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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9215
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United Asset Management Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2714625
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
One International Place
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8900
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock New York Stock Exchange
($.01 par value)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant was approximately $1.3 billion based on
the last reported sale price of the registrant's common stock on the New York
Stock Exchange composite tape on March 15, 1999.
The number of shares of Common Stock ($.01 par value) outstanding as of
March 15, 1999 was 59,846,730.
DOCUMENTS INCORPORATED BY REFERENCE
Certain of the information called for by Parts I through IV of this report on
Form 10-K is incorporated by reference from certain portions of (a) the Annual
Report to Stockholders of the registrant for the year ended December 31, 1998,
and (b) the Proxy Statement of the registrant filed pursuant to Regulation 14A
and sent to stockholders in connection with the Annual Meeting of Stockholders
to be held on May 20, 1999. Such Report and Proxy Statement, except for the
parts therein that have been specifically incorporated herein by reference,
shall not be deemed "filed" as part of this report on Form 10-K.
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<PAGE>
PART I
Item 1. Business
General
United Asset Management Corporation (UAM or the Company) is a holding
company organized in December 1980 to acquire and own firms that provide
investment advisory services primarily for institutional clients. The Company's
wholly owned subsidiaries (Affiliated Firms or Firms) operate in one business
segment, that is, as investment advisers, managing both domestic and
international investment portfolios for corporate, government and union benefit
plans, mutual funds, individuals, endowments, and foundations. UAM intends to
continue expanding through the internal growth of its present Affiliated Firms
and through the acquisition or organization of additional firms in the future
(see "Affiliated Firms"). In addition, UAM plans to continue to diversify,
domestically and internationally, with respect to both the classes of assets
managed and client base. While UAM's Affiliated Firms primarily specialize in
the management of U.S. equities, bonds and cash, other asset classes under
management include international securities, real estate and stable value
assets.
Advisory fees based on the assets of pension plans, profit sharing
plans, endowments and foundations provide the largest portion of the Company's
revenues. Such clients are sometimes referred to as "institutional" clients, and
they are generally "tax-exempt" in that the income and any capital gains which
result from their portfolio investments are not taxable to them under present
law. Advisory fees are primarily based on the value of assets under management.
Fee rates typically decline as account size increases. The assets of
institutional clients have generally been growing, with the most rapid growth
achieved by pension and profit sharing plans (sometimes called employee benefit
plans). For the year ended December 31, 1998, no single client of any Affiliated
Firm provided more than 4% of the Company's consolidated revenues. Accordingly,
the loss of any single client would not have a material adverse effect on the
Company's total investment management business.
Each Affiliated Firm operates under its own name, with its own
investment philosophy and approach. Each conducts its own investment analysis,
portfolio selection, marketing and client service. During any given period,
investment results may vary among Firms. Client fees are set by each Firm based
on its own judgment concerning the market for the services it renders. Each Firm
is separately regulated under applicable federal, state or foreign law.
In addition to the Firms' individual efforts, UAM has established
distribution and client service organizations which are available to the
Affiliated Firms to supplement the investment management services they provide.
UAM has also developed an operating partnership concept with the Affiliated
Firms. These are described more fully under "Method of Operation."
UAM has revenue sharing plans with the Affiliated Firms which are
described more fully under "Revenue Sharing." These agreements provide for UAM
to receive increased or decreased revenues from each Affiliated Firm, based on a
percentage of the change in each Firm's revenues from year to year, starting
from a base amount agreed upon in the year of acquisition or at inception. These
arrangements allow each Firm to set its own operating expense budget and
compensation practices, limited by the share of revenues available to the Firm.
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The Industry
Revenues in the institutional investment management industry are
determined primarily by fees based on assets under management. Therefore, the
principal determinant of growth in the industry is the growth of institutional
assets under management. In management's judgment, the major factors which
influence changes in institutional assets under management are: (a) changes in
the market value of securities; (b) net cash flow into or out of existing
accounts; (c) gains of new or losses of existing accounts by specific firms or
segments of the industry; and (d) the introduction of new products by the
industry or by particular firms.
In general, assets under management in the institutional segments of
the industry have increased steadily. For example, Money Market Directories,
Inc. recorded in its 1999 Directory $5.8 trillion in assets under management in
accounts of employee benefit plans and endowments within the United States as of
mid-1998, which represents an average compound five-year annual growth rate of
13.5% since mid-1993. The 1999 Directory also reported $12.1 trillion of assets
under management as of mid-1998 at investment advisory firms (including branch
offices) within the United States, which represents an average compound
five-year annual growth rate of 21.7% over the corresponding assets since
mid-1993.
The employee benefit plan market includes two principal sectors:
defined benefit and defined contribution plans. More than half of U.S.
retirement plan assets are in defined benefit plans, which assure employees of a
particular level of pension benefits when they retire. The Employee Retirement
Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 (the
Code) require employers to fund their defined benefit plans sufficiently to
generate the benefits they have promised. However, the Code also discourages
overfunding of defined benefit plans by employers by limiting tax deductions for
contributions to fully funded plans. In management's opinion, high investment
returns experienced in the 1990s have resulted in many defined benefit
retirement plans reaching or exceeding their full funding limits based on
actuarial calculations; therefore, many employers have ceased to contribute
additional cash to the plans. However, if the value of plan assets declines due
to market factors, or if sustained periods of low interest rates cause an
increase in the actuarial value of plan liabilities, employers will generally be
obligated to step up contributions to their defined benefit pension plans. This
counter-cyclical funding pattern for defined benefit plans helps to smooth out
fluctuations in the growth of plan assets under management by firms that provide
investment advisory services to sponsors of defined benefit plans, and
therefore, it helps to moderate fluctuations in the revenues of these investment
managers. Under defined contribution plans, on the other hand, employers may
contribute to their employees' retirement funds on a tax-advantaged basis, but
individual employees generally decide how their plan assets will be invested.
Defined contribution plans are the fastest growing sector of the employee
benefit plan market.
Competition
The Affiliated Firms compete to manage domestic and international
investment portfolios for corporate, government and union benefit plans, mutual
funds, individuals, endowments, and foundations. Management believes that the
most important factors affecting competition in the investment management
industry are: (1) the abilities and reputations of investment managers; (2)
stability of a firm's workforce, especially of portfolio managers; (3) an
effective marketing force
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with broad access to channels of distribution; (4) differences in the investment
performance of investment management firms; (5) adherence to particular
investment styles; (6) quality of client service; (7) the development of new
investment strategies; (8) resources to invest in information technologies; and
(9) public recognition of trade names in retail markets.
The Affiliated Firms face many competitors, including public and
private investment advisers, as well as affiliates of securities broker-dealers,
commercial banks, investment banks, and insurance companies. Barriers to entry
are low, and firms in the investment management business are relatively
long-lived.
Institutional clients typically may terminate investment management
contracts without penalty upon 30-days' notice. Mutual funds typically may
terminate investment management contracts without penalty upon 60-days' notice,
and retail clients may redeem investments in mutual funds at any time.
Method of Operation
UAM itself does not manage portfolio investments for clients and does
not provide any investment advisory services to Affiliated Firms and therefore
is not registered as an investment adviser under federal, state or foreign law.
UAM respects the individual character of each Affiliated Firm and seeks to
preserve an environment in which each Firm continues to provide investment
management services which meet the particular needs of the Firm's clients. UAM
provides assistance to the Affiliated Firms in connection with the preparation
of separate company financial statements, tax matters, insurance and maintenance
of a company-wide profit sharing retirement plan. As part of its operating
partnership with its Affiliated Firms, UAM provides support through a series of
marketing and service organizations, and invests with its Firms in areas such as
distribution, new product development, and enhanced marketing and client service
efforts. In addition to promoting this operating partnership, UAM's Operations
Group assists Firms in planning for future growth and management development,
particularly with respect to succession planning. The Company also sponsors
seminars and meetings for executives from each of the Affiliated Firms and from
UAM which serve as forums for sharing business information.
During 1998, the Company expanded its website www.uam.com with new
features including in-depth information on the UAM Funds for individual
investors, an area providing specialized information for financial advisors,
descriptions of the Affiliated Firms with links to their websites, and broader
information on the Company itself. The Company expects this site will play a
major role in its marketing and communication efforts.
In recent years, UAM has established a number of organizations that
augment the marketing and client service capabilities of its Affiliated Firms.
UAM (Japan) Inc. offers the diverse investment management services of
the Affiliated Firms to the Japanese institutional market. UAM (Japan) has a
license to offer fully discretionary investment management services to Japanese
institutional investors.
UAM Investment Services, Inc. provides multi-product and global
capabilities to financial advisors and major financial institutions in the
United States and Europe. It provides a single
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convenient channel through which clients can utilize the many investment
management products offered by the Affiliated Firms.
UAM Funds, Inc., a series mutual fund, allows Affiliated Firms to open
portfolios to pool client accounts in an efficient, cost-effective manner and to
provide additional investment styles. As of December 31, 1998, 23 of the
Affiliated Firms managed 46 UAM Funds portfolios, and such portfolios held
assets totaling $3.5 billion.
UAM Fund Services, Inc. oversees service providers used by UAM Funds,
Inc. and, upon request, by separate fund families offered by Affiliated Firms.
UAM Trust Company assists Affiliated Firms in establishing commingled
investment pools for their clients. Collective group trusts and other commingled
investment vehicles can fit those situations where neither separately managed
accounts nor mutual funds meet clients' needs.
UAM Shareholder Service Center, Inc. provides telephone servicing and
transfer agent support to UAM mutual fund groups. The center enables Pilgrim
Baxter and other UAM Affiliated Firms to consolidate and enhance shareholder
services and marketing activities.
UAM believes that the professional independence of the Affiliated Firms
and the continuing diversification of investment philosophies and approaches
within the Company are necessary ingredients of UAM's success and that of the
Affiliated Firms. Most key employees of each Affiliated Firm at the time of
acquisition by UAM have continued with their Firm in accordance with employment
agreements executed in connection with each acquisition, have remained on their
Firm's Board of Directors, and have continued to serve as its executive
officers. Each Affiliated Firm's directors and officers are responsible for
reviewing their respective Firm's results, plans and budgets.
See Note 7 of the Annual Report, which is incorporated herein by
reference, for the Company's segment information.
Revenue Sharing
Most of UAM's Affiliated Firms operate under revenue sharing plans.
Such plans permit each Firm to retain a specified percentage of its revenues
(typically 50-70%) for use by its principals at their discretion in paying
expenses of operations, including salaries and bonuses. The purposes of the
plans are to provide significant ongoing incentives for the principals of the
Affiliated Firms to continue working as they did prior to the sale of their firm
to UAM, to support their autonomy, and to allow UAM to participate in the growth
of revenues of each Affiliated Firm. The plans are designed to allow each Firm's
principals to participate in that Firm's growth in a substantial manner and to
make operating decisions freely within the limits of that portion of the Firm's
revenues which is retained by the Firm. In effect, the portion of its revenues
retained by each Firm that is not used to pay salaries and other operating
expenses is available for payment to the principals and other key employees of
such Firm in the form of bonuses. The portion of Affiliated Firm revenues
retained by the Firms and used to pay salaries and bonuses and to fund operating
expenses is included in the Company's Consolidated Statement of Operations.
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Under each agreement, when an Affiliated Firm is acquired by UAM, the
base revenues of the Firm are established, and a share of such revenues is
allocated to UAM, with the balance being the acquired Firm's share of revenues.
In addition, agreement is reached on the Firm's and UAM's respective percentage
shares of changes in such Firm's revenues compared to its base revenues. The
Affiliated Firm pays for all of its business expenses out of its share of
revenues. Each year, the amount of the Affiliated Firm's revenues that is paid
to UAM and the amount that is retained by the Firm are adjusted upwards in the
case of growth in such Firm's revenues over its base, or downwards in the case
of decreases in such Firm's revenues below its base, by applying the agreed-upon
percentages to the total increase or decrease in the Firm's revenues. Under most
of the existing revenue sharing agreements, UAM's share of increases above a
Firm's base revenues is between 30% and 50%, and UAM's share of decreases below
a Firm's base revenues is between 50% and 70%. Thus, in any year in which the
Affiliated Firm's revenues increase over its base revenues, the Firm retains a
portion of such additional amounts to use as its principals may decide. The
balance of the increase in the Affiliated Firm's revenues is paid to UAM, in
addition to UAM's share of such Firm's base revenues. In any year in which the
Affiliated Firm's revenues decrease to a level below its base revenues, the
Firm's share of its base revenues is reduced by the Firm's portion of the
decrease, and therefore, the Firm may need to reduce its expenses. Similarly,
the revenue sharing amount paid to UAM will be reduced by UAM's share of any
decline in the Affiliated Firm's revenues below its base.
In addition to revenue sharing with its Affiliated Firms, UAM has
designed incentive programs to further reward business growth through positive
net client cash flow. Incentives awarded under these programs are paid in the
combination of cash, stock options and incentive units.
Affiliated Firms
Each Affiliated Firm conducts its own marketing, client relations,
research, portfolio management and administrative functions. Each Firm sets its
own investment advisory fees and manages its business independently on a
day-to-day basis.
The investment philosophy, style and approach of each Affiliated Firm
are independently determined by it, and these philosophies, styles and
approaches may vary substantially from firm to firm. As a consequence, more than
one Affiliated Firm may be retained by a single client, since many clients
employ multiple investment advisers. The strategies employed and assets selected
by Affiliated Firms are separately chosen by them, with the result that any one
Firm may be bullish on the stock or bond market while another Firm is bearish.
Two of the Affiliated Firms are full-service institutional real estate
investment management firms with $9.8 billion of assets under management at year
end. These Firms invest in real estate properties in the U.S. and overseas for
their U.S. and foreign clients and provide a broad spectrum of real estate
services, including research, acquisition and disposition, financing, and asset
and property management. Another Affiliated Firm, with $10.3 billion of assets
under management at year end, manages stable value asset portfolios such as
guaranteed investment contracts (GICs) and synthetic GICs.
All of these differences, when combined with the separate names and
identities of the various Affiliated Firms may: (1) tend to insulate UAM from
the various cycles of market performance for specific asset classes and
individual Firms; (2) permit more than one Affiliated
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Firm to serve any single client; and (3) mean that some Affiliated Firms may
attract substantial new business while other Firms may grow more slowly or lose
business.
UAM's Firms manage both domestic and international investment
portfolios for corporate, government and union benefit plans, mutual funds,
individuals, endowments, and foundations. As of December 31, 1998, UAM's Firms
had approximately $201.4 billion under management with an average account size
of $32.3 million. The 20 largest clients of UAM's Affiliated Firms represented
16% of total revenues and the 100 largest clients represented 28%. Additional
information regarding the number of clients and types and amounts of assets
under management is found in the table on page 36 of the Annual Report.
The following table summarizes UAM's asset mix:
<TABLE>
<CAPTION>
Assets Under Management at December 31,
(in millions) 1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Equities $ 99,814 58% $123,213 63% $127,871 63%
International Securities 21,764 13 27,947 14 28,161 14
U.S. Bonds and Cash 27,266 16 27,164 14 25,999 13
Real Estate 13,909 8 10,515 5 9,302 5
Stable Value 8,274 5 8,650 4 10,060 5
-------- --- -------- --- -------- ---
$171,027 100% $197,489 100% $201,393 100%
======== === ======== === ======== ===
</TABLE>
As previously described, each Affiliated Firm is responsible for
marketing its own investment management services. Typically, one or more of the
employees at each Firm are responsible for making initial contact with
prospective clients. Most Firms have brochures describing the Firm, its
principals and its investment approach. These brochures are mailed to
prospective clients, in addition to soliciting clients by telephone and in
person. Once initial contact is made, face-to-face meetings between the
principals of a Firm and the prospective client take place to discuss investment
philosophy, management fees and a variety of other related matters.
UAM's Acquisition Program
Since its inception, UAM has sought to acquire or to establish
institutional investment management firms. Once it acquires or organizes such
firms, UAM seeks to preserve their autonomy by allowing their key employees to
retain control of investment decisions and manage day-to-day operations, while
adding value to the Firm through an operating partnership described below. When
an Affiliated Firm is acquired from employee-stockholders, the former
stockholders receive the added benefits of a more diversified company by virtue
of equity ownership in UAM. After acquisition by UAM, Affiliated Firms continue
to operate under their own firm name, with their own leadership and individual
investment philosophy and approach.
In selecting acquisition candidates, the Company seeks investment
management firms that will enhance the business of existing affiliates, provide
entry to new channels of distribution, or boost UAM's participation in
attractive asset classes that are currently under-represented among its firms.
UAM is interested in companies that have pursued their investment philosophy
with consistency, shown a determination and an ability to grow, and developed a
second generation of
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money managers and leaders. In addition, UAM has acquired or organized firms at
various stages of development, from start-up to relatively mature firms and has
acquired both employee-owned firms and subsidiaries or divisions of financial
institutions.
UAM has observed that the major reasons that employee-owned firms
consider selling to UAM include: (1) the high value of the firm relative to its
principals' total net worth; (2) the need for liquidity on the part of the
principals; (3) their desire for diversification and a reduction in their
exposure to a single firm's results; (4) their autonomy after acquisition; and
(5) increasingly, the access to channels of distribution provided by UAM's
service firms. Substantially all the key employees of Affiliated Firms continue
to be actively involved in their firms long after their acquisition by UAM.
In purchasing investment management firms, UAM has structured the
transactions to create incentives for key personnel to remain with their firm
after the expiration of their employment agreements. The key employees have
entered into employment and noncompete agreements for terms ranging primarily
from five to 12 years, which also prohibit the employees from competing with
their firm for a substantial period after termination of employment. Most of the
key employees of the Affiliated Firms were stockholders of such firms prior to
their acquisition by UAM. In connection with the purchases, the former
stockholders and/or key employees have typically received consideration in the
form of cash, subordinated notes and warrants to purchase UAM common stock, or
UAM common stock. The subordinated notes, most of which may be used to exercise
the warrants, generally have terms of between five and 10 years. The key
employees of each Affiliated Firm also participate directly, through revenue
sharing, in revenues of their firm and meet the firm's expenses from their share
of these revenues, as described more fully under "Revenue Sharing."
To fund acquisitions, the Company utilizes its existing capital,
together with Operating Cash Flow (net income plus amortization and
depreciation) and borrowings available under its $750,000,000 Reducing Revolving
Credit Agreement (as more fully described in Note 3 of the Company's 1998 Annual
Report to Stockholders (the Annual Report); also see Items 8 and 14 of this Form
10-K). Such borrowings are secured by the stock of the Company's subsidiaries.
Regulation
UAM's domestic investment advisory subsidiaries are registered with and
subject to regulation by the Securities and Exchange Commission (the SEC) under
the Investment Advisers Act of 1940 and, where applicable, under state advisory
laws. The Company's foreign investment advisory affiliates are members of or
subject to certain self-regulatory bodies or other regulatory agencies. The
Company's brokerage subsidiaries are registered as broker-dealers with the SEC
under the Securities Exchange Act of 1934 and, where applicable, under state
securities laws, and are regulated by the SEC, state securities administrators
and the National Association of Securities Dealers, Inc. Four Affiliated Firms
are regulated by the Commodities Futures Trading Commission, and among the
Affiliated Firms are four trust companies which are subject to regulation by the
Office of Comptroller of the Currency or applicable state law.
UAM's domestic investment advisory subsidiaries are subject to ERISA
and its regulations to the extent they are "fiduciaries" under ERISA with
respect to their clients.
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Registrations, reporting, maintenance of books and records and
compliance procedures required by these laws and regulations are maintained
independently by each UAM subsidiary.
The officers, directors and employees of UAM's Affiliated Firms may
from time to time own securities which are also owned by one or more of their
clients. Each such Firm has internal guidelines and codes of ethics with respect
to individual investments, requires reporting of securities transactions and
restricts certain transactions so as to minimize possible conflicts of interest.
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UAM's Affiliated Firms as of December 31, 1998 are listed below in the order in
which they were acquired or established.
<TABLE>
<CAPTION>
Principal Acquired
Affiliated Firm Location or Organized
- --------------- -------- ------------
<S> <C> <C>
Nelson, Benson & Zellmer, Inc. Denver, CO August 1983
Chicago Asset Management Company Chicago, IL October 1983
Colony Capital Management, Inc. Atlanta, GA February 1984
Hellman, Jordan Management Company, Inc. Boston, MA August 1984
Thompson, Siegel & Walmsley, Inc. Richmond, VA December 1984
Sterling Capital Management Company Charlotte, NC December 1984
Analytic Investors, Inc. (1) Los Angeles, CA May 1985
Northern Capital Management, Inc. Madison, WI January 1986
Cooke & Bieler, Inc. Philadelphia, PA February 1986
Fiduciary Management Associates, Inc. Chicago, IL June 1986
Investment Counselors of Maryland, Inc. Baltimore, MD December 1986
Rothschild/Pell Rudman, Inc. Baltimore, MD December 1986
Rice, Hall, James & Associates San Diego, CA May 1987
C. S. McKee & Company, Inc. Pittsburgh, PA August 1987
Hanson Investment Management Company San Rafael, CA August 1987
Barrow, Hanley, Mewhinney & Strauss, Inc. Dallas, TX January 1988
Sirach Capital Management, Inc. Seattle, WA January 1989
Dewey Square Investors Corporation Boston, MA May 1989
The Campbell Group, Inc. Portland, OR May 1989
Cambiar Investors, Inc. Englewood, CO August 1990
First Pacific Advisors, Inc. Los Angeles, CA June 1991
Spectrum Asset Management, Inc. Stamford, CT November 1991
Acadian Asset Management, Inc. Boston, MA February 1992
L&B Realty Advisors, Inc. (2) Dallas, TX June 1992
NWQ Investment Management Company Los Angeles, CA October 1992
Tom Johnson Investment Management, Inc. Oklahoma City, OK December 1992
Pell, Rudman & Co., Inc. Boston, MA March 1993
Heitman Financial LLC (3) Chicago, IL August 1993
Murray Johnstone Limited Glasgow, Scotland November 1993
GSB Investment Management, Inc. Fort Worth, TX December 1993
Dwight Asset Management Company Burlington, VT January 1994
Investment Research Company San Diego, CA February 1994
Suffolk Capital Management, Inc. New York, NY July 1994
UAM (Japan) Inc. (4) Tokyo, Japan October 1994
UAM Investment Services, Inc. Boston, MA January 1995
Provident Investment Counsel Pasadena, CA February 1995
Pilgrim Baxter & Associates, Ltd. Wayne, PA April 1995
Jacobs Asset Management Fort Lauderdale, FL July 1995
UAM Fund Services, Inc. Boston, MA October 1995
OSV Partners Greenwich, CT April 1996
Rogge Global Partners Plc London, England August 1996
Clay Finlay Inc. New York, NY August 1996
J.R. Senecal & Associates Investment Counsel Corp. Richmond Hill, Ontario January 1997
InvestLink Technologies, Inc. New York, NY February 1997
Expertise Asset Management Paris, France May 1997
Pacific Financial Research, Inc. Beverly Hills, CA May 1997
Thomson Horstmann & Bryant, Inc. Saddle Brook, NJ June 1997
Lincluden Management Limited Oakville, Ontario September 1997
Palladyne Asset Management B.V. Amsterdam, The Netherlands December 1997
Integra Capital Management Corporation Toronto, Ontario January 1998
</TABLE>
(1) During 1998, Analytic o TSA Global Asset Management, Inc. changed
its name to Analytic Investors, Inc.
