13,297 $16,300 19.5%
====== ====== ====== ======= ======= ====
</TABLE>
- ---------------
(a) Compound annual growth rate.
(b) Effective April 14, 1997, the Company increased its ownership of Gabelli
Fixed Income, LLC from 50% to 80.1%, thereby causing Gabelli Fixed Income,
LLC to become a consolidated subsidiary of the Company. Accordingly, for
periods after April 14, 1997, the assets managed by Gabelli Fixed Income,
LLC are included in the Company's assets under management. If the assets
managed by Gabelli Fixed Income, LLC had been included for all periods
presented, assets under management would have been $9,004, $10,793 and
$11,082 at December 31, 1994, 1995 and 1996, respectively, and the CAGR for
total assets would have been 16.0%.
35
<PAGE> 37
The Company manages assets in the following wide spectrum of investment
products and strategies, many of which are focused on fast-growing areas:
SUMMARY OF INVESTMENT PRODUCTS AND STRATEGIES
<TABLE>
<S> <C> <C>
U.S. EQUITIES: U.S. FIXED INCOME: GLOBAL AND INTERNATIONAL EQUITIES:
All Cap Value Corporate International Growth
Large Cap Value Government Global Value
Large Cap Growth Municipals Global Telecommunications
Mid Cap Value Asset-backed Global Multimedia
Small Cap Value Intermediate Gold(b)
Small Cap Growth Short-term
Micro Cap
Real Estate(a)
U.S. BALANCED: ALTERNATIVE PRODUCTS:
CONVERTIBLE SECURITIES: Balanced Growth Risk Arbitrage
U.S. Convertible Securities Balanced Value Merchant Banking
Global Convertible Securities Fund of Funds
</TABLE>
- ---------------
(a) Invested primarily in publicly-traded real estate investment trusts and
managed by Westwood Management.
(b) Invested primarily in publicly-traded equities of U.S. and international
gold companies.
The Mutual Funds have a long-term record of achieving high returns compared
against similar investment products. From December 31, 1987 through December 31,
1998, the Company's assets under management in Mutual Funds have increased at a
compound annual growth rate of approximately 29%. As of December 31, 1998, two
of the Gabelli funds were ranked by Morningstar as "five stars" (its highest
rating) and three of the Gabelli funds and two of the Gabelli Westwood funds as
"four stars", in each case, on an overall basis (i.e. based on three-, five- and
ten-year risk adjusted average returns). At December 31, 1998, approximately 99%
of the assets under management in the open-end Mutual Funds having an overall
rating from Morningstar were in open-end Mutual Funds ranked "three stars" or
better, with 36% of such assets in open-end Mutual Funds ranked "five stars" and
38% of such assets in open-end Mutual Funds ranked "four stars" on an overall
basis. The Gabelli family of funds was honored as the top performing mutual fund
family by Mutual Funds Magazine for 1997. In addition, Mario J. Gabelli, Chief
Investment Officer of the Company, was named as the Domestic Equity Fund Manager
of the Year for 1997 by Morningstar. There can be no assurance, however, that
these funds will be able to maintain such ratings or that past performance will
be indicative of future results.
The Company's long-term strategic goal is to continue to expand its asset
management capabilities in order to provide a range of products suitable to meet
the diverse requirements of its clients. The Company was originally founded in
1976 as an institutional broker-dealer and entered the separate accounts
business in 1977 and the mutual fund business in 1986. In its early years, the
Company's investment philosophy was value-oriented. Starting in the mid-1980s,
the Company began building upon its core of value-oriented equity investment
products by adding new investment strategies designed for clients seeking to
invest in growth-oriented equities, convertible securities and fixed income
products. Since then, the Company has continued to build its franchise by
expanding its investment management capabilities through the addition of
industry specific, international, global and real asset oriented product
offerings. Throughout its 22-year history, the Company has marketed most of its
products under the "Gabelli" brand name.
The Company believes that its growth to date can be largely credited to the
following:
- - LONG-TERM FUND PERFORMANCE: The Company has a long-term record of achieving
relatively high returns for its Mutual Fund and Separate Account clients when
compared to similar investment products. The Company believes that its
performance record is a competitive advantage and a recognized component of
its franchise.
36
<PAGE> 38
- - WIDELY RECOGNIZED "GABELLI" BRAND NAME: For much of its history, the Company
has advertised in a variety of financial print media, including in
publications such as the Wall Street Journal, Money Magazine, Barron's and
Investor's Business Daily. The Company believes that the breadth and
consistency of its advertising has enhanced investor awareness of its product
offerings and of the "Gabelli" brand name.
- - DIVERSIFIED PRODUCT OFFERINGS: Since the inception of its investment
management activities, the Company has sought to expand the breadth of its
product offerings. The Company currently offers a wide spectrum of investment
products and strategies, including product offerings in U.S. equities, U.S.
fixed income, global and international equities, convertible securities, U.S.
balanced and alternative products.
- - STRONG INDUSTRY FUNDAMENTALS: According to data compiled by the U.S. Federal
Reserve, the investment management industry has grown faster than more
traditional segments of the financial services industry, including the banking
and insurance industries. The Company believes that demographic trends and the
growing role of money managers in the placement of capital compared to the
traditional role played by banks and life insurance companies will result in
continued growth of the investment management industry.
BUSINESS STRATEGY
The Company intends to grow its franchise by leveraging its competitive
asset management strengths, including its long-term performance record, brand
name, diverse product offerings and experienced research, client service and
investment staff. In order to achieve continued growth in assets under
management and profitability, the Company will continue to pursue its business
strategy, the key elements of which include:
- - BROADENING AND STRENGTHENING THE GABELLI BRAND. The Company believes that the
Gabelli brand name is one of the more widely recognized brand names in the
U.S. investment management industry. The Company intends to continue to
strengthen its brand name identity by, among other things, increasing its
marketing and advertising to provide a uniform global image. The Company
believes that with its brand name recognition, it has the capacity to create
new products and services around the core Gabelli brand to complement its
existing product offerings. For example, in 1998, the Company launched the
Gabelli Global Opportunity Fund, a global equity fund, and the Gabelli
Westwood Mighty Mites(SM) Fund, a micro cap equity fund.
- - EXPANDING MUTUAL FUND DISTRIBUTION. The Company intends to continue expanding
its distribution network through Third-Party Distribution Programs,
particularly NTF Programs. In recent years, the Company has realized
significant growth in its mutual fund assets under management through
alliances with "mutual fund supermarkets" and other Third-Party Distribution
Programs, through which its Mutual Funds are made available to investors. As
of December 31, 1998, the Company was participating in 63 Third-Party
Distribution Programs, including the Charles Schwab and Fidelity Investments
"mutual fund supermarket" programs. In addition, the Company intends to
develop a marketing strategy to increase its presence in the 401(k) market for
its Mutual Funds. Additionally, the Company expects to soon offer investors
the ability to purchase mutual fund shares directly through the Internet. The
Company has also entered into various marketing alliances and distribution
arrangements with leading national brokerage and investment houses and has
commenced development of additional classes of shares for several of its
mutual funds for sale through national brokerage and investment houses and
other third-party distribution channels on a commission basis.
- - INCREASING PENETRATION IN HIGH NET WORTH MARKET. The Company's high net worth
business focuses, in general, on serving clients who have established an
account relationship of $1 million or more with the Company. According to
certain industry estimates, the number of households with over $1 million in
investable assets will grow from approximately 2.5 million in 1996 to over 15
million by 2010. With the Company's 22-year history of serving this segment,
its long-term performance record and brand name recognition, the Company
believes that it is well positioned to capitalize on the growth opportunities
in this market.
- - INCREASING MARKETING FOR INSTITUTIONAL SEPARATE ACCOUNTS. The institutional
Separate Accounts business has been primarily developed through direct
marketing channels. Historically, third-party pension consul-
37
<PAGE> 39
tants and financial consultants have not been a major source of new
institutional Separate Accounts business for the Company. However, these
consultants have significantly increased their presence among institutional
investors. As a result, the Company intends both to add marketing personnel to
target pension and financial consultants and to expand its efforts through its
traditional marketing channels.
- - ATTRACTING AND RETAINING EXPERIENCED PROFESSIONALS. Following the Offering,
the availability of publicly traded Class A Common Stock will enhance the
Company's ability to attract and retain top performing investment
professionals. The ability to attract and retain highly experienced investment
and other professionals with a long-term commitment to the Company and its
clients has been, and will continue to be, a significant factor in its
long-term growth. As the Company continues to increase the breadth of its
investment management capabilities, it plans to add portfolio managers and
other investment personnel in order to foster expansion of its products.
- - CAPITALIZING ON ACQUISITIONS AND STRATEGIC ALLIANCES. The Company intends to
selectively and opportunistically pursue acquisitions and alliances that will
broaden its product offerings and add new sources of distribution. The Company
believes that it will be better positioned to pursue acquisitions and
alliances after the Offering because it will be one of a relatively few
publicly-traded investment management firms. At present, the Company has no
plans, arrangements or understandings relating to any specific acquisitions or
alliances.
MUTUAL FUNDS
The Mutual Funds include 23 open-end Mutual Funds and three closed-end
funds which had total assets as of September 30, 1998 of $7.0 billion. The
open-end Mutual Funds are available to individuals and institutions primarily on
a no-load basis, while the closed-end funds are listed and traded on the NYSE.
At September 30, 1998, the open-end funds had total assets of $5.5 billion and
the closed-end funds had total assets of $1.5 billion. The assets managed in the
closed-end funds represent approximately 21% of the assets in the Mutual Funds
and 11% of the total assets under management of the Company at September 30,
1998. The Company's assets under management consist of a broad range of U.S. and
international stock, bond and money market mutual funds that meet the varied
needs and objectives of its Mutual Fund shareholders. At September 30, 1998,
over two-thirds of the Company's assets under management in open-end, no-load
equity Mutual Funds had been obtained through direct sales relationships.
The Company, through its affiliates, acts as adviser to all of the Mutual
Funds, except with respect to the Gabelli Capital Asset Fund in which the
Company acts as a subadviser and Guardian Investment Services Corporation, an
unaffiliated company, acts as manager. As subadviser, the Company makes
day-to-day investment decisions for the Gabelli Capital Asset Fund.
Funds Adviser, a wholly owned subsidiary of the Company, acts as the
investment adviser for all of the Mutual Funds other than the Gabelli Westwood
family of funds and the Treasurer's Funds.
Gabelli Advisers, Inc. acts as investment adviser to the Gabelli Westwood
family of funds and has retained Westwood Management to act as subadviser for
five of the six portfolios. Westwood Management is a wholly owned subsidiary of
Southwest Securities Group, Inc., a publicly held securities brokerage firm. In
its capacity as subadviser, Westwood Management makes day-to-day investment
decisions and provides the portfolio management services for five of the six
current Gabelli Westwood portfolios. The Gabelli Westwood Mighty Mites(SM) Fund,
launched in May 1998, is advised solely by Gabelli Advisers, Inc., using a team
investment approach, without any subadvisers. Westwood Management owns 100% of
the Class A common stock of Gabelli Advisers, Inc. (representing 20% of the
economic interest), and is not an affiliate of the Company. The Company believes
that Gabelli Advisers, Inc. will serve as a platform for future growth and
diversification of the Company's product line.
Gabelli Fixed Income, LLC currently manages short-term and
short-intermediate term fixed income securities for the Treasurer's Funds as
well as for the Separate Accounts. In the future, the Company plans to further
increase and diversify the number of fixed income products offered by Gabelli
Fixed Income, LLC. Certain members of senior management of Gabelli Fixed Income,
LLC own a 19.9% equity interest in it.
38
<PAGE> 40
The following table lists the Mutual Funds, together with the December 31,
1998 Morningstar overall rating, where rated (ratings are not available for the
money-market Mutual Funds and other Mutual Funds, which collectively represent
15% of the assets under management in the Mutual Funds), the portfolio
manager(s) and associate portfolio managers(s) for such Mutual Fund, and
provides a description of the primary investment objective, fund
characteristics, fees, the date that the Mutual Fund was initially offered to
investors and the assets under management in the Mutual Fund as of September 30,
1998 and December 31, 1998.
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND ----------------------------
(MORNINGSTAR OVERALL ADVISORY 12B-1 INITIAL SEPTEMBER 30, DECEMBER 31,
RATING)(1) PRIMARY INVESTMENT FUND FEES FEES OFFER 1998 1998
PORTFOLIO MANAGER(S) OBJECTIVE CHARACTERISTICS (%) (%) DATE ($ IN MILLIONS)
- --------------------- --------------------- --------------- -------- ----- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GABELLI OPEN-END FUNDS:
The Gabelli Growth Capital appreciation No-load, 1.00 .25 04/10/87 $1,405.5 $1,864.0
Fund from companies that Open-end,
(GRAPHIC - 5 STARS) have favorable, yet Diversified
undervalued,
Howard F. Ward prospects for
earnings growth.
Invests in equity
securities of
companies that have
above-average or
expanding market
shares and profit
margins.
The Gabelli Global High level of capital No-load, 1.00 .25 02/07/94 62.7 74.0
Interactive Couch appreciation through Open-end,
Potato(R) Fund investment in a Non-diversified
(GRAPHIC - 5 STARS) portfolio of equity
securities focused on
Marc J. Gabelli the entertainment,
media and
communications
sectors.
The Gabelli Asset Growth of capital as No-load, 1.00 .25 03/03/86 1,373.7 1,593.6
Fund a primary investment Open-end,
(GRAPHIC - 4 STARS) objective, with Diversified
current income as a
Mario J. Gabelli secondary investment
objective. Invests in
equity securities of
companies selling at
a significant
discount to their
private market value.
The Gabelli Equity High level of total No-load, 1.00 .25 01/02/92 79.7 87.2
Income Fund return with an Open-end,
(GRAPHIC - 4 STARS) emphasis on income Diversified
producing equities
Mario J. Gabelli with yields greater
James Foung than the S&P 500
average.
Gabelli International Capital appreciation No-load, 1.00 .25 06/30/95 25.2 26.8
Growth Fund by investing Open-end,
(GRAPHIC - 4 STARS) primarily in equity Diversified
securities of foreign
Caesar M.P. Bryan companies with rapid
growth in revenues
and earnings.
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND ----------------------------
(MORNINGSTAR OVERALL ADVISORY 12B-1 INITIAL SEPTEMBER 30, DECEMBER 31,
RATING)(1) PRIMARY INVESTMENT FUND FEES FEES OFFER 1998 1998
PORTFOLIO MANAGER(S) OBJECTIVE CHARACTERISTICS (%) (%) DATE ($ IN MILLIONS)
- --------------------- --------------------- --------------- -------- ----- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Gabelli Value High level of capital Load, Open-end, 1.00 .25 09/29/89 676.5 797.5
Fund appreciation from Non-diversified
(GRAPHIC - 3 STARS) undervalued equity
securities that are
Mario J. Gabelli held in a
concentrated
portfolio.
The Gabelli Small Cap High level of capital No-load, 1.00 .25 10/22/91 277.8 321.3
Growth Fund appreciation from Open-end,
(GRAPHIC - 3 STARS) equity securities of Diversified
smaller companies
Mario J. Gabelli with market
capitalization of
$500 million or less.
The Gabelli Global High level of capital No-load, 1.00 .25 11/01/94 136.5 170.1
Telecommunications appreciation through Open-end,
Fund worldwide investments Non-diversified
(GRAPHIC - 3 STARS) in equity securities,
including the U.S.,
Mario J. Gabelli primarily in the
Marc J. Gabelli telecommunications
industry.
The Gabelli ABC Fund Total returns from No-load, 1.00 .25 05/14/93 41.2 39.4
(GRAPHIC - 3 STARS) equity and debt Open-end,
securities that are Non-diversified
Mario J. Gabelli attractive to
investors in various
market conditions
without excessive
risk of capital loss.
The Gabelli Global High level of total No-load, 1.00 .25 02/03/94 6.9 7.3
Convertible return through a Open-end,
Securities Fund combination of Non-diversified
(GRAPHIC - 2 STARS) current income and
capital appreciation
A. Hartswell through investment in
Woodson, III convertible
securities of U.S.
and non-U.S. issuers.
Gabelli Gold Seeks capital No-load, 1.00 .25 07/11/94 13.1 11.3
Fund appreciation and Open-end,
(GRAPHIC - 1 STAR) employs a value Diversified
approach to investing
Caesar M.P. Bryan primarily in equity
securities of gold-
related companies
worldwide.
Gabelli U.S. Treasury High current income Money Market, .30 n/a 10/01/92 314.4 385.1
Money Market Fund with preservation of Open-end,
(Not rated) principal and Diversified
liquidity, while
Judith A. Raneri striving to keep
expenses among the
lowest of all U.S.
Treasury money market
funds.
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND ----------------------------
(MORNINGSTAR OVERALL ADVISORY 12B-1 INITIAL SEPTEMBER 30, DECEMBER 31,
RATING)(1) PRIMARY INVESTMENT FUND FEES FEES OFFER 1998 1998
PORTFOLIO MANAGER(S) OBJECTIVE CHARACTERISTICS (%) (%) DATE ($ IN MILLIONS)
- --------------------- --------------------- --------------- -------- ----- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gabelli Capital Asset Capital appreciation No-load, .75 n/a 05/01/95 134.3 155.8
Fund from equity Open-end,
(Not rated) securities of Diversified
companies selling at Variable
Mario J. Gabelli a significant Annuity
discount to their
private market value.
The Gabelli Global High level of capital No-load, 1.00 .25 05/11/98 5.0 5.9
Opportunity Fund appreciation through Open-end,
(Not rated) worldwide investments Non-diversified
in equity securities.
Caesar M.P. Bryan
Marc J. Gabelli
GABELLI WESTWOOD OPEN-END FUNDS:
Gabelli Westwood Capital appreciation Retail Class: 1.00 .25 01/02/87 177.9 202.1
Equity Fund through a diversified No-load,
(GRAPHIC - 4 STARS) portfolio of equity Open-end, .50 1/28/94
securities using a Diversified
Susan M. Byrne top- down approach Service Class:
that begins with an Load,
analysis of the Open-end,
broad, long-term Diversified
trends in the economy
and an assessment of
the business cycle
which identifies
sectors that will
benefit from that
environment.
Gabelli Westwood Both capital Retail Class: .75 .25 10/01/91 142.8 153.5
Balanced Fund appreciation and No-load,
(GRAPHIC - 4 STARS) current income using Open-end, .50 4/6/93
portfolios containing Diversified
Susan M. Byrne stocks, bonds, and Service Class:
Patricia K. Fraze cash as appropriate Load, Open-
in light of current end,
economic and business Diversified
conditions.
Gabelli Westwood Total return and No-load, .60 .25 04/06/93 7.6 7.9
Intermediate Bond current income, while Open-end,
Fund limiting risk to Diversified
(GRAPHIC - 3 STARS) principal. Pursues
higher yields than
Patricia K. Fraze shorter maturity
funds, and has more
price stability than
generally higher
yielding long-term
funds.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND ----------------------------
(MORNINGSTAR OVERALL ADVISORY 12B-1 INITIAL SEPTEMBER 30, DECEMBER 31,
RATING)(1) PRIMARY INVESTMENT FUND FEES FEES OFFER 1998 1998
PORTFOLIO MANAGER(S) OBJECTIVE CHARACTERISTICS (%) (%) DATE ($ IN MILLIONS)
- --------------------- --------------------- --------------- -------- ----- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gabelli Westwood Long-term capital No-load, 1.00 .25 04/15/97 11.7 15.7
SmallCap appreciation, Open-end,
Equity Fund investing at least Diversified
(Not rated) 65% of its assets in
equity securities of
Lynda Calkin companies with market
capitalizations of $1
billion or less.
Gabelli Westwood Long-term capital No-load, 1.00 .25 05/11/98 4.8 6.1
Mighty Mites(SM) Fund appreciation by Open-end,
(Not rated) investing primarily Diversified
in equity securities
Mario J. Gabelli with market
Marc J. Gabelli capitalizations of
Laura K. Linehan $300 million or less.
Walter K. Walsh
Gabelli Westwood Long-term capital No-load, 1.00 .25 09/30/97 1.8 1.9
Realty Fund appreciation as well Open-end,
(Not rated) as current income, Diversified
investing in equity
Susan M. Byrne securities that are
primarily engaged in
or related to the
real estate industry.
THE TREASURER'S OPEN-END MONEY MARKET FUNDS:
The Treasurer's Fund, Current income with No-load, .30 n/a 01/01/88 345.0 357.9
Inc. -- Domestic preservation of Open-end,
Prime Money Market principal and Diversified
Portfolio liquidity through
(Not rated) investment in U.S.
Treasury securities
Judith A. Raneri and corporate bonds.
The Treasurer's Current income with No-load, .30 n/a 12/18/87 207.5 177.1
Fund, Inc. -- Tax preservation of Open-end,
Exempt Money Market principal and Non-diversified
Portfolio liquidity through
(Not rated) investment in U.S.
municipal bond
Judith A. Raneri securities.
The Treasurer's Current income with No-load, .30 n/a 07/25/90 111.6 109.8
Fund, Inc. -- U.S. preservation of Open-end,
Treasury Money Market principal and Diversified
Portfolio liquidity through
(Not rated) investment in U.S.
Treasury securities.
Judith A. Raneri
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
NET ASSETS AS OF
FUND ----------------------------
(MORNINGSTAR OVERALL ADVISORY 12B-1 INITIAL SEPTEMBER 30, DECEMBER 31,
RATING)(1) PRIMARY INVESTMENT FUND FEES FEES OFFER 1998 1998
PORTFOLIO MANAGER(S) OBJECTIVE CHARACTERISTICS (%) (%) DATE ($ IN MILLIONS)
- --------------------- --------------------- --------------- -------- ----- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GABELLI CLOSED-END FUNDS:
The Gabelli Global Long-term capital Closed-end, 1.00 n/a 11/15/94 141.2 163.8
Multimedia Trust Inc. appreciation from Non-Diversified
(GRAPHIC - 5 STARS) equity investments in NYSE
global telecommunica- Symbol: GGT
Mario J. Gabelli tions, media,
publishing and
entertainment
holdings.
The Gabelli Equity Long-term growth of Closed-end, 1.00 n/a 08/14/86 1,212.8 1,341.5
Trust Inc.(2) capital by investing Non-Diversified
(GRAPHIC - 3 STARS) in equity securities. NYSE
Symbol: GAB
Mario J. Gabelli
The Gabelli High total return Closed-end, 1.00 n/a 07/03/89 116.8 120.7
Convertible from investing Diversified
Securities Fund, Inc. primarily in NYSE
(GRAPHIC - 3 STARS) convertible Symbol: GCV
instruments.
Mario J. Gabelli
</TABLE>
- ---------------
(1) Morningstar proprietary ratings reflect historical risk adjusted performance
as of December 31, 1998 and are subject to change every month. Overall
Morningstar ratings are calculated from the fund's three-, five- and
ten-year average annual returns, as available, in excess of 90 day T-bill
returns with appropriate fee adjustments and a risk factor that reflects
fund performance below 90 day T-bill returns. The top 10% of the funds in an
investment category receive five stars, the next 22.5% receive four stars,
the next 35% receive three stars, the next 22.5% receive two stars and the
last 10% receive one star. The ratings for the Gabelli Westwood funds are
for the retail classes.
(2) The Gabelli Equity Trust has announced its intention to spin-off
approximately $60 million to $80 million of its assets in the form of shares
of a new closed-end fund that will invest primarily in the securities of
companies involved in the gas, electricity and water industries (the utility
sector).
Shareholders of the no-load open-end Mutual Funds are allowed to exchange
shares among the funds as economic and market conditions and investor needs
change at no additional cost. The Company periodically introduces new mutual
funds designed to complement and expand its investment product offerings,
respond to competitive developments in the financial marketplace, and meet the
changing needs of clients.
The Company's marketing efforts for the Mutual Funds are currently focused
on increasing the distribution and sales of its existing funds, as well as
creating new products for sale through its distribution channels. The Company
believes that its marketing efforts for the Mutual Funds will continue to
generate additional revenues from investment advisory fees. The Company has
traditionally distributed most of its open-end Mutual Funds by using a variety
of direct response marketing techniques, including telemarketing and
advertising, and as a result the Company maintains direct relationships with a
majority of its no-load open-end Mutual Fund customers. Beginning in late 1995,
the Company expanded its product distribution by offering additional open-end
Mutual Funds through Third-Party Distribution Programs, including NTF Programs.
In 1997 and through the first nine months of 1998, the Company further expanded
these efforts to include substantially all of its open-end Mutual Funds in over
60 Third-Party Distribution Programs. Although most of the assets under
management in the open-end Mutual Funds are still attributable to the Company's
direct response marketing efforts, Third-Party Distribution Programs,
particularly NTF Programs, have become an increasingly important source of asset
growth for the Company. Of the $5.5 billion of assets under management in the
open-end Mutual Funds as of September 30, 1998, approximately 16% were generated
from NTF Programs. Sales (net of redemptions) of the Company's open-end Mutual
Funds through the NTF Programs were approximately $96 million, $194 million and
$476 million for the first and second halves of 1997 and the first half of 1998,
respectively. In the first nine months of 1998, sales (net of redemptions) of
the Mutual Funds were $1.0 billion, of which approximately 50% was generated
from direct marketing and approximately 50% was generated from the NTF Programs.
Further, the Company has commenced development of additional classes of shares
for several of its mutual funds for sale through national brokerage and
investment houses and other third-party distribution channels on a commission
basis.
43
<PAGE> 45
In general, distribution through Third-Party Distribution Programs has greater
variable cost components and lower fixed cost components than distribution
through the Company's traditional direct sales methods.
The Company provides investment advisory and management services pursuant
to an investment management agreement with each Mutual Fund. While the specific
terms of the investment management agreements vary to some degree, the basic
terms of the investment management agreements are similar. The investment
management agreements with the Mutual Funds generally provide that the Company
is responsible for the overall investment and administrative services, subject
to the oversight of each Mutual Fund's board of directors and in accordance with
each Mutual Fund's fundamental investment objectives and policies. The
investment management agreements permit the Company to enter into separate
agreements for administrative and accounting services on behalf of the
respective Mutual Funds.
The Company provides the Mutual Funds with administrative services pursuant
to management contracts. Most of these administrative services are provided
through subcontracts with unaffiliated third parties. Such services include,
without limitation, calculation of net asset value, preparation of financial
reports for shareholders of the Mutual Funds, internal accounting, tax
accounting and reporting, regulatory filings, and other services. Transfer
agency and custodial services are provided directly to the Mutual Funds by third
parties.
The Company's Mutual Fund investment management agreements may continue in
effect from year to year only if specifically approved at least annually by (i)
the Mutual Fund's board of directors or trustees or (ii) the Mutual Fund's
shareholders and, in either case, the vote of a majority of the Mutual Fund's
directors or trustees who are not parties to the agreement or "interested
persons" of any such party, within the meaning of the Investment Company Act.
Each Mutual Fund may terminate its investment management agreement at any time
upon 60 days' written notice by (i) a vote of the majority of the board of
directors or trustees cast in person at a meeting called for the purpose of
voting on such termination or (ii) a vote at a meeting of shareholders of the
lesser of either 67% of the voting shares represented in person or by proxy or
50% of the outstanding voting shares of such Mutual Fund. Each investment
management agreement automatically terminates in the event of its assignment, as
defined in the Investment Company Act. The Offering will not constitute an
"assignment" for the purposes of the Investment Company Act. The Company may
terminate an investment management agreement without penalty on 60 days' written
notice.
SEPARATE ACCOUNTS
Since 1977, the Company has provided investment management services through
its subsidiary GAMCO to a broad spectrum of institutional and high net worth
investors. As of September 30, 1998, the Company had approximately 950 Separate
Accounts with an aggregate of approximately $6.7 billion of assets, which
represent approximately 48% of the total assets under management of the Company
at September 30, 1998. The ten largest Separate Accounts comprise approximately
15% of the Company's total assets under management and 7% of the Company's total
revenues as of and for the period ended September 30, 1998. The Separate
Accounts are invested in U.S. and international equity securities, U.S.
fixed-income securities and convertible securities. At September 30, 1998, high
net worth accounts (accounts of individuals and related parties in general
having a minimum account balance of $1 million) comprised approximately 78% of
the number of Separate Accounts and approximately 25% of the assets, with
institutional investors accounting for the balance.
Each Separate Account portfolio is managed to meet the specific needs and
objectives of the particular client by utilizing investment strategies and
techniques within the Company's areas of expertise. Members of the sales and
marketing staff for the Separate Accounts business have an average of
approximately 10 years of experience with the Company and focus on developing
and maintaining long-term relationships with their Separate Account clients in
order to be able to understand and meet their individual clients' needs.
Investment advisory agreements with the Separate Accounts are typically
terminable by the client without penalty on 30 days' notice or less.
The Company's Separate Accounts business is marketed primarily through the
direct efforts of its in-house sales force. At September 30, 1998, over 95% of
the Company's assets in Separate Accounts (excluding subadvisory assets) were
obtained through direct sales relationships. Sales efforts are conducted on a
regional and product specialist basis. Clients are generally serviced by a team
of individuals, the core of which remain
44
<PAGE> 46
assigned to a specific client from the onset of the client relationship. The
Company's sales force maintains direct relationships with corporate pension and
profit sharing plans, foundations, endowment funds, jointly trusteed plans,
municipalities and high net worth individuals that comprise the Company's
Separate Accounts business.
PARTNERSHIPS
The Company offers alternative investment products through its
majority-owned subsidiary, GSI. These alternative investments products consist
primarily of risk arbitrage and merchant banking limited partnerships and
offshore companies. The Partnerships had $147 million of assets at September 30,
1998. Gabelli Associates Fund had $115 million of assets under management as of
September 30, 1998 and invests in merger arbitrage opportunities. Merchant
banking activities are carried out through ALCE Partners, L.P. ("Alce"), and
Gabelli Multimedia Partners, L.P. ("Multimedia"), both of which are closed to
new investors. Aggregate assets for Alce and Multimedia as of September 30, 1998
were approximately $9 million and $6 million, respectively. Gabelli Associates
Limited, which had approximately $17 million of assets as of September 30, 1998,
is an offshore investment company designed for non-U.S. investors seeking to
participate in risk arbitrage opportunities utilizing the same investment
objectives and strategies as the Gabelli Associates Fund. The Company also
manages the Gabelli International Gold Fund Limited, which as of September 30,
1998 had less than $1 million of assets. The Company's alternative investment
products are marketed primarily through its direct sales force. The Company does
not expect that assets invested in the Partnerships or other alternative
investment products will contribute significantly to the Company's future
growth.
BROKERAGE AND MUTUAL FUND DISTRIBUTION
The Company offers underwriting, execution and trading services through its
subsidiary, Gabelli & Company. Gabelli & Company is a broker-dealer registered
under the Securities Exchange Act of 1934 and a member of the NASD. Gabelli &
Company's revenues are derived primarily from distribution of the Mutual Funds,
brokerage commissions and selling concessions on transactions in equity
securities for the Mutual Funds, Separate Accounts and other customers, and from
underwriting fees and market-making activities.
The Company distributes the open-end Mutual Funds pursuant to distribution
agreements with each open-end Mutual Fund. Under each distribution agreement
with an open-end Mutual Fund, the Company offers and sells such open-end Mutual
Fund's shares on a continual basis and pays all of the costs of marketing and
selling the shares of such open-end Mutual Fund, including printing and mailing
prospectuses and sales literature, advertising and maintaining sales and
customer service personnel and sales and services fulfillment systems, and
payments to the sponsors of Third-Party Distribution Programs, financial
intermediaries and sales personnel of the Company. The Company receives fees for
such services pursuant to distribution agreements adopted under provisions of
Rule 12b-1. Distribution fees from the open-end Mutual Funds amounted to $4.7
million and $8.8 million for the nine months ended September 30, 1997 and 1998,
respectively, and $6.2 million, $7.1 million and $7.5 million for the years
ended December 31, 1995, 1996 and 1997, respectively. The Company is the
principal underwriter for several funds distributed with a sales charge,
including shares of The Gabelli Value Fund Inc. and service class shares of the
Gabelli Westwood Equity Fund and the Gabelli Westwood Balanced Fund.
Under the distribution agreements, the open-end Mutual Funds (except the
Treasurer's Funds, the Gabelli U.S. Treasury Money Market Fund and the Gabelli
Capital Asset Fund) pay the Company a distribution fee of .25% per year (except
the Service Class of the Gabelli Westwood Equity and Balanced Funds which pay
.50% per year) on the average daily net assets of the fund. The Company's
distribution agreements with the Mutual Funds may continue in effect from year
to year only if specifically approved at least annually by (i) the Mutual Fund's
board of directors or trustees or (ii) the Mutual Fund's shareholders and, in
either case, the vote of a majority of the Mutual Fund's directors or trustees
who are not parties to the agreement or "interested persons" of any such party,
within the meaning of the Investment Company Act. Each Mutual Fund may terminate
its distribution agreement, or any agreement thereunder, at any time upon 60
days' written notice by (i) a vote of the majority of its directors or trustees
cast in person at a meeting called for the purpose of voting on such termination
or (ii) a vote at a meeting of shareholders of the lesser of either 67% of the
voting shares represented in person or by proxy or 50% of the outstanding voting
shares of such Mutual Fund. Each distribution agreement automatically terminates
in the event of its assignment, as
45
<PAGE> 47
defined in the Investment Company Act. The Offering will not constitute an
"assignment" for the purposes of the Investment Company Act. The Company may
terminate a distribution agreement without penalty upon 60 days' written notice.
Gabelli & Company is involved in external syndicated underwriting
activities. For the nine months ended September 30, 1998, Gabelli & Company
participated as an underwriter in 28 syndicated underwritings with commitments
totaling $96 million for public equity and debt offerings managed by major
investment banks. During 1997, Gabelli & Company participated in 35 syndicated
underwritings with commitments totaling $51 million.
COMPETITION
The Company competes with mutual fund companies and other investment
management firms, insurance companies, banks, brokerage firms and other
financial institutions that offer products which have similar features and
investment objectives to those offered by the Company. Many of the investment
management firms with which the Company competes are subsidiaries of large
diversified financial companies and many others are much larger in terms of
assets under management and revenues and, accordingly, have much larger sales
organizations and marketing budgets. Historically, the Company has competed
primarily on the basis of the long-term investment performance of many of its
funds. However, the Company has determined that competing primarily on the basis
of performance is inadequate and accordingly, the Company has taken steps over
the past two years to substantially increase its distribution channels, brand
name awareness and marketing efforts. Although there can be no assurance that
the Company will be successful in these efforts, its net sales of Mutual Funds
have increased significantly over the past year and the Company's strategy is to
continue to devote significant additional resources to its sales and marketing
efforts.
The market for providing investment management services to institutional
and high net worth Separate Accounts is also highly competitive. Approximately
41% and 43% of the Company's investment management fee revenues for the nine
months ended September 30, 1998 and year ended December 31, 1997, respectively,
was derived from its Separate Accounts. Selection of investment advisers by U.S.
institutional investors is often subject to a screening process and to favorable
recommendation by investment industry consultants. Many of these investors
require their investment advisers to have a successful and sustained performance
record, often five years or longer, and also focus on one and three year
performance records. The Company has significantly increased its assets under
management on behalf of U.S. institutional investors since its entry into the
institutional asset management business in 1977. At the current time, the
Company believes that its investment performance record would be attractive to
potential new institutional and high net worth clients and the Company has
determined to devote additional resources to the institutional and high net
worth investor markets. However, no assurance can be given that the Company's
efforts to obtain new business will be successful.
INTELLECTUAL PROPERTY
Service marks and brand name recognition are important to the Company's
business. The Company has rights to the service marks under which its products
are offered. The Company has registered certain service marks in the United
States and will continue to do so as new trademarks and service marks are
developed or acquired. The Company has rights to use (i) the "Gabelli" name,
(ii) the "GAMCO" name, (iii) the research triangle logo, (iv) the "Interactive
Couch Potato" name, and (v) the "Mighty Mites" name. Pursuant to an assignment
agreement, Mr. Gabelli has assigned to the Company all of his rights, title and
interests in and to the "Gabelli" name for use in connection with investment
management services, mutual funds and securities brokerage services. However,
under the agreement, Mr. Gabelli will retain any and all right, title and
interest he has or may have in the "Gabelli" name for use in connection with (i)
charitable foundations controlled by Mr. Gabelli or members of his family or
(ii) entities engaged in private investment activities for Mr. Gabelli or
members of his family. In addition, the funds managed by Mr. Gabelli outside the
Company have entered into a license agreement with the Company permitting them
to continue limited use of the "Gabelli" name under specified circumstances. The
Company has taken, and will continue to take, action to protect its interests in
these service marks.
46
<PAGE> 48
STAFF
At December 31, 1998, the Company had a full-time staff of approximately
133 individuals, of whom 40 served in the portfolio management, research and
trading areas, 47 served in the marketing and shareholder servicing areas and 46
served in the administrative area. As part of its staff, the Company employs ten
portfolio managers for the Mutual Funds, Separate Accounts and Partnerships.
Additionally, Westwood Management employs three portfolio managers who advise
five of the six portfolios of the Gabelli Westwood family of funds.
PROPERTIES
As of December 31, 1998, the principal properties leased by the Company for
use in its business were as follows:
<TABLE>
<CAPTION>
LOCATION LEASE EXPIRATION SQUARE FOOTAGE
-------- ---------------- --------------
<S> <C> <C>
Gabelli Funds, Inc. ...................................... December 11, 2001 24,555
One Corporate Center
Rye, New York 10580
Gabelli Funds, Inc. ...................................... April 30, 2013 60,055
401 Theodore Fremd Avenue
Rye, New York 10580
Gabelli & Company, Inc. .................................. month-to-month 4,177
655 Third Avenue, Suite 1425
New York, New York 10017
Gabelli Funds, Inc. ...................................... month-to-month 1,599
165 West Liberty Street
Reno, Nevada 89501
</TABLE>
All of these properties are used or will be used by the Company as office
space. The building and property at 401 Theodore Fremd Avenue were leased from
an entity controlled by members of Mr. Gabelli's family, and approximately
35,000 square feet are currently subleased to other tenants. The Company has
begun relocating certain departments of the Company to these premises and
expects to completely relocate its principal executive office to these premises
in the year 2001. See "Certain Relationships and Related
Transactions -- Transactions with Mr. Gabelli and Affiliates."
REGULATION
Virtually all aspects of the Company's businesses are subject to various
federal and state laws and regulations. These laws and regulations are primarily
intended to protect investment advisory clients and shareholders of registered
investment companies. Under such laws and regulations, agencies that regulate
investment advisers and broker-dealers such as the Company have broad
administrative powers, including the power to limit, restrict or prohibit such
an adviser or broker-dealer from carrying on its business in the event that it
fails to comply with such laws and regulations. In such event, the possible
sanctions that may be imposed include the suspension of individual employees,
limitations on engaging in certain lines of business for specified periods of
time, revocation of investment adviser and other registrations, censures, and
fines. The Company believes that it is in substantial compliance with all
material laws and regulations.
The business of the Company is subject to regulation at both the federal
and state level by the Commission and other regulatory bodies. Subsidiaries of
the Company are registered with the Commission under the Investment Advisers
Act, and the Mutual Funds are registered with the Commission under the
Investment Company Act. Two subsidiaries of the Company are also registered as
broker-dealers with the Commission and are subject to regulation by the NASD and
various states.
The subsidiaries of the Company that are registered with the Commission
under the Investment Advisers Act (Funds Adviser, Gabelli Advisers, Inc.,
Gabelli Fixed Income, LLC and GAMCO) are regulated by and subject to examination
by the Commission. The Investment Advisers Act imposes numerous obligations on
registered investment advisers including fiduciary duties, record keeping
requirements, operational requirements, marketing requirements and disclosure
obligations. The Commission is authorized to institute proceedings and impose
sanctions for violations of the Investment Advisers Act, ranging from censure to
termination of an investment adviser's registration. The failure of a subsidiary
of the Company to comply with
47
<PAGE> 49
the requirements of the Commission could have a material adverse effect on the
Company. The Company believes it is in substantial compliance with the
requirements of the Commission.
