SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: June 25, 1996
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FRANKLIN RESOURCES, INC.
------------------------
(Exact Name of Registrant)
Delaware 0-6952 13-2670991
- ------------------------ --------------------- ---------------
(State of Incorporation) (Commission File No.) (IRS Employer
Identification
Number)
777 Mariners Island Blvd.
San Mateo, California 94404
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(Address of Principal Executive Offices)
(415) 312-3000
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(Registrant's telephone number)
<PAGE>
Item 5. Other Events.
------------
Franklin Resources, Inc. (the "Registrant") announced on June 25, 1996
that it and its newly-formed wholly-owned subsidiary, Elmore Securities
Corporation ("Elmore"), had entered into an agreement (the "Agreement") with
Heine Securities Corporation ("Heine") and its chief executive officer, Michael
F. Price ("Price") to acquire certain of the assets and liabilities of Heine. A
copy of the Agreement is attached as Exhibit 2. Heine, a Delaware corporation,
has its principal offices in Short Hills, New Jersey and is engaged in the
business of rendering investment advice and providing related services, and owns
certain assets and rights used in connection with the conduct of its business.
The acquisition will be consummated by the purchase by Elmore of certain of the
assets of Heine (and the assumption of certain of Heine's liabilities). The base
purchase price consists of a $400 million cash payment from Elmore to Heine, the
delivery of 1.1 million shares (the "Shares") of the Registrant's Common Stock
to Heine (which Shares have been deposited in escrow pending the closing of the
acquisition), and the deposit in escrow of $150 million to be invested in shares
of the Mutual Series Fund Inc. ("Mutual"), a series of funds managed by Heine,
which Mutual shares will be released to Heine over a five year period with a
minimum $100 million retention for the full five year period. In addition to the
base purchase price, Elmore may pay Heine up to $200 million in incentive-based
payments depending on Heine's performance over the next five years.
Heine further agreed that, for the two-year period following the closing,
it will not transfer the Shares except under certain circumstances and will not
own more than 4.9% of the Registrant's outstanding common stock on a fully
diluted basis. In addition, Heine has agreed to vote the Shares in accordance
with the recommendations of the Registrant's Board of Directors, and the
Registrant will grant Heine and Mr. Price certain registration rights with
respect to the Shares. Mr. Price and five senior executives of Heine previously
entered into employment agreements with Heine, which are being assumed by
Elmore.
Completion of the acquisition is subject to compliance with the
Hart-Scott-Rodino Antitrust Improvements Act, Mr. Price's employment agreement
with Heine, and that of three of five other senior executives, being in full
force and effect at the time of closing, as well as other customary conditions .
Registrant or Heine may terminate the transaction if at least 80% of the total
assets under Heine's management as of the date of the Agreement are not still
under management by Heine immediately prior to the closing. A copy of the
Registrant's press release related to the acquisition is attached as Exhibit 99.
<PAGE>
The purchase price of the acquisition will be funded through a combination
of the Registrant's available cash and one or more sources of third-party
financing.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(c) Exhibits.
Exhibit 2 -- Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc.
Exhibit 99 -- Press Release issued on June 25, 1996 by Franklin
Resources, Inc.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRANKLIN RESOURCES, INC.
Date: June 25, 1996 By: /s/ Leslie M. Kratter
--------------------------
Name: Leslie M. Kratter
Title: Vice President
3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 -- Agreement to Merge the Businesses of Heine Securities
Corporation, Elmore Securities Corporation and Franklin
Resources, Inc.
99 -- Press Release issued on June 25, 1996 by Franklin Resources,
Inc.
4
NYFS08...:\60\46360\0018\5304\FRM6236M.100
EXHIBIT 2
AGREEMENT TO MERGE THE BUSINESSES OF
HEINE SECURITIES CORPORATION,
ELMORE SECURITIES CORPORATION
AND
FRANKLIN RESOURCES, INC.
DATED AS OF JUNE 25, 1996
<PAGE>
TABLE OF CONTENTS
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Definitions . . . . . . . . . . . . . . . . . 2
ARTICLE II
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES . . . . 15
Section 2.1 Purchase and Sale of Assets . . . . . . . . . 15
Section 2.2 Excluded Assets . . . . . . . . . . . . . . . 15
Section 2.3 Assumption of Liabilities . . . . . . . . . . 15
Section 2.4 Excluded Liabilities . . . . . . . . . . . . 15
Section 2.5 Purchase Price . . . . . . . . . . . . . . . 15
Section 2.6 Additional Consideration . . . . . . . . . . 16
ARTICLE III
CLOSING AND POST-CLOSING . . . . . . . . . . . . . . . . . . . . 18
Section 3.1 Closing . . . . . . . . . . . . . . . . . . . 18
Section 3.2 Instruments of Transfer; Payment of Purchase
Price . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE SHAREHOLDER . . . . . . . . . . . . . . . . . . . 20
Section 4.1 Organization and Related Matters . . . . . . 21
Section 4.2 Authority; No Violation . . . . . . . . . . . 21
Section 4.3 Consents and Approvals . . . . . . . . . . . 22
Section 4.4 Regulatory Documents . . . . . . . . . . . . 22
Section 4.5 Property and Purchased Assets . . . . . . . . 23
Section 4.6 Financial Statements . . . . . . . . . . . . 23
Section 4.7 Ineligible Persons . . . . . . . . . . . . . 24
Section 4.8 Assumed Contracts . . . . . . . . . . . . . . 24
Section 4.9 Funds . . . . . . . . . . . . . . . . . . . . 25
i
<PAGE>
Page
Section 4.10 Investment Company Advisory Agreements. . . . 25
Section 4.11 No Other Broker . . . . . . . . . . . . . . . 26
Section 4.12 Legal Proceedings . . . . . . . . . . . . . . 26
Section 4.13 Compliance with Applicable Law . . . . . . . 26
Section 4.14 Insurance . . . . . . . . . . . . . . . . . . 27
Section 4.15 Labor and Employment Matters . . . . . . . . 27
Section 4.16 Employee Benefit Plans; ERISA . . . . . . . . 28
Section 4.17 Technology and Intellectual Property . . . . 29
Section 4.18 Taxes . . . . . . . . . . . . . . . . . . . . 31
Section 4.19 Restrictive Covenants . . . . . . . . . . . . 31
Section 4.20 Environmental Matters . . . . . . . . . . . . 31
Section 4.21 Clients . . . . . . . . . . . . . . . . . . . 32
Section 4.22 Absence of Certain Payments . . . . . . . . . 32
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
BUYER AND BUYER PARENT . . . . . . . . . . . . . . . . . . . . . 32
Section 5.1 Organization . . . . . . . . . . . . . . . . 33
Section 5.2 Authority; No Violation . . . . . . . . . . . 33
Section 5.3 Consents and Approvals . . . . . . . . . . . 34
Section 5.4 Regulatory Documents . . . . . . . . . . . . 34
Section 5.5 Financial Statements . . . . . . . . . . . . 35
Section 5.6 Activities of Buyer . . . . . . . . . . . . . 35
Section 5.7 Legal Proceedings . . . . . . . . . . . . . . 36
Section 5.8 Ineligible Persons . . . . . . . . . . . . . 36
Section 5.9 No Other Broker . . . . . . . . . . . . . . . 36
Section 5.10 Compliance with Applicable Law . . . . . . . 36
Section 5.11 Section 15 of the Investment Company Act . . 37
Section 5.12 Information in Proxy Materials of the Funds . 37
Section 5.13 Financing . . . . . . . . . . . . . . . . . . 37
Section 5.14 Taxes . . . . . . . . . . . . . . . . . . . . 38
Section 5.15 Clients . . . . . . . . . . . . . . . . . . . 38
ARTICLE VI
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 6.1 Conduct of Business by Seller . . . . . . . . 38
Section 6.2 Section 15 of the Investment Company Act:
Seller Covenants. . . . . . . . . . . . . . . 40
Section 6.3 Non-Investment Company Advisory Contract
Consents . . . . . . . . . . . . . . . . . . 40
Section 6.4 Insurance . . . . . . . . . . . . . . . . . . 41
ii
<PAGE>
Page
Section 6.5 Maintenance of Records . . . . . . . . . . . 41
Section 6.6 Section 15 of the Investment Company Act:
Buyer's and Buyer Parent's Covenants . . . . 42
Section 6.7 Employment of Certain Individuals; Assumption
of Seller Retirement Plan . . . . . . . . . . 42
Section 6.8 Further Assurances . . . . . . . . . . . . . 43
Section 6.9 Efforts of Parties to Close . . . . . . . . . 43
Section 6.10 Announcements . . . . . . . . . . . . . . . . 44
Section 6.11 Access . . . . . . . . . . . . . . . . . . . 44
Section 6.12 Regulatory Matters; Third Party Consents . . 45
Section 6.13 Notification of Certain Matters . . . . . . . 46
Section 6.14 Expenses . . . . . . . . . . . . . . . . . . 47
Section 6.15 No Solicitation . . . . . . . . . . . . . . . 47
Section 6.16 Clearwater Securities . . . . . . . . . . . . 48
Section 6.17 Assets Under Management . . . . . . . . . . . 48
Section 6.18 Post-Closing Activities of Buyer . . . . . . 48
Section 6.19 Marketing Expenses . . . . . . . . . . . . . 49
ARTICLE VII
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.1 Conditions to Buyer's and Buyer Parent's
Obligations . . . . . . . . . . . . . . . . . 49
Section 7.2 Conditions to Seller's and the Shareholder's
Obligations . . . . . . . . . . . . . . . . . 50
Section 7.3 Mutual Conditions . . . . . . . . . . . . . . 51
ARTICLE VIII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.1 Survival of Representations, Warranties and
Covenants . . . . . . . . . . . . . . . . . . 52
Section 8.2 Obligations of Seller and the Shareholder . . 52
Section 8.3 Obligations of Buyer and Buyer Parent . . . . 53
Section 8.4 Procedure . . . . . . . . . . . . . . . . . . 53
Section 8.5 Survival of Indemnity . . . . . . . . . . . . 55
Section 8.6 Minimum Losses . . . . . . . . . . . . . . . 56
Section 8.7 Maximum Indemnification . . . . . . . . . . . 56
Section 8.8 Subrogation . . . . . . . . . . . . . . . . . 56
Section 8.9 Adjustments to Indemnification Obligations. . 57
Section 8.10 Exclusive Remedy . . . . . . . . . . . . . . 57
iii
<PAGE>
Page
ARTICLE IX
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.1 Tax Cooperation . . . . . . . . . . . . . . . 57
Section 9.2 Liability for Taxes . . . . . . . . . . . . . 58
Section 9.3 Procedures Relating to Tax Claims . . . . . . 59
Section 9.4 Filing Responsibility . . . . . . . . . . . . 59
Section 9.5 Apportionment of Taxes . . . . . . . . . . . 60
Section 9.6 Refunds or Credits . . . . . . . . . . . . . 60
Section 9.7 Survival of Tax Claims . . . . . . . . . . . 61
Section 9.8 Tax Elections . . . . . . . . . . . . . . . . 61
Section 9.9 Withholding . . . . . . . . . . . . . . . . . 61
Section 9.10 Purchase Price Allocation . . . . . . . . . . 61
Section 9.11 Transfer Taxes . . . . . . . . . . . . . . . 61
ARTICLE X
TERMINATION/SURVIVAL . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.1 Termination . . . . . . . . . . . . . . . . . 62
Section 10.2 Survival After Termination . . . . . . . . . 63
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.1 Amendments; Extension; Waiver . . . . . . . . 63
Section 11.2 Entire Agreement . . . . . . . . . . . . . . 63
Section 11.3 Interpretation . . . . . . . . . . . . . . . 63
Section 11.4 Severability . . . . . . . . . . . . . . . . 64
Section 11.5 Notices . . . . . . . . . . . . . . . . . . . 64
Section 11.6 Binding Effect; No Third Party Beneficiaries;
No Assignment . . . . . . . . . . . . . . . . 65
Section 11.7 Counterparts . . . . . . . . . . . . . . . . 66
Section 11.8 Governing Law . . . . . . . . . . . . . . . . 66
Section 11.9 Service; Jurisdiction . . . . . . . . . . . . 66
Section 11.10 Specific Performance . . . . . . . . . . . . 66
Section 11.11 WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES . . 66
iv
<PAGE>
Page
EXHIBITS
Exhibit A Additional Consideration Examples
Exhibit 2.5(a)(i) Common Stock Agreement
Exhibit 2.5(a)(ii) Escrow Agreement
Exhibit 3.2(b)(1) Bill of Sale and Assignment
Exhibit 3.2(b)(3) Lease Assignment
Exhibit 3.2(b)(6) Tax Affidavit of Seller
Exhibit 3.2(c)(3) Assumption Agreement
Exhibit 7.1(e) Opinion of Seller's and
the Shareholder's Counsel
Exhibit 7.2(e) Opinion of Buyer's and
Buyer Parent's Counsel
SCHEDULES
Schedule 1.1(a) Assumed Contracts
Schedule 1.1(b) Excluded Assets
Schedule 1.1(c) Exceptions to Furniture, Fixtures
and Equipment
Schedule 1.1(d) Other Assets
Schedule 4.2(b) Exceptions to No Violation (Seller)
Schedule 4.3 Consents and Approvals
Schedule 4.5(b) Leased Property
Schedule 4.9(a) Funds
Schedule 4.9(b) Exceptions to Valid Issuance of Shares
and Funds' Compliance with Applicable Law
Schedule 4.13(a) Exceptions to Seller's Compliance with
Applicable Law
Schedule 4.13(b) Exceptions to Seller's Governmental
Authority Compliance
Schedule 4.14 Insurance Policies and Bonds
Schedule 4.15 Labor and Employment Matters
Schedule 4.16(a) Seller Plans and Amounts of Unfunded Liabilities
Thereunder
Schedule 4.16(c) Exceptions to Seller Plans' Compliance
with Applicable Law
Schedule 4.16(d) Seller Plans' Compliance with Tax Laws
Schedule 4.16(e) Multiemployer Plans
Schedule 4.16(f) Unpaid Contributions/Funding Deficiencies
Schedule 4.16(g) Unfunded Benefit Liabilities
Schedule 4.16(h) Payments/Benefits Resulting from this
Agreement
Schedule 4.17(a)(1) Owned Intellectual Property
Schedule 4.17(a)(2) Licensed Intellectual Property
Schedule 4.18(a) Exceptions to Tax Filings
Schedule 4.19 Restrictive Covenants
Schedule 4.20 Environmental Matters
Schedule 4.21 Clients
v
<PAGE>
AGREEMENT TO MERGE THE BUSINESSES OF
HEINE SECURITIES CORPORATION,
ELMORE SECURITIES CORPORATION
AND FRANKLIN RESOURCES, INC.
THIS AGREEMENT, dated as of June 25, 1996, by and among
Michael F. Price (the "Shareholder"), Heine Securities Corporation, a
Delaware corporation ("Seller"), Elmore Securities Corporation, a
Delaware corporation ("Buyer"), and Franklin Resources, Inc., a
Delaware corporation ("Buyer Parent").
RECITALS
WHEREAS, Seller is engaged in the business of rendering
investment advice and providing related services and owns certain
assets and rights used in connection with the conduct of Seller's
business; and
WHEREAS, Buyer Parent is engaged in the business of
providing investment management and related services through its
subsidiaries; and
WHEREAS, it is the intent of the parties hereto that the
businesses and operations of Buyer Parent and its subsidiaries and
Seller be integrated into a worldwide business unit with common
economic and organizational goals; and
WHEREAS, Buyer Parent and its wholly-owned subsidiary,
Buyer, desire that Buyer purchase certain of the assets and rights,
and assume certain of the liabilities, of Seller, and Seller and the
Shareholder desire that Seller sell such assets, rights and
liabilities to Buyer, on the terms and conditions set forth in this
Agreement; and
WHEREAS, the Shareholder and Seller have entered into an
Employment Agreement to be assumed by Buyer and become effective at
the completion of such purchase and sale.
NOW THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and of
other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be bound hereby, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this
-----------
Agreement, the following terms shall have the respective meanings set
forth in this Section 1.1 (such definitions to be equally applicable
to both the singular and plural forms of the terms herein defined):
"Additional Consideration" has the meaning set forth in
Section 2.6(b).
"Advisers Act" shall mean the Investment Advisers Act of
1940, as amended, and the rules and regulations of the SEC thereunder.
"Affiliate" shall mean any individual, partnership,
corporation, entity or other person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
"Aggregate Signing Advisory Fees" shall mean the sum of the
Signing Advisory Fees for each Fee Unit.
"Agreement" shall mean this Agreement among the Shareholder,
Seller, Buyer and Buyer Parent as such may hereafter be amended.
"Anniversary Advisory Fees" shall mean, with respect to each
Anniversary Fee Unit, the amount of advisory fees (expressed in U.S.
dollars), on an annualized basis, of Buyer, attributable to the
rendition of investment advisory services to such Anniversary Fee Unit
which are earned during the sixty day period ending (x) in the case of
Anniversary Fee Units for which net asset values are ordinarily
calculated on a daily basis, on the fifth Business Day prior to the
applicable anniversary of the Closing Date and (y) in the case of
Anniversary Fee Units for which net asset values are not ordinarily
calculated on a daily basis, on the last day of the month preceding
the applicable anniversary of the Closing Date, in each case the
amount of such advisory fees to be determined in accordance with
Seller's customary procedures and methods in making such calculations.
"Anniversary Aggregate Advisory Fees" shall mean the sum of
the Anniversary Advisory Fees for each Anniversary Fee Unit.
2
<PAGE>
"Anniversary Applicable Ratio" shall mean the product of (x)
Anniversary Aggregate Advisory Fees divided by the Aggregate Signing
Advisory Fees and (y) 100, and if such product is not a whole number,
shall be rounded at the fourth decimal point.