(2) During 1998, The L&B Group changed its name to L&B Realty Advisors,
Inc.
(3) During 1998, Heitman Financial Ltd. reorganized as Heitman Financial
LLC.
(4) During 1998, United Asset Management (Japan), Inc. changed its name to
UAM (Japan) Inc.
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Employees
The UAM holding company has 74 employees, 11 of whom are executive
officers of UAM (see Item 10, Directors and Executive Officers of the
Registrant). Each Affiliated Firm employs its own investment advisory, marketing
and client service, administrative and operations personnel as needed to provide
advisory services to its clients and to maintain necessary records in accordance
with the rules of various regulatory agencies (see "Affiliated Firms" and
"Regulation" on pages 5 and 7, respectively). At December 31, 1998, the Company,
as a whole, employed 2,250 persons. These numbers exclude 298 individuals who
are employed by the property management subsidiary of L&B Realty Advisors, Inc.
and whose total compensation is billed directly to clients of this affiliate.
Available Information
Information about the Company, including copies of its Forms 10-K and
10-Q filed with the Securities and Exchange Commission, may be obtained without
charge by writing to the Company at One International Place, Boston,
Massachusetts 02110 or reviewing its website at www.uam.com. This information
may also be obtained by contacting the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 (1-800-SEC-0330).
Item 2. Properties
UAM's executive offices in Boston, Massachusetts occupy approximately
27,000 square feet under a lease which expires in 2002. Affiliated Firms are
likewise lessees of their respective offices under leases which expire at
various dates.
Item 3. Legal Proceedings
The Company and certain of the Company's subsidiaries are subject to
legal proceedings arising in the ordinary course of business. On the basis of
information presently available and advice received from legal counsel, it is
the opinion of management that the disposition or ultimate determination of such
legal proceedings will not have a material adverse effect on the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the vote of the security holders of the
Company during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
During the fourth quarter of 1998, UAM issued an aggregate of 424,568
shares of its Common Stock, $.01 par value, in reliance on Section 4(2) of the
Securities Act of 1933, as amended (the Act), to certain executives of its
subsidiaries upon the exercise of warrants originally issued in connection with
the acquisition of such subsidiaries by UAM. The exercise prices of the warrants
ranged from $16.50 to $19.50 per share.
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As of March 15, 1999, there were 398 stockholders of record. The
balance of the information required by this item is incorporated herein by
reference to the "Common Stock Information" on page 59 of the Annual Report.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference to the "Eleven-Year Review" on pages 42 and 43 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated herein by
reference to the "Management's Discussion and Analysis" on pages 37 through 41
of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposures are in the areas of
interest-rate risk, foreign currency exchange-rate risk, and equity-price risk.
The Company's exposure to interest-rate risk arises from variable-rate and
fixed-rate debt arrangements entered into for other-than-trading purposes. To
mitigate the risks associated with increases in interest rates, the Company has
entered into and plans to continue to enter into interest-rate protection
agreements. The agreements outstanding as of December 31, 1998 extend up to
three years and limit interest rates to an average of 8.5%. Tabular information
with respect to these interest-rate protection agreements has not been presented
as the financial statement impact of such agreements is not considered material.
The table below summarizes the Company's market risks associated with debt
obligations as of December 31, 1998. The Company had $287,000,000 outstanding
under its $750,000,000 Reducing Revolving Credit Agreement (the Credit
Agreement) as of December 31, 1998. Interest rates available for amounts
outstanding under the Credit Agreement are currently: prime, 1.5% over LIBOR or
a money market bid option. The recorded cost of the Senior Notes and Credit
Agreement approximates fair value. Due to the unique nature of each of the
subordinated debt instruments issued as consideration for businesses acquired,
an assessment of current fair value is not practicable. Effective interest rates
shown in the table for subordinated debt instruments is a weighted-average of
fixed interest rates attaching to notes having the particular expected year of
maturity. The Company intends to finance subordinated debt that becomes due
which has not been tendered in connection with the exercise of warrants by
utilizing its Credit Agreement. As such, the $10,657,000 of subordinated notes
due in 1999 have been included in the payments due in 2003, the year the line of
credit expires.
11
<PAGE>
<TABLE>
<CAPTION>
Expected Year of Maturity
------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Subordinated Debt - 5,107,000 90,936,000 57,699,000 1,404,000 37,037,000
Effective interest rate - 6.39% 6.33% 6.46% 6.50% 6.13%
Fixed-Rate Senior Notes - 25,000,000 25,000,000 25,000,000 25,000,000 50,000,000
Effective interest rate - 8.92% 8.92% 8.92% 8.92% 8.92%
Fixed-Rate Senior Notes - - - - - 250,000,000
Effective interest rate - - - - - 8.61%
Variable-Rate Senior Debt - - - - 298,178,000 -
Effective interest rate - - - - 7.11% -
</TABLE>
The Company also has exposure to foreign currency exchange-rate fluctuations for
the cash flows received from its foreign affiliates. This risk is mitigated by
the fact that the operations of its subsidiaries, most of which are located in
the U.K. or Canada, are conducted in their respective local currencies. In
addition, any cash remitted by the foreign affiliates occurs shortly after the
related accounts receivable have been collected, further mitigating this risk.
Currently, the Company does not engage in foreign currency hedging activities as
it does not believe that its foreign currency exchange rate risk is material.
The Company also has equity-price risk as more fully described in the "Industry"
section on page two. This risk is somewhat mitigated by the Company's practice
of participating in revenue sharing with its affiliates. See page four for a
discussion of "Revenue Sharing." The Company does not use any market-rate
sensitive instruments for trading purposes or otherwise to protect against this
risk.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference to the "Selected Quarterly Financial Data" on page 59 of the Annual
Report, "Consolidated Financial Statements" and "Notes to the Consolidated
Financial Statements" on pages 44 through 57 of the Annual Report, and the
"Report of Independent Accountants" on page 58 of the Annual Report. (See also
the "Financial Statement Schedule" filed under Item 14 of this Form 10-K.)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated herein by
reference to the sections entitled "Election of Directors," "Executive
Officers," and "Proxy Statement - Section 16(a) Beneficial Ownership Reporting
Compliance" included in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1999 (the "Proxy Statement").
12
<PAGE>
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to the sections entitled "Executive Compensation - Summary
Compensation Table," "Executive Compensation - Stock Options," "Executive
Compensation - Compensation Committee Report," "Performance Graph,"
"Compensation Committee Interlocks and Insider Participation," and "Governance
of the Company - Compensation of Directors" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the section entitled "Ownership of UAM's Common Stock" in the Proxy
Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the section entitled "Governance of the Company - Related
Transactions" in the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of United Asset
Management Corporation and report of independent accountants, included
on pages 44 through 58 of the Annual Report, are incorporated herein by
reference as a part of this Form 10-K:
<TABLE>
<CAPTION>
Page(s) in the
Title Annual Report
----- -------------
<S> <C>
Report of Independent Accountants. 58
Consolidated Balance Sheet as of December 31, 1998
and 1997. 44
Consolidated Statement of Operations for each of the
three years in the period ended December 31, 1998. 45
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1998. 46
Consolidated Statement of Changes in Stockholders'
Equity for each of the three years in the period ended
December 31, 1998. 47
Notes to Consolidated Financial Statements. 48-57
</TABLE>
13
<PAGE>
2. Financial Statement Schedule
The following consolidated financial statement schedule and report of
independent accountants are filed as a part of this Form 10-K and are
on the following pages:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants on Financial F-1
Statement Schedule.
Schedule VIII Valuation and Qualifying Accounts for F-2
each of the three years in the period
ended December 31, 1998.
</TABLE>
All other schedules have been omitted since they are not required, not
applicable or the information is in the Financial Statements or Notes
thereto.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title
------ -----
<S> <C> <C>
(1) 3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
(2) 4.1 Specimen Certificate of Common Stock, $.01 par value,
of the Registrant.
(3) 4.2 Agreement to furnish copies of subordinated debt instruments to
the Commission.
9.0 Not applicable.
(4) 10.1 $750,000,000 Amended and Restated Credit Agreement dated as of
April 29, 1998.
(4) 10.2 Undertaking to Furnish Copies of Omitted Exhibits and Schedules to
$750,000,000 Amended and Restated Credit Agreement dated as of
April 29, 1998.
(5) 10.3 Amendment No. 1 to Amended and Restated Credit Agreement dated
as of August 12, 1998.
10.4 Amendment No. 2 and Waiver to Amended and Restated Credit
Agreement dated as of December 30, 1998.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.5 Amendment No. 3 and Waiver to Amended and Restated Credit
Agreement dated as of January 29, 1999.
(6) 10.6 Note Purchase Agreement dated as of August 1, 1995.
(7) 10.7 First Amendment dated as of June 23, 1998 to Note Purchase
Agreement dated as of August 1, 1995.
(5) 10.8 $250,000,000 Note Purchase Agreement dated as of August 12, 1998.
(5) 10.9 Undertaking to Furnish Copies of Omitted Exhibits and Schedules to
$250,000,000 Note Purchase Agreement dated as of August 12, 1998.
(8) 10.10 United Asset Management Corporation Profit Sharing and 401(k)
Plan dated as of May 11, 1989 and Amended and Restated as of
November 26, 1990.
(9) 10.11 Revised First Amendment to United Asset Management Corporation
Profit Sharing and 401(k) Plan effective as of January 1, 1992.
(9) 10.12 Second Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1993.
(1) 10.13 Third Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1994.
(10) 10.14 Fourth Amendment to United Asset Management Corporation Profit
Sharing and 401(k) Plan effective as of January 1, 1995.
10.15 United Asset Management Corporation Amended and Restated
1994 Stock Option Plan (as further Amended and Restated as of
December 29, 1998).
10.16 United Asset Management Corporation Stock Option Deferral Plan
effective December 29, 1998.
(10) 10.17 United Asset Management Corporation Deferred Compensation Plan
effective January 1, 1994.
(11) 10.18 First Amendment to United Asset Management Corporation
Deferred Compensation Plan effective July 1, 1997.
(12) 10.19 Consulting Agreement Between United Asset Management
Corporation and David I. Russell dated as of January 1, 1993.
(13) 10.20 First Amendment to Consulting Agreement between United
Asset Management Corporation and David I. Russell dated
as of June 17, 1996.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(4) 10.21 Employment Agreement between United Asset Management
Corporation and Charles E. Haldeman, Jr. dated March 1, 1998.
11.1 Calculation of Earnings (Loss) Per Share.
12.0 Not applicable.
13.1 Annual Report to Stockholders for the Year Ended December 31,
1998.
16.0 Not applicable.
18.0 Not applicable.
21.1 Subsidiaries of the Registrant.
22.0 Not applicable.
23.1 Consent of Independent Accountants.
24.0 Not applicable.
27.1 Financial Data Schedules.
99.1 Risk Factors.
</TABLE>
<TABLE>
<CAPTION>
Notes to Exhibit Listing
------------------------
<S> <C>
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, and incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Form S-1 as filed with the
Commission and which became effective on August 22, 1986, and
incorporated herein by reference (Registration No. 33-6874).
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1998, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998, and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1995, and incorporated herein by
reference.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1998, and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and incorporated herein by reference.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1993, and incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, and incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended September 30, 1997, and incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, and incorporated herein by reference.
</TABLE>
Location of Documents Pertaining to Executive Compensation Plans and
Arrangements:
<TABLE>
<S> <C>
(1) United Asset Management Corporation Amended and Restated 1994 Stock
Option Plan (as further Amended and Restated as of December 29, 1998),
Exhibit 10.15 to this Form 10-K.
(2) United Asset Management Corporation Stock Option Deferral Plan effective
December 29, 1998, Exhibit 10.16 to this Form 10-K.
(3) United Asset Management Corporation Deferred Compensation Plan effective
January 1, 1994, Exhibit 10.17 to this Form 10-K.
(4) First Amendment to United Asset Management Corporation Deferred
Compensation Plan effective July 1, 1997, Exhibit 10.18 to this Form 10-K.
(5) Consulting Agreement between United Asset Management Corporation and
David I. Russell dated as of January 1, 1993 - Form 10-K for fiscal year ended
December 31, 1992, Exhibit 10.19 to this Form 10-K.
(6) First Amendment to Consulting Agreement between United Asset Management
Corporation and David I. Russell dated as of June 17, 1996, Exhibit 10.20
to this Form 10-K.
(7) Employment Agreement between United Asset Management Corporation and
Charles E. Haldeman, Jr. dated March 1, 1998, Exhibit 10.21 to this Form
10-K.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of the fiscal year covered by this report.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 22, 1999 UNITED ASSET MANAGEMENT CORPORATION
-----------------------------------
(Registrant)
By /s/ Norton H. Reamer By /s/ William H. Park
----------------------------- -----------------------------------
Norton H. Reamer William H. Park
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Norton H. Reamer
- -----------------------------------------
(Norton H. Reamer) Director March 22, 1999
/s/ Charles E. Haldeman, Jr.
- -----------------------------------------
(Charles E. Haldeman, Jr.) Director March 22, 1999
/s/ Harold J. Baxter
- -----------------------------------------
(Harold J. Baxter) Director March 22, 1999
/s/ Francis Finlay
- -----------------------------------------
(Francis Finlay) Director March 22, 1999
/s/ Robert J. Greenebaum
- -----------------------------------------
(Robert J. Greenebaum) Director March 22, 1999
/s/ Beverly L. Hamilton
- -----------------------------------------
(Beverly L. Hamilton) Director March 22, 1999
/s/ George E. Handtmann, III
- -----------------------------------------
(George E. Handtmann, III) Director March 22, 1999
/s/ Bryant M. Hanley, Jr.
- -----------------------------------------
(Bryant M. Hanley, Jr.) Director March 22, 1999
/s/ Jay O. Light
- -----------------------------------------
(Jay O. Light) Director March 22, 1999
/s/ David I. Russell
- -----------------------------------------
(David I. Russell) Director March 22, 1999
/s/ Philip Scaturro
- -----------------------------------------
(Philip Scaturro) Director March 22, 1999
/s/ John A. Shane
- -----------------------------------------
(John A. Shane) Director March 22, 1999
/s/ Barbara S. Thomas
- -----------------------------------------
(Barbara S. Thomas) Director March 22, 1999
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors
of United Asset Management Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 3, 1999 appearing on page 58 of the 1998 Annual Report to
Stockholders of United Asset Management Corporation (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 3, 1999
F-1
<PAGE>
SCHEDULE VIII
UNITED ASSET MANAGEMENT CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Cost Assigned
to Contracts Acquired
-------------------------------------------
Weighted
Range of Average
Estimated Estimated
Remaining Remaining
Lives Lives Beginning Additions Ending
Firm (in years) (in years) Balance and Other Balance
- ---- ---------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
1996
- ----
HFL 2-20 13 $ 220,416 $ - $ 220,416
PBA 4-16 14 104,605 12,528 117,133
PIC 2-22 16 347,307 (167) 347,140
All Others 1-18 5 748,984 (6,216) 742,768
------------ ---------- ------------
$1,421,312 $ 6,145 $1,427,457
============ ========== ============
1997
- ----
PBA 3-15 13 $ 117,133 $ - $ 117,133
PFR 15 15 - 128,391 128,391
PIC 1-21 15 347,140 69,021 416,161
All Others 1-17 6 963,184 (98,610) 864,574
------------ ---------- ------------
$1,427,457 $ 98,802 $1,526,259
============ ========== ============
1998
- ----
PBA 2-14 12 $ 117,133 $ - $ 117,133
PFR 14 14 128,391 34 128,425
PIC 1-20 14 416,161 (1,828) 414,333
All Others 1-16 6 864,574 5,971 870,545
------------ ---------- ------------
$1,526,259 $ 4,177 $1,530,436
============ ========== ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated Amortization
------------------------------------------------------
Ending
Tax
Charged to Balance
Beginning Operations Ending In Excess
Firm Balance and Other Balance of Book
- ---- ------- --------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
HFL $ 15,820 $ 14,712 $ 30,532 $ 2,621
PBA 4,293 6,601 10,894 1,129
PIC 16,309 19,591 35,900 9,102
All Others 329,214 61,031 390,245 91,650
---------- ----------- ---------- ----------
$365,636 $ 101,935 $467,571 $104,502
========== =========== ========== ==========
1997
- ----
PBA $ 10,894 $ 7,375 $ 18,269 $ 510
PFR - 4,725 4,725 979
PIC 35,900 19,596 55,496 12,885
All Others 420,777 8,820 429,597 (53,137)
---------- ----------- ---------- ----------
$467,571 $ 40,516 $508,087 $(38,763)
========== =========== ========== ==========
1998
- ----
PBA $ 18,269 $ 7,351 $ 25,620 $ 409
PFR 4,725 8,018 12,743 1,517
PIC 55,496 23,807 79,303 16,707
All Others 429,597 51,358 480,955 (60,044)
---------- ----------- ---------- ----------
$508,087 $ 90,534 $598,621 $(41,411)
========== =========== ========== ==========
</TABLE>
Certain reclassifications have been made to the accounts to conform with the
current year's presentation.
UNITED ASSET MANAGEMENT CORPORATION
---ooOoo---
AMENDED AND RESTATED BY-LAWS
(effective as of March 1, 1999)
---ooOoo---
ARTICLE I
OFFICES AND RECORDS
Section 1. Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Section 3. Books and Records. The books and records of the Corporation
may be kept within or outside the State of Delaware at such place or places as
may from time to time be designated by the Board.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at such place either within or without the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting.
Section 2. Annual Meeting - Date and Time. Annual meetings of
stockholders shall be held on such date and time as shall be designated by the
Board of Directors and stated in the notice of the meeting.
Section 3. Inspectors of Elections; Opening and Closing the Polls. The
Board by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate has been
appointed to act or is able to act at a meeting of stockholders, the Chairman of
the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before discharging such person's duties, shall take and sign an oath
to execute faithfully the duties of inspector with strict impartiality and
according to the best of such person's ability. The inspector(s) shall have the
duties prescribed by law. The Chairman of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting.
<PAGE>
Section 4. Calling of Special Meetings. Subject to the rights of the
holders of any shares of stock having a preference over the common stock of the
Corporation as to dividends or upon liquidation with respect to such shares of
preferred stock, special meetings of the stockholders, for any purpose or
purposes, may be called only by President or the Chairman of the Board of
Directors pursuant to a resolution adopted by majority of the total number of
directors which the Corporation would have if there were no vacancies (the
"whole board").
Section 5. Notice of Meetings. Written or printed notice of each
annual or special meeting stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called, shall be prepared and
delivered by the Corporation not less than ten (10) days nor more than sixty
(60) days before the date of the meeting, either personally or by mail, to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, addressed to the stockholder at such person's address
as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Meetings may be
held without notice if all stockholders entitled to vote are present, or if
notice is waived by those not present. Any previously scheduled meeting of the
stockholders may be postponed, and any special meeting of the stockholders may
be cancelled, by resolution of the Board of Directors upon public notice given
prior to the date previously scheduled for such meeting of stockholders.
Section 6. Notice of Stockholder Business and Nominations; Annual
Meetings of Stockholders. Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting pursuant to Section 5 of this Article II,
(b) by or at the direction of the Board of Directors or (c) by any stockholder
of the Corporation who was a stockholder of record at the time of giving of
notice provided for in this By-law, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-law.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of the first paragraph of
this By-law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for stockholder action. To be timely, a stockholder's notice shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days prior to or more than 60
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 120th day prior to
such annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation. In no event shall the public announcement of an adjournment of an
annual meeting commence a new time period for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth (a) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director all information
-2-
<PAGE>
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
Notwithstanding anything in the second sentence of the second
paragraph of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least 100 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
Section 7. Notice of Stockholder Business and Nominations; Special
Meetings of Stockholders. Only such business shall be conducted at a special
meeting of stockholders as shall have been brought before the meeting pursuant
to the Corporation's notice of meeting pursuant to Section 5 of this Article II.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant to
the Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this By-law, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by the second paragraph
of Section 6 of this Article II shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such special meeting and not later than the
close of business on the later of the 90th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
-3-
<PAGE>
Section 8. Notice of Stockholder Business and Nominations; General.
Only such persons who are nominated in accordance with the procedures set forth
in these By-laws shall be eligible to serve as directors and only such business
shall be conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in these By-laws.
Except as otherwise provided by law, the Certificate of Incorporation or the
By-laws, the Chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in these By-laws and, if any proposed nomination or business is not in
compliance with these By-laws, to declare that such defective proposal or
nomination shall be disregarded.