The Company derives a substantial majority of its revenues from investment
advisory services through its investment management agreements. Under the
Investment Advisers Act, the Company's investment management agreements
terminate automatically if assigned without the client's consent. Under the
Investment Company Act, advisory agreements with registered investment companies
such as the Mutual Funds terminate automatically upon assignment. The term
"assignment" is broadly defined and includes direct assignments as well as
assignments that may be deemed to occur, under certain circumstances, upon the
transfer, directly or indirectly, of a controlling interest in the Company. The
Offering will not constitute an assignment for these purposes. Accordingly, the
Company does not intend to seek approvals of new investment advisory agreements
from the shareholders of the registered investment companies it manages or other
client consents in connection with these transactions.
In its capacity as a broker-dealer, Gabelli & Company is required to
maintain certain minimum net capital and cash reserves for the benefit of its
customers. Gabelli & Company's net capital, as defined, has consistently met or
exceeded all minimum requirements. Under the rules and regulations of the
Commission promulgated pursuant to the federal securities laws, the Company is
subject to periodic examination by the Commission. Gabelli & Company is also
subject to periodic examination by the NASD. The most recent examination by the
Commission of the Gabelli family of funds was in June 1998 and of the Gabelli
Westwood family of funds was in November 1997. The most recent examination of
Gabelli & Company by the NASD was in September 1998. There were no material
compliance issues reported by either the Commission or the NASD as a result of
such examinations.
Subsidiaries of the Company are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and to regulations promulgated
thereunder, insofar as they are "fiduciaries" under ERISA with respect to their
clients. ERISA and 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 ERISA plan clients. The
failure of the Company to comply with these requirements could have a material
adverse effect on the Company.
Investments by the Company on behalf of its clients often represent a
significant equity ownership position in an issuer's class of stock. As of
September 30, 1998, the Company had five percent or more beneficial ownership
with respect to more than 85 equity securities. This activity raises frequent
regulatory and legal issues regarding the Company's aggregate beneficial
ownership level with respect to portfolio securities, including issues relating
to issuers' shareholder rights plans or "poison pills," state gaming laws and
regulations, federal communications laws and regulations, public utility holding
company laws and regulations, federal proxy rules governing shareholder
communications and federal laws and regulations regarding the reporting of
beneficial ownership positions. The failure of the Company to comply with these
requirements could have a material adverse effect on the Company.
Mr. Gabelli is registered with the U.S. Commodity Futures Trading
Commission/National Futures Association as a floor broker and commodity pool
operator.
The Company and certain of its affiliates are subject to the laws of
non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies. In
particular, the Company is subject to requirements in numerous jurisdictions
regarding reporting of beneficial ownership positions in securities issued by
companies whose securities are publicly traded in those countries. In addition,
GAMCO is registered as an international adviser, investment counsel and
portfolio manager with the Ontario Securities Commission in Canada in order to
market its services to prospective clients which reside in Ontario. Gabelli
Associates Limited is organized under the laws of the British Virgin Islands and
Gabelli International Gold Fund Limited is organized under the laws of Bermuda.
LEGAL MATTERS
From time to time, the Company is a defendant in various lawsuits
incidental to its business. The Company does not believe that the outcome of any
current litigation will have a material effect on the financial condition of the
Company.
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<PAGE> 50
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the persons
who will serve as the Company's directors and executive officers upon
consummation of the Offering. All directors will serve terms of one year or
until the election of their respective successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Mario J. Gabelli..... 56 Chairman of the Board, Chief Executive Officer and Chief
Investment Officer, Director
Stephen G. Bondi..... 40 Executive Vice President -- Finance and Administration
James E. McKee....... 35 Vice President, General Counsel and Secretary
Robert S. Zuccaro.... 42 Vice President and Chief Financial Officer
Douglas R.
Jamieson........... 44 Executive Vice President and Chief Operating Officer of
Gabelli Asset Management Company
Bruce N. Alpert...... 47 Executive Vice President and Chief Operating Officer of
Funds Adviser
Charles C. Baum...... 57 Director
Richard B. Black..... 65 Director
Eamon M. Kelly....... 62 Director
Karl Otto Pohl....... 69 Director
</TABLE>
MARIO J. GABELLI has served as Chairman, Chief Executive Officer and Chief
Investment Officer of the Company since November 1976 and of Gabelli Partners
since its inception. In connection with those responsibilities, he serves as
Chairman and/ or President of thirteen registered investment companies managed
by Funds Adviser and as the primary Portfolio Manager for a significant majority
of the Company's assets under management. Mr. Gabelli also serves as a Governor
of the American Stock Exchange, Chairman and Chief Executive Officer of Lynch
Corporation, a public company engaged in multimedia, specialized transportation
and manufacturing and as a director of East/West Communications, Inc., a
publicly-held communications services company. In addition, Mr. Gabelli is the
sole employee of MJG Associates, Inc., which acts as a general partner of an
equity fund, Gabelli Performance Partnership L.P., and investment manager of
various offshore investment companies and other accounts. Prior to founding the
Company, Mr. Gabelli served as a research analyst at William D. Witter from 1975
through 1977 and as a Vice President of Loeb, Rhoades & Co. from 1967 through
1975. Mr. Gabelli received a B.S. from Fordham University and an M.B.A. from
Columbia University Graduate School of Business.
STEPHEN G. BONDI joined the Company in 1982 and has served as Executive
Vice President -- Finance and Administration of the Company since 1997 and from
1982 to 1997 as a financial officer in various capacities. Mr. Bondi also serves
as Vice President of GAMCO, GSI and Gabelli & Company and is a director of
Gabelli & Company. Prior to joining the Company, Mr. Bondi was an accountant
with the accounting firm of Spicer & Oppenheim. He holds a B.B.A. in Accounting
from Hofstra University, received an M.B.A. from Columbia University Graduate
School of Business and is a Certified Public Accountant.
JAMES E. MCKEE has served as Vice President, General Counsel and Secretary
of the Company since August 1995 and as Vice President, General Counsel and
Secretary of GAMCO since December 1993. Mr. McKee also serves as Secretary of
the Company's subsidiaries and all of the Mutual Funds except the Treasurer's
Funds. Prior to joining the Company, he was a Branch Chief with the Commission
in New York from 1992 to 1993 and a Staff Attorney with the Commission from 1989
through 1992, where he worked on matters involving registered investment
advisers and investment companies. Mr. McKee received a B.A. from the University
of Michigan and a J.D. from the University of Virginia School of Law.
ROBERT S. ZUCCARO has served as Vice President and Chief Financial Officer
of the Company since June 1, 1998. Prior to joining the Company, he was Vice
President and Treasurer of Cybex International, Inc., an international, publicly
held manufacturer of medical, rehabilitative and fitness products, from 1992 to
1997, and served as its Corporate Controller from 1984 to 1997. Mr. Zuccaro was
previously with Shearson Lehman
49
<PAGE> 51
Bros. from 1983 to 1984 and with Ernst & Young from 1979 to 1983. Mr. Zuccaro
received a B.S. in Accounting from C.W. Post College and is a Certified Public
Accountant.
DOUGLAS R. JAMIESON has served as Executive Vice President and Chief
Operating Officer of GAMCO since 1986 and as a director since 1991. Mr. Jamieson
was an investment analyst with the Company from 1981 to 1986. Mr. Jamieson
received a B.A. from Bucknell University and an M.B.A. from Columbia University
Graduate School of Business.
BRUCE N. ALPERT has served as Vice President and Chief Operating Officer of
Funds Adviser since June 1988 and was appointed Executive Vice President and
Chief Operating Officer of Funds Adviser on January 1, 1999. Mr. Alpert is an
officer of all of the Mutual Funds. Mr. Alpert is also a director of Gabelli
Advisers, Inc. Prior to June 1988 he worked at the InterCapital Division of Dean
Witter from 1986 to 1988 as Vice President and Treasurer of the Mutual Funds
sponsored by Dean Witter. From 1983 through 1986 he worked at Smith Barney
Harris Upham & Co. as Vice President in the Financial Services Division and as
Vice President and Treasurer of Mutual Funds sponsored by Smith Barney. Mr.
Alpert also was an Audit Manager and Specialist at Price Waterhouse in the
Investment Company Industry Services Group from 1975 through 1983. Mr. Alpert
received a B.S. in Management Science and an M.B.A. from Rensselaer Polytechnic
Institute and is a Certified Public Accountant.
CHARLES C. BAUM joined the Company's Board of Directors in October 1992.
Mr. Baum has also served since August 1992 as Chairman and Chief Executive
Officer of The Morgan Group, Inc., a transportation services company and
subsidiary of Lynch Corporation, and as Treasurer of United Holdings Co., Inc.
and its predecessors and affiliates since 1973. United Holdings Co., Inc. was
involved in the metal business until 1990 when it shifted focus to concentrate
on investments in real estate and securities. Mr. Baum is also a director of
United Holdings Co.; Shapiro Robinson & Associates, a firm which represents
professional athletes; and Municipal Mortgage and Equity LLC, a company engaged
in the business of mortgage financing. Mr. Baum received an A.B. from Princeton
University, an M.B.A. from Harvard Business School and an LLB from Maryland Law
School.
RICHARD B. BLACK originally joined the Company's Board of Directors in
November 1982. He currently serves as President and director of Oak Technology,
Inc., an international supplier of semiconductors, as well as Chairman and
Director of ECRM, Incorporated, an international supplier of electronic imaging
devices to the publishing and graphic arts industries. Mr. Black also serves as
a director of Benedetto, Gartland & Greene, Inc.; General Scanning, Inc.; Grand
Eagle Companies, Inc.; and The Morgan Group, Inc. Mr. Black was Chairman and
Chief Executive Officer of AM International, Inc. from 1981 to 1982; President
and Chief Executive Officer of Alusuisse of America (Swiss Aluminum of America)
from 1979 to 1981; and Chairman of the Board, President and Chief Executive
Officer of Maremont Corporation, an automotive parts manufacturer with
world-wide distribution, from 1967 to 1979. Mr. Black received a B.S. in
Engineering from Texas A&M University and an M.B.A. from Harvard University, and
he was awarded an Honorary Doctorate of Humane Letters Degree from Beloit
College.
EAMON M. KELLY joined the Company's Board of Directors in October 1992. Dr.
Kelly is currently serving as a Professor at the Payson Center for International
Development and Technology Transfer as well as in other departments at Tulane
University, New Orleans. From 1981 through July 1998, he served as President and
Chief Executive Officer of Tulane University. From 1974 to 1979, Dr. Kelly
served in numerous positions, including Officer-in-Charge of Program Related
Investments at the Ford Foundation, a philanthropic organization with
initiatives in community and housing development, communications and public
television, resources and environment, higher and public education, the arts and
minority enterprises. Dr. Kelly's career includes numerous appointments, most
recently, the appointments by President Clinton in 1995 to the National Science
Board (the governing board of the National Science Foundation) and in 1994 to
the National Security Education Board. Dr. Kelly received a B.S. from Fordham
University, and his M.S. and Ph.D. in Economics from Columbia University.
KARL OTTO POHL joined the Company's Board of Directors in April 1998. Mr.
Pohl is a member of the Shareholder Committee of Sal Oppenheim Jr., & Cie., a
private investment bank. Currently Mr. Pohl is a director/trustee of all of the
Mutual Funds and serves as a board member of Zurich Versicherungs-Gesellshaft
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<PAGE> 52
(Insurance), the International Council for J.P. Morgan & Co. and TrizecHahn
Corp. Mr. Pohl is a former President of the Deutsche Bundesbank, Germany's
Central Bank, and was Chairman of its Central Bank Council from 1980 to 1991. He
also served as German Governor of the International Monetary Fund from 1980 to
1991 and as a Board Member to the Bank for International Settlements. Mr. Pohl
also served as Chairman to the European Economic Community Central Bank
Governors from 1990 to 1991.
COMMITTEES OF THE BOARD OF DIRECTORS
Prior to completion of the Offering, the Company intends to establish an
Audit Committee comprised solely of independent directors, a Compensation
Committee, an Executive Committee and a Nominating Committee. The Audit
Committee will recommend the annual appointment of the Company's auditors, with
whom the Audit Committee will review the scope of audit and non-audit
assignments and related fees, accounting principles used by the Company in
financial reporting, internal auditing procedures and the adequacy of the
Company's internal control procedures. The Compensation Committee will
administer the Company's 1999 Stock Award and Incentive Plan and 1999 Annual
Performance Incentive Plan and make recommendations to the Board of Directors
regarding compensation for the Company's executive officers. In the absence of a
meeting of the Board of Directors, the Executive Committee is empowered to
exercise all the powers and authority of the Board of Directors in the
management of the business affairs of the Company, except that the Executive
Committee is not permitted to take any action that committees are prohibited
from taking under the laws of the State of New York. The Nominating Committee
will review the qualifications of potential candidates for the Board of
Directors, report its findings to the Board of Directors and propose nominations
for Board memberships for approval by the Board of Directors and submission to
the shareholders of the Company for approval.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional
compensation for their services as a director. Non-employee directors do not
currently receive fees for their service as directors, although it is
anticipated that non-employee directors will receive fees in the future. The
Company will reimburse all directors of the Company for travel expenses incurred
in attending meetings of the Board of Directors and its committees. See "Certain
Relationships and Related Transactions -- Transactions with Others."
EXECUTIVE COMPENSATION
The following table sets forth certain compensation awarded to, earned by
or paid to the Company's Chairman of the Board, Chief Executive Officer and
Chief Investment Officer and the four other most highly paid executive officers
of the Company who served as executive officers of the Company as of December
31, 1997, for services rendered in all capacities to the Company and its
subsidiaries during 1997.
51
<PAGE> 53
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------- ALL OTHER
NAMES AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION
- ----------------------------- ---- ----------- -------- ------------
<S> <C> <C> <C> <C>
Mario J. Gabelli................................ 1997 $33,584,674(1) $ 0 $ 908(2)
Chairman of the Board, Chief Executive Officer
and Chief Investment Officer
Douglas R. Jamieson............................. 1997 $ 1,206,026 $200,000 $27,214(3)
Executive Vice President and Chief Operating
Officer of GAMCO
Bruce N. Alpert................................. 1997 $ 308,394 $600,000 $49,366(3)
Executive Vice President and Chief Operating
Officer of Funds Adviser
Stephen G. Bondi................................ 1997 $ 300,000 $150,000 $ 6,446(3)
Executive Vice President -- Finance and
Administration
James E. McKee.................................. 1997 $ 300,000 $100,000 $12,261(3)
Vice President, General Counsel and Secretary
</TABLE>
- ---------------
(1) Represents the incentive-based management fee, portfolio management and
account executive fees and other variable compensation. Mr. Gabelli receives
no fixed salary. See Note J to the Consolidated Financial Statements of GFI
contained elsewhere in this Prospectus.
(2) Represents contributions made by the Company under its profit sharing plan.
(3) Represents contributions made by the Company under its profit sharing plan
in the amount of $908 and the fair value of subsidiary stock awards made to
Messrs. Jamieson, Alpert, Bondi and McKee worth $26,306, $48,458, $5,538 and
$11,353, respectively.
EMPLOYMENT AGREEMENTS
Prior to the Offering, Mr. Gabelli will have entered into an Employment
Agreement with the Company relating to his service as Chairman of the Board,
Chief Executive Officer, Chief Investment Officer of the Company, an executive
for certain subsidiaries and Portfolio Manager for certain Mutual Funds and
Separate Accounts, effective as of the consummation of the Offering. Under the
Employment Agreement, Mr. Gabelli will receive, as compensation for managing or
overseeing the management of investment companies and the Partnerships,
attracting mutual fund accounts, attracting or managing Separate Accounts,
providing investment banking services, acting as a broker or otherwise
generating revenues for the Company, a percentage of revenues or net profits
related to or generated by such activities (which revenues or net profits are
substantially derived from assets under management). Such payments will be made
in a manner and at rates as agreed to from time to time by Mr. Gabelli and the
Company, which rates have been and generally will be the same as those received
by other professionals in the Company performing similar services. Mr. Gabelli
will also receive an incentive-based management fee in the amount of 10% of the
aggregate pre-tax profits, if any, of the Company as computed for financial
reporting purposes in accordance with generally accepted accounting principles
before consideration of this fee so long as he is an executive of the Company
and devoting the substantial majority of his working time to its business. This
incentive-based management fee will be subject to review at least annually by an
independent committee of the Board for compliance with the terms hereof. Mr.
Gabelli has agreed that while he is employed by the Company or for five years
from the consummation of the Offering, whichever is longer, he will not provide
investment management services outside of the Company, except for the
Permissible Accounts. Pursuant to the Employment Agreement, Mr. Gabelli will
also receive a deferred payment of $50 million on January 2, 2002, plus interest
payable quarterly at an annual rate of 6%. Because these compensation
arrangements will be in existence before the completion of the Offering, the
$1.0 million deductibility limit of Section 162(m) is generally not expected to
apply to the payments until the first meeting of the Company's shareholders at
which directors will be elected after the close of the third calendar year
following the calendar year in which the Offering occurs. Thereafter, while no
assurance can be given, the Company believes that it will be able to take steps
to allow for the continued deductibility of these payments pursuant to the
Employment Agreement. The Employment Agreement may not be amended without the
approval of an independent committee of the Board.
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The Company has also entered into employment agreements and other
arrangements with several of its other key investment professionals which are
designed to retain them through variable compensation, equity ownership, stock
options, other incentives and non-solicitation or non-compete provisions. For
example, three of the Company's portfolio managers have employment agreements
with terms extending beyond January 2000 setting forth their compensation and
incentive arrangements and including certain restrictive covenants.
1999 STOCK AWARD AND INCENTIVE PLAN
In General
The Company has adopted the Gabelli Asset Management Inc. 1999 Stock Award
and Incentive Plan (the "Plan"). A maximum of 1,500,000 shares of Class A Common
Stock has been reserved for issuance under the Plan, generally subject to
equitable adjustment upon the occurrence of any stock dividend or other
distribution, recapitalization, stock split, reverse split, reorganization,
merger, consolidation, spin-off, combination, share repurchase or exchange, or
other similar corporate transaction or event.
Pursuant to the Plan, there may be granted stock options (including
"incentive stock options" and "nonqualified stock options"), stock appreciation
rights (either in connection with stock options granted under the Plan or
independent of options), restricted stock, restricted stock units, dividend
equivalents and other stock- or cash-based awards ("Awards"). After the
consummation of the Offering, the Plan is intended to satisfy any applicable
requirements of Rule 16b-3 ("Rule 16b-3") promulgated under Section 16 of the
Exchange Act and the deductions for amounts paid under the Plan are not expected
to be limited by Section 162(m) for federal income tax purposes.
The Plan will be administered by a committee established by the Board of
Directors, consisting of two or more persons each of whom is a "nonemployee
director" within the meaning of Rule 16b-3 (the "Committee"). The Committee
shall have full authority, subject to the provisions of the Plan, to, among
other things, determine the persons to whom Awards will be granted, determine
the terms and conditions (including any applicable performance criteria and the
circumstances in which Awards may be cancelled or forfeited) of such Awards, and
prescribe, amend and rescind rules and regulations relating to the Plan.
Grants of Awards may be made under the Plan to selected employees,
independent contractors and directors of the Company and its present or future
affiliates, at the discretion of the Committee.
Stock Options and Appreciation Rights
Stock options may be either "incentive stock options," as such term is
defined in Section 422 of the Code, or nonqualified stock options. The exercise
price of a nonqualified stock option may be above, at or below the fair market
value per share of Class A Common Stock on the date of grant; the exercise price
of an incentive stock option may not be less than the fair market value per
share of Class A Common Stock on the date of grant. The exercise price may be
paid in cash, by the surrender or withholding of Class A Common Stock or through
a "broker's cashless exercise" procedure meeting the requirements of 12 C.F.R.
sec. 220 or any successor thereof.
Stock appreciation rights may be granted alone or in tandem with stock
options. A stock appreciation right is a right to be paid an amount equal to the
excess of the fair market value of a share of Class A Common Stock on the date
the stock appreciation right is exercised over either the fair market value of a
share of Class A Common Stock on the date of grant (in the case of a free
standing stock appreciation right) or the exercise price of the related stock
option (in the case of a tandem stock appreciation right), with payment to be
made in cash, Class A Common Stock or both, as specified in the Award agreement
or determined by the Committee.
Stock options and stock appreciation rights will be exercisable at such
times and upon such conditions as the Committee may determine, as reflected in
the applicable Award agreement. In addition, all stock options and stock
appreciation rights will become exercisable in the event of a "change in
control" of the Company. The exercise period shall be determined by the
Committee except that such exercise period shall not exceed ten years from the
date of grant of such incentive stock option.
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Except to the extent that the applicable Award agreement provides
otherwise, in the event that the employment of a participant shall terminate,
such participant's right to exercise stock options and stock appreciation rights
will cease.
Restricted Stock and Restricted Stock Units
A restricted stock award is an award of Class A Common Stock ("Restricted
Stock") and a restricted stock unit award is an Award of the right to receive
cash or Class A Common Stock ("Restricted Stock Unit") at a future date, in each
case, that is subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date of grant, which
restrictions may lapse separately or in combination at such times, under such
circumstances, in such installments or otherwise, as the Committee may
determine. Except to the extent restricted under the Award agreement relating to
the Restricted Stock, a participant granted Restricted Stock shall have all of
the rights of a shareholder, including without limitation the right to vote and
the right to receive dividends thereon. The Committee has the authority to
cancel all or any portion of any outstanding restrictions. In addition, all
restrictions affecting the awarded shares or units will lapse in the event of a
"change in control" of the Company.
Upon termination of employment or termination of the independent contractor
relationship during the applicable restriction period, Restricted Stock,
Restricted Stock Units and any accrued but unpaid dividends or Dividend
Equivalents (as defined below) that are at that time subject to restrictions
will be forfeited unless the Committee provides, by rule or regulation or in any
Award agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock will be waived in whole or in
part in the event of terminations resulting from specified causes, and the
Committee may in other cases waive in whole or in part the forfeiture of
Restricted Stock.
Other Awards
The Committee may grant to a participant the right to receive cash in lieu
of Class A Common Stock equal in value to dividends paid with respect to a
specified number of shares of Class A Common Stock ("Dividend Equivalents").
Dividend Equivalents may be awarded on a free-standing basis or in connection
with another Award, and may be paid currently or on a deferred basis. The
Committee is also authorized to grant Class A Common Stock as a bonus or to
grant other Awards in lieu of Company commitments to pay cash under other plans
or compensatory arrangements, on such terms as shall be determined by the
Committee.
Transferability
Except as otherwise determined by the Committee, awards granted under the
Plan may not be transferred other than by will, or by the laws of descent and
distribution, or if permitted under Rule 16b-3, pursuant to a qualified domestic
relation order.
Amendment and Termination
The Plan may, at any time and from time to time, be altered, amended,
suspended or terminated by the Board of Directors, in whole or in part, except
that no amendment that requires shareholder approval in order for the Plan to
avoid the application of Section 162(m) for federal income tax purposes, or for
the Plan to comply with state law, stock exchange requirements or other
applicable law will be effective (except as otherwise determined by the
Committee) unless such amendment has received the requisite approval of
shareholders. In addition, no amendment may be made which adversely affects any
of the rights of a participant under any Award theretofore granted, without such
participant's consent.
Outstanding Awards
Effective with the Offering, the Board of Directors of the Company will
grant to certain employees (excluding Mr. Gabelli) stock options to acquire
1,200,000 shares of Class A Common Stock at an exercise
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price equal to the public offering price of the Class A Common Stock (net of the
discount payable to the Underwriters). These stock options vest three years from
the date of consummation of the Offering.
ANNUAL PERFORMANCE INCENTIVE PLAN
Prior to the consummation of the Offering, the Board will adopt the Gabelli
Asset Management Inc. 1999 Annual Performance Incentive Plan (the "Annual
Plan"), pursuant to which executive officers and professional staff members of
the Company and its subsidiaries will be eligible to receive annual incentive
bonuses. The Annual Plan will be administered by the Compensation Committee or a
subcommittee thereof. The Annual Plan will be effective for 1999 and each of
calendar years 2000, 2001 and 2002, after which time the Plan will terminate,
unless extended or terminated earlier by the Board of Directors of the Company.
Non-Employee Directors will not be eligible for awards under the Annual Plan.
Each year the Company will establish target incentive bonuses for
participants in the Annual Plan. Bonuses will be payable under the Annual Plan
for a year if the Company meets the performance criteria for such year selected
for a participant or group of participants by the compensation committee or such
subcommittee, which performance criteria may include, without limitation: (i)
earnings per share growth; (ii) revenue growth; (iii) growth in assets under
management; (iv) increase in consolidated net income; (v) return on equity; and
(vi) controlling operating expenses. The actual bonus payable to a participant,
which may equal, exceed or be less than the target bonus, will be determined
based on whether the applicable performance targets are met, exceeded or not
met, and may be decreased or increased based on individual performance and
contributions, or such other factors as the Compensation Committee or such
subcommittee may deem appropriate. Bonuses payable under the Annual Plan are not
subject to any predetermined limitations.
In addition, notwithstanding the foregoing, the Compensation Committee or
such subcommittee will have the right, in its discretion, to pay to any
participant an annual bonus based on individual performance or any other
criteria that the Compensation Committee deems appropriate and, in connection
with the hiring of any person or otherwise, the Compensation Committee may
provide for a minimum bonus amount in any calendar year, regardless of whether
performance objectives are attained.
Any such bonuses will be payable as soon as practicable after the
Compensation Committee certifies that the applicable performance criteria have
been obtained, or, in the case of bonuses that are not tied to such performance
criteria, at such time as the Compensation Committee determines.
A portion of a participant's annual incentive bonus may be payable in
Restricted Stock. Any such shares of Restricted Stock will generally vest over
three years.
Because the Annual Plan will be in existence before the completion of the
Offering, the $1 million deductibility limit of Section 162(m) is generally not
expected to apply to payments under the Annual Plan until the first meeting of
the Company's stockholders at which directors will be elected after the close of
the third calendar year following the calendar year in which the Offering
occurs. The Board or the Compensation Committee may, at any time, amend,
suspend, discontinue or terminate the Annual Plan; provided, however, that no
material modification to the Annual Plan will be effective without approval by
the shareholders of the Company.
OWNERSHIP OF THE COMMON STOCK
Immediately prior to the consummation of the Offering, Mario J. Gabelli,
One Corporate Center, Rye, New York, through his approximately two-thirds
ownership of Gabelli Partners, will beneficially own all of the outstanding
shares of Class B Common Stock of the Company. Immediately after consummation of
the Offering, Gabelli Partners will beneficially own all of the 24,000,000
outstanding shares of Class B Common Stock, which ownership will represent
approximately 97.6% of the combined voting power of the outstanding shares of
Common Stock of the Company (approximately 97.2% if the Underwriters'
over-allotment option is exercised in full). Accordingly, Mr. Gabelli, through
his approximately two-thirds ownership of Gabelli
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Partners, will beneficially own approximately 97.6% of the combined voting power
of the outstanding shares of Common Stock of the Company immediately following
consummation of the Offering (approximately 97.2% if the Underwriters'
over-allotment option is exercised in full). No other director or executive
officer of the Company will beneficially own any shares of Common Stock, and no
other person will beneficially own more than 5% of any class of the Common Stock
of the Company outstanding immediately after the consummation of the Offering.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain arrangements between the Company and
Mr. Gabelli and members of his immediate family. Although the Company believes
that these arrangements embody terms and conditions no less favorable to the
Company than could be obtained in negotiations between independent parties,
these arrangements were established before the Offering and were not the subject
of arm's-length negotiations. See "Risk Factors -- Control by Mr. Gabelli;
Conflicts of Interest."
THE FORMATION TRANSACTIONS
The Company is a holding company that was newly formed in connection with
the Offering and, accordingly, has not previously engaged in any business
operations, acquired any assets or incurred any liabilities other than in
connection with the Offering. Prior to the Offering, the Company will issue 24
million shares of its Class B Common Stock, representing all of its then issued
and outstanding shares of Common Stock to GFI for substantially all of the
operating assets and liabilities of GFI relating to its institutional and retail
asset management, mutual fund advisory, underwriting and brokerage business, at
which time GFI will be renamed "Gabelli Group Capital Partners, Inc." As a
result, Gabelli Partners, which is approximately two-thirds owned by Mr. Gabelli
with the balance owned by the Company's professional staff and other
individuals, will become the sole shareholder of the Company prior to the
consummation of the Offering. At such time, one of Gabelli Partners' most
significant assets will be its investment in the Company. Immediately following
the Offering, the Company will conduct its business operations through its
subsidiaries. After the consummation of the Offering, Gabelli Partners will own
all of the outstanding shares of Class B Common Stock, which will represent
approximately 97.6% of the combined voting power of the outstanding Common Stock
of the Company (97.2% if the Underwriters' over-allotment option is exercised in
full). The Company will continue to be controlled by Mr. Gabelli, who through
his approximately two-thirds ownership of Gabelli Partners will indirectly
beneficially own approximately 97.6% of the combined voting power of the
outstanding Common Stock of the Company (97.2% if the Underwriters'
over-allotment option is exercised in full).
Prior to the Offering, the Company and Mr. Gabelli will have entered into
an Employment Agreement which provides that Mr. Gabelli will receive an
incentive-based management fee of 10% of the aggregate pre-tax profits of the
Company as computed for financial reporting purposes in accordance with
generally accepted accounting principles before consideration of this fee so
long as he is an executive of the Company and devoting the substantial majority
of his working time to the business of the Company. The Employment Agreement
further provides that Mr. Gabelli will receive a deferred payment of $50 million
on January 2, 2002, plus interest payable quarterly at an annual rate of 6%. See
"Management -- Employment Agreements."
Effective with the Offering, the Company and Gabelli Partners will enter
into a Management Services Agreement, with a one year term and renewable
annually, under which the Company will provide certain services for Gabelli
Partners, including furnishing office space and equipment, providing insurance
coverage, overseeing the administration of its business and providing personnel
to perform certain administrative services.
Effective with the Offering, the Company will enter into an agreement with
Gabelli Partners (the "Tax Indemnification Agreement") to indemnify Gabelli
Partners and the shareholders of Gabelli Partners (the "Tax Indemnitees"),
against certain taxes due and payable by the Tax Indemnitees on or after the
Offering that relate to activities of Gabelli Partners or certain of its
affiliates in respect of periods prior to the Offering ("Taxes"). Generally,
when a corporation owns assets and conducts a business prior to a public
offering of its stock, such corporation continues to be liable for any unpaid
taxes relating to its business operations prior to
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such offering. However, since the operations of the Company were conducted by
Gabelli Partners and not the Company prior to the Offering, the Company is not
automatically liable for any unpaid taxes relating to such operations prior to
the Offering. Consequently, the Tax Indemnification Agreement has been agreed to
by the Company and Gabelli Partners to require the Company, and not Gabelli
Partners or the shareholders of Gabelli Partners, to bear the cost of Taxes
relating to the assets and operations of the Company prior to the Offering. The
Company will be required to make additional payments to offset any taxes payable
by a Tax Indemnitee in respect of payments made pursuant to the Tax
Indemnification Agreement. Any payment of Taxes by the Company will be offset by
any tax benefit received by the Tax Indemnitee. The Tax Indemnification
Agreement includes provisions that permit the Company to control any tax
proceeding or contest which might result in the Company being required to make a
payment under the Tax Indemnification Agreement.
The foregoing transactions are collectively referred to herein as the
"Formation Transactions."
TRANSACTIONS WITH MR. GABELLI AND AFFILIATES
Mr. Gabelli intends to continue devoting time to activities outside of the
Company, including managing his own assets and his family's assets, managing or
controlling companies in other industries and managing assets for other
investors through the Permissible Accounts (approximately $110 million as of
September 30, 1998). These activities may present conflicts of interest or
compete with the Company. In order to minimize conflicts and potential
competition with the Company's investment management business, Mr. Gabelli has
undertaken that so long as he is associated with the Company or for a period of
five years from the consummation of the Offering, whichever is longer, he will
not provide investment management services for compensation other than in his
capacity as an officer or employee of the Company except for the Permissible
Accounts. Prior to establishing any additional Permissible Accounts, Mr. Gabelli
has agreed to have a committee of independent directors review any proposed new
Permissible Account for conformity with the specific undertakings set forth
under "Risk Factors -- Control by Mr. Gabelli; Conflicts of Interests", and to
accept the committee's determination as final. See "Risk Factors -- Control by
Mr. Gabelli; Conflicts of Interest." The Certificate of Incorporation of the
Company expressly provides that in general Mr. Gabelli, members of his immediate
family who are officers and directors of the Company and entities controlled by
such persons have an obligation to present corporate opportunities to the
Company and resolve conflicts of interests through one of the processes
described in the Certificate of Incorporation, which include independent
director or independent shareholder approval. See "Description of Capital
Stock -- Certificate of Incorporation and Bylaw Provisions -- Overview of
Corporate Opportunity and Conflict of Interest Policies." As of the completion
of the Offering, it is expected that there will be no members of Mr. Gabelli's
immediate family who are officers or directors of the Company.
The Company will not derive any income from activities outside of the
Company by Mr. Gabelli, members of his immediate family who are officers and
directors of the Company and entities controlled by such persons, and the
Company may not be able to take advantage of business and investment
opportunities that could later prove to be beneficial to the Company and the
shareholders. Where a conflict of interest involves a transaction between Mr.
Gabelli, members of his immediate family who are officers and directors of the
Company or entities controlled by such persons and the Company, there can be no
assurance that the Company would not receive more favorable terms if it were
dealing with an unaffiliated party although the Company will seek to achieve
market-based terms in all such transactions. See "Risk Factors -- Control by Mr.
Gabelli; Conflicts of Interest" and "Description of Capital Stock -- Certificate
of Incorporation and Bylaw Provisions -- Overview of Corporate Opportunity and
Conflict of Interest Policies."
Among the existing activities outside of the Company (including the
Permissible Accounts) in which Mr. Gabelli is engaged, Mr. Gabelli will continue
to serve as Chairman of the Board, Chief Executive Officer and Chief Investment
Officer of Gabelli Partners, and as President and Chief Investment Officer of
MJG Associates, Inc. ("MJG Associates"), which is wholly owned by Mr. Gabelli
and which acts as investment manager for Gabelli Performance Partnership L.P. (a
domestic hedge fund), Gabelli International Limited (an offshore investment
company), Gabelli International II Limited (an offshore investment company),
Gabelli Fund, LDC (an offshore limited duration company) and an account for an
unaffiliated hedge fund. At
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September 30, 1998, such entities had assets under management of approximately
$110 million from unaffiliated third parties. Mr. Gabelli will also continue to
serve as managing member of Rivgam LMDS, LLC (a wireless communications
company). Mr. Gabelli will also continue to serve as the general partner of MJG
IV Limited Partnership (a family-controlled investment partnership), and as
President and a trustee of the Gabelli Foundation, Inc. (an accredited
charitable foundation). Mr. Gabelli also expects to continue to serve as
Chairman and Chief Executive Officer of Lynch Corporation (a public company
engaged in multimedia, specialized transportation and manufacturing businesses),
a director of East/West Communications, Inc. (a public company holding personal
communications services licenses) and a Governor of the American Stock Exchange.
Historically, the Company has been required to pay Mr. Gabelli as part of
his total compensation a management fee equal to 20% of the pre-tax profits of
each of the Company's operating units before consideration of this management
fee. This fee approximated $9,423,000, $10,192,000 and $10,580,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
Effective with the Offering, the Company will enter into an agreement with
Mr. Gabelli which provides that Mr. Gabelli will assign and transfer to the
Company any and all right, title and interest he has in the "Gabelli" name as a
trademark, service mark or corporate or trade name for use in connection with
investment management services, mutual funds and securities brokerage services.
However, under the agreement, Mr. Gabelli will retain any and all right, title
and interest he has or may have in the "Gabelli" name for use in connection with
(i) charitable foundations controlled by Mr. Gabelli or members of his family or
(ii) entities engaged in private investment activities for Mr. Gabelli or
members of his family. In addition, the funds managed by Mr. Gabelli outside the
Company have entered into a license agreement with the Company permitting them
to continue limited use of the "Gabelli" name under specified circumstances.
The Company and GAMCO made contributions to the Gabelli Foundation, Inc. of
approximately $1.0 million and $1.6 million in 1997 and 1996, respectively.
As of December 5, 1997, the Company entered into a master lease agreement
with M(4)E, LLC, which is owned by the children of Mr. Gabelli, for a 60,000
square foot building, of which approximately 35,000 square feet are currently
subleased to other tenants. The master lease for the building and property,
which is located at 401 Theodore Fremd Avenue, Rye, New York 10580, expires on
April 30, 2013. From December 5, 1997 through December 31, 2002, the Company has
agreed to pay rent equal to $720,000 per year. From January 1, 2003 through
December 31, 2003, the rent will increase to $756,000 per year. From January 1,
2004 through April 30, 2013, the rent will be a minimum of $756,000, adjusted
for inflation. The Company is responsible under the lease agreement for all
operating expenses, costs of electricity and other utilities and taxes. In
connection with the purchase of this building, the Company loaned M(4)E, LLC
$3.6 million in December 1997, which loan accrued interest at an annual rate of
7%. Such loan and interest thereon was repaid in March 1998.
As of December 5, 1997, the Company subleased to Lynch Corporation, an
entity for which Mario J. Gabelli serves as Chairman and Chief Executive Officer
and is an approximately 23% stockholder, approximately 5,000 square feet in the
building located at 401 Theodore Fremd Avenue, Rye, New York 10580. The sublease
has a five-year term. Lynch Corporation pays rent to the Company at the rate of
$18 per square foot, subject to adjustment for increases in taxes and other
operating expenses, plus a minimum payment of $2.50 per square foot for
electricity.
On August 12, 1996, the Company made a secured loan of $11.8 million to
Lynch Corporation, which accrued interest at the annual rate of 10% and a 1%
commitment fee. Such loan and interest thereon was repaid in August 1997. The
Company also received a special fee equal to a 10% net profits interest (after a
capital charge) in an entity now known as East/West Communications, Inc., which
interest was converted into a 10% equity interest in December 1997.
GAMCO has entered into agreements to provide advisory and administrative
services to MJG Associates, Inc., which is wholly owned by Mr. Gabelli, and to
GSI with respect to the private investment funds
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managed by each of them. Pursuant to such agreements, GSI and MJG Associates,
Inc. each paid GAMCO $50,000 (excluding reimbursement of expenses) in 1997.
In March 1997, the Company made a loan of $10 million to Lynch Corporation
which accrued interest at the prime rate and a 1% commitment fee. Such loan and
interest thereon was repaid in June 1997.
In February 1998, the Company guaranteed a $30 million loan made by The
Chase Manhattan Bank to Rivgam LMDS, LLC, an entity for which Mr. Gabelli is the
Managing Member and in which he has a 71% ownership interest. Such loan and
interest thereon was repaid in April 1998.
Gabelli Advisers, Inc. has two classes of stock. The Company owns 51.1% of
the Class B common stock of Gabelli Advisers, Inc. (representing approximately
40.9% of the total equity interest and 49.9% of the total voting power). The
remainder of the Class B common stock is owned by the Company's staff, including
34.9% owned by a limited partnership controlled by Mr. Gabelli and owned by him
and his children, 7% owned by Mr. Alpert, 1% owned by Mr. Jamieson, 1% owned by
Mr. Bondi and the remaining 5% owned by the other staff members. Westwood
Management, a wholly owned subsidiary of Southwest Securities Group, Inc., owns
all of the Class A common stock (representing 20% of the total equity interest
and 2.4% of the total voting power). In February 1998, Gabelli Advisers, Inc.
offered all of its shareholders the opportunity to subscribe to a $3 million
short-term debt offering in proportion to their economic ownership interest. In
lieu of interest, Gabelli Advisers, Inc. offered a total of 60,000 warrants
expiring in three years to acquire Class A common stock of Gabelli Advisers,
Inc. at $5 per share. The majority of the shareholders participated in this
offering, including Gabelli Partners, the above-mentioned limited partnership
and Messrs. Alpert, Bondi and Jamieson.