"Anniversary Fee Unit" shall mean each fund, portfolio,
private client account or other assets with respect to which Buyer
renders investment advisory services, as shall be set forth in a
certificate to be delivered by Buyer to Seller on or before the
applicable anniversary of the Closing Date, which Buyer treats (in
accordance with Seller's customary practices) as a discrete unit for
purposes of calculating its investment advisory fees.
"Applicable Law" shall mean any domestic or foreign federal,
state or local statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive,
judgment, decree, policy, guideline or other requirement applicable to
the Shareholder, Seller, Buyer, Buyer Parent or any of their
respective Affiliates, properties, assets, officers, directors,
employees or agents, as the case may be.
"Applicable Ratio" shall mean the product of (x) Closing
Assets Under Management divided by Base Assets Under Management and
(y) 100.
"Article VIII Losses" has the meaning set forth in Section
8.10.
"Assumed Contracts" shall mean the Contracts and Leases set
forth on Schedule 1.1(a) hereto as of the date hereof, together with
all Contracts entered into subsequent to the date hereof and prior to
the Closing Date in accordance with the terms and conditions of this
Agreement, excluding, however, any Contract as to which any consent
required to transfer the same to Buyer at the Closing has not been
obtained at or prior to the Closing.
"Assumed Liabilities" shall mean all liabilities,
obligations and duties arising after the Closing from the ownership,
possession or use of any of the Purchased Assets after the Closing by
Buyer (except for any liability, obligation or duty arising out of the
breach or nonperformance by Seller of any Assumed Contracts or any
other event or circumstance occurring on or prior to the Closing) and
the following liabilities and obligations of the Seller:
3
<PAGE>
(1) accrued but unpaid purchase price of and expenses
relating to the Purchased Assets;
(2) except for the Excluded Liabilities, liabilities
arising in the ordinary course of Business other than those under
all Seller Plans (except as set forth in clause (3) below) or
resulting from violations of law or breach of contract; and
(3) the Seller Profit Sharing/Retirement Plan and
liabilities incurred thereunder from and after the Closing Date
but not before the Closing Date.
"Base Assets Under Management" shall mean the total assets
under management (expressed in U.S. dollars) of Seller as of 5:00 p.m.
(New York City time) on the date of this Agreement, as shall be set
forth in a certificate to be delivered by Seller to Buyer and Buyer
Parent not later than one week after the date of this Agreement,
determined in accordance with Seller's customary procedures and
methods in determining assets under management.
"Business" shall mean the business of Seller in rendering
investment advice for compensation and providing related services.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banks in the State of New Jersey or
California are generally closed for regular banking business.
"Buyer" has the meaning set forth on the first page hereof
and includes any direct or indirect successor or assign.
"Buyer Material Adverse Effect" shall mean any matter or
matters affecting Buyer, Buyer Parent or any of their Affiliates that
has or have a material adverse effect on the business, assets,
financial condition or results of operations of Buyer, Buyer Parent
and their Affiliates taken as a whole or on the ability of Buyer or
Buyer Parent to complete the Closing.
"Buyer Parent" has the meaning set forth on the first page
hereof and includes any direct or indirect successor or assign.
"Closing" shall mean the completion of the transactions
contemplated by Section 3.1 of this Agreement.
4
<PAGE>
"Closing Assets Under Management" shall mean the total
amount of assets under management (expressed in U.S. dollars) of
Seller as of 5:00 P.M. (New York City time) on the date which is one
week before the Closing Date, as shall be set forth in a certificate
to be delivered by Seller to Buyer and Buyer Parent at least two days
before the Closing Date, determined in accordance with Seller's
customary procedures and methods in determining assets under
management.
"Closing Date" shall mean the date of the Closing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Common Stock Agreement" has the meaning set forth in
Section 2.5(a)(i).
"Confidentiality Agreement" shall mean that certain letter
agreement dated as of November 15, 1995 relating to confidential
information provided by Seller to Buyer Parent and its Affiliates.
"Contract" shall mean any written investment advisory
agreement entered into by Seller and any other contract, agreement,
indenture, note, bond, loan, instrument, lease, commitment or other
arrangement or agreement entered into by, or binding upon, Seller.
"Corporate Records" shall mean all of the following assets
of Seller:
(1) articles of incorporation, by-laws and
qualifications to do business;
(2) minute books;
(3) stock records;
(4) tax records;
(5) financial statement accounting records; and
(6) records pertaining to Excluded Assets or Excluded
Liabilities.
"Employment Agreement" shall mean that certain Employment
Agreement referred to in the introduction to this Agreement, as the
same may be amended from time to time.
5
<PAGE>
"Encumbrance" shall mean any lien, pledge, security
interest, claim, charge, easement, limitation, commitment,
encroachment, restriction or encumbrance of any kind or nature
whatsoever.
"Environmental Law" means any foreign, federal, state or
local law, statute, regulation, code, ordinance, rule of common law or
other requirement in any way relating to the protection of human
health and safety or the environment as now or hereafter in effect
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.),
-- ----
the Hazardous Materials Transportation Act (49 U.S.C. App. Section 1801 et
--
seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901
----
et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean
-- ---- -- ----
Air Act (42 U.S.C. Section 7401 et seq.) the Toxic Substances Control Act
-- ----
(15 U.S.C. Section 2601 et seq.), the Federal Insecticide, Fungicide, and
-- ----
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the Occupational
-- ----
Safety and Health Act (29 U.S.C. Section 651 et seq.), as such laws have
-- ----
been amended or supplemented, and the regulations promulgated pursuant
thereto, and all analogous foreign, state or local laws.
"Environmental Permit" has the meaning set forth in Section
4.20(a).
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the rules, regulations and class
exemptions of the Department of Labor thereunder.
"Escrow Agent" has the meaning set forth in Section
2.5(a)(ii).
"Escrow Agreement" has the meaning set forth in Section
2.5(a)(ii).
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC thereunder.
"Excluded Assets" shall mean all of the following assets of
Seller:
(1) the assets identified on Schedule 1.1(b) hereto
including the antiques in the office as scheduled;
6
<PAGE>
(2) all cash and cash equivalents and accounts
receivable of Seller, whether or not appearing in Seller's
general ledger;
(3) all refunds or prepayments of any Taxes paid by
Seller and imposed during or for any taxable year or period
ending prior to, on or after the Closing Date;
(4) all refunds of prepaid insurance premiums;
(5) Corporate Records;
(6) all equity interest in Clearwater Securities Inc.
and any indebtedness of Clearwater Securities Inc. or any of its
officers, directors or stockholders to Seller; and
(7) all rights, claims, records, documents,
instruments and other assets relating to the assets listed in
clauses (1)-(6) above.
"Excluded Liabilities" shall mean all of the liabilities,
obligations and duties of Seller as of immediately prior to the
Closing of any kind whatsoever, whether or not accrued or fixed,
absolute or contingent, or determined or determinable, other than the
Assumed Liabilities. Without limiting the generality of the
foregoing, the Excluded Liabilities shall include all liabilities,
obligations and duties:
(1) relating to the Excluded Assets;
(2) for all Taxes attributable to Seller or the
Purchased Assets for any tax period or portion thereof on or
prior to the Closing Date;
(3) arising out of or relating to any transactions
involving Clearwater Securities, Inc., including, without
limitation, any accrued payables of Clearwater Securities, Inc.;
(4) for accrued salary, bonus and other incentive
compensation;
(5) for accrued payables of Seller, whether or not
appearing in Seller's general ledger;
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(6) arising before, on or after the Closing Date under
each Seller Plan, except those arising from and after the Closing
Date with respect to the period from and after the Closing Date
under the Seller Profit Sharing/Retirement Plan; and
(7) to make any additional payments to employees under
existing employment agreements if Section 280G of the Code
applies.
"Fee Unit" shall mean each Fund, portfolio, private client
account or other assets with respect to which Seller renders
investment advisory services, as shall be set forth in a certificate
to be delivered by Seller to Buyer and Buyer Parent on or before the
Closing Date, (x) which Seller treats (in accordance with Seller's
customary practices) as a discrete unit for purposes of calculating
its investment advisory fees and (y) for which there is obtained
either (A) a consent to the assignment of the applicable existing
investment advisory or other similar agreement to Buyer or Buyer
Parent or (B) an agreement to enter into a new investment advisory or
other similar agreement with Buyer or Buyer Parent; provided, however,
-------- -------
that unless an existing investment advisory or other similar
agreement is otherwise cancelled, or Seller has received notice of
such cancellation on or prior to the Closing Date, there shall be
deemed for purposes of this definition to have been consent to an
assignment of any such agreement which does not require consent (by
law or under the applicable terms of such agreement) for its
continuation following the consummation of the transactions
contemplated hereby.
"Fund" shall mean a registered investment company or series
thereof for which Seller provides advisory or subadvisory services
pursuant to an Investment Company Act Advisory Agreement.
"Furniture, Fixtures and Equipment" shall mean all
furniture, fixtures and equipment that are located at the Operating
Site and used in the ordinary course of Business by Seller, except for
the items set forth on Schedule 1.1(b) or 1.1(c).
"GAAP" shall mean generally accepted accounting principles
as used in the United States of America as in effect at the time any
applicable financial statements were prepared or any act requiring the
application of GAAP was performed.
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"Governmental Authority" shall mean any government (domestic
or foreign), any state or other political subdivision thereof, any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, including,
without limitation, the SEC or any other government authority, agency,
department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof,
and any court, tribunal or arbitrator(s) of competent jurisdiction,
and any governmental or non-governmental self-regulatory organization,
agency or authority (including the New York Stock Exchange and the
National Association of Securities Dealers, Inc.).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder.
"Indemnifiable Claim" shall mean any Loss for which a party
is entitled to indemnification under this Agreement.
"Indemnified Party" shall mean the party entitled to the
benefits of indemnification hereunder.
"Indemnifying Party" shall mean the party obligated to
provide indemnification hereunder.
"Independent Accounting Firm" shall mean a reputable
accounting firm other than Graber & Co. and any accounting firm that
has performed services for Seller, the Shareholder, Buyer or Buyer
Parent during the past five years and for which annual fees from such
Person have exceeded $100,000.
"Intellectual Property" has the meaning set forth in Section
4.17(a).
"Investment Company Act" shall mean the Investment Company
Act of 1940, as amended, and the rules and regulations of the SEC
thereunder.
"Investment Company Advisory Agreement" shall mean an
investment advisory agreement entered into by Seller for the purpose
of providing investment advisory or subadvisory services to a
registered investment company or series thereof.
"IRS" shall mean the Internal Revenue Service.
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<PAGE>
"Key Employees" shall mean the five senior employees of
Seller (other than the Shareholder) who have entered into employment
agreements with Seller.
"Lease" shall mean any of the real estate leases or
subleases, or a sublease of Seller's interest thereunder, with respect
to the Operating Site.
"Leased Properties" shall mean all leasehold interests in
real property leased by Seller in which the Operating Site is located.
"Leasehold Improvements" shall mean all improvements to the
Leased Properties installed or constructed by or on behalf of Seller
and used in connection with the operation or maintenance of the
Operating Site.
"Loss" shall mean the amount of any and all claims, losses,
liabilities, costs, penalties, fines and expenses (including
reasonable expenses for attorneys, accountants, consultants and
experts), damages, obligations to third parties, expenditures,
proceedings, judgments, awards or demands that are imposed upon or
otherwise incurred, suffered or sustained by the relevant party
reduced by the amount, if any, of any tax benefit recognized by such
relevant party as a result of such claim, loss of other liability.
"Non-Investment Company Advisory Agreement" shall mean any
investment advisory agreement entered into by Seller for the purpose
of providing investment advisory services to a client other than a
registered investment company or series thereof.
"Non-Third Party Claim" has the meaning set forth in Section
8.4(d).
"Operating Site" shall mean 51 John F. Kennedy Parkway,
Short Hills, New Jersey 07078 and shall not include work space in the
Shareholder's residences.
"Other Assets" shall mean the assets of Seller not otherwise
included in any defined term used herein and used by it in the
ordinary course of business and maintained in the general ledger
accounts attached as Schedule 1.1(d) hereto, except for the Excluded
Assets.
"Permits" has the meaning set forth in Section 4.13(a).
10
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"Permitted Encumbrances" shall mean all Encumbrances which
are:
(1) security for any Assumed Liability;
(2) for Taxes or assessments attributable to any period or
portion thereof after the Closing Date that are not, at the time
of Closing, due and payable;
(3) Encumbrances or pledges to secure payments of workmen's
compensation and other payments, unemployment and other
insurance, old-age pensions or other social security obligations,
or the performance of bids, tenders, leases, contracts, public or
statutory obligations, surety, stay or appeal bonds, or other
similar obligations arising in the ordinary course of business;
(4) workmen's, repairmen's, warehousemen's, vendors' or
carriers' Encumbrances or other similar Encumbrances arising in
the ordinary course of business and securing sums which are not
past due, or deposits or pledges to obtain the release of any
such Encumbrances;
(5) statutory landlords' Encumbrances under leases to which
Seller is a party;
(6) any Encumbrance constituting a renewal, extension or
replacement of an Encumbrance constituting a Permitted
Encumbrance;
(7) zoning restrictions, easements, rights of way, licenses
and restrictions on the use of real property or minor
irregularities in title thereto, which do not materially impair
the use of such property in the normal operation of Business of
Seller or the value of such property for the purpose of such
business;
(8) statutory or common law Encumbrances (such as rights of
set-off) on deposit accounts of Seller;
(9) Encumbrances set forth, described in or established by
any agreement pursuant to which Seller has leased, licensed or
obtained any other right to use any property of another Person;
and
(10) matters which do not materially impair the use,
operation, value or marketability of the Purchased Asset to which
it relates.
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"Person" shall mean any individual, corporation, company,
partnership (limited or general), limited liability company, joint
venture, association, trust or other entity.
"Pre-Closing Period" has the meaning set forth in Section
9.2(a).
"Purchase Price" has the meaning set forth in Section 2.5.
"Purchased Assets" shall mean all of the assets of Seller
(including without limitation the Furniture, Fixtures and Equipment,
the Leasehold Improvements, the Leases, the Assumed Contracts, the
Records (other than the Corporate Records), the Intellectual Property
(including all of Seller's right, title and interest in and to the
name Heine Securities Corporation and any derivative thereof), and the
Other Assets), other than the Excluded Assets, and shall, at Buyer's
option, include all of the assets of Orion Fund Management Limited,
which are necessary for the management of Orion Fund Limited.
"Real Property" shall mean all real property, appurtenances
thereto, fixtures and improvements, rights in connection therewith, or
any interest therein, including, without limitation, leasehold
estates, which pursuant to this Agreement are Purchased Assets.
"Records" shall mean all records and original documents in
Seller's permanent possession as of the Closing Date (a) which pertain
to or are utilized by Seller to administer, reflect, monitor, evidence
or record information respecting the business or conduct of Seller and
all such records and original documents, (b) respecting the Purchased
Assets (including without limitation the Assumed Contracts) and the
Assumed Liabilities, including all such records maintained on
electronic or magnetic media, or in the electronic data base system of
Seller or (c) necessary or appropriate to comply with any Applicable
Law, including records kept or filed in accordance with any Securities
Laws.
"Regulatory Documents" shall mean, with respect to a Person,
all reports and registration statements filed, or required to be filed
since June 30, 1991 by such Person pursuant to the Securities Laws.
"SEC" shall mean the Securities and Exchange Commission.
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"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder.
"Securities" shall mean any security as defined in the
Securities Act.
"Securities Laws" shall mean the Securities Act; the
Exchange Act; the Investment Company Act; the Advisers Act; and state
"blue sky" laws.
"Seller" has the meaning set forth on the first page hereof.
"Seller Balance Sheet" has the meaning set forth in Section
4.6.
"Seller Financial Statements" has the meaning set forth in
Section 4.6.
"Seller Material Adverse Effect" shall mean any matter or
matters affecting Seller or any of its Affiliates that has or have a
material adverse effect on the business, assets, financial condition
or results of operations of Seller and its Affiliates taken as a whole
or on the ability of Seller to complete the Closing.
"Seller Plan" has the meaning set forth in Section 4.16.
"Shareholder" has the meaning set forth on the first page
hereof.
"Signing Advisory Fees" shall mean, with respect to each Fee
Unit other than Fee Units attributable to approximately $45 million in
assets identified on Schedule 4.21, the amount of advisory fees
(expressed in U.S. dollars), on an annualized basis, of Seller, as
shall be set forth in a certificate to be delivered by Seller to Buyer
and Buyer Parent on or before the Closing Date, attributable to the
rendition of investment advisory services to such Fee Unit which are
earned during the sixty day period ending (x) in the case of Fee Units
for which net asset values are ordinarily calculated on a daily basis,
on the fifth Business Day prior to the date of this Agreement and (y)
in the case of Fee Units for which net asset values are not ordinarily
calculated on a daily basis, on the last day of the month preceding
the month in which the date of this Agreement occurs, in each case the
amount of such advisory fees to be
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<PAGE>
determined in accordance with Seller's customary procedures and
methods in making such calculations.
"Straddle Period" shall have the meaning set forth in
Section 9.5.
"Subsidiary" of a Person shall mean an Affiliate of such
Person fifty percent (50%) or more of the voting stock (or of any
other form of general partnership or other voting or controlling
equity interest in the case of a Person that is not a corporation) of
which is beneficially owned by the Person directly or indirectly
through one or more other Persons.
"Tax Claim" has the meaning set forth in Section 9.3(a).