For purposes of these by-laws, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of these By-laws, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in these By-laws. Nothing in these By-laws shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of preferred stock to elect directors under
specified circumstances.
Section 9. Quorum and Adjournment. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the Certificate of Incorporation. The Chairman of the meeting may
adjourn the meeting from time to time, whether or not there is such a quorum. No
notice of the time and place of adjourned meetings need be given except as
required by law. The stockholders present at a duly called meeting at which a
quorum is present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 10. Action of Stockholders. When a quorum is present at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes or of the Certificate of Incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question. Election of directors at all meetings of the
stockholders at which directors are to be elected shall be by ballot, and,
subject to the rights of the holders of any series of preferred stock to elect
directors, a plurality of the votes cast thereat shall elect directors.
Section 11. Proxies. Unless otherwise provided in the Certificate of
Incorporation each stockholder shall, at every meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
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Section 12. Record Date for Action by Written Consent. In order that
the Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any stockholder of record
seeking to have the stockholders authorize or take corporate action by written
consent shall, by written notice to the Secretary of the Corporation, request
the Board of Directors to fix a record date. The Board of Directors shall
promptly, but in all events within 10 days after the date on which such a
request is received, adopt a resolution fixing the record date. If no record
date has been fixed by the Board of Directors within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is required by applicable law, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to it
principal place of business or to any officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action.
Section 13. Inspectors of Written Consent. In the event of the
delivery, in the manner provided by Section 12 of this Article II, to the
Corporation of the requisite written consent or consents to take corporate
action and/or any related revocation or revocations, the Corporation shall
engage nationally recognized independent inspectors of elections for the purpose
of promptly performing a ministerial review of the validity of the consents and
revocations. For the purpose of permitting the inspectors to perform such
review, no action by written consent without a meeting shall be effective until
such date as the independent inspectors certify to the Corporation that the
consents delivered to the Corporation in accordance with Section 12 of this
Article II represent at least the minimum number of votes that would be
necessary to take the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the Board of Directors or
any stockholder shall not be entitled to contest the validity of any consent or
revocation thereof, whether before or after such certification by the
independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
Section 14. Effectiveness of Written Consent. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the date the earliest dated written consent
was received in accordance with Section 12 of this Article II, a written consent
or consents signed by a sufficient number of holders to take such action are
delivered to the Corporation in the manner prescribed in Section 12 of this
Article II.
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ARTICLE III
DIRECTORS
Section 1. Number, Tenure and Qualifications. The number of directors
which shall constitute the Board shall not be less than one or more than
fifteen. Within the limits above specified, the number of directors shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until his successor is elected and qualified. Directors need
not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
only by a majority of the directors then in office, though less than a quorum,
or by a sole remaining director, and the directors so chosen shall hold office
until the next annual meeting of the stockholders and until their successors are
duly elected and shall qualify, unless sooner displaced. If there are no
directors in office, then an election of directors may be held in the manner
provided by statute.
Section 3. General Powers. The business of the Corporation shall be
managed by or under the direction of its Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-laws
directed or required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. General. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. First Meeting. The first meeting of each newly elected
Board of Directors shall be held at such time and place as shall be fixed by the
vote of the stockholders at the annual meeting and no notice of such meeting
shall be necessary to the newly elected directors in order legally to constitute
the meeting, provided a quorum shall be present. In the event of the failure of
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time as determined by the Board.
Section 7. Special Meetings. Special meetings of the Board may be
called by the President, the Chairman of the Board or a majority of the Board of
Directors then in office on two days' notice to each director, either personally
or by mail, by facsimile or by telegram.
Section 8. Quorum. At all meetings of the Board a majority of the
Board of Directors shall constitute a quorum for the transaction of business and
the act of a majority of the
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directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Action by Written Consent. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 10. Conference Telephone Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. Executive and Other Committees. The Board of Directors may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
Unless otherwise specified by resolution of the Board, in the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Any such committee, to the extent consistent with law and provided in
the resolution of the Board of Directors, or in these By-laws, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the Board of Directors.
Section 12. Minutes of Committee Meetings. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when requested.
Section 13. Committee Meetings. A committee may hold meetings, both
regular and special, either within or without the State of Delaware. Meetings of
a committee may be called by the president or the Chairman of such committee on
two days' notice to each member, either personally or by mail or by facsimile or
telegram.
Unless otherwise specified by resolution of the Board, at all meetings
of a committee, a majority of the members thereof shall constitute a quorum for
the transaction of
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business and the act of a majority of the members present at any meeting at
which there is a quorum shall be the act of the committee. If a quorum shall not
be present at any meeting of a committee, the members present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, any action required or permitted to be taken at any meeting of a
committee may be taken without a meeting, if all members of the committee
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the committee.
Unless otherwise restricted by the Certificate of Incorporation or
these By-laws, members of a committee may participate in a meeting of the
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
OTHER MATTERS
Section 14. Compensation of Directors. Unless otherwise restricted by
the Certificate of Incorporation or these By-laws, the board of directors shall
have the authority to fix the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 15. Removal of Directors. Unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. General. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these By-laws, notice is required to
be given to any director or stockholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or of
these By-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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ARTICLE V
OFFICERS
Section 1. Elected Officers. The Board of Directors shall elect a
Chief Executive Officer or a President or both, and a Secretary and a Treasurer
and may elect a Chairman of the Board and such other officers as the Board shall
determine. Each officer shall have such powers and perform such duties as are
provided in these By-laws and as may be provided from time to time by the Board
or by the Chief Executive Officer. Each officer shall at all times be subject to
the control of the Board, and any power or duty assigned to an officer by these
By-laws or the Board or the Chief Executive Officer shall be subject to control,
withdrawal or limitation by the Board. Any number of offices may be held by the
same person, unless the Certificate of Incorporation or these By-laws otherwise
provide.
Section 2. Election and Termination. The Board of Directors shall
elect officers at its first meeting after each annual meeting of stockholders
and may elect additional officers and fill vacancies at any other time. Unless
the Board shall otherwise specify, each officer shall hold office until the
first meeting of the Board after the next annual meeting of stockholders, and
until his or her successor has been elected and qualified, except as hereinafter
provided. The Board may remove any officer, or terminate such officer's duties
and powers, at any time, with or without cause. Any officer may resign at any
time by giving written notice thereof to the Chief Executive Officer or to the
Board, or by retiring or by leaving the employ of the Corporation (without being
employed by a subsidiary or affiliate) and any such action shall take effect as
a resignation without necessity of further action. The Chief Executive Officer
may suspend any officer until the next meeting of the Board.
Section 3. Delegation of Powers. Each officer may delegate to any
other officer and to any official, employee or agent of the Corporation, such
portions of his or her powers as such officer shall deem appropriate, subject to
such limitations and expirations as such officer shall specify, and may revoke
such delegation at any time.
Section 4. Qualifications; Duties of the Chairman of the Board. The
Board may, but need not, elect a Chairman of the Board. The Chairman of the
Board may be, but need not be, a person other than the Chief Executive Officer,
and may be, but need not be, an officer or employee of the Corporation. If so
elected, the Chairman of the Board shall preside at meetings of the Board and
shall establish agendas for such meetings. In addition, the Chairman of the
Board shall assure that matters of significant interest to stockholders and the
investment community are addressed by management.
Section 5. Duties of the Chief Executive Officer. The Chief Executive
Officer shall, subject to the direction of the Board, have general and active
control of the affairs and business of the Corporation and general supervision
of its officers, officials, employees and agents; shall preside at all meetings
of the stockholders; shall see that all orders and resolutions of the Board are
carried into effect; and, in addition, shall have all the powers and perform all
the duties generally appertaining to the office of the Chief Executive Officer
of a corporation. The Chief Executive Officer shall designate the person or
persons who shall exercise his or her powers and perform his or her duties in
his or her absence or disability and the absence or disability of the President.
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Section 6. Duties of the President. The President may be the Chief
Executive Officer of the Corporation, if so designated by the board. If not, the
President shall have such powers and perform such duties as are prescribed by
the Chief Executive Officer or by the Board, and, in the absence or disability
of the Chief Executive Officer, the President shall have the powers and perform
the duties of the Chief Executive Officer, except to the extent that the Chief
Executive Officer or the Board shall have otherwise prescribed.
Section 7. Duties of the Secretary. The Secretary shall attend all
meetings and keep the minutes of all the proceedings of the stockholders, the
Board and any other committees unless it shall have chosen another secretary.
The Secretary shall give, or cause to be given, notice of all such meetings and
all other notices required by law or by these By-laws. The Secretary shall have
custody of the corporate seal of the Corporation and the Secretary, or an
Assistant Secretary, shall have the authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
Secretary's signature or by the signature of such Assistant Secretary. The
Secretary shall maintain and have charge of all documents and other records,
including those required by law, and shall generally perform all duties
appertaining to the office of secretary of a corporation.
Section 8. Duties of the Treasurer. The Treasurer shall have the care
and custody of all of the corporate funds and securities, except to the extent
they shall be entrusted to other officers, employees or agents by direction of
the Chief Executive Officer or the Board. The Treasurer shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Chief Executive Officer or the Board. The Treasurer shall disburse the
funds of the Corporation as may be ordered by the Chief Executive Officer or the
Board, taking proper vouchers for such disbursements, and shall render to the
Chief Executive Officer and the Board, at its regular meetings, or when the
Board so requires, an account of all his or her transactions as Treasurer and of
the financial condition of the Corporation.
Section 9. Bond. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond (which shall be renewed every six years) in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of such office and for
the restoration to the Corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Treasurer's possession or under
the Treasurer's control belonging to the Corporation.
Section 10. Appointment of Other Officials and Agents. The Chief
Executive Officer or his or her delegate may appoint such officials and agents
of the Corporation as the conduct of its business may require and assign to them
such titles, powers, duties and compensation as the Chief Executive Officer
shall see fit and may remove or suspend or modify such titles, powers, duties or
compensation at any time with or without cause.
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ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Certificate. Every holder of stock in the Corporation shall
be entitled to have a certificate, signed by, or in the name of the Corporation
by, the Chairman or Vice-Chairman of the Board of Directors, or the President or
a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
Section 2. Signature. Any of or all the signatures on the certificate
may be facsimile. In case any officer, transfer or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfer of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Fixing Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting: provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
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Section 6. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Declaration of Dividends. Dividends upon the capital stock
of the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conducive to the interest of
the Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the Corporation.
Section 4. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 5. Fiscal Years. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 6. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 7. Indemnification. The Corporation shall, to the fullest
extent permitted by the General Corporation Law of Delaware, indemnify each of
its own directors, officers and employees against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, brought
against such person by reason of that person's acts or omissions in his or her
capacity as a director, officer or employee of this Corporation, or, in the case
of an officer or employee of
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this Corporation, in his or her capacity as a director, officer or employee of
another entity controlled by this Corporation.
Expenses (including attorneys' fees) incurred by any person covered by
the first paragraph of this By-law in defending any such threatened, pending or
completed action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such person to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation pursuant to the first paragraph of this By-law.
The Corporation may, but shall not be required to, indemnify its own
agents and any person, not covered by the first paragraph of this By-law, who is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise to such extent, permitted by the General Corporation Law of
Delaware, as the Board of Directors may authorize in the specific case.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered, amended or repealed or new
By-laws may be adopted by the stockholders or by the Board of Directors, when
such power is conferred upon the Board of Directors by the Certificate of
Incorporation at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
By-laws be contained in the notice of such special meeting, provided, however,
that, in the case of amendments by stockholders, notwithstanding any other
provisions of these By-laws or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote of the holders
of any particular class or series of the capital stock of the Corporation
required by law, the Certificate of Incorporation or these By-laws, the
affirmative vote of the holders of at least 80 percent of the voting power of
all the then outstanding shares of the voting stock, voting together as a single
class, shall be required to alter, amend or repeal any provision of these
By-laws. If the power to adopt, amend or repeal By-laws is conferred upon the
Board of Directors by the Certificate of Incorporation it shall not divest or
limit the power of the stockholders to adopt, amend or repeal By-laws.
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EXECUTION COPY
AMENDMENT NO. 2 AND WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 2 dated as of December 30, 1998 of the Amended and
Restated Credit Agreement dated as of April 29, 1998 (as heretofore amended, the
"Amended and Restated Agreement") among United Asset Management Corporation, a
Delaware corporation (the "Borrower"), the banks listed on the signature pages
thereof, Morgan Guaranty Trust Company of New York, as Administrative Agent (the
"Administrative Agent"), and BankBoston, N.A., as Collateral Agent (the
"Collateral Agent").
WHEREAS, the Borrower proposes to (i) (A) form a subsidiary named
Heitman Newco, Inc. and organized as a corporation under the laws of the State
of Delaware ("Heitman Newco"), (B) cause Heitman Newco to form a subsidiary
named Heitman Financial L.L.C. and organized as a limited liability company
under the laws of the State of Delaware ("Heitman LLC"), with Class B membership
interests to be owned by Heitman Newco and Class A membership interests to be
owned by a limited liability company owned by certain employees of Heitman
Financial Ltd., an Illinois corporation and a Subsidiary of the Borrower
("Heitman"), (C) cause each of the Subsidiaries of Heitman to be converted into
a limited liability company (by merger of such Subsidiary into a limited
liability company formed solely for the purpose of converting such Subsidiary
into a limited liability company), (D) transfer all of the capital stock of
Heitman to Heitman Newco, (E) cause Heitman to merge into Heitman LLC (all of
the foregoing transactions, the "Heitman Reorganization"); (ii) pledge 100% of
the issued and outstanding capital stock of Heitman Newco to the Collateral
Agent; (iii) cause Heitman Newco to become a Guaranty Subsidiary and grant a
first priority security interest to the Collateral Agent in all Class B
membership interests of Heitman LLC; and (iv) cause Heitman LLC to confirm its
obligations under the Heitman Guaranty and grant a security interest to the
Collateral Agent in all limited liability company membership interests of the
successors pursuant to the Heitman Reorganization to the Subsidiaries whose
capital stock was pledged under the Heitman Pledge Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions.
(a) Unless otherwise specifically defined herein, each term used
herein which is defined in the Amended and Restated Agreement shall have the
meaning assigned to such term in the Amended and Restated Agreement.
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(b) The definition of Heitman Pledge Agreement is deleted from Section
01 of the Amended and Restated Agreement.
(c) The following definitions are added to Section 1.01 of the Amended
and Restated Agreement in the appropriate alphabetical order:
"Class A Membership Interests" means the Class A membership
interests of Heitman.
"Equity Interest" means (i) in the case of a corporation, any
shares of its capital stock, (ii) in the case of a limited liability
company, any membership interest therein, (iii) in the case of a
partnership, any partnership interest (whether general or limited)
therein, (iv) in the case of any other business entity, any
participation or other interest in the equity or profits thereof or (v)
any warrant, option or other right (including in any conversion feature
in any security) to acquire any Equity Interest described in the
foregoing clauses (i), (ii), (iii) and (iv).
"Heitman Security Agreement" means the Security Agreement,
dated as of the effective date of Amendment No. 2 dated as of December
30, 1998 to the Amended and Restated Agreement, between Heitman and the
Collateral Agent.
"Heitman Newco" means Heitman Newco, Inc. (to be renamed
Heitman Financial Ltd.), a Delaware corporation, and its successors.
"Heitman Newco Security Agreement" means the Security
Agreement, dated as of the effective date of Amendment No. 2 dated as
of December 30, 1998 to the Amended and Restated Agreement, between
Heitman Newco and the Collateral Agent.
(d) The definition of "Collateral Documents" in Section 1.01 of the
Amended and Restated Agreement is amended by replacing the words "the Heitman
Pledge Agreement" with the words "the Heitman Security Agreement, the Heitman
Newco Security Agreement".
(e) The definition of "Heitman" in Section 1.01 of the Amended and
Restated Agreement is amended to read in its entirety as follows:
"Heitman" means Heitman Financial L.L.C., a Delaware limited
liability company and a Subsidiary of the Borrower and successor to
Heitman Financial Ltd., an Illinois corporation, and its successors.
(f) Exhibit F of the Amended and Restated Agreement is amended by
adding the following:
2
<PAGE>
7. Heitman Newco Guaranty, dated as of the effective date of Amendment
No. 2 dated as of December 30, 1998 to the Amended and Restated
Agreement, made by Heitman Newco in favor of the Beneficiaries named
therein.
(g) Exhibit G of the Amended and Restated Agreement shall be replaced
by a new Exhibit G prepared by the Borrower and in form and substance
satisfactory to the Administrative Agent to reflect the Heitman Reorganization.
SECTION 2. Waiver and Consent. The undersigned Banks hereby waive any
breach by the Borrower of Section 5.07 of the Amended and Restated Agreement to
the extent such breach arises out of the Borrower's transfer of the capital
stock of Heitman to Heitman Newco and the merger of Heitman into Heitman LLC.
Promptly after the Amendment Effective Date, the Collateral Agent shall return
to the Borrower the stock certificates issued by Heitman Financial Ltd. and
pledged under the Pledge Agreement and the stock certificates pledged under the
Heitman Pledge Agreement. The undersigned Banks hereby instruct the Collateral
Agent to execute on the Amendment Effective Date the documents described in
clauses (b), (d) and (f) of Section 8 of this Amendment.
SECTION 3. Representations and Warranties. Section 4.11(a) of the
Amended and Restated Agreement is amended by deleting the words "the Heitman
Pledge Agreement" from the first sentence thereof.
SECTION 4. Maintenance of Existence. Section 5.04 of the Amended and
Restated Agreement is amended by adding the words "or other" after each
occurrence of the word "corporate" and by replacing the word "corporation" with
the word "Person".
SECTION 5. Investments. Section 5.15 of the Amended and Restated
Agreement is amended by adding the following as subsection (a-2):
(a-2) Investments in Heitman Newco and Heitman;
SECTION 6. Issuance of Additional Equity Interests by Subsidiaries.
Section 5.16 of the Amended and Restated Agreement is amended to read in its
entirety as follows:
SECTION 5.16. Issuance of Additional Equity Interests by Subsidiaries.
(a) The Borrower will not permit any Subsidiary to issue any
additional Equity Interests to any Person other than the Borrower or a
Wholly-Owned Subsidiary. Neither the Borrower nor any Subsidiary will
sell, transfer, pledge or otherwise dispose of any capital stock of a
Subsidiary, other than dispositions in connection with a transaction
permitted by Section 5.07.
3
<PAGE>
(b) Notwithstanding subsection (a) above, Heitman may issue
the Class A Membership Interests. The Borrower has heretofore delivered
to the Banks a copy of the limited liability company agreement of
Heitman and will not permit such agreement to be amended to increase
the Class A Membership Interests or the rights of the Class A
Membership Interests without the prior written consent of the Required
Banks.
SECTION 7. Pledged Collateral.
(a) Section 5.17(a) of the Amended and Restated Agreement is amended
by adding the following at the end thereof:
; the Borrower will promptly grant a perfected first priority security
interest in or cause a first priority security interest to be granted
in any other Equity Interests of any Subsidiary acquired in a Permitted
Acquisition to the Collateral Agent;
(b) Section 5.17(c) of the Amended and Restated Agreement is amended
to read in its entirety as follows:
(c) Notwithstanding anything to the contrary in this Section, the
Borrower will not be required to pledge (or otherwise grant a security interest
in) (i) the capital stock (or other Equity Interests) of any Subsidiary
identified on Exhibit G hereto as a Special Exempt Subsidiary, (ii) more than
65% of the capital stock (or other Equity Interests) of an acquired Subsidiary
organized outside the United States of America (a "Foreign Subsidiary") which is
owned by the Borrower or a Subsidiary which is not a Foreign Subsidiary, (iii)
any capital stock (or other Equity Interests) of an acquired Subsidiary which is
owned by a Foreign Subsidiary or (iv) any of the capital stock of an acquired
Subsidiary or a Subsidiary formed by the Borrower if such Subsidiary's
consolidated revenues are less than $2,000,000 (an "Exempt Subsidiary");
provided that if, for any fiscal year, the aggregate consolidated revenues of
all Exempt Subsidiaries exceeds $20,000,000, then the capital stock of the
Exempt Subsidiary with the highest consolidated revenue for such year will be
pledged to the Collateral Agent (or, if such Exempt Subsidiary is not a
corporation, then a first priority perfected security interest in all Equity
Interests in such Exempt Subsidiary shall be granted to the Collateral Agent).
This process shall be repeated until the aggregate consolidated revenue of the
remaining Exempt Subsidiaries is less than $20,000,000. For purposes of this
section, the consolidated revenues of each Exempt Subsidiary in each fiscal year
shall be determined in accordance with generally accepted accounting principles
by the Borrower and furnished to the Administrative Agent within 90 days after
the end of the fiscal year of the Borrower.
SECTION 8. Counterparts; Effectiveness. This Amendment may be executed
in one or more counterparts, each of which, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
4
<PAGE>
together, shall constitute but one and the same Amendment with the same force
and effect as if the signatures of all of the parties were on a single
counterpart, and it shall not be necessary in making proof of this Amendment to
produce more than one such counterpart. This Amendment shall become effective
upon receipt by the Administrative Agent of the following (the date of such
effectiveness, the "Amendment Effective Date"):
(a) duly executed counterparts hereof signed by the Borrower, the
Collateral Agent and the Required Banks (or, in the case of any party as to
which an executed counterpart shall not have been received, the Administrative
Agent shall have received telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party);
(b) a duly executed counterpart signed by the Borrower of an amendment
to the Pledge Agreement (amending Schedule A) in form and substance satisfactory
to the Agents;
(c) a duly executed counterpart signed by Heitman Newco of a guaranty
in form and substance satisfactory to the Agents;
(d) a duly executed counterpart signed by Heitman Newco of a security
agreement (relating to the Class B membership interests of Heitman LLC) in form
and substance satisfactory to the Agents;
(e) a duly executed counterpart signed by Heitman LLC of a
confirmation of the Heitman Guaranty in form and substance satisfactory to the
Agents;
(f) a duly executed counterpart signed by Heitman LLC of a security
agreement (relating to the membership interests in certain of its direct
Subsidiaries) in form and substance satisfactory to the Agents;
(g) evidence satisfactory to it that the Heitman Reorganization will
be consummated simultaneously with the effectiveness of this Amendment;
(h) a new Exhibit G to the Amended and Restated Agreement in form and
substance satisfactory to the Administrative Agent and reflecting the Heitman
Reorganization;
(i) an opinion of Hill & Barlow, counsel for the Borrower in form and
substance satisfactory to the Agents;
(j) all documents either Agent may reasonably request (including
additional opinions) relating to the existence of Heitman Newco and Heitman LLC
or the consummation of the Heitman Reorganization, the corporate or other
authority for and validity of any of the documents referred to in clauses (a)
5
<PAGE>
through (h) above, and any other matters relevant thereto, all in form and
substance satisfactory to the Agents.