Gabelli Securities International Limited ("Gabelli Securities
International") was formed in 1994 to provide management and investment advisory
services to the Gabelli International Gold Fund Limited ("GIGFL"), an offshore
investment company investing primarily in securities of issuers with
gold-related activities. One of Mr. Gabelli's children owns 55% of Gabelli
Securities International and GSI owns the remaining 45%. GSI has entered into an
agreement with Gabelli Securities International to provide investment advisory
services to GIGFL in return for receiving all investment management fees paid by
GIGFL. Pursuant to such agreement, GSI received investment management fees of
$127,000, $162,000 and $14,000 in 1995, 1996 and 1997, respectively.
TRANSACTIONS WITH OTHER RELATED PARTIES
As required by the Company's Code of Ethics, the Company's staff members
are required to maintain their brokerage accounts at Gabelli & Company unless
they receive permission to maintain an outside account. Gabelli & Company offers
all of its staff the opportunity to engage in brokerage transactions at
discounted rates. Accordingly, many of the Company's staff members, including
senior management, have brokerage accounts at Gabelli & Company and have engaged
in securities transactions through it at discounted rates.
In connection with the acquisition of a limited partnership interest in a
private fund managed by the Company, Mr. Jamieson executed a demand note with
respect to a loan of $350,000, which accrues interest at an annual rate of 7%.
The Company has an agreement with Mr. Karl Otto Pohl to pay him an annual
retainer fee equal to the difference between $250,000 and the amounts received
by Mr. Pohl directly from the Mutual Funds for his service on the boards of
directors of the Mutual Funds.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 100,000,000 shares of Class B Common Stock, and
10,000,000 shares of Preferred Stock. No Preferred Stock is outstanding as of
the date of this Prospectus. Of the 100,000,000 shares of Class A Common Stock
authorized, the 6,000,000 shares being offered in the Offering (6,900,000 shares
if the Underwriters' over-allotment option is exercised in full) will be
outstanding, and 1,500,000 shares have been reserved for issuance pursuant to
certain employee benefits plans. See "Management -- 1999 Stock Award and
Incentive Plan." Of the 100,000,000 shares of Class B Common Stock authorized,
24,000,000 will be outstanding and held by
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Gabelli Partners upon consummation of the Offering. The following is a summary
description of all material terms and provisions relating to the Company's
capital stock, Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Amended and Restated Bylaws (the "Bylaws"), but is
qualified by reference to the Certificate of Incorporation and Bylaws, forms of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
COMMON STOCK
Voting Rights. The holders of Class A Common Stock and Class B Common
Stock have identical voting rights except that (i) holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common Stock
are entitled to ten votes per share on all matters to be voted on by
shareholders and (ii) holders of Class A Common Stock are not eligible to vote
on matters relating exclusively to Class B Common Stock and vice versa. Holders
of Shares of Class A Common Stock and Class B Common Stock are not entitled to
cumulate their votes in the election of directors. Generally, all matters to be
voted on by shareholders must be approved by a majority (or, in the case of
election of directors, by a plurality) of the votes entitled to be cast by all
shares of Class A Common Stock and Class B Common Stock present in person or
represented by proxy, voting together as a single class, subject to any voting
rights granted to holders of any Preferred Stock. Except as otherwise provided
by law, and subject to any voting rights granted to holders of any outstanding
Preferred Stock, amendments to the Company's Certificate of Incorporation
generally must be approved by a majority of the combined voting power of all
Class A Common Stock and Class B Common Stock voting together as a single class.
Amendments to the Company's Certificate of Incorporation that would alter or
change the powers, preferences or special rights of the Class A Common Stock or
the Class B Common Stock so as to affect them adversely also must be approved by
a majority of the votes entitled to be cast by the holders of the shares
affected by the amendment, voting as a separate class. Notwithstanding the
foregoing, any amendment to the Company's Certificate of Incorporation to
increase the authorized shares of any class or classes of Stock will be deemed
not to affect adversely the powers, preferences or special rights of the Class A
Common Stock or Class B Common Stock.
Dividends. Holders of Class A Common Stock and Class B Common Stock will
receive an equal amount per share in any dividend declared by the Board of
Directors, subject to any preferential rights of any outstanding Preferred
Stock. Dividends consisting of shares of Class A Common Stock and Class B Common
Stock may be paid only as follows: (i) shares of Class A Common Stock may be
paid only to holders of Class A Common Stock and shares of Class B Common Stock
may be paid only to holders of Class B Common Stock and (ii) shares will be paid
proportionally with respect to each outstanding share of Class A Common Stock
and Class B Common Stock.
Other Rights. On liquidation, dissolution or winding up of the Company,
after payment in full of the amounts required to be paid to holders of Preferred
Stock, if any, all holders of Common Stock, regardless of class, are entitled to
share ratably in any assets available for distribution to holders of shares of
Common Stock. No shares of Common Stock are subject to redemption or have
preemptive rights to purchase additional shares of Common Stock. Upon
consummation of the Offering, all the outstanding Shares of Class A Common Stock
and Class B Common Stock will be validly issued, fully paid and nonassessable.
In the event of any corporate merger, consolidation, purchase or
acquisition of property or stock, or other reorganization in which any
consideration is to be received by the holders of Class A Common Stock or the
holders of Class B Common Stock as a class, the holders of Class A Common Stock
and the holders of Class B Common Stock will receive the same consideration on a
per share basis; except that, if such consideration shall consist in any part of
voting securities (or of options or warrants to purchase, or of securities
convertible into or exchangeable for, voting securities), the holders of Class B
Common Stock may receive, on a per share basis, voting securities with up to ten
times the number of votes per share as those voting securities to be received by
the holders of Class A Common Stock (or options or warrants to purchase, or
securities convertible into or exchangeable for, voting securities with up to
ten times the number of votes per share as those voting securities issuable upon
exercise of the options or warrants, or into which the convertible or
exchangeable securities may be converted or exchanged, received by the holders
of Class A Common Stock). Accordingly, except with respect to voting rights, the
holders of Class B Common Stock will
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not receive greater value than the holders of Class A Common Stock in an
extraordinary corporate transaction involving the Company. In the event of any
corporate merger, consolidation, purchase of property or stock or other
reorganization to be accounted for under the pooling of interests method of
accounting, in which the Company issues common stock, the Company anticipates
that it will be required to issue shares of Class B Common Stock as
consideration for such transaction.
Preferred Stock. As of the date of this Prospectus, no shares of Preferred
Stock are outstanding. The Board of Directors may authorize the issuance of
Preferred Stock in one or more series and may determine, with respect to any
such series, the powers, preferences and rights of such series, and its
qualifications, limitations and restrictions, including, without limitation, (i)
the designation of the series; (ii) the number of shares of the series, which
number the Board of Directors may thereafter (except where otherwise provided in
the designations for such series) increase or decrease (but not below the number
of shares of such series then outstanding); (iii) whether dividends, if any,
will be cumulative or noncumulative and the dividend rate of the series; (iv)
the conditions upon which and the dates at which dividends, if any, will be
payable, and the relation that such dividends, if any, will bear to the
dividends payable on any other class or classes of Stock; (v) the redemption
rights and price or prices, if any, for shares of the series; (vi) the terms and
amounts of any sinking fund provided for the purchase or redemption of shares of
the series; (vii) the amounts payable on and the preferences, if any, of shares
of the series, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company; (viii) whether the
shares of the series will be convertible into shares of any other class or
series, or any other security, of the Company or any other corporation, and, if
so, the specification of such other class or series or such other security, the
conversion price or prices or rate or rates, any adjustments thereof, the date
or dates as of which such shares will be convertible and all other terms and
conditions upon which such conversion may be made; and (ix) the voting rights,
in addition to the voting rights provided by law, if any, of the holders of
shares of such series.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financings and acquisitions and in meeting other
corporate needs that might arise. The authorized shares of Preferred Stock will
be available for issuance without further action by the Company's shareholders
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded. The NYSE currently requires shareholder approval as a
prerequisite to listing shares in several circumstances, including where the
present or potential issuance of shares could result in an increase in the
number of shares of Common Stock outstanding, or in the amount of voting
securities outstanding, of at least 20%.
Although the Board of Directors has no current intention of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board of Directors will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its
shareholders. The Board of Directors, in so acting, could issue Preferred Stock
having terms that could discourage a potential acquirer from making, without
first negotiating with the Board of Directors, an acquisition attempt through
which such acquirer may be able to change the composition of the Board of
Directors, including a tender offer or other transaction that some, or a
majority, of the Company's shareholders might believe to be in their best
interests or in which shareholders might receive a premium for their stock over
the then current market price of such stock.
BUSINESS COMBINATION STATUTE
Section 912 of the New York Business Corporation Law ("NYBCL") prohibits a
company from entering into a business combination (e.g., a merger,
consolidation, sale of 10% or more of a company's assets or issuance of
securities with an aggregate market value of 5% or more of the aggregate market
value of all of the company's outstanding capital stock) with a beneficial owner
of 20% or more of a company's securities (a "20% shareholder") for a period of
five years following the date such beneficial owner became a 20% shareholder
(the "stock acquisition date"), unless, among other things, such business
combination or the purchase of stock resulting in the 20% shareholder's
beneficial ownership was approved by the Company's board of directors prior to
the stock acquisition date or the business combination is approved by the
affirmative
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vote of the holders of a majority of the outstanding voting stock exclusive of
the stock beneficially owned by the 20% shareholder. The Bylaws of the Company
were amended to provide that the Company will not be governed by Section 912 of
the NYBCL effective July 2000.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The summary set forth below describes certain provisions of the Certificate
of Incorporation and Bylaws. The summary is qualified in its entirety by
reference to the provisions of the Certificate of Incorporation and Bylaws,
copies of which will be filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
Certain of the provisions of the Certificate of Incorporation or the Bylaws
discussed below may have the effect, either alone or in combination with the
provisions of the NYBCL discussed above, of making more difficult or
discouraging a tender offer, proxy contest or other takeover attempt that is
opposed by the Board of Directors but that a shareholder might consider to be in
such shareholder's best interest. Those provisions include (i) restrictions on
the rights of shareholders to remove or elect directors; and (ii) prohibitions
against shareholders calling a special meeting of shareholders. In addition, the
Certificate of Incorporation contains provisions relating to the allocation of
certain corporate opportunities and resolution of certain potential conflicts of
interest. See "-- Overview of Corporate Opportunity and Conflict of Interest
Policies," "-- Corporate Opportunity Policy" and "-- Conflict of Interests
Policy."
Number of Directors; Removal; Filling Vacancies
The Bylaws provide that, subject to any rights of holders of Preferred
Stock to elect directors under specified circumstances, the number of directors
will be fixed from time to time exclusively pursuant to a resolution adopted by
directors constituting a majority of the total number of directors that the
Company would have if there were no vacancies on the Board of Directors (the
"Whole Board"), with the Whole Board consisting of not more than nine nor less
than five directors. The Certificate of Incorporation and Bylaws also provide
that, subject to any rights of holders of Preferred Stock or any other series or
class of Stock, and unless the Board of Directors otherwise determines, any
vacancies will be filled only by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. Accordingly, absent an
amendment to the Bylaws, the Board of Directors could prevent any shareholder
from enlarging the Board of Directors and filling the new directorships with
such shareholder's own nominees.
The Certificate of Incorporation provides that, subject to the rights of
holders of Preferred Stock to elect directors under specified circumstances,
effective as of the date on which Mr. Gabelli beneficially owns less than a
majority of the voting power of the Voting Stock (as defined below) (the
"Trigger Date"), a director may be removed only for cause and only upon the
affirmative vote of holders of at least 80% of the voting power of all the then
outstanding shares of Stock entitled to vote generally in the election of
directors ("Voting Stock"), voting together as a single class. Before the
Trigger Date, directors may be removed, without cause, with the affirmative vote
of the holders of at least a majority of the voting power of the then
outstanding Voting Stock, voting together as a single class.
Special Meetings
The Bylaws provide that, subject to the rights of holders of any series of
Preferred Stock to elect additional directors under specified circumstances and
the rights of shareholders to call a special meeting to elect a sufficient
number of directors to conduct the business of the Company under specified
circumstances, special meetings of shareholders can be called only by the Board
of Directors pursuant to a resolution adopted by a majority of the Whole Board
or the Chairman of the Board, except that prior to the Trigger Date, special
meetings can also be called at the request of the holders of a majority of the
voting power of the then outstanding Voting Stock. Accordingly, effective as of
the Trigger Date, shareholders will not be permitted to call a special meeting
or to require that the Board of Directors call a special meeting of shareholders
except under the limited circumstances described in the preceding sentence.
Moreover, the business permitted to be
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conducted at any special meeting of shareholders is limited to the business
brought before the meeting pursuant to the notice of meeting given by the
Company.
The provisions of the Bylaws permitting special meetings to be called only
by the Chairman or at the request of a majority of the Whole Board may have the
effect, after the Trigger Date, of delaying consideration of a shareholder
proposal until the next annual meeting. Moreover, a shareholder could not force
shareholder consideration of a proposal over the opposition of the Chairman or a
majority of the Whole Board by calling a special meeting of shareholders prior
to the time such parties believe such consideration to be appropriate.
Liability of Directors; Indemnification
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by the NYBCL, no director of the Company shall be liable to the
Company or it shareholders for monetary damages for the breach of fiduciary duty
in such capacity. Under the NYBCL, such provision does not eliminate or limit
the liability of any director (i) if a judgment or other final adjudication
adverse to such director establishes that his acts or omissions were in bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained a material profit or other advantage to which he was not
legally entitled or that his acts violated Section 719 of the NYBCL or (ii) for
any act or omission prior to the adoption of this provision. As a result of this
provision, the Company and its shareholders may be unable to obtain monetary
damages from a director for breach of his duty of care. Although shareholders
may continue to seek injunctive or other equitable relief for an alleged breach
of fiduciary duty by a director, shareholders may not have any effective remedy
against the challenged conduct if equitable remedies are unavailable.
The Bylaws provide that the Company will indemnify any person who was or is
a party to any threatened, pending, or completed action, suit or proceeding
because he or she is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director or
officer of another corporation, partnership or other enterprise. The Bylaws
provide that indemnification will be from and against expenses, judgments, fines
and amounts paid in settlement by the indemnitee. However, this indemnification
will only be provided if the indemnitee acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the Company, and, with respect to a criminal action or proceeding, if the
indemnitee had no reasonable cause to believe that his or her conduct was
unlawful.
Overview of Corporate Opportunity and Conflict of Interest Policies
In order to address certain potential conflicts of interest between the
Company and Mr. Gabelli, members of his immediate family and affiliates, Mr.
Gabelli and members of his immediate family who are currently officers or
directors of the Company have agreed to limitations on their activities in the
investment management business other than Permissible Accounts. See "Certain
Relationships and Related Transactions -- Transactions with Mr. Gabelli and
Affiliates." In addition, the Certificate of Incorporation contains provisions
concerning the conduct of certain affairs of the Company as they may involve Mr.
Gabelli, members of his immediate family and affiliates, and the powers, rights,
duties and liabilities of the Company and its subsidiaries and their respective
officers, directors and shareholders in connection therewith.
For purposes of these provisions, (i) the "Company" includes its
subsidiaries and other entities in which it beneficially owns 50% or more of the
outstanding voting securities or comparable interests, and (ii) a "Gabelli"
includes Mr. Gabelli, any member of his immediate family who is at the time an
officer or director of the Company and any entity in which one or more Gabellis
beneficially own a controlling interest of the outstanding voting securities or
comparable interests. "Corporate opportunities" potentially allocable to the
Company consist of business opportunities that (i) the Company is financially
able to undertake; (ii) are, from their nature, in the Company's actual line or
lines of business and are of practical advantage to the Company; and (iii) are
ones in which the Company has an interest or reasonable expectancy. "Corporate
opportunities" do not include transactions in which the Company or a Gabelli is
permitted to participate pursuant to any agreement between the Company and such
Gabelli that is in effect as of the time any equity security of the Company is
held of record by any person other than a Gabelli or is subsequently entered
into with the approval of the members of the Board of Directors and do not
include passive investments.
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Before the Trigger Date, the affirmative vote of the holders of a majority
of the outstanding Voting Stock, voting together as a single class, will be
required to alter, amend or repeal any of these conflict of interest or
corporate opportunity provisions in a manner adverse to the interests of any
Gabelli. After the Trigger Date, such vote will be increased to 80% to alter,
amend, repeal or replace any of the conflict of interest and corporate
opportunity provisions.
Corporate Opportunity Policy
Except with respect to opportunities that involve Permissible Accounts, if
a Gabelli acquires knowledge of a potential transaction on a matter that is a
corporate opportunity for both any Gabelli and the Company, such Gabelli will
have a duty to communicate that opportunity to the Company and may not pursue
that opportunity or direct it to another person unless the Company declines such
opportunity or fails to pursue it.
If a director or officer of the Company other than a Gabelli acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity for both the Company and a Gabelli, the Certificate of Incorporation
requires that such director or officer act in good faith in accordance with the
following two-part policy.
First, a corporate opportunity offered to any person who is a director but
not an officer of the Company and who is also a director (whether or not an
officer) of an entity which is at the time a Gabelli will belong to such Gabelli
or to the Company, as the case may be, depending on whether the opportunity is
expressly offered to the person primarily in his or her capacity as an officer
or director of the entity which is at the time a Gabelli or of the Company,
respectively. Otherwise, the opportunity will belong to the Company to the same
extent as if the opportunity came directly to the Company.
Second, a corporate opportunity offered to any person who is an officer
(whether or not a director) of the Company and who is also a director or an
officer of an entity which is at the time a Gabelli will belong to the Company,
unless the opportunity is expressly offered to that person primarily in his or
her capacity as a director or officer of the entity which is at the time a
Gabelli, in which case the opportunity will belong to such Gabelli to the same
extent as if the opportunity came directly to a Gabelli.
Under the Certificate of Incorporation, a director or officer of the
Company (other than a Gabelli) who acts in accordance with the foregoing
two-part policy (i) will be deemed fully to have satisfied his or her fiduciary
duties to the Company and its shareholders with respect to such corporate
opportunity; (ii) will not be liable to the Company or its shareholders for any
breach of fiduciary duty by reason of the fact that a Gabelli pursues or
acquires such opportunity or directs such corporate opportunity to another
person or entity or does not communicate information regarding such opportunity
to the Company; (iii) will be deemed to have acted in good faith and in a manner
he or she reasonably believes to be in the best interests of the Company; and
(iv) will be deemed not to have breached his or her duty of loyalty to the
Company or its shareholders and not to have derived an improper benefit
therefrom.
Under the Certificate of Incorporation, any corporate opportunity that
belongs to a Gabelli or to the Company pursuant to the foregoing policy will not
be pursued by the other (or directed by the other to another person or entity)
unless and until such Gabelli or the Company, as the case may be, determines not
to pursue the opportunity. If the party to whom the corporate opportunity
belongs does not, however, within a reasonable period of time, begin to pursue,
or thereafter continue to pursue, such opportunity diligently and in good faith,
the other party may pursue such opportunity (or direct it to another person or
entity).
Conflict of Interests Policy
The Certificate of Incorporation provides that no contract, agreement,
arrangement or transaction, or any amendment, modification or termination
thereof, or any waiver of any right thereunder, (each, a "Transaction") between
the Company and (i) a Gabelli, (ii) any customer or supplier, (iii) any entity
in which a director of the Company has a financial interest (a "Related
Entity"), or (iv) one or more of the directors or officers of the Company or any
Related Entity; will be voidable solely because any of the persons or entities
listed in (i) through (iv) above are parties thereto, if the standard specified
below is satisfied. Further, no
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Transaction will be voidable solely because any such directors or officers are
present at or participate in the meeting of the Board of Directors or committee
thereof that authorizes the Transaction or because their votes are counted for
such purpose, if the standard specified is satisfied. That standard will be
satisfied, and such Gabelli, the Related Entity, and the directors and officers
of the Company, or the Related Entity (as applicable) will be deemed to have
acted reasonably and in good faith (to the extent such standard is applicable to
such person's conduct) and fully to have satisfied any duties of loyalty and
fiduciary duties they may have to the Company and its shareholders with respect
to such Transaction if any of the following four requirements are met:
(i) the material facts as to the relationship or interest and as to
the Transaction are disclosed or known to the Board of Directors or the
committee thereof that authorizes the Transaction, and the Board of
Directors or such committee in good faith approves the Transaction by the
affirmative vote of a majority of the disinterested directors on the Board
of Directors or such committee, even if the disinterested directors are
less than a quorum;
(ii) the material facts as to the relationship or interest and as to
the Transaction are disclosed or known to the holders of Voting Stock
entitled to vote thereon, and the Transaction is specifically approved by
vote of the holders of a majority of the voting power of the then
outstanding Voting Stock not owned by such Gabelli or such Related Entity,
voting together as a single class;
(iii) the Transaction is effected pursuant to guidelines that are in
good faith approved by a majority of the disinterested directors on the
Board of Directors or the applicable committee thereof or by vote of the
holders of a majority of the then outstanding voting Stock not owned by
such Gabelli or such Related Entity, voting together as a single class; or
(iv) the Transaction is fair to the Company as of the time it is
approved by the Board of Directors, a committee thereof or the shareholders
of the Company.
The Certificate of Incorporation also provides that any such Transaction
authorized, approved, or effected, and each of such guidelines so authorized or
approved, as described in (i), (ii) or (iii) above, will be deemed to be
entirely fair to the Company and its shareholders, except that, if such
authorization or approval is not obtained, or such Transaction is not so
effected, no presumption will arise that such Transaction or guideline is not
fair to the Company and its shareholders. In addition, the Certificate of
Incorporation provides that a Gabelli will not be liable to the Company or its
shareholders for breach of any fiduciary duty that a Gabelli may have as a
shareholder of the Company by reason of the fact that a Gabelli takes any action
in connection with any transaction between such Gabelli and the Company. For
purposes of these provisions, interests in an entity that are not equity or
ownership interests or that constitute less than 10% of the equity or ownership
interests of such entity will not be considered to confer a financial interest
on any person who beneficially owns such interests.
The New York courts have not ruled on the validity or enforceability of
provisions similar to the corporate opportunity and conflicts of interest
provisions that are included in the Company's Certificate of Incorporation and
could rule that certain liabilities which they purport to eliminate remain in
effect.
LISTING
The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the NYSE under the symbol "GBL."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offering, the Company will have 6
million shares of Class A Common Stock issued and outstanding (6.9 million
shares of Class A Common Stock if the Underwriters' over-allotment option is
exercised in full) and 24 million shares of Class B Common Stock issued and
outstanding. All of the shares of Class A Common Stock to be sold in the
Offering will be freely tradable without restrictions or further registration
under the Securities Act, except that shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 (an "Affiliate")) will be subject
to the resale limitations of Rule 144. The 24 million shares of Class B Common
Stock owned by Gabelli Partners are "restricted securities" as defined in Rule
144 under the Securities Act, and may not be sold in the absence of registration
under the Securities Act other than pursuant to Rule 144 under the Securities
Act or another exemption from registration under the Securities Act.
In general, under Rule 144, as currently in effect, (i) a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Common Stock as to which at least one year has elapsed since such
shares were sold by the Company or by an Affiliate of the Company in a
transaction or chain of transactions not involving a public offering
("restricted securities") or (ii) an Affiliate of the Company who holds shares
of Common Stock that are not restricted securities may sell, within any
three-month period, a number of such shares that does not exceed the greater of
1% of the Company's class of Common Stock then outstanding or the average weekly
trading volume in the class of Common Stock during the four calendar weeks
preceding the date on which notice of such sale required under Rule 144 was
filed. Sales under Rule 144 are also subject to certain provisions relating to
the manner and notice of sale and availability of current public information
about the Company. Affiliates of the Company must comply with the requirements
of Rule 144, including the one-year holding period requirement, to sell shares
of Common Stock that are restricted securities. Furthermore, if a period of at
least two years has elapsed from the date restricted securities were acquired
from the Company or an Affiliate of the Company, a holder of such restricted
securities who is not an Affiliate of the Company at the time of the sale and
has not been an Affiliate of the Company at any time during the three months
prior to such sale would be entitled to sell such shares without regard to the
volume limitation and other conditions described above.
For a period of 180 days after the date of this Prospectus, without the
prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Salomon Smith Barney Inc., on behalf of the Underwriters, (i) the Company and
Gabelli Partners have agreed with the Underwriters that they will not offer,
sell or otherwise dispose of any shares of Common Stock or any security
convertible into or exchangeable or exercisable for shares of Common Stock,
except for the shares of Class A Common Stock to be sold in the Offering and
options granted in the ordinary course of business under the Plan and (ii)
shareholders of Gabelli Partners who are also officers and directors of the
Company have agreed with the Underwriters that they will not offer, sell or
otherwise dispose of any shares of capital stock of Gabelli Partners or any
security convertible into or exchangeable or exercisable for shares of capital
stock of Gabelli Partners, except in transactions between existing shareholders
of Gabelli Partners and through gifts, in each case, to persons who agree to be
bound by similar restrictions. See "Underwriting." In addition, Gabelli Partners
has agreed with the Company that it will not offer, sell or otherwise dispose of
any shares of Class B Common Stock for a period of three years after the date of
this Prospectus without the prior written consent of the Company.
The shares of Class A Common Stock authorized for issuance pursuant to
awards that may be granted under the Company's 1999 Stock Award and Incentive
Plan may be either authorized but unissued shares or treasury shares obtained by
the Company through market or private purchases. See "Management -- 1999 Stock
Award and Incentive Plan." The Company intends to register under the Securities
Act the shares of Class A Common Stock issuable upon the exercise of options
granted pursuant to the 1999 Stock Award and Incentive Plan.
Prior to the Offering, there has been no public market for Class A Common
Stock. Although the Company can make no prediction as to the effect, if any,
that sales of shares of Class B Common Stock by Gabelli Partners would have on
the market price of Class A Common Stock prevailing from time to time, sales of
substantial amounts of Class A Common Stock or Class B Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Class A Common Stock. See "Risk Factors -- Shares Available for
Future Sale or Distribution."
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Salomon Smith Barney Inc. ("Salomon Smith Barney"), and Gabelli & Company are
acting as representatives (the "Representatives") of each of the Underwriters
named below (the "Underwriters"). Subject to the terms and conditions set forth
in a purchase agreement (the "Purchase Agreement") among the Company and the
Underwriters, the Company has agreed to sell to the Underwriters, and each of
the Underwriters severally and not jointly has agreed to purchase from the
Company, the aggregate number of shares of Class A Common Stock set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Salomon Smith Barney Inc. ..................................
Gabelli & Company, Inc. ....................................
--------
Total.......................................... 6,000,000
========
</TABLE>
The Underwriters propose to offer the shares of Class A Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the initial offering of the shares to the
public, the public offering price and such concessions may from time to time be
varied by the Representatives. Under the terms and conditions of the Purchase
Agreement, the Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The Company has granted the Underwriters an option, exercisable for 30 days
after the date of this Prospectus, to purchase up to 900,000 additional shares
of Class A Common Stock at the price to the public set forth on the cover page
of this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares offered
hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
For a period of 180 days after the date of this Prospectus, without the
prior written consent of Merrill Lynch and Salomon Smith Barney, (i) the Company
and Gabelli Partners have agreed that they will not offer, sell, contract to
sell or otherwise dispose of any Common Stock or any securities of the Company
which are convertible into or exchangeable or exercisable for Common Stock or
any such other securities, except for the shares of Class A Common Stock to be
sold in the Offering and options granted in the ordinary course of business
under the Plan and (ii) shareholders of Gabelli Partners who are also officers
and directors of the Company have agreed with the Underwriters that they will
not offer, sell or otherwise dispose of any shares of capital stock of Gabelli
Partners or any security convertible into or exchangeable or exercisable for
shares of capital stock of Gabelli Partners, except in transactions between
existing shareholders of Gabelli Partners and through gifts, in each case, to
persons who agree to be bound by similar restrictions.
In connection with the Offering, the Underwriters may purchase and sell the
Class A Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offering. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Class A Common Stock; and
syndicate short positions involve the sale by the Underwriters of a greater
number of
67
<PAGE> 69
shares of Class A Common Stock than they are required to purchase from the
Company in the Offering. The Underwriters also may impose a penalty bid, whereby
selling concessions allowed to syndicate members or other broker-dealers in
respect of the Class A Common Stock sold in the Offering for their account may
be reclaimed by the syndicate if such Class A Common Stock is repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Class A Common
Stock, which may be higher than the price that might otherwise prevail in the
open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected on the NYSE, in the over-the-counter
market or otherwise.
Gabelli & Company, one of the Underwriters, is an indirect 76.6%-owned
subsidiary of the Company. The Offering is therefore being conducted in
accordance with the applicable provisions of Rule 2720 to the Conduct Rules of
the National Association of Securities Dealers, Inc. Rule 2720 requires that the
initial public offering price of the Class A Common Stock not be higher than
that recommended by a "qualified independent underwriter" meeting certain
standards. Accordingly, Merrill Lynch is assuming the responsibilities of acting
as the qualified independent underwriter in pricing the Offering and conducting
due diligence. In connection with the Offering, Merrill Lynch in its role as
qualified independent underwriter has performed due diligence investigations and
reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The initial public
offering price of the Class A Common Stock set forth on the cover page of this
Prospectus is no higher than the price recommended by Merrill Lynch.
Prior to the Offering, there has not been any public market for the Class A
Common Stock of the Company. Consequently, the initial public offering price for
the shares of Class A Common Stock included in the Offering has been determined
by negotiations between the Company and the Representatives. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenues and earnings, the current state of the economy in the
United States and the current level of economic activity in the industry in
which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company.
The Underwriters do not intend to confirm sales of shares of Class A Common
Stock to accounts over which they exercise discretionary authority.
The Class A Common Stock has been approved for listing, subject to official
notice of issuance, on the NYSE under the symbol "GBL." In order to meet one of
the requirements for listing the Common Stock on the NYSE, the Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Certain of the Underwriters and their affiliates have in the past provided,
and may in the future from time to time provide, investment banking services to
the Company and its affiliates for which they may receive customary fees. In
addition, each of the Representatives of the Underwriters distributes the
Company's Mutual Funds (and provides shareholder services in connection
therewith) in the ordinary course of business for which it receives customary
compensation.
68
<PAGE> 70
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Class A
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
relating to the Offering will be passed upon for the Underwriters by Simpson
Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of GFI 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 Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Class A Common Stock to be sold in the Offering. This Prospectus constitutes
a part of the Registration Statement and does not contain all the information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the content of any contract or other document
are summaries of the material terms of such contract or other document. With
respect to such statements in the Prospectus, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement for a more complete description, each such statement being qualified
in all respects by such reference. For further information regarding the Company
and the Class A Common Stock, reference is hereby made to the Registration
Statement, a copy of which may be obtained from the Commission at its principal
office in Washington, D.C. upon payment of the fees prescribed by the
Commission.
The Registration Statement, and the reports and other information to be
filed by the Company with the Commission following the Offering in accordance
with the Exchange Act, can be inspected and copied at the principal office of
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: 7 World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
be obtained from the Commission's website, http://www.sec.gov, and from the
Public Reference Section of the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission.
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements and quarterly reports for
the first three quarters of each fiscal year containing unaudited interim
financial information.
69
<PAGE> 71
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GABELLI FUNDS, INC. AND
SUBSIDIARIES
Report of Independent Auditors.............................. F-2
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997.......................... F-3
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1997................................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
GABELLI FUNDS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income for the nine
month periods ended September 30, 1997 and 1998........... F-16
Unaudited Consolidated Statement of Financial Condition as
of September 30, 1998..................................... F-17
Unaudited Consolidated Statement of Stockholders' Equity for
the nine month period ended September 30, 1998............ F-18
Unaudited Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1997 and 1998........... F-19
Notes to Unaudited Consolidated Financial Statements........ F-20
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME AND
FINANCIAL CONDITION
Unaudited Pro Forma Consolidated Statements of Income....... F-22
Unaudited Pro Forma Consolidated Statements of Financial
Condition................................................. F-24
Notes to Unaudited Pro Forma Consolidated Financial
Statements................................................ F-25
</TABLE>
------------------------
Gabelli Asset Management Inc. is a holding company that was newly formed in
connection with the Offering and, accordingly, has not previously engaged in any
business operations, acquired any assets or incurred any liabilities other than
in connection with the Offering. Accordingly, the historical financial
statements of Gabelli Asset Management Inc. are not included in this Prospectus
because management has determined that they are not material to an investment
decision.
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Gabelli Funds, Inc.
We have audited the accompanying consolidated statements of financial
condition of Gabelli Funds, Inc. and subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gabelli Funds,
Inc. and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
New York, New York
March 11, 1998
F-2
<PAGE> 73
GABELLI FUNDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
1995 1996 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Investment advisory and incentive fees..................... $ 77,302 $ 84,244 $ 89,684
Commission revenue......................................... 5,706 6,667 7,496
Distribution fees and other income......................... 6,302 7,257 8,096
-------- -------- --------
Total revenues........................................ 89,310 98,168 105,276
-------- -------- --------
EXPENSES
Compensation costs......................................... 39,384 41,814 45,260
Management fee............................................. 9,423 10,192 10,580
Other operating expenses................................... 18,709 19,274 18,690
-------- -------- --------
Total expenses........................................ 67,516 71,280 74,530
-------- -------- --------
Operating income........................................... 21,794 26,888 30,746
-------- -------- --------
OTHER INCOME (EXPENSE)
Net gain from investments.................................. 10,105 8,783 7,888
Interest and dividend income............................... 5,853 5,406 4,634
Interest expense........................................... (679) (879) (1,876)
Other...................................................... 147 331 (109)
-------- -------- --------
Total other income, net............................... 15,426 13,641 10,537
-------- -------- --------
Income before income taxes and minority interest........... 37,220 40,529 41,283
Income taxes............................................... 7,769 7,631 3,077
Minority interest.......................................... 2,555 2,727 1,529
-------- -------- --------
Net income................................................. $ 26,896 $ 30,171 $ 36,677
======== ======== ========
UNAUDITED PRO FORMA DATA
Income before income taxes and minority interest, as
reported................................................. $ 41,283
Pro forma adjustments for expense allocations and interest
income and expense....................................... (7,629)
Pro forma management fee adjustment........................ 6,156
Pro forma provision for income taxes....................... (15,735)
Pro forma minority interest................................ (1,677)
--------
Pro forma net income....................................... $ 22,398
========
Pro forma net income per share:
Basic and diluted..................................... $ .75
========
Pro forma weighted average shares outstanding:
Basic and diluted..................................... 30,000
========
</TABLE>
See accompanying notes.
F-3
<PAGE> 74
GABELLI FUNDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1996 1997
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 32,949 $ 12,610
PCS licenses and deposits................................... 21,661 84,862
Investments in securities................................... 59,812 56,607
Investments in partnerships and affiliates.................. 35,133 46,972
Investment advisory fees receivable......................... 7,339 8,484
Receivables from affiliates................................. 12,353 6,534
Notes and other receivables................................. 5,230 4,578
Capital lease............................................... -- 3,679
Intangible assets, net of accumulated amortization of
$148...................................................... -- 1,932
Other assets................................................ 8,047 6,478
-------- --------
Total assets........................................... $182,524 $232,736
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank loan payable........................................... $ -- $ 30,000
Notes payable............................................... 7,011 7,108
Income taxes payable (including deferred income taxes of
$2,768 in 1996 and $2,818 in 1997)........................ 4,372 3,752
Capital lease obligation.................................... -- 3,650
Compensation payable........................................ 3,589 3,456
Accrued expenses and other liabilities...................... 7,978 9,848
-------- --------
Total liabilities...................................... 22,950 57,814
-------- --------
Minority interest........................................... 21,041 11,303
-------- --------
Stockholders' equity:
Common Stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding 174,803 and 185,937 shares,
respectively........................................... 2 2
Additional paid-in capital................................ 2,967 12,372
Retained earnings......................................... 136,690 152,775
Notes receivable.......................................... (1,126) (1,530)
-------- --------
Total stockholders' equity............................. 138,533 163,619
-------- --------
Total liabilities and stockholders' equity.................. $182,524 $232,736
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 75
GABELLI FUNDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
------ ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $2 $ 1,367 $106,535 $ -- $107,904
Repurchase and retirement of 536
shares............................... -- (39) (291) -- (330)
Issuance of note receivable............. -- -- -- (235) (235)
Issuance of 750 shares.................. -- 397 -- -- 397
Distributions to shareholders........... -- -- (18,670) -- (18,670)
Accretion of stock option............... -- 110 -- -- 110
Net income.............................. -- -- 26,896 -- 26,896
-- ------- -------- ------- --------
Balance at December 31, 1995.............. 2 1,835 114,470 (235) 116,072
Repurchase and retirement of 1,600
shares............................... -- (9) (1,273) -- (1,282)
Issuance of note receivable............. -- -- -- (891) (891)
Issuance of 1,704 shares................ -- 1,141 -- -- 1,141
Distributions to shareholders........... -- -- (6,678) -- (6,678)
Net income.............................. -- -- 30,171 -- 30,171
-- ------- -------- ------- --------
Balance at December 31, 1996.............. 2 2,967 136,690 (1,126) 138,533
Repurchase and retirement of 50
shares............................... -- (38) -- -- (38)
Net issuances of notes receivable....... -- -- -- (404) (404)
Issuance of 11,184 shares............... -- 9,443 -- -- 9,443
Distributions to shareholders........... -- -- (20,592) -- (20,592)
Net income.............................. -- -- 36,677 -- 36,677
-- ------- -------- ------- --------
Balance at December 31, 1997.............. $2 $12,372 $152,775 $(1,530) $163,619
== ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 76
GABELLI FUNDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................. $ 26,896 $ 30,171 $ 36,677
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in earnings of partnerships and affiliates........ (5,744) (5,997) (7,886)
Depreciation and amortization............................ 339 424 451
Deferred income taxes.................................... 884 (114) 50
Minority interest in net income of consolidated
subsidiaries.......................................... 2,555 2,727 1,529
Accretion of stock option................................ 110 -- --
Changes in operating assets and liabilities:
Investments in securities............................. (11,862) 4,435 3,205
Investment advisory fees receivable................... (533) 526 (1,145)
Receivables from affiliates........................... -- (12,353) 5,819
Notes and other receivables........................... -- (5,230) 1,027
Due from broker/dealers............................... -- (1,764) (1,391)
Other assets.......................................... (430) (2,103) 2,837
Notes payable......................................... -- -- (879)
Income taxes payable.................................. (1,312) 1,470 (670)
Compensation payable.................................. 1,090 (1,933) (133)
Accrued expenses and other liabilities................ 1,721 366 (920)
-------- -------- --------
Total adjustments.......................................... (13,182) (19,546) 1,894
-------- -------- --------
Net cash provided by operating activities.................. 13,714 10,625 38,571
-------- -------- --------
INVESTING ACTIVITIES
Purchases of PCS licenses and deposits..................... -- (21,661) (63,201)
Distributions from partnerships and affiliates............. 2,128 5,101 2,607
Investments in partnerships and affiliates................. (6,241) (2,832) (6,560)
Cost of acquisitions....................................... -- -- (2,175)
-------- -------- --------
Net cash (used in) investing activities.................... (4,113) (19,392) (69,329)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from bank loan.................................... -- -- 30,000
Distributions to shareholders.............................. (18,670) (5,988) (17,794)
Repayments of subsidiaries' notes receivable............... 95 127 5
Issuances of subsidiaries' common stock.................... 864 -- 108
Purchase of minority stockholders' interest................ (409) -- (1,864)
Proceeds from issuances of common stock.................... 162 738 --
Payment for common stock repurchased and retired........... (331) (581) (38)
Repayments of notes receivable............................. -- -- 2
-------- -------- --------
Net cash provided by (used in) financing activities........ (18,289) (5,704) 10,419
-------- -------- --------
Net (decrease) in cash and cash equivalents................ (8,688) (14,471) (20,339)
Cash and cash equivalents at beginning of year............. 56,108 47,420 32,949
-------- -------- --------
Cash and cash equivalents at end of year................... $ 47,420 $ 32,949 $ 12,610
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest..................................... $ 679 $ 879 $ 1,784
======== ======== ========
Cash paid for income taxes................................. $ 8,896 $ 5,952 $ 3,337
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY
Issuance of note payable for repurchase of subsidiary's
common stock............................................. $ -- $ -- $ 976
======== ======== ========
Issuance of note payable for repurchase of common stock.... $ -- $ 1,232 $ --
======== ======== ========
Receipt of note for common stock sold...................... $ 235 $ 891 $ 404
======== ======== ========
Receipt of notes for sale of minority interest............. $ -- $ -- $ 375
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 77
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
A. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the assets, liabilities and
earnings of Gabelli Funds, Inc. ("GFI"), its wholly-owned subsidiary GAMCO
Investors, Inc. ("GAMCO"), and GFI's majority-owned subsidiaries consisting of
Gabelli Securities, Inc. ("GSI"), Gabelli Fixed Income LLC ("Fixed Income") and
Gabelli Advisers LLC ("Advisers") (collectively, the "Company").