"Tax Return" shall mean any return, report, information
statement, schedule or other document (including any related or
supporting information) with respect to Taxes, including any document
required to be retained or provided to any governmental authority
pursuant to 31 U.S.C. Sections 5311-5328 and regulations promulgated
thereunder, relating to Seller or any consolidated group of which any
such entity was a member at the applicable time, and any amended Tax
Returns.
"Taxes" shall mean all federal, provincial, territorial,
state, municipal, local, foreign or other taxes, imposts, rates,
levies, assessments and other charges including, without limitation,
all income, excise, franchise, gains, capital, real property, goods
and services, transfer, value added, gross receipts, windfall profits,
severance, ad valorem, personal property, production, sales, use,
license, stamp, documentary stamp, mortgage recording, excise,
employment, payroll, social security, unemployment, disability,
estimated or withholding taxes, and all customs and import duties.
"Third Party Claim" has the meaning set forth in Sections
8.4(a).
"Wire Transfer" shall mean a payment in immediately
available funds by wire transfer in lawful money of the United States
of America to such account or accounts as shall have been designated
by notice to the paying party.
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ARTICLE II
PURCHASE AND SALE OF ASSETS AND ASSUMPTION OF LIABILITIES
Section 2.1 Purchase and Sale of Assets. Effective as of
---------------------------
the Closing, Seller shall sell, convey, assign, transfer and deliver
to Buyer, and Buyer shall purchase, acquire and accept from Seller all
of Seller's right, title and interest in and to the Purchased Assets
free and clear of all Encumbrances (other than Permitted
Encumbrances).
Section 2.2 Excluded Assets. It is understood and agreed
---------------
that neither Buyer, nor any of its Affiliates, shall acquire from
Seller, and Seller shall retain ownership of, all right, title and
interest in and to each of the Excluded Assets.
Section 2.3 Assumption of Liabilities. Effective as of the
-------------------------
Closing, Buyer shall assume, and shall become liable for, the Assumed
Liabilities.
Section 2.4 Excluded Liabilities. Except as expressly
--------------------
provided in Section 2.3 hereof, neither Buyer, Buyer Parent nor any of
their Affiliates is assuming, and none of them shall be deemed to have
assumed or have any liability with regard to, the Excluded Liabilities
and any liabilities, obligations or duties of Seller or its Affiliates
of any kind or nature whatsoever (whether accrued or fixed, absolute
or contingent, known or unknown), and Seller or its Affiliates shall
remain and be solely and exclusively liable with regard to the
Excluded Liabilities and such liabilities, obligations and duties.
Section 2.5 Purchase Price. (a) In consideration of the
--------------
sale and transfer to Buyer in accordance with this Agreement of the
items in Section 2.1, and in addition to the assumption by Buyer of
the Assumed Liabilities, Buyer shall deliver or pay, as the case may
be, to or on behalf of Seller the following, in the manner provided
(the "Purchase Price"):
(i) 1,100,000 shares of Buyer Parent's Common Stock,
subject to the terms and conditions of a separate agreement
to be entered into on the Closing Date among Buyer, Buyer
Parent, Seller and the Shareholder in the form attached
hereto as Exhibit 2.5(a)(i) (the "Common Stock Agreement");
(ii) one hundred and fifty million dollars
($150,000,000) or, as provided in the Escrow Agreement (as
defined below), one or more share certificates
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<PAGE>
representing shares in one or more series of Mutual Series
Fund Inc., shall be payable to Seller and, at Seller's
direction, shall be delivered by Buyer to a party mutually
agreeable to the parties hereto (the "Escrow Agent") under
an escrow agreement to be entered into on the Closing Date
among Buyer, Seller and the Escrow Agent, in the form
attached hereto as Exhibit 2.5(a)(ii) (the "Escrow
Agreement"), to be held in accordance with the terms of such
Escrow Agreement; and
(iii) four hundred million dollars ($400,000,000)
shall be paid in U.S. dollars at the Closing by wire
transfer of immediately available funds to one or more
accounts, such accounts to be specified in writing by Seller
to Buyer and Buyer Parent not less than three (3) business
days prior to the Closing Date.
(b) On the date hereof, Buyer Parent shall deliver the
1,100,000 shares of Buyer Parent's Common Stock (representing a
portion of the Purchase Price) to Weil, Gotshal & Manges LLP, as
escrow agent, to be held in accordance with an escrow agreement
entered into on the date hereof among Buyer, Buyer Parent and Weil,
Gotshal & Manges LLP. Seller acknowledges that it has no right to
receive payment of any dividends or other distributions with respect
to such shares of Buyer Parent's Common Stock for which a record date
occurs during the period of time when such shares are held in escrow.
Section 2.6 Additional Consideration. (a) In addition to
------------------------
the Purchase Price, Buyer shall pay to Seller an amount, if any, as
follows:
(i) if the Anniversary Applicable Ratio represents a
cumulative increase of 17.5% or more per year, compounded
annually, on any of the third, fourth or fifth anniversary
of the Closing Date, then Buyer shall pay to Seller (or its
designee):
On the Third Anniversary $50,000,000
On the Fourth Anniversary $75,000,000
On the Fifth Anniversary $75,000,000
(ii) if the Anniversary Applicable Ratio represents a
cumulative increase of 12.5% per year, compounded annually,
on any of the third, fourth or fifth anniversary of the
Closing Date, then Buyer shall pay to Seller (or its
designee):
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<PAGE>
On the Third Anniversary $25,000,000
On the Fourth Anniversary $37,500,000
On the Fifth Anniversary $37,500,000
(iii) if the Anniversary Applicable Ratio represents a
cumulative increase of more than 12.5%, but less than 17.5%
per year, compounded annually, on any of the third, fourth
or fifth anniversary of the Closing Date, then Buyer shall
pay to Seller (or its designee) an amount pro rated between
the amounts Seller would have received under clauses (i) and
(ii) above.
(iv) if, on the third or fourth anniversary of the
Closing Date, the respective Anniversary Applicable Ratio
does not represent a cumulative increase of 17.5% or more
per year, compounded annually, and Seller achieves an
increase of at least 12.5%, compounded annually, with
respect to which no Additional Consideration has been paid
on the fourth or fifth anniversary of the Closing Date, then
Buyer or Buyer Parent shall pay to Seller (or its designee)
with respect to such anniversary such additional amount of
consideration that Seller would have been paid with respect
to such earlier anniversaries had Seller achieved such
increases on such anniversaries. Examples of these
computations are described in Exhibit A attached hereto.
(b) The additional consideration payable pursuant to
Section 2.6(a) (the "Additional Consideration") shall be calculated by
Buyer or Buyer Parent, and the amount of the Additional Consideration
shall be certified to Seller not later than the fifteenth (15th)
business day after the applicable anniversary of the Closing Date. If
Seller disputes such calculation then, within five (5) days after
receipt of the certificate, Seller shall notify Buyer and Buyer
Parent, and all of the parties hereto shall use their best efforts to
resolve such dispute. If such dispute is not resolved within ten (10)
days after Seller has notified Buyer and Buyer Parent of the dispute,
then such dispute shall be referred to an Independent Accounting Firm
selected by Seller and Buyer. Each of Seller and Buyer shall bear
one-half of the fees and expenses of the Independent Accounting Firm.
(c) The Additional Consideration shall be paid by Buyer or
Buyer Parent to Seller (or its designee) in U.S. dollars by wire
transfer of immediately available funds to one or more
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accounts, such accounts to be specified in writing by Seller (or its
designee) to Buyer and Buyer Parent not less than three (3) business
days prior to the payment of such Additional Consideration. Ninety
(90%) of the estimated Additional Consideration, if any, shall be paid
within one (1) business day after the applicable anniversary of the
Closing Date, and the balance, if any, shall be paid within five (5)
business days after the applicable anniversary of the Closing Date.
Any payments to be made to Seller (or its designee) pursuant to this
Section 2.6 shall be made together with interest at the base rate (as
announced publicly by Citibank, N.A., from time to time, as its base
rate) from the date of the applicable anniversary to the date
immediately preceding the date of payment. If the amount of the
estimated Additional Consideration exceeds the finally calculated
Additional Consideration, then Buyer shall notify Seller (or its
designee) of such excess payment, and Seller (or its designee) shall
repay such excess amount to Buyer within two (2) business days after
such notice, together with interest thereon at the base rate from the
date Seller (or its designee) received such excess amount to the date
immediately preceding the date of repayment. If the amount of the
finally calculated Additional Consideration exceeds the amount of the
estimated Additional Consideration paid to Seller (or its designee),
then Buyer or Buyer Parent shall pay such excess amount within five
(5) business days after the Additional Consideration has been finally
calculated.
(d) The amount of the Additional Consideration that may be
payable to Seller with respect to the fifth anniversary of the Closing
Date shall be reduced by one-half of the aggregate amount paid to the
Key Employees pursuant to the Performance Award Pool under Section
3.2(d) of the employment agreements between Seller and the Key
Employees (which reduction shall not exceed $7,500,000).
ARTICLE III
CLOSING AND POST-CLOSING
Section 3.1 Closing. Subject to the terms and conditions
-------
of this Agreement, the closing of the purchase and sale of the
Purchased Assets and the assumption of the Assumed Liabilities (the
"Closing") shall be at 10:00 A.M. (New York City time) at the offices
of Skadden, Arps, Slate, Meagher & Flom, 919 Third Avenue, New York,
New York 10022, or at such other location designated by Buyer and
Seller, on (i) September 30, 1996, or (ii) if later, the earliest
practicable date on which the
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conditions set forth in Article VII (other than those conditions
designating instruments, opinions, certificates or other documents to
be delivered at the Closing) have been satisfied or waived (the
"Closing Date").
Section 3.2 Instruments of Transfer; Payment of Purchase
--------------------------------------------
Price. (a) Not less than two nor more than four Business Days prior
-----
to the Closing Date, Seller and/or the Shareholder shall deliver to
Buyer Wire Transfer instructions.
(b) At the Closing, Seller shall deliver, and the
Shareholder shall cause Seller to deliver, to Buyer the following:
(1) an executed Bill of Sale and Assignment in
recordable form substantially in the form of Exhibit 3.2(b)(1);
(2) certificates or other evidence acceptable to
Buyer representing all Securities which are part of the Purchased
Assets accompanied by any other documents necessary to transfer
the same to Buyer;
(3) Lease Assignment substantially in the form of
Exhibit 3.2(b)(3) with respect to all of the Leased Properties,
executed by Seller;
(4) any instruments of transfer in the form
required by law in each jurisdiction in which any tangible
personal property included in the Purchased Assets is located or,
if applicable, customarily used in commercial transactions
involving such property in such jurisdiction, together with such
other instruments of transfer necessary or appropriate to
transfer to and vest in Buyer all of the right, title and
interest of Seller in and to any Purchased Assets not otherwise
transferred by the instruments previously referred to in this
Section 3.2(b)(1)-(4);
(5) all of the Records relating to the business
of Seller relating to the Purchased Assets and Assumed
Liabilities;
(6) all documentation required to exempt Seller
from the withholding requirement of Section 1445 of the Code,
consisting of an affidavit from Seller to Buyer stating under
penalty of perjury that Seller is not a foreign person and
providing Seller's U.S. taxpayer
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identification number, substantially in the form of Exhibit
3.2(b)(6);
(7) an executed Common Stock Agreement;
(8) an executed Escrow Agreement; and
(9) the documents required to be delivered
pursuant to Section 7.1.
(c) At the Closing, Buyer shall deliver, and Buyer
Parent shall cause Buyer to deliver, to Seller or the Shareholder the
following:
(1) a duly executed legended stock certificate
representing 1,100,000 shares of Buyer Parent's Common Stock from
Weil, Gotshal & Manges LLP, as escrow agent, in accordance with
the escrow agreement referred to in Section 2.5(b);
(2) the cash portion of the Purchase Price by
Wire Transfer;
(3) an executed Assumption Agreement
substantially in the form of Exhibit 3.2(c)(3);
(4) an executed Common Stock Agreement;
(5) an executed Escrow Agreement;
(6) Lease Assignment and Assumption Agreements
substantially in the form of Exhibit 3.2(b)(3) with respect to
all of the Leased Properties, executed and acknowledged by Buyer
and/or Buyer Parent in recordable form; and
(7) the documents required to be delivered
pursuant to Section 7.2.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE SHAREHOLDER
Seller and the Shareholder jointly and severally represent
and warrant to Buyer and Buyer Parent as of the date of this Agreement
as follows:
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Section 4.1 Organization and Related Matters. Seller is a
--------------------------------
Delaware corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Seller has the
corporate power and authority to carry on its business as it is now
being conducted and to own, lease and operate all of its properties
and assets, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or
the character or location of the properties and assets owned, leased
or operated by it makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed would not have
a Seller Material Adverse Effect. The copies of the Articles of
Incorporation and By-laws and any amendments thereto of Seller
heretofore delivered to Buyer are complete and correct copies of such
instruments as in effect as of the date of this Agreement.
Section 4.2 Authority; No Violation. (a) Seller has full
-----------------------
corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved
by all requisite corporate action on the part of Seller, and no other
corporate proceedings on the part of Seller (including without
limitation any approval of the Shareholder) is necessary to approve
this Agreement and to consummate the transactions contemplated hereby.
The Shareholder has all requisite legal capacity to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by Seller and the Shareholder and (assuming the due
authorization, execution and delivery of this Agreement by Buyer and
Buyer Parent) constitutes a valid and binding obligation of Seller and
the Shareholder, enforceable against Seller and the Shareholder in
accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency, moratorium and similar
laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this
Agreement by Seller and the Shareholder, nor the consummation by
Seller or the Shareholder, as the case may be, of the transactions
contemplated hereby to be performed by them, nor compliance by Seller
or the Shareholder with any of the terms or provisions hereof, will
(i) violate any provision of the Articles of Incorporation or By-laws
of Seller or (ii) except as set forth in Schedule 4.2(b), and assuming
that the consents and approvals referred to in Sections 6.2 and 6.3
hereof are duly obtained and
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the waiting period under the HSR Act has expired or early termination
has been granted thereunder, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction
applicable to Seller, or any of its properties, contracts or assets,
or (y) violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of or a right of termination
or cancellation under, accelerate the performance required by, or
result in the creation of any material Encumbrance upon, any of the
Purchased Assets, or any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to
which Seller is a party, or by which Seller, or any of its properties
or assets, or any of the Purchased Assets, may be bound or affected.
Section 4.3 Consents and Approvals. Except for (x)
----------------------
consents, approvals and notices as are set forth in Sections 6.2 and
6.3 and Schedule 4.3, (y) the applicable filings under the HSR Act and
(z) such other filings, authorizations, consents or approvals the
failure to make or obtain are not reasonably expected to have a Seller
Material Adverse Effect, no consents or approvals of or filings or
registrations with any Governmental Authority or third party are
necessary in connection with (i) the execution and delivery by Seller
and the Shareholder of this Agreement and (ii) the consummation by
Seller and the Shareholder of the transactions contemplated hereby.
Section 4.4 Regulatory Documents. (a) Since June 30,
--------------------
1991, Seller has timely filed all reports, registration statements and
other documents, together with any amendments required to be made with
respect thereto, that were required to be filed with any Governmental
Authority, including the SEC, and has paid all fees and assessments
due and payable in connection therewith.
(b) As of their respective dates, the Regulatory
Documents of Seller complied in all material respects with the
requirements of the Securities Laws, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such
Regulatory Documents, and none of Seller's Regulatory Documents, as of
their respective dates, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Seller has
previously delivered or made available to Buyer Parent a complete
22
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copy of each Regulatory Document filed with the SEC after June 30,
1991 and prior to the date hereof (including a Form ADV as in effect
on the date hereof) and will deliver to Buyer promptly after the
filing thereof a complete copy of each Regulatory Document filed with
the SEC after the date hereof and prior to the Closing Date.
Section 4.5 Property and Purchased Assets.
-----------------------------
(a) Seller has all right, power and authority to sell,
convey, assign, transfer and deliver to Buyer, good and marketable
title to or leasehold interest in, each of the Purchased Assets, free
and clear of all Encumbrances except for Permitted Encumbrances.
(b) Seller does not own any Real Property. Schedule
4.5(b) contains a correct and complete schedule of each Leased
Property. Seller has heretofore made available to Buyer Parent a
true, correct and complete copy of each Lease, together with all
amendments, modifications, alterations, and other changes thereto.
Except as set forth on Schedule 4.5(b), each Lease is in full force
and effect, and is valid, binding and enforceable in accordance with
its terms. To Seller's and the Shareholder's knowledge, there is not
under any such Lease any existing breach, default, event of default or
event which, with or without notice or lapse of time or both, would
constitute a breach, default or an event of default by Seller, or by
any other party to such Lease.
(c) The Leasehold Improvements, Furniture, Fixtures
and Equipment and other tangible personal property and Intellectual
Property included in the Purchased Assets are sufficient for the
conduct of Seller's business as currently being conducted, in good
working condition and free from material defects, subject to ordinary
wear and tear.