SECTION 9. Governing Law. This Amendment shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of New
York (without reference to conflict of laws principles).
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
UNITED ASSET MANAGEMENT CORPORATION
By: /s/ William H. Park
-----------------------------------
Name: William H. Park
Title: Executive Vice President and
Chief Financial Officer
BANKBOSTON, N.A., as Collateral Agent and Bank
By: /s/ Stewart P. Neff
-----------------------------------
Name: Stewart P. Neff
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Glenda L. Winter-Irving
-----------------------------------
Name: Glenda L. Winter-Irving
Title: Vice President
6
<PAGE>
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS BRANCHES
By: /s/ George Ann Tobin
---------------------------------------------
Name: George-Ann Tobin
Title: Managing Director
By: /s/ Jonathan B.P. Mendes
---------------------------------------------
Name: Jonathan B.P. Mendes
Title: Vice President
BANK OF AMERICA NT & SA
By: /s/ John G. Hayes
---------------------------------------------
Name: John G. Hayes
Title: Vice President
THE CHASE MANHATTAN BANK
By: /s/ Gail Weiss
---------------------------------------------
Name: Gail Weiss
Title: Vice President
MELLON BANK, N.A.
By: /s/ W. Scott Sanford
---------------------------------------------
Name: W. Scott Sanford
Title: Senior Vice President
NATIONSBANK, N.A.
By: /s/ Ken Ricciardi
---------------------------------------------
Name: Ken Ricciardi
Title: Senior Vice President
CITIBANK, N.A.
By: /s/ Alexander Duka
---------------------------------------------
Name: Alexander Duka
Title: Vice President
7
<PAGE>
COMMERZBANK AG NEW YORK BRANCH
By: /s/ Michael P. McCarthy
---------------------------------------------
Name: Michael P. McCarthy
Title: Assistant Vice President
By: /s/ Joseph J. Hayes
---------------------------------------------
Name: Joseph J. Hayes
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
---------------------------------------------
Name: Sebastian Rocco
Title: Senior Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Nicole Holzapfel
---------------------------------------------
Name: Nicole Holzapfel
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Robert W. McClelland
---------------------------------------------
Name: Robert W. McClelland
Title: Vice President
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Grant Stoddart
---------------------------------------------
Name: Grant Stoddart
Title: EVP The Americas
8
<PAGE>
PARIBAS
By:
---------------------------------------------------
Name:
Title:
By:
---------------------------------------------------
Name:
Title:
BAYERISCHE HYPO- UND VEREINSBANK, NEW YORK BRANCH
By: /s/ David Lefkovits
---------------------------------------------
Name: David Lefkovits
Title: Managing Director
By: /s/ Debra L. Laskowski
---------------------------------------------
Name: Debra L. Laskowski
Title: Director
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK
BRANCH
By:
----------------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward A. Siegel
---------------------------------------------
Name: Edward A. Siegel
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Robert V. Masi
---------------------------------------------
Name: Robert V. Masi
Title: Vice President
9
<PAGE>
SOCIETE GENERALE, NEW YORK BRANCH
By: /s/ Dabney Giles Treacy
---------------------------------------------
Name: Dabney Giles Treacy
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ David C. Hants
---------------------------------------------
Name: David C. Hants
Title: Vice-President
10
EXECUTION COPY
AMENDMENT NO. 3 AND WAIVER
TO
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDMENT NO. 3 dated as of January 29, 1999 of the Amended and
Restated Credit Agreement dated as of April 29, 1998 (as heretofore amended, the
"Amended and Restated Agreement") among United Asset Management Corporation, a
Delaware corporation (the "Borrower"), the banks listed on the signature pages
thereof, Morgan Guaranty Trust Company of New York, as Administrative Agent (the
"Administrative Agent"), and BankBoston, N.A., as Collateral Agent (the
"Collateral Agent").
WHEREAS, the Borrower proposes to (i) form a wholly-owned subsidiary
named "Allanshore Limited" (and to be renamed "UAM Europe Holdings Limited") and
organized as a corporation under number 190389 under the laws of Scotland ("UAM
Europe Holdings") and capitalize UAM Europe Holdings with approximately
(pound)122,500,000 ((pound)71,500,000 as equity and (pound)51,000,000 as debt),
which will be used by UAM Europe Holdings to purchase 100% of the issued and
outstanding capital stock of UAM U.K. Holdings from the Borrower (all of the
foregoing transactions, the "UK Reorganization"), (ii) pledge 100% of the shares
of capital stock of UAM Europe Holdings and the note or notes in an aggregate
principal amount of (pound)51,000,000 issued by UAM Europe Holdings to the
Borrower, in each case to the Collateral Agent and (iii) cause UAM Europe
Holdings to become a Guaranty Subsidiary and pledge 100% of the capital stock of
UAM U.K. Holdings to the Collateral Agent;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions.
(a) Unless otherwise specifically defined herein, each term used
herein which is defined in the Amended and Restated Agreement shall have the
meaning assigned to such term in the Amended and Restated Agreement.
(b) The following definitions are added to Section 1.01 of the Amended
and Restated Agreement in the appropriate alphabetical order:
"UAM Pledge of Shares" means the Pledge of Shares dated
January 29, 1999 between the Borrower and the Collateral Agent, with
respect to the pledge by the Borrower of 100% of the shares of UAM
Europe Holdings.
1
<PAGE>
"UAM Europe Holdings" means Allanshore Limited (to be renamed
"UAM Europe Holdings Limited"), a corporation organized under number
190389 under the laws of Scotland.
"UAM Europe Holdings Pledge Agreement" means the Pledge
Agreement dated as of January 29, 1999 between UAM Europe Holdings and
the Collateral Agent.
"UAM Subsidiary Note Pledge Agreement" means the UAM
Subsidiary Note Pledge Agreement dated as of January 29, 1999 between
the Borrower and the Collateral Agent.
(c) The definition of "Collateral Documents" in Section 1.01 of the
Amended and Restated Agreement is amended by adding the words "the UAM Pledge of
Shares, the UAM Subsidiary Note Pledge Agreement, the UAM Europe Holdings Pledge
Agreement" immediately after the word "means".
(d) Exhibit F of the Amended and Restated Agreement is amended by
adding the following:
8. UAM Europe Holdings Guaranty, dated as of January 29, 1999, made by
UAM Europe Holdings in favor of the Beneficiaries named therein.
(e) Exhibit G of the Amended and Restated Agreement shall be replaced
by a new Exhibit G prepared by the Borrower and in form and substance
satisfactory to the Administrative Agent to reflect the UK Reorganization.
SECTION 2. Waiver and Consent. The undersigned Banks hereby waive any
breach by the Borrower of Section 5.07 of the Amended and Restated Agreement to
the extent such breach arises out of the Borrower's transfer of the capital
stock of UAM U.K. Holdings to UAM Europe Holdings; provided that such capital
stock shall continue to be subject to the Lien under the Pledge Agreement and
the rights of the Collateral Agent and the other Secured Parties thereunder. On
or after the Amendment Effective Date, upon receipt of a stock certificate
issued by UAM U.K. Holdings in the name of UAM Europe Holdings and representing
100% of the capital stock of UAM U.K. Holdings (together with appropriate stock
powers), the Collateral Agent shall return to the issuer thereof for
cancellation stock certificate #2 issued by UAM U.K. Holdings. The undersigned
Banks hereby instruct the Collateral Agent to execute on the Amendment Effective
Date the documents described in clauses (b) and (d) of Section 7 of this
Amendment.
2
<PAGE>
SECTION 3. Representations and Warranties. Section 4.11(a) of the
Amended and Restated Agreement is amended by adding the words "the UAM Pledge of
Shares, the UAM Europe Holdings Pledge Agreement," immediately after the words
"provisions of each of".
SECTION 4. Limitation on Debt. Section 5.10 of the Amended and
Restated Agreement is amended by adding the following as subsection (g-2):
(g-2) Debt of UAM Europe Holdings owing to the Borrower in an
aggregate principal amount not to exceed (pound)51,000,000 and incurred
in connection with the purchase by UAM Europe Holdings of all of the
issued and outstanding capital stock of UAM U.K. Holdings;
SECTION 5. Investments. Section 5.15 of the Amended and Restated
Agreement is amended by adding the following as subsection (a-1):
(a-1) Investments in UAM Europe Holdings;
SECTION 6. Representations of Borrower. The Borrower represents and
warrants that (i) the representations and warranties of the Borrower set forth
in Article 4 of the Credit Agreement will be true on and as of the Amendment
Effective Date and (ii) no Default will have occurred and be continuing on such
date.
SECTION 7. Counterparts; Effectiveness. This Amendment may be executed
in one or more counterparts, each of which, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken together,
shall constitute but one and the same Amendment with the same force and effect
as if the signatures of all of the parties were on a single counterpart, and it
shall not be necessary in making proof of this Amendment to produce more than
one such counterpart. This Amendment shall become effective upon receipt by the
Administrative Agent of the following (the date of such effectiveness, the
"Amendment Effective Date"):
(a) duly executed counterparts hereof signed by the Borrower, the
Collateral Agent and the Required Banks (or, in the case of any party as to
which an executed counterpart shall not have been received, the Administrative
Agent shall have received telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party);
3
<PAGE>
(b) duly executed counterparts signed by the Borrower of a pledge of
shares (to create a charge over 100% of the issued and outstanding capital stock
of UAM Europe Holdings) and a pledge agreement (to pledge the note or notes in
an aggregate principal amount of (pound)51,000,000 issued by UAM Europe
Holdings), in each case in form and substance satisfactory to the Agents;
(c) a duly executed counterpart signed by UAM Europe Holdings of a
guaranty in form and substance satisfactory to the Agents;
(d) a duly executed counterpart signed by UAM Europe Holdings of a
pledge agreement (to pledge 100% of the issued and outstanding capital stock of
UAM U.K. Holdings) in form and substance satisfactory to the Agents;
(e) a new Exhibit G to the Amended and Restated Agreement in form and
substance satisfactory to the Administrative Agent and reflecting the UK
Reorganization;
(f) an opinion of Hill & Barlow, counsel for the Borrower in form and
substance satisfactory to the Agents;
(g) all documents either Agent may reasonably request (including
additional opinions) relating to the existence of UAM Europe Holdings or the
consummation of the UK Reorganization, the corporate or other authority for and
validity of any of the documents referred to in clauses (a) through (f) above,
and any other matters relevant thereto, all in form and substance satisfactory
to the Agents.
SECTION 8. Governing Law. This Amendment shall be governed by, and
construed and enforced in accordance with, the internal laws of the State of New
York (without reference to conflict of laws principles).
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
UNITED ASSET MANAGEMENT CORPORATION
By: /s/ William H. Park
-----------------------------------------
Name: William H. Park
Title: Executive Vice President and
Chief Financial Officer
4
<PAGE>
BANKBOSTON, N.A., as Collateral Agent and Bank
By: /s/ Stewart P. Neff
-----------------------------------------
Name: Stewart P. Neff
Title: Managing Director
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Maria H. Dell'Aquila
-----------------------------------------
Name: Maria H. Dell'Aquila
Title: Vice President
DEUTSCHE BANK AG NEW YORK AND/OR CAYMAN ISLANDS
BRANCHES
By:
------------------------------------------------
Name:
Title:
By:
------------------------------------------------
Name:
Title:
BANK OF AMERICA NT & SA
By: /s/ John Hayes
-----------------------------------------
Name: John Hayes
Title: Vice President
THE CHASE MANHATTAN BANK
By:
------------------------------------------------
Name:
Title:
5
<PAGE>
MELLON BANK, N.A.
By: /s/ John R. Cooper
-----------------------------------------
Name: John R. Cooper
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Ken Ricciardi
-----------------------------------------
Name: Ken Ricciardi
Title: Senior Vice President
CITIBANK, N.A.
By: /s/ Alexander Duke
-----------------------------------------
Name: Alexander Duka
Title: Vice President
COMMERZBANK AG NEW YORK BRANCH
By: /s/ William M. Earley
-----------------------------------------
Name: William M. Earley
Title: Vice President
By: /s/ Joseph H. Hayes
-----------------------------------------
Name: Joseph H. Hayes
Title: Assistant Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Sebastian Rocco
-----------------------------------------
Name: Sebastian Rocco
Title: Senior Vice President
By:
------------------------------------------------
Name:
Title:
6
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Nicole Holzapfel
-----------------------------------------
Name: Nicole Holzapfel
Title: Vice President
FLEET NATIONAL BANK
By: /s/ Robert W. McClelland
-----------------------------------------
Name: Robert W. McClelland
Title: Vice President
THE ROYAL BANK OF SCOTLAND PLC
By:
-------------------------------------------------
Name:
Title:
PARIBAS
By: /s/ David A. Lefkovits
-----------------------------------------
Name: David A. Lefkovits
Title: Managing Director
By: /s/ Debra L. Laskowski
-----------------------------------------
Name: Debra L. Laskowski
Title: Director
BAYERISCHE HYPO- UND VEREINSBANK AG, NEW YORK BRANCH
By:
------------------------------------------------
Name:
Title:
By:
------------------------------------------------
Name:
Title:
7
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW
YORK BRANCH
By:
------------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Edward A. Siegel
-----------------------------------------
Name: Edward A. Siegel
Title: Vice President
THE BANK OF NEW YORK
By: /s/ Robert V. Masi
-----------------------------------------
Name: Robert V. Masi
Title: Vice President
SOCIETE GENERALE, NEW YORK BRANCH
By: /s/ Dabney Giles Treacy
-----------------------------------------
Name: Dabney Giles Treacy
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------------------------
Name:
Title:
8
UNITED ASSET MANAGEMENT CORPORATION
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
[AS FURTHER AMENDED AND RESTATED AS OF DECEMBER 29, 1998]
Preamble
--------
The plan (the "Plan") comprises three subplans: Subplan A covers
options to be granted to any key employees, including officers, and any
non-employees (other than directors) who provide important services to United
Asset Management Corporation, a Delaware corporation ("UAM") or any of its
subsidiaries or parents. Subplan B covers options to be granted to employees of
UAM or of its subsidiaries who are subject to the income tax laws of the United
Kingdom, to the extent that such options can be granted with favorable income
tax treatment under such United Kingdom laws. Subplan C covers options to be
granted to non-employee directors of UAM.
Subject to the adjustments provided in the Plan, the aggregate number
of shares of Common Stock of UAM which may be issued and sold pursuant to
incentive stock options (as defined below) granted under Subplan A or Options
(as defined below) granted under Subplan B of the Plan shall not exceed
11,900,000 shares of Common Stock (as defined below), which may be either
authorized but unissued shares or treasury shares.(1) Except as provided below,
the aggregate number of shares of Common Stock which may be issued and sold
pursuant to non-incentive stock options (as defined below) granted under Subplan
A or Subplan C of the Plan shall not exceed the number of shares specified in
the preceding sentence (subject to the adjustments provided in the Plan), less
(1) the number of shares issued pursuant to Subplan A incentive stock options
and Subplan B Options and (2) the number of shares underlying outstanding
Subplan A incentive stock options and Subplan B Options. Notwithstanding the
foregoing, additional shares of Common Stock may be issued and sold pursuant to
non-incentive stock options granted under Subplan A or Subplan C in amounts up
to the number of additional shares reserved for such purpose from time to time
under one or more written resolutions adopted by the Committee (as defined
below). The additional shares of Common Stock that the Committee may reserve for
non-incentive stock options pursuant to the preceding sentence shall meet the
following requirements: (1) all such additional shares must have been reacquired
by UAM for not more than their fair market value at the time of reacquisition
and (2) as of the date of the Committee's resolution to reserve the additional
shares, the cumulative amount received in cash by UAM upon the exercise of
options granted under the Plan shall not be less than the aggregate amount paid
for the reacquired shares that are included in such resolution or in any prior
resolution to reserve additional shares. If any option granted under the Plan
shall terminate or expire without being fully exercised, the shares which have
not been purchased will again become available for purposes of the Plan.
- --------
(1) Of these 11,900,000 total shares, 6,400,000 were originally reserved under
the Plan by action of the shareholders in 1994 and 5,500,000 have been reserved
under the amended and restated Plan by action of the shareholders in 1997.
<PAGE>
SUBPLAN A--U.S. SUBPLAN PORTION OF THE
--------------------------------------
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
-------------------------------------------
[AS FURTHER AMENDED AND RESTATED DECEMBER 29, 1998]
---------------------------------------------------
1. Purpose of Subplan A
The purpose of this Subplan A is to encourage key employees, including
officers, of UAM and any present or future subsidiary and parent of UAM
(hereinafter collectively referred to as the "Company") as well as non-employees
(other than directors of UAM) who provide important services to the Company to
acquire shares of common stock of UAM, $.01 par value per share (the "Common
Stock"), and thereby increase their proprietary interest in the Company's
success and provide an added incentive to remain in the employ of the Company.
For purposes of this Subplan A, the words parent and subsidiary shall be
interpreted in accordance with Section 422 and Section 424 of the Internal
Revenue Code of 1986, as from time to time amended (the "Code"). It is intended
that options granted under this Subplan A shall constitute either "incentive
stock options" within the meaning of Section 422 of the Code, or "non-incentive
stock options", as determined by the Committee named in Section 3 of this
Subplan in its sole discretion and indicated on each form of option grant (the
"Option Grant"), and the terms of this Subplan and the Option Grants shall be
construed accordingly.
2. Shares Reserved Under Subplan A
Subject to the adjustment provided in Section 9, the aggregate number
of shares of Common Stock which may be issued and sold pursuant to options
granted under this Subplan A of the Plan shall be determined in accordance with
the Preamble above.
3. Administration
Except to the extent otherwise provided in Subplan B, the Plan shall be
administered by a committee (the "Committee") consisting of not less than three
(3) members of the Board of Directors of UAM (the "Board"). Each of the members
of the Committee shall be a person who in the opinion of counsel to the Company
is (i) a "non-employee" as such term is used in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Act"), and (ii) an "outside
director" as such term is used in Treasury regulation Section 1.162-27(e) (3)
under Section 162(m) of the Code. The Committee shall be appointed by, and shall
serve at the pleasure of, the Board of Directors. A majority of the members
present at any meeting at which a quorum is present, and any acts approved in
writing by all the members of the Committee without a meeting, shall constitute
the acts of the Committee. The Committee shall have the powers granted to it in
Sections 3, 4, 5, 7 and 8 of this Subplan A. The Committee is authorized to
interpret this Subplan A and, subject to the provisions of the Subplan, to
prescribe, amend, and rescind rules and regulations relating thereto. The
Committee is further authorized, subject to the express provisions of this
Subplan A, to alter or amend the form of Option Grant attached hereto as Exhibit
A and to make all other determinations necessary or advisable in the
administration of the Subplan. The interpretation and administration by the
Committee of any provisions of this
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Subplan A and the Option Grant shall be final and conclusive on all persons
having any interest therein.
Notwithstanding any other provision of this Plan, if the Committee
determines that a person to whom an option may be granted under this Subplan A
will neither be a "covered employee" within the meaning of Section 162(m) of the
Code nor an employee subject to the short-swing profits rules of Section 16(b)
of the Act at any time from the date of grant until the end of the term of any
option which could be granted under this Subplan A at the time of such
determination, such options may be granted to such person by a committee
consisting of any number of members of the Board, any or all of whom would not
then be eligible to serve on the Committee. With respect to all options referred
to in this paragraph, the committee referred to in this paragraph shall have all
powers otherwise granted to the Committee in Sections 3, 4, 5, 7 and 8 of this
Subplan A, but the committee referred to in this paragraph shall not otherwise
administer this Subplan A.
No members of the Committee or of any committee referred to in the
preceding paragraph or of the Board shall be held liable for any action or
determination made in good faith with respect to the Plan, this Subplan A, or
any option granted hereunder.
4. Option Grants
Options to purchase shares of Common Stock under this Subplan A may be
granted to key employees (including officers and directors who are employees) of
the Company and to non-employees who provide important services to the Company.
The term "Employee" will include, for purposes of this Subplan A key employees
as well as such non-employees who provide important services to the Company. In
selecting the Employees to whom options will be granted and in deciding how many
shares of Common Stock will be subject to each option, the Committee shall give
consideration to the importance of an Employee's duties, to his experience with
the Company, to his future value to the Company, to his present and potential
contribution to the success of the Company, and to such other factors as the
Committee may deem relevant. Subject to the express provisions of the Plan and
the form of Option Grant incorporated herein by reference as from time to time
altered or amended, the Committee shall have authority to determine with respect
to each Option Grant the number of installments, the number of shares of Common
Stock in each installment, and the exercise dates, and, to the extent not
inconsistent with the applicable provisions of the Code, if any, may specify
additional restrictions and conditions for any Option Grant. Each incentive
stock option shall expire not later than ten years from the date of the grant of
such option.