Prior to a reorganization on January 1, 1997, GFI owned approximately 79%
of GAMCO. On that date, all outstanding shares of GAMCO not previously held by
GFI were either redeemed at book value by GAMCO or exchanged for shares of GFI
at a predetermined ratio. At December 31, 1995, 1996 and 1997, GFI owned
approximately 76% of GSI and 41% of Advisers, which, combined with the voting
interests of affiliated parties, represents voting control. At December 31,
1997, GFI owned approximately 80% of Fixed Income, which commenced operations on
April 15, 1997. All significant intercompany transactions and balances have been
eliminated.
Use of Estimates
The preparation of the consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Nature of Operations
GFI, GAMCO, Fixed Income and Advisers are registered investment advisers
under the Investment Advisers Act of 1940. Gabelli & Company, Inc. ("Gabelli &
Company"), a wholly-owned subsidiary of GSI, is a registered broker-dealer.
Gabelli & Company acts as an introducing broker and all transactions for its
customers are cleared through New York Stock Exchange member firms on a fully
disclosed basis. Accordingly, open customer transactions are not reflected in
the accompanying statements of financial condition. Gabelli & Company is exposed
to credit losses on these open positions in the event of nonperformance by its
customers. This exposure is reduced by the clearing brokers' policy of obtaining
and maintaining adequate collateral until the open transaction is completed.
Cash Equivalents
Cash equivalents consist of investments in money market mutual funds.
Investments in Securities
Investments in securities are accounted for as "trading securities" and are
stated at quoted market values. Securities which are not readily marketable are
stated at their estimated fair values as determined by the Company's management.
The resulting unrealized gains and losses are included in net gain from
investments. Security transactions and any related gains and losses are recorded
on a trade date basis. Realized gains and losses from securities transactions
are recorded on the identified cost basis.
The Company periodically enters into short sales. Securities sold short are
stated at quoted market values and represent obligations of the Company to
purchase the securities at prevailing market prices. The ultimate gains or
losses recognized are dependent upon the prices at which these securities are
purchased to settle the obligations under the sales commitments.
F-7
<PAGE> 78
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Investments in Partnerships and Affiliates
Investments in partnerships, whose underlying assets consist of marketable
securities, and investments in affiliates are accounted for using the equity
method, under which the Company's share of net earnings or losses of these
partnerships and affiliated entities is reflected in income as earned and
distributions received are reductions of the investments. Investments in
partnerships for which market values are not readily available are valued at
fair value as determined by the Company's management.
Investment Advisory Fees
Investment advisory fees are recognized as revenue as the related services
are performed. Investment advisory fees are based on predetermined percentages
of the market values of the portfolios under management.
Depreciation and Amortization
Fixed assets are depreciated using the straight-line method over their
estimated useful lives. Leasehold improvements are amortized using the
straight-line method over their estimated useful lives or lease terms, whichever
is shorter.
Intangible Assets
The cost in excess of net assets acquired is amortized on a straight-line
basis over ten years. The carrying value of cost in excess of net assets
acquired is reviewed for impairment whenever events or changes in circumstances
indicate that it may not be recoverable based upon expectations of operating
income and non-discounted cash flows over its remaining life.
Minority Interest
Minority interest represents the minority stockholders' ownership of GAMCO
for 1995 and 1996, Fixed Income for 1997 and GSI and Advisers for 1995, 1996 and
1997. With the exception of GSI, these minority stockholders are principally
employees, officers and directors of the Company.
Earnings Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share". Basic earnings per common share is
calculated by dividing net income applicable to common stockholders by the
weighted average number of shares of common stock outstanding. Diluted earnings
per share is computed using the treasury stock method. Diluted earnings per
common share assumes full dilution and is computed by dividing net income by the
total of the weighted average number of shares of common stock outstanding and
common stock equivalents.
Business Segments
The Company has not presented business segment data in accordance with SFAS
No. 131 because it operates predominantly in one business segment, the
investment advisory and asset management business.
Distribution Costs
The Company incurs certain promotion and distribution costs, which are
expensed as incurred, related to the sale of shares of mutual funds advised by
the Company (the "Funds").
Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income",
which requires companies to report all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. The
Company has not presented a consolidated statement of comprehensive income
because it does not have any items of "other comprehensive income".
F-8
<PAGE> 79
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
B. INVESTMENTS IN SECURITIES
Investments in securities at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
------------------ ------------------
MARKET MARKET
COST VALUE COST VALUE
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations................. $16,932 $17,385 $ 6,229 $ 6,352
Common stocks............................... 13,530 20,543 13,551 19,895
Mutual funds................................ 13,180 15,057 21,265 25,707
Corporate bonds............................. 198 312 -- --
Preferred stocks............................ 1,854 1,960 300 1,038
Other investments........................... 1,492 4,555 862 3,615
------- ------- ------- -------
$47,186 $59,812 $42,207 $56,607
======= ======= ======= =======
</TABLE>
C. INVESTMENTS IN PARTNERSHIPS AND AFFILIATES
The Company is a co-General Partner of various limited partnerships whose
underlying assets consist primarily of marketable securities. As co-General
Partner, the Company is contingently liable for all of the partnerships'
liabilities. Summary financial information, including the Company's carrying
value and income from these partnerships at December 31, 1996 and 1997 and for
the years then ended, which are accounted for using the equity method, is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Total assets........................................... $125,059 $131,281
Total liabilities...................................... 16,630 1,458
Equity................................................. 108,429 129,823
Net earnings........................................... 8,364 12,073
Company's carrying value............................... 11,613 14,479
Company's income....................................... 1,944 3,065
</TABLE>
Income from the above partnerships for the year ended December 31, 1995 was
approximately $2,505,000.
The Company's income from these partnerships consists of its pro rata
capital allocation and its share of a 20% incentive allocation from the limited
partners. The general partners also receive an annual administrative fee based
on a percentage of each partnership's net assets, excluding the capital accounts
of the general partners and related parties. For the years ended December 31,
1995, 1996 and 1997, the Company earned administrative fees of approximately
$836,000, $820,000 and $1,085,000, respectively.
At December 31, 1996 and 1997, the Company had various limited partner
interests in unaffiliated limited partnerships aggregating approximately
$23,065,000 and $32,332,000, respectively. For the years ended December 31,
1995, 1996 and 1997, the gains recorded by the Company in these investments
approximated $3,092,000, $3,722,000 and $5,666,000, respectively.
At December 31, 1996, the Company was a 50% general partner in two
investment advisory companies, one which managed fixed income mutual funds and
the other which managed separate accounts. In addition, it had a 49% investment
in a related broker-dealer. These investments were accounted for using the
equity method. The carrying value of these entities at December 31, 1996 was
approximately $450,000. In April 1997, through the acquisition of the general
partnership interests held by the other general partner and a reorganization
into Fixed Income, the Company increased its ownership stake in these companies
to approximately 80%. This transaction resulted in the recognition of
approximately $2,080,000 of cost in excess
F-9
<PAGE> 80
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of net assets acquired, which is being amortized over a period of 10 years. The
results of Fixed Income's operations are included in the consolidated statement
of income effective April 15, 1997. For the years ended December 31, 1995, 1996
and 1997, the Company recorded equity income (loss) from these entities of
approximately $147,000, $331,000 and $(109,000), respectively. Pro forma
information relating to this transaction is not presented because its effect is
immaterial.
D. NOTES RECEIVABLE
At December 31, 1996, the Company had a note receivable amounting to
$11,800,000, which represents a loan made during 1996 to an affiliate, Lynch
Corporation. The interest rate on the note was 10% per annum. In addition, there
was a one-time commitment fee of 1% and a special fee equal to 10% of the net
profits of an affiliate of Lynch Corporation. The affiliate was the high bidder
for Personal Communications Services ("PCS") licenses in the Federal
Communications Commission's ("FCC") F Block Auction concluded in January 1997.
In 1997, the affiliate repaid all outstanding principal and interest due on this
loan. Additionally, the Company transferred its 10% net profits interest in
exchange for an equity ownership in a non-controlled entity which currently
holds these PCS licenses.
At December 31, 1996 and 1997, the Company had full recourse notes and
interest receivable from directors of GAMCO in the amount of approximately
$1,560,000 and $1,666,000, respectively, which are secured by the directors'
ownership interests in the Company and various affiliates. The notes bear
interest at an annual rate of 7% and are payable on demand.
At December 31, 1997, the Company had a note receivable of approximately
$603,000 from an affiliated entity in which the Company has a 49.9% ownership
interest. Under the terms of the note, 15% of the realized net profits of the
affiliate are payable to the Company. The note is secured by a security interest
in all of the assets of the affiliate, which consist primarily of Wireless
Communications Service ("WCS") licenses. For the year ended December 31, 1997,
the Company did not record any income under the terms of the note.
At December 31, 1997, the Company had a note receivable from an entity
controlled by certain stockholders of the Company in the amount of $3,600,000.
The note bears interest at an annual rate of 7%. All principal and interest due
on the note was repaid in 1998.
The Company has approximately $2,464,000 in various other notes and
interest receivable outstanding at December 31, 1997 from certain executive
officers, directors and employees in connection with the acquisition of stock
and other ownership interests in the Company. Interest rates on these notes
range from 5% to 10%.
E. INCOME TAXES
The Company accounts for income taxes under the liability method prescribed
by SFAS No. 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
differences between the financial statement carrying amount of existing assets
and liabilities and their respective tax bases.
GFI and GSI each file separate income tax returns. Accordingly, the tax
provision represents the aggregate of the amounts provided for all companies.
GFI elected to be treated as a Subchapter "S" corporation for federal and
state income tax purposes effective January 1, 1995. On January 1, 1997, the
Company elected to treat GAMCO as a Qualified Subchapter "S" subsidiary for
Federal and state income tax purposes. As a result of converting from a taxable
"C" corporation to a nontaxable "S" corporation, a federal income tax will be
imposed on any "built-in gain" recognized by the Company on the disposition of
assets within ten years from the date of conversion. The Company retained its
existing deferred tax liability at the date of conversion to the extent of the
estimated built-in gains tax. This tax liability is subject to remeasurement at
each financial statement date until the end of the ten-year period.
F-10
<PAGE> 81
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for income taxes for the years ended December 31,
1995, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current................................................... $5,667 $6,232 $2,399
Deferred.................................................. 854 (93) (8)
State and local:
Current................................................... 1,218 1,514 628
Deferred.................................................. 30 (22) 58
------ ------ ------
$7,769 $7,631 $3,077
====== ====== ======
</TABLE>
The Company's deferred income tax liability at December 31, 1996 and 1997
relates primarily to unrealized gains and losses on investments in securities
and partnerships.
The unaudited pro forma provision for income taxes calculated on a separate
return basis in conformity with SFAS No. 109, is as follows:
<TABLE>
<CAPTION>
1997
----
(IN THOUSANDS)
<S> <C>
Federal:
Current................................................... $11,275
Deferred.................................................. 2,339
State and local:
Current................................................... 1,971
Deferred.................................................. 150
-------
$15,735
=======
</TABLE>
The unaudited pro forma provision for income taxes differs from the amount
of income tax determined by applying the applicable U.S. statutory federal
income tax rate to income before income taxes and minority interest as a result
of the following differences:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Statutory federal income tax rate........................... 35.0%
Dividends received deduction................................ (0.2)%
State and local income taxes................................ 4.5%
Other items................................................. 0.2%
-------
Effective income tax rate................................... 39.5%
=======
</TABLE>
F. BANK LOAN AND NOTES PAYABLE
In 1997, the Company, through Rivgam Communicators, LLC ("Rivgam"), a
wholly-owned subsidiary of GAMCO, entered into a credit facility with The Chase
Manhattan Bank under which Rivgam has borrowed $30 million. Interest is variable
based upon changes in the London Interbank Offering Rate or the Federal Funds
Rate. The loan, which is guaranteed by GAMCO, is due in four equal annual
installments starting May 12, 1998. The Company believes that the fair value of
the loan approximates its carrying value. Under the terms of the loan, GAMCO is
required to comply with certain debt covenants, which it complied with through
December 31, 1997.
At December 31, 1996 and 1997, the Company had notes payable outstanding of
approximately $5,779,000 and $4,900,000, respectively, which mature on May 31,
2003, unless certain circumstances arise
F-11
<PAGE> 82
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which allow for an accelerated repayment. The notes accrue interest at 2% over
the prime rate, subject to a minimum interest rate of 9% and a maximum interest
rate of 15%, payable quarterly. Interest expense on these notes amounted to
approximately $636,000, $636,000 and $557,000 for the years ended December 31,
1995, 1996 and 1997, respectively.
On September 30, 1996, a note payable amounting to $1,232,000 was issued as
consideration for repurchase of the Company's common stock. The note matured and
was fully paid on January 2, 1998. The note accrued interest at an annual rate
of 10%, payable quarterly. Interest expense on this note amounted to
approximately $31,000 and $123,000 for the years ended December 31, 1996 and
1997, respectively.
In connection with the restructuring of GAMCO's ownership, GAMCO issued a
note payable in 1997 of approximately $976,000 to an employee and director of
the Company and GAMCO, respectively, in consideration for repurchase of GAMCO
common stock. The note matures on January 2, 2000, unless certain circumstances
arise which allow for an accelerated repayment. GAMCO also has the option to
redeem the note at any time prior to maturity at predetermined rates. The note
accrues interest at an annual rate of 12%, payable quarterly. Interest expense
on this note amounted to approximately $117,000 for the year ended December 31,
1997.
G. STOCKHOLDERS' EQUITY
Upon their disassociation with the Company, certain stockholders of the
Company are required to sell their shares to the Company at book value
(approximately $14.5 million at December 31, 1997).
H. CAPITAL LEASE
In December 1997, the Company signed an agreement to lease new primary
office space from a company owned by stockholders of GFI. The Company has
recorded a capital lease asset and liability for the fair value of the leased
property. Amortization of the capital lease is computed on the straight-line
method over the term of the lease, which expires on April 30, 2013. The lease
provides that all operating expenses relating to the property (such as property
taxes, utilities and maintenance) are to be paid by the lessee, the Company.
Future minimum lease payments for this capitalized property at December 31,
1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................... $ 720
1999........................................... 720
2000........................................... 720
2001........................................... 720
2002........................................... 720
Thereafter..................................... 7,896
-------
Total minimum obligations...................... 11,496
Interest....................................... 4,471
-------
Present value of net obligations............... $ 7,025
=======
</TABLE>
Future minimum lease payments have not been reduced by related minimum
future sublease rentals of approximately $1,885,000, of which approximately
$515,000 is due from an affiliated entity. Lease payments under this agreement
amounted to approximately $50,000 for the year ended December 31, 1997.
Total minimum obligations exclude the operating expenses to be borne by the
Company, which are estimated to be $400,000 per year.
F-12
<PAGE> 83
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
I. COMMITMENTS
The Company rents office space under leases which expire at various dates
through 2001. Future minimum lease commitments under these operating leases as
of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................... $ 880
1999........................................... 756
2000........................................... 665
2001........................................... 593
------
$2,894
======
</TABLE>
Equipment rentals and occupancy expense amounted to approximately
$1,729,000, $1,457,000 and $1,644,000, respectively, for the years ended
December 31, 1995, 1996 and 1997.
J. RELATED PARTY TRANSACTIONS
GFI serves as the investment adviser for the Funds and earns advisory fees
based on predetermined percentages of the average net assets of the Funds. In
addition, Gabelli & Company has entered into distribution agreements with each
of the Funds. As principal distributor, Gabelli & Company incurs certain
promotional and distribution costs related to the sale of Fund shares, for which
it receives a fee or reimbursement from the Funds.
The Company had an aggregate investment in the Funds of approximately
$40,902,000 and $34,464,000 at December 31, 1996 and 1997, respectively, of
which approximately $27,966,000 and $11,305,000, respectively, is invested in a
money market mutual fund.
Gabelli & Company earns a majority of its commission revenue from
transactions executed on behalf of clients of affiliated companies.
The Company is required to pay the Chairman of the Board and Chief
Executive Officer a management fee which is equal to 20% of the pretax profits
of each of the Company's operating divisions before consideration of this
management fee. This fee approximated $9,423,000, $10,192,000 and $10,580,000
for the years ended December 31, 1995, 1996 and 1997, respectively. The Chairman
of the Board and Chief Executive Officer also received portfolio management
compensation and account executive fees of approximately $19,533,000,
$21,260,000 and $23,005,000 for the years ended December 31, 1995, 1996 and
1997, respectively, which have been included in compensation costs.
The Company contributed approximately $1,628,000 and $1,014,000 for the
years ended December 31, 1996 and 1997, respectively, to an accredited
charitable foundation, of which the Chairman of the Board and Chief Executive
Officer of the Company is an officer.
In March 1997, the Company made a secured loan of $10 million to Lynch
Corporation which accrued interest at the prime rate and included a 1%
commitment fee. The loan and all accrued interest were repaid in June 1997.
K. FINANCIAL REQUIREMENTS
The Company is required to maintain minimum capital levels with affiliated
partnerships. At December 31, 1997, the minimum capital requirements
approximated $1,298,000. In addition, at December 31, 1997, the Company had
commitments to make investments in unaffiliated partnerships of approximately
$1,600,000.
As a registered broker-dealer, Gabelli & Company is subject to Uniform Net
Capital Rule 15c3-1 (the "Rule") of the Securities and Exchange Commission.
Gabelli & Company computes its net capital under the alternative method
permitted by the Rule which requires minimum net capital of $250,000. At
December 31, 1997, Gabelli & Company had net capital in excess of the minimum
requirement of approximately $6,300,000.
F-13
<PAGE> 84
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
L. ADMINISTRATION FEES
The Company has entered into administration agreements with other companies
(the "Administrators"), whereby the Administrators provide certain services on
behalf of several of the Funds. Such services do not include the investment
advisory and portfolio management services provided by the Company. The fees are
negotiated based on predetermined percentages of the net assets of each of the
Funds for which such agreements have been entered into.
M. PROFIT SHARING PLAN AND INCENTIVE SAVINGS PLAN
The Company has a qualified contributory employee profit sharing plan and
incentive savings plan covering substantially all employees. Company
contributions to the plans are determined annually by the Board of Directors but
may not exceed the amount permitted as a deductible expense under the Internal
Revenue Code. The Company accrued contributions of approximately $102,000,
$121,000 and $80,000 to the plans for the years ended December 31, 1995, 1996
and 1997, respectively.
N. DERIVATIVE FINANCIAL INSTRUMENTS
During 1997 and 1996, the Company's trading activities included
transactions in domestic equity index futures contracts. These financial
instruments represent future commitments to purchase or sell an underlying index
for specified amounts at specified future dates. Such contracts create
off-balance sheet risk for the Company as the future satisfaction of these
contracts may be for amounts in excess of the amounts recognized in the
consolidated statements of financial condition. The amounts disclosed below
represent the notional amounts outstanding, end of year fair values and average
fair values of domestic equity index futures contracts sold as of and for the
years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
NOTIONAL AVERAGE FAIR
AMOUNTS VALUE FOR THE
OUTSTANDING AT FAIR VALUE AT YEAR ENDED
YEAR DECEMBER 31 DECEMBER 31 DECEMBER 31
---- -------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
1997................................. $33,246 $ 202 $(776)
1996................................. $32,877 $(626) $(425)
</TABLE>
At December 31, 1996 and 1997, the Company had margin deposits of
approximately $1,200,000 and $1,470,000, respectively, with a futures broker for
these open futures contracts.
In connection with this futures activity, the Company incurred losses of
approximately $3,692,000 and $8,063,000 during the years ended December 31, 1996
and 1997. Such losses are reflected as part of net gain from investments in the
consolidated statements of income.
O. EARNINGS PER SHARE
For purposes of the basic and diluted earnings per share calculation, the
denominator represents the shares outstanding prior to the Offering. For
purposes of the pro forma basic and diluted earnings per share calculation, the
denominator represents the shares expected to be outstanding immediately after
the Offering, including the sale of 6 million shares of Class A Common Stock.
P. FCC LICENSES
The Company, through Rivgam, purchased FCC licenses auctioned by the FCC in
1997. The FCC licenses are valued at the lower of their original purchase cost
or their market value. Market values are determined based upon the most recent
public auction for similar licenses, or in the absence thereof, fair value
estimates provided by independent companies that solicit bids for such licenses.
Q. SUBSEQUENT EVENTS (UNAUDITED)
Loan Guarantee
In February 1998, the Company guaranteed a $30 million loan made by a
commercial bank to Rivgam LMDS, LLC, an entity for which the Chairman of the
Board and Chief Executive Officer of the Company is
F-14
<PAGE> 85
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the managing member and in which he has a controlling interest. All principal
and interest on the loan was repaid by Rivgam LMDS, LLC on April 3, 1998,
thereby relieving the Company of its obligation under the guarantee.
Sale of PCS Licenses
During 1998, the Company sold certain of its PCS licenses with a cost basis
of $51,000,000. The Company recorded a pre-tax gain of $17,400,000, net of
investment banking, management and other related fees of approximately
$10,700,000 paid principally to related parties, of which $4,196,000 was paid to
the Company's Chairman of the Board and Chief Executive Officer.
Reorganization and Initial Public Offering (Formation Transactions)
Prior to the initial public offering (the "Offering"), the Company will
transfer substantially all of the operating assets and liabilities relating to
its institutional and retail asset management, mutual fund advisory and
underwriting business to Gabelli Asset Management Inc. ("GAMI"), in exchange for
24 million shares of GAMI's Class B Common Stock, representing all of its issued
and outstanding shares of Common Stock (the "Reorganization"). GAMI is a newly
formed company, incorporated in April 1998 in the state of New York with no
significant assets or liabilities and which has not engaged in any substantial
business activities prior to the offering. The Company intends to sell 6 million
shares of Class A Common Stock as part of the Offering, resulting in 30 million
shares expected to be outstanding immediately after the Offering.
Upon completion of the Offering, the Company will no longer be treated as
an "S" corporation and will be subject to corporate income taxes. Accordingly,
the consolidated statements of income include a pro forma adjustment for
additional income taxes which would have been recorded if the Company had been a
"C" corporation for 1997 based on tax laws in effect in 1997.
Immediately preceding the Offering, the Company and its Chairman of the
Board and Chief Executive Officer will enter into an Employment Agreement. The
Employment Agreement provides that the Company will pay the Chairman of the
Board and Chief Executive Officer 10% of the Company's aggregate pre-tax profits
while he is an executive of the Company and devoting the substantial majority of
his working time to the business of the Company. The Employment Agreement
further provides that the Company will pay the Chairman of the Board and Chief
Executive Officer $50 million on January 2, 2002, plus interest payable
quarterly at an annual rate of 6% from the date of the Employment Agreement.
Stock Award and Incentive Plan
Immediately prior to the Offering, the Board of Directors will adopt the
1999 GAMI Stock Award and Incentive Plan (the "Plan"), designed to provide
incentives which will attract and retain individuals key to the success of GAMI
through direct or indirect ownership of GAMI's common stock. Benefits under the
Plan may be granted in any one or a combination of stock options, stock
appreciation rights, restricted stock, restricted stock units, stock awards,
dividend equivalents and other stock or cash based awards. A maximum of
1,500,000 shares Class A Common Stock has been reserved for issuance and the
Plan provides that the terms and conditions of each award are to be determined
by a committee of the Board of Directors charged with administering the Plan.
Under the Plan, the committee may grant either incentive or nonqualified stock
options with a term not to exceed ten years from the grant date and at an
exercise price that the committee may determine. Options granted under the Plan
vest three years from the date of grant and expire after ten years.
The Company has elected to account for stock options under the intrinsic
value method. Under the intrinsic value method, compensation expense is
recognized only if the exercise price of the employee stock option is less than
the market price of the underlying stock on the date of grant. The estimated pro
forma compensation expense attributable to options granted to employees under
the Plan is not presented as its effect, if any, is expected to be immaterial.
F-15
<PAGE> 86
GABELLI FUNDS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1998
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C>
REVENUES
Investment advisory and incentive fees...................... $ 64,107 $ 86,302
Commission revenue.......................................... 5,613 6,197
Distribution fees and other income.......................... 5,100 9,810
-------- --------
Total revenues.................................... 74,820 102,309
EXPENSES
Compensation................................................ 33,138 41,702
Management fee.............................................. 7,425 8,533
Other operating expenses.................................... 13,943 18,072
-------- --------
Total expenses.................................... 54,506 68,307
OPERATING INCOME............................................ 20,314 34,002
OTHER INCOME
Net gain (loss) from investments............................ 6,803 (3,910)
Gain on sale of PCS licenses, net of fees payable to related
parties................................................... -- 17,430
Interest and dividend income................................ 3,168 3,252
Interest expense............................................ (1,183) (1,355)
Other....................................................... (52) 79
-------- --------
Total other income, net........................... 8,736 15,496
-------- --------
Income before income taxes and minority interest............ 29,050 49,498
Income taxes................................................ 2,369 3,004
Minority interest........................................... 759 1,043
-------- --------
Net income.................................................. $ 25,922 $ 45,451
======== ========
UNAUDITED PRO FORMA DATA
Income before income taxes and minority interest, as
reported.................................................. $ 49,498
Pro forma adjustments for expense allocations and interest
income and expense........................................ (15,875)
Pro forma management fee adjustment......................... 4,317
Pro forma provision for income taxes........................ (15,047)
Pro forma minority interest................................. (1,228)
--------
Pro forma net income........................................ $ 21,665
========
Pro forma net income per share:
Basic and diluted......................................... $ .72
========
Pro forma weighted average shares outstanding:
Basic and diluted......................................... 30,000
========
</TABLE>
See accompanying notes.
F-16
<PAGE> 87
GABELLI FUNDS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 56,499
Investments in securities................................... 78,597
Investments in partnerships................................. 47,081
PCS licenses................................................ 33,985
Investment advisory fees receivable......................... 9,380
Receivables from affiliates................................. 3,506
Notes and other receivables................................. 4,094
Capital lease............................................... 3,494
Other assets................................................ 4,851
--------
Total assets...................................... $241,487
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable............................................... $ 5,876
Payable to Sub-S shareholders............................... 14,642
Income taxes payable (including deferred income taxes)...... 3,217
Capital lease obligation.................................... 3,621
Compensation payable........................................ 15,692
Accrued expenses and other liabilities...................... 6,583
--------
Total liabilities................................. 49,631
--------
Minority interest........................................... 11,754
--------
Stockholders' equity:
Common Stock, $.01 par value; authorized 1,000,000 shares;
issued and outstanding
196,537 shares......................................... 2
Class A Common Stock, $.001 par value; authorized,
100,000,000 shares;
none issued............................................ --
Class B Common Stock, $.001 par value; authorized,
100,000,000 shares;
none issued............................................ --
Additional paid-in capital................................ 21,471
Retained earnings......................................... 169,252
Notes receivable.......................................... (10,623)
--------
Total stockholders' equity........................ 180,102
--------
Total liabilities and stockholders' equity.................. $241,487
========
</TABLE>
See accompanying notes.
F-17
<PAGE> 88
GABELLI FUNDS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLE TOTAL
------ ---------- -------- ---------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. $2 $12,372 $152,775 $ (1,530) $163,619
Repurchase and retirement of 400 --
shares............................... (345) -- -- (345)
Net issuances of notes receivable....... -- -- -- (9,093) (9,093)
Issuance of 10,600 shares............... -- 9,444 -- -- 9,444
Distributions to shareholders........... -- -- (28,974) -- (28,974)
Net income.............................. -- -- 45,451 -- 45,451
-- ------- -------- -------- --------
Balance at September 30, 1998............. $2 $21,471 $169,252 $(10,623) $180,102
== ======= ======== ======== ========
</TABLE>
See accompanying notes.
F-18
<PAGE> 89
GABELLI FUNDS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 25,922 $ 45,451
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in earnings of partnerships and affiliates......... (7,627) 1,934
Depreciation and amortization............................. 426 662
Deferred income taxes..................................... 2,893 162
Minority interest in net income of consolidated
subsidiaries........................................... 759 1,043
Changes in operating assets and liabilities:
Investment in securities............................... (10,957) (21,990)
Investment advisory fees receivable.................... 442 (896)
Receivables from affiliates............................ 8,093 3,028
Notes and other receivables............................ 2,357 484
Other assets........................................... 5,444 3,059
Notes payable.......................................... (879) (1,232)
Income taxes payable................................... (3,016) (697)
Compensation payable................................... 8,655 12,236
Accrued expenses and other liabilities................. (1,641) 1,040
-------- --------
Total adjustments........................................... 4,949 (1,167)
-------- --------
Net cash provided by operating activities................... 30,871 44,284
-------- --------
INVESTING ACTIVITIES
Purchases (sales) of PCS licenses (net of fees and gain on
sale of $17,430).......................................... (63,201) 50,877
Distributions from partnerships and affiliates.............. 2,607 2,746
Investments in partnerships and affiliates.................. (6,272) (4,789)
Cost of acquisitions........................................ (2,175) --
-------- --------
Net cash (used in) provided by investing activities......... (69,041) 48,834
-------- --------
FINANCING ACTIVITIES
Proceeds from (repayment of) bank loan...................... 30,000 (30,000)
Distributions to shareholders............................... (12,987) (18,637)
Repurchases of subsidiaries' common stock................... (519) (592)
Purchase of minority stockholders' interest................. (1,282) --
-------- --------
Net cash provided by (used in) financing activities......... 15,212 (49,229)
-------- --------
Net (decrease) increase in cash and cash equivalents........ (22,958) 43,889
Cash and cash equivalents at beginning of period............ 32,949 12,610
-------- --------
Cash and cash equivalents at end of period.................. $ 9,991 $ 56,499
======== ========
</TABLE>
F-19
<PAGE> 90
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of the Company
included herein have been prepared in accordance with generally accepted
accounting principles for interim financial information and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements reflect all adjustments, which are of a normal
recurring nature, necessary for a fair presentation of financial position,
results of operations and cash flows of the Company for the interim periods
presented and are not necessarily indicative of a full year's results.
In preparing the unaudited interim consolidated financial statements,
management is required to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended December 31, 1997.
B. NOTES RECEIVABLE
During the nine months ended September 30, 1998, the Company issued
approximately $9 million of common stock to employees and affiliates of the
Company in return for interest bearing demand notes receivable.
F-20
<PAGE> 91
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma Consolidated Statements of Income and
Financial Condition give effect to the Formation Transactions, including the
assets and liabilities assumed to be distributed and the resulting impact on
allocated income and expenses; the $50 million deferred payment to the Chairman
and Chief Executive Officer net of deferred tax benefit; the reduction in the
management fee from 20% to 10% pursuant to the Employment Agreement; and the
conversion from an "S" corporation to a "C" corporation.
The unaudited pro forma financial data does not purport to represent the
results of operations or the financial position of the Company which actually
would have occurred had the Formation Transactions been previously consummated
or project the results of operations or the financial position of the Company
for any future date or period.
F-21
<PAGE> 92
GABELLI FUNDS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED GAMI
DECEMBER 31, PRO FORMA YEAR ENDED
1997 ADJUSTMENTS DECEMBER 31, 1997
------------ ----------- -----------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Investment advisory and incentive fees............. $ 89,684 $ $ 89,684
Commission revenue................................. 7,496 7,496
Distribution fees and other income................. 8,096 8,096
-------- --------
Total revenues........................... 105,276 105,276
-------- --------
EXPENSES
Compensation costs................................. 45,260 45,260
Management fee..................................... 10,580 (5,290)(a) 4,424
(866)(b)
Other operating expenses........................... 18,690 (1,789)(c) 16,901
-------- --------
Total expenses........................... 74,530 66,585
Operating income................................... 30,746 38,691
-------- --------
OTHER INCOME (EXPENSE)
Net gain from investments.......................... 7,888 (4,884)(d) 3,004
Interest and dividend income....................... 4,634 (3,519)(d) 1,115
Interest expense................................... (1,876) 1,876(d) (3,000)
(3,000)(e)
Other.............................................. (109) 109(d) --
-------- --------
Total other income, net.................. 10,537 1,119
-------- --------
Income before income taxes and minority interest... 41,283 39,810
Income taxes....................................... 3,077 12,658(f) 15,735
Minority interest.................................. 1,529 148(g) 1,677
-------- --------
Net income......................................... $ 36,677 $ 22,398
======== ========
NET INCOME PER SHARE:
Basic and diluted............................. $ 0.75
========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted............................. 30,000
========
</TABLE>
- ---------------
(a) To adjust the management fee to reflect the Employment Agreement, which
provides for a reduction in the fee from 20% to 10% of pre-tax profits.
(b) To adjust the management fee for the impact of the other pro forma
adjustments.
(c) To reflect the reallocation of expenses to the new parent company.
(d) To reflect the effect on income and expenses related to the distribution of
assets and liabilities.
(e) To reflect interest expense on the $50 million note payable to the Chairman
and Chief Executive Officer.
(f) To record additional taxes related to conversion from an "S" corporation to
a "C" corporation and other pro forma adjustments.
(g) To adjust minority interest for the impact of the other pro forma
adjustments.
F-22
<PAGE> 93
GABELLI FUNDS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA
GAMI
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1998 ADJUSTMENTS 1998
------------- ----------- -------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
REVENUES
Investment advisory and incentive fees................ $86,302 $ $ 86,302
Commission revenue.................................... 6,197 6,197
Distribution fees and other income.................... 9,810 9,810
------- --------
Total revenues.............................. 102,309 102,309
------- --------
EXPENSES
Compensation costs.................................... 41,702 41,702
Management fee........................................ 8,533 (4,267)(a) 4,216
(50)(b)
Other operating expenses.............................. 18,072 (531)(c) 17,541
------- --------
Total expenses.............................. 68,307 63,459
Operating income...................................... 34,002 38,850
------- --------
OTHER INCOME (EXPENSE)
Net gain from investments............................. (3,910) 4,666(d) 756
Interest and dividend income.......................... 3,252 (2,647)(d) 605
Interest expense...................................... (1,355) 1,334(d) (2,271)
(2,250)(e)
Gain on sale of PCS licenses, net..................... 17,430 (17,430)(d) --
Other................................................. 79 (79)(d) --
------- --------
Total other income, net..................... 15,496 (910)
------- --------
Income before income taxes and minority interest...... 49,498 37,940
Income taxes.......................................... 3,004 12,043(f) 15,047
Minority interest..................................... 1,043 185(g) 1,228
------- --------
Net income............................................ $45,451 $ 21,665
======= ========
NET INCOME PER SHARE:
Basic and diluted................................ $ 0.72
========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic and diluted................................ 30,000
========
</TABLE>
- ---------------
(a) To adjust the management fee to reflect the Employment Agreement, which
provides for a reduction in the fee from 20% to 10% of pre-tax profits.
(b) To adjust the management fee for the impact of the other pro forma
adjustments.
(c) To reflect the reallocation of expenses to the new parent company.
(d) To reflect the effect on income and expenses related to the distribution of
assets and liabilities.
(e) To reflect interest expense on the $50 million note payable to the Chairman
and Chief Executive Officer.
(f) To record additional taxes related to conversion from an "S" corporation to
a "C" corporation and other pro forma adjustments.
(g) To adjust minority interest for the impact of the other pro forma
adjustments.
F-23
<PAGE> 94
GABELLI FUNDS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA GAMI
SEPTEMBER 30, 1998 ADJUSTMENTS SEPTEMBER 30, 1998
------------------ ----------- ------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents....................... $ 56,499 $ (26,643)(a) $ 29,856
Investments in securities....................... 78,597 (55,364)(a) 23,233
Investments in partnerships..................... 47,081 (31,918)(a) 15,163
PCS licenses.................................... 33,985 (33,985)(a) --
Investment advisory fees receivable............. 9,380 -- 9,380
Receivables from affiliates..................... 3,506 (806)(a) 2,700
Notes and other receivables..................... 4,094 (1,426)(a) 2,668
Capital lease................................... 3,494 -- 3,494
Other assets.................................... 4,851 20,156 (a)(b 25,007
-------- --------
Total assets.......................... $241,487 $111,501
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to related party........................ $ -- $ 50,000(b) $ 50,000
Notes payable................................... 5,876 (5,876)(a) --
Payable to Sub-S shareholders................... 14,642 (14,642)(a) --
Income taxes payable (including deferred income
taxes)........................................ 3,217 10,202(c) 13,419
Capital lease obligation........................ 3,621 -- 3,621
Compensation payable............................ 15,692 (4,196)(a) 11,496
Accrued expenses and other liabilities.......... 6,583 (202)(a) 6,381
-------- --------
Total liabilities..................... 49,631 84,917
-------- --------
Minority interest............................... 11,754 11,754
-------- --------
Stockholders' equity:
Common Stock, $.01 par value; authorized
1,000,000 shares, issued and outstanding
196,537....................................... 2 (2)(a) --
Class A Common Stock, $.001 par value;
authorized, 100,000,000 shares; none issued... -- -- --
Class B Common Stock, $.001 par value;
authorized, 100,000,000 shares; 24,000,000
shares issued and outstanding................. -- 24(a) 24
Additional paid-in capital...................... 21,471 1,701(a) 23,172
Retained earnings............................... 169,252 (177,618)(a) (8,366)
Notes receivable................................ (10,623) 10,623(a) --
-------- --------
Total stockholders' equity............ 180,102 14,830
-------- --------
Total liabilities and stockholders' equity...... $241,487 $111,501
======== ========
</TABLE>
- ---------------
(a) To reflect the stock issued, the assets to be distributed and the
liabilities to be assumed in connection with the Formation Transactions.
(b) To record the $50 million payment, net of $19.8 million deferred tax
benefit, to the Chairman and Chief Executive Officer upon consummation of
the Offering, and the related management fee.
(c) To record additional taxes related to conversion from an "S" corporation to
a "C" corporation and the effect of other pro forma adjustments.
F-24
<PAGE> 95
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
A. REORGANIZATION AND INITIAL PUBLIC OFFERING
Reorganization and Initial Public Offering
Prior to the initial public offering (the "Offering"), the Company will
transfer substantially all of the operating assets and liabilities relating to
its institutional and retail asset management, mutual fund advisory and
brokerage business to Gabelli Asset Management Inc. ("GAMI"), in exchange for 24
million shares of GAMI's Class B Common Stock, representing all of its issued
and outstanding shares of Common Stock (the "Reorganization"). GAMI is a newly
formed company, incorporated in April 1998 in the state of New York, with no
significant assets or liabilities and which has not engaged in any substantial
business activities prior to the Offering. The Company intends to sell 6 million
shares of Class A Common Stock as part of the Offering, resulting in 30 million
shares expected to be outstanding immediately after the Offering.
Upon completion of the Offering, the Company will no longer be treated as
an "S" corporation and will be subject to corporate income taxes. Accordingly,
the consolidated statements of income include a pro forma adjustment for
additional income taxes which would have been recorded if the Company had been a
"C" corporation for 1997 based on tax laws then in effect.