Section 4.6 Financial Statements. Seller has previously
--------------------
delivered to Buyer Parent copies of (a) the audited balance sheets of
Seller as of December 31st for the fiscal years 1994 and 1995, and the
related audited statements of income, changes in shareholder's equity
and cash flows for the fiscal years 1994 and 1995, inclusive, in each
case accompanied by the audit report of Graber & Co., independent
public accountants with respect to Seller and (b) the unaudited
interim balance sheets and related statement of income, changes in
shareholder's equity and cash flows of Seller at or for the period
ended March 31, 1996 (collectively, the statements referred to above
being referred to as the "Seller Financial Statements" and the balance
23
<PAGE>
sheet as of December 31, 1995 being referred to as the "Seller Balance
Sheet"). The balance sheets referred to in the previous sentence
(including the related notes, where applicable) present fairly in all
material respects, the financial position of Seller as of the dates
thereof, and the other financial statements referred to in this
Section 4.6 present fairly (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and
amount) the results of its operations and its cash flows for the
respective fiscal periods therein set forth; each of such statements
(including the related notes, where applicable) comply in all material
respects with applicable accounting requirements with respect thereto;
and each of such statements (including the related notes, where
applicable) has been prepared in accordance with GAAP consistently
applied during the periods involved. Except for those liabilities
that are fully reflected or reserved against on the Seller Balance
Sheet and liabilities incurred in the ordinary course of business
consistent with past practice since the date of the Seller Balance
Sheet, Seller has no liabilities which are required by GAAP to be
shown on any balance sheet. Since December 31, 1995, there has been
no material adverse change in the Business, nor the occurrence of any
event which has a Seller Material Adverse Effect.
Section 4.7 Ineligible Persons. Neither Seller, nor any
------------------
"affiliated person" (as defined in the Investment Company Act)
thereof, is ineligible pursuant to Section 9(a) or 9(b) of the
Investment Company Act to serve as an investment adviser (or in any
other capacity contemplated by the Investment Company Act) to a
registered investment company. Neither Seller nor any "associated
person" (as defined in the Advisers Act) thereof, is ineligible
pursuant to Section 203 of the Advisers Act to serve as an investment
adviser or as an associated person to a registered investment adviser.
Neither Seller nor any "associated person" (as defined in the Exchange
Act) thereof, is ineligible pursuant to Section 15(b) of the Exchange
Act to serve as a broker-dealer or as an associated person to a
registered broker-dealer.
Section 4.8 Assumed Contracts. Schedule 1.1(a) lists all
-----------------
of the Contracts in existence as of the date hereof that the Buyer
intends to acquire or assume, the annual revenue or cost of which to
Buyer exceeds $50,000, complete copies of which, including all
amendments and supplements thereto, have previously been made
available to Buyer Parent. Seller has made available to Buyer Parent
complete copies of all sales, marketing and account solicitation
agreements and arrangements of Seller used at any time since June 30,
1991. Seller has duly performed all
24
<PAGE>
its material obligations under each such Contract to the extent that
such obligations have accrued; no breach, default or event which
constitutes or would (with or without the passage of time, notice or
both) constitute a breach or default thereunder, has occurred, or,
assuming receipt of the appropriate consents, will occur as a result
of this Agreement or the performance by Seller of any of its covenants
or obligations hereunder; and each such Contract is valid and binding
on Seller and, assuming due authorization, execution, delivery by the
parties thereto other than Seller, is in full force and effect and is
enforceable against Seller in accordance with its terms. To Seller's
knowledge, no event has occurred which would (with or without the
passage of time, notice or both) constitute a breach or default of any
material obligations of any other party to such Contract.
Section 4.9 Funds. (a) Schedule 4.9(a) sets forth a true,
-----
complete and correct list, as of the date hereof, of each Fund for
which Seller acts as investment adviser or subadviser. Each Fund that
is an entity is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the
requisite corporate, trust or partnership power and authority to own
its properties and to carry on its business as it is now conducted,
and is qualified to do business in each jurisdiction where it is
required to do so under Applicable Law, except where the failure to
have such power, authority or qualification is not reasonably expected
to have a Seller Material Adverse Effect. Each Fund is, and at all
times as required under the Securities Laws since prior to its initial
public offering of Securities has been, duly registered with the SEC
as an investment company under the Investment Company Act.
(b) Except as set forth in Schedule 4.9(b), (i) the
shares of each Fund have been duly and validly issued and are fully
paid and nonassessable and the shares of each Fund are qualified for
public offering and sale in each jurisdiction where offers are made to
the extent required under Applicable Law; and (ii) to the extent
within the control of Seller, each Fund has been operated since its
organization and is currently operating in compliance in all material
respects with Applicable Law, except for such instances of non-
compliance which, individually or in the aggregate, are not reasonably
expected to have a Seller Material Adverse Effect.
Section 4.10 Investment Company Advisory Agreements. Each
--------------------------------------
Investment Company Advisory Agreement subject to Section 15 of the
Investment Company Act has been duly approved at all times in
compliance in all material respects with Section 15 of the Investment
Company Act and all other Applicable Laws. Each such
25
<PAGE>
Investment Company Advisory Agreement has been performed by Seller in
accordance with the Investment Company Act and all other Applicable
Laws, except for such failures of performance which, individually or
in the aggregate, are not reasonably expected to have a Seller
Material Adverse Effect.
Section 4.11 No Other Broker. Other than Goldman, Sachs &
---------------
Co., the fees and expenses of which will be paid by Seller, no broker,
finder or similar intermediary has acted for or on behalf of, or is
entitled to any broker's, finder's or similar fee or other commission
from Seller or the Shareholder or any of their Affiliates in
connection with this Agreement or the transactions contemplated
hereby.
Section 4.12 Legal Proceedings. There are no legal,
-----------------
administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature that are
pending or, to Seller's knowledge, have been threatened against Seller
or the Shareholder or any of their properties or assets or that
challenge the validity or propriety of the transactions contemplated
by this Agreement which, individually or in the aggregate, are
reasonably expected to have a Seller Material Adverse Effect, and
there is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Seller or the Shareholder or any of their
respective properties or assets which, individually or in the
aggregate, is reasonably expected to have a Seller Material Adverse
Effect.
Section 4.13 Compliance with Applicable Law.
------------------------------
(a) Except as disclosed in Schedule 4.13(a), Seller
holds, and has at all times held, all licenses, franchises, permits
and authorizations (collectively, "Permits") necessary for the lawful
ownership and use of its properties and assets and the conduct of its
businesses under and pursuant to every, and has complied in all
material respects with each, and is not in default in any material
respect under any, Applicable Law relating to Seller or any of its
assets, properties or operations, and Seller does not know of any
outstanding violations by it of any of the above and has not received
notice asserting any such violation by it. All Permits are valid and
in good standing and are not subject to any suspension, modification
or revocation or proceedings related thereto.
(b) Except as disclosed on Schedule 4.13(b), since
June 30, 1991 and except for normal examinations conducted by any
Governmental Authority in the regular course of the business of
Seller, no Governmental Authority has initiated any
26
<PAGE>
administrative proceeding or, to the knowledge of Seller,
investigation into the business or operations of Seller. There is no
unresolved violation or exception by any Governmental Authority with
respect to any report or statement by any Governmental Authority
relating to any examination of Seller.
(c) Seller has at all times maintained records which
accurately reflect transactions in reasonable detail, and accounting
controls, policies and procedures sufficient to ensure that such
transactions are recorded in a manner which permits the preparation of
financial statements in accordance with GAAP and applicable regulatory
accounting requirements.
(d) All proxy statements to be prepared for use by the
Funds in connection with the transactions contemplated by this
Agreement (other than any information provided or to be provided by
Buyer or Buyer Parent in writing relating to Buyer and its Affiliates
expressly for use in the proxy statements) will be accurate and
complete and will not contain, at the times such proxy materials are
furnished to the shareholders, or at the time of the meetings thereof,
any untrue statement of a material fact, or omit to state any material
fact required to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.14 Insurance. All of Seller's insurance policies
---------
and bonds are listed in Schedule 4.14. To Seller's knowledge, each
such insurance policy or bond is in full force and effect, and Seller
has not received written notice or any other indication from any
insurer or agent of any intent to cancel any such insurance policy or
bond.
Section 4.15 Labor and Employment Matters. Except as set
----------------------------
forth in Schedule 4.15 and other than the Employment Agreement and the
employment agreements between Seller and the Key Employees, (a) no
collective bargaining arrangement or agreement or similar arrangement
or agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association, exists
which is binding on Seller, (b) Seller is, and has at and all other
times been, in material compliance with the Worker Adjustment and
Retraining Notification Act and all other applicable laws respecting
employment and employment practices, terms and conditions of
employment, wages, hours of work, and occupational safety and health,
(c) there are no material controversies pending or, to Seller's
knowledge, threatened, between Seller and any of its employees, (d)
there are no unfair labor practice complaints pending against Seller
before the National Labor Relations Board,
27
<PAGE>
(e) there are no strikes, slowdowns, work stoppages, lockouts, or to
Seller's knowledge threats thereof, by or with respect to any
employees of Seller and (f) there are no employment contracts
currently in effect or which will become effective upon the
consummation of the transactions contemplated hereby.
Section 4.16 Employee Benefit Plans; ERISA.
-----------------------------
(a) Schedule 4.16(a) contains a true and complete list
or description of all employee benefit plans (within the meaning of
Section 3(3) of ERISA) and each bonus, profit sharing, compensation,
termination, stock option, stock appreciation right, restricted stock,
performance unit, pension, retirement, deferred compensation,
employment, severance, termination pay, welfare, retiree medical or
retiree life insurance, plan, program, agreement or arrangement, and
any other employee benefit plan, program, agreement or arrangement,
labor arrangement or agreement, trust, plan, fund or other arrangement
in effect as of the date hereof for the benefit or welfare of any
director, officer, employee or former employee of Seller (each, a
"Seller Plan").
(b) Seller has provided to Buyer prior to the Closing
complete copies of all Seller Plans together with a copy of (i) a
written description of any oral Seller Plans, (ii) the current summary
plan description or summary of material modifications, if applicable,
(iii) the most recently prepared actuarial report, financial statement
and Form 5500 prepared for each Seller Plan (if applicable), and (iv)
a copy of the most recent determination letter received for each
qualified plan or, if no such letter exists, a copy of the most
recently submitted determination letter application.
(c) Except as set forth on Schedule 4.16(c), each
Seller Plan is in material compliance with all applicable laws
including ERISA and the Code. Except as set forth on Schedule
4.16(c), no condition exists that is reasonably expected to subject
Seller to a material civil penalty under Section 502(i) of ERISA,
material liability under Section 4069 of ERISA or 4795 or 4980B of the
Code, the loss of a federal tax deduction under Sections 280G or 404
of the Code, to any penalties or tax liability arising from the loss
of qualification under Section 401(a) of the Code or other material
liability with respect to Seller Plans as a fiduciary or otherwise
that is not reflected on the Seller Balance Sheet.
(d) Except as set forth on Schedule 4.16(d), each
Seller Plan that is intended to qualify under Section 401 of the
28
<PAGE>
Code, and each trust maintained in respect thereof that is intended to
qualify under Section 501 of the Code, so qualify and a favorable
determination letter has been received from the IRS for changes
required by the Tax Reform Act 1986, or an application therefore has
been timely made in respect of each such Seller Plan and related
trust, and the IRS has taken no action to revoke or refuse to issue
any such letter. Except as set forth on Schedule 4.16(d), each Seller
Plan that is required to file Forms 5500 with the IRS has timely done
so in respect of each of the last three completed plan years.
(e) Except as set forth on Schedule 4.16(e), none of
the Seller Plans is a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA or is or has been subject to Sections 4063 or 4064
of ERISA.
(f) Except as set forth on Schedule 4.16(f), all
contributions required to have been made in respect of all the Seller
Plans (without regard to any waivers granted under Section 412 of the
Code) to any funds or trusts established in connection therewith have
been made by the due date thereof and all contributions for any period
ending on or before the Closing Date which are not yet due will have
been paid prior to the Closing Date. No accumulated funding
deficiencies exist in any of the Seller Plans subject to Section 412
of the Code.
(g) Except as set forth on Schedule 4.16(g), there is
no "amount of unfunded benefit liabilities" as defined in Section
4001(a)(18) of ERISA in any of the respective Seller Plans which are
"employee pension plans", as defined in Section 3(2) of ERISA subject
to Title IV of ERISA, utilizing the actuarial assumptions prescribed
used by the Pension Benefit Guaranty Corporation for such
calculations.
(h) Except as set forth on Schedule 4.16(h), no Seller
Plan or other agreement or arrangement will provide a benefit or
payment, or an increased benefit or payment, to any person as a result
of the transactions contemplated by this Agreement.
Section 4.17 Technology and Intellectual Property.
------------------------------------
(a) Schedules 4.17(a)(1) and 4.17(a)(2) attached
hereto list all material (i) domestic and foreign registered
trademarks and service marks, registered copyrights and patents, (ii)
applications for registration of any of the foregoing, and (iii)
unregistered trademarks, service marks, trade names, logos and assumed
names owned by Seller and used in or necessary to
29
<PAGE>
conduct the business of Seller. The items on Schedule 4.17(a)(1) and
4.17(a)(2), together with all other material trademarks, service
marks, trade names, logos, assumed names, patents, copyrights, trade
secrets, computer software, formulae, designs and inventions currently
used in or necessary to conduct the business of Seller constitute the
"Intellectual Property."
(b) Seller owns all right, title and interest in and
to the Intellectual Property listed in Schedule 4.17(a)(1). Seller
has rights by license, lease or other agreement in and to, all other
Intellectual Property, including as listed on Schedule 4.17(a)(2), as
necessary to conduct its business as presently conducted.
(c) Buyer shall receive, pursuant to this Agreement as
of the Closing Date, complete and exclusive right, title and interest
in and to the Intellectual Property set forth in Schedule 4.17(a)(1).
Buyer shall receive, pursuant to this Agreement as of the Closing
Date, all of Seller's rights to and interest in all other Intellectual
Property, including as listed in Schedule 4.17(a)(2). Seller has the
right to transfer, grant, convey, and assign all such Intellectual
Property and by doing so, Seller will not breach any license, lease or
other agreement it has with any third party.
(d) The Intellectual Property, as set forth in
Schedule 4.17(a)(1), does not infringe any patent, copyright or trade
secret of any third party, and such Intellectual Property has not
been forfeited to the public domain.
(e) All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated
in the conception and development of the Intellectual Property set
forth in Schedule 4.17(a)(1) either (i) have been party to a work-for-
hire relationship with Seller that has accorded Seller exclusive
original ownership of the Intellectual Property, or (ii) have executed
appropriate instruments of assignment in favor of Seller as assignee
that have conveyed Seller exclusive ownership of the Intellectual
Property.
(f) No claims have been asserted by any person or
entity against Seller that the use of the Intellectual Property
infringes upon the Intellectual Property rights of such person or
entity, and Seller is not aware of any valid basis for such claim.
30
<PAGE>
Section 4.18 Taxes. (a) Except as set forth in Schedule
-----
4.18(a), Seller has (i) prepared and filed (or there has been filed on
its behalf) with the appropriate Governmental Authorities all material
Tax Returns due on or prior to the date hereof, and such returns are
true, complete and correct in all material respects, for all periods
ending through the date hereof, and (ii) duly paid in full or made
provision in accordance with GAAP (or there has been paid or provision
has been made on its behalf) for the payment of all material Taxes
shown to be due on such Tax Returns.
(b) There are no liens or other Encumbrances upon the
assets of Seller for or arising from Taxes except for statutory liens
for Taxes not yet due.
(c) Seller is not a "foreign person" within the
meaning of Section 1445 of the Code.
Section 4.19 Restrictive Covenants. Except as set forth in
---------------------
Schedule 4.19, neither Seller nor the Shareholder is a party to any
contract containing non-competition provisions that would limit Buyer
or Buyer Parent's ability after the Closing to engage in business in
any area or to compete against any person or entity.
Section 4.20 Environmental Matters. Except as set forth in
---------------------
Schedule 4.20:
(a) the operations of Seller have been and are in compli-
ance with all applicable Environmental Laws and all permits, licenses
or other authorizations issued pursuant to Environmental Laws
("Environmental Permits"), and Seller has obtained all Environmental
Permits necessary to operate the Business, except where such
noncompliance or failure to have such Environmental Permits would not
have a Seller Material Adverse Effect;
(b) there are no judicial or administrative proceedings
pending or, to the knowledge of Seller, threatened against Seller
alleging the violation of any Environmental Laws;
(c) there are no investigations pending or, to the
knowledge of Seller, threatened against Seller which could lead to the
imposition of any liability pursuant to any Environmental Laws;
31
<PAGE>
(d) Seller has not received any notice claiming any
violation of any Environmental Laws or any Environmental Permit; and
(e) the operations of Seller do not involve an industrial
establishment, as that term is defined in the Industrial Site Recovery
Act ("ISRA"), N.J.Stat. Ann. Section 13:1K-7, as the business of Seller
does not have a primary Standard Industrial Classification of either 22
through 39, 46 through 49, 51 or 76.
Section 4.21 Clients. Neither the Shareholder nor Seller
-------
has received any notice that any client or clients that individually
or in the aggregate are material to the Business of Seller are
terminating or are planning to terminate their relationship with
Seller or will reduce materially its or their use of the services of
Seller. For the purposes of this Section 4.21, each of the Funds will
be deemed to be material to the Business of Seller. Except as set
forth on Schedule 4.21, to the knowledge of the Shareholder and
Seller, as of the date hereof, no client or clients that individually
or in the aggregate are material to the Business of Seller plans to
terminate its or their relationship with Seller or plans to reduce
materially its or their use of the services of Seller.
Section 4.22 Absence of Certain Payments. To the knowledge
---------------------------
of the Shareholder and Seller, none of Seller or any person acting on
behalf of Seller has made any payment to, or conferred any benefit,
directly or indirectly, on suppliers, clients, employees or agents of
suppliers or clients, or officials or employees of any Governmental
Authority or any political parties or candidates for office, that was
unlawful in the place where, and at the time when, such payment or
benefit was given or received, or, in the case of payments to or
benefits conferred upon representatives of a Governmental Authority
referred to above, would have been unlawful under the laws of the
United States if such laws were applicable to such payment or benefit
and to such officials or employees.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
BUYER AND BUYER PARENT
Buyer and Buyer Parent jointly and severally represent and
warrant to Seller and the Shareholder as follows:
32
<PAGE>
Section 5.1 Organization. Each of Buyer and Buyer Parent
------------
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of Buyer and Buyer
Parent has the corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate all of its
properties and assets, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned, leased or operated by it makes such qualification or
licensing necessary except where the failure to be so qualified or
licensed would not have a Buyer Material Adverse Effect. The copies
of the organizational documents and any amendments thereto of Buyer
and Buyer Parent heretofore delivered to Seller are complete and
correct copies of such instruments as in effect as of the date of this
Agreement.