Except as provided in Section 7 of this Subplan A, no incentive stock
option may be granted to any Employee who, at the time such option is granted
owns stock possessing more than 10 percent of the total combined voting power of
all classes of stock of the Company within the meaning of Section 422 of the
Code. Non-employees who provide services to the Company shall not be eligible to
receive incentive stock options under the Plan.
The date of grant of an option under this Subplan A shall be the date
the Committee votes to grant the option, but no optionee shall have the right to
exercise his option until the Company has executed and delivered the Option
Grant to such optionee. Each option granted under this
2
<PAGE>
Subplan A shall be evidenced by and subject to the terms and conditions of the
Option Grant which is incorporated into the Plan by reference as from time to
time altered or amended.
No incentive stock option may be transferred by the optionee, other
than by will or the laws of descent and distribution. An incentive stock option
can be exercised during such individual's life only by him. Notwithstanding the
foregoing, the Committee may grant non-incentive stock options under this
Subplan A or under Subplan C that are transferable (subject to any terms and
conditions imposed by the Committee) by the optionee, either directly or in
trust, to one or more members of the optionee's family. Following any transfer
permitted pursuant to this paragraph, of which the optionee has notified the
Committee in writing, such option may be exercised by the transferee(s), subject
to all terms and conditions of the Option Grant. For these purposes, the members
of the optionee's family are only the optionee's: (i) spouse; (ii) lineal
descendants; (iii) lineal ancestors; and (iv) siblings and spouses and children
of such siblings.
5. Option Price
The price per share at which each option granted under this Subplan A
may be exercised shall be determined by the Committee subject to the provisions
of this Section 5. In the case of an incentive stock option, the exercise price
shall not be less than the fair market value per share on the date of the grant,
as determined by the Committee in accordance with applicable provisions of the
Code then in effect. In the case of a non-incentive stock option, the exercise
price shall not be less than 50% of the fair market value per share on the date
of grant, as so determined. In no event shall the option price per share for any
option under the Plan be less than the par value per share.
6. Limitation on Amount
The aggregate fair market value (determined at the time the option is
granted) of the stock with respect to which incentive stock options are
exercisable for the first time by an individual during any calendar year under
all plans of the Company shall not exceed $100,000. To the extent that the
aggregate value of such options (determined in the order in which they were
granted) exceeds such amount, such options shall be treated as non-incentive
stock options.
The maximum number of shares with respect to which any options may be
granted under the Plan (including this Subplan A) to any individual during any
single calendar year shall be 300,000 shares.
7. Special Rule for 10 Percent Shareholders
The Committee may grant incentive stock options under this Subplan A to
Employees who own more than 10 percent of the combined voting stock of the
Company if (i) at the time of the Option Grant the price per share at which the
option may be exercised is at least 110 percent of the fair market value of the
stock subject to the option and (ii) such option is not exercisable after the
expiration of five years from the date such option is granted.
8. Non-Incentive Stock Options
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<PAGE>
Notwithstanding the provisions of Sections 4, 5, 6 and 7 of this
Subplan A, the Committee may grant options which in one or more respects do not
meet the requirements for incentive stock options established by Section 422 of
the Code. The Committee shall indicate on each Option Grant whether an incentive
stock option within the meaning of Section 422 of the Code or a non-incentive
stock option is thereby granted.
Except as otherwise provided in this Subplan A, the Committee, in its
sole discretion, shall establish the terms and conditions for each non-incentive
stock option which it grants. Such terms and conditions may, but need not,
include some or all of the provisions of Sections 4, 5, 6 and 7 of this Subplan
A with respect to incentive stock options. If the Committee grants an option
which in all respects meets the requirements for incentive stock options it may
nonetheless designate such option a non-incentive stock option on the Option
Grant.
9. Adjustment of Shares Reserved Under the Plan
The aggregate number and kind of shares reserved under the Plan, the
maximum number of shares as to which options may be granted to any individual
and the option price per share shall be appropriately adjusted by the Board in
the event of any recapitalization, stock split, stock dividend, combination of
shares, or other similar change in the capitalization of the Company, but no
adjustment in the option price shall be made which would reduce the option price
per share to less than the par value per share, and any adjustment in the option
price for options granted under Subplan B of the Plan shall be subject to the
requirements of Rule 5 of Subplan B.
10. Dissolution or Reorganization
(A) Vesting Provisions
(1) Notwithstanding anything to the contrary in this Subplan A, or in the
Option Grant, an optionee may purchase the full amount of shares of Common Stock
for which options have been granted to such optionee (the "optioned shares") and
for which the options have not been exercised, upon the occurrence of any of the
following events (individually and collectively a "Change of Control" over the
Company):
(a) Stock Transfer of 20% or More. The acquisition by any
individual, entity or group (within the meaning of Sections
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Act) of 20 percent
or more of either (i) the then outstanding shares of the
Common Stock or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of the directors (the "Outstanding
Company Voting Securities"); provided, however, that no change
in such beneficial ownership percentage that results solely
from a change in the aggregate number of outstanding shares of
Common Stock or Outstanding Company Voting Securities shall
constitute a Change of Control; provided further, however,
that the following acquisitions shall not constitute a Change
of Control: (A) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a
conversion privilege); (B) any acquisition by the
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<PAGE>
Company or by any corporation controlled by the Company; (C)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company; or (D) any
acquisition by any corporation pursuant to a consolidation
or merger, if, following such consolidation or merger, the
conditions described in clauses (i), (ii), and (iii) of
paragraph (c) below are satisfied; or
(b) Change in Incumbent Board of 50% or More. Individuals who,
as of November 19, 1998 (the "Effective Date"), constitute the
Board (the "Incumbent Board") ceasing for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the Effective Date whose election, or nomination for election
by the Company's shareholders, was approved by a vote or
resolution of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a Person other than the Board; or
(c) Merger Without Continuity of Ownership in Excess of 60%.
Adoption by the Board of a resolution approving an agreement
of consolidation of the Company with or merger of the Company
into another corporation or business entity in each case,
unless, following such consolidation or merger, (i) more than
60 percent of, respectively, the then outstanding shares of
common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of
the then outstanding voting securities of such corporation or
business entity entitled to vote generally in the election of
directors (or other persons having the general power to direct
the affairs of such entity) is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Common Stock and Outstanding Company
Voting Securities immediately prior to such consolidation or
merger in substantially the same proportions as their
ownership, immediately prior to such consolidation or merger,
of the Common Stock and/or Outstanding Company Voting
Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the
Company or such corporation or other business entity resulting
from such consolidation or merger and any Person beneficially
owning, immediately prior to such consolidation or merger,
directly or indirectly, 35 percent or more of the Common Stock
and/or Outstanding Company Voting Securities, as the case may
be) beneficially owns, directly or indirectly, 35 percent or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such consolidation or
merger or the combined voting power of the then outstanding
voting securities of such corporation or business entity
entitled to vote generally in the election of its directors
(or other persons having the general
5
<PAGE>
power to direct the affairs of such entity) and (iii) at
least a majority of the members of the board of directors
(or other group of persons having the general power to
direct the affairs of the corporation or other business
entity) resulting from such consolidation or merger were
members of the Incumbent Board at the time of the execution
of the initial agreement providing for such consolidation or
merger; provided that any right which shall vest by reason
of the action of the Board pursuant to this paragraph (c)
shall be divested, with respect to any such right not
already exercised, upon (A) the rejection of such agreement
of consolidation or merger by the stockholders of the
Company or (B) its abandonment by either party thereto in
accordance with its terms; or
(d) Sale of Assets or Dissolution. Adoption by the requisite
majority of the whole Board, or by the holders of such
majority of stock of the Company as is required by law or by
the Certificate of Incorporation or By-Laws of the Company as
then in effect, of a resolution or consent authorizing (i) the
dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the
Company, other than to a corporation or other business entity
with respect to which, following such sale or other
disposition, (A) more than 60 percent of, respectively, the
then outstanding shares of common stock of such corporation
and/or the combined voting power of the outstanding voting
securities of such corporation or other business entity
entitled to vote generally in the election of directors (or
other persons having the general power to direct the affairs
of such entity) is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the
Common Stock and/or Outstanding Company Voting securities, as
the case may be, (B) no Person (excluding the Company and any
employee benefit plan (or related trust) of the Company or
such corporation or other business entity and any Person
beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 35 percent or more of the
Common Stock and/or Outstanding Company Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 35
percent or more of, respectively, the then outstanding shares
of common stock of such corporation and/or the combined voting
power of the then outstanding voting securities of such
corporation or other business entity entitled to vote
generally in the election of directors (or other persons
having the general power to direct the affairs of such entity)
and (C) at least a majority of the members of the board of
directors (or other group of persons having the general power
to direct the affairs of such corporation or other entity)
were members of the Incumbent Board at the time of the
execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the
Company; provided that any right which shall vest by reason of
the action of the Board or the stockholders pursuant to this
paragraph (d) shall be divested, with respect to any such
right not already exercised, upon the abandonment by the
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<PAGE>
Company of such dissolution, or such sale or other disposition
of assets, as the case may be.
(2) Notwithstanding subsection (1) hereof, holder(s) of any unexercised
option(s) that meet the requirements for incentive stock options under Section
422 of the Code (the rights being "ISO Rights", and such holder being an "ISO
Optionee"), may elect at any time to waive the applicability of subsections (1)
hereof to such ISO Optionee's ISO Rights.
(3) Notwithstanding subsections (1) or (2) hereof, after a Change of Control,
and upon adoption of a plan of dissolution, liquidation, merger, consolidation,
or reorganization of the Company (the "Event"), the Board may decide to
terminate each outstanding option granted under this Subplan A. If the Board so
decides, such option(s) shall terminate as of the effective date of the Event,
but the Board shall suspend the exercise of all outstanding options a reasonable
time prior to the Event, giving each optionee not less than fourteen days' prior
written notice of the date of suspension, prior to which an optionee may
purchase in whole or in part the shares available to him as of the date of
receipt of the notice. If the Event is not consummated, the suspension shall be
removed and all options shall continue in full force and effect, subject to the
terms of their respective option grants.
(B) Expired Options
Nothing herein shall allow the optionee to purchase optioned shares,
the options for which have expired.
11. Amendment and Termination of Plan and Subplan A
The Board may amend, suspend, or terminate the Plan and/or this Subplan
A, including the form of Option Grant incorporated herein by reference. No such
action, however, may, without approval or ratification by the shareholders,
increase the maximum number of shares reserved under the Plan except as provided
in Section 9 of this Subplan A, Rule 5 of Subplan B, or Section 8 of Subplan C,
alter the class or classes of individuals eligible for options, or make any
other change which, pursuant to the Code or regulations thereunder or Section
16(b) of the Act and the rules and regulations promulgated thereunder, requires
action by the shareholders. No such action may, without the consent of the
holder of the option, alter or impair any option previously granted.
In any event, the Plan shall terminate 10 years from the date of
adoption of the amended and restated Plan by the Board of Directors, or if
earlier, from the date of its approval by the shareholders. Any shares remaining
under the Plan at the time of termination which are not subject to outstanding
options and any shares which thereafter become available because of the
expiration or termination of an option shall cease to be reserved for purposes
of the Plan.
12. Right to Terminate Employment
Nothing contained herein or in any Option Grant executed pursuant hereto shall
restrict the right of the Company to terminate the employment of any optionee at
any time.
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13. Date of Adoption
The date of adoption of this amended and restated Plan by the Board is
January 20, 1997, as further amended by action of the board on November 19,
1998.
14. Date of Approval
The date of approval of this amended and restated Plan by the shareholders and
the Plan's effective date is May 15, 1997.
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SUBPLAN B--UK SUBPLAN PORTION OF THE
------------------------------------
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
-------------------------------------------
[AS FURTHER AMENDED AND RESTATED DECEMBER 29, 1998]
---------------------------------------------------
RULES OF THE UNITED ASSET MANAGEMENT CORPORATION
EMPLOYEE SHARE OPTION SCHEME
1. DEFINITIONS
In this Scheme (hereinafter sometimes referred to as the "UK Subplan"),
unless the context otherwise requires, the following words and
expressions shall have the following meanings:
<TABLE>
<S> <C>
"Act" the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder
Adoption Date" the date on which the Scheme is adopted by the Company
"Associated Company" the meaning given to that term in Section 416 of the
U.K. Income and Corporation Taxes Act 1988
"Auditors" the auditors for the time being of the Company
(acting as experts and not as arbitrators)
"Board" the board of directors of the Company
"Change of Control" the meaning given to that term in Rule 6.1 of this
Scheme
"Code" the U.S. Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder
"Committee" the committee established by the Board pursuant to
Rule 10.4
"Company" United Asset Management Corporation
"Control" the meaning given to that word by Section 840 of the
U.K. Income and Corporation Taxes Act 1988
"Date of Grant" the date on which an Option is, was or is to be
granted under the Scheme
"Effective Date" 19 November 1998
"Eligible Employee" any employee of any Participating Company who is
subject to the income tax laws of the United Kingdom
and who is normally required to devote to his duties
not less than 20
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<PAGE>
hours per week (excluding meal breaks) (in the case
of an employee who is also a director of any
Participating Company, 25 hours per week (excluding
meal breaks)) and is not precluded by paragraph 8
of Schedule 9 from participating in the Scheme
"Event" the dissolution, liquidation, merger, consolidation,
or reorganization of the Company
"Group" that group comprising all of the Participating
Companies
"Incumbent Board" the individuals who, as of the Effective Date,
constitute the Board
"Issued Company Voting the then issued voting securities of the Company entitled
Securities" to vote generally in the election of the Board
"Market Value" on any day the closing sales price in U.S. Dollars of
a Share as derived from the consolidated tape of The
New York Stock Exchange for such day or, if such day,
as not a trading day or if no Shares sold on such
day, such closing sales price on the next previous
trading day on which a sale occurred
"Option" a right to purchase Shares under the Scheme
"Option the certificate embodying an Option granted in accordance
Certificate" with these Rules
"Option Holder" an individual to whom an Option has been granted
pursuant to the Scheme
"Participating the Company and any other corporation which it Controls
Company"
"Person" any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Act
"Plan" the United Asset Management Corporation 1994 Stock
Option Plan, of which this Scheme is an integral part
"Price" the price determined by the Committee in U.S. Dollars
at which each Share subject to an Option may be acquired
on the exercise of that Option, which price shall be,
subject to Rule 5, not less than the higher of:
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<PAGE>
(i) the par value (if any) of a Share and
(ii) the Market Value of a Share on the Date
of Grant of that Option
"Relevant Emoluments" the meaning given to that term in sub-paragraph (2) of
paragraph 28 of Schedule 9 by virtue of subparagraph
(4) of that paragraph
"Rules" the terms of the Scheme, as expressed herein and as
amended from time to time
"Schedule 9" Schedule 9 to the U.K. Income and Corporation Taxes
Act 1988
"Scheme" this U.K. Subplan, as set forth in these Rules as
amended from time to time
"Share" a share of common stock, U.S. $.01 par value, in the
capital of the Company which satisfies the conditions
specified in paragraphs 10 to 14 inclusive of
Schedule 9 and which may either be an authorized but
unissued share or a treasury share
"Sterling Value" in respect of an Option, the sterling equivalent of
the appropriate Price, calculated by reference to the
U.S. Dollar/Sterling exchange rate prevailing on the
Date of Grant of that Option
"Subplan A" the portion of the Plan applicable to key employees
of, and non-employees (other than directors of the
Company) who provide important services to, a
Participating Company
`Subplan C" the portion of the Plan applicable to non-employee
directors of the Company
"Subsisting Option" an Option which has neither lapsed nor been exercised
or released, given up, or surrendered by its holder
"UK Subplan" the portion of the Plan comprising the Scheme as set
forth in these Rules
"Year of Assessment" year beginning on any 6th April and ending on the
following 5th April
</TABLE>
Where the context permits the singular shall include the plural and vice versa
and the masculine shall include the feminine. References to any Act or statute
shall include any statutory
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<PAGE>
modification, amendment or re-enactment thereof. Headings are for ease of
reference only and shall not affect the construction or interpretation of these
Rules.
2. GRANT OF OPTION
2.1 Subject to the terms of these Rules, the Committee may at its absolute
discretion, from time to time, grant Options to any Eligible Employees
under the Scheme by issuing Option Certificates to them, complying with
Rule 2.2 below.
2.2 Each Option Certificate shall be under seal and shall specify:
i. the Date of Grant of the relevant Option;
ii. the number of Shares for which the Option is granted (which
shall not be so large that the grant of an Option for that
number of Shares would cause the applicable limits specified
in Rule 3 to be exceeded);
iii. the Price at which the relevant Shares can be acquired; and
iv. any conditions on the Option imposed by the Committee,
including (without limitation) any vesting schedule.
In addition each Option Certificate shall indicate that Options cannot
be transferred, assigned or charged and that any purported transfer,
assignment or charge shall cause the relevant Option to lapse
forthwith.
Each Option Certificate shall be accompanied by a "form of acceptance"
(as described in Rule 4.3) which shall indicate that the Option to
which it relates will automatically lapse if the Option holder does not
sign and return such form to the Company within 3 months of the Date of
Grant.
3. LIMITATIONS
3.1 Subject to adjustment as provided in Rule 5, the aggregate number of
Shares in respect of which Options may be granted under the Scheme on
any Date of Grant or which may be issued and sold pursuant to such
Options shall not exceed 6,985,367 Shares, less (i) any Shares then
subject to any outstanding incentive stock option granted under Subplan
A of the Plan or previously issued pursuant to any such incentive stock
option and (ii) any shares that are then subject to any outstanding
non-incentive stock option granted under Subplan A or Subplan C or
previously issued pursuant to any such non-incentive stock option and
are not reacquired shares (as described in the Preamble to the Plan).
If any Option granted under the Plan shall lapse or shall be released,
given up or surrendered without being fully exercised, the Shares which
have not been purchased under the Option shall again become available
for purposes of the Plan.
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<PAGE>
3.2 No Option shall be granted to an Eligible Employee if immediately
following such grant he would hold Subsisting Options with an aggregate
Sterling Value exceeding (pound)30,000.
For the purposes of this Rule 3.2. Options shall include all Options
granted under this Scheme and all options granted under any other
scheme approved under Schedule 9 and established by the Company or any
Associated Company.
3.3 The maximum number of Shares with respect to which any options may be
granted under the Plan (including this UK Subplan) to any individual
during any single calendar year shall be 100,000 Shares.
4. EXERCISE OF OPTIONS
4.1 Any Option which has not lapsed may be exercised only after the
earliest of the following events:
i. the first anniversary of the Date of Grant;
ii. the death of the Option holder;
iii. the Option holder ceasing to be an employee of any
Participating Company by reason of injury, disability,
redundancy or retirement or, at the discretion of the
Committee, for any other reason;
iv. a Change of Control of the Company, but only in respect of
an Option granted after April 1, 1999.
Provided always that when granting an Option the Committee may provide
that the Option or any part of it shall not become exercisable under
sub Rules 4.1 (i), (ii) or (iii) above until after such time(s) as the
Committee determine and any such restriction on the Option's
exercisability shall be set forth in the Option Certificate for that
Option. For the avoidance of doubt, once an Option has become
exercisable under Rule 4.1 (iv), it shall be exercisable in full.
4.2 Once an Option has become exercisable under Rule 4.1 above, it may be
exercised either in whole or in part at any time unless or until it
shall lapse under Rule 4.3 below, but subject in all cases to Rule 7
below.
4.3 An Option shall lapse on the earliest of the following events:
i. the expiry of three months from the Date of Grant, unless
the Option holder has previously given notice to the Company
of his acceptance of the Scheme's Rules using the form of
acceptance supplied to him with the relevant Option
Certificate;
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<PAGE>
ii. subject to a shorter period specified in the Option
Certificate, the tenth anniversary of the Date of Grant;
iii. subject to a shorter period specified in the Option
Certificate, the first anniversary of the Option holder's
death;
iv. the Option holder ceasing to be an employee of any
Participating Company by reason of gross misconduct;
v. subject to a shorter period specified in the Option
Certificate, the expiry of three months after the date on
which the Option holder ceases to be an employee of any
Participating Company otherwise than by reason of death or
gross misconduct in circumstances in which sub-clause (iv)
applies;
vi. the Option holder being adjudicated bankrupt; and
vii. the first date upon which the Option holder purports to
transfer, assign or charge the Option.
5. VARIATION OF SHARE CAPITAL
In the event of any capitalization or rights issue or any stock split
or stock dividend or any consolidation, sub-division or reduction of
capital by the Company, the number of Shares subject to any Option and
the Price payable for each of those Shares shall be adjusted in such
manner as the Auditors confirm to be fair and reasonable provided that:
i. the aggregate amount payable on the exercise of any Option
in full is not increased;
ii. the Price of a Share is not reduced below its par value if
any;
iii. no adjustments shall be made without the prior approval of
the Board of Inland Revenue; and
iv. following the adjustment the Shares continue to satisfy the
conditions specified in paragraphs 10 to 14 inclusive of
Schedule 9.