For pro forma purposes the financial statements have been prepared as if
the shareholders of GFI formed a newly created parent company (NewCo) and
transferred their ownership interest in GFI to NewCo as of the beginning of the
fiscal period. Concurrent therewith, GFI is assumed to have changed its name to
Gabelli Asset Management Inc. and to have made a dividend to NewCo equal to its
net equity, with the exception of $45 million in net assets retained by GAMI.
The unaudited pro forma data gives effect to the lower management fee and
increase in interest expense as if a new employment agreement with the Company's
Chairman of the Board and Chief Executive Officer, effective immediately
preceding the Offering, had been in effect at the beginning of each period, and
the effects of these adjustments on income tax expense and minority interest.
Under the terms of this agreement, the Company will issue a $50 million note
payable to the Chairman, payable in 2002, and the Chairman will receive 10% of
pre-tax profits. Previously the Chairman received 20% of the Company's pre-tax
profits. The $50 million payment is not reflected in the pro forma income
statement data because it is a one-time event directly related to the Offering.
The pro forma adjustments also reflect the income and expenses incurred on the
net equity assumed to have been distributed in connection with the Formation
Transactions. Additionally, for purposes of the pro forma basic earnings per
share calculation for each period, the denominator represents the 30 million
shares expected to be outstanding immediately after the Offering.
For purposes of the pro forma diluted earnings per share calculation, the
denominator has been calculated using the Treasury Stock method to account for
options granted under the Plan.
B. STOCK AWARD AND INCENTIVE PLAN
The disclosure requirements of Statements of Financial Accounting Standards
No. 123 require the use of an option valuation model to compute a fair value of
employee stock options. The valuation model used by the Company was not
developed for use in valuing employee stock options and the Company's employee
stock option characteristics vary significantly from those of traded options. As
a result, changes in the subjective input assumptions can materially affect the
fair value estimate.
F-25
<PAGE> 96
GABELLI FUNDS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS -- (CONCLUDED)
SEPTEMBER 30, 1998
The fair value of each option grant is estimated on the assumed date of
grant using the following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate..................................... 5%
Dividend yield.............................................. 0%
Volatility.................................................. 30%
Weighted average expected life.............................. 8 year
</TABLE>
A pro forma summary of the status of the Plan as of the Offering is as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Options outstanding at Offering date.................. 1,200,000 1,200,000
Weighted average fair value of options granted on
Offering date....................................... $8.49per $8.49pershare
share
Pro forma net income.................................. $20,798,000 $20,465,000
Pro forma earnings per share.......................... $0.69 $0.68
</TABLE>
F-26
<PAGE> 97
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 12
Special Note Regarding Forward-Looking
Information......................... 18
The Company........................... 19
Use of Proceeds....................... 21
Dividend Policy....................... 21
Dilution.............................. 22
Capitalization........................ 23
Selected Historical and Pro Forma
Financial Data...................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 34
Management............................ 49
Ownership of the Common Stock......... 55
Certain Relationships and Related
Transactions........................ 56
Description of Capital Stock.......... 59
Shares Eligible for Future Sale....... 66
Underwriting.......................... 67
Legal Matters......................... 69
Experts............................... 69
Available Information................. 69
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,000,000 SHARES
[GABELLI LOGO]
CLASS A COMMON STOCK
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
GABELLI & COMPANY, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 98
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the estimated expenses to be incurred in
connection with the Offering, all of which will be paid by the Company.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 33,925
NASD fee.................................................... 12,000
Listing fee................................................. *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving...................................... *
Transfer Agent's fees....................................... *
Blue Sky fees and expenses (including counsel fees)......... *
Miscellaneous expenses...................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or any of its shareholders for
monetary damages arising from the director's breach of fiduciary duty as a
director, with certain limited exceptions. See "Description of Capital
Stock -- Certificate of Incorporation and Bylaw Provisions -- Liability of
Directors; Indemnification" in the Prospectus.
Sections 721-726 of the New York Business Corporation Law provide that a
corporation may indemnify its officers and directors (or persons who have
served, at the corporation's request, as officers or directors of another
corporation) against the reasonable expenses, including attorneys' fees,
actually and reasonably incurred by them in connection with the defense of any
action by reason of being or having been directors or officers, if such person
shall have acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the corporation, except that if such
action shall be in the right of the corporation, no such indemnification shall
be provided as to any claim, issue or matter as to which such person shall have
been adjudged to have been liable to the corporation unless and only to the
extent that the court in which the action was brought, or, if no action was
brought, any court of competent jurisdiction determines upon application that,
in view of all of the circumstances of the case, the person is fairly and
reasonably entitled to indemnification.
The power to indemnify applies to actions brought by or in the right of the
corporation as well, but only to the extent of defense and settlement expenses
and not to any satisfaction of a judgment or settlement of the claim itself, and
with the further limitation that in such actions no indemnification will be made
in the event of any adjudication of negligence or misconduct unless the court,
in its discretion, believes that in light of all the circumstances
indemnification should apply.
To the extent any of the persons referred to in the two immediately
preceding paragraphs is successful in the defense of such actions, such person
is entitled, pursuant to the laws of New York State, to indemnification as
described above.
The Company's Certificate of Incorporation and Bylaws provide for
indemnification to officers and directors of the Company to the fullest extent
permitted by the New York Business Corporation Law. See "Description of Capital
Stock-Certificate of Incorporation and Bylaw Provisions-Liability of Directors;
Indemnification" in the Prospectus.
II-1
<PAGE> 99
The form of Underwriting Agreement filed as Exhibit 1.1 will contain
agreements of indemnity between the Company and the Underwriters and controlling
persons against civil liabilities, including liabilities under the Securities
Act, or will contribute to payments which the Underwriters or any such
controlling persons may be required to make in respect thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Immediately prior to the closing of the Offering, the Company will issue
24,000,000 shares of its Class B Common Stock to Gabelli Partners in exchange
for substantially all of the operating assets and liabilities of Gabelli
Partners. Such transaction will not be registered in reliance upon the exemption
provided by Section 4(2) under the Securities Act of 1933.
ITEMS 16. EXHIBITS
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
+3.1 -- Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
3.3 -- Form of Restated Certificate of Incorporation of the
Company.
3.4 -- Form of Amended Bylaws of the Company.
4.1 -- Specimen of Class A Common Stock Certificate.
5.1* -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
regarding legality of securities being registered.
10.1* -- Form of Management Services Agreement between the Company
and Gabelli Partners.
10.2 -- Form of Tax Indemnification Agreement between the Company
and Gabelli Partners.
10.3 -- Form of Lock-Up Agreement between the Company and Gabelli
Partners.
10.4 -- Form of Gabelli Asset Management Inc. 1999 Stock Award and
Incentive Plan.
10.5 -- Form of Gabelli Asset Management Inc. 1999 Annual
Performance Incentive Plan.
10.6* -- Employment Agreement between the Company and Mario J.
Gabelli.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
+24.1 -- Powers of Attorney (included on page II-4 of this
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Statement Schedules:
Financial statement schedules are omitted as not required or not applicable
or because the information is included in the Financial Statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-2
<PAGE> 100
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant by the Registrant pursuant to the underwriting agreements, the
Company's Certificate of Incorporation, Bylaws, New York law 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 adjudication of such issue.
(c) 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-3
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Rye,
State of New York, on January 28, 1999.
Alpha G, Inc. (to be renamed
Gabelli Asset Management Inc.)
By: /s/ Robert S. Zuccaro
------------------------------------
Name: Robert S. Zuccaro
Title: Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board, January 28, 1999
- --------------------------------------------------- Chief Executive Officer
Mario J. Gabelli and Chief Investment Officer
(Principal Executive Officer)
/s/ Robert S. Zuccaro Vice President and Chief January 28, 1999
- --------------------------------------------------- Financial Officer (Principal
Robert S. Zuccaro Financial Officer and
Principal Accounting Officer)
* Director January 28, 1999
- ---------------------------------------------------
Charles C. Baum
* Director January 28, 1999
- ---------------------------------------------------
Richard B. Black
* Director January 28, 1999
- ---------------------------------------------------
Eamon M. Kelly
Director January 28, 1999
- ---------------------------------------------------
Karl Otto Pohl
</TABLE>
* James E. McKee, by signing his name hereto, does hereby execute this Amendment
No. 3 to the Registration Statement on behalf of the director or officer of the
Registrant indicated above by an asterisk, pursuant to a power of attorney duly
executed by such director or officer and included on page II-4 of the
Registration Statement originally filed on April 24, 1998.
By: /s/ James E. McKee
------------------------------------
James E. McKee
Attorney-in-Fact
II-4
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------- DESCRIPTION OF EXHIBIT
<C> <C> <S>
1.1 -- Form of Underwriting Agreement.
+3.1 -- Certificate of Incorporation of the Company.
3.2 -- Bylaws of the Company.
3.3 -- Form of Restated Certificate of Incorporation of the
Company.
3.4 -- Form of Amended Bylaws of the Company.
4.1 -- Specimen of Class A Common Stock Certificate.
5.1* -- Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
regarding legality of securities being registered.
10.1* -- Form of Management Services Agreement between the Company
and Gabelli Partners.
10.2 -- Form of Tax Indemnification Agreement between the Company
and Gabelli Partners.
10.3 -- Form of Lock-Up Agreement between the Company and Gabelli
Partners.
10.4 -- Form of Gabelli Asset Management Inc. 1999 Stock Award and
Incentive Plan.
10.5 -- Form of Gabelli Asset Management Inc. 1999 Annual
Performance Incentive Plan.
10.6* -- Employment Agreement between the Company and Mario J.
Gabelli.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
+24.1 -- Powers of Attorney (included on page II-4 of this
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
GABELLI ASSET MANAGEMENT INC.
Class A Common Stock
PURCHASE AGREEMENT
February -, 1999
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
250 Vesey Street
World Financial Center, 25th Floor
New York, New York 10281
Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Gabelli & Company, Inc.
One Corporate Center
Rye, New York 10580
As Representatives of the several Underwriters
named in Schedule I
Dear Sirs:
Gabelli Asset Management Inc., a New York corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule 1 hereto (the "Underwriters") for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), Salomon Smith Barney Inc. ("Salomon Smith
Barney") and Gabelli & Company, Inc. are acting as representatives (the
"Representatives"), an aggregate of 6,000,000 shares of its Class A Common
Stock, par value $0.001 per share (the "Firm Shares"). In addition, solely for
the purpose of covering over-allotments, the Company proposes to issue and sell
to the Underwriters, upon the terms and conditions set forth in Section 2
hereof, up to an additional 900,000 shares (the "Additional Shares") of the
Company's Class A Common Stock. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares."
The Company wishes to confirm as follows its respective
agreements with you and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
<PAGE> 2
2
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including
prospectus subject to completion, relating to the Shares. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, and as thereafter amended by post-effective amendment. The term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the forms included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Preliminary Prospectus" as used in this Agreement means the prospectus subject
to completion in the forms included in the Registration Statement at the time of
the initial filing of the Registration Statement with the Commission, as such
prospectus shall have been amended from time to time prior to the date of the
Prospectus. Each Preliminary Prospectus and Prospectus delivered to the
Underwriters for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T. For purposes of this
Agreement: "Rules and Regulations" means the rules and regulations adopted by
the Commission under either the Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
2. AGREEMENTS TO SELL AND PURCHASE. Upon the basis of the
representations, warranties and agreements contained herein and subject to all
the terms and conditions set forth herein and to such adjustments as you may
determine to avoid fractional shares, the Company hereby agrees to issue and
sell to each Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $- per share (the "purchase price per share"), the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 12 hereof).
Upon the basis of the representations, warranties and
agreements contained herein and subject to all the terms and conditions set
forth herein, the Company also agrees to sell to the Underwriters, and the
Underwriters shall have the right to purchase from the Company, at the purchase
price per share, pursuant to an option (the "over-allotment option"), up to an
aggregate of 900,000 Additional Shares from the Company. This option may be
exercised in whole or in part, from time to time, prior to 5:00 p.m. (New York
City time) on the 30th day after the date of the Prospectus (or, if such 30th
day shall be a Saturday or Sunday or a holiday, on the next day thereafter when
the New York Stock Exchange is open for trading). Additional Shares may be
purchased only for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares.
<PAGE> 3
3
3. TERMS OF PUBLIC OFFERING. The Company has been advised by
you that the Underwriters propose to make a public offering of the Shares as
soon after the Registration Statement and this Agreement have become effective
as in your judgment is advisable and initially to offer the Shares upon the
terms set forth in the Prospectus.
4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to
the Underwriters of and payment for the Firm Shares shall be made at the offices
of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York 10017,
at 10:00 a.m. (New York City time) on February -, 1999 (the "Closing Date"). The
place of closing for the Firm Shares and the Closing Date may be varied by
agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
office of Simpson Thacher & Bartlett at such time on such dates (each, an
"Option Closing Date"), which may be the same as the Closing Date but shall in
no event be earlier than the Closing Date nor earlier than two nor later than
ten business days after the giving of the notice hereinafter referred to, as
shall be specified in a written notice from you on behalf of the Underwriters to
the Company of the Underwriters' determination to purchase a number, specified
in such notice, of Additional Shares. The place of closing for any Additional
Shares and the Option Closing Dates for any such shares may be varied by
agreement between you and the Company.
Certificates for the Firm Shares and for any Additional Shares
to be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice prior to 9:30 a.m. (New
York City time) on the second business day preceding the Closing Date or the
Option Closing Date, as the case may be. Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 a.m. (New York City time) on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be. The certificates evidencing
the Firm Shares and any Additional Shares to be purchased hereunder shall be
delivered to you on the Closing Date or the Option Closing Date, as the case may
be, against payment of the purchase price therefor in immediately available
funds.
5. AGREEMENTS OF THE COMPANY. The Company agrees with the
several Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will use its best efforts to cause the Registration Statement or
such post-effective amendment to become effective as soon as possible and will
advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment has
become effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Preliminary
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the
<PAGE> 4
4
effectiveness of the Registration Statement or of the suspension of
qualification of the Shares for offering or sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
business, assets, condition (financial or otherwise), results of operations or
business prospects, or of the happening of any event, including the filing of
any information, documents or reports pursuant to the Exchange Act, that makes
any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge, one
signed copy of the Registration Statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the Registration Statement and will also furnish to you, without
charge, such number of conformed copies of the Registration Statement as
originally filed and of each amendment thereto, but without exhibits, as you may
reasonably request. The copies of the Registration Statement and each amendment
thereto furnished to you will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall
reasonably object in writing after being so advised or (ii) so long as, in the
written opinion of counsel to the Underwriters (a copy of which shall be
delivered to the Company), a prospectus is required to be delivered in
connection with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Exchange Act, without delivering a copy of
such information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have reasonably requested or may hereafter reasonably request, copies of
each form of the Preliminary Prospectus. The Company consents to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Shares are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of each
Preliminary Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the written
opinion of counsel to the Underwriters a Prospectus is required by the Act to be
delivered in connection with sales by any
<PAGE> 5
5
Underwriter or dealer, the Company will expeditiously deliver to each
Underwriter and each dealer, without charge, as many copies of the Prospectus
(and of any amendment thereof or supplement thereto) as you may reasonably
request. The Prospectus and any amendments or supplements thereto furnished to
the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T. The Company consents to the use of the Prospectus
(and of any amendment thereof or supplement thereto) in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
all dealers to whom Shares may be sold, both in connection with the offering and
sale of the Shares and for such period of time thereafter as the Prospectus is
required by the Act to be delivered in connection with sales by any Underwriter
or dealer. If during such period of time any event shall occur that in the
judgment of the Company or in the written opinion of counsel to the Underwriters
is required to be set forth in the Prospectus (as then amended or supplemented)
or should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the Prospectus to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate amendment thereof
or supplement thereto and will expeditiously furnish to the Underwriters and
dealers a reasonable number of copies thereof.
(g) The Company will cooperate with you and with counsel to
the Underwriters in connection with the registration or qualification of the
Shares for offering and sale by the several Underwriters and by dealers under
the securities or Blue Sky laws of such jurisdictions as you may reasonably
designate and will file such consents to service of process or other documents
necessary or appropriate in order to effect such registration or qualification;
provided that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take any
action that would subject it to service of process in suits, other than those
arising out of the offering or sale of the Shares, in any jurisdiction where it
is not now so subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
12-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as reasonably
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11 (a) of the Act; provided that such
requirement shall be deemed satisfied if the Company complies with the
provisions of Rule 158 of the Act.
(i) During the period of one year hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or filed with the Commission or the New York Stock
Exchange, and (ii) from time to time such other information concerning the
Company as you may reasonably request.
(j) The Company will apply the net proceeds from the sale of
the Shares to be sold by it hereunder substantially in accordance with the
description set forth in the Prospectus.
<PAGE> 6
6
(k) If Rule 430A of the Act is employed, the Company will
timely file the Prospectus pursuant to Rule 424(b) under the Act and will advise
you of the time and manner of such filing.
(l) For a period of 180 days after the date hereof (the
"Lock-up Period"), without the prior written consent of Merrill Lynch and
Salomon Smith Barney, the Company will not offer, sell, contract to sell or
otherwise dispose of any shares of common stock of the Company (or any
securities convertible into or exchangeable or exercisable for shares of common
stock of the Company) or grant any options or warrants to purchase shares of
common stock of the Company exercisable within the Lock-up Period, except for
(A) sales to the Underwriters pursuant to this Agreement or (B) the grant of
options in the ordinary course of business pursuant to the Gabelli Asset
Management Inc. 1999 Stock Award and Incentive Plan (provided that any recipient
of options exercisable within 180 days of the date hereof shall execute an
agreement for the benefit of the Underwriters not to transfer such options (or
shares of common stock underlying such options) for the remainder of such
180-day period).
(m) Except as stated in this Agreement and in the Preliminary
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Class A
Common Stock to facilitate the sale or resale of the Shares.
(n) The Company will use its best efforts to have the Class A
Common Stock listed, subject to notice of issuance, on the New York Stock
Exchange concurrently with the effectiveness of the Registration Statement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
(a) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
(b) The Registration Statement in the form in which it became
or becomes effective and also in such form as it may be when any post-effective
amendment thereto shall become effective and the Prospectus and any amendment
thereof or supplement thereto when filed with the Commission under Rule 424(b)
under the Act, complied or will comply in all material respects with the
provisions of the Act and will not at any such times contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided
that this representation and warranty does not apply to statements in or
omissions from the Registration Statement or the Prospectus made in reliance
upon and in conformity with information relating to any Underwriter furnished to
the Company in writing by an Underwriter through the Representatives expressly
for use therein.
<PAGE> 7
7
(c) All of the issued and outstanding shares of capital stock
of the Company have been duly authorized and validly issued, are fully paid and
nonassessable and free of any preemptive or similar rights. The Shares to be
issued and sold by the Company have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Prospectus).
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as otherwise
stated therein, (i) there has been no material adverse change in the condition
(financial or otherwise), earnings, business affairs or business prospects of
the Company and its subsidiaries taken as a whole, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (ii) there have been
no transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with respect
to the Company and its subsidiaries taken as a whole, (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or
any of its subsidiaries on any class of its capital stock and (iv) there has not
been any material change in the capital stock of the Company, or material
increase in the short-term debt or long-term debt, of the Company or any of its
subsidiaries.
(e) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has the corporate power and authority to own its property and
to conduct its business as described in the Registration Statement and the
Prospectus and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a Material
Adverse Effect.
(f) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect; all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and are owned directly or indirectly through one of the other subsidiaries by
the Company, free and clear of all liens, encumbrances, equities or claims,
except as described in the Registration Statement and the Prospectus.
(g) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of its
subsidiaries which
<PAGE> 8
8
could have a Material Adverse Effect or to which the Company or any of its
subsidiaries, or to which any of their respective properties, is subject which
could have a Material Adverse Effect that are required to be described in the
Registration Statement or the Prospectus but are not described as required, and
there are no agreements, contracts, indentures, leases or other instruments
relating to the Company that are required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or filed as required by the Act or the Exchange
Act. The descriptions of the terms of any such contracts or documents contained
in the Registration Statement or the Prospectus are correct in all material
respects.
(h) Neither the Company nor any of its subsidiaries is (i) in
violation of its certificate or articles of incorporation or bylaws, or other
organizational documents, (ii) in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to it or of any
decree of any court or governmental agency or body having jurisdiction over it
(except where any such violation or violations in the aggregate would not have a
Material Adverse Effect), or (iii) in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which it is a party or by
which it or any of its properties may be bound, and no condition or state of
facts exists, which with the passage of time or the giving of notice or both,
would constitute such a default (except where any such default or defaults in
the aggregate would not have a Material Adverse Effect), except as may be
disclosed in the Registration Statement and the Prospectus.
(i) Neither the issuance and sale of the Shares, the
execution, delivery or performance of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby and thereby
(i) requires any consent, approval, authorization or other order of or
registration or filing with, any court or governmental agency or body having
jurisdiction over it (except such as may be required for the registration of the
Shares under the Act and compliance with the securities or Blue Sky laws of
various jurisdictions, all of which have been or will be effected in accordance
with this Agreement), (ii) conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the subsidiaries or any material agreement, indenture, lease or other
instrument to which the Company or any of the subsidiaries is a party or by
which any of them or any of their respective properties may be bound, (iii)
violates or will violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to the Company or any of its subsidiaries
or any of their respective properties or (iv) will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of them may be bound
or to which any of the property or assets of any of them is subject.
(j) The accountants, Ernst & Young LLP, who have certified or
shall certify the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
<PAGE> 9
9
(k) The financial statements, together with the related
schedules and notes thereto included as part of the Registration Statement and
the Prospectus (and any amendment thereof or supplement thereto), present fairly
in all material respects the consolidated financial position, results of
operations, cash flows and changes in stockholders' equity of the Company and
its subsidiaries on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply (to the
extent such entities were in existence at such dates or for such periods); such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein, and met the requirements of
Regulation S-X under the Act for registration statements on Form S-1; and the
other financial information and data set forth in the Registration Statement and
the Prospectus (and any amendment thereof or supplement thereto) are accurately
presented and prepared on a basis consistent with the books and records of the
Company and its subsidiaries. The selected financial data set forth under the
captions "Summary Historical and Pro Forma Financial Data" and "Selected
Historical and Pro Forma Financial Data" in the Prospectus fairly present the
information included therein and the assumptions used in the preparation thereof
are reasonable.
(l) The execution and delivery of and the performance by the
Company of its obligations under this Agreement has been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and, assuming due authorization, execution and delivery
by the other parties hereto and thereto, constitutes the valid and legally
binding agreement of the Company enforceable against the Company in accordance
with its terms, except that the enforceability of the Company's obligations
hereunder or thereunder may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally and
subject to the applicability of general principles of equity, and except as
rights to indemnity and contribution hereunder or thereunder may be limited by
federal or state securities laws or principles of public policy.
(m) Each of the Company and its subsidiaries has good and
indefeasible title to all property (real and personal) described in the
Prospectus as being owned by it, free and clear of all liens, claims, security
interests or other encumbrances except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement or would not have a Material Adverse Effect, and each
property described in the Prospectus as being held under lease by the Company or
one of its subsidiaries is held by it under a valid, subsisting and enforceable
lease with only such exceptions as would not have a Material Adverse Effect.
(n) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date or the Option Closing Date, if any, and (ii)
completion of the distribution of the Shares, will not distribute any offering
material in connection with the offering and sale of the Shares other than the
Registration Statement, the Preliminary Prospectus, the Prospectus or other
materials, if any, permitted by the Act.
(o) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal or state regulatory
authorities necessary to conduct
<PAGE> 10
10
their respective businesses (except for such failures to possess as would not
have a Material Adverse Effect), and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a Material Adverse Effect, except as described the
Prospectus.
(p) Each of the Company and its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which it
is engaged; neither the Company nor any of its subsidiaries has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(q) Neither the Company nor any of its subsidiaries has
violated any applicable foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), except for such violations which, singly or in the
aggregate, would not have a Material Adverse Effect.
(r) There are no costs or liabilities associated with any
applicable Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a Material Adverse
Effect.
(s) No holder of any security of the Company has any right to
require registration of shares of common stock or any other security of the
Company because of the filing of the Registration Statement or consummation of
the transactions contemplated by this Agreement or otherwise. No such rights
with respect to shares of common stock not listed in Schedule I hereto were
exercised nor will be exercised in connection with the sale of the Shares and
for a period of 180 days after the date hereof. Except as described in or
contemplated by the Prospectus, there are no outstanding options, warrants or
other rights calling for the issuance of, and there are no commitments, plans or
arrangements to issue, any shares of common stock of the Company or any security
convertible into or exchangeable or exercisable for common stock of the Company.
(t) The Company does not anticipate incurring significant
operating expenses or costs to ensure that all management information systems of
the Company will be year 2000 compliant.
(u) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information,
<PAGE> 11
11
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with, and material to, the business now operated
by them, and neither the Company nor any of its subsidiaries has received any
notice of infringement of or conflict with asserted rights of others with
respect to any of the foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Affect.
(v) No material labor dispute with the employees of the
Company or any of its subsidiaries exists, except as described in the
Prospectus, or, to the knowledge of the Company, is imminent; and the Company is
not aware of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or contractors that
could have a Material Adverse Effect.
(w) Each of the Company and its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(x) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act").
(y) Each of Gabelli Funds, LLC, GAMCO Investors, Inc., Gabelli
Fixed Income, LLC and Gabelli Advisers, Inc. (each a "Fund" and, collectively,
the "Funds") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and none of the Funds is
prohibited by any provision of the Advisers Act or the Investment Company Act,
or the respective rules and regulations thereunder, from acting as an investment
adviser. The Funds are the only direct or indirect subsidiaries of the Company
required to be registered as investment advisers under the Advisers Act.
(z) Neither the Company nor any of its direct or indirect
subsidiaries, including the Funds, is required to be registered, licensed or
qualified as an investment adviser under the laws requiring any such
registration, licensing or qualification in any state in which it or its
subsidiaries conduct business or is not subject to material liability or
disability by reason of the failure to be so registered, licensed or qualified.
(aa) Gabelli & Company, Inc. is duly registered as a
broker-dealer under the Exchange Act, and under the securities laws of each
state where the conduct of its business requires such registration and is in
compliance in all material respects with all federal and state laws requiring
such registration or is subject to no material liability or disability by reason
of the failure to be so registered in any such jurisdiction or to be in such
compliance in all material
<PAGE> 12
12
respects. Gabelli & Company, Inc. is a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"). None of the Company's
other direct or indirect subsidiaries is required to be registered, licensed or
qualified as a broker-dealer under the federal or state laws requiring any such
registration, licensing or qualification is any state in which it conducts
business or is subject to any material liability or disability by reason of the
failure to be so registered, licensed or qualified.
(bb) None of the Company's direct or indirect subsidiaries is
required to be registered, licensed or qualified as a transfer agent under the
federal or state laws requiring any such registration, licensing or
qualification in any state in which it conducts business or is subject to any
material liability or disability by reason of the failure to be so registered,
licensed or qualified.
(cc) Each of the Company, Gabelli Funds, LLC, GAMCO Investors,
Inc., Gabelli Fixed Income, LLC, Gabelli Advisers, Inc., Gabelli Securities,
Inc. and Gabelli & Company, Inc. is and has been in compliance with, and each
such entity has or will have had, as the case may be, received no notice of any
violation of, (i) all laws, regulations, ordinances and rules (including those
of any non-governmental self-regulatory agencies) applicable to it or its
operations relating to investment advisory or broker-dealer activities and (ii)
all other such laws, regulations, ordinances and rules applicable to it and its
operations, except, in either case, where any failure by the Company, Gabelli
Funds, LLC, GAMCO Investors, Inc., Gabelli Fixed Income, LLC, Gabelli Advisers,
Inc., Gabelli Securities, Inc. and Gabelli & Company, Inc. to comply with any
such law, regulation, ordinance or rule would not have, individually or in the
aggregate, a Material Adverse Effect.
(dd) Each entity for which any of the Funds acts as investment
adviser and which is required to be registered with the Commission as an
investment company under the Investment Company Act is, and upon consummation of
the transactions contemplated herein will be, duly registered with the
Commission as an investment company under the Investment Company Act and to the
knowledge of the Company, each Fund has been operated in compliance in all
material respects with the Investment Company Act and the rules and regulations
thereunder and to the knowledge of the Company, there are no facts with respect
to any such Fund that are likely to have a material adverse effect on the
general affairs, management, financial position, stockholders' equity as results
of operations of the Company and its subsidiaries taken as a whole.
(ee) To the knowledge of the Company, each Fund's registration
statement complies in all material respects with the provisions of the
Securities Act, the Investment Company Act and the rules and regulations
thereunder and does not contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(ff) To the knowledge of the Company, each agreement between
the Company, Gabelli Funds, LLC, GAMCO Investors, Inc., Gabelli Fixed Income,
Inc., Gabelli Fixed Income, LLC, Gabelli Securities, Inc., Gabelli & Company,
Inc. and Gabelli Advisers, Inc.
<PAGE> 13
13
or any other subsidiary of the Company on the one hand and any Fund or private
client on the other hand is a legal and valid obligation of the parties thereto,
and none of the Company, Gabelli Funds, LLC, GAMCO Investors, Inc., Gabelli
Fixed Income, Inc., Gabelli Fixed Income, LLC, Gabelli Securities, Inc., Gabelli
& Company, Inc. and Gabelli Advisers, Inc. or any other subsidiary of the
Company is in breach or violation of or in default under any such agreement
which would individually or in the aggregate have a Material Adverse Affect on,
or cause a prospective material adverse change in, the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries taken as a whole.
(gg) The Offering will not constitute an "assignment" as
defined in the Investment Company Act and the Advisers Act of any of the
investment advisory contracts to which any of the Funds is a party.
(hh) There are no contracts or documents which are required to
be described in the Registration Statement or the Prospectus or to be filed as
exhibits thereto which have not been so described and filed as required.
7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to
indemnify and hold harmless you and each other Underwriter, the directors,
officers, employees and agents of each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act from and against any and all losses, claims, damages
or liabilities, joint or several, to which they or any of them may become liable
under the Act or the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or in any Preliminary Prospectus or in the Prospectus
or in any amendment or supplement thereto, or arise out of or are based upon 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 light of the
circumstances under which they were made, not misleading, and agree to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action except insofar as such losses,
claims, damages or liabilities arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Preliminary Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, provided that the
Company has delivered the
<PAGE> 14
14
Prospectus to the several Underwriters in requisite quantity on a timely basis
to permit such delivery or sending; and provided further that the Company will
not be liable to any Underwriter with respect to any Prospectus to the extent
that the Company shall sustain the burden of proving that any such loss,
liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of a requirement of this Agreement or applicable
law, sold Shares to a person to whom such Underwriter failed to send or give, at
or prior to the Closing Date, a copy of the Prospectus, as then amended or
supplemented if: (i) the Company had previously furnished copies thereof
(sufficiently in advance of the Closing Date to allow for distribution by the
Closing Date) to the Underwriter and the loss, liability, claim, damage or
expense of such Underwriter resulted from an untrue statement or omission of a
material fact contained in or omitted from the Preliminary Prospectus which was
corrected in the Prospectus as, if applicable, amended or supplemented prior to
the Closing Date and such Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person and (ii) such failure
to give or send such Prospectus by the Closing Date to the party or parties
asserting such loss, liability, claim, damage or expense would have constituted
the sold defense to the claim asserted by such person. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
In addition to the foregoing indemnification of all the
Underwriters, including Merrill Lynch, the Company agrees to indemnify and hold
harmless Merrill Lynch, and each person who controls Merrill Lynch within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, liabilities and expenses incurred
by Merrill Lynch arising out of or based upon Merrill Lynch's serving as
"qualified independent underwriter" for the offering, including reasonable costs
of investigation and fees and disbursements of counsel retained by Merrill Lynch
to represent it in its capacity as "qualified independent underwriter".
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to each Underwriter, but
only with reference to written information relating to such Underwriter
furnished in writing by or on behalf of such Underwriter specifically for
inclusion in the Registration Statement, the Prospectus or any Preliminary
Prospectus (or in any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof, but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraphs (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall
<PAGE> 15
15
be entitled to appoint counsel of the indemnifying party's choice at the
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all indemnified parties, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Underwriters and such control persons shall be designated
in writing by the first of the named Underwriters on Schedule I hereto and any
such separate firm of the Company, its directors, its officers or any such
controlling person shall be designated in writing by the Company. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraphs (a) or (b) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
<PAGE> 16
16
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus; provided that, in the event that the
Underwriters shall have purchased any Additional Shares hereunder, any
determination of the relative benefits received by the Company, or the
Underwriters from the offering of the Shares shall include the net proceeds
(before deducting expenses) received by the Company, and the total underwriting
discounts and commissions received by the Underwriters, from the sale of such
Additional Shares, in each case computed on the basis of the respective amounts
set forth in the notes to the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
by the Underwriters on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to paragraph (d) of this Section
7 were determined by a pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (d) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (c) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares, underwritten by it and distributed 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. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 11 hereof) and not joint.
(f) The indemnity and contribution agreements contained in
this Section 7 and the representations and warranties of the Company set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers,
any director, officer or partner of any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors, officers,
employees or agents or any director, officer or partner of any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7. The
remedies provided in this Section 7
<PAGE> 17
17
are not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares hereunder are
subject to the following conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 p.m. (New York City time) on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, that would have a Material Adverse Effect not contemplated
by the Prospectus, which in your reasonable opinion, as Representatives of the
several Underwriters, would materially and adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Company or
any officer or director of the Company which makes any statement made in the
Prospectus untrue or which, in the opinion of the Company and its counsel or the
Underwriters and their counsel, requires the making of any addition to or change
in the Prospectus in order to state a material fact required by the Act or any
other law to be stated therein or necessary in order to make the statements
therein not misleading, if amending or supplementing the Prospectus to reflect
such event or development would, in your reasonable opinion, as Representatives
of the several Underwriters, materially and adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date an opinion
from Skadden, Arps, Slate, Meagher & Flom LLP, counsel to the Company, dated the
Closing Date and addressed to you, as Representatives of the several
Underwriters, substantially to the effect that:
(i) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a Material Adverse Effect;
<PAGE> 18
18
(ii) All of the authorized and issued shares of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and are validly issued, fully paid and non-assessable and
free of any preemptive or similar rights;
(iii) The Shares to be issued and sold to the Underwriters by
the Company under this Agreement have been duly authorized and when
issued and delivered to the Underwriters against payment therefor in
accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar
rights;
(iv) The Company has taken all necessary action to authorize
the execution and delivery of this Agreement, and the performance by it
of the transactions contemplated therein;
(v) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and legally binding
obligation of the Company enforceable against the Company in accordance
with its terms, except to the extent that such enforceability may be
limited by applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting creditors'
rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law) and except to the
extent that the indemnification provisions hereof and thereof may be
unenforceable;
(vi) The Registration Statement has become effective under the
Act and the Prospectus were filed on the date specified in such opinion
pursuant to the subsection set forth in such opinion of Rule 424(b) of
the rules and regulations of the Commission under the Act and, to the
knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued or proceeding for that
purpose has been instituted or threatened by the Commission;
(vii) The statements made in the Prospectus under the captions
"Business", "Management", "Certain Relationships and Related
Transactions", and "Underwriting", insofar as they purport to
constitute summaries of certain terms of documents referred to therein,
constitute accurate summaries of the terms of such documents in all
material respects;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any federal or New York
governmental agency or body, or, to our knowledge, any federal or New
York court is required for the issue and sale of the Shares by the
Company and the compliance by the Company with all of the provisions of
this Agreement, except for the registration under the Act and the
Exchange Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
<PAGE> 19
19
(ix) The issue and sale of the Shares by the Company and the
execution and delivery by the Company of, and the performance by the
Company of its obligations under this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or
by-laws of the Company or, to such counsel's knowledge, any agreement
or other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or, to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company
or any subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is required for
the performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Shares
by the Underwriters;
(x) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act;
(xi) The Offering will not constitute an "assignment" as
defined in the Investment Company Act and the Advisers Act of any of
the investment advisory contracts to which Gabelli Funds, LLC, Gabelli
Advisers, Inc. Gabelli Fixed Income, LLC or GAMCO Investors, Inc. is a
party;
(xii) Each of Gabelli Funds, LLC, Gabelli Advisers, Inc.,
Gabelli Fixed Income, LLC and GAMCO Investors, Inc. is duly registered
as an investment adviser under the Advisers Act. No other subsidiary of
the Company is required to be registered as an investment adviser under
the Advisers Act and the rules and regulations of the Commission
promulgated thereunder;
(xiii) Gabelli & Company, Inc. is duly registered, licensed or
qualified as a broker-dealer under all federal laws requiring any such
registration, licensing or qualification. None of the Company's other
direct or indirect subsidiaries is required to be registered, licensed
or qualified as a broker-dealer under any federal law requiring any
such registration, licensing or qualification;
(xiv) None of the Company or its direct or indirect
subsidiaries including Gabelli Funds, LLC, GAMCO Investors, Inc.,
Gabelli Fixed Income, LLC, Gabelli Advisers, Inc., and Gabelli &
Company, Inc. is required to be registered, licensed or qualified as an
investment adviser under the laws of any state; and
(xv) After inquiry of the executive officers and the general
counsel of the Company, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or
may of its subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus and are
not so described or of any statutes, regulations, contracts or other
documents that are required to be described
<PAGE> 20
20
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or
filed.
Such counsel shall also state that such counsel has not
independently verified the accuracy, completeness or fairness of the statements
made or included in the Registration Statement or the Prospectus, and takes no
responsibility therefor, except as and to the extent set forth in paragraph (ii)
above. Such counsel shall state that in the course of the preparation by the
Company of the Registration Statement and the Prospectus, such counsel
participated in conferences with certain officers and employees of the Company,
with representatives of Ernst & Young LLP and with counsel to the Company. Such
counsel shall state that based upon such counsel's examination of the
Registration Statement and the Prospectus, such counsel's investigations made in
connection with the preparation of the Registration Statement and the Prospectus
and such counsel's participation in the conferences referred to above, such
counsel (i) is of the opinion that the Registration Statement, as of its
effective date, and the Prospectus, as of their respective dates, and as of the
date of such opinion, comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations of the
Commission thereunder, except that in each case such counsel expresses no
opinion with respect to the financial statements or other financial or
statistical data and (ii) has no reason to believe that the Registration
Statement, as of its effective date, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus, as of their respective dates, and as of the date of such
opinion, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that in
each case such counsel expresses no belief with respect to the financial
statements or other financial or statistical data.
In rendering such opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, on certificates of responsible officers
of the Company and public officials.
(d) You shall have received on the Closing Date an opinion
from James E. McKee, Esq., Vice President, General Counsel and Secretary of the
Company, dated the Closing Date and addressed to you, as Representatives of the
several Underwriters, substantially to the effect that:
(i) Each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a Material
Adverse Effect;
<PAGE> 21
21
(ii) All of the authorized and issued shares of the Company
outstanding prior to the issuance of the Shares have been duly
authorized and are validly issued, fully paid and non-assessable and
free of any preemptive or similar rights;
(iii) The Shares to be issued and sold to the Underwriters by
the Company under this Agreement have been duly authorized and when
issued and delivered to the Underwriters against payment therefor in
accordance with the terms of this Agreement, will be validly issued,
fully paid and nonassessable and free of any preemptive or similar
rights;
(iv) The Company has taken all necessary action to authorize
the execution and delivery of this Agreement, and the performance by it
of the transactions contemplated therein; and
(v) Such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not so described or filed.
Such counsel shall state that based upon such counsel's
examination of the Registration Statement and the Prospectus and such counsel's
investigations made in connection with the preparation of the Registration
Statement and the Prospectus, such counsel (i) is of the opinion that the
Registration Statement, as of its effective date, and the Prospectus, as of
their respective dates, and as of the date of such opinion, comply as to form in
all material respects with the requirements of the Act and the applicable rules
and regulations of the Commission thereunder, except that in each case such
counsel expresses no opinion with respect to the financial statements or other
financial or statistical data and (ii) has no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, or
that the Prospectus, as of their respective dates, and as of the date of such
opinion, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except that in
each case such counsel expresses no belief with respect to the financial
statements or other financial or statistical data.