Section 5.2 Authority; No Violation. (a) Buyer and
-----------------------
Buyer Parent have full corporate power and authority to execute and
deliver this Agreement and take all actions necessary or appropriate
to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly approved by all
requisite action on the part of Buyer and Buyer Parent, and no other
proceedings on the part of Buyer or Buyer Parent are necessary to
approve this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by Buyer and Buyer Parent and (assuming the due
authorization, execution and delivery of this Agreement by Seller and
the Shareholder) constitute a valid and binding obligation of Buyer
and Buyer Parent, enforceable against Buyer and Buyer Parent in
accordance with their terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency, moratorium and similar
laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this
Agreement by Buyer and Buyer Parent, nor the consummation by Buyer or
Buyer Parent, as the case may be, of the transactions contemplated
hereby to be performed by them, nor compliance by Buyer or Buyer
Parent with any of the terms or provisions herein, will (i) violate
any provision of the organizational documents of Buyer or Buyer Parent
or (ii) assuming that the consents and approvals required of Seller in
Sections 6.2 and 6.3 hereof are duly obtained and the waiting period
under the HSR Act has expired or early termination has been granted
thereunder, (x) violate any statute, code, ordinance, rule,
regulation, judgment,
33
<PAGE>
order, writ, decree or injunction applicable to Buyer or Buyer Parent
or any of their properties, contracts or assets, or (y) violate,
conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the
creation of any material Encumbrance upon any note, bond, mortgage,
indenture, deed of trust, license, lease agreement or other instrument
or obligation to which Buyer or Buyer Parent are a party, or by which
Buyer or Buyer Parent, or any of their properties or assets, may be
bound or affected.
Section 5.3 Consents and Approvals. Except for (x)
----------------------
consents, approvals and notices as are set forth in Sections 6.2 and
6.3, (y) the applicable filings under the HSR Act and (z) such other
filings, authorizations, consents or approvals the failure to make or
obtain are not reasonably expected to have a Buyer Material Adverse
Effect, no consents or approvals of or filings or registrations with
any Governmental Authority or any third party are necessary in
connection with (i) the execution and delivery by Buyer and Buyer
Parent of this Agreement and (ii) the consummation by Buyer and Buyer
Parent of the transactions as contemplated hereby.
Section 5.4 Regulatory Documents. (a) Since June 30,
--------------------
1991, Buyer Parent, and Buyer, since its formation, have timely filed
all reports, registration statements and other documents, together
with any amendments required to be made with respect thereto, that
they were required to file with any Governmental Authority, including
the SEC, and have paid all fees and assessments due and payable in
connection therewith, except where the failure to so file or pay would
not have a Buyer Material Adverse Effect.
(b) As of their respective dates, the Regulatory
Documents of Buyer and Buyer Parent complied in all material respects
with the requirements of the Securities Laws, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable
to such Regulatory Documents, and none of Buyer's or Buyer Parent's
Regulatory Documents, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading. Buyer and Buyer Parent have previously
delivered or made available to Seller a complete copy of each
Regulatory Docu-
34
<PAGE>
ment filed with the SEC after June 30, 1991 and prior to the date
hereof (including Forms ADV as in effect on the date hereof) and will
deliver to Seller promptly after the filing thereof a complete copy of
each Regulatory Document filed with the SEC after the date hereof and
prior to the Closing Date.
Section 5.5 Financial Statements. Buyer Parent has
--------------------
previously delivered to Seller copies of (a) the audited consolidated
balance sheets of Buyer Parent as of September 30th for the fiscal
years 1994 and 1995, and the related audited statements of income,
stockholders' equity and cash flows for the fiscal years 1994 and
1995, inclusive, in each case accompanied by the audit report of
Coopers & Lybrand L.L.P., independent public accountants with respect
to Buyer Parent and (b) the unaudited financial statements contained
in the Form 10-Q of Buyer Parent for the period ended March 31, 1996
(collectively, the statements referred to above being referred to as
the "Buyer Parent Financial Statements" and the balance sheet as of
September 30, 1995 being referred to as the "Buyer Parent Balance
Sheet"). The balance sheets referred to in the previous sentence
(including the related notes, where applicable) fairly present the
consolidated financial position of Buyer Parent as of the dates
thereof, and the other financial statements referred to in this
Section 5.5 fairly present (except, in the case of the unaudited
statements, as permitted by Form 10-Q) the consolidated results of the
operations, cash flows and changes in stockholder's equity of Buyer
Parent, for the respective fiscal periods therein set forth; each of
such statements (including the related notes, where applicable) comply
in all material respects with applicable accounting requirements with
respect thereto; and each of such statements (including the related
notes, where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved. Except for those
liabilities that are fully reflected or reserved against on the Buyer
Parent Balance Sheet and liabilities incurred in the ordinary course
of business consistent with past practice since the date of the Buyer
Parent Balance Sheet, Buyer and Buyer Parent have no liabilities which
are required by GAAP to be shown on any balance sheet.
Section 5.6 Activities of Buyer. Buyer was organized on
-------------------
June 21, 1996 exclusively for the purpose of purchasing and operating
Seller's assets. Since such date, the Buyer has conducted no business
or operations. Buyer has no material liabilities that would limit its
ability to consummate the transactions contemplated hereby.
35
<PAGE>
Section 5.7 Legal Proceedings. There are no legal,
-----------------
administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature that are
pending or, to Buyer's or Buyer Parent's knowledge, have been
threatened against Buyer or Buyer Parent or either of their respective
properties or assets or that challenge the validity or propriety of
the transactions contemplated by this Agreement which, individually or
in the aggregate, are reasonably expected to have a Buyer Material
Adverse Effect, and there is no injunction, order, judgment, decree,
or regulatory restriction imposed upon Buyer or Buyer Parent or either
of their respective properties or assets which, individually or in the
aggregate, is reasonably expected to have a Buyer Material Adverse
Effect.
Section 5.8 Ineligible Persons. Neither Buyer or Buyer
------------------
Parent nor any "affiliated person" (as defined in the Investment
Company Act) of any thereof, is ineligible pursuant to Section 9(a) or
9(b) of the Investment Company Act to serve as an investment adviser
(or in any other capacity contemplated by the Investment Company Act)
to a registered investment company. Neither Buyer or Buyer Parent nor
any "associated person" (as defined in the Advisers Act) of any
thereof, is ineligible pursuant to Section 203 of the Advisers Act to
serve as an investment adviser or as an associated person to a
registered investment adviser. Neither Buyer nor any "associated
person" (as defined in the Exchange Act) thereof, is ineligible
pursuant to Section 15(b) of the Exchange Act to serve as a broker-
dealer or as an associated person to a registered broker-dealer.
Section 5.9 No Other Broker. No broker, finder or similar
---------------
intermediary has acted for or on behalf of, or is entitled to any
broker's, finder's or similar fee or other commission from Buyer or
Buyer Parent or any of their Affiliates in connection with this
Agreement or the transactions contemplated hereby.
Section 5.10 Compliance with Applicable Law.
------------------------------
(a) Except where it would not have a Buyer Material
Adverse Effect, Buyer and Buyer Parent hold, and have at all times
held, all Permits necessary for the lawful ownership and use of their
properties and assets and the conduct of their businesses under and
pursuant to every, and have complied in all material respects with
each, and are not in default in any material respect under any,
Applicable Law relating to Buyer and Buyer Parent or any of their
assets, properties or operations, and Buyer and Buyer Parent do not
know of any outstanding violations by either of them of any of the
above and have not
36
<PAGE>
received notice asserting any such violation. All such Permits are
valid and in good standing and are not subject to any suspension,
modification or revocation or proceedings related thereto.
(b) Except for normal examinations conducted by any
Governmental Authority in the regular course of the business of Buyer
Parent or Buyer and except where it would not have a Buyer Material
Adverse Effect, no Governmental Authority has initiated any
administrative proceeding or, to the best knowledge of Buyer Parent or
Buyer, investigation into the business or operations of Buyer Parent
or Buyer. There is no unresolved violation or exception by any
Governmental Authority with respect to any report or statement by any
such Governmental Authority relating to any examination of Buyer
Parent or Buyer which would have a Buyer Material Adverse Effect.
(c) Buyer Parent and Buyer have at all times
maintained records which accurately reflect transactions in reasonable
detail, and accounting controls, policies and procedures sufficient to
ensure that such transactions are recorded in a manner which permits
the preparation of financial statements in accordance with GAAP and
applicable regulatory accounting requirements.
Section 5.11 Section 15 of the Investment Company Act.
----------------------------------------
Neither Buyer nor any of its Affiliates has any express or implied
understanding or arrangement which would impose an unfair burden on
any of the Funds or would in any way violate Section 15(f) of the
Investment Company Act as a result of the transactions contemplated
hereby.
Section 5.12 Information in Proxy Materials of the Funds.
-------------------------------------------
The information or data relating to Buyer and its Affiliates in the
proxy materials to be furnished to shareholders of the Funds for the
purpose of approving new Investment Company Advisory Agreements with
Buyer to take effect immediately after the assignment at the Closing
of the then existing Investment Company Advisory Agreements will not
contain, at the times such proxy are furnished to the shareholders or
at the times of the meetings thereof, any untrue statement of a
material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements made
therein, in light of the circumstances under which they are made, not
misleading.
Section 5.13 Financing. Buyer and/or Buyer Parent has
---------
access to all funds necessary to pay the Purchase Price and consummate
the transactions contemplated in this Agreement.
37
<PAGE>
Section 5.14 Taxes. Buyer and Buyer Parent have (i)
-----
prepared and filed (or there has been filed on their behalf) with the
appropriate Governmental Authorities all material Tax Returns due on
or prior to the date hereof for all periods ending through the date
hereof, and such returns are true, complete and correct in all
material respects and (ii) duly paid in full or made provision in
accordance with GAAP (or there has been paid or provision has been
made on their behalf) for the payment of all material Taxes shown to
be due on such Tax Returns.
Section 5.15 Clients. Neither Buyer nor Buyer Parent has
-------
received any notice that any registered investment company for which
Buyer Parent or a subsidiary provides advisory or subadvisory services
pursuant to an investment advisory agreement are terminating or are
planning to terminate its relationship with Buyer Parent or such
subsidiary or will reduce its use of the services of Buyer Parent or
such subsidiary in any manner that would have a Buyer Material Adverse
Effect. To the knowledge of Buyer and Buyer Parent, as of the date
hereof, no client or clients plan to terminate the relationship with
Buyer Parent or a subsidiary or plans to reduce its use of the
services of Buyer Parent or such subsidiary in any manner that would
have a Buyer Material Adverse Effect.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business by Seller. During the
-----------------------------
period from the date of this Agreement and continuing through the
Closing, except as expressly contemplated or permitted by this
Agreement or with the prior written consent of Buyer or Buyer Parent,
Seller shall (a) carry on its business in the ordinary course
consistent with prudent business practice; (b) use its best efforts to
preserve its present business organization and relationships; (c) use
its best efforts to keep available the present services of its
employees; and (d) use its best efforts to preserve its rights,
franchises, goodwill and relations with its customers and others with
whom it conducts business. Without limiting the generality of the
foregoing, except as expressly permitted by this Agreement or
consented to in writing by Buyer or Buyer Parent, Seller shall not:
(i) create, renew, amend, terminate or cancel, or
take any other action that may result in the creation, renewal,
amendment, termination or cancellation of, any Lease, lease
relating to Furniture, Fixtures and
38
<PAGE>
Equipment or Contract except in the ordinary course of business;
(ii) take any action impairing its rights in any
Contract or Purchased Asset other than in the ordinary course of
business;
(iii) purchase or lease any assets from, or sell or
lease any assets to, any Affiliate of Seller;
(iv) adopt, amend, renew or terminate any Seller
Plan or any other employee program, agreement, arrangement or
policy between Seller and one or more of its employees, other
than in the ordinary course of business;
(v) commit any act or omission which constitutes
a breach or default under any contract or license to which it is
a party or by which it or any of its properties is bound the
effect of which could reasonably be expected to cause a Seller
Material Adverse Effect;
(vi) commit any act or omission which would
violate any applicable law, statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction
applicable to Seller or any of its properties, contracts or
assets the effect of which could reasonably be expected to have a
Seller Material Adverse Effect;
(vii) waive any right or modify or amend any
commitment, or incur any material debt or obligation, in each
case other than in the ordinary course of Business;
(viii) guarantee any material debt or obligation of
others;
(ix) except in the ordinary course of Business,
increase salary or compensation of any of the employees of Seller
in any material respect, except for the Shareholder and for any
one-time extraordinary payments made by Seller and previously
disclosed to Buyer Parent;
(x) voluntarily divest itself of the management
of any mutual fund or other assets currently under management;
(xi) enter into any new line of business; or
39
<PAGE>
(xii) acquire or agree to acquire in any manner,
including by way of merger, consolidation, purchase of an equity
interest or assets, any business or any corporation, partnership,
association or other business organization or division thereof.
Section 6.2 Section 15 of the Investment Company Act:
------------------------------------------
Seller Covenants. (a) Seller will use its best efforts to obtain, as
----------------
promptly as practicable, the approval of the Board of Directors and
shareholders of each Fund, pursuant to the provisions of Section 15 of
the Investment Company Act applicable thereto, of new Investment
Company Advisory and Business Management Agreements which provide for
substantially identical services, at comparable costs, to the Funds to
those in effect immediately prior to the Closing.
(b) Seller shall use its best efforts to assure, prior
to the Closing Date, the satisfaction of the conditions set forth in
Section 15(f) of the Investment Company Act with respect to each Fund.
Section 6.3 Non-Investment Company Advisory Contract
----------------------------------------
Consents. As soon as reasonably practicable after the date hereof,
--------
Seller shall inform its investment advisory clients that are parties
to Non-Investment Company Advisory Agreements of the transactions
contemplated by this Agreement. Seller shall, in compliance with the
Advisers Act, request written consent of each such client to the
assignment to Buyer of its Non-Investment Company Advisory Agreement
and use its best efforts to obtain such consent, or in the case of
agreements which prohibit assignment or state by their terms that they
terminate upon assignment, use its best efforts to enter into new
agreements with Buyer effective upon Closing. Buyer and Buyer Parent
agree that, except in the case of Non-Investment Company Advisory
Agreements which prohibit assignment or state by their terms that they
terminate upon assignment or do not, by their terms, require written
consent of the client, Seller may obtain consent by requesting written
consent as aforesaid and informing such client of: (a) Seller's
intention to assign such Non-Investment Company Advisory Agreement to
Buyer; (b) Buyer's intention to continue the advisory services,
pursuant to the existing Non-Investment Company Advisory Agreement
with such client after the Closing if such client does not terminate
such agreement prior to the Closing; and (c) that the consent of such
client will be implied if such client continues to accept such
advisory services for at least 30 days after receipt of such notice
without termination.
40
<PAGE>
Section 6.4 Insurance. (a) Seller will maintain in effect
---------
until the Closing Date all casualty and public liability policies
maintained by Seller on the date hereof relating to the Operating
Sites, the other Purchased Assets and the Assumed Liabilities, or will
procure comparable replacement policies and maintain such replacement
policies in effect until the Closing Date. Effective at or after the
Closing, Seller shall be entitled to cancel and terminate all
insurance coverage maintained by Seller relating to the Purchased
Assets or the Assumed Liabilities, including any and all bonds or
other indemnity obligations. All premium refunds relating to
insurance covering the Purchased Assets or the Assumed Liabilities for
all periods prior to the Closing Date shall be the property of Seller,
whether such refunds are paid on, before or after the Closing Date.
(b) All claims or rights to receive any insurance
proceeds under insurance coverage relating to the Purchased Assets or
the Assumed Liabilities as Seller or its Affiliates may have, whether
such coverage is or was maintained on an "occurrence" basis or a
"claims-made" basis, shall remain as the property of Seller and be
Excluded Assets for purposes of this Agreement. From and after the
Closing Date, Buyer and Buyer Parent shall use reasonable efforts to
cooperate in connection with the adjustment and administration of
claims under all such insurance coverage.
Section 6.5 Maintenance of Records. (a) Through the
----------------------
Closing Date, Seller will maintain the Records in the same manner and
with the same care that the Records have been maintained prior to the
execution of this Agreement. From and after the Closing Date, each
party to this Agreement shall permit the other parties reasonable
access to any applicable Records in its possession reasonably
necessary in connection with any claim, action, litigation or other
proceeding involving the party requesting access to such Records or in
connection with any legal obligation owed by such party to any
Governmental Authority or any present or former client of Seller.
(b) For a period of not less than six years after the
Closing Date (or such longer period as may be required (i) by any
United States federal, state, foreign or local law, regulation, rule
or Governmental Authority, (ii) by any ongoing threatened or pending
litigation or (iii) in connection with any administrative proceeding),
neither Buyer nor Seller or any of its Affiliates shall dispose of or
destroy any Records and thereafter none of the above Persons shall
dispose of or destroy any such Records without first offering to turn
over possession
41
<PAGE>
thereof by written notice to Buyer or Seller, as the case may be, at
least 30 days prior to the proposed date of such disposition or
destruction. If the recipient of such notice exercises its right to
take possession of such Records, then the Person receiving such
Records shall reimburse the Person providing such Records for all
reasonable expenses in connection therewith.