6. CHANGE OF CONTROL
6.1 A Change of Control shall be the occurrence of any of the following
events:
i. Stock Transfer of 20% or More
the acquisition by a Person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Act) of 20
percent or more of either (a) the then issued Shares of the
Company or (b) the combined voting power of the Issued
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<PAGE>
Company Voting Securities; provided, however, that no change
in such beneficial ownership percentage that results solely
from a change in the aggregate number of outstanding Shares
or Issued Company Voting Securities shall constitute a
Change of Control; provided further, however, that the
following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a
conversion privilege); (B) any acquisition by the Company or
any Associated Company; (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by
the Company or any Associated Company; or (D) any
acquisition by any corporation pursuant to a consolidation
or merger, if, following such consolidation or merger, the
conditions described in clauses (a), (b), and (c) of Rule
6.1(iii) below are satisfied; or
ii. Change in Incumbent Board of 50% or More
the Incumbent Board ceasing for any reason to constitute at
least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Effective
Date whose election, or nomination for election by the
Company's shareholders, was approved by a vote or resolution
of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the
Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the
Board; or
iii. Merger Without Continuity of Ownership in Excess of 60%
the adoption by the Board of a resolution approving an
agreement of consolidation of the Company with or merger of
the Company into another corporation or business entity in
each case, unless, following such consolidation or merger,
(a) more than 60 percent of, respectively, the then issued
shares of common stock of the corporation resulting from
such consolidation or merger and/or the combined voting
power of the then issued voting securities of such
corporation or business entity entitled to vote generally in
the election of directors (or other persons having the
general power to direct the affairs of such entity) is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Shares and
Issued Company Voting Securities immediately prior to such
consolidation or merger in substantially the same
proportions as their ownership, immediately prior to such
consolidation or merger, (b) no Person (excluding the
Company, any employee benefit plan (or related trust) of the
Company or such corporation or other business entity
resulting from such consolidation or merger and any Person
beneficially owning, immediately prior to such consolidation
or merger, directly or indirectly, 35 percent or more of the
15
<PAGE>
Shares and/or Issued Company Voting Securities, as the case
may be) beneficially owns, directly or indirectly, 35
percent or more of, respectively, the then issued shares of
common stock of the corporation resulting from such
consolidation or merger or the combined voting power of the
then outstanding voting securities of such corporation or
business entity entitled to vote generally in the election
of its directors (or other persons having the general power
to direct the affairs of such entity) and (c) at least a
majority of the members of the board of directors (or other
group of persons having the general power to direct the
affairs of the corporation or other business entity)
resulting from such consolidation or merger were members of
the Incumbent Board at the time of the execution of the
initial agreement providing for such consolidation or
merger; provided that any right which shall vest by reason
of the action of the Board pursuant to this paragraph (iii)
shall be divested, with respect to any such right not
already exercised upon (A) the rejection of such agreement
of consolidation or merger by the shareholders of the
Company or (B) its abandonment by either party thereto in
accordance with its terms; or
iv. Sale of Assets or Dissolution
the adoption by the requisite majority of the whole Board,
or by the holders of such majority of stock of the Company
as is required by law or by the certificate of incorporation
or by-laws of the Company as then in effect, of a resolution
or consent authorizing (a) the dissolution of the Company or
(b) the sale or other disposition of all or substantially
all of the assets of the Company, other than to a
corporation or other business entity with respect to which,
following such sale or other disposition, (A) more than 60
percent of, respectively, the then issued shares of common
stock of such corporation and/or the combined voting power
of the issued voting securities of such corporation or other
business entity entitled to vote generally in the election
of directors (or other persons having the general power to
direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial
owners, respectively, of the Shares and/or Issued Company
Voting Securities immediately prior to such sale or other
disposition in substantially the same proportions as their
ownership, immediately prior to such sale or other
disposition, of the Shares and/or Issued Company Voting
Securities, as the case may be, (B) no Person (excluding the
Company and any employee benefit plan (or related trust) of
the Company or such corporation or other business entity and
any Person beneficially owning, immediately prior to such
sale or other disposition, directly or indirectly, 35 per
cent or more of the Shares and/or Issued Company Voting
Securities, as the case may be) beneficially owns, directly
or indirectly, 35 percent or more of, respectively, the then
issued shares of common stock of such corporation and/or the
combined power of the then outstanding voting securities of
such corporation or other business entity entitled to vote
generally in the election of directors (or other persons
having the general power to direct the affairs of such
entity) and (C) at least a majority of the members of the
board of directors (or other group of
16
<PAGE>
persons having the general power to direct the affairs of
such corporation or other entity) were members of the
Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or
other disposition of assets of the Company; provided that
any right which shall vest by reason of the action of the
Board or the stockholders pursuant to this paragraph (iv)
shall be divested, with respect to any such right not
already exercised, upon the abandonment by the Company of
such dissolution, or such sale or other disposition of
assets, as the case may be.
6.2 In the event of a Change of Control of the Company, notwithstanding any
decision of the Board restricting the Option's exercisability under
Rule 4.1, all Options shall be exercisable in full or in part at the
Option holder's discretion provided that one of the events referred
to in Rule 4.1(i) to (iv) has occurred.
6.3 Notwithstanding Rule 4.1, after a Change of Control, and upon the
adoption of a plan for an Event, the Board may elect to terminate each
Subsisting Option. If the Board so elects, such Option shall terminate
as of the effective date of the Event, but the Board shall suspend the
exercise of all Subsisting Options a reasonable time prior to the
Event, giving each Option holder not less than fourteen days written
notice of the date of suspension, prior to which an Option holder may
purchase in whole or in part the Shares available to him as of the date
of receipt of the notice. If the Event is not consummated, the
suspension shall be removed and all Options shall continue in full
force and effect, subject to the terms of their respective Option
Certificates.
6.4 For the avoidance of doubt, nothing in this Rule 6 shall entitle an
Option holder to exercise an Option which has previously lapsed.
7. MANNER OF EXERCISE OF OPTIONS
7.1 No Option may be exercised by an individual at any time when he is
precluded by paragraph 8 of Schedule 9 from participating in the
Scheme.
7.2 An Option shall be exercised by the Option holder, or as the case may
be his personal representative, giving notice to the Company in writing
of the number of Shares in respect of which he wishes to exercise the
Option and making arrangements reasonably acceptable to the Committee
for payment of the appropriate amount, and submitting the relevant
Option Certificate. Any such notice shall be effective on the date of
its receipt by the Company.
7.3 Shares shall be allocated and issued pursuant to a notice of exercise
within 30 days of the date of exercise.
8. RIGHTS ATTACHING TO SHARES
All Shares allocated pursuant to the exercise of an Option shall rank
pari passu in all respects with all other Shares in issue at the date
of such allocation.
9. AVAILABILITY OF SHARES
The Company shall at all times procure that it can secure the issue or
the transfer of sufficient Shares to permit the exercise of all
Subsisting Options.
17
<PAGE>
10. LOSS OF OFFICE
If any Option holder shall cease to be an employee of a Participating
Company within the Group for any reason, he shall not be entitled by
way of compensation for loss of office or otherwise howsoever to any
sum or other benefit to compensate him for any loss of any right under
the Scheme, and in returning the form of acceptance referred to in Rule
4.3 he shall be deemed to have agreed to this.
11. ADMINISTRATION AND AMENDMENT
11.1 No member of the Committee or the Board shall be held liable for any
action or determination made in good faith with respect to the Plan,
the UK Subplan, these Rules or any Option granted hereunder.
11.2 The cost of establishing and operating the Scheme shall be borne by the
Participating Companies in such proportions as the Board shall
determine.
11.3 The Board may from time to time suspend or terminate the Plan and/or
the UK Subplan or amend these Rules or the form of Option Certificate,
provided that:
i. no such action may, without approval or ratification by the
Company's shareholders, increase the maximum number of
Shares reserved under the UK Subplan (except as provided in
Rule 5) or under the Plan (except as otherwise expressly
provided in the Plan), alter the class or classes of
employees eligible for Options, or make any other such
change which, pursuant to Section 16(b) of the Act and the
rules and regulations promulgated thereunder, requires
action by the Company's shareholders;
ii. except as provided in Rule 11.5, no such action may
detrimentally affect an Option holder as regards an Option
granted prior to the taking of such action; and
iii. no amendment to these Rules shall have effect until approved
by the Board of the Inland Revenue.
11.4 The Scheme shall be administered by the Committee, the members of which
shall be appointed by and shall serve at the pleasure of the Board
(subject to the restrictions of this Rule 11.4). Notwithstanding the
foregoing, until and unless the Board shall have constituted the
Committee pursuant to this Rule 10.4, the committee serving from time
to time as administrator of the Plan generally shall also serve as the
Committee for purposes of the UK Subplan. Actions taken by a majority
of the members present at any meeting of the Committee at which a
quorum is present, and any acts approved in writing by all members of
the Committee without a meeting, shall constitute the acts of the
Committee. The Committee shall have all powers of administration
granted under these Rules, except such powers as are expressly reserved
to the Board. The Committee is authorized to
18
<PAGE>
interpret these Rules and, subject to the provisions of Rule 11.3, to
prescribe, amend, and rescind rules and regulations relating thereto.
The Committee is further authorized. subject to the express provisions
of the Plan and these Rules, to alter or amend the form of Option
Certificate pursuant to which Options may be granted under the Scheme
from time to time and to make all determinations necessary or
advisable in the administration of the Scheme. The interpretation and
administration by the Committee of any provisions of the Plan and the
UK Subplan, including these Rules, and any Option Certificate issued
pursuant to the Scheme shall be final, binding and conclusive on all
persons having any interest therein.
11.5 Any notice or communication to be given by or on behalf of the Company
to any Eligible Employee may be given by personal delivery or by
sending the same by ordinary post to his last known address in which
case it shall be deemed to have been received on the day after it was
posted. Any notice, document, option, share certificate or other
communication sent by post shall be sent at the risk of the Eligible
Employee involved.
11.6 Unless otherwise provided any notice or other communication to be given
by an Eligible Employee to the Company shall be regarded as having been
properly given if sent or delivered to the company secretary of the
Participating Company by whom he is employed at that company's
registered office, any such communication being effective only upon
receipt.
11.7 The Scheme shall at all times be read in accordance with the provisions
of the U.K. Income and Corporation Taxes Act 1988 and insofar as any of
its Rules shall be inconsistent with any of the said provisions and/or
with any requirements of the Board of Inland Revenue necessary for its
approval or continued approval under the said Act they shall be deemed
automatically varied or deleted in such a way as to ensure compliance
with the same.
19
<PAGE>
SUBPLAN C--NON-EMPLOYEE ("ELIGIBLE") DIRECTOR PORTION OF THE
------------------------------------------------------------
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
-------------------------------------------
[AS FURTHER AMENDED AND RESTATED DECEMBER 29, 1998]
---------------------------------------------------
1. Purpose of Subplan C
The purpose of this Subplan C is to grant options to purchase shares of
the common stock, $.01 par value (the "Common Stock"), of United Asset
Management Corporation (the "Company") to Eligible Directors (as defined in
Section 4 of this Subplan) of the Company at market value on the date of grant,
and to permit the granting of stock options to Eligible Directors at an exercise
price less than market value at the date of grant as an alternative to the
payment of Directors' fees in cash. The Company believes that the granting of
such options will serve to enhance the Company's ability to attract and retain
the services of such persons, to provide additional incentives to them and to
encourage the highest level of performance by them by offering them a
proprietary interest in the Company's success. The Company also believes that
the Plan will encourage directors to make greater equity investment in the
Company, more closely aligning the interests of the directors and the
stockholders.
2. Shares Reserved Under Subplan C
Subject to the adjustment provided in Section 8, the aggregate number
of shares of Common Stock which may be issued and sold pursuant to options
granted under this Subplan C of the Plan shall not exceed 800,000 shares (or, if
less, the then remaining aggregate number of shares determined in accordance
with the Preamble to the Plan), which may be either authorized but unissued
shares or treasury shares. If any option granted under the Plan shall terminate
or expire without being fully exercised, the shares which have not been
purchased will again become available for purposes of the Plan.
3. Administration
This Subplan C shall be interpreted and administered by a committee
(the "Committee") consisting of not less than three (3) members of the Board of
Directors of the Company (the "Board") appointed pursuant to Section 3 of
Subplan A of the Plan. The interpretation and administration by the Committee of
any provisions of the Plan and any option granted thereunder shall be final and
conclusive on all persons having any interest therein.
No members of the Committee or the Board shall be held liable for any
action or determination made in good faith with respect to the Plan or any
option granted thereunder.
4. Option Grants
"Eligible Directors" shall mean directors of the Company who are
directors on the date of grant and who are not officers or employees of the
Company. All options granted under this Subplan C shall be non-incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
20
<PAGE>
(a) Regular Options
Each Eligible Director who is such on the 30th day
following the date on which each Annual Meeting of the
Stockholders of the Company (the "Annual Meeting") is held
during the term of the Plan shall on such 30th day be granted
a stock option to purchase 14,000 shares of Common Stock. Each
such option is defined herein as a "Regular Option."
The date of grant of an option to an Eligible
Director under this Subplan C shall be the applicable day
referred to immediately above.
(b) Discounted Options
(i) Subject to such other rules as the Committee may
adopt from time to time, during the term of the Plan, options
to purchase Common Stock at a discount from fair market value
on the date of grant ("Discounted Options") shall be granted
to any Eligible Director who, no later than June 30, with
respect to the six-month period following such date, and no
later than December 31, with respect to the six-month period
following such date (each six month period, a "Semi-Annual
Period"), has filed with the Company an irrevocable election
to receive a stock option in lieu of all or a specified
portion (expressed in terms of a percentage of the Semi-Annual
Fee) of the Semi-Annual Fee (as defined in Subsection 4(b)
(iii)) earned or expected to be earned by such Director for
the Semi-Annual Period specified in the election.
(ii) Discounted Options shall be granted to an
electing Eligible Director on the first day (July 1 or January
1) of each applicable Semi-Annual Period.
A separate election must be made for each Semi-Annual
Period, although a Director may specify that a particular
election shall apply to future Semi-Annual Periods unless
amended or revoked; provided, however, that no amendment or
revocation may be made with respect to a Semi-Annual Period
after the applicable election date for such Semi-Annual
Period. The Director shall not be entitled to receive in cash
any portion of the Semi-Annual Fee for which an election has
been made to receive an option.
(iii) Option Formula. The number of shares of Common
Stock subject to each Discounted Option granted to any
Eligible Director for a Semi-Annual Period shall be equal to
the nearest number of whole shares of Common Stock, with cash
payment for fractional shares, determined in accordance with
the following formula:
<TABLE>
<S> <C> <C>
Semi-Annual Fee = Number of Shares
-----------------------
Fair Market Value minus
Discounted Option Price
</TABLE>
<PAGE>
"Discounted Option Price" and "Fair Market Value" shall be defined as
set forth in Section 5 below. "Semi-Annual Fee" shall mean the quarterly
retainer fees which the Director will be entitled to receive during a
Semi-Annual Period for serving as a Director pursuant to the policy in effect
for each year during the term of the Plan, but expressly excluding fees paid for
attendance at or participation in meetings of the Board or any committee
thereof; provided, however, that if a Director elects to receive a stock option
in lieu of only a portion of the Semi-Annual Fee, the Semi-Annual Fee for
purposes of the foregoing formula shall equal the portion of the Semi-Annual Fee
so elected. For purposes of this Subplan C, "Semi-Annual Fee" shall also not
include expenses reimbursed by the Company for attendance at or participation in
meetings of the Board or any committee of the Board or fees for any other
services to be provided to the Company.
5. Option Price
(a) Regular Option
The price per share at which each Regular Option
granted under this Subplan C to an Eligible Director may be
exercised ("Regular Option Price") shall be the fair market
value of the Common Stock as determined by the closing sales
price of such Common Stock on the consolidated tape of the
principal exchange on which such Common Stock is traded on the
date of grant, or if there are no sales on such date, on the
trading day next preceding the date of grant on which a sale
took place, or, if the Common Stock is not so traded, then as
determined by a principal market maker for such Common Stock
selected by the Committee ("Fair Market Value").
(b) Discounted Stock Options
The price per share at which each Discounted Option
granted under this Subplan C to an Eligible Director may be
exercised (the "Discounted Option Price," the Regular Option
Price and the Discounted Option Price being sometimes
hereinafter referred to as the "Option Price") shall be
seventy-five percent (75%) of the Fair Market Value of the
Common Stock on the date the Discounted Option is granted.
(c) In no event shall the Option Price per share for any option
under this Subplan C be less than the par value per share.
6. Terms of Grant
Each option granted under this Subplan C shall be evidenced by and
subject to the terms and conditions of an Option Grant attached hereto as
Exhibit A. Each Option Grant executed and delivered to an Eligible Director
shall contain the following terms and conditions. Each option shall expire 5
years from the date of grant of such option, and shall be exercisable in full
beginning on or after the date which is 6 months after the date of grant
thereof. Each Eligible Director to whom an option is granted may exercise such
option from time to time, in whole or in part, during the period that it is
exercisable, by payment of the Option Price of each share purchased. The Option
Price of each share purchased shall be paid in cash, or by delivery or
22
<PAGE>
deemed delivery of other shares of the Company's Common Stock owned by the
Eligible Director with an aggregate Fair Market Value equal to the product of
the Option Price multiplied by the number of the shares to be purchased, or by
withholding by the Company of the number of shares of its Common Stock otherwise
issuable upon exercise of the installment with an aggregate Fair Market Value
equal to the product of the Option Price multiplied by the number of the shares
(including such withheld shares) to be purchased, or by delivery of irrevocable
instructions to a broker promptly to pay to the Company the exercise price of
the shares to be purchased, or in any combination of the forms of payment. A
deemed delivery of shares shall mean the offset by the Company of a number of
shares to be purchased against an equal number of shares of the Company's Common
Stock owned by the Eligible Director. If, however, the applicable Committee
established pursuant to Section 3 of this Subplan C determines in good faith
that an exercise of an option through the delivery or deemed delivery or
withholding of shares of the Company's Common Stock or through delivery of
irrevocable instructions to a broker is not in the best interest of the Company,
the Committee may withhold the right to so exercise the option and require
payment of the purchase price in cash.
The shares of Common Stock issued upon exercise of an option granted
under this Subplan C will be acquired for investment and not with a view to
distribution thereof unless there shall be an effective registration statement
under the Securities Act of 1933, as amended (the "1933 Act"), with respect
thereto. In the event that the Company, upon the advice of counsel, deems it
necessary to list upon official notice of issuance shares to be issued pursuant
to the Plan on a national securities exchange or to register under the 1933 Act
or other applicable federal or state statute any shares to be issued pursuant to
the Plan, or to qualify any such shares for exemption from the registration
requirements of the 1933 Act under the Rules and Regulations of the Securities
and Exchange Commission or for similar exemption under state law, then the
Company shall notify each Eligible Director to that effect and no shares of
Common Stock subject to an option shall be issued until such registration,
listing or exemption has been obtained. The Company shall make prompt
application for any such registration, listing or exemption pursuant to federal
or state law or rules of such securities exchange which it deems necessary and
shall make reasonable efforts to cause such registration, listing or exemption
to become and remain effective. Nothing in this Subplan C or in the Option Grant
will confer upon any Eligible Director the right to continue as a director of
the Company. The shares of Common Stock issued on exercise of the option shall
be subject to any restrictions on transfer then in effect pursuant to the
Certificate of Incorporation or Bylaws of the Company.
Options granted under this Subplan C shall be transferable (subject to
any terms and conditions imposed by the Committee) by the optionee, either
directly or in trust, to one or more members of the optionee's family. Following
any transfer permitted pursuant to this paragraph, of which the optionee has
notified the Committee in writing, such option may be exercised by the
transferee(s), subject to all terms and conditions of the Option Grant. For
these purposes, the members of the optionee's family are only the optionee's:
(i) spouse; (ii) lineal descendants; (iii) lineal ancestors; and (iv) siblings
and spouses and children of such siblings.
7. Termination of Directorship
An Eligible Director's right to participate in this Subplan C shall
automatically terminate if and when such Director becomes an employee of the
Company. Options granted to an Eligible
23
<PAGE>
Director shall cease to be exercisable 6 months after the date such Director
ceases to be a director for any reason other than death. If an Eligible Director
ceases to be a director on account of his death, any option previously granted
to him, whether or not exercisable at the date of death, may be exercised by his
executor, administrator or the person or persons to whom his rights under the
option shall pass by will or the applicable laws of descent and distribution, at
any time within 12 months after the date of death, but in no event after the
expiration of the option.
8. Adjustment of Shares Reserved Under the Plan
The aggregate number and kind of shares that may be issued under this
Subplan C, the maximum number of shares as to which options may be granted to
any individual and the Option Price per share shall be appropriately adjusted by
the Board in the event of any recapitalization, stock split, stock dividend,
combination of shares, or other similar change in the capitalization of the
Company, but no adjustment in the Option Price shall be made which would reduce
the Option Price per share to less than the par value per share.
9. Dissolution or Reorganization
Prior to a dissolution, liquidation, merger, consolidation, or
reorganization of the Company (the "Event"), the Board may decide to terminate
each outstanding option. If the Board so decides, such option shall terminate as
of the effective date of the Event, but the Board shall suspend the exercise of
all outstanding options a reasonable time prior to the Event, giving each
optionee not less than fourteen days written notice of the date of suspension,
prior to which an optionee may purchase in whole or in part the shares available
to him as of the date of receipt of the notice. If the Event is not consummated,
the suspension shall be removed and all options shall continue in full force and
effect subject to the terms of their respective Option Grants.
10. Amendment and Termination of Subplan C
The Board may amend, suspend, or terminate this Subplan C, including the form of
Option Grant incorporated herein by reference. No such action, however, may,
without approval or ratification by the shareholders, increase the maximum
number of shares reserved under this Subplan C except as provided in Section 8,
alter the class or classes of individuals eligible for options, or make any
other change which, pursuant to the Code or regulations thereunder or Section
16(b) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder, requires action by the shareholders. No such action may,
without the consent of the holder of the option, alter or impair any option
previously granted.