(e) You shall have received on the Closing Date an opinion
from Simpson Thacher & Bartlett, counsel to the Underwriters, dated the Closing
Date and addressed to you, as Representatives of the several Underwriters,
substantially to the effect set forth in Exhibit A.
(f) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Ernst & Young LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
<PAGE> 22
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(g) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall have
been contemplated by the Commission at or prior to the Closing Date; (ii) there
shall not have been any material change in the capital stock of the Company nor
any material increase in the short-term or long-term debt of the Company (other
than in the ordinary course of business) from that set forth or contemplated in
the Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
subsidiaries taken as a whole; and (iv) all the representations and warranties
of the Company contained in this Agreement shall be true and correct on and as
of the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 8(g) and in Section 8(h) hereof.
(h) The Company shall not have failed at or prior to the
Closing Date to have performed or complied with any of its agreements herein
contained and required to be performed or complied with by it hereunder at or
prior to the Closing Date.
(i) The Company shall have furnished or caused to be furnished
to you such further certificates and documents as you shall have reasonably
requested.
(j) The Common Stock shall have been listed or approved for
listing, subject to notice of issuance, on the New York Stock Exchange.
All such opinions, certificates, letters and other documents
will be in compliance with the provisions hereof only if they are reasonably
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of the
Company and delivered to you, as Representatives of the Underwriters, or to
counsel to the Underwriters, shall be deemed a representation and warranty by
the Company, to each Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase
Additional Shares hereunder are subject to the satisfaction on and as of the
Option Closing Date of the conditions set forth in this Section 8, except that,
if the Option Closing Date is other than the Closing Date, the certificates,
opinions and letters referred to in this Section 8 shall be dated the Option
Closing Date and the opinions or letters called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
<PAGE> 23
23
9. PAYMENT OF EXPENSES. (a) The Company agrees to pay the
following costs and expenses and all other costs and expenses incident to the
performance of its obligations hereunder: (i) the preparation, printing and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Preliminary Prospectus, each Prospectus
and each amendment of or supplement to any of them; (ii) the printing and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the Registration Statement, each Preliminary
Prospectus, each Prospectus and each amendment of or supplement to any of them
as may be reasonably requested for use in connection with the offering and sale
of the Shares; (iii) the preparation, printing, issuance and delivery of
certificates for the Shares, including any stock or other transfer taxes and any
stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the registration of the Common Stock under the Exchange Act and the listing
of the Shares on the New York Stock Exchange; (v) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of the several states as provided in Section 5(g) hereof (including the
reasonable fees, expenses and disbursements of counsel to the Underwriters
relating to the preparation and delivery of the Blue Sky Memorandum and such
registration and qualification); (vi) the filing fees and the fees and expenses
of counsel to the Underwriters in connection with any filings required to be
made with the NASD; (vii) the transportation and other expenses incurred by or
on behalf of representatives of the Company in connection with presentations to
prospective purchasers of the Shares; and (viii) the fees and expenses of the
Company's accountants and the fees and expenses of the Company's counsel
(including local and special counsel).
(b) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
Section 11 hereof or by notice given by you terminating this Agreement pursuant
to Section 10 or Section 12 hereof) or if this Agreement shall be terminated by
the Underwriters because of any failure or refusal on the part of the Company to
comply, in any material respect, with the terms or fulfill, in any material
respect, any of the conditions of this Agreement, the Company agrees to
reimburse the Representatives for all reasonable out-of-pocket expenses
(including reasonable fees and expenses of counsel to the Underwriters) incurred
by you in connection herewith.
10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the Registration Statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the Registration Statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company,
by notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company.
11. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If any one or
more of the Underwriters shall fail or refuse to purchase Firm Shares which it
or they are obligated to purchase hereunder on the Closing Date, and the
aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more
<PAGE> 24
24
than one-tenth of the aggregate number of Firm Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters, to
purchase the Firm Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Firm Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares which the Underwriters are obligated to purchase
on the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares by one or more non-defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 11 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
12. TERMINATION OF AGREEMENT. This Agreement shall be subject
to termination in the absolute discretion of the Underwriters by notice given to
the Company, if prior to the Closing Date or the Option Closing Date (if
different from the Closing Date and then only as to the Additional Shares), as
the case may be, there has been, since the time of execution of this Agreement
or since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries taken as a whole, whether or not arising in the
ordinary course of business, (ii) there has occurred any material adverse change
in the financial markets in the United States or the international financial
markets, any outbreak of hostilities or escalation thereof or other calamity or
crisis or any change or development involving a prospective change in national
or international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Shares or to enforce contracts for the sale of the
Shares, (iii) trading in any securities of the Company has been suspended or
materially limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other
<PAGE> 25
25
governmental authority or (iv) if a banking moratorium has been declared by
either federal or New York authorities.
Notice of such termination may be given by telegram, telecopy
or telephone and shall be subsequently confirmed by letter.
13. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements
set forth in the last paragraph on the cover page, the stabilization legend on
the inside front cover page, and the statements in the first, second, fifth and
ninth paragraphs and the third sentence of the eighth paragraph under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
14. MISCELLANEOUS. Except as otherwise provided in Sections 5,
10, 11 and 12 hereof, notice given pursuant to any provision of this Agreement
shall be in writing and shall be delivered (i) if to the Company at the office
of the Company at -, Attention: -; or (ii) if to you, as Representatives of the
several Underwriters, care of and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, 250 Vesey Street, World Financial Center, 25th Floor, New York,
New York 10281, Attention:-, and Salomon Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, Attention: Manager, Investment Banking
Division.
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company, its directors and officers, the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term "successors and assigns" as used in this Agreement
shall include a purchaser from any Underwriter of any of the Shares in his
status as such purchaser.
15. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
16. COUNTERPARTS. This Agreement may be signed in various
counterparts which together constitute one and the same instrument. If signed in
counterparts, this Agreement shall not become effective unless at least one
counterpart hereof shall have been executed and delivered on behalf of each
party hereto.
17. SUBMISSION TO JURISDICTION; APPOINTMENT OF AGENTS FOR
SERVICE.
(a) To the fullest extent permitted by applicable law, the
Company irrevocably submits to the jurisdiction of any U.S. federal or state
court located in the Borough of Manhattan in The City of New York, New York in
any suit, action or proceeding based on or arising out of or relating to this
Agreement or any Shares, and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in any such court. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have to the
<PAGE> 26
26
laying of the venue of any such suit, action or proceeding brought in an
inconvenient forum. The Company agrees that final judgment in any such suit,
action or proceeding brought in such a court shall be conclusive and binding
upon the Company and may be enforced in the U.S. federal or state courts of New
York, provided that service of process is effected upon the Company in the
manner specified herein or as otherwise permitted by law. The Company hereby
irrevocably designates and appoints CT Corporation System, 1633 Broadway, 23rd
Floor, New York, New York (the "Process Agent"), as the authorized agent of the
Company upon whom process may be served in any such suit or proceeding, it being
understood that the designation and appointment of the Process Agent as such
authorized agent shall become effective immediately without any further action
on the part of the Company. The Company represents to the Underwriters that it
has notified the Process Agent of such designation and appointment and that the
Process Agent has accepted the same in writing. The Company hereby irrevocably
authorizes and directs the Process Agent to accept such service. The Company
further agrees that service of process upon the Process Agent and written notice
of said service to the Company, mailed by prepaid registered first class mail or
delivered to the Process Agent at its principal office, shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of the Underwriters or any
person controlling the Underwriters to serve process in any other matter
permitted by law. The Company further agrees to take any and all action,
including the execution and filing of any and all such documents and instruments
as may be necessary to continue such designation and appointment of the Process
Agent in full force and effect so long as the Company has any outstanding
obligations under this Agreement or the Shares. To the extent that the Company
has or hereafter may acquire any immunity from jurisdiction of any court or from
any legal process (whether through service of note, attachment in aid of
execution, executor or otherwise) with respect to itself or its property, the
Company hereby irrevocably waives such immunity in respect of its obligations
under this Agreement, to the extent permitted by law.
<PAGE> 27
27
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
GABELLI ASSET MANAGEMENT INC.
By_________________________________
Name:
Title: Chief Executive Officer
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I hereto.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
Gabelli & Company, Inc.
As Representatives of the several Underwriters named in
Schedule I hereto
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ___________________________________
Name:
Title:
SALOMON SMITH BARNEY INC.
By ___________________________________
Name:
Title:
GABELLI & COMPANY, INC.
By __________________________________
Name:
Title:
<PAGE> 28
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Underwriter Firm Shares
- ----------- -----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Smith Barney Inc.
Gabelli & Company, Inc.
---------
Total 6,000,000
=========
</TABLE>
<PAGE> 29
2
Exhibit A
[Form of Opinion Letter of Simpson Thacher & Bartlett]
[to come]
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
ALPHA G, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Alpha G, Inc.
(hereinafter, the "Corporation") shall be located in the County of Westchester.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of New York as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meetings. Annual meetings of shareholders for the
election of directors and for such other business as may be stated in the notice
of the meeting given by the Corporation, shall, commencing in the year 1999, be
held at such place, either within or without the State of New York, and at such
time and date as the Board of Directors, by resolution, shall determine and as
set forth in the notice of the meeting. In the event the Board of Directors
fails to so determine the time, date and place of meeting, the annual meeting of
shareholders shall be held at the principal executive offices of the Corporation
in New York on the last Wednesday of April.
If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the
<PAGE> 2
next succeeding business day. At each annual meeting, the shareholders entitled
to vote shall elect members of the Board of Directors, and they may transact
such other corporate business as may properly come before the meeting.
Section 3. Voting and Proxies. In accordance with the terms of the
Corporation's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), and in accordance with the provisions of these Bylaws, each
holder of the Corporation's common stock, par value $.001 (the "Common Stock"),
shall be entitled to one vote, in person or by proxy, per share. No proxy shall
be voted after eleven (11) months from its date unless such proxy provides for a
longer period. Such proxy shall be filed with the Secretary of the Corporation
before or at the time of the meeting. Upon the demand of any shareholder, the
vote for directors and the vote upon any question before the meeting shall be by
ballot. All elections for directors shall be decided by a plurality vote; all
other questions shall be decided by a majority vote except as otherwise provided
by these Bylaws, the Certificate of Incorporation or the laws of the State of
New York.
Section 4. Quorum. A majority of the voting power of the outstanding
shares of the Corporation's capital stock entitled to vote thereat, represented
in person or by proxy, shall constitute a quorum at meetings of shareholders. In
determining whether a quorum is present treasury shares shall not be counted. If
less than a majority of the voting power of the outstanding shares are
represented, a majority of the voting power of the shares so represented may
adjourn the meeting from time to time without further notice, but until a quorum
is secured no other business may be transacted. The shareholders present at a
duly organized meeting may continue to transact business until an adjournment
not withstanding the withdrawal of enough shareholders to leave less than a
quorum. At any duly organized meeting, except as otherwise provided by these
Bylaws or in the Certificate of Incorporation, a vote of a majority of the
voting power of the stock represented thereat shall decide any question brought
before the meeting.
Section 5. Notice of Meetings. Written notice, stating the place,
date and time of the annual or
2
<PAGE> 3
special meeting, and the general nature of the business to be considered, shall
be given to each shareholder entitled to vote thereat at such shareholder's
address as it appears on the records of the Corporation, not less than ten nor
more than fifty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any special meeting or any annual
meeting; provided, business not stated in the notice of an annual meeting may be
transacted at such annual meeting with the unanimous consent of all the
shareholders entitled to vote thereat.
Section 6. Special Meetings. Special meetings of shareholders may be
held at such time and place within or without the State of New York as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Subject to the rights of holders of any series of preferred stock to
elect additional directors under specified circumstances and the rights of
shareholders to call a special meeting to elect a sufficient number of directors
to conduct the business of the Corporation under specified circumstances,
special meetings of share holders can be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as defined
herein) or the Chairman of the Board, upon not less than ten nor more than fifty
days' written notice, or alternatively, at the request of the holders of a
majority of the voting power of the then outstanding voting stock of the
Corporation.
ARTICLE III
DIRECTORS
Section 1. General. The business affairs of the Corporation shall be
managed by its 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 Bylaws directed or required to be
exercised or done by the shareholders. The Board of Directors shall consist of
not less than five nor more than nine persons. Subject to any rights of holders
of preferred stock to elect directors under specified circumstances, the exact
3
<PAGE> 4
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of directors
which the Corporation would have if there were no vacancies (the "Whole Board").
Initially, the number of directors shall be seven (7) directors. Directors shall
be at least eighteen years of age and need not be residents of the State of New
York nor share holders of the Corporation. The directors, other than the first
Board of Directors, shall be elected at the annual meeting of the shareholders,
except as hereinafter provided, and each director elected shall serve until the
next succeeding annual meeting and until his successor shall have been elected
and qualified. The first Board of Directors shall hold office until the first
annual meeting of shareholders.
Section 2. Removal. Any or all of the directors may be removed,
with or without cause, at any time by the affirmative vote of the holders of at
least a majority of the voting power of the then outstanding Voting Stock,
voting together as a single class. Any director may be removed for cause by the
action of a majority of the directors at a special meeting called for that
purpose.
Section 3. Newly Created Directorships and Vacancies. Subject to any
rights of holders of preferred stock or any other series or class of Stock, and
unless the Board of Directors otherwise determines, any new directorships and
vacancies will be filled only by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. A director elected to fill a
vacancy shall be elected for the unexpired portion of the term of his
predecessor in office. A director elected to fill a newly created directorship
shall serve until the next succeeding annual meeting of shareholders and until
his successor shall have been elected and qualified.
Section 4. Books and Records. The Board of Directors may keep the
books of the Corporation, except such as are required by law to be kept within
the state, outside of the State of New York, at such place or places as they may
from time to time determine.
4
<PAGE> 5
Section 5. Compensation. The Board of Directors, or any committee
thereof, and irrespective of any personal interest of any of its members, shall
have authority to establish reasonable compensation of all directors for
services to the Corporation as directors, officers or otherwise.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Time and Place. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of New York.
The first meeting of each newly elected Board of Directors shall be held at such
time and place as shall be fixed by the vote of the shareholders at the annual
meeting and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting, provided a quorum shall be
present, or it may convene at such place and time as shall be fixed by the
consent in writing of all the directors. Regular meetings of the Board of
Directors may be held upon such notice, or without notice, and at such time and
at such place as shall from time to time be determined by the Board of
Directors.
Section 2. Special Meetings. Special meetings of the Board of
Directors may be called by the Chief Executive Officer on two days' notice to
each director, either personally or by mail or by telegram, or on such shorter
notice as the person calling such meeting may deem necessary or appropriate in
the circumstances; special meetings shall be called by the Chief Executive
Officer or Secretary in like manner and on like notice on the written request of
two directors.
Section 3. Notice. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who at tends the meeting without protesting, prior thereto or at its
commencement, the lack of notice. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
5
<PAGE> 6
Section 4. Quorum. A majority of the Whole Board shall constitute a
quorum for the transaction of business unless a greater or lesser number is
required by law or by the Certificate of Incorporation. The vote of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors, unless the vote of a greater number is
required by law or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 5. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 6. Meetings by Written Consent. Unless the Certificate of
Incorporation provides otherwise, any action required or permitted to be taken
at a meeting of the Board of Directors or a committee thereof may be taken
without a meeting if a consent in writing to the adoption of a resolution
authorizing the action so taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof.
ARTICLE V
COMMITTEES
Section 1. General. The Board of Directors, by resolution adopted by
a majority of the entire Board of Directors, may designate, from among its
members, committees, each consisting of three or more directors, and each of
which, to the extent provided in the resolution, shall have all the authority
of the Board of Directors, except as otherwise required by law. Vacancies in
the membership of any committee shall be filled by the
6
<PAGE> 7
Board of Directors at a regular or special meeting of the Board of Directors.
Section 2. Executive Committee. The executive committee of the Board
of Directors shall consist of the Chairman of the Board and not less than three
nor more than eight members elected by the Board of Directors from their own
number. The chairman of this committee shall be selected by the Board of
Directors. The executive committee in the interim between meetings of the Board
of Directors shall exercise all of the powers of the Board of Directors.
Section 3. Compensation Committee. The compensation committee shall
consist of not less than three nor more than eight members whose chairman shall
also be named by the Board of Directors. The compensation committee shall
prescribe the compensation of all officers having an annual compensation of one
hundred fifty thousand dollars ($150,000) or more. The compensation of all
other officers shall be determined by the Chief Executive Officer.
Section 4. Audit Committee. The audit committee shall consist of
not less than three nor more than eight members elected by the Board of
Directors from among their own number; provided, however, that a majority of
the members of the committee shall be independent directors. The chairman of the
committee shall also be selected by the Board of Directors. The audit committee
shall recommend to the Board of Directors the firm to be employed by the
Corporation as its external auditor; shall consult with the persons chosen to be
the external auditors with regard to the plan of audit; shall review the fees of
the external auditors for audit and non-audit services; shall review, in
consultation with the external auditors, their report of audit, or proposed
report of audit, and the accompanying management letter, if any; shall review
with management and the external auditor before publication or issuance, the
annual financial statement, and any annual reports to be filed with the
Securities and Exchange Commission; shall consult with the external auditors
(periodically, as appropriate, out of the presence of management) with regard to
the adequacy of the internal auditing and general accounting functions of the
Corporation; shall consult with the internal auditors (periodically, as
appropriate, out of
7
<PAGE> 8
the presence of management) with regard to cooperation of corporate divisions
with the internal auditing and accounting departments and the adequacy of
corporate systems of accounting and controls; shall serve as a communications
liaison between the Board of Directors, the external auditors, and the internal
auditors; and shall perform such other duties not inconsistent with the spirit
and purpose of the committee as are delegated to it by the Board of Directors.
Section 5. Finance Committee. The Board of Directors may elect from
its membership a finance committee of not less than three nor more than eight
members elected by the Board of Directors from among their own number. The
chairman of the committee shall also be selected by the Board of Directors. The
finance committee shall have special charge and control of all financial
affairs of the Corporation. The principal functions and responsibilities of the
finance committee are to: review and approve investment and loan policies;
review and approve asset-liability management policies; monitor corporate
financial results; recommend corporate financial actions, including dividends
and capital financing. The finance committee shall make recommendations to the
Board of Directors with respect to the terms and provisions of any issue of
securities of the Corporation, including equity and debt securities, and shall
serve as the pricing committee in connection with any such financing and shall
authorize the execution of such underwriting agreements as may be necessary or
desirable to effectuate such issue.
Section 6. Nominating Committee. The nominating committee shall
consist of all non-employee (independent) directors of the Corporation, with its
chairman to be named by the Board of Directors. The nominating committee shall
meet periodically to review the qualifications of potential Board of Directors
candidates from whatever source received; shall report its findings to the Board
of Directors and propose nominations for Board of Directors membership for
approval by the Board of Directors and for submission to shareholders for
approval; and shall review and make recommendations to the Board of Directors,
where appropriate, concerning the size of the Board of Directors and the
frequency of meetings. The nominating committee shall have and exer-
8
<PAGE> 9
cise all such power as it shall deem necessary for the performance of its
duties.
Section 7. Meetings. Meetings of the executive committee, the
finance committee, the nominating committee, the compensation committee, and the
audit committee shall be held on call of the Chairman of the Board or any
committee member. Meetings may be held informally, by telephone, or by mail, and
it is not necessary that members of the committee be physically present together
in order for a meeting to be held. Two or more members of a committee shall
constitute a quorum.
ARTICLE VI
NOTICES
Section 1. General. Whenever, under the provisions of the statutes
or of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or shareholder, at his 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.
Notice to directors may also be given by telegram.
Section 2. Waiver. Whenever any notice of a meeting is required to
be given under the provisions of the statutes or under the provisions of the
Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
9
<PAGE> 10
ARTICLE VII
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall consist of a Chairman of the Board, a Chief
Executive Officer, such Vice-Presidents as shall from time to time be deemed
necessary, a Secretary, such Assistant Secretaries as shall from time to time be
deemed necessary, and a Chief Financial Officer. The Board of Directors may
appoint such other officers and agents as it shall deem necessary 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. Any
two or more offices may be held by the same person, except the offices of Chief
Executive Officer and Secretary. When all the issued and outstanding stock of
the Corporation is owned by one person, such person may hold all or any
combination of offices.
Section 2. Compensation. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors.
Section 3. Term; Removal and Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
Section 4. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and the Board of Directors and
shall perform such other duties and possess such powers as are customarily
vested in such office or as may be vested in the Chairman of the Board by the
Board of Directors, the Certificate of Incorporation or these Bylaws.
Section 5. Chief Executive Officer. The Chief Executive Officer of
the Corporation shall have general and active management of the business of the
Corporation
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and shall see that all orders and resolutions of the Board of Directors are
carried into effect.
He or she shall execute bonds, mortgages and other contracts
requiring a seal under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 6. Vice-President. The Vice-President, or if there shall be
more than one, the Vice-Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the chief executive officer,
perform the duties and exercise the powers of the chief executive officer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or chief executive officer, under whose supervision he or she shall
be. He or she shall have custody of the corporate seal of the Corporation and
he, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his or her
signature or by the signature of 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 the affixing by his or her signature.
Section 8. Assistant Secretary. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and
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have such other powers as the Board of Directors may from time to time
prescribe.
Section 9. Chief Financial Officer. The Chief Financial Officer
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 Board of Directors.
He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Chief Financial Officer and of the
financial condition of the Corporation.
If required by the Board of Directors, he or she 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 his or her office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his or her control belonging to the Corporation.
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, officer, employee or
agent of the Corpo-
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ration, or is or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, or as a trustee, fiduciary or administrator of any
pension, profit sharing or other benefit plan for any of the corporation's
employees, against expenses (including attorneys' fees), judgments, fines, ERISA
excise taxes or penalties 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
such 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, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust 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 he reasonably believed to be in or not opposed to the best interests of
the Corporation; provided, however, 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 in which such action or suit
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<PAGE> 14
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 such court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation unless in the specific case a determination is made that
indemnification of the director, officer, employee or agent is not proper in the
circumstances because such person has not 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 may be made (i) by the Board of Directors by a majority vote
of directors who were not parties to such action, suit or proceeding (whether or
not such disinterested directors constitute a quorum), (ii) by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, employee or agent 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 reason ably 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
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by the Corporation or another enterprise. The term "another enterprise" as used
in this Section shall mean any other corporation or any partnership, joint
venture, trust 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 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 Sections 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,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of New York 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, officer, employee or agent is proper in the circumstances because such
person has met the applicable standards of conduct set forth in Sections 1 or 2
of this Article VIII, as the case may be. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application.
Section 6. Expenses Payable in Advance. Expenses incurred in
defending a civil or criminal action, suit or proceeding may 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 the director,
officer, employee or agent 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. Non-Exclusivity and Survival of Indemnification. 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 and advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of shareholders or disinterested directors
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<PAGE> 16
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction 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 Sections 1 or
2 of this Article VIII but whom the Corporation has the power or obligation to
indemnify under the provisions of the Business Corporation Law of the State of
New York (the "NYBCL") or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, office, employee or agent of another corporation, partnership,
joint venture, trust 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. Meaning of "Corporation" for Purposes of Article VIII.
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, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust 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 he would have with respect to such constituent
corporation if its separate existence had continued.
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Section 10. Term of Indemnification. 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 director, officer, employee or agent, and shall
inure to the benefit of the heirs, executors and administrators of such person.
Section 11. Severability. If any word, clause or provision of this
Article VIII or any award made hereunder shall for any reason be determined to
be invalid, the provisions hereof shall not otherwise be affected thereby but
shall remain in full force and effect.
Section 12. Intent of Article. The intent of this Article VIII is to
provide for indemnification to the fullest extent permitted by the NYBCL. To the
extent that such Section or any successor section may be amended or supplemented
from time to time, this Article VIII shall be amended automatically and
construed so as to permit indemnification to the fullest extent from time to
time permitted by law.
ARTICLE IX
CERTIFICATES FOR SHARES
Section 1. General. The shares of the Corporation shall be
represented by certificates or shall be uncertified. Certificates shall be
signed by the Chairman of the Board or the Chief Executive Officer or a
Vice-President and the Secretary or an Assistant Secretary or the Chief
Financial Officer of the Corporation and may be sealed with the seal of the
Corporation or a facsimile thereof.
When the Corporation is authorized to issue shares of more than one
class, there shall be set forth upon the face or back of the certificate, or the
certificate shall have a statement that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the shares of each
class authorized to be issued and, if the Corporation is authorized to issue
any class of preferred shares
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in series, the designation, relative rights, preferences and limitations of each
such series so far as the same have been fixed and the authority of the Board of
Directors to designate and fix the relative rights, preferences and
limitations of other series.
Within a reasonable time after the issuance or transfer of any
uncertificated shares there shall be sent to the registered owner thereof a
written notice containing the information required to be set forth or stated on
certificates pursuant to paragraphs (b) and (c) of Section 508 of the NYBCL.
Section 2. Signatures. The signatures of the officers of the
Corporation upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of issue.
Section 3. Replacement 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 or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the Corporation from any claim that
may be made against it with respect to any such certificate alleged to have been
lost or destroyed.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto, and the old
certificate shall be cancelled and the transaction shall be recorded upon the
books of the Corporation.
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Section 4. Shareholders of Record. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of any meeting nor
more than fifty days prior to any other action. When a determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, unless the Board of Directors fixes a
new record date for the adjourned meeting.
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 provided by the laws of the State of New
York.
Section 5. Shareholder List. A list of shareholders as of the
record date, certified by the corporate officer responsible for its preparation
or by a transfer agent, shall be produced at any meeting upon the request
thereat or prior thereto of any shareholder. If the right to vote at any meeting
is challenged, the inspectors of election, or person presiding thereat, shall
require such list of shareholders to be produced as evidence of the right of the
persons challenged to vote at such meeting and all persons who appear from such
list to be shareholders entitled to vote thereat may vote at such meeting.
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ARTICLE X
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate
of Incorporation relating thereto, if any, dividends may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in shares of the capital stock or in the Corporation's
bonds or its property, including the shares or bonds of other corporations
subject to any provisions of law and of the Certificate of Incorporation.
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, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
Section 2. Checks. 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.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, New York". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
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ARTICLE XI
AMENDMENTS
These Bylaws may be amended or repealed or new bylaws may be adopted
at any regular or special meeting of shareholders at which a quorum is present
or represented, by the vote of the holders of shares entitled to vote in the
election of any directors, provided notice of the proposed alteration, amendment
or repeal be contained in the notice of such meeting. These Bylaws may also be
amended or repealed or new bylaws may be adopted by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors. If any bylaw regulating an impending election of directors
is adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of shareholders for the election of
directors the bylaw so adopted, amended or repealed, together with precise
statement of the changes made. Bylaws adopted by the Board of Directors may be
amended or repealed by the shareholders.
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Exhibit 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
ALPHA G, INC.
- --------------------------------------------------------------------------------
Under Section 807 of the Business Corporation
Law of the State of New York (the "BCL")
- --------------------------------------------------------------------------------
The undersigned corporation certifies that:
(1) The name of the corporation is Alpha G, Inc. (hereinafter sometimes
called the "Corporation").
(2) The Corporation's certificate of incorporation (the "Certificate of
Incorporation") was originally filed with the Department of State of the State
of New York on April 22, 1998.
(3) The text of the Certificate of Incorporation is hereby amended as
follows:
(A) Article 1 of the Certificate of Incorporation is amended to
change the name of the Corporation to Gabelli Asset Management Inc.
(B) Article 4 of the Certificate of Incorporation is amended to
change the number and kind of authorized shares of common stock of the
Corporation from 1,000 shares of common stock, par value $.001 per share, to
200,000,000 shares of common stock, par value $.001, consisting of the
following: (i) 100,000,000 shares of such common stock will be designated as
Class A Common Stock, par value $.001 per share, with the Class A Common Stock
having one vote per share in all matters on which the common stock is entitled
to vote and (ii) 100,000,000 shares of such common stock will be designated as
Class B Common Stock, par value $.001 per share, with the Class B Common Stock
having ten votes per share in all matters on which the common stock is entitled
to vote. The 1,000 shares of common stock issued and outstanding as of the date
of this Restated Certificate of Incorporation will change from 1,000 shares of
common stock to 1,000 shares of Class B Common Stock, which change shall become
effective at the time when this Restated Certificate of Incorporation becomes
effective.
<PAGE> 2
(C) Article 5 of the Certificate of Incorporation is amended to
change the number of authorized shares of preferred stock of the Corporation
from 1,000 shares to 10,000,000 shares. Article 5 is also amended to authorize
the Board of Directors of the Corporation to (i) establish and designate series
of preferred stock, (ii) issue shares of preferred stock in a series, and (iii)
fix the number of shares of preferred stock in a series and the relative rights,
preferences and limitations thereof, as well as the variations in the relative
rights, preferences and limitations among different series of the preferred
stock.
(D) Article 7 of the Certificate of Incorporation is amended to
provide that any vacancies in the Board of Directors will be filled only by an
affirmative vote of the majority of the remaining directors and that after the
occurrence of certain triggering events, a director may be removed only for
cause and with the affirmative vote of the holders of at least 80% of the voting
power of the Voting Stock (as defined herein).
(E) A new Article 9 is added to the Certificate of Incorporation to
establish the corporate opportunity and conflicts of interest policies of the
Corporation.
(4) The text of the Certificate of Incorporation, as amended as described
in Paragraph (3) above, is restated to read in its entirety as follows:
1. The name of the corporation is Gabelli Asset Management Inc.
(hereinafter sometimes called the "Corporation").
2. The purposes for which it is formed are to engage in any lawful
act or activity for which corporations may be organized under the Business
Corporation Law of the State of New York ("BCL") provided that the
Corporation is not formed to engage in any act or activity which requires
the consent or approval of any state official, department, board, agency
or other body, without such consent or approval first being obtained.
It is hereby expressly provided that the foregoing shall not be held
to limit or restrict in any manner the powers of this Corporation; and
that this Corporation may do all and every thing necessary, suitable and
appropriate for the exercise of any of its general powers.
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3. The office of the Corporation in the State of New York shall be
located in the County of Westchester.
4. The aggregate number of shares of common stock which the
Corporation shall have authority to issue is 200,000,000 shares, each
share having a par value of $.001 per share, of which 100,000,000 shares
shall be designated as "Class A Common Stock" (the "Class A Common Stock")
and 100,000,000 shares shall be designated as "Class B Common Stock" (the
"Class B Common Stock"). The holders of the Class A and Class B Common
Stock shall have no preemptive rights to subscribe for any shares of any
class of stock of the Corporation whether now or hereafter authorized.
The powers, preferences and rights, and the qualifications,
limitations and restrictions of each class of the common stock are as
follows:
(a) Voting. (1) At each annual or special meeting of
shareholders, in the case of any written consent of shareholders in
lieu of a meeting and for all other purposes, each holder of record
of shares of Class A Common Stock on the relevant record date shall
be entitled to one (1) vote for each share of Class A Common Stock
standing in such person's name on the stock transfer records of the
Corporation, and each holder of record of Class B Common Stock on
the relevant record date shall be entitled to ten (10) votes for
each share of Class B Common Stock standing in such person's name on
the stock transfer records of the Corporation. Except as otherwise
required by law and subject to the rights of holders of any series
of Preferred Stock of the Corporation that may be issued from time
to time, the holders of shares of Class A Common Stock and of shares
of Class B Common Stock shall vote as a single class on all matters
with respect to which a vote of the shareholders of the Corporation
is required under applicable law, the Certificate of Incorporation,
or the By-Laws of the Corporation, or on which a vote of
shareholders is otherwise duly called for by the Corporation,
including, but not limited to, the election of directors, matters
concerning the sale, lease or exchange of all or substantially all
of the property and assets of the Corporation, mergers or
consolidations with another entity or entities, dissolution of the
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Corporation and amendments to the Certificate of Incorporation of
the Corporation. Except as provided in this Article 4 or by
applicable law, whenever applicable law, the Certificate of
Incorporation of the Corporation or the By-Laws of the Corporation
provide for the necessity of an affirmative vote of the shareholders
entitled to cast at least a "majority (or any other greater
percentage) of the votes which all shareholders are entitled to cast
thereon," or a "majority (or any other greater percentage) of the
Voting Stock," or language of similar effect, any and all such
language shall mean that the holders of shares of Class A Common
Stock and the holders of shares of Class B Common Stock shall vote
as one class and that such majority (or any other greater
percentage) consists of a majority (or such other greater
percentage) of the total number of votes entitled to be cast in
accordance with the provisions of this Article 4.
(2) Neither the holders of shares of Class A Common
Stock nor the holders of shares of Class B Common Stock shall have
cumulative voting rights.
(b) Dividends; Stock Splits. Subject to the rights of the
holders of shares of any series of Preferred Stock, and subject to
any other provisions of the Certificate of Incorporation of the
Corporation, holders of shares of Class A Common Stock and shares of
Class B Common Stock shall be entitled to receive such dividends and
other distributions in cash, stock or property of the Corporation as
may be declared thereon by the Board of Directors of the Corporation
(the "Board of Directors") from time to time out of assets or funds
of the Corporation legally available therefor. If at any time a
dividend or other distribution in cash or other property (other than
dividends or other distributions payable in shares of common stock
or other voting securities or options or warrants to purchase shares
of common stock or other voting securities or securities convertible
into or exchangeable for shares of common stock or other voting
securities) is paid on the shares of Class A Common Stock or shares
of Class B Common Stock, a like dividend or other distribution in
cash or other property shall also be paid on shares of Class B
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Common Stock or shares of Class A Common Stock, as the case may be,
in an equal amount per share. If at any time a dividend or other
distribution payable in shares of common stock or options or
warrants to purchase shares of common stock or securities
convertible into or exchangeable for shares of common stock is paid
on shares of Class A Common Stock or Class B Common Stock, a like
dividend or other distribution shall also be paid on shares of Class
B Common Stock or Class A Common Stock, as the case may be, in an
equal amount per share; provided that, for this purpose, if shares
of Class A Common Stock or other voting securities, or options or
warrants to purchase shares of Class A Common Stock or other voting
securities or securities convertible into or exchangeable for shares
of Class A Common Stock or other voting securities, are paid on
shares of Class A Common Stock and shares of Class B Common Stock or
voting securities identical to the other securities paid on the
shares of Class A Common Stock (except that the voting securities
paid on the Class B Common Stock may have up to ten (10) times the
number of votes per share as the other voting securities to be
received by the holders of the Class A Common Stock) or options or
warrants to purchase shares of Class B Common Stock or such other
voting securities or securities convertible into or exchangeable for
shares of Class B Common Stock or such other voting securities, are
paid on shares of Class B Common Stock, in an equal amount per share
of Class A Common Stock and Class B Common Stock, such dividend or
other distribution shall be deemed to be a like dividend or other
distribution. In the case of any split, subdivision, combination or
reclassification of shares of Class A Common Stock or Class B Common
Stock, the shares of Class B Common Stock or Class A Common Stock,
as the case may be, shall also be split, subdivided, combined or
reclassified so that the number of shares of Class A Common Stock
and Class B Common Stock outstanding immediately following such
split, subdivision, combination or reclassification shall bear the
same relationship to each other as did the number of shares of Class
A Common Stock and Class B Common Stock outstanding immediately
prior to such split, subdivision, combination or reclassification.
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(c) Liquidation, Dissolution, etc. In the event of any
liquidation, dissolution or winding up (either voluntary or
involuntary) of the Corporation, the holders of shares of Class A
Common Stock and the holders of shares of Class B Common Stock shall
be entitled to receive the assets and funds of the Corporation
available for distribution, after payments to creditors and to the
holders of any Preferred Stock of the Corporation that may at the
time be outstanding, in proportion to the number of shares held by
them, respectively, without regard to class.
(d) Mergers, etc. In the event of any corporate merger,
consolidation, purchase or acquisition of property or stock, or
other reorganization in which any consideration is to be received by
the holders of shares of Class A Common Stock or the holders of
shares of Class B Common Stock, the holders of shares of Class A
Common Stock and the holders of shares of Class B Common Stock shall
receive the same consideration on a per share basis; provided that,
if such consideration shall consist in any part of voting securities
(or of options or warrants to purchase, or of securities convertible
into or exchangeable for, voting securities), the holders of shares
of Class B Common Stock may receive, on a per share basis, voting
securities with up to ten (10) times the number of votes per share
as those voting securities to be received by the holders of shares
of Class A Common Stock (or options or warrants to purchase, or
securities convertible into or exchangeable for, voting securities
with up to ten (10) times the number of votes per share as the
voting securities issuable upon exercise of the options or warrants
to be received by the holders of the shares of Class A Common Stock,
or into which the convertible or exchangeable securities to be
received by the holders of the shares of Class A Common Stock may be
converted or exchanged).
(e) Power to Sell and Purchase Shares. Subject to applicable
law, the Corporation shall have the power to issue and sell all or
any part of any shares of any class of stock herein or hereafter
authorized to such persons, and for such consideration, as the Board
of Directors shall from time to time, in its discretion, de-
6
<PAGE> 7
termine, whether or not greater consideration could be received upon
the issue or sale of the same number of shares of another class, and
as otherwise permitted by law. Subject to the requirements of
applicable law, the Corporation shall have the power to purchase any
shares of any class of stock herein or hereafter authorized from
such persons, and for such consideration, as the Board of Directors
shall from time to time, in its discretion, determine, whether or
not less consideration could be paid upon the purchase of the same
number of shares of another class, and as otherwise permitted by
law.
(f) Rights Otherwise Identical. Except as otherwise expressly
set in this Article 4, the rights of the holders of Class A Common
Stock and the rights of the holders of Class B Common Stock shall be
in all respects identical.
5. The aggregate number of shares of preferred stock which the
Corporation shall have authority to issue is 10,000,000 shares, each share
having a par value of $.001 per share (the "Preferred Stock"). The holders
of the Preferred Stock shall have no preemptive rights to subscribe for
any shares of any class of stock of the Corporation whether now or
hereafter authorized.
The Board of Directors is authorized to establish and designate
series of the Preferred Stock, to issue shares of the Preferred Stock in
series and to fix the number of shares in a series, the rights,
preferences and limitations of each series and the variations in the
relative rights, preferences and limitations as between series. The Board
of Directors may determine for each series:
(a) the number of shares constituting that series and the
distinctive designation of that series;
(b) the dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payments of
dividends on shares of that series;
(c) whether that series shall have voting rights, in addition
to the voting rights provided
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<PAGE> 8
by law, and, if so, the terms of such voting rights;
(d) whether that series shall have conversion or exchange
privileges or be subject to conversion or exchange obligations, and,
if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange
rate in such events as the Board of Directors shall determine;
(e) whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the manner of selecting shares for redemption if less than
all shares are to be redeemed, the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and
at different redemption dates;
(f) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms and amount of such sinking fund;
(g) the right of the shares of that series to the benefit of
conditions and restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any additional
shares (including additional shares of such series or any other
series) and upon the payment of dividends or the making of other
distributions on, and the purchase, redemption or other acquisition
by the Corporation or any subsidiary of any outstanding shares of
the Corporation;
(h) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(i) any restrictions on transfers of shares of that series;
and
(j) any other relative, participating, optional or other
special rights, qualifications, limitations or restrictions of that
series.
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<PAGE> 9
6. The Secretary of State of the State of New York is hereby
designated as the agent of the Corporation upon whom any process may in
any action or proceeding against it be served. The post office address to
which the Secretary of State shall mail a copy of any process in any
action or proceeding against the Corporation which may be served upon it
is: One Corporate Center, Rye, New York 10580; Attention: General Counsel.
7. 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 Board of Directors and shareholders:
(a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
(b) The Board of Directors shall have concurrent power with
the shareholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
(c) The number of directors of the Corporation shall be as
from time to time fixed by, or in the manner provided in, the
By-Laws of the Corporation. Election of directors need not be by
written ballot unless the By-Laws so provide.
(d) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Board of 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 BCL, this Certificate of
Incorporation, and any By-Laws adopted by the shareholders;
provided, however, that no By-Laws hereafter adopted by the
shareholders shall invalidate any prior act of the Board of
Directors which would have been valid if such By-Laws had not been
adopted.