Section 6.6 Section 15 of the Investment Company Act:
------------------------------------------
Buyer's and Buyer Parent's Covenants. Buyer and Buyer Parent agree to
------------------------------------
use their best efforts to comply with and enable the following to be
true regarding Section 15(f) of the Investment Company Act with
respect to the Funds: (a) for a period of not less than three years
after the Closing Date, no more than 25% of the members of the Board
of Directors of any Fund shall be "interested persons" (as defined in
the Investment Company Act) of Buyer or Buyer Parent (or such other
entity which acts as adviser or subadviser to the Funds), or of the
predecessor investment adviser of the Funds; and (b) for a period of
not less than two years after the Closing Date, neither Buyer or Buyer
Parent nor any Affiliate of Buyer (or any entity which will act as
adviser to the Funds) has or shall have any express or implied
understanding, arrangement or intention to impose an unfair burden on
any of the Funds as a result of the transactions contemplated herein.
Buyer Parent shall have delivered to Seller a letter regarding the
offer of exchange privileges to certain shareholders of the Mutual
Series Fund Inc.
Section 6.7 Employment of Certain Individuals; Assumption
---------------------------------------------
of Seller Retirement Plan. (a) Except for the Shareholder and the Key
-------------------------
Employees, Buyer shall offer employment on an "at will" basis to all
individuals who are employees "at will" of Seller at the Closing Date
at compensation not materially different from that in effect with
Seller as of the Closing Date. Nothing contained herein shall in any
way be construed so as to limit Buyer's absolute right to terminate
such "at will" employees at any time for any reason (or for no reason)
on or after the Closing Date.
(b) Effective as of the Closing Date, Buyer shall assume
the Retirement Plan for Employees of Seller, as amended (the "Seller
Retirement Plan"), set forth on Schedule 4.16(a) and shall assume
liability in respect of the liabilities and obligations incurred
thereunder from and after the Closing Date in respect of the period
from and after the Closing Date. Seller and Buyer agree to execute
such additional documents and agreements (including, where relevant,
an assumption agreement) as shall be necessary to cause the assumption
of the Seller
42
<PAGE>
Retirement Plan and any trust thereunder by Buyer as of the Closing
Date.
(c) Buyer agrees that (i) for purposes of all of Buyer's
employee benefit plans, as defined in Section 3(3) of ERISA and
including, without limitation, all policies and employee fringe
benefit programs of Buyer ("Buyer Plans") under which an employee's
benefit depends, in whole or in part, on length of service, credit
will be given for eligibility and vesting only (and not for benefit
accrual) to employees of Seller as of the Closing Date who accept
Buyer's offer of employment pursuant to Section 6.7(a) above for
service granted by Seller under equivalent Seller Plans prior to the
Closing Date (provided that such crediting of service does not result
--------
in duplication of benefits) and (ii) to the extent possible under the
terms of the Buyer Plans, to waive all pre-existing condition
limitations related to any Buyer Plan with respect to those employees
of Seller who are employed by Buyer as of the Closing Date. To the
extent that such waiver of pre-existing condition limitations related
to any Buyer Plan should not be possible, Buyer will assume such
equivalent Seller Plan in order to provide continued applicable
coverage.
(d) Without the prior written consent of Buyer Parent,
during the period from the date of this Agreement through the Closing
Date, Seller and the Shareholder shall not amend, modify or change the
Employment Agreement or the employment agreements between Seller and
the Key Employees or agree to any arrangement to amend, modify or
change any such agreements.
Section 6.8 Further Assurances. Each party to this
------------------
Agreement shall execute such documents and other papers and perform
such further acts as may be reasonably required to carry out the
provisions hereof and the transactions contemplated hereby. After the
Closing Date upon the request of Buyer or Buyer Parent, Seller shall
promptly execute and deliver such further instruments of assignment,
transfer, conveyance, endorsement, direction or authorization and
other documents as Buyer or Buyer Parent may reasonably request to
perfect title of Buyer to the Purchased Assets or otherwise to
effectuate the purposes of this Agreement.
Section 6.9 Efforts of Parties to Close. During the period
---------------------------
from the date of this Agreement through the Closing Date, each party
hereto shall use all reasonable efforts to fulfill or obtain the
fulfillment of the conditions precedent to the consummation of the
transactions contemplated hereby, including the execution and delivery
of any documents, certificates,
43
<PAGE>
instruments or other papers that are reasonably required for the
consummation of the transactions contemplated hereby. During the
period from the date of this Agreement and continuing through the
Closing, except as required by Applicable Law or with the prior
written consent of the other parties to this Agreement, no party to
this Agreement shall take any action which, or fail to take any action
the failure of which to be taken, would, or could reasonably be
expected to, (a) result in any of the representations and warranties
set forth in this Agreement on the part of the party taking or failing
to take such action being or becoming untrue in any material respect;
(b) result in any conditions to the Closing set forth in Article VII
not being satisfied; (c) result in a material violation of any
provision of this Agreement; or (d) adversely affect or materially
delay the receipt of any of the requisite regulatory approvals. Buyer
Parent shall cause Buyer to take all actions necessary to perform and
comply with all agreements, covenants and obligations of Buyer
hereunder. The Shareholder shall cause Seller to take all actions
necessary to perform and comply with all agreements, covenants and
obligations of Seller hereunder.
Section 6.10 Announcements. Except for such statements and
-------------
regulatory filings as may be required by Applicable Law or any
Governmental Authority, no party (or any agent or Affiliate of a
party) shall make any public statements, including, without
limitation, any press releases, with respect to this Agreement and the
transactions contemplated herein without the prior written consent of
the other party (which consent may not be unreasonably withheld).
Section 6.11 Access. Between the date of this Agreement and
------
the Closing Date, subject to any Applicable Laws relating to the
exchange of information, Seller shall afford to Buyer and Buyer Parent
and their authorized agents and representatives complete access, upon
reasonable notice and during normal business hours, to all contracts,
documents and information of or relating to the assets, liabilities,
business, operations, personnel and other aspects of the business of
Seller. Seller shall cause its personnel, attorneys and accountants to
provide assistance to Buyer and Buyer Parent in Buyer's and Buyer
Parent's investigation of matters relating to the Purchased Assets and
Assumed Liabilities, including allowing Buyer and Buyer Parent and
their authorized agents and representatives access to the Operating
Site and data processing facilities; provided, however, that Buyer's
-------- -------
and Buyer Parent's investigation shall be conducted in a manner which
does not unreasonably interfere with Seller's normal operations,
customers, and employee relations. All such information and
44
<PAGE>
access shall be subject to the terms and conditions of the
Confidentiality Agreement.
Section 6.12 Regulatory Matters; Third Party Consents.
----------------------------------------
(a) The parties to this Agreement shall cooperate with
each other and use all reasonable efforts promptly to prepare and file
all necessary documentation, to effect all applications, notices,
petitions and filings, and to obtain as promptly as practicable all
permits, consents, approvals, waivers and authorizations of all third
parties and Governmental Authorities which are necessary or advisable
to consummate the transactions contemplated by this Agreement (it
being understood that Seller shall be responsible for using all
reasonable efforts to obtain all such approvals, waivers and consents
only from such parties with whom Seller is in contractual privity,
including all investment advisory clients). If any required consent
of or waiver by any third party (excluding any Governmental Authority)
is not obtained prior to the Closing, or if the assignment of any
Assumed Contract would be ineffective or would adversely affect any
material rights or benefits thereunder so that Buyer or Buyer Parent
would not in fact receive all such rights and benefits, the parties
hereto, each without cost, expense or liability to the other (except
as provided in Article VIII hereof), shall cooperate in good faith to
seek, if possible, an alternative arrangement to achieve the economic
results intended.
(b) Seller shall assist each of the Funds to prepare
and file with the SEC as soon as is reasonably practicable a
preliminary proxy statement, together with a form of proxy, to be used
in connection with the meeting of the shareholders of each such Fund
and, as promptly as practicable thereafter, subject to compliance with
the rules and regulations of the SEC, definitive proxy statements with
respect to such meetings shall be mailed to the shareholders of such
Funds. Each such proxy statement shall comply as to form in all
material respects with all Applicable Law.
(c) As promptly as practicable (but in no event later
than ten Business Days after the date hereof), each of Seller and
Buyer shall file any reports or notifications that may be required to
be filed under the HSR Act with the United States Federal Trade
Commission and the Antitrust Division of the United States Department
of Justice and shall cooperate with each other in connection with such
filings or responses to requests for additional information.
45
<PAGE>
(d) The parties to this Agreement agree that they will
consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep
the others apprised of the status of matters relating to completion of
the transactions contemplated herein. The party responsible for a
filing as set forth above shall promptly deliver to the other parties
hereto evidence of the filing of all applications, filings,
registrations and notifications relating thereto (except for any
confidential portions thereof), and any supplement, amendment or item
of additional information in connection therewith (except for any
confidential portions thereof). The party responsible for a filing
shall also promptly deliver to the other parties hereto a copy of each
material notice, order, opinion and other item of correspondence
received by such filing party from any Governmental Authority in
respect of any such application (except for any confidential portions
thereof). In exercising the foregoing rights and obligations, Buyer,
Buyer Parent, Seller and the Shareholder shall each act reasonably and
as promptly as practicable.
(e) Each party to this Agreement shall, upon request,
furnish each other with all information concerning themselves,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with any statement,
filing, notice or application made by or on behalf of Buyer, Buyer
Parent, Seller or the Shareholder to any Governmental Authority in
connection with the transactions contemplated by this Agreement
(except to the extent that such information would be, or relates to
information that would be, filed under a claim of confidentiality).
(f) The parties to this Agreement shall promptly
advise each other upon receiving any communication from any
Governmental Authority whose consent or approval is required for
consummation of the transactions contemplated by this Agreement which
causes such party to believe that there is a reasonable likelihood
that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed or that
the transactions contemplated hereby will become subject to additional
conditions imposed by such Governmental Authority.
Section 6.13 Notification of Certain Matters. (a) Each
-------------------------------
party to this Agreement shall give prompt notice to the other parties
of (i) the occurrence, or failure to occur, of any
46
<PAGE>
event or existence of any condition that has caused or could
reasonably be expected to cause any of its representations or
warranties contained in this Agreement to be untrue or inaccurate in
any material respect at any time after the date of this Agreement, up
to and including the Closing Date, and (ii) any failure on its part to
comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under
this Agreement. In connection with the Closing, Seller and Buyer
and/or Buyer Parent will promptly supplement or amend the various
Schedules to this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Schedules or which is
necessary to correct any information in such Schedules which was or
has been rendered inaccurate thereby. No such supplement or amendment
to the Schedules shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Article VII hereof, or the
compliance by any party hereto with its covenants and agreements set
forth herein, or for purposes of determining any party's
indemnification obligations pursuant to Article VIII hereof.
(b) During the period from the date of this Agreement
to the Closing Date, Seller will, upon request, cause one or more of
its designated representatives to periodically confer with
representatives of Buyer and to report the general status of the
ongoing operations of Seller. Seller will promptly notify Buyer of
any material change in the conduct of the Business or in the operation
of the properties of Seller and of any governmental complaints,
investigations or hearings (or communications indicating that the same
may be contemplated), or the institution or the threat of litigation
involving Seller, and will keep Buyer fully informed of such events.
Section 6.14 Expenses. Except as otherwise expressly
--------
provided herein, Buyer and Buyer Parent, on the one hand, and Seller
and the Shareholder on the other hand, shall each bear their
respective direct and indirect expenses incurred in connection with
the negotiation and preparation of this Agreement and the consummation
of the transactions contemplated hereby. Notwithstanding the
foregoing, the Buyer and Seller shall share equally all the costs and
expenses of preparing, printing and mailing the proxy statements of
the Funds and related solicitation expenses.
Section 6.15 No Solicitation. Neither the Shareholder nor
---------------
Seller will, and Seller will not cause or permit any of Seller's
directors, officers, employees, representatives or
47
<PAGE>
agents (collectively, the "Representatives") to, directly or
indirectly, (i) discuss, negotiate, undertake, authorize, recommend,
propose or enter into, either as the proposed surviving, merged,
acquiring or acquired corporation, any transaction involving a merger,
acquisition, tender offer, consolidation, business combination,
purchase or disposition of any capital stock or other equity interest
in, or material assets of, Seller other than the transactions set
forth in this Agreement (collectively, an "Acquisition Transaction"),
(ii) solicit, initiate, facilitate, encourage, recommend, propose or
in any way seek proposals or offers in respect of an Acquisition
Transaction, (iii) furnish or cause to be furnished, to any Person,
any information concerning the business, operations, properties or
assets of Seller in connection with an Acquisition Transaction or (iv)
otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other Person to
do or seek any of the foregoing. Seller will inform Buyer and Buyer
Parent in writing immediately following the receipt by Seller or any
Representative of Seller of any proposal or inquiry in respect of any
Acquisition Transaction.
Section 6.16 Clearwater Securities. During the period from
---------------------
the date of this Agreement to the Closing Date, the Shareholder shall
use all commercially reasonable efforts to cause Clearwater
Securities, Inc. to wind down its services as a broker/dealer for
Seller and Seller's clients. The Shareholder, during the period from
the Closing Date and continuing through the seventh anniversary of the
Closing Date, shall cause Clearwater Securities, Inc. not to engage in
the business of being a broker/dealer, except with respect to personal
trading of the Shareholder, his immediate family or the persons or
entities set forth on Schedule A to the Employment Agreement .
Section 6.17 Assets Under Management. Seller shall (a) no
-----------------------
later than one week after the date of this Agreement, deliver to Buyer
and Buyer Parent a certificate indicating Base Assets Under Management
and (b) at least two days before the Closing Date, deliver to Buyer
and Buyer Parent a certificate indicating Closing Assets Under
Management.
Section 6.18 Post-Closing Activities of Buyer. For such
--------------------------------
time as Seller may be paid Additional Consideration pursuant to
Section 2.6, Buyer Parent shall operate Buyer as a separate entity
which shall conduct the Business so that any fees arising out of the
Business are separated from other fees earned by Buyer and Buyer
Parent; provided, however, that nothing contained herein shall
-------- -------
restrict Buyer Parent or Buyer from integrating its
48
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corporate accounting, fund accounting, administrative and shareholder
services activities with the Business.
Section 6.19 Marketing Expenses. During the period ending
------------------
on the second anniversary of the Closing Date, Buyer and Buyer Parent
shall expend not less than an aggregate of $7,000,000 in order to
advertise, market and promote the funds.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Buyer's and Buyer Parent's
----------------------------------------
Obligations. The obligations of Buyer and Buyer Parent to effect the
-----------
Closing shall be subject to the following conditions, any of which may
be waived in writing by Buyer Parent:
(a) The representations and warranties of Seller and
the Shareholder set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date; provided, however, that for purposes of determining the
-------- -------
satisfaction of the condition contained in this Section 7.1(a), no
effect shall be given to any exception in such representations and
warranties relating to knowledge, materiality, or a Seller Material
Adverse Effect, and such representations and warranties shall be
deemed to be true and correct in all material respects only if the
failure or failures of such representations and warranties to be so
true and correct without regard to knowledge, materiality and Seller
Material Adverse Effect exceptions do not represent in the aggregate a
Seller Material Adverse Effect;
(b) Seller and the Shareholder shall have performed
and complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed
or complied with by them at or prior to the Closing Date;
(c) Seller and the Shareholder shall each have
delivered to Buyer a certificate, dated as of the Closing Date, one
signed by the Shareholder and one signed on behalf of Seller by its
Chief Executive Officer and Chief Financial Officer as to matters
contained in paragraphs (a) and (b) of this Section 7.1;
49
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(d) Seller shall have delivered to Buyer and Buyer
Parent certificates indicating Base Assets Under Management and
Closing Assets Under Management in accordance with Section 6.17;
(e) Buyer shall have received the opinion of Seller's
and the Shareholder's counsel, dated the Closing Date, substantially
in the form attached hereto as Exhibit 7.1(e);
(f) Seller shall have delivered to Buyer certified
copies of Written Consents of the sole director and sole stockholder
of Seller authorizing and approving the Agreement, the Employment
Agreement and the employment agreements between Seller and the Key
Employees;
(g) the Employment Agreement and at least three of
those employment agreements between Seller and the Key Employees shall
be in full force and effect and shall not have been breached or
otherwise terminated by any party thereto; and
(h) since December 31, 1995, no event has occurred
which has had, individually or in the aggregate with any other event
occurring after such date, a Seller Material Adverse Effect.
Section 7.2 Conditions to Seller's and the Shareholder's
--------------------------------------------
Obligations. The obligation of Seller or the Shareholder to effect
-----------
the Closing shall be subject to the following conditions, which may be
waived in writing by Seller:
(a) the representations and warranties of Buyer and
Buyer Parent contained in this Agreement shall be true in all material
respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date;
provided, however, that for purposes of determining the satisfaction
-------- -------
of the condition contained in this Section 7.2(a), no effect shall be
given to any exception in such representations and warranties relating
to knowledge, materiality, or a Buyer Material Adverse Effect, and
such representations and warranties shall be deemed to be true and
accurate in all material respects only if the failure or failures of
such representations and warranties to be so true and correct without
regard to knowledge, materiality, and Buyer Material Adverse Effect
exceptions do not represent in the aggregate a Buyer Material Adverse
Effect;
50
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(b) Buyer and Buyer Parent shall have performed and
complied in all material respects with all agreements, covenants,
obligations and conditions required by this Agreement to be performed
or complied with by them at or prior to the Closing Date;
(c) Buyer shall have delivered to Seller a
certificate, dated as of the Closing Date, signed on behalf of Buyer
by its Chief Executive Officer and Chief Financial Officer confirming
the satisfaction of the conditions contained in paragraphs (a) and (b)
of this Section 7.2;
(d) Buyer Parent shall have delivered to Seller a
certificate, dated as of the Closing Date, signed on behalf of Buyer
Parent by its Chief Executive Officer and Chief Financial Officer
confirming the satisfaction of the conditions contained in paragraphs
(a) and (b) of this Section 7.2;
(e) Seller shall have received the opinion of counsel
to Buyer and Buyer Parent, dated the Closing Date, substantially in
the form attached hereto as Exhibit 7.2(e); and
(f) since December 31, 1995, no event has occurred
which has had, individually or in the aggregate with any other event
occurring after such date, a Buyer Material Adverse Effect.