24
UNITED ASSET MANAGEMENT CORPORATION
STOCK OPTION DEFERRAL PLAN
Effective December 29, 1998
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
STOCK OPTION DEFERRAL PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1. Adoption and General Matters..........................................................................5
1.1 Adoption..................................................................................................5
1.2 Purpose of the Plan........................................................................................5
1.3 Nature of the Plan.........................................................................................5
1.4 Applicability of ERISA to the Plan.........................................................................5
Section 2. Definitions...........................................................................................5
2.1 "Account"..................................................................................................5
2.2 "Beneficiary"..............................................................................................6
2.3 "Benefit"..................................................................................................6
2.4 "Board"....................................................................................................6
2.5 "Change of Control"........................................................................................6
2.6 "Code"....................................................................................................10
2.7 "Company".................................................................................................10
2.8 "Common Stock"............................................................................................10
2.9 "Deferral"................................................................................................10
2.10 "Deferral Election"......................................................................................10
2.11 "Effective Date".........................................................................................10
2.12 "Eligible Option"........................................................................................10
2.13 "Eligible Optionee"......................................................................................10
2.14 "Entry Date".............................................................................................11
2.15 "Notional Shares"........................................................................................11
2.16 "Participant"............................................................................................11
2.17 "Plan Year"..............................................................................................11
2.18 "Retirement Committee"...................................................................................11
2.19 "Separation from Service"................................................................................11
2.20 "Valuation Date".........................................................................................11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 3. Participation........................................................................................11
3.1 Eligibility...............................................................................................11
3.2 Termination of Eligibility................................................................................11
Section 4. Deferrals.............................................................................................12
4.1 No Contributions Permitted................................................................................12
4.2 Credits...................................................................................................12
4.3 Responsibility for Benefits...............................................................................12
Section 5. Time of Benefit Distribution.........................................................................12
5.1 Eligibility for Payment...................................................................................12
5.2 Benefit Commencement Date................................................................................12
(a) Time of Commencement....................................................................................12
(b) Benefit Commencement Election...........................................................................12
Section 6. Amount of Benefits...................................................................................13
6.1 Amount....................................................................................................13
6.2 Vesting...................................................................................................13
Section 7. Form and Medium of Benefit Distributions.............................................................13
7.1 Benefit Form Available....................................................................................13
7.2 Medium of Distribution....................................................................................13
Section 8. Plan Administration..................................................................................13
8.1 Retirement Committee......................................................................................13
8.2 Indemnification...........................................................................................14
8.3 Ownership of Assets.......................................................................................14
8.4 Accounts and Expenses.....................................................................................15
8.5 Credits in Lieu of Dividends..............................................................................15
Section 9. [Reserved]............................................................................................16
Section 10. Amendment and Termination...........................................................................16
10.1 Amendment................................................................................................16
10.2 Termination..............................................................................................16
Section 11. Miscellaneous.......................................................................................16
11.1 Limitations of Rights; Employment Relationship...........................................................16
11.2 Determination of Benefits, Claims, Procedure and Administration..........................................17
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
(a) Claim...................................................................................................17
(b) Decision on Claim.......................................................................................17
(c) Request for Review......................................................................................17
(d) Review of Decisions.....................................................................................18
11.3 Designation of Beneficiary...............................................................................18
11.4 Non-Assignability of Benefits............................................................................19
11.5 Facility of Distributions................................................................................19
11.6 Obligations to Withhold and Pay Taxes....................................................................19
11.7 Representations..........................................................................................19
11.8 Severability.............................................................................................20
11.9 Applicable Law...........................................................................................20
</TABLE>
4
<PAGE>
UNITED ASSET MANAGEMENT CORPORATION
STOCK OPTION DEFERRAL PLAN
Section 1. Adoption and General Matters
1.1 Adoption. This Stock Option Deferral Plan is hereby adopted as set
forth in the following pages, effective December 29, 1998, by United Asset
Management Corporation.
1.2 Purpose of the Plan. The purpose of the Plan is to provide
employees who become covered under the Plan with enhanced retirement security
through tax-deferred benefits which will be payable on account of retirement,
death or other termination from employment or upon the occurrence of a change of
control over United Asset Management Corporation.
1.3 Nature of the Plan. The Plan shall be maintained for the exclusive
benefit of covered employees and is intended to comply with the requirements of
the Internal Revenue Code of 1986, as amended, and regulations thereunder, and
other applicable laws, as such laws apply to deferred compensation plans that
are not intended to be "qualified plans" pursuant to Section 401(a) of the Code
and are maintained by employers which are not "eligible employers" within the
meaning of Section 457(e)(1) of the Code.
1.4 Applicability of ERISA to the Plan. For purposes of the Employee
Retirement Income Security Act of 1974, as amended, the Company and each
Participant intend that this Plan be considered an "unfunded" arrangement
(within the meaning of Sections 201, 301 and 401 of such Act) that is maintained
primarily to provide deferred compensation benefits for the Participants, each
of whom is a member of a select group of management or highly compensated
employees of the Company.
Section 2. Definitions
For purposes of the Plan, the following terms shall have the following
meanings:
2.1 "Account" means the unfunded memorandum account maintained on the
books of the Company to reflect the aggregate sum of all Deferrals elected by
the Participant, as adjusted (a) for any dividends credited with respect to the
Notional Shares represented by such Account
5
<PAGE>
and (b) to reflect all distributions, expenses and other charges or adjustments
allocable to such Account.
2.2 "Beneficiary" means the individual(s), trust(s), or estate
entitled to receive benefits under this Plan after the death of a Participant or
another Beneficiary.
2.3 "Benefit" means the amount due a Participant or Beneficiary under
the Plan as determined under Subsection 6.1.
2.4 "Board" means the board of directors of the Company; provided that
to the extent that powers, duties, responsibilities or discretionary acts under
this Plan are delegated, either specifically or generally, to the Compensation
Committee of the Board, "Board" shall mean such Compensation Committee for all
such purposes other than actions described in Section 2.5.
2.5 "Change of Control" means:
(a) The acquisition by any individual, entity or group (within the
meaning of Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934
(the "Act")) (a "Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Act) of 20 percent or more of either (i) the then
outstanding shares of the Common Stock or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of the directors (the "Outstanding Company Voting Securities");
provided, however, that no change in such beneficial ownership percentage that
results solely from a change in the aggregate number of outstanding shares of
Common Stock or Outstanding Company Voting Securities shall constitute a Change
of Control; provided further, however, that the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion privilege);
(B) any acquisition by the Company or by any corporation controlled by the
Company; (C) any
6
<PAGE>
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; or (D)
any acquisition by any corporation pursuant to a consolidation or merger, if,
following such consolidation or merger, the conditions described in clauses (i),
(ii), and (iii) of paragraph (c) of this Subsection 2.5 are satisfied; or
(b) Individuals who, as of the Effective Date, constitute the Board
(the "Incumbent Board") ceasing for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for election by
the Company's shareholders, was approved by a vote or resolution of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Act)
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) Adoption by the Board of a resolution approving an agreement of
consolidation of the Company with or merger of the Company into another
corporation or business entity in each case, unless, following such
consolidation or merger, (i) more than 60 percent of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger and/or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of directors (or other persons having the general
power to direct the affairs of such entity) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities
7
<PAGE>
who were the beneficial owners, respectively, of the Common Stock and
Outstanding Company Voting Securities immediately prior to such consolidation or
merger in substantially the same proportions as their ownership, immediately
prior to such consolidation or merger, of the Common Stock and/or Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation or other business entity resulting from such consolidation or merger
and any Person beneficially owning, immediately prior to such consolidation or
merger, directly or indirectly, 35 percent or more of the Common Stock and/or
Outstanding Company Voting Securities, as the case may be) beneficially owns,
directly or indirectly, 35 percent or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
consolidation or merger or the combined voting power of the then outstanding
voting securities of such corporation or business entity entitled to vote
generally in the election of its directors (or other persons having the general
power to direct the affairs of such entity) and (iii) at least a majority of the
members of the board of directors (or other group of persons having the general
power to direct the affairs of the corporation or other business entity)
resulting from such consolidation or merger were members of the Incumbent Board
at the time of the execution of the initial agreement providing for such
consolidation or merger; provided that any right which shall vest by reason of
the action of the Board pursuant to this paragraph (c) shall be divested, with
respect to any such right not already exercised, upon (A) the rejection of such
agreement of consolidation or merger by the stockholders of the Company or (B)
its abandonment by either party thereto in accordance with its terms; or
(d) Adoption by the requisite majority of the whole Board, or by the
holders of such majority of stock of the Company as is required by law or by the
Certificate of Incorporation or
8
<PAGE>
By-Laws of the Company as then in effect, of a resolution or consent authorizing
(i) the dissolution of the Company or (ii) the sale or other disposition of all
or substantially all of the assets of the Company, other than to a corporation
or other business entity with respect to which, following such sale or other
disposition, (A) more than 60 percent of, respectively, the then outstanding
shares of common stock of such corporation and/or the combined voting power of
the outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common Stock
and Outstanding Company Voting Securities immediately prior to such sale or
other disposition in substantially the same proportions as their ownership,
immediately prior to such sale or other disposition, of the Common Stock and/or
Outstanding Company Voting securities, as the case may be, (B) no Person
(excluding the Company and any employee benefit plan (or related trust) of the
Company or such corporation or other business entity and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 35 percent or more of the Common Stock and/or Outstanding Company
Voting Securities, as the case may be) beneficially owns, directly or
indirectly, 35 percent or more of, respectively, the then outstanding shares of
common stock of such corporation and/or the combined voting power of the then
outstanding voting securities of such corporation or other business entity
entitled to vote generally in the election of directors (or other persons having
the general power to direct the affairs of such entity) and (C) at least a
majority of the members of the board of directors (or other group of persons
having the general power to direct the affairs of such corporation or other
entity) were members of the Incumbent Board at the time of the execution of the
initial
9
<PAGE>
agreement or action of the Board providing for such sale or other disposition of
assets of the Company; provided that any right which shall vest by reason of the
action of the Board or the stockholders pursuant to this paragraph (d) shall be
divested, with respect to any such right not already exercised, upon the
abandonment by the Company of such dissolution, or such sale or other
disposition of assets, as the case may be.
2.6 "Code" means the Internal Revenue Code of 1986, as amended, and
including all regulations thereunder.
2.7 "Common Stock" means the Company's common stock ($.01 par value).
2.8 "Company" means United Asset Management Corporation.
2.9 "Deferral" means the number of Notional Shares equal to the number
of shares of Common Stock purchased pursuant to an option with respect to which
the Participant has made a Deferral Election.
2.10 "Deferral Election" means an irrevocable election to defer receipt
of Shares of Common Stock made (a) on or after the Effective Date and (b) either
(i) with the consent of the Company or (ii) pursuant to the terms of an Eligible
Option.
2.11 "Effective Date" means December 29, 1998.
2.12 "Eligible Option" means an option granted to an Eligible Optionee
pursuant to any stock option plan of the Company under which the applicable
committee with the authority under such plan to grant options has granted the
optionee the right to elect deferred receipt of the optioned shares in
accordance with the terms of this Plan.
2.13 "Eligible Optionee" means any optionee granted an option to
purchase shares of Common Stock who either (a) is not an employee of the Company
or of a subsidiary, parent or other affiliate of the Company or (b) is such an
employee who is a member of a select group of
10
<PAGE>
management or highly compensated employees of the Company or of such subsidiary,
parent or other affiliate of the Company.
2.14 "Entry Date" means the effective date of an Eligible Optionee's
first Deferral Election. No Participant's Entry Date shall precede the Effective
Date.
2.15 "Notional Shares" means fictitious shares of the Company's common
stock that are equivalent in value at all times to shares of Common Stock.
2.16 "Participant" means a present or former Eligible Optionee who has
made a Deferral Election and who retains the right to receive a Benefit under
the Plan.
2.17 "Plan Year" means the Company's fiscal year.
2.18 "Retirement Committee" means the committee appointed pursuant to
Subsection 8.1.
2.19 "Separation from Service" means the termination for any reason,
including the death of the Participant, of a Participant's employment with or
the provision of services in any other capacity to the Company or any
subsidiary, parent or other affiliate of the Company.
2.20 "Valuation Date" means the date or dates in each Plan Year as of
which Accounts are valued pursuant to Subsection 8.4.
Section 3. Participation
3.1 Eligibility. Each Eligible Optionee shall become a Participant on
his or her Entry Date.
3.2 Termination of Eligibility. A Participant who ceases for any reason
to be an Eligible Optionee shall remain a Participant in the Plan so long as he
or she retains the right to receive a Benefit under the Plan, but shall not
thereafter make additional Deferral Elections.
11
<PAGE>
Section 4. Deferrals
4.1 No Contributions Permitted. This Plan is unfunded and the Company
shall not make any contributions hereunder. Furthermore, no contributions by
Participants shall be required or permitted under this Plan. Notwithstanding the
foregoing, the Company shall credit under this Plan such Deferrals, if any, as
are elected by Eligible Optionees from time to time. All such Deferrals shall be
credited to the Accounts of the Eligible Optionees as provided in Subsection
4.2.
4.2 Credits. Each Deferral by an Eligible Optionee shall be credited to
his or her Account as of the date of exercise of the relevant option.
4.3 Responsibility for Benefits. Although the Company will not make any
contributions under this Plan, it shall be responsible for distributing all
Benefits as and when they fall due under the Plan.
Section 5. Time of Benefit Distribution
5.1 Eligibility for Distribution. Benefits shall be distributed from
the Plan only upon the occurrence of one or both of the following events: (a)
Separation from Service and (b) Change of Control.
5.2 Benefit Commencement Date.
(a) Time of Commencement. Unless a Participant or Beneficiary (as the
case may be) has made a timely election to defer Benefits with the approval of
the Retirement Committee pursuant to paragraph (b) of this Subsection 5.2, the
Participant's Benefits under this Plan shall be distributed 60 days after the
earlier of (i) the date of the Participant's Separation from Service and (ii)
the date on which a Change of Control occurs.
(b) Benefit Commencement Election. Subject to the Retirement
Committee's approval, a Participant or Beneficiary may make a one-time
irrevocable election to defer payment of Benefits to any determinable date
beyond 60 days after the Participant's Separation from Service or the date on
which a Change of Control occurs; provided that such election is
12
<PAGE>
made on the form prescribed by the Retirement Committee and is received by the
Retirement Committee within 30 days after the Participant's Separation from
Service or the date on which a Change of Control occurs (as the case may be).
The Retirement Committee shall have absolute discretion to approve, disapprove
or modify before approving any such election to defer benefits.
Section 6. Amount of Benefits
6.1 Amount. A Participant's Benefit under the Plan (and the Benefit of
anyone claiming through the Participant, including without limitation any
Beneficiary) shall equal the number of Notional Shares credited to the
Participant's Account.
6.2 Vesting. All Accounts and Benefits shall be fully vested at all
times.
Section 7. Form and Medium of Benefit Distributions.
7.1 Benefit Form Available. All Benefits under the Plan shall be
distributed in one lump sum.
7.2 Medium of Distribution. All Benefits under the Plan shall be
distributed by delivery of shares of Common Stock equal in number to the number
of Notional Shares that comprise the Benefit as of the date of distribution.
Such shares of Common Stock shall be (a) those reserved under the relevant stock
option plan for issuance pursuant to exercise of the option(s) as to which the
Participant made Deferral Elections plus (b) additional shares of Common Stock
equal to the number of Notional Shares credited to the distributed Account in
lieu of dividends pursuant to Subsection 8.5. At the Company's sole option, such
additional shares of Common Stock may either be issued or purchased by the
Company.
Section 8. Plan Administration
8.1 Retirement Committee. The Plan shall be administered by a
Retirement Committee consisting of one or more members appointed by the Board,
and shall be the committee serving from time to time as the applicable
Compensation Committee named in
13
<PAGE>
Section 3 of the Company's Amended and Restated 1994 Stock Option Plan (as
amended from time to time) unless a different appointment is then in effect
under this Plan. Each member shall serve at the pleasure of the Board. The
Retirement Committee shall act by majority decision of its members; provided
that any one or more members may act singly to perform any ministerial act on
behalf of the Committee. The Committee shall have responsibility for the
operation and administration of the Plan and shall have the power and authority
to adopt, interpret, alter, amend or revoke all forms, rules and regulations
necessary to administer the Plan, to interpret all provisions of the Plan and
determine all questions of eligibility for participation in and benefits under
the Plan and all other issues of administration, and to delegate ministerial
duties and employ such outside professionals as may be required for prudent
administration of the Plan. The Retirement Committee shall also have the
authority to enter into agreements on behalf of the Company as necessary to
implement this Plan. The members of the Retirement Committee, if otherwise
Eligible Optionees, may participate in the Plan, but shall not make decisions of
the Committee solely with respect to their own benefits.
8.2 Indemnification. The Company shall indemnify and save harmless any
individual acting as a member of the Retirement Committee or in any other
fiduciary capacity from, against, for and in respect of any and all damages,
losses, obligations, liabilities, liens, deficiencies, attorneys' fees, costs
and expenses incident to the performance of such person's duties unless
resulting from the gross negligence, willful misconduct, or lack of good faith
of such individual. Such indemnification shall apply to any such individual even
though at the time liability is imposed the individual was no longer acting in a
fiduciary capacity or as a member of the Retirement Committee.
8.3 Ownership of Assets. All amounts credited under this Plan, all
property and rights purchased with such amounts, and all income attributable to
such amounts, property or rights shall remain (until made available to the
Participant or Beneficiary) solely the property and rights of the Company
(without being restricted to the provision of benefits under this Plan) and
shall be subject to the claims of the general creditors of the Company. No trust
is created under this
14
<PAGE>
Plan and it is not otherwise funded in any manner. No Participant or Beneficiary
shall have any preferred claim on, or any beneficial ownership interest in, any
assets of the Company or any benefit Account maintained under the Plan prior to
the time such assets are distributed as a Benefit, and all rights created under
the Plan shall be mere unsecured contractual rights. Notwithstanding the
foregoing, nothing in this Plan shall be construed to prohibit any one or more
Participants or Beneficiaries from purchasing insurance to protect against loss
on account of the provisions of this Subsection 8.3, and the Company shall
cooperate in any effort to obtain such insurance; provided that any such
insurance shall be obtained, owned and paid for solely by the insured persons
and not by the Company.
8.4 Accounts and Expenses. The Retirement Committee shall establish and
maintain an unfunded bookkeeping Account on behalf of each Participant and
surviving Beneficiary who is awaiting distribution of a Benefit under the Plan.
The number of Notional Shares credited to each Account shall be determined at
least once each Plan Year on the Valuation Date or Dates selected by the
Retirement Committee, and each Participant (or surviving Beneficiary) shall
receive written notice of the number of Notional Shares in his or her Account
following such valuation. Account balances shall reflect the cumulative
Deferrals and any Notional Shares credited to the Account in lieu of dividends
pursuant to Subsection 8.5, and shall be reduced by the Notional-Share
equivalent value of any (a) administrative, investment and other fees, in such
amounts and at such times as the Retirement Committee deems appropriate for the
maintenance of this Plan and (b) Benefits distributed to or on behalf of the
Participant and/or anyone claiming through the Participant (including without
limitation any Beneficiary). Notwithstanding the foregoing, the Company shall
have the discretion, but not the obligation, to pay all or any portion of the
fees and expenses incurred in administering the Plan.
8.5 Credits in Lieu of Dividends. The pre-tax amount of all dividends
that would have been declared on the Notional Shares credited to a Participant's
Account (if such shares were shares of Common Stock) shall be deemed to be
reinvested in additional Notional Shares at
15
<PAGE>
the closing price of the Common Stock on its principal trading exchange on the
dividend payment date, with any resulting fractional Notional Share rounded up
to the next whole Share.
Section 9. [Reserved].
Section 10. Amendment and Termination
10.1 Amendment. The Company shall have the right to amend this Plan, at
any time and from time to time, in whole or in part; provided, however, that no
amendment may reduce the vested balance of any Participant's Account as of the
date of such amendment.
10.2 Termination. Although the Company has established this Plan with a
bona fide intention and an expectation to maintain the Plan indefinitely, the
Company may terminate or discontinue this Plan in whole or in part at any time
without any liability for such termination or discontinuance; provided, however,
that no such termination or discontinuance may reduce the vested balance of any
Participant's Account as of the date of such termination or discontinuance. Upon
termination or discontinuance of the Plan, all Deferrals shall cease. At the
Retirement Committee's sole discretion, the vested portion of all Accounts shall
be either distributed immediately as Benefits or retained until each Participant
has a Separation from Service or a Change of Control occurs, and Benefits shall
thereafter be distributed pursuant to Sections 5 through 7 of the Plan, as then
in effect.
Section 11. Miscellaneous
11.1 Limitations of Rights; Employment Relationship. Neither the
establishment of this Plan nor any modification thereof, nor the creation of any
fund or account, nor the payment of any benefits, shall be construed as giving a
Participant or any other person any legal or equitable right against the Company
except as provided in this Plan. In no event shall the terms of employment of
any employee be modified or in any way be affected by the Plan.
16
<PAGE>
11.2 Determination of Benefits, Claims, Procedure and Administration.
(a) Claim. A person who believes that he or she is being denied a
benefit to which he or she is entitled under the Plan (hereinafter referred to
as a "Claimant") may file a written request for such benefit with the Company,
setting forth his or her claim. The request must be addressed to the Retirement
Committee in care of the Company at its then principal place of business.
(b) Decision on Claim. Upon receipt of a claim, the Retirement
Committee shall advise the Claimant that a reply will be forthcoming within 90
days and shall, in fact, deliver such reply within such period. The Retirement
Committee may, however, extend the reply period for an additional 90 days for a
reasonable cause.
If the claim is denied in whole or in part, the Retirement Committee
shall adopt a written opinion, using language calculated to be understood by the
Claimant, setting forth:
(i) The specific reason or reasons for such denial
(ii) The specific reference to pertinent provisions of the Plan on
which such denial is based
(iii) A description of any additional material or information necessary
for the Claimant to perfect his or her claim and an explanation of why such
material or such information is necessary
(iv) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review
(v) The time limits for requesting a review and for completing any such
review.
(c) Request for Review. Within 60 days after the receipt by the
Claimant of the written opinion described above, the Claimant may request in
writing that the Board (or its designee) review the determination of the
Retirement Committee. Such request must be addressed to the Chairman of the
Board, at the Company's then principal place of business. The Claimant or his or
her duly authorized representative may, but need not, review the pertinent
17
<PAGE>
documents and submit issues and comments in writing for consideration by the
Board or its designee. If the Claimant does not request a review of the
Retirement Committee's determination by the Board within such 60-day period, he
or she shall be barred and estopped from challenging the Retirement Committee's
determination.