(e) Any member of the Board of Directors may be removed, with
or without cause, at any time prior to the expiration of his term by
a majority vote of the outstanding shares.
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<PAGE> 10
(f) Subject to any rights of holders of Preferred Stock or any
other series or class of stock, and unless the Board of Directors
otherwise determines, any vacancies will be filled only by the
affirmative vote of a majority of the remaining directors, even if
less than a quorum.
(g) Subject to the rights of holders of Preferred Stock to
elect directors under specified circumstances, effective as of the
date on which Mario J. Gabelli (hereinafter, "Mr. Gabelli")
"beneficially" owns (within the meaning of Section 13(d) of the of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, as in effect on the effective
date of this Restated Certificate of Incorporation) less than a
majority of the voting power of the Voting Stock (as defined below)
(the "Trigger Date"), a director may be removed only for cause and
only upon the affirmative vote of holders of at least 80% of the
voting power of all the then outstanding shares of capital stock
entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class. Before the Trigger Date,
directors may be removed, without cause, with the affirmative vote
of the holders of at least a majority of the voting power of the
then outstanding Voting Stock, voting together as a single class.
8. The personal liability of the Board of Directors of the
Corporation is hereby eliminated to the fullest extent permitted by the
provisions of paragraph (b) of Section 402 of the BCL, as the same may be
amended and supplemented.
9. In anticipation and recognition that (i) the Corporation will
cease to be a wholly-owned subsidiary of Gabelli Group Capital Partners,
Inc. (formerly known as Gabelli Funds, Inc., "Gabelli Partners") but that
Gabelli Partners (and, therefore, Mr. Gabelli beneficially) is expected to
remain a substantial shareholder of the Corporation, (ii) the Corporation,
Gabelli Partners and other Gabellis (as defined below) may engage in the
same areas of corporate opportunities, and (iii) benefits will be derived
by the Corporation through its continued contractual, corporate and
business relations with Gabelli Partners and other Gabellis (including
possible service of officers and
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<PAGE> 11
directors of Gabelli Partners, or any other Gabelli, as officers and
directors of the Corporation), the provisions of this Article 9 are set
forth to regulate and define the conduct of certain affairs of the
Corporation as they may involve a Gabelli (including Gabelli Partners) and
their officers and directors, and the powers, rights, duties and
liabilities of the Corporation and its officers, directors and
shareholders in connection therewith.
(a) Definitions. For purposes of this Article 9:
(1) the "Corporation" includes its subsidiaries and
other entities in which it beneficially owns, directly or
indirectly, 50% or more of the outstanding voting securities or
comparable interests;
(2) a "Gabelli" includes (i) Mr. Mario J. Gabelli, so long as he is
an officer or director of the Corporation or beneficially owns a
controlling interest in the Corporation, (ii) any member of his
"immediate family" (which shall include Mr. Gabelli's spouse,
parents, children, siblings) who is at the time an officer or
director of the Corporation and (iii) any entity in which the
persons qualifying as Gabellis pursuant to clauses (i) and (ii)
above (if he is at the time a Gabelli pursuant to clause (i) above)
beneficially own a controlling interest of the outstanding voting
securities or comparable interests;
(3) "Permissible Accounts" mean (i) those investment funds and
accounts currently managed by Mr. Gabelli outside the Corporation
under performance fee arrangements but only to the extent, in the
case of an investment fund, such fund's investors consist solely of
one or more of the persons who were investors as of __________, 1999
and the successors, heirs, donees or immediate family thereof and,
in the case of an investment account, the parties to such account
are solely one or more of the persons who were parties to such
account as of __________, 1999 and the successors heirs thereof
(collectively, "Qualifying
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<PAGE> 12
Persons") and (ii) successor funds and accounts which serve the same
Qualifying Persons as the investment funds and accounts referred to
in clause (i), which funds and accounts operate according to an
investment style similar to such other accounts or funds and which
style is not used at the Corporation as of January __, 1999, and
which are subject to performance fee arrangements; and
(4) "corporate opportunities" potentially allocable to
the Corporation consist of business opportunities that (i) the
Corporation is financially able to undertake; (ii) are, from their
nature, in the Corporation's actual line or lines of business and
are of practical advantage to the Corporation; and (iii) are ones in
which the Corporation has an interest or reasonable expectancy.
However, "corporate opportunities" do not include
transactions in which the Corporation or a Gabelli is permitted to
participate pursuant to any agreement between the Corporation and
such Gabelli that is in effect as of the time any equity security of
the Corporation is held of record by any person other than a Gabelli
or is subsequently entered into with the approval of the members of
the Board of Directors and do not include passive investments.
(b) Corporate Opportunities Policy. (1) Except with respect to
opportunities that involve Permissible Accounts, if a Gabelli
acquires knowledge of a potential transaction that is a corporate
opportunity for both any Gabelli and the Corporation, such Gabelli
will have a duty to communicate that opportunity to the Corporation
and may not pursue that opportunity or direct it to another person
unless the Corporation declines such opportunity or fails to pursue
it.
(2) If a director or officer of the Corporation other
than a Gabelli acquires knowledge of a potential transaction or
matter that may be a corporate opportunity for both the Corporation
and a Gabelli, such director or officer must act in good faith in
accordance with the following two-part policy.
(A) A corporate opportunity offered to any person who is
a director but not an
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<PAGE> 13
officer of the Corporation and who is also a director (whether
or not an officer) of an entity which is at the time a Gabelli
will belong to such Gabelli or to the Corporation, as the case
may be, depending on whether the opportunity is expressly
offered to the person primarily in his or her capacity as an
officer or director of the entity which is at the time a
Gabelli or of the Corporation, respectively. Otherwise, the
opportunity will belong to the Corporation to the same extent
as if the opportunity came directly to the Corporation.
(B) A corporate opportunity offered to any person who is
an officer (whether or not a director) of the Corporation and
who is also a director or an officer of an entity which is at
the time a Gabelli will belong to the Corporation, unless the
opportunity is expressly offered to that person primarily in
his or her capacity as a director or officer of the entity
which is at the time a Gabelli, in which case the opportunity
will belong to such Gabelli to the same extent as if the
opportunity came directly to a Gabelli.
A director or officer of the Corporation (other than a
Gabelli) who acts in accordance with the foregoing two-part policy
(i) will be deemed fully to have satisfied his or her fiduciary
duties to the Corporation and its shareholders with respect to such
corporate opportunity, (ii) will not be liable to the Corporation or
its shareholders for any breach of fiduciary duty by reason of the
fact that a Gabelli pursues or acquires such opportunity or directs
such corporate opportunity to another person or entity or does not
communicate information regarding such opportunity to the
Corporation, (iii) will be deemed to have acted in good faith and in
a manner he or she reasonably believes to be in the best interests
of the Corporation, and (iv) will be deemed not to have breached his
or her duty of loyalty to the Corporation or its shareholders and
not to have derived an improper benefit therefrom.
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<PAGE> 14
(3) Any corporate opportunity that belongs to a Gabelli
or to the Corporation pursuant to the foregoing paragraphs shall not
be pursued by the other (or directed by the other to another person
or entity) unless and until such Gabelli or the Corporation, as the
case may be, determines not to pursue the opportunity. If the party
to whom the corporate opportunity belongs does not, however, within
a reasonable period of time, begin to pursue, or thereafter continue
to pursue, such opportunity diligently and in good faith, the other
party may pursue such opportunity (or direct it to another person or
entity).
(c) Conflict of Interest Policy. (1) No contract, agreement,
arrangement, or transaction between the Corporation and a Gabelli or
any customer or supplier or any entity in which a director of the
Corporation has a financial interest (a "Related Entity"), or
between the Corporation and one or more of the directors or officers
of the Corporation, or any Related Entity, any amendment,
modification, or termination thereof, or any waiver of any right
thereunder, will be voidable solely because a Gabelli or such
customer or supplier, any Related Entity, or any one or more of the
officers or directors of the Corporation or any Related Entity are
parties thereto, or solely because any such directors or officers
are present at or participate in the meeting of the Board of
Directors, or committee thereof, that authorizes the contract,
agreement, arrangement, transaction, amendment, modification,
termination, or waiver (each a "Transaction") or solely because
their votes are counted for such purpose, if any of the following
four requirements are met:
(A) the material facts as to the relationship or
interest and as to the Transaction are disclosed or known to
the Board of Directors or the committee thereof that
authorizes the Transaction, and the Board of Directors or such
committee in good faith approves the Transaction by the
affirmative vote of a majority of the disinterested directors
on the Board of Directors or such committee, even if the
disinterested directors are less than a quorum;
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<PAGE> 15
(B) the material facts as to the relationship or
interest and as to the Transaction are disclosed or known to
the holders of Voting Stock entitled to vote thereon, and the
Transaction is specifically approved by vote of the holders of
a majority of the voting power of the then outstanding Voting
Stock not owned by such Gabelli or such Related Entity, voting
together as a single class;
(C) the Transaction is effected pursuant to guidelines
that are in good faith approved by a majority of the
disinterested directors on the Board of Directors or the
applicable committee thereof or by vote of the holders of a
majority of the then outstanding Voting Stock not owned by
such Gabelli or such Related Entity, voting together as a
single class; or
(D) the Transaction is fair to the Corporation as of the
time it is approved by the Board of Directors, a committee
thereof or the shareholders of the Corporation.
(2) If the requirements of (A), (B), (C) or (D) of
paragraph (1) above are met, such Gabelli, the Related Entity, and
the directors and officers of the Corporation, or the Related Entity
(as applicable will be deemed to have acted reasonably and in good
faith (to the extent such standard is applicable to such person's
conduct) and fully to have satisfied any duties of loyalty and
fiduciary duties they may have to the Corporation and its
shareholders with respect to such Transaction.
(3) Any Transaction authorized, approved, or effected,
and each of such guidelines so authorized or approved, as described
in (A), (B), or (C) above, will be deemed to be entirely fair to the
Corporation and its shareholders, except that, if such authorization
or approval is not obtained, or such Transaction is not so effected,
no presumption will arise that such Transaction or guideline is not
fair to the Corporation and its shareholders. A Gabelli will not be
liable to the Corporation or its shareholders for breach of any
fiduciary duty that a Gabelli
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<PAGE> 16
may have as a shareholder of the Corporation by reason of the fact
that a Gabelli takes any action in connection with any transaction
between such Gabelli and the Corporation.
For purposes of the provisions contained in this Article
9, a "disinterested director" shall mean a director that is not a
Gabelli and who does not have a financial interest in the
Transaction. Interests in an entity that are not equity or ownership
interests or that constitute less than 10% of the equity ownership
interests of such entity will not be considered to confer a
financial interest on any person who beneficially owns such
interests.
Before the Trigger Date, the affirmative vote of the
holders of a majority of the outstanding Voting Stock, voting
together as a single class, will be required to alter, amend, or
repeal any of these conflict of interest or corporate opportunity
provisions contained in this Article 9 in a manner adverse to the
interests of any Gabelli. After the Trigger Date, such required vote
will be increased to 80% to alter, amend, repeal or replace any of
the conflict of interest and corporate opportunity provisions
contained herein.
(5) This amendment and restatement of the Certificate of Incorporation was
authorized by:
(A) the Board of Directors of the Corporation pursuant to Section 803
of the BCL, and
(B) the sole holder of all of the shares of the Corporation entitled
to vote thereon pursuant to Section 803 of the BCL.
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<PAGE> 17
This Restated Certificate of Incorporation is dated January ___,
1999 and is affirmed by Alpha G, Inc. as true under the penalties of perjury.
ALPHA G, INC.
By:
-------------------------------
Name:
Title: [Chairman, President or
Vice President]
By:
-------------------------------
Name:
Title: [Secretary]
17
<PAGE> 1
Exhibit 3.4
AMENDED AND RESTATED
BYLAWS
OF
GABELLI ASSET MANAGEMENT INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of Gabelli Asset
Management Inc. (hereinafter, the "Corporation") shall be located in the County
of Westchester.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of New York as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Definitions. For purposes of these Amended and Restated
Bylaws (the "Bylaws"), "Trigger Date" shall mean the date Mr. Gabelli (as
defined below) owns a "beneficial" interest (within the meaning of Section 13(d)
of the of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder, as in effect on the effective date of these
Amended and Restated Bylaws) of less than a majority of the outstanding voting
power of the then outstanding shares of stock entitled to vote generally in the
election of directors (the "Voting Stock"). The term "Mr. Gabelli" refers to
Mario J. Gabelli and also includes members of his "immediate family" (which
shall include Mr. Gabelli's spouse, parents, children, sib-
<PAGE> 2
lings, mothers and fathers-in-law, sons and daughters-in-law, and brothers and
sisters-in-law) and any subsidiaries and other entities in which Mr. Gabelli and
members of his immediate family beneficially own a controlling interest of the
outstanding voting securities or interests.
Section 2. Annual Meetings. Annual meetings of shareholders for the
election of directors and for such other business as may be stated in the notice
of the meeting given by the Corporation, shall, commencing in the year 1999, be
held at such place, either within or without the State of New York, and at such
time and date as the Board of Directors, by resolution, shall determine and as
set forth in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday,
the meeting shall be held on the next succeeding business day. At each annual
meeting, the shareholders entitled to vote shall elect members of the Board of
Directors, and they may transact such other corporate business as may properly
come before the meeting.
Section 3. Voting and Proxies. In accordance with the terms of the
Corporation's Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and in accordance with the provisions of these
Bylaws, each holder of the Corporation's Class A common stock, par value $.001
per share (the "Class A Common Stock"), shall be entitled to one vote, in person
or by proxy, per share and each holder of the Corporation's Class B common
stock, par value $.001 per share (the "Class B Common Stock"), shall be entitled
to ten votes, in person or by proxy, per share. Holders of Class A Common Stock
shall not be eligible to vote on any alteration or change in the powers,
preferences, or special rights of the Class B Common Stock that would not
adversely affect the rights of Class A Common Stock and holders of Class B
Common Stock shall not be eligible to vote on any alteration or change in the
powers, preferences or special rights of Class A Common Stock that would not
adversely affect the rights of Class B Common Stock. No proxy shall be voted
after eleven (11) months from its date unless such proxy provides for a longer
period. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting.
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<PAGE> 3
Upon the demand of any shareholder, the vote for directors and the vote upon any
question before the meeting shall be by ballot. All elections for directors
shall be decided by a plurality vote; all other questions shall be decided by a
majority vote except as otherwise provided by these Bylaws, the Certificate of
Incorporation or the laws of the State of New York.
Section 4. Quorum. A majority of the voting power of the outstanding
shares of the Corporation's capital stock entitled to vote thereat, represented
in person or by proxy, shall constitute a quorum at meetings of shareholders. In
determining whether a quorum is present treasury shares shall not be counted. If
less than a majority of the voting power of the outstanding shares are
represented, a majority of the voting power of the shares so represented may
adjourn the meeting from time to time without further notice, but until a quorum
is secured no other business may be transacted. The shareholders present at a
duly organized meeting may continue to transact business until an adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. At any duly organized meeting, except as otherwise provided by these
Bylaws or in the Certificate of Incorporation, a vote of a majority of the
voting power of the stock represented thereat shall decide any question brought
before the meeting.
Section 5. Notice of Meetings. Written notice, stating the place,
date and time of the annual or special meeting, and the general nature of the
business to be considered, shall be given to each shareholder entitled to vote
thereat at such shareholder's address as it appears on the records of the
Corporation, not less than ten nor more than fifty days before the date of the
meeting. No business other than that stated in the notice shall be transacted at
any special meeting or any annual meeting; provided, business not stated in the
notice of an annual meeting may be transacted at such annual meeting with the
unanimous consent of all the shareholders entitled to vote thereat.
Section 6. Special Meetings. Special meetings of shareholders may be
held at such time and place within or without the State of New York as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
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<PAGE> 4
Subject to the rights of holders of any series of preferred stock to
elect additional directors under specified circumstances and the rights of
shareholders to call a special meeting to elect a sufficient number of directors
to conduct the business of the Corporation under specified circumstances,
special meetings of shareholders can be called only by the Board of Directors
pursuant to a resolution adopted by a majority of the Whole Board (as defined
herein) or the Chairman of the Board, upon not less than ten nor more than fifty
days' written notice, except that prior to the Trigger Date, special meetings
can also be called at the request of the holders of a majority of the voting
power of the then outstanding Voting Stock.
ARTICLE III
DIRECTORS
Section 1. General. The business affairs of the Corporation shall be
managed by its 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 Bylaws directed or required to be
exercised or done by the shareholders. The Board of Directors shall consist of
not less than three nor more than nine persons. Subject to any rights of holders
of preferred stock to elect directors under specified circumstances, the exact
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of directors
which the Corporation would have if there were no vacancies (the "Whole Board").
As of the effective date of these Amended Bylaws, the number of directors shall
be five (5) directors. Directors shall be at least eighteen years of age and
need not be residents of the State of New York nor shareholders of the
Corporation. The directors, other than the first Board of Directors, shall be
elected at the annual meeting of the shareholders, except as hereinafter
provided, and each director elected shall serve until the next succeeding annual
meeting and until his successor shall have been elected and qualified. The first
Board of Directors
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<PAGE> 5
shall hold office until the first annual meeting of shareholders.
Section 2. Removal. Before the Trigger Date, any or all of the
directors may be removed, with or without cause, at any time by the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding Voting Stock, voting together as a single class. Subject to the
rights of holders of preferred stock to elect directors under specified
circumstances, on or after the Trigger Date, a director may be removed only for
cause and only upon the affirmative vote of holders of at least 80% of the
voting power of the then outstanding Voting Stock, voting together as a single
class. Any director may be removed for cause by the action of a majority of the
directors at a special meeting called for that purpose.
Section 3. Newly Created Directorships and Vacancies. Subject to any
rights of holders of preferred stock or any other series or class of Stock, and
unless the Board of Directors otherwise determines, any new directorships and
vacancies will be filled only by the affirmative vote of a majority of the
remaining directors, even if less than a quorum. A director elected to fill a
vacancy shall be elected for the unexpired portion of the term of his
predecessor in office. A director elected to fill a newly created directorship
shall serve until the next succeeding annual meeting of shareholders and until
his successor shall have been elected and qualified.
Section 4. Books and Records. The Board of Directors may keep the
books of the Corporation, except such as are required by law to be kept within
the state, outside of the State of New York, at such place or places as they may
from time to time determine.
Section 5. Compensation. The Board of Directors, or any committee
thereof, and irrespective of any personal interest of any of its members, shall
have authority to establish reasonable compensation of all directors for
services to the Corporation as directors, officers or otherwise.
5
<PAGE> 6
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Time and Place. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of New York.
Regular meetings of the Board of Directors may be held upon such notice, or
without notice, and at such time and at such place as shall from time to time be
determined by the Board of Directors.
Section 2. Special Meetings. Special meetings of the Board of
Directors may be called by the Chief Executive Officer on two days' notice to
each director, either personally or by mail or by telegram, or on such shorter
notice as the person calling such meeting may deem necessary or appropriate in
the circumstances; special meetings shall be called by the Chief Executive
Officer or Secretary in like manner and on like notice on the written request of
two directors.
Section 3. Notice. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who at tends the meeting without protesting, prior thereto or at its
commencement, the lack of notice. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 4. Quorum. A majority of the Whole Board shall constitute a
quorum for the transaction of business unless a greater or lesser number is
required by law or by the Certificate of Incorporation. The vote of a majority
of the directors present at any meeting at which a quorum is present shall be
the act of the Board of Directors, unless the vote of a greater number is
required by law or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
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<PAGE> 7
Section 5. Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications by means of which all persons participating
in the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 6. Meetings by Written Consent. Unless the Certificate of
Incorporation provides otherwise, any action required or permitted to be taken
at a meeting of the Board of Directors or a committee thereof may be taken
without a meeting if a consent in writing to the adoption of a resolution
authorizing the action so taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof.
ARTICLE V
COMMITTEES
Section 1. General. The Board of Directors, by resolution adopted by
a majority of the entire Board of Directors, may designate, from among its
members, committees, each consisting of two or more directors, and each of
which, to the extent provided in the resolution, shall have all the authority of
the Board of Directors, except as otherwise required by law. Vacancies in the
membership of any committee shall be filled by the Board of Directors at a
regular or special meeting of the Board of Directors.
Section 2. Executive Committee. The executive committee of the Board
of Directors shall consist of the Chairman of the Board and not less than one
nor more than eight other members elected by the Board of Directors from their
own number. The chairman of this committee shall be selected by the Board of
Directors. The executive committee in the interim between meetings of the Board
of Directors shall exercise all of the powers of the Board of Directors.
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<PAGE> 8
Section 3. Compensation Committee. The compensation committee shall
consist of not less than two nor more than eight members whose chairman shall
also be named by the Board of Directors. The compensation committee shall
prescribe the compensation of the Chief Executive Officer and such other
officers as such committee deems necessary.
Section 4. Audit Committee. The audit committee shall consist of not
less than two nor more than eight members elected by the Board of Directors from
among their own number; provided, however, that a majority of the members of the
committee shall be independent directors. The chairman of the committee shall
also be selected by the Board of Directors. The audit committee shall recommend
to the Board of Directors the firm to be employed by the Corporation as its
external auditor; shall consult with the persons chosen to be the external
auditors with regard to the plan of audit; shall review the fees of the external
auditors for audit and non-audit services; shall review, in consultation with
the external auditors, their report of audit, or proposed report of audit, and
the accompanying management letter, if any; shall review with management and the
external auditor before publication or issuance, the annual financial statement,
and any annual reports to be filed with the Securities and Exchange Commission;
shall consult with the external auditors (periodically, as appropriate, out of
the presence of management) with regard to the adequacy of the internal auditing
and general accounting functions of the Corporation; shall consult with the
internal auditors (periodically, as appropriate, out of the presence of
management) with regard to cooperation of corporate divisions with the internal
auditing and accounting departments and the adequacy of corporate systems of
accounting and controls; shall serve as a communications liaison between the
Board of Directors, the external auditors, and the internal auditors; and shall
perform such other duties not inconsistent with the spirit and purpose of the
committee as are delegated to it by the Board of Directors.
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<PAGE> 9
Section 5. Nominating Committee. The Board of Directors may elect
from its membership a nominating committee of not less than two nor more than
eight members elected by the Board of Directors from among their own number. The
nominating committee shall meet periodically to review the qualifications of
potential Board of Directors candidates from whatever source received; shall
report its findings to the Board of Directors and propose nominations for Board
of Directors membership for approval by the Board of Directors and for
submission to shareholders for approval; and shall review and make
recommendations to the Board of Directors, where appropriate, concerning the
size of the Board of Directors and the frequency of meetings. The nominating
committee shall have and exercise all such power as it shall deem necessary for
the performance of its duties.
Section 6. Meetings. Meetings of the executive committee, the
nominating committee, the compensation committee, and the audit committee shall
be held on call of the Chairman of the Board or any committee member. Meetings
may be held informally, by telephone, or by mail, and it is not necessary that
members of the committee be physically present together in order for a meeting
to be held. Two or more members of a committee shall constitute a quorum.
ARTICLE VI
NOTICES
Section 1. General. Whenever, under the provisions of the statutes
or of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or shareholder, at his 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.
Notice to directors may also be given by telegram.
Section 2. Waiver. Whenever any notice of a meeting is required to
be given under the provisions of the statutes or under the provisions of the
Certificate
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<PAGE> 10
of Incorporation or these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE VII
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen
by the Board of Directors and shall consist of a Chairman of the Board, a Chief
Executive Officer, such Vice Presidents as shall from time to time be deemed
necessary, a Secretary, such Assistant Secretaries as shall from time to time be
deemed necessary, and a Chief Financial Officer. The Board of Directors may
appoint such other officers and agents as it shall deem necessary 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. Any
two or more offices may be held by the same person, except the offices of Chief
Executive Officer and Secretary.
Section 2. Term; Removal and Vacancies. The officers of the
Corporation shall hold office until their successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors.
Section 3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the shareholders and the Board of Directors and shall
perform such other duties and possess such powers as are customarily vested in
such office or as may be vested in the Chairman of the Board by the Board of
Directors, the Certificate of Incorporation or these Bylaws.
Section 4. Chief Executive Officer. The Chief Executive Officer of
the Corporation shall have general and active management of the business of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
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Section 5. Vice President. The Vice President, or if there shall be
more than one, the Vice Presidents in the order determined by the Board of
Directors, shall, in the absence or disability of the Chief Executive Officer,
perform the duties and exercise the powers of the chief executive officer and
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe.
Section 6. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He or she shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or chief executive officer, under whose supervision he or she shall
be. He or she shall have custody of the corporate seal of the Corporation and
he, or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his or her
signature or by the signature of 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 the affixing by his or her signature.
Section 7. Assistant Secretary. The Assistant Secretary, or if there
be more than one, the Assistant Secretaries in the order determined by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
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Section 8. Chief Financial Officer. The Chief Financial Officer
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 Board of Directors.
He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer and the Board of
Directors at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as Chief Financial Officer and of the
financial condition of the Corporation.
If required by the Board of Directors, he or she 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 his or her office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his possession or
under his or her control belonging to the Corporation.
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, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or
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<PAGE> 13
other enterprise, or as a trustee, fiduciary or administrator of any pension,
profit sharing or other benefit plan for any of the corporation's employees,
against expenses (including attorneys' fees), judgments, fines, ERISA excise
taxes or penalties 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
such 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, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust 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 he reasonably believed to be in or not opposed to the best interests of
the Corporation; provided, however, 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 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
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<PAGE> 14
reasonably entitled to indemnity for such expenses which such court shall deem
proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation unless in the specific case a determination is made that
indemnification of the director, officer, employee or agent is not proper in the
circumstances because such person has not 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 may be made (i) by the Board of Directors by a majority vote
of directors who were not parties to such action, suit or proceeding (whether or
not such disinterested directors constitute a quorum), (ii) by independent legal
counsel in a written opinion, or (iii) by the shareholders. To the extent,
however, that a director, officer, employee or agent 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 shall mean any other corporation or any partnership, joint venture,
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<PAGE> 15
trust 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 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 Sections 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,
officer, employee or agent may apply to any court of competent jurisdiction in
the State of New York 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, officer, employee or agent is proper in the circumstances because such
person has met the applicable standards of conduct set forth in Sections 1 or 2
of this Article VIII, as the case may be. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application.
Section 6. Expenses Payable in Advance. Expenses incurred in
defending a civil or criminal action, suit or proceeding may 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 the director,
officer, employee or agent 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. Non-Exclusivity and Survival of Indemnification. 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 and advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of shareholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in such person's official capacity
and as to
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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 Sections 1 or 2 of this
Article VIII but whom the Corporation has the power or obligation to indemnify
under the provisions of the Business Corporation Law of the State of New York
(the "NYBCL") or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, office, employee or agent of another corporation, partnership,
joint venture, trust 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. Meaning of "Corporation" for Purposes of Article VIII.
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, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust 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 he would have with respect to such constituent
corporation if its separate existence had continued.
Section 10. Term of Indemnification. The indemnification and
advancement of expenses provided by or granted pursuant to this Article VIII
shall, unless
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otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent, and shall inure to the
benefit of the heirs, executors and administrators of such person.
Section 11. Severability. If any word, clause or provision of this
Article VIII or any award made hereunder shall for any reason be determined to
be invalid, the provisions hereof shall not otherwise be affected thereby but
shall remain in full force and effect.
Section 12. Intent of Article. The intent of this Article VIII is to
provide for indemnification to the fullest extent permitted by the NYBCL. To the
extent that such Section or any successor section may be amended or supplemented
from time to time, this Article VIII shall be amended automatically and
construed so as to permit indemnification to the fullest extent from time to
time permitted by law.
ARTICLE IX
BUSINESS COMBINATION STATUTE
The Corporation hereby elects not to be governed by Section 912 of
the NYBCL ("Section 912"), in accordance with the provisions of paragraph (d)(3)
of such Section 912. In accordance with Section 912, this election shall not be
effective until _____________, 2000 (eighteen months after the approval of this
amendment by a majority of the voting power of the then outstanding Voting
Stock).
ARTICLE X
CERTIFICATES FOR SHARES
Section 1. General. The shares of the Corporation shall be
represented by certificates or shall be uncertified. Certificates shall be
signed by the Chairman of the Board or the Chief Executive Officer or a
Vice-President and the Secretary or an Assistant Secretary or the Chief
Financial Officer of the Corporation
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<PAGE> 18
and may be sealed with the seal of the Corporation or a facsimile thereof.
When the Corporation is authorized to issue shares of more than one
class, there shall be set forth upon the face or back of the certificate, or the
certificate shall have a statement that the Corporation will furnish to any
shareholder upon request and without charge, a full statement of the
designation, relative rights, preferences, and limitations of the shares of each
class authorized to be issued and, if the Corporation is authorized to issue any
class of preferred shares in series, the designation, relative rights,
preferences and limitations of each such series so far as the same have been
fixed and the authority of the Board of Directors to designate and fix the
relative rights, preferences and limitations of other series.
Within a reasonable time after the issuance or transfer of any
uncertificated shares there shall be sent to the registered owner thereof a
written notice containing the information required to be set forth or stated on
certificates pursuant to paragraphs (b) and (c) of Section 508 of the NYBCL.
Section 2. Signatures. The signatures of the officers of the
Corporation upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such officer at the
date of issue.
Section 3. Replacement 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 or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient, and may require such
indemnities as it deems adequate, to protect the Corporation from any claim that
may be made against
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<PAGE> 19
it with respect to any such certificate alleged to have been lost or destroyed.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate representing shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, a new
certificate shall be issued to the person entitled thereto, and the old
certificate shall be cancelled and the transaction shall be recorded upon the
books of the Corporation.
Section 4. Shareholders of Record. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of shareholders. Such date shall
not be more than fifty nor less than ten days before the date of any meeting nor
more than fifty days prior to any other action. When a determination of
shareholders of record entitled to notice of or to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date for the adjourned meeting.
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 provided by the laws of the State of New
York.
Section 5. Shareholder List. A list of shareholders as of the record
date, certified by the corporate officer responsible for its preparation or by a
transfer agent, shall be produced at any meeting upon the request thereat or
prior thereto of any shareholder. If the
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right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of shareholders to be produced
as evidence of the right of the persons challenged to vote at such meeting and
all persons who appear from such list to be shareholders entitled to vote
thereat may vote at such meeting.
ARTICLE XI
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of the Certificate
of Incorporation relating thereto, if any, dividends may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in shares of the capital stock or in the Corporation's
bonds or its property, including the shares or bonds of other corporations
subject to any provisions of law and of the Certificate of Incorporation.
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, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
Section 2. Checks. 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.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal,
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<PAGE> 21
New York". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or in any manner reproduced.
ARTICLE XII
AMENDMENTS
These Bylaws may be amended or repealed or new bylaws may be adopted
at any regular or special meeting of shareholders at which a quorum is present
or represented, by the vote of the holders of shares entitled to vote in the
election of any directors, provided notice of the proposed alteration, amendment
or repeal be contained in the notice of such meeting. These Bylaws may also be
amended or repealed or new bylaws may be adopted by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors. If any bylaw regulating an impending election of directors
is adopted, amended or repealed by the Board of Directors, there shall be set
forth in the notice of the next meeting of shareholders for the election of
directors the bylaw so adopted, amended or repealed, together with precise
statement of the changes made. Bylaws adopted by the Board of Directors may be
amended or repealed by the shareholders.
January [ ], 1999
<PAGE> 1
Exhibit 4.1
FORM OF CLASS A COMMON STOCK CERTIFICATE
TEMPORARY CERTIFICATE--Exchangeable for
Definitive Certificate When Ready for Delivery.
GABELLI ASSET MANAGEMENT INC.
NUMBER SHARES
------------------- ---------------
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF NEW YORK CERTAIN DEFINITIONS
CUSIP_____________________
THIS CERTIFIES that_______________________
is the owner of___________________________
FULLY PAID NON-ASSESSABLE SHARES OF THE CLASS A COMMON STOCK OF
GABELLI ASSET MANAGEMENT INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation and all amendments thereof, to all of which the holder by
acceptance hereof assents.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Register.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated_________________________
Corporate
Seal
____________________________ __________________________
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
[ ]
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
FORM OF REVERSE OF CLASS A COMMON STOCK CERTIFICATE
The Corporation will furnish without charge to each shareholder who so
requests, a full statement of the designation, relative rights, preferences and
limitations of each class of stock authorized to be issued, the designation,
relative rights, preferences and limitations of each series of preferred stock
so far as the same have been fixed, and the authority of the Board of Directors
of the Corporation to designate and fix the relative rights, preferences and
limitations of other series of preferred stock.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ......Custodian......
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act..........
in common (State)
Additional abbreviations may also be used though not in the above list
For Value Received, __________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated__________________________
____________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in every
particular without alteration or enlargement
or any change whatever. The signature of the
person executing this power must be
guaranteed by an Eligible Guarantor
Institution such as a Commercial Bank, Trust
Company, Securities Broker/Dealer, Credit
Union, or a Savings Association
participating in a Medallion program
approved by the Securities Transfer
Association, Inc.
<PAGE> 1
Exhibit 10.2
DRAFT
Tax Indemnification Agreement
THIS TAX INDEMNIFICATION AGREEMENT (the "Tax Indemnification Agreement"),
dated as of February ___, 1999, is made by and among Gabelli Asset Management
Inc. (formerly known as Alpha G, Inc., a New York corporation) (the "Company"),
and Gabelli Group Capital Partners, Inc. (formerly known as Gabelli Funds, Inc.,
a New York corporation) ("Gabelli Partners").
WHEREAS, the Company intends to offer to the public in an underwritten
offering up to 6,900,000 shares of its Class A Common Stock, par value $.001 per
share (the "Class A Common Stock") (the "Offering");
WHEREAS, immediately prior to the closing of the Offering, the Company
will issue approximately 24 million shares of its Class B Common Stock, par
value $.001 per share (the "Class B Common Stock") to Gabelli Partners in
exchange for substantially all of the operating assets and liabilities of
Gabelli Partners;
WHEREAS, the Company and Gabelli Partners intend that this Tax
Indemnification Agreement shall govern the proper allocation among the Company
and Gabelli Partners of Taxes incurred in or attributable to taxable periods
prior to the Closing Date and shall govern certain other Tax matters.
NOW, THEREFORE, in consideration of the premises and of the agreements
herein set forth, the Company and Gabelli Partners hereby agree as follows:
1. Certain Defined Terms
For purposes of the provisions set forth below:
(a) "IRS" shall mean the Internal Revenue Service.
(b) "Closing" shall mean the consummation of the Offering.
(c) "Closing Date" shall mean the date on which the Closing occurs.
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(d) "Entities" shall mean GAMCO Investors, Inc., Gabelli Funds, LLC
(formerly known as the Gabelli Funds Division), Gabelli Fixed Income, Inc.,
Darien Associates, LLC, Gabelli Fixed Income Distributors, Inc., and Gabelli
Securities, Inc. and each of their direct and indirect subsidiaries.
(e) "Excluded Assets" shall mean assets of the Entities which are
not part of the contribution to the Company.
(f) "Pre-Offering Structuring Transactions" shall mean the formation
of the Company and the contribution of operating assets (other than the Excluded
Assets) and liabilities of Gabelli Partners to the Company in exchange for
approximately 24 million shares of Class B Common Stock.
(g) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies, or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, franchise, withholding,
social security, occupation, use, service, license, payroll, transfer and
recording taxes, imposed by the IRS or any Taxing Authority; and such term shall
include interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments.
(h) "Taxing Authority" shall mean any entity that imposes Taxes,
whether domestic or foreign, and whether imposed by a nation, locality,
municipality, government, state, federation or other body.
(i) "Tax Controversy" shall have the meaning as defined in Section 5
of the Tax Indemnification Agreement.
(j) "Tax Indemnified Party or Parties" shall mean Gabelli Partners
and its shareholders.
(k) "Tax Indemnifying Party" shall mean the Company.
(l) "Tax Returns" shall mean all reports, estimates, declarations of
estimated tax, information statements, returns or other documents required to be
filed in connection with any Taxes, including but not limited to original (or
amended) returns and filings, requests for extensions of time, requests for a
change in method
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of accounting, information statements and reports, claims for refund, amended
returns and all documents required to be filed in connection with any Tax
Controversy.
2. Tax Indemnification
(a) The Company shall indemnify the Tax Indemnified Parties and hold
them harmless from, against and in respect of any and all Taxes that arise from
the inclusion in a Tax Return of any items of income, gain, loss, deduction or
credit:
(i) resulting from the operating activities of the Entities
(other than those activities attributable to the Excluded Assets) for all
taxable periods ending on or before the Closing, the Taxes on which have not
been otherwise paid by the Tax Indemnified Parties as of the Closing Date;
(ii) relating to the Pre-Offering Structuring Transactions;
(iii) relating to the Entities for all taxable periods ending
after the Closing Date, except to the extent such items relate to the
[non-operating activities] of the Entities or to the Excluded Assets for taxable
periods which began before the Closing Date; and
(b) The amount of indemnification pursuant to this Section 2 shall
equal the sum of:
(i) the amount of the excess of:
(X) the Tax liability of the Tax Indemnified Party
calculated by including any items of income gain, loss deduction or credit of
the Tax Indemnified Party described in Section 2(a)(i), (ii) or (iii), over,
(Y) the Tax liability of the Tax Indemnified Party
calculated without the inclusion of such items; plus
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(ii) an amount sufficient such that the amount payable
pursuant to this Section 2 net of any Taxes (calculated in accordance with the
Section 2(b)(i)) payable on the receipt by the Indemnified Parties of such
indemnification payment shall equal the amount calculated pursuant to Section
2(b)(i).
(c) Upon obtaining knowledge that a Tax Indemnified Party is
entitled to indemnification under this Tax Indemnification Agreement, the party
having knowledge shall deliver written notice to the other party. Such notice
shall specify in reasonable detail the basis for and the amount of
indemnification pursuant to Section 2. The Tax Indemnifying Party shall pay the
amount of indemnification pursuant to Section 2 within sixty (60) days after
receipt of the notice or upon obtaining knowledge of such indemnification
obligation. If either the Tax Indemnified Party or the Tax Indemnifying Party
disputes the liability within thirty (30) days of the receipt of the notice or
obtaining knowledge of such indemnification obligation, the dispute shall be
handled as set forth in Section 3(d) below.
3. Tax Returns
(a) The Company shall prepare and timely file (in each case, at its
own cost and expense and consistent with past practice), taking into account any
and all extensions, all Tax Returns (other than those relating specifically to
Excluded Assets) required to be filed in respect of any Taxes of the Entities
for taxable periods ending on or prior to the Closing Date not otherwise filed
prior thereto.
(b) The Company shall prepare and timely file, taking into account
any and all extensions, all Tax Returns with respect to the Entities required to
be filed other than those described in Section 3(a) hereof.
(c) If Gabelli Partners prepares and timely files any Tax Return for
which it would be entitled to indemnification under Section 2(a), then Gabelli
Partners or its shareholders, whichever is applicable, shall pay such Taxes due
on such Tax Returns. Gabelli Partners shall provide the Company with copies of
any such Tax Returns covering the Taxes described in Section 2(a) at least
twenty (20) days prior to the due date thereof (giving effect to any extension
thereto), accompanied by a statement calculating the Tax Indemnifying Party's
indemnification obligation pursuant to Section 2. The Tax Indemnifying Party
shall pay to the Tax Indemnified Parties the amount of the Tax Indemnifying
Party's indemnification
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obligation within ten (10) days of receiving copies of such Tax Returns unless
the parties are unable to agree on the amount of the Tax Indemnifying Party's
indemnification obligation.
(d) In the event that the Tax Indemnifying Party and Tax Indemnified
Parties cannot agree on the amount or the method of calculation of any amount
relating to Taxes covered directly or indirectly by this Tax Indemnification
Agreement, then such dispute shall be resolved by an independent accounting firm
acceptable to both parties whose fees and expenses shall be paid by the Tax
Indemnifying Party and the Tax Indemnified Parties in proportion to each party's
respective liability for Taxes as determined by such accounting firm, and the
Tax Indemnifying Party shall pay the amount determined by such accountants
within ten (10) days of such determination.