Section 7.3 Mutual Conditions. The obligations of each
-----------------
party to this Agreement to effect the Closing shall be subject to the
following conditions, any of which may be waived in writing by both
Seller and Buyer Parent:
(a) no order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the transactions
contemplated by this Agreement shall be in effect. No proceeding
initiated by any Governmental Authority seeking an injunction shall be
pending. No statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any
Governmental Authority which prohibits, restricts or makes illegal
consummation of the transactions contemplated hereby;
(b) all regulatory approvals required to consummate
the transactions contemplated hereby (including without limitation the
purchase of the Purchased Assets and assumption of the Assumed
Liabilities) shall have been obtained
51
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and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired;
(c) in respect of the notifications of the parties
hereto pursuant to the HSR Act, the applicable waiting period and any
extensions thereof shall have expired or terminated; and
(d) the Board of Directors and shareholders of each
Fund shall have approved a new Investment Company Advisory Agreement
pursuant to the provisions of Section 6.2.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations, Warranties and
-------------------------------------------
Covenants. All representations and warranties of the parties
---------
contained in this Agreement, including any schedules made a part
hereof, and any covenants or other agreements the performance of which
is specified to occur on or prior to the Closing or the Closing Date,
shall survive the Closing hereunder for a period of twelve months
following the Closing Date, except for the representations and
warranties set forth in (a) Section 4.16 (relating to Employee Benefit
Plans and ERISA), which shall survive for a period of 18 months
following the Closing Date, and (b) Section 4.18 and Section 5.14
(relating to Taxes), as brought down under Section 7.1 and Section
7.2, as the case may be, which shall survive for the period described
in Section 9.7. Any covenant or other agreement herein any portion of
the performance of which may or is specified to occur after the
Closing shall survive the Closing hereunder indefinitely or for such
lesser period of time as may be specified therein.
Section 8.2 Obligations of Seller and the Shareholder.
-----------------------------------------
From and after the Closing, each of Seller and the Shareholder hereby
agree, jointly and severally, to indemnify, defend and hold harmless
Buyer and Buyer Parent and their respective employees, officers,
partners and other Affiliates from and against any and all Losses
which any of them may suffer, incur or sustain arising out of,
attributable to, or resulting from: (a) any inaccuracy in or breach
of any of the representations or warranties of Seller and the
Shareholder (other than Section 4.18 relating to Taxes which are
covered in Article IX hereof) made in this Agreement (it being agreed
that solely for purposes of establishing whether any matter is
indemnifiable pursuant to this clause (a), the accuracy of the
representations and warranties
52
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made by Seller or the Shareholder shall be determined without giving
effect to the qualifications to such representations and warranties
concerning "Seller's knowledge," "material," or "Seller Material
Adverse Effect"); (b) any breach or nonperformance of any of the
covenants or other agreements made by Seller or the Shareholder in or
pursuant to this Agreement; and (c) the Excluded Assets or the
Excluded Liabilities (whether arising out of, attributable to or
resulting from events occurring before, on or after the Closing Date).
Section 8.3 Obligations of Buyer and Buyer Parent. From
-------------------------------------
and after the Closing, each of Buyer and Buyer Parent hereby agree,
jointly and severally, to indemnify, defend and hold harmless Seller
and the Shareholder and their respective employees, officers,
directors, partners and other Affiliates from and against any and all
Losses which any of them may suffer, incur, or sustain arising out of,
attributable to, or resulting from: (a) any inaccuracy in or breach of
any of the representations and warranties of Buyer and Buyer Parent
(other than Section 5.14 relating to Taxes which are covered in
Article IX hereof) made in this Agreement (it being agreed that solely
for purposes of establishing whether any matter is indemnifiable
pursuant to this clause (a), the accuracy of the representations and
warranties made by Buyer or Buyer Parent shall be determined without
giving effect to the qualifications to such representations and
warranties concerning "Buyer's knowledge," "material," or "Buyer
Material Adverse Effect"); (b) any breach or nonperformance of any of
the covenants or other agreements made by Buyer or Buyer Parent in or
pursuant to this Agreement; and (c) the Purchased Assets or the
Assumed Liabilities to the extent such Losses under this clause (c)
arise out of, are attributable to or result from actions or inactions
by Buyer or Buyer Parent after the Closing or from events occurring
after the Closing.
Section 8.4 Procedure.
---------
(a) Notice of Third Party Claims. Any Indemnified
----------------------------
Party seeking indemnification for any Loss or potential Loss arising
from a claim asserted by a third party against the Indemnified Party
(a "Third Party Claim") shall give written notice to the Indemnifying
Party specifying in detail the source of the Loss or potential Loss
under Section 8.2(a)-(c) or 8.3(a)-(c), as the case may be. Written
notice to the Indemnifying Party of the existence of a Third Party
Claim shall be given by the Indemnified Party promptly after notice of
the potential claim; provided, however, that the Indemnified Party
-------- -------
shall not be foreclosed from seeking indemnification pursuant to
53
<PAGE>
this Article VIII by any failure to provide such prompt notice of the
existence of a Third Party Claim to the Indemnifying Party except and
only to the extent that the Indemnifying Party actually incurs an
incremental out-of-pocket expense or otherwise has been materially
damaged or prejudiced as a result of such delay.
(b) Defense. Except as otherwise provided herein, the
-------
Indemnifying Party may elect to compromise or defend, at such
Indemnifying Party's own expense and by such Indemnifying Party's own
counsel (which counsel shall be reasonably satisfactory to the
Indemnified Party), any Third Party Claim. If the Indemnifying Party
elects to compromise or defend such Third Party Claim, it shall,
within 30 days after receiving notice of the Third Party Claim (10
days if the Indemnifying Party states in such notice that prompt
action is required), notify the Indemnified Party of its intent to do
so, and the Indemnified Party shall cooperate, at the expense of the
Indemnifying Party, in the compromise of, or defense against, such
Third Party Claim. If the Indemnifying Party elects not to compromise
or defend against the Third Party Claim, or fails to notify the
Indemnified Party of its election to do so as herein provided, or
otherwise abandons the defense of such Third Party Claim, (i) the
Indemnified Party may pay (without prejudice of any of its rights as
against the Indemnifying Party), compromise or defend such Third Party
Claim (until such defense is assumed by the Indemnifying Party) and
(ii) the costs and expenses of the Indemnified Party incurred in
connection therewith shall be indemnifiable by the Indemnifying Party
pursuant to the terms of this Agreement. Notwithstanding anything to
the contrary contained herein, in connection with any Third Party
Claim in which the Indemnified Party shall reasonably conclude, based
upon the written advice of its counsel, that (x) there is a conflict
of interest between the Indemnifying Party and the Indemnified Party
in the conduct of the defense of such Third Party Claim or (y) there
are specific defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying
Party and which could be materially adverse to the Indemnifying Party,
then the Indemnified Party shall have the right to assume and direct
the defense of such Third Party Claim. In such an event, the
Indemnifying Party shall pay the reasonable fees and disbursements of
counsel of the Indemnifying Party and one counsel to all the
Indemnified Parties. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnified Party may settle or compromise
any claim (however, if the sole settlement relief payable to a third
party in respect of such Third Party Claim is monetary damages that
are paid in full by the Indemnifying Party, the Indemnifying Party
54
<PAGE>
may settle such claim without the consent of the Indemnified Party)
over the objection of the other, provided, however, that consent to
-------- -------
settlement or compromise shall not be unreasonably withheld by the
Indemnified Party. In any event, except as otherwise provided herein,
the Indemnified Party and the Indemnifying Party may each participate,
at its own expense, in the defense of such Third Party Claim. If the
Indemnifying Party chooses to defend any claim, the Indemnified Party
shall make available to the Indemnifying Party any personnel or any
books, records or other documents within its control that are
reasonably necessary or appropriate for such defense, subject to the
receipt of appropriate confidentiality agreements.
(c) Miscellaneous. The procedures set forth in
-------------
Section 8.4(a)-(c) above shall apply solely with respect to Third
Party Claims and shall not be deemed to apply to, or otherwise affect
or limit, an Indemnified Party's rights under this Agreement with
respect to any claim other than a Third Party Claim.
(d) Notice of Non-Third Party Claims. Any Indemnified
--------------------------------
Party seeking indemnification for any Loss or potential Loss arising
from a claim asserted by any party to this Agreement against the
Indemnifying Party (a "Non-Third Party Claim") shall give written
notice to the Indemnifying Party specifying in detail the source of
the Loss or potential Loss under Section 8.2(a)-(c) or 8.3(a)-(c), as
the case may be. Written notice to the Indemnifying Party of the
existence of a Non-Third Party Claim shall be given by the Indemnified
Party promptly after the Indemnified Party becomes aware of the
potential claim; provided, however, that the Indemnified Party shall
-------- -------
not be foreclosed from seeking indemnification pursuant to this
Article VIII by any failure to provide such prompt notice of the
existence of a Non-Third Party Claim to the Indemnifying Party except
and only to the extent that the Indemnifying Party actually incurs an
incremental out-of-pocket expense or otherwise has been materially
damaged or prejudiced as a result of such.
Section 8.5 Survival of Indemnity. Notwithstanding
---------------------
anything to the contrary in this Article VIII, no Indemnified Party
shall have any right to indemnification with respect to any matter as
to which formal notice satisfying the requirements of Section 8.4(a)
or 8.4(d) shall not have been provided by the Indemnified Party to the
Indemnifying Party (a) prior to the first anniversary of the Closing
Date if the right to indemnification arises from Section 8.2(a) or
8.3(a) or (b) prior to the sixth anniversary of the Closing Date if
the right to indemnification arises from Section 8.2(b) or 8.3(b) or
8.3(c).
55
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Nothing contained herein shall limit in any way the period during
which Buyer or Buyer Parent may seek indemnification from Seller or
the Shareholder relating to the matters contained in Section 8.2(c);
provided, however, that the foregoing is not intended to waive the
-------- -------
statute of limitations applicable to any such matter. Any matter as
to which a claim has been asserted by formal notice pursuant to
Section 8.4 and within the time limitation applicable by reason of the
immediately preceding sentence that is pending or unresolved at the
end of any applicable limitation period under this Article VIII or
Applicable Law shall continue to be covered by this Article VIII
notwithstanding any applicable statute of limitations (which the
parties hereby waive) or the expiration dates set forth in the
immediately preceding sentence of this Section 8.5 until such matter
is finally terminated or otherwise resolved by the parties under this
Agreement or by a court of competent jurisdiction and any amounts
payable hereunder are finally determined and paid.
Section 8.6 Minimum Losses. Except for the indemnification
--------------
obligations set forth in Section 8.2(c), Taxes subject to
indemnification pursuant to Article IX, breaches of representations
and warranties of Section 4.16 (relating to Employee Benefit Plans and
ERISA), and Losses arising out of, attributable to or resulting from
any failure by Buyer, Buyer Parent or any of their Affiliates to
comply with Section 6.6, no party shall have any right to seek
indemnification under this Agreement until Losses of such party and
its Affiliates and the successors and assigns of such party and its
Affiliates exceed $28,500,000, after which time only the aggregate
amount of such Losses in excess of $28,500,000 shall be recoverable in
accordance with the terms hereof.
Section 8.7 Maximum Indemnification. Except for the
-----------------------
indemnification obligations set forth in Section 8.2(c), Taxes subject
to indemnification pursuant to Article IX, and breaches of
representations and warranties of Section 4.16 (relating to Employee
Benefit Plans and ERISA), and except for Losses arising out of,
attributable to or resulting from any failure by Buyer, Buyer Parent
or any of their Affiliates to comply with Section 6.6, no party shall
have any right to obtain an indemnification payment under this
Agreement to the extent amounts received by such party and its
Affiliates and the successors and assigns of such party and its
Affiliates as indemnification payments hereunder exceed $400,000,000.
Section 8.8 Subrogation. The rights of any Indemnifying
-----------
Party shall be subrogated to any right of action which the Indemnified
Party may have against any other person
56
<PAGE>
with respect to any matter giving rise to a claim for indemnification
hereunder.
Section 8.9 Adjustments to Indemnification Obligations.
------------------------------------------
The amount which any Indemnifying Party is or may be required to pay
any Indemnified Party pursuant to Section 8.2 or 8.3 hereof shall be
reduced (including without limitation, retroactively) by any insurance
proceeds or other amounts actually recovered by or on behalf of such
Indemnified Party in reduction of the related Loss. If an Indemnified
Party shall have received the payment required by this Agreement from
an Indemnifying Party in respect of a Loss and shall subsequently
actually receive insurance proceeds or other amounts in respect of
such Loss, then such Indemnified Party shall pay to such Indemnifying
Party a sum equal to the amount of such insurance proceeds or other
amounts actually received (net of any expenses, other than the cost of
carrying such insurance, in obtaining the same).
Section 8.10 Exclusive Remedy. To the extent not
----------------
prohibited by law and except for claims (x) of alleged fraud or deceit
with respect to the purchase and sale of the Purchased Assets
hereunder, (y) for breaches of the representations and warranties
related to Taxes, and (z) any failure or prospective failure by Buyer,
Buyer Parent or any of their Affiliates to comply with Section 6.6,
this Article VIII shall provide the sole and exclusive remedy for any
and all Losses, including, without limitation, those asserted by any
federal, state, local or foreign governmental entity, third party, or
former or present employee, but excluding those attributable to Taxes
(herein referred to collectively as "Article VIII Losses"), sustained
or incurred by the parties hereto to the extent such Article VIII
Losses relate to matters set forth in Section 8.2(a) or (c) or 8.3(a)
or (c) and Article IX shall provide the sole and exclusive remedy for
any liabilities for Taxes. This Article VIII shall not restrict the
ability of any party to seek specific performance of this Agreement or
any provision hereof or any other form of equitable relief against any
breach by any other party hereto. Nothing in this Article VIII shall
limit the remedies available to an Indemnified Party to enforce its
right to indemnification.
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Cooperation. The parties to this Agreement
---------------
shall each: (a) cooperate in the preparation of any Tax
57
<PAGE>
Returns which the other is responsible for preparing and filing; (b)
cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Taxes relating to the Purchased
Assets; (c) make available to the other and to any taxing authority,
as reasonably requested, all information, records, and documents with
respect to Taxes relating to the Purchased Assets; (d) provide timely
notice to the other in writing of any pending or threatened audits or
assessments with respect to Taxes relating to the Purchased Assets
which may result in a claim for indemnification under this Article IX
or which otherwise could reasonably be expected to adversely affect
such other party; and (e) furnish the other with copies of all
correspondence received from any taxing authority in connection with
any audit or information request with respect to Taxes relating to the
Purchased Assets which may result in a claim for indemnification under
this Article IX or which otherwise could reasonably be expected to
adversely affect such other party. Any information obtained pursuant
to this Section 9.1 shall be subject to Section 6.11 hereof.
Section 9.2 Liability for Taxes.
-------------------
(a) Liability of Seller and the Shareholder. Each of
---------------------------------------
Seller and the Shareholder shall indemnify Buyer and Buyer Parent and
its Affiliates and hold them harmless from and against Taxes of
Seller, and all Losses (net of any tax benefits actually realized by
the indemnified party as a result of the circumstances giving rise to
such Losses) attributable to Taxes relating to the Purchased Assets
(i) for all taxable periods ending on or before the Closing Date and
the portion of any taxable period ending on the Closing Date that
includes (but does not end on) the Closing Date (any such period,
including a portion thereof, being referred to herein as a "Pre-
Closing Period"), or (ii) incurred as a result of the transactions
contemplated hereby.
(b) Liability of Buyer and Buyer Parent. Buyer and
-----------------------------------
Buyer Parent shall indemnify Seller and the Shareholder and hold them
harmless from and against all Losses attributable to Taxes relating to
the Purchased Assets for any taxable period ending after the Closing
Date (except to the extent such taxable period began before the
Closing Date, in which case Buyer's and Buyer Parent's indemnity shall
cover only that portion of any such Taxes that is not attributable to
the Pre-Closing Period or otherwise covered by the preceding
paragraph).
58
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Section 9.3 Procedures Relating to Tax Claims.
---------------------------------
(a) Except as provided in subparagraph (b) below, if a
claim for Taxes shall be made by any taxing authority in writing (a
"Tax Claim"), which, if successful, might result in an indemnity
payment pursuant to Section 9.2 hereof, the parties shall pursue such
Tax Claim in accordance with the procedures set forth herein. The
contest of any Tax Claim that relates to the Purchased Assets for a
taxable period ending on or before the Closing Date shall be
controlled by Seller or the Shareholder; provided, however, that Buyer
-------- -------
or Buyer Parent shall be entitled to participate at their own expense
in any such contest to the extent that its interest could be adversely
affected by the contest or its outcome. The contest of any Tax Claim
that relates to the Purchased Assets for a taxable period ending after
the Closing Date shall be controlled by Buyer or Buyer Parent.
(b) The contest of any Tax Claim that relates to the
Purchased Assets for a Straddle Period, as defined in Section 9.5
hereof, shall be controlled by Buyer or Buyer Parent. Seller and the
Shareholder shall cooperate with Buyer and Buyer Parent in pursuing
such contest. The costs and expenses incurred in connection with such
contest shall be shared by Seller, the Shareholder, Buyer and the
Buyer Parent in proportion to their respective liabilities as
determined in such contest.
Section 9.4 Filing Responsibility. (a) Seller shall
---------------------
prepare and file, or cause to be prepared and filed, on a timely basis
(in each case, at its own cost and expense and consistent with past
practice) all Tax Returns relating to the Purchased Assets for taxable
periods ending on or prior to the Closing Date.
(b) Buyer shall prepare and file, or cause to be
prepared and filed, on a timely basis (in each case, at its sole cost
and expense) all other Tax Returns relating to the Purchased Assets,
including Tax Returns, if any, for the Straddle Period, as defined in
Section 9.5 hereof. In connection therewith, Seller and the
Shareholder shall be liable for and shall pay any Taxes for which
Seller and the Principals have agreed to indemnify Buyer and Buyer
Parent pursuant to Section 9.2 hereof. Buyer shall provide Seller
with copies of any such Tax Returns covering Taxes described in
Section 9.2 at least 10 days prior to the due date thereof (giving
effect to any extensions thereto) accompanied by a statement
calculating Seller's indemnification obligation pursuant to Section
9.2 hereof. Seller or the Shareholder shall pay to Buyer the amount
of their indemnification obligation within 5 days of receiving copies
of such Tax Returns.
59
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If the amount of Seller's and the Shareholder's indemnification
obligation is in dispute, Buyer and Seller shall, within 10 days after
Seller notifies Buyer of such dispute, select one Independent
Accounting Firm acceptable to both parties to resolve the dispute. If
the parties cannot agree on an Independent Accounting Firm within such
period, each of Buyer and Seller shall, within 5 days after the
expiration of such 10 day period, select an Independent Accounting
Firm and the two Independent Accounting Firms shall select a third
Independent Accounting Firm to resolve the dispute. Seller or the
Shareholder shall pay the amount determined by the Independent
Accounting Firm within 10 days of such determination. All costs and
expenses relating to the engagement of the Independent Accounting
Firm(s) shall be shared by Seller, the Shareholder, Buyer and Buyer
Parent in proportion to their respective liabilities as determined
thereby.
Section 9.5 Apportionment of Taxes. If for any federal,
----------------------
state, local or foreign purpose the taxable period of Seller that
includes the Closing Date does not terminate on the Closing Date, to
the extent permitted by law, Buyer shall elect with the relevant
taxing authority to close such taxable year immediately before 11:59
p.m. Eastern Standard Time on the Closing Date. In any case where
applicable law does not permit such election to be made, for any
taxable period that includes (but does not end on) the Closing Date (a
"Straddle Period"), the Taxes of Seller for the Pre-Closing Period
shall be computed using an interim-closing-of-the-books method on the
assumption that such taxable period ended on and included the Closing
Date, except that (i) all standard deductions, exemptions, allowances,
progressivity in rates and other similar items shall be apportioned to
the Pre-Closing Period on a per-diem basis and (ii) real, personal and
intangible property Taxes of Seller for any Straddle Period shall be
apportioned among Buyer and Seller in accordance with the principles
under Section 164(d) of the Code.
Section 9.6 Refunds or Credits. Refunds or credits of
------------------
Taxes relating to the Purchased Assets (i) for any taxable period
ending on or before the Closing Date shall be for the account of
Seller, and if received or utilized by Buyer or Buyer Parent, or any
of its Affiliates, shall be paid to Seller within five (5) business
days after Buyer or Buyer Parent, or any of its Affiliates, as the
case may be, receives such refund or utilizes such credit, (ii) for
any taxable period beginning after the Closing Date shall be for the
account of Buyer or Buyer Parent, and if received or utilized by
Seller, shall be paid by Seller to Buyer or Buyer Parent within five
(5) business days after Seller receives such refund or utilizes such
credit, and (iii) for any
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Straddle Period shall be apportioned among Seller and Buyer or Buyer
Parent in accordance with Section 9.5 hereof.
Section 9.7 Survival of Tax Claims. Any claim to be made
----------------------
pursuant to this Article must be made within 90 days following the
expiration (with valid extensions) of the applicable statute of
limitations relating to the Taxes at issue.
Section 9.8 Tax Elections. No new elections with respect
-------------
to Taxes, or any changes in current elections with respect to Taxes,
affecting the assessment of the Purchased Assets for property tax
purposes shall be made by, through or under Seller after the date of
this Agreement without the prior written consent of Buyer or Buyer
Parent.
Section 9.9 Withholding. Seller agrees to transfer to
-----------
Buyer any Records (including, but not limited to, Forms W-4 and
Employee Withholding Allowance Certificates) relating to withholding
and payment of income and employment taxes (Federal, state and local)
and FICA taxes with respect to wages paid by Seller during the 1996
calendar year to employees retained by Buyer or Buyer Parent. Buyer
or Buyer Parent agrees, to the extent permitted by applicable law, to
provide such employees with Forms W-2, Wage and Tax Statements for the
1996 calendar year setting forth the wages and taxes withheld with
respect to such employees for the 1996 calendar year by Seller and
Buyer or Buyer Parent as predecessor and successor employers,
respectively. Seller and Buyer or Buyer Parent also agree to comply
with the filing requirements set forth in Revenue Procedure 84-77 to
implement this Section.
Section 9.10 Purchase Price Allocation. Buyer or Buyer
-------------------------
Parent shall, within thirty (30) days after the Closing, reasonably
determine the allocation of the Purchase Price for tax purposes under
Section 1060. Buyer or Buyer Parent shall provide Seller written
notice of Buyer or Buyer Parent allocation of the Purchase Price and
the parties shall act in accordance therewith for all purposes.
Section 9.11 Transfer Taxes. All transfer, sale and
--------------
similar Taxes arising from the transactions contemplated hereby shall
be borne by and the responsibility of Seller.
61
<PAGE>
ARTICLE X
TERMINATION/SURVIVAL
Section 10.1 Termination. (a) This Agreement may be
-----------
terminated on or prior to the Closing Date as follows:
(i) by written consent of Seller and Buyer Parent;
(ii) by Seller or Buyer Parent if it reasonably
concludes that a condition to its obligation to close set forth
in Section 7.3 (or 7.1 or 7.2, as the respective case may be)
cannot be satisfied prior to the date set forth in Section
10.1(a)(vi) below;
(iii) by Seller if there shall have been a breach by
Buyer or Buyer Parent, or by Buyer Parent if there shall have
been a breach by Seller or the Shareholder, of any of their
representations and warranties set forth in this Agreement, which
breach would entitle the party receiving such representation or
warranty not to consummate the transactions contemplated hereby
under Section 7.1(a) (in the case of a breach of representation
or warranty by Seller or the Shareholder) or Section 7.2(a) (in
the case of a breach of representation or warranty by Buyer or
Buyer Parent), which breach shall not have been cured within 20
Business Days following receipt by the breaching party of written
notice of such breach from Buyer, Buyer Parent, Seller or the
Shareholder;
(iv) by Seller if there shall have been a material
breach by Buyer or Buyer Parent, or by Buyer Parent if there
shall have been a material breach by Seller or the Shareholder,
of any of their covenants or agreements set forth in this
Agreement, which breach shall not have been cured within 20
Business Days following receipt by the breaching party of written
notice of such breach from Seller or Buyer Parent, as the case
may be;
(v) by any of the parties hereto if the Applicable
Ratio is less than 80; and
(vi) by any of the parties hereto, if the Closing has
not occurred on or before December 31, 1996 (unless such date is
extended by mutual agreement of all the parties hereto).
62
<PAGE>
Notwithstanding Section 10.1(a)(ii)-(vi) hereof, a party who
is or whose Affiliate is in material breach of any of its obligations
or representations and warranties hereunder shall not have the right
to terminate this Agreement pursuant to Section 10.1(a)(ii)-(vi).
(b) The termination of this Agreement shall be
effectuated by the delivery by the party terminating this Agreement to
each other party of a written notice of such termination. If this
Agreement so terminates, it shall become null and void and have no
further force or effect, except as provided in Section 10.2.
Section 10.2 Survival After Termination. If this Agreement
--------------------------
is terminated in accordance with Section 10.1 hereof and the
transactions contemplated hereby are not consummated, this Agreement
shall become void and of no further force and effect, except for the
provisions of 6.10 and 6.14. None of the parties hereto shall have
any liability in the event of a termination of this Agreement, except
to the extent that such termination results from the violation by such
party of any of its obligations under this Agreement or any agreement
made as of the date hereof or subsequent thereto pursuant to this
Agreement.
ARTICLE XI
MISCELLANEOUS
Section 11.1 Amendments; Extension; Waiver. This Agreement
-----------------------------
may not be amended, altered or modified except by written instrument
executed by all of the parties hereto.
Section 11.2 Entire Agreement. This Agreement (including
----------------
Schedules, certificates and lists referred to herein, and any
documents executed by the parties simultaneously herewith or pursuant
thereto) constitutes the entire agreement of the parties hereto,
except as provided herein, and supersedes all prior agreements and
understandings, written and oral, among the parties with respect to
the subject matter hereof. If there are any conflicts or
inconsistencies between this Agreement and the exhibits attached
hereto, this Agreement shall control.
Section 11.3 Interpretation. When a reference is made in
--------------
this Agreement to Sections, Exhibits or Schedules, such reference
shall be to a Section of or Exhibit or Schedule to this Agreement
unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes
63
<PAGE>
only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." The phrases "the date of
this Agreement," "the date hereof" and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to the date
set forth in the first paragraph of this Agreement.
Section 11.4 Severability. Any term or provision of this
------------
Agreement which is invalid or unenforceable in any jurisdiction shall,
as to that jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
Section 11.5 Notices. All notices and other communications
-------
hereunder shall be in writing and shall be deemed given if (a)
delivered in person, (b) transmitted by telecopy (with written
confirmation), (c) mailed by certified or registered mail (return
receipt requested) or (d) delivered by an express courier (with
written confirmation) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
If to Seller or the Shareholder:
Heine Securities Corporation
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
Attention: Michael F. Price, President
Telecopy: 908-912-2184
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Philip H. Harris, Esq.
Telecopy: (212) 735-2000
64
<PAGE>
If to Buyer or Buyer Parent:
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, California 94404
Attention: Martin L. Flanagan, Senior Vice President
Telecopy: (415) 312-5707
-and-
Attention: Leslie M. Kratter, Esq., Vice President
Telecopy: (415) 312-4937
With copies to:
Templeton Worldwide, Inc.
500 East Broward Boulevard
Suite 2100
Ft. Lauderdale, Florida 33394-2091
Attention: Charles E. Johnson, President
Telecopy: (305) 527-7329
-and-
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Jeffrey E. Tabak, Esq.
Telecopy: (212) 310-8007
Section 11.6 Binding Effect; No Third Party Beneficiaries;
---------------------------------------------
No Assignment. This Agreement shall inure to the benefit of and be
-------------
binding upon the parties hereto and their respective successors and
assigns. Nothing in this Agreement is intended or shall be construed
to confer upon any entity or person other than the parties hereto and
their respective successors and permitted assigns any right, remedy or
claim under or by reason of their Agreement or any part hereof. This
Agreement may not be assigned by any of the parties hereto without the
prior written consent of each of the other parties hereto; provided,
--------
however, that Buyer and Buyer Parent may assign all of the right to
-------
acquire the Purchased Assets and Purchased Liabilities to any of their
directly or indirectly owned subsidiaries or to any of their
Affiliates at any time without the consent of Seller and the
Shareholder.
65
<PAGE>
Section 11.7 Counterparts. This Agreement may be executed
------------
in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the
same agreement, it being understood that all of the parties need not
sign the same counterpart.
Section 11.8 Governing Law. This Agreement, the legal
-------------
relations between the parties and the adjudication and the enforcement
thereof, shall be governed by and interpreted and construed
exclusively in accordance with the substantive laws of the State of
Delaware, without regard to applicable choice of law provisions
thereof.
Section 11.9 Service; Jurisdiction. Each of the parties
---------------------
hereto agrees to: (i) the irrevocable designation of the Secretary of
State of Delaware as its agent upon whom process against it may be
served and (ii) the exercise of personal jurisdiction over it by the
Courts of the State of Delaware or the United States District Court
for the State of Delaware in any action brought in respect of matters
arising hereunder and within the subject matter jurisdiction of such
courts.
Section 11.10 Specific Performance. Seller, the
--------------------
Shareholder, Buyer and Buyer Parent each acknowledge that, in view of
the uniqueness of the Business and the transactions contemplated by
this Agreement, each party would not have an adequate remedy at law
for money damages in the event that the covenants to be performed
after the Closing Date have not been performed in accordance with
their terms, and therefore agree that the other parties shall be
entitled to specific enforcement of the terms hereof in addition to
indemnification hereunder and any other equitable remedy to which such
parties may be entitled.
Section 11.11 WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES.
-----------------------------------------
AFTER THE CLOSING DATE, THE PARTIES TO THIS AGREEMENT AGREE TO WAIVE
ANY RIGHT TO A JURY TRIAL AS TO ALL DISPUTES AND ANY RIGHT TO SEEK
PUNITIVE DAMAGES.
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
HEINE SECURITIES CORPORATION
By: /s/ Michael F. Price
-----------------------------------
Name: Michael F. Price
Title: President
/s/ Michael F. Price
----------------------------------------
Michael F. Price
ELMORE SECURITIES CORPORATION
By: /s/ Martin L. Flanagan
-----------------------------------
Name: Martin L. Flanagan
Title: Senior Vice President
FRANKLIN RESOURCES, INC.
By: /s/ Martin L. Flanagan
-----------------------------------
Name: Martin L. Flanagan
Title: Senior Vice President
67
NYFS08...:\60\46360\0018\168\AGR4206B.54G
EXHIBIT 99
June 25, 1996
FROM: Franklin Resources, Inc.
Telephone: 415/312-4701
Contact: Holly Gibson
Heine Securities Corporation
Telephone: 201/912-2088
Contact: Elizabeth Cohernour
Rubenstein & Associates
Telephone: 212/843-8078
Contact: Tom Mariam
- --------------------------------------------------------------------------------
For Immediate Release
FRANKLIN AND HEINE TO MERGE BUSINESSES
SAN MATEO, CA, June 25, 1996 -- Franklin Resources, Inc. (NYSE:BEN),
Michael Price and Heine Securities Corporation, the investment adviser to Mutual
Series Fund, today announced they have agreed to a merger of the businesses of
Heine and Franklin. The transaction must be approved by the board and
shareholders of Mutual Series Fund and is subject to the receipt of other
governmental regulatory approvals.
The transaction has an aggregate value of approximately $610
million. Heine Securities will receive $550 million in cash, along with 1.1
million shares of Franklin Resources, Inc. common stock which may not be
disposed of for two years. Heine will initially invest $150 million of the cash
proceeds in Mutual Series Fund with a minimum balance of $100 million for five
years.
<PAGE>
The agreement also includes a provision for a contingent payment
ranging from $96.25 million to $192.50 million under certain conditions if
agreed upon growth targets are met.
"We are all extraordinarily pleased with this agreement," said
Charles B. Johnson, President and Chief Executive Officer of Franklin Resources.
"The adviser's expertise, particularly in domestic equity investing, is an
exciting complement to our existing equity line. The combination of a diverse
selection of fixed-income and equity funds with outstanding long-term track
records -- and all available through one fund complex -- should make us an even
stronger competitor in the investment management industry."
In making the joint announcement with Franklin, Mr. Price said, "I
am confident that this new partnership with Franklin will help continue our
position as a leader in equity investing and introduce the Mutual Series Fund to
many investors through Franklin Templeton's large distribution network. It will
give us additional resources to expand and improve our research, investment
management and client services. Although we will be part of a much larger
organization, our investment process and culture will remain the same, as will
our investment management team. My confidence in the benefits of our combined
organizations is amply demonstrated by my investment of a significant portion of
the transaction proceeds in our funds, as well as a substantial long-term
commitment by our
2
<PAGE>
senior-level investment management personnel of their personal assets in the
Mutual Series funds."
The four Mutual Series funds -- Mutual Beacon, Mutual Discovery,
Mutual Qualified, and Mutual Shares -- are all currently five-star rated by
Morningstar. On or about July 3rd, Mutual will begin to offer Mutual European
Fund, a new fund focusing on value stocks in Europe. Total assets advised by
Heine at the end of May were $17 billion. The proposed merging of businesses
will increase Franklin Templeton's assets under management to over $162 billion
and further strengthen Franklin's presence in domestic equity fund management
with over $30 billion under management. Furthermore, 31% of Heine's assets under
management are in retirement accounts, a projected area of growth for Franklin.
The Franklin Templeton Group is also the largest tax-free fund manager and one
of the largest global equity managers, with $42 billion and $34 billion under
management, respectively.
Subject to approval, multiple class shares will be added to the five
Mutual Series funds and will be distributed through Franklin Templeton's
traditional broker/dealer network. It is planned that Class I and Class II
Shares, similar to those available for Franklin Templeton Funds, will be added
to the five funds. Mutual Series shareholders as of the closing date of the
transaction will be able to purchase additional shares of Mutual Series at net
asset value. Eventually, shareholders of both groups
3
<PAGE>
will have exchange privileges between the fund groups.
Heine is located in Short Hills, NJ and will continue to maintain
its offices at that site. "On the investment side, we will remain autonomous,
however, we are delighted to be associated with a group that is well-known for
its commitment to quality service," remarked Mr. Price.
Goldman, Sachs & Co. acted as financial advisor to Heine Securities
Corporation.
4
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