4. Refunds
(a) The Tax Indemnified Parties shall be entitled to any refunds or
credits of Tax of the Entities or Tax attributable to operating activities of
the Entities to the extent such Taxes were not paid by the Company. The Company
shall remit such refunds to the Tax Indemnified Parties within ten (10) days of
receiving any such refund.
(b) The Company shall be entitled to any refunds or credits of Tax
of the Entities or Tax attributable to the operating activities of the Entities
for any taxable period ending on or before the Closing Date to the extent such
Taxes were paid by the Company. Gabelli Partners and/or its shareholders shall
remit such refunds to the Company within ten (10) days of receiving any such
refund.
(c) The Company shall be entitled to any refunds or credits of Tax
of the Entities for any taxable period beginning after the Closing Date. To the
extent received by Gabelli Partners and/or its shareholders, Gabelli Partners
shall remit the amount of such refunds to the Company within ten (10) days of
receiving any such refund.
(d) If any refund or credit of Tax of the Entities or Tax
attributable to the operating activities of the Entities cannot be reasonably
determined as a refund or credit of Tax paid by the Company or not paid by the
Company, then such
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refund or credit of tax shall be equitably apportioned between the Tax
Indemnifying Party and the Tax Indemnified Parties.
(e) If the Company in good faith determines that it will not have
any material adverse affect on its tax liability, the Company shall request and
at Gabelli Partner's sole expense file for and obtain any refunds or credits to
which the Tax Indemnified Parties would be entitled under Section 4 hereof. If
the Company makes such a good faith determination, (i) the Company shall permit
Gabelli Partners to control the prosecution of any such refund claim and, where
deemed appropriate by Gabelli Partners, shall authorize by appropriate powers of
attorney such persons as Gabelli Partners shall designate to represent the
Gabelli Partners with respect to such refund claim and (ii) the Company shall
forward to Gabelli Partners any such refund within ten (10) days after the
refund is received (or reimburse Gabelli Partners for any such credit within ten
(10) days after the relevant Tax Return is filed in which the credit is actually
applied against its liability for Taxes).
5. Notification and Control of Tax Controversy
(a) Notification of Tax Controversy. If a claim for Taxes shall be
made by any Taxing Authority in writing, which, if successful, could reasonably
result in an indemnity payment pursuant to Section 2 hereof, the Tax Indemnified
Party shall promptly notify the Tax Indemnifying Party in writing of such claim
(a "Tax Controversy"). If notice of the Tax Controversy is delivered to the
party that would be the Tax Indemnifying Party for such Tax Controversy, the Tax
Indemnifying Party shall notify the Tax Indemnified Party, in writing, of the
existence of such claim. In either case, the party receiving notice of the Tax
Controversy shall forward to the other all information received in respect of
such Tax Controversy from the applicable Taxing Authority. If a notice of a Tax
Controversy is not given to the Tax Indemnifying Party by the Tax Indemnified
Party within a reasonably sufficient period of time to allow the Tax
Indemnifying Party effectively to contest the Tax Controversy, taking into
account the facts and circumstances with respect to such Tax Controversy, the
Tax Indemnifying Party shall not be liable to the Tax Indemnified Party or any
of its affiliates to the extent that the Tax Indemnifying Party's position is
actually and materially prejudiced as a result thereof.
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(b) Control of Tax Controversy. With respect to any Tax Controversy
which might result in an indemnification payment by the Company pursuant to
Section 2, the Company shall control all proceedings in connection with such Tax
Controversy (including, without limitation, selection of counsel) and without
limiting the foregoing, may in its sole discretion and at its sole expense
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with any Taxing Authority with respect thereto, and may, in its sole
discretion, either pay the Tax Controversy and sue for a refund where applicable
law permits such refund suits or contest such Tax Controversy in any permissible
manner. In no case shall Gabelli Partners settle or otherwise compromise any Tax
Controversy referred to in the preceding sentence without the Company's prior
written consent.
(c) Mutual Cooperation. Gabelli Partners and/or its shareholders
shall cooperate with the Company in connection with any Tax Controversy which
might result in an indemnification payment by the Company pursuant to Section 2,
which cooperation shall include, without limitation, the reasonable retention
and (upon the Company's request) the provision to the Company of records and
information which would be reasonably relevant to such Tax Controversy, and
making employees available to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Controversy. Any out-of-pocket expenses of Gabelli Partners and/or its
shareholders shall be reimbursed by the Company.
6. Maintenance of Books and Records. Until the applicable statute of
limitations (including periods of waiver) expired for any Tax Returns filed or
required to be filed covering the periods up to and including the Closing,
Gabelli Partners or its affiliates shall retain all workpapers and related
materials in its possession and under its control that were used in the
preparation of any Tax Returns of Gabelli Partners or the Entities. Gabelli
Partners will notify the Company sixty (60) days prior to disposing of any
records relating to pre-Closing periods and will deliver to the Company, at the
Company's expense, any such records requested by the Company.
7. Terms of Agreement. This Tax Indemnification Agreement shall be
effective as of the Closing Date and shall not terminate until the later of (i)
the expiration (with valid extensions) of any applicable statute of limitations
relating to
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the Taxes covered thereby and (ii) the payment of any indemnification payment
pursuant to Section 2.
8. Entire Agreement; Alteration, Amendment, etc. This Tax Indemnification
Agreement contains the entire understanding of the parties hereto with respect
to the subject matter contained herein. No alteration, amendment or modification
of any of the terms of this Tax Indemnification Agreement shall be valid unless
made by a written instrument, signed by an authorized officer of the Company and
Gabelli Partners.
9. Governing Law. This Tax Indemnification Agreement has been made in and
shall be construed and enforced in accordance with the law of the State of New
York (regardless of the laws that might be applicable under principles of
conflicts of laws) from time to time obtaining.
10. Assignments and Third Party Beneficiaries. This Tax Indemnification
Agreement shall be binding upon and shall inure only to the benefit of the
parties hereto, the shareholders of Gabelli Partners and their respective
successors and assigns.
11. Severability. The invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceablility of
the remainder hereof in that jurisdiction or the validity or enforceablility of
this Tax Indemnification Agreement, including that provision, in any other
jurisdiction. To the extent permitted by applicable law, each party waives any
provision of applicable law that renders any provision hereof prohibited or
unenforceable in any respect. If any provision of this Tax Indemnification
Agreement is held to be unenforceable for any reason, it shall be adjusted
rather than voided, if possible, or order to achieve the intent of the parties
to the extent possible.
IN WITNESS WHEREOF, the parties hereto have duly executed this Tax
Indemnification Agreement as of the date first above written.
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GABELLI ASSET MANAGEMENT, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
GABELLI GROUP CAPITAL PARTNERS, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
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Exhibit 10.3
LOCK-UP AGREEMENT
THIS AGREEMENT, dated as of February , 1999, is by and between
Gabelli Asset Management Inc. (formerly known as Alpha G, Inc.), a New York
corporation (the "Company"), and Gabelli Group Capital Partners, Inc. (formerly
known as Gabelli Funds, Inc.), a New York corporation ("Gabelli Partners").
RECITALS
WHEREAS, Gabelli Partners is currently the sole shareholder of the
Company; and
WHEREAS, the Company proposes to effectuate a reclassification of
its outstanding shares of common stock into Class A Common Stock, par value
$.001 per share (the "Class A Common Stock"), and Class B Common Stock, par
value $.001 per share (the "Class B Common Stock"), and to raise additional
capital by selling an aggregate of 6,000,000 shares of Class A Common Stock
(plus an additional 900,000 shares to cover over-allotments, if any) in an
underwritten public offering (the "Offering"); and
WHEREAS, immediately prior to the consummation of the Offering,
Gabelli Partners will become the sole holder of all 24,000,000 shares of Class B
Common Stock of the Company; and
WHEREAS, the Company proposes to enter into an underwriting
agreement (the "Underwriting Agreement") with Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Salomon Smith Barney Inc. and Gabelli & Company, Inc., as
representatives of the several underwriters named therein (the "Underwriters"),
in connection with the Offering, which Underwriting Agreement will provide for
the purchase by the Underwriters of the shares Class A Common Stock from the
Company and the resale by the Underwriters of such shares to the public; and
WHEREAS, each of the parties recognizes that the raising of capital
in the Offering will benefit the Company and Gabelli Partners, as the sole
holder of all of the Class B Common Stock of the Company.
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NOW, THEREFORE, in consideration of the foregoing, the agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Upon the terms and subject to the conditions set forth in this
Agreement, the parties hereby agree that without the prior written consent of
the Company, Gabelli Partners will not sell, offer to sell, solicit an offer to
buy, contract to sell, grant any option to purchase, or otherwise transfer or
dispose of, any shares of Class B Common Stock of the Company, or any securities
convertible into or exercisable or exchangeable for such shares, for a period of
three years after the date of the final Prospectus relating to the public
offering of the Class A Common Stock of the Company (the "Lock-Up Termination
Date").
2. In furtherance of the foregoing, the Company and, its Transfer
Agent, are hereby authorized to decline to make any transfer of securities if
such transfer would constitute a violation or breach of this Agreement.
3. This Agreement will terminate upon the earlier of (i) the Lock-Up
Termination Date or (ii) if the Underwriting Agreement does not become effective
or if the Underwriting Agreement (other than provisions thereof which survive
termination) is terminated, on February ___, 1999.
4. This Agreement shall be binding also upon the successors,
assigns, heirs and personal representatives of Gabelli Partners.
5. This Agreement shall be governed by the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the laws of another jurisdiction would be
required thereby.
6. This Agreement may be executed in two counterparts, each of which
shall be an original and both of which when taken together shall constitute one
instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
GABELLI ASSET MANAGEMENT INC.
By:
----------------------------------
Name:
Title:
GABELLI GROUP CAPITAL PARTNERS, INC.
By:
----------------------------------
Name:
Title:
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Exhibit 10.4
GABELLI ASSET MANAGEMENT INC.
1999 STOCK AWARD AND INCENTIVE PLAN
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GABELLI ASSET MANAGEMENT INC.
1999 STOCK AWARD AND INCENTIVE PLAN
Section Page
------- ----
1. Purposes; Types of Awards; Construction.......................1
2. Definitions...................................................1
3. Administration................................................5
4. Eligibility...................................................6
5. Stock Subject to the Plan.....................................6
6. Specific Terms of Awards......................................7
7. General Provisions...........................................13
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GABELLI ASSET MANAGEMENT INC.
1999 STOCK AWARD AND INCENTIVE PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the 1999 Stock Award and Incentive Plan of Gabelli
Asset Management Inc. (the "Plan") is to afford an incentive to selected
employees, directors and independent contractors of Gabelli Asset Management
Inc. (the "Company"), or any Subsidiary or Affiliate which now exists or
hereafter is organized or acquired, to acquire a proprietary interest in the
Company, to continue as employees or independent contractors, as the case may
be, to increase their efforts on behalf of the Company and to promote the
success of the Company's business. Pursuant to Section 6 of the Plan, there may
be granted stock options (including "incentive stock options" and "nonqualified
stock options"), stock appreciation rights (either in connection with stock
options granted under the Plan or independently of options), restricted stock,
restricted stock units, dividend equivalents and other stock- or cash-based
awards. From and after the consummation of the Initial Public Offering, as
hereunder defined, awards made under the Plan are intended to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Exchange Act and
the Plan shall be interpreted in a manner consistent therewith.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Affiliate" means any entity if, at the time of granting
of an Award or a Loan, (i) the Company, directly or indirectly, owns at least
20% of the combined voting power of all classes of stock of such entity or at
least 20% of the ownership interests in such entity or (ii) such entity,
directly or indirectly, owns at least 20% of the combined voting power of all
classes of stock of the Company.
(b) "Award" means any Option, SAR, Restricted Stock,
Restricted Stock Unit, Dividend Equiva-
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lent or Other Stock-Based Award or Other Cash-Based Award granted under the
Plan.
(c) "Award Agreement" means any written agreement, contract,
or other instrument or document evidencing an Award.
(d) "Beneficiary" means the person, persons, trust or trusts
which have been designated by a Grantee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive such
benefits.
(e) "Board" means the Board of Directors of the Company.
(f) A "Change in Control" shall be deemed to have occurred if
the event set forth in any one of the following paragraphs shall have occurred:
(I) any Person (as defined below in this Section 2(f))
is or becomes the Beneficial Owner (as defined below in this Section
2(f)), directly or indirectly, of securities of the Company
representing [25]% or more of the combined voting power of the
Company's then outstanding securities, excluding any Person who
becomes such a Beneficial Owner in connection with a transaction
described in clause (i) of paragraph (III) below; or
(II) the following individuals cease for any reason to
constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any
new director (other than a director whose initial assumption of
office is in connection with an actual or threatened
election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company)
whose appointment or election by the Board or nomination for
election by the Company's stockholders was approved
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or recommended by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on the date
hereof or whose appointment, election or nomination for election was
previously so approved or recommended; or
(III) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with
any other corporation, other than (i) a merger or consolidation that
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) at least [60]% of the combined voting power of the
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation,
or (ii) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing [25]% or more of the
combined voting power of the Company's then outstanding securities;
or
(IV) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company
of all or substantially all of the Company's assets, other than a
sale or disposition by the Company of all or substantially all of
the Company's assets to an entity, at least [60]% of the combined
voting power of the voting securities of which are owned by
stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
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For purposes of this Section 2(f), "Person" shall mean any person
(as defined in Section 3(a)(9) of the Securities Exchange Act (the "Exchange
Act"), as such term is modified in Sections 13(d) and 14(d) of the Exchange Act)
other than (1) any employee plan established by the Company, (2) the Company or
any of its affiliates (as defined in Rule 12b-2 promulgated under the Exchange
Act), (3) an underwriter temporarily holding securities pursuant to an offering
of such securities, or (4) a corporation owned, directly or indirectly, by
stockholders of the Company in substantially the same proportions as their
ownership of the Company.
For purposes of this Section 2(f), "Beneficial Owner" shall have the
meaning set forth in Rule 13d-3 under the Exchange Act
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" means the committee established by the Board
to administer the Plan from and after the consummation of the Initial Public
Offering, the composition of which shall at all times satisfy the provisions of
Rule 16b-3. With respect to the period prior to consummation of the Initial
Public Offering, references to the "Committee" shall be deemed to refer to the
Board.
(i) "Company" means Gabelli Asset Management Inc., a
corporation organized under the laws of the State of New York, or any successor
corporation.
(j) "Dividend Equivalent" means a right, granted to a Grantee
under Section 6(g), to receive cash, Stock, or other property equal in value to
dividends paid with respect to a specified number of shares of Stock. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award, and may be paid currently or on a deferred basis.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
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(l) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Committee. Unless otherwise determined by the Committee in good faith, the per
share Fair Market Value of Stock as of a particular date shall mean (i) the
closing sales price per share of Stock on the national securities exchange on
which the Stock is principally traded, for the last preceding date on which
there was a sale of such Stock on such exchange, or (ii) if the shares of Stock
are then traded in an over-the-counter market, the average of the closing bid
and asked prices for the shares of Stock in such over-the-counter market for the
last preceding date on which there was a sale of such Stock in such market, or
(iii) if the shares of Stock are not then listed on a national securities
exchange or traded in an over-the-counter market, such value as the Committee,
in its sole discretion, shall determine.
(m) "Grantee" means a person who, as an employee or
independent contractor of the Company, a Subsidiary or an Affiliate, has been
granted an Award under the Plan.
(n) "Initial Public Offering" shall mean the initial public
offering of shares of Stock of the Company, as more fully described in the
Registration Statement on Form S-1 (No. 333-51023) filed with the Securities and
Exchange Commission on or about April 24, 1998, as such Registration Statement
may be amended from time to time.
(o) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(p) "NQSO" means any Option that is designated as a
nonqualified stock option.
(q) "Option" means a right, granted to a Grantee under Section
6(b), to purchase shares of Stock. An Option may be either an ISO or an NQSO,
provided that ISO's may not be granted to independent contractors.
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(r) "Other Cash-Based Award" means cash awarded under Section
6(h), including cash awarded as a bonus or upon the attainment of specified
performance criteria or otherwise as permitted under the Plan.
(s) "Other Stock-Based Award" means a right or other interest
granted to a Grantee under Section 6(h) that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, Stock, including, but not limited to (1) unrestricted Stock awarded as a
bonus or upon the attainment of specified performance criteria or otherwise as
permitted under the Plan, and (2) a right granted to a Grantee to acquire Stock
from the Company for cash and/or a promissory note containing terms and
conditions prescribed by the Committee.
(t) "Plan" means this Gabelli Asset Management Inc. 1999 Stock
Award and Incentive Plan, as amended from time to time.
(u) "Restricted Stock" means an Award of shares of Stock to a
Grantee under Section 6(d) that may be subject to certain restrictions and to a
risk of forfeiture.
(v) "Restricted Stock Unit" means a right granted to a Grantee
under Section 6(e) to receive Stock or cash at the end of a specified deferral
period, which right may be conditioned on the satisfaction of specified
performance or other criteria.
(w) "Rule 16b-3" means Rule 16b-3, as from time to time in
effect promulgated by the Securities and Exchange Commission under Section 16 of
the Exchange Act, including any successor to such Rule.
(x) "Stock" means shares of the Class A common stock, par
value $.01 per share, of the Company.
(bb) "SAR" or "Stock Appreciation Right" means the right,
granted to a Grantee under Section 6(c), to be paid an amount measured by the
appreciation in the Fair Market Value of Stock from the date of grant to the
date of exercise of the right, with payment to be made in cash, Stock, or
property as specified in the Award or determined by the Committee.
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<PAGE> 9
(cc) "Subsidiary" means any corporation in an unbroken chain
of corporations beginning with the Company if, at the time of granting of an
Award, each of the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
3. Administration.
The Plan shall be administered by the Committee. The Committee
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom and
the time or times at which Awards shall be granted; to determine the type and
number of Awards to be granted, the number of shares of Stock to which an Award
may relate and the terms, conditions, restrictions and performance criteria
relating to any Award; and to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives (if any) included in, Awards in recognition
of unusual or non-recurring events affecting the Company or any Subsidiary or
Affiliate or the financial statements of the Company or any Subsidiary or
Affiliate, or in response to changes in applicable laws, regulations, or
accounting principles; to designate Affiliates; to construe and interpret the
Plan and any Award; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Award
Agreements (which need not be identical for each Grantee); and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of
7
<PAGE> 10
its members either present in person or participating by conference telephone at
a meeting or by written consent. The Committee may delegate to one or more of
its members or to one or more agents such administrative duties as it may deem
advisable, and the Committee or any person to whom it has delegated duties as
aforesaid may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all persons, including the Company, and any Subsidiary, Affiliate
or Grantee (or any person claiming any rights under the Plan from or through any
Grantee) and any stockholder.
No member of the Board or Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Award
granted made hereunder.
4. Eligibility.
Awards may be granted to selected employees, independent contractors
and directors of the Company and its present or future Subsidiaries and
Affiliates, in the discretion of the Committee. In determining the persons to
whom Awards shall be granted and the type of any Award (including the number of
shares to be covered by such Award), the Committee shall take into account such
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan.
5. Stock Subject to the Plan.
The number of shares of Stock reserved for the grant of Awards under
the Plan shall be 1,500,000, subject to adjustment as provided herein. Such
shares may, in whole or in part, be authorized but unissued shares or shares
that shall have been or may be reacquired by the Company in the open market, in
private transactions or otherwise. If any shares subject to an Award are
forfeited, cancelled, exchanged or surrendered or if an Award otherwise
terminates or expires without a distribution of shares to the Grantee, the
shares of stock with respect to such Award shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Awards
8
<PAGE> 11
under the Plan. Upon the exercise of any Award granted in tandem with any other
Awards or awards, such related Awards or awards shall be cancelled to the extent
of the number of shares of Stock as to which the Award is exercised and,
notwithstanding the foregoing, such number of shares shall no longer be
available for Awards under the Plan.
In the event that the Committee shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, Stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock so that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
Grantees under the Plan, then the Committee shall make such equitable changes or
adjustments as it deems necessary or appropriate to any or all of (i) the
number and kind of shares of Stock which may thereafter be issued in connection
with Awards, (ii) the number and kind of shares of Stock issued or issuable in
respect of out standing Awards, and (iii) the exercise price, grant price, or
purchase price relating to any Award; provided that, with respect to ISOs, such
adjustment shall be made in accordance with Section 424(h) of the Code.
6. Specific Terms of Awards.
(a) General. The term of each Award shall be for such period
as may be determined by the Committee. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company or a Subsidiary
or Affiliate upon the grant, maturation, or exercise of an Award may be made in
such forms as the Committee shall determine at the date of grant or thereafter,
including, without limitation, cash, Stock, or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
Committee may make rules relating to installment or deferred payments with
respect to Awards, including the rate of interest to be credited with respect
to such payments. In addition to the foregoing, the Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter, such
additional terms
9
<PAGE> 12
and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall determine.
(b) Options. The Committee is authorized to grant Options to
Grantees on the following terms and conditions:
(i) Type of Award. The Award Agreement evidencing the
grant of an Option under the Plan shall designate the Option as an
ISO or an NQSO.
(ii) Exercise Price. The exercise price per share of
Stock purchasable under an Option shall be determined by the
Committee; provided that, in the case of an ISO, such exercise price
shall be not less than the Fair Market Value of a share on the date
of grant of such Option, and in no event shall the exercise price
for the purchase of shares be less than par value. The exercise
price for Stock subject to an Option may be paid (i) in cash, or
(ii) at the discretion of the Committee, by an exchange of Stock
previously owned by the Grantee, by the withholding of Stock
otherwise issuable upon exercise or (iii) a combination of thereof,
in an amount having a combined value equal to such exercise price. A
Grantee may also elect to pay all or a portion of the aggregate
exercise price by having shares of Stock with a Fair Market Value on
the date of exercise equal to the aggregate exercise price withheld
by the Company or sold by a broker-dealer under circumstances
meeting the requirements of 12 C.F.R. ss.220 or any successor
thereof.
(iii) Term and Exercisability of Options. The date on
which the Committee adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted;
provided that Option grants in connection with the Initial Public
Offering shall be deemed to have been granted on the date of
consummation of the Initial Public Offering. Options shall be
exercisable over the exercise period (which shall not exceed ten
years from
10
<PAGE> 13
the date of grant), at such times and upon such conditions as the
Committee may determine, as reflected in the Award Agreement;
provided that the Committee shall have the authority to accelerate
the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate
(subject to the provisions of Section 7 hereof). An Option may be
exercised to the extent of any or all full shares of Stock as to
which the Option has become exercisable, by giving written notice of
such exercise to the Committee or its designated agent.
(iv) Termination of Employment, Etc. Unless otherwise
determined by the Committee, an Option may not be exercised unless
the Grantee is then in the employ of, or then maintains an
independent contractor relationship with, the Company or a
Subsidiary or an Affiliate (or a company or a parent or subsidiary
company of such company issuing or assuming the Option in a
transaction to which Section 424(a) of the Code applies), and unless
the Grantee has remained continuously so employed, or continuously
maintained such relationship, since the date of grant of the Option;
provided that the Award Agreement may contain provisions extending
the exercisability of Options, in the event of specified
terminations, to a date not later than the expiration date of such
Option.
(v) Other Provisions. Options may be subject to such
other conditions including, but not limited to, restrictions on
transferability of the shares acquired upon exercise of such
Options, as the Committee may prescribe in its discretion.
(c) SARs. The Committee is authorized to grant
SARs to Grantees on the following terms and conditions:
(i) In General. Unless the Committee determines
otherwise, an SAR (1) granted in tandem with an NQSO may be granted
at the time of grant of the related NQSO or at any time
11
<PAGE> 14
thereafter or (2) granted in tandem with an ISO may only be granted
at the time of grant of the related ISO. An SAR granted in tandem
with an Option shall be exercisable only to the extent the
underlying Option is exercisable.
(ii) SARs. An SAR shall confer on the Grantee a right to
receive with respect to each share subject thereto, upon exercise
thereof, the excess of (1) the Fair Market Value of one share of
Stock on the date of exercise over (2) the grant price of the SAR
(which in the case of an SAR granted in tandem with an Option shall
be equal to the exercise price of the underlying Option, and which
in the case of any other SAR shall be such price as the Committee
may determine).
(d) Restricted Stock. The Committee is authorized
to grant Restricted Stock to Grantees on the following terms and
conditions:
(i) Issuance and Restrictions. Restricted Stock shall
be subject to such restrictions on transferability and other
restrictions, if any, as the Committee may impose at the date of
grant or thereafter, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine (subject
to the provisions of Section 7 hereof). Except to the extent
restricted under the Award Agreement relating to the Restricted
Stock, a Grantee granted Restricted Stock shall have all of the
rights of a stockholder including, without limitation, the right to
vote Restricted Stock and the right to receive dividends thereon.
(ii) Forfeiture. Upon termination of employment or
termination of the independent contractor relationship during the
applicable restriction period, Restricted Stock and any accrued but
unpaid dividends or Dividend Equivalents that are at that time
subject to restrictions shall be forfeited; provided that
12
<PAGE> 15
the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock
will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted
under the Plan may be evidenced in such manner as the Committee
shall determine. If certificates representing Restricted Stock are
registered in the name of the Grantee, such certificates shall bear
an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock, and the Company
shall retain physical possession of the certificate.
(iv) Dividends. Dividends paid on Restricted Stock shall
be either paid at the dividend payment date, or deferred for payment
to such date as determined by the Committee, in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends. Stock distributed in connection with a stock split
or stock dividend, and other property distributed as a dividend,
shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock
or other property has been distributed.
(e) Restricted Stock Units. The Committee is
authorized to grant Restricted Stock Units to Grantees, subject to
the following terms and conditions:
(i) Award and Restrictions. Delivery of Stock or cash,
as determined by the Committee, will occur upon expiration of the
deferral period specified for Restricted Stock Units by the
Committee. In addition, Restricted Stock Units shall be subject to
such restrictions as the Committee may impose, at the
13
<PAGE> 16
date of grant or thereafter, which restrictions may lapse at the
expiration of the deferral period or at earlier or later specified
times, separately or in combination, in installments or otherwise,
as the Committee may determine.
(ii) Forfeiture. Upon termination of employment or
termination of the independent contractor relationship during the
applicable deferral period or portion thereof to which forfeiture
conditions apply, or upon failure to satisfy any other conditions
precedent to the delivery of Stock or cash to which such Restricted
Stock Units relate, all Restricted Stock Units that are then subject
to deferral or restriction shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Restricted Stock
Units will be waived in whole or in part in the event of termination
resulting from specified causes, and the Committee may in other
cases waive in whole or in part the forfeiture of Restricted Stock
Units.
(f) Stock Awards in Lieu of Cash Awards. The
Committee is authorized to grant Stock as a bonus, or to grant other
Awards, in lieu of Company commitments to pay cash under other plans
or compensatory arrangements. Stock or Awards granted hereunder
shall have such other terms as shall be determined by the Committee.
(g) Dividend Equivalents. The Committee is
authorized to grant Dividend Equivalents to Grantees. The Committee
may provide, at the date of grant or thereafter, that Dividend
Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Stock, or other
investment vehicles as the Committee may specify, provided that
Dividend Equivalents (other than freestanding Dividend Equivalents)
shall be subject to all conditions and restric-
14
<PAGE> 17
tions of the underlying Awards to which they relate.
(h) Other Stock- or Cash-Based Awards. The
Committee is authorized to grant to Grantees Other Stock-Based
Awards or Other Cash-Based Awards as an element of or supplement to
any other Award under the Plan, as deemed by the Committee to be
consistent with the purposes of the Plan. Such Awards may be granted
with value and payment contingent upon performance of the Company or
any other factors designated by the Committee, or valued by
reference to the performance of specified Subsidiaries or
Affiliates. The Committee shall determine the terms and conditions
of such Awards at the date of grant or thereafter.
7. Change in Control. In the event of a Change in Control, all
outstanding Options and SARs not then exercisable shall become fully
exercisable, and all outstanding Restricted Stock, Restricted Stock Unit,
Dividend Equivalent or Other Stock-Based Award or Other Cash-Based Award Awards
not then fully vested shall become fully vested.
8. General Provisions.
(a) Compliance with Local and Exchange Requirements. The Plan,
the granting and exercising of Awards thereunder, and the other obligations of
the Company under the Plan and any Award Agreement or other agreement shall be
subject to all applicable federal and state laws, rules and regulations, and to
such approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Stock under
any Award until completion of such stock exchange listing or registration or
qualification of such Stock or other required action under any state, federal or
foreign law, rule or regulation as the Company may consider appropriate, and
may require any Grantee to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of Stock in compliance with applicable laws, rules and regulations.
15
<PAGE> 18
(b) Nontransferability. Unless otherwise determined by the
Committee and set forth in the applicable Award Agreement, Awards shall not be
transfer able by a Grantee except by will or the laws of descent and
distribution or, if then permitted under Rule 16b-3, pursuant to a qualified
domestic relations order as defined under the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder,
and shall be exercisable during the lifetime of a Grantee only by such Grantee
or his guardian or legal representative.
(c) No Right to Continued Employment, etc. Nothing in the Plan
or in any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Grantee the right to continue in the
employ of or to continue as an independent contractor of the Company, any
subsidiary or any Affiliate or to be entitled to any remuneration or benefits
not set forth in the Plan or such Award Agreement or other agreement or to
interfere with or limit in any way the right of the Company or any such
Subsidiary or Affiliate to terminate such Grantee's employment or independent
contractor relationship.
(d) Taxes. The Company or any Subsidiary or Affiliate is
authorized to withhold from any Award granted, any payment relating to an Award
under the Plan, including from a distribution of Stock, or any other payment to
a Grantee, amounts of withholding and other taxes due in connection with any
transaction involving an Award, and to take such other action as the Committee
may deem advisable to enable the Company and Grantees to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of a
Grantee's tax obligations.
(e) Amendment and Termination of the Plan. The Board may at
any time and from time to time alter, amend, suspend, or terminate the Plan in
whole or in part; provided that no amendment which requires stockholder
approval in order for the Plan to continue to comply with applicable law or
stock exchange requirements shall be effective unless the same shall be approved
by
16
<PAGE> 19
the requisite vote of the stockholders of the Company entitled to vote thereon.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Grantee, without such Grantee's consent, under any Award
theretofore granted under the Plan.
(f) No Rights to Awards; No Stockholder Rights. No Grantee
shall have any claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment of Grantees. Except as provided
specifically herein, a Grantee or a transferee of an Award shall have no rights
as a stockholder with respect to any shares covered by the Award until the date
of the issuance of a stock certificate to him for such shares.
(g) Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Grantee pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Grantee any rights that
are greater than those of a general creditor of the Company.
(h) No Fractional Shares. No fractional shares of Stock shall
be issued or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(i) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of New
York without giving effect to the conflict of laws principles thereof.
(j) Effective Date; Plan Termination. The Plan shall take
effect upon its adoption by the Board (the "Effective Date"), but the Plan (and
any grants of Awards made prior to the stockholder approval mentioned herein)
shall be subject to the approval of the holders of a majority of the issued and
outstanding shares of voting securities of the Company entitled to vote, which
approval must occur within twelve months of the date the Plan is adopted by the
Board. In the absence of such approval, such Awards shall be null and void.
Notwith-
17
<PAGE> 20
standing the foregoing, the effectiveness of the Plan and the validity of any
Award granted hereunder is conditioned upon the consummation of the Initial
Public Offering, and shall be of no force and effect if the Initial Public
Offering is not consummated.
<PAGE> 1
Exhibit 10.5
GABELLI ASSET MANAGEMENT INC.
1999 ANNUAL PERFORMANCE INCENTIVE PLAN
1. Purpose.
The purpose of the Gabelli Asset Management Inc. 1999 Annual
Performance Incentive Plan is to reinforce corporate, organizational and
business-development goals; to promote the achievement of year-to-year and
long-range financial and other business objectives; and to reward the
performance of individual officers and other employees in fulfilling their
personal responsibilities for long-range achievements.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean an annual incentive compensation award, granted
pursuant to the Plan.
(b) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document between Gabelli Asset Management Inc.
and a Participant evidencing an Award.
(c) "Board" shall mean the Board of Directors of Gabelli Asset
Management Inc.
(d) "Change in Control" shall mean the occurrence of an event described
in Section 6(f) hereof.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Committee" shall mean the Compensation Committee of the Board or a
subcommittee thereof.
(g) "Company" shall mean, collectively, Gabelli Asset Management Inc., a
New York corporation, and its subsidiaries.
<PAGE> 2
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(i) "Participant" shall mean an officer or other employee of the
Company who is, pursuant to Section 4 of the Plan, selected to
participate herein.
(j) "Performance Goals" shall mean any criteria and objectives,
determined by the Committee, that the Committee may require to be
met during the applicable Performance Period as a condition of the
Participant's receipt of payment with respect to an Award.
Performance Goals may include, but are not limited to, the
attainment of any or all of the following with respect to a
Performance Period: (i) specified earnings per share, (ii)
attainment of specified increases in revenue, (iii) specified
increases in assets under management, (iv) specified level of
consolidated net income (determined before any provision for amounts
paid or accrued with respect to Awards in respect of the applicable
Performance Period), (v) specified return on equity, and (vi)
specified improvement in operating expense controls, in each case
(unless otherwise determined by the Committee), as determined in
accordance with generally accepted accounting principles and
reported in the Company's audited financial statements for the
applicable Performance Period. Performance Goals may also include
such personal performance goals as the Committee shall, from time to
time, establish.
(k) "Performance Period" shall mean the Company's fiscal year.
(l) "Plan" shall mean the Gabelli Asset Management Inc. 1999 Annual
Performance Incentive Plan.
(m) "Shares" shall mean shares of the Company's Class A and Class B
common stock, par value $0.001 per share.
2
<PAGE> 3
3. Administration.
The Plan shall be administered by the Committee. The Committee shall
have the authority in its sole discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Awards; to determine the persons to whom
and the time or times at which Awards shall be granted; to determine the terms,
conditions, restrictions and performance criteria, if any, including Performance
Goals, relating to any Award; to determine whether, to what extent, and under
what circumstances an Award may be settled, cancelled, forfeited, or
surrendered; to make adjustments in the Performance Goals in recognition of
unusual or nonrecurring events affecting the Company or the financial statements
of the Company, or in response to changes in applicable laws, regulations, or
accounting principles, or in its discretion; to construe and interpret the Plan
and any Award; to prescribe, amend and rescind rules and regulations relating
to the Plan; to determine the terms and provisions of Award Agreements; and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Committee shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable, and the Committee or any
person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all persons,
including the Company, the Participant (or any person claiming any rights under
the Plan from or through any Participant) and any shareholder.
3
<PAGE> 4
No member of the Board or the Committee shall be liable for any
action taken or determination made in good faith with respect to the Plan or any
Award granted hereunder.
4. Eligibility.
Awards may be granted to officers and other employees of the
Company in the sole discretion of the Committee. Subject to Section 5(b) below,
in determining the persons to whom Awards shall be granted and the Performance
Goals relating to each Award, the Committee shall take into account such factors
as the Committee shall deem relevant in connection with accomplishing the
purposes of the Plan.
5. Terms of Awards.
Awards granted pursuant to the Plan shall be evidenced by an Award
Agreement in such form as the Committee shall from time to time approve and the
terms and conditions of such Awards shall be set forth therein.
(a) In General. The Committee shall specify with respect to a
Performance Period the Performance Goals applicable to each Award; provided
that the Committee may, in its discretion, make an Award that is based upon
individual performance or any other criteria that the Committee shall deem
appropriate. Performance Goals may include a level of performance below which no
payment shall be made and levels of performance at which specified percentages
of the Award shall be paid; provided that the Committee may provide for a
minimum bonus amount for any Performance Period, without regard to level of
performance, in connection with the hiring of any person or otherwise. Payment
in respect of Awards may be decreased or increased based upon individual
performance and contributions or such other factors as the Committee may deem
appropriate. Award levels for any Performance Period may be expressed as a
dollar amount or as a percentage of the Participant's annual base salary.
(b) Time and Form of Payment. All payments in respect of Awards
granted under this Plan shall be made within a reasonable period after
achievement of the Performance Goals has been certified by the Committee or, in
the case of Awards that are not conditioned on the achievement of Performance
Goals, at such time as the Committee determines. All or a portion of each
payment made in respect of
4
<PAGE> 5
an Award granted under this Plan shall be made in cash, as determined by the
Committee, with the remaining portion payable in Shares that are subject to
restrictions on transferability and that may be forfeited, in whole or in part
(as specified in the document evidencing the payment in Shares), prior to the
third anniversary of the date of payment.
6. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting
and payment of Awards, and the other obligations of the Company under the Plan
and any Award Agreement or other agreement shall be subject to all applicable
federal and state laws, rules and regulations, and to such approvals by any
regulatory or governmental agency as may be required.
(b) Nontransferability. Awards shall not be transferable by a
Participant except by will or the laws of descent and distribution.
(c) No Right To Continued Employment. Nothing in the Plan or in any
Award granted or any Award Agreement or other agreement entered into pursuant
hereto shall confer upon any Participant the right to continue in the employ of
the Company or to be entitled to any remuneration or benefits not set forth in
the Plan or such Award Agreement or other agreement or to interfere with or
limit in any way the right of the Company to terminate such Participant's
employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive a payment pursuant to an Award hereunder, the Company shall
have the right to require the Participant or such other person to pay to the
Company the amount of any taxes that the Company may be required to withhold
before delivery to such Participant or other person of such payment or, in the
case of restricted Shares, before vesting of such Shares.
5
<PAGE> 6
(e) Amendment, Termination and Duration of the Plan. The Board or
the Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, unless otherwise
determined by the Board, no amendment that requires shareholder approval in
order to comply with applicable law shall be effective unless the same shall be
approved by the requisite vote of the shareholders of the Company.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent, under any Award
theretofore granted under the Plan. The Plan shall terminate at the completion
of the Performance Period that ends in 2002; provided that all payments with
respect to Awards previously granted under the Plan shall be paid out pursuant
to the terms of the Plan.
(f) Participant Rights. No Participant shall have any claim to be
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
(g) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
(h) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof.
(i) Effective Date. The Plan shall take effect upon the date
designated by the Board.
(j) Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the Committee
and may, from time to time, amend or revoke such designation. If no designated
beneficiary survives the Participant, the executor or administrator of the
Participant's estate shall be deemed to be the grantee's beneficiary.
6
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Gabelli Asset Management Inc.
The following table lists the direct and indirect subsidiaries of Gabelli Asset
Management Inc. (the "Company") immediately following the consummation of the
Formation Transactions that are described in the Registration Statement on Form
S-1. In accordance with Item 601(21) of Regulation S-K, the omitted subsidiaries
considered in the aggregate as a single subsidiary would not constitute a
"significant subsidiary" as defined under Rule 1-02(w) of Regulation S-X.
Name Jurisdiction of
---- Incorporation or
Organization
------------
o Gabelli Funds, LLC New York
(100%-owned by the Company)
o GAMCO Investors, Inc. New York
(100%-owned by the Company)
o Gabelli Fixed Income, Inc. Delaware
(100%-owned by the Company)
o Gabelli Securities, Inc. Delaware
(76.6%-owned by the Company)
o Gabelli Advisors, Inc. Delaware
(40.9%-owned by the Company)
o Gabelli & Company, Inc. New York
(100%-owned by Gabelli
Securities, Inc.)
o Gabelli Fixed Income, LLC Delaware
(80.1%-owned by Gabelli
Fixed Income, LLC)
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report on the Consolidated Financial Statements of Gabelli Funds,
Inc. and subsidiaries dated March 11, 1998, in Amendment No. 3 of this
Registration Statement on Form S-1 (No. 333-51023) and the related Prospectus of
Gabelli Asset Management Inc. to be filed on or about January 28, 1999.
/s/ Ernst & Young LLP
New York, New York
January 28, 1999
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<PERIOD-END> SEP-30-1998
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