(d) Review of Decisions. Within 60 days after receipt of a request for
review, the Board or its designee shall review the Retirement Committee's
determination. After considering all materials presented by the Claimant the
Board or its designee shall render a written opinion, written in a manner
calculated to be understood by the Claimant, setting forth the specific reasons
for a decision and containing specific references to the pertinent provisions of
the Plan on which the decision is based. If special circumstances require that
the 60-day time period be extended, the Board or its designee shall so notify
the Claimant and shall render the decision as soon as possible, but not later
than 120 days after receipt of the request for review.
11.3 Designation of Beneficiary. Each Participant (and each surviving
Beneficiary who is awaiting distribution of benefits under the Plan) shall have
the right to designate a Beneficiary, and to amend or revoke such designation at
any time. Each such designation, amendment or revocation shall be made on the
form prescribed by the Retirement Committee, and shall be effective only upon
receipt by the Retirement Committee. If no designated beneficiary survives the
Participant (or a surviving Beneficiary) and benefits are distributable
following the Participant's (or surviving Beneficiary's) death, the Retirement
Committee shall direct that distribution of benefits be made to the person or
persons in the first of the following classes of successive preference
Beneficiaries:
(a) Spouse
(b) Descendants, Per Stirpes
(c) Parents
(d) Siblings
(e) Estate
18
<PAGE>
11.4 Non-Assignability of Benefits. Neither the Participant nor his or
her Beneficiary nor any other beneficiary under the Plan shall have any power or
right to transfer, assign, anticipate, hypothecate or otherwise encumber any
part or all of the amounts credited hereunder, which are expressly declared to
be nonassignable and non-transferable. Any such attempted assignment or transfer
shall be void. No amount distributable under the Plan shall, prior to actual
distribution thereof, be subject to seizure by any creditor of any such person
for the payment of any debt, judgment or other obligation, by a proceeding at
law or in equity, or be transferable by operation of law in the event of the
bankruptcy, insolvency, divorce or death of the Participant, his or her
designated Beneficiary or any other beneficiary under this Plan.
11.5 Facility of Distributions. In the event that the Retirement
Committee shall determine that any person to whom a benefit is distributable
under the Plan is unable to care for his or her affairs because of illness or
accident, or is otherwise mentally or physically incompetent, or unable to give
a valid receipt, the Committee may cause the distribution becoming due to be
made to the person's spouse, child, grandchild, parent, brother or sister, or to
any appropriate individual appointed by a court of competent jurisdiction, or to
any person deemed by the Committee to have incurred expense for such person
otherwise entitled to payment.
11.6 Obligations to Withhold and Pay Taxes. Each Participant or other
recipient of benefits under the Plan shall be liable for all tax obligations, if
any, with respect to any distribution received pursuant to the Plan and for
accurately reporting and paying in full all such taxes to the appropriate
federal, state and local authorities. The Company shall have the right to deduct
and withhold from any distribution due under the Plan or from other amounts owed
to or with respect to the Participant all withholding taxes and other amounts
required by law.
11.7 Representations. The Company makes no representation or guarantee
that any particular federal or state income, payroll, personal property or other
tax consequence will result from participation in this Plan. A Participant
should consult with professional tax advisors to
19
<PAGE>
determine the tax consequences of his or her participation. Each Participant and
Beneficiary shall bear the risk of loss from the Participant's participation in
the Plan.
11.8 Severability. If a court of competent jurisdiction holds any
provision of this Plan to be invalid or unenforceable, the remaining provisions
of the Plan shall continue to be fully effective.
11.9 Applicable Law. This Plan shall be governed by and construed in
accordance with applicable federal law and, to the extent not preempted by such
federal law, the laws of the Commonwealth of Massachusetts applicable to
contracts that are made and to be wholly performed in such Commonwealth.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
under seal by its duly authorized representative this ninth day of March, 1999.
UNITED ASSET MANAGEMENT CORPORATION
By: /s/ William H. Park
------------------------------
William H. Park
Executive Vice President and
Chief Financial Officer
20
UNITED ASSET MANAGEMENT CORPORATION
CALCULATION OF EARNINGS (LOSS) PER SHARE
----------------------------------------
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Basic Earnings per Share
Income available to common
shareholders $78,507,000 66,158,000 $1.19
=======
Effect of Dilutive Securities (1) -- 1,911,000
----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $78,507,000 68,069,000 $1.15
=========== ========== =======
=====================================================================================================
For the Year Ended December 31, 1997
Basic Loss per Share
Loss available to common
shareholders $(4,133,000) 69,611,000 $(.06)
========
Effect of Dilutive Securities (1) -- --
----------- ----------
Diluted Loss per Share
Loss available to common
shareholders + assumed conversions $(4,133,000) 69,611,000 $ (.06)
=========== ========== =======
=====================================================================================================
For the Year Ended December 31, 1996
Basic Earnings per Share
Income available to common
shareholders $97,822,000 68,515,000 $1.43
=======
Effect of Dilutive Securities (1) -- 3,536,000
----------- ----------
Diluted Earnings per Share
Income available to common
shareholders + assumed conversions $97,822,000 72,051,000 $1.36
=========== ========== ======
=====================================================================================================
</TABLE>
(1) Options on 2,014,000, 7,013,000 and 96,000 shares of common stock and
warrants on 1,523,000, 9,350,000 and 708,000 shares of common stock were
outstanding during 1998, 1997 and 1996, respectively, but were not included
in computing diluted earnings (loss) per share in each of these years
because their effects were antidilutive.
United Asset Management Corporation
United Asset Management's
clients
United Asset Management is one of the largest independent investment management
firms in the world. By funding growth, rewarding superior investment
performance, ensuring business stability, and maintaining the autonomy of its
firms, UAM has assembled an outstanding group of independent investment
management affiliates that employ a variety of investment styles to manage a
broad mix of asset classes around the globe.
UAM's firms manage both domestic and international investment portfolios for
corporate, government and union benefit plans, mutual funds, individuals,
endowments, and foundations. As of December 31, 1998, UAM's firms had
approximately $201.4 billion under management with an average account size of
$32.3 million. The mix of assets under management for clients of UAM's firms was
63% U.S. equities, 14% international securities, 13% U.S. bonds and cash, 5%
real estate and 5% stable value assets. The 20 largest clients of UAM's
affiliates represented 16% of total revenues and the 100 largest clients
represented 28%.
The goal of each of UAM's firms is to provide superior, focused and individual
service to its clients. A sound and consistent investment philosophy, regular
communications and a keen awareness of individual client needs are all critical
elements in providing exceptional client service. To retain existing clients
and attract new prospects, UAM and its affiliates are co-investing in a wide
range of initiatives ranging from client relationship management and back
office systems to new product development and marketing support. These
investments are part of a stronger, more effective operating partnership
between UAM and its affiliates, and are at the center of UAM's four-point
strategy to enhance shareholder value and increase the internal growth of its
firms.
<TABLE>
<CAPTION>
Assets under Average
management Number account size
As of December 31, 1998 (in millions) Percent of clients (in millions)
<S> <C> <C> <C> <C>
............................................................................................
Corporate employee benefit plans $ 68,400 34.0% 1,672 $ 40.9
............................................................................................
Mutual funds 48,483 24.1 260 186.5
............................................................................................
Government employee benefit plans 33,345 16.5 343 97.2
............................................................................................
Individuals 20,512 10.1 2,704(1) 7.6
............................................................................................
Endowments and foundations 14,070 7.0 769 18.3
............................................................................................
Union member benefit plans 13,086 6.5 284 46.1
............................................................................................
Corporate cash reserves 1,778 0.9 24 74.1
............................................................................................
Professional groups 1,719 0.9 185 9.3
- --------------------------------------------------------------------------------------------
$201,393 100.0% 6,241 $ 32.3
============================================================================================
</TABLE>
(1) These clients include 105 wrap-fee relationships with brokerage firms which
represent approximately 29,000 individual accounts with $9.3 billion under
management.
36
<PAGE>
Management's discussion and analysis
The principal business activities of UAM are investment advisory services,
primarily for institutional clients, and the acquisition of institutional
investment management firms. The Company's wholly owned subsidiaries operate in
one business segment, that is, as investment advisers, managing both domestic
and international investment portfolios for corporate, government and union
benefit plans, mutual funds, individuals, endowments, and foundations.
The revenues of UAM's affiliated firms are derived primarily from fees for
investment advisory services provided to institutional and other clients.
Investment advisory fees are generally a function of the overall fee rate
charged to each account and the level of assets under management by the
affiliated firms. A minor portion of revenues is generated when firms
consummate transactions for client portfolios. Assets under management can be
affected by the addition of new client accounts or client contributions to
existing accounts, withdrawals of assets from or terminations of client
accounts, and investment performance, which may depend on general market
conditions.
Amortization of cost assigned to contracts acquired and Operating Cash Flow
(net income (loss) plus amortization, depreciation and the reduction in value
of intangible assets, net of taxes)
Cost assigned to contracts acquired, net of accumulated amortization,
represented approximately 65% of the Company's total assets as of December 31,
1998. Amortization of cost assigned to contracts acquired, which is a noncash
charge, represented 15% of the Company's operating expenses. Recording the cost
assigned to contracts acquired as an asset, with the resulting amortization as
an operating expense, reflects the application of generally accepted accounting
principles to acquisitions by UAM of investment management firms in
transactions accounted for as purchases. The principal assets acquired are the
investment advisory contracts which evidence the firms' ongoing relationships
with their clients.
Although the contracts acquired are typically terminable on 30-days notice,
analyses conducted by independent consultants retained by UAM and the
experience of UAM's firms to date have indicated that: (1) contracts are
usually relatively long-lived; (2) the duration of contracts can be reasonably
estimated; and (3) the value of the cost assigned to contracts acquired can be
estimated based on the present value of their projected income stream.
The cost assigned to contracts acquired is amortized on a straight-line basis
over the estimated weighted average useful life of the contracts of individual
firms acquired. These lives are estimated through statistical analysis of
historical patterns of terminations and the size and age of the contracts
acquired as of the acquisition date.
When actual terminations differ from the statistical patterns developed, or
upon the occurrence of certain other events, the Company updates the lifing
analyses discussed above. If the update indicates that any of the estimates
should be shortened, the remaining cost assigned to contracts acquired will be
amortized over the shorter life commencing in the year in which the new
estimate is determined. The Company regularly performs reviews for potential
impairment of the value of contracts. If the review indicates that the carrying
value of the contracts is impaired, the asset is adjusted to its estimated fair
value.
Cost assigned to contracts acquired is amortized as an operating expense. It
does not, however, require the use of cash and therefore, management believes
that it is important to distinguish this expense from other operating expenses
in order to evaluate the performance of the Company. Amortization of cost
assigned to contracts acquired per share referred to below has been calculated
by dividing total amortization by the same number of shares used in the diluted
earnings-per-share calculation.
37
<PAGE>
United Asset Management Corporation
For purposes of this discussion, Operating Cash Flow is defined as net income
(loss) plus amortization, depreciation and the reduction in value of intangible
assets, net of taxes, as reflected in the Company's Consolidated Statement of
Cash Flows. Operating Cash Flow is used to invest in affiliate growth
initiatives, repurchase shares of the Company's common stock, pay dividends to
shareholders and fund acquisitions. Management uses Operating Cash Flow not to
the exclusion of net income (loss), but rather as an additional important
measure of the Company's performance.
Results of operations
Revenues were $961,854,000, $941,621,000 and $883,267,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. The increase in revenues year
over year was the result of positive portfolio performance achieved by UAM's
affiliated firms as well as purchase business combinations, partially offset by
the effect of net client cash outflows. In addition, in 1998 UAM received life
insurance proceeds as a result of the death of an executive. Also in 1998,
Heitman Financial LLC sold its non-retail property management operation. In
1996, nonrecurring revenues included the redemption of the Company's minority
interest in Aldrich Eastman Waltch. The revenues of OSV Partners, J.R. Senecal
& Associates Investment Counsel Corp., Pacific Financial Research, Inc.,
Thomson Horstmann & Bryant, Inc., Lincluden Management Limited and Integra
Capital Management Corporation have been included since their acquisition dates
of April 22, 1996, January 7, 1997, May 29, 1997, June 6, 1997, September 4,
1997 and January 6, 1998, respectively.
Assets under management totaled $201.4 billion in 1998 compared to $197.5
billion in 1997 and $171.0 billion in 1996. The net increase in assets under
management of $3.9 billion during 1998 consisted of investment performance of
$21.2 billion and acquisitions totaling $2.5 billion, partially offset by
negative net client cash flow of $19.8 billion. The net increase in assets
under management of $26.5 billion during 1997 consisted of investment
performance of $27.1 billion and acquisitions totaling $15.4 billion, partially
offset by negative net client cash flow of $16.0 billion. UAM is undertaking a
number of initiatives focused on improving net client cash flow.
Compensation and related expenses was $474,721,000 in 1998, $470,372,000 in
1997 and $431,877,000 in 1996. The increase in compensation and related
expenses each year was due to higher compensation earned by employees in
accordance with revenue sharing plans. Amortization of cost assigned to
contracts acquired was $113,296,000 in 1998, $105,242,000 in 1997 and
$101,935,0000 in 1996. The increase each year was primarily due to the
acquisitions described above. Other operating expenses were $179,342,000 in
1998, $163,927,000 in 1997 and $138,450,000 in 1996. The increase between years
reflects the acquisitions described above as well as the higher costs of
marketing, client service and product development. The Company expects to
continue the investments it makes with affiliates in marketing, distribution
and new product development. Furthermore, the Company plans to continue
supporting firms at various stages of development.
During the fourth quarter of 1997, the Company recorded a noncash charge
reducing the recorded value of intangible assets to reflect an impairment of
the cost assigned to contracts acquired of $170,982,000 ($99,347,000 net of
taxes) due to a projected decline in revenues at two affiliates. The assets
were reduced to their estimated fair value.
Interest expense was $60,275,000 in 1998, $43,156,000 in 1997 and $43,289,000
in 1996. The increase in 1998 was due to an increase in both the Company's
average debt levels and the average interest rates charged on borrowings. The
Company's average debt levels also increased between 1996 and 1997 but were
partially offset by a decrease in the average interest rates charged on
borrowings.
Income before income taxes was $137,249,000 in 1998 compared to a loss before
income taxes of $7,223,000 in 1997 and income before income taxes of
$171,248,000 in 1996 primarily as a result of the events described above. Net
income for 1998 was $78,507,000 compared to a net loss of $4,133,000 in 1997
and net income of $97,822,000 in 1996. Diluted earnings per share for 1998 were
$1.15 compared to diluted loss per share of $.06 in 1997 and diluted earnings
per share of $1.36 in 1996.
38
<PAGE>
Amortization of cost assigned to contracts acquired per share increased to
$1.66 in 1998 from $1.44 in 1997 and $1.41 in 1996. Operating Cash Flow was
$211,404,000 in 1998, $213,652,000 in 1997 and $211,371,000 in 1996. The
changes in Operating Cash Flow were primarily the result of the circumstances
discussed above.
Excluding the effects of the 1997 reduction in value of intangible assets of
$170,982,000 and the 1996 redemption of the minority interest in Aldrich
Eastman Waltch, net income was $95,214,000 in 1997 and $90,719,000 in 1996.
Diluted earnings per share were $1.31 in 1997 and $1.26 in 1996. Operating Cash
Flow was $213,652,000 in 1997 and $204,268,000 in 1996.
Financial condition and liquidity
The Company generated $211,404,000 of Operating Cash Flow in 1998. This
Operating Cash Flow and additional borrowings under the Company's line of
credit were primarily used to repurchase shares of the Company's common stock
for $270,579,000, to finance the $144,303,000 cash portion of acquisition
activity, and to pay dividends to shareholders totaling $53,675,000. As of
December 31, 1998, the Company had working capital of $83,315,000 and had
$463,000,000 available under its line of credit (see Note 3 to the Consolidated
Financial Statements included in this Annual Report which details changes in
the Company's credit arrangements over the past year).
Management believes that the Company's existing capital, together with
Operating Cash Flow and borrowings available under its revolving line of
credit, will provide the Company with sufficient resources to meet its present
and reasonably foreseeable future cash needs. Management expects that the
principal uses of financial resources will be to repurchase shares of the
Company's common stock, to provide further support for investing with existing
affiliates, to pay shareholder dividends, to acquire additional investment
management firms, and to fund commitments due or potentially due to former
owners of affiliated firms.
Although the Company is still pursuing acquisitions of investment management
firms, the activity level has slowed in recent years due to prices for firms
increasing significantly as well as UAM increasing its support for growth
initiatives at individual affiliates in areas such as product development and
client service. The Company is also taking steps to refocus operations that do
not meet strategic objectives. This has allowed the Company and its affiliates
to reallocate resources toward more efficient uses. Furthermore, during 1998,
the Company significantly increased its repurchases of UAM common stock.
Increases or decreases in interest rates affect UAM's costs of operations
chiefly through raising or lowering the interest expense related to the
Company's variable-rate debt outstanding. To mitigate the risks associated with
increases in interest rates, UAM has entered into and plans to continue to
enter into interest-rate protection agreements (see Notes 1 and 3 to the
Consolidated Financial Statements included in this Annual Report). Rates of
interest on the $400,000,000 of Senior Notes and the existing subordinated debt
are fixed. Increases and decreases in interest rates may also affect market
prices of assets managed by the Company's affiliated firms. Changes in such
prices may affect the affiliated firms' revenues, and therefore UAM's
consolidated revenues.
Effects of inflation
The Company's business is not capital intensive. Management believes that
financial results as reported would not be significantly effected had such
results been adjusted to reflect inflation and price changes.
Year 2000 and other system-related issues
The "Year 2000 issue" is the result of computer programs and other electronic
systems that use two digits rather than four to define the applicable year.
These programs and systems may not be able to process dates beyond 1999, which
may cause system failures or create erroneous results.
The Company has retained a consulting firm since 1997 to help develop and
implement a program to assess its Year 2000 readiness. An inventory of the
Company's computer hardware and software programs, as well as surveys conducted
of all of its software and hardware vendors, have substantially been completed.
As part of this program, the Company is testing, modifying, upgrading or
replacing its computer software applications and systems, and seeks to be Year
2000 compliant by June 30, 1999.
39
<PAGE>
United Asset Management Corporation
The Company is also addressing Year 2000 issues related to non-information
technology (non-IT) systems, including embedded software and equipment (e.g.
elevators, telephone systems, etc.), and addressing the compliance of key
business partners. The Company has substantially completed an assessment of its
non-IT systems and service providers and is in the process of gaining
assurances that they will be Year 2000 compliant, and seeks to have these
assurances by June 30, 1999.
The Company is in the process of developing contingency plans in the event that
the IT or non-IT systems of the Company or any of its key service providers are
not Year 2000 compliant by the end of 1999. The contingency plans, which are
expected to be completed by the end of 1999, will address how to mitigate risks
associated with the worst reasonably likely failures of systems at critical
dates in both the short term and the long term. Any Year 2000 compliance
problem of the Company, any of its affiliated firms, any of its vendors and any
other company with which it conducts business could have a material adverse
effect on the Company's consolidated financial position, its consolidated
results of operations or its consolidated cash flows.
To date, the Company and its affiliates have incurred expenses in the amount of
approximately $1,200,000 and expect to incur an additional $1,000,000 related
to this issue. These costs, which principally represent consulting fees, are
being expensed as incurred. The Company has performed, and expects to continue
to perform, modifications, upgrades and replacements of its computer software
applications and systems through the Company's ongoing maintenance program.
Therefore, the Company has not incurred, and does not expect to incur,
significant incremental expenses for such modifications, upgrades and
replacements. The Company does not segregate payroll or other internal costs
specifically devoted to its efforts to address Year 2000 issues, but does not
believe these costs to be significant. The expenses of the Company's affiliated
firms related to Year 2000 issues are funded out of the share of revenues
reserved for the affiliates under revenue sharing agreements and do not affect
the share of revenues retained by the Company. The total cost associated with
becoming Year 2000 compliant is not expected to be material to the Company's
consolidated financial position, its consolidated results of operations or its
consolidated cash flows.
The Company's affiliates that are registered with the Securities and Exchange
Commission (SEC) as investment advisers or broker-dealers are required to
discuss their Year 2000 readiness in Forms ADV-Y2K or BD-Y2K which are filed
with the SEC and are available to clients.
On January 1, 1999, 11 European Union member states adopted the "Euro" as their
common national currency. This currency will replace existing national
currencies in all participating countries over a period ending July 1, 2002.
During this period, both the Euro and existing national currencies will be
accepted. The Company and its affiliates have identified and addressed the
operational and information system issues related to the Euro conversion. The
costs associated with adopting the Euro did not have a material adverse effect
on the Company's consolidated financial position, its consolidated results of
operations or its consolidated cash flows.
The estimates and conclusions herein contain forward-looking statements and are
based on management's best estimates of future events. These statements should
be read in conjunction with the Company's disclosures under the heading
"Forward-looking statements" detailed below.
Derivative instruments and hedging activities
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The standard is effective for fiscal years beginning
after June 15, 1999 and, based on current activities, is not expected to have a
material impact on the Company's consolidated financial position, its
consolidated results of operations or its consolidated cash flows.
Forward-looking statements
Certain statements within this Annual Report filed under Form 10-K, in future
filings by the Company with the SEC,
40
<PAGE>
in the Company's press releases, and in other written or oral communications
made by or with the approval of an authorized executive officer of the Company
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The words or phrases "can be,"
"expects," "may affect," "may depend," "believes," "estimate," "project" and
similar words and phrases are intended to identify such forward-looking
statements.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors, which may cause the actual results, performances or
achievements of the Company to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. Some of these risks, uncertainties and other factors are: changes
in domestic and foreign economic and market conditions, effects of client cash
flow, impairment of acquired client contracts, competition in the investment
management industry, and other factors as more thoroughly identified and
explained in Exhibit 99.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 filed with the SEC. Because of such risks,
uncertainties and other factors, the Company cautions each person receiving
such forward-looking statements not to place undue reliance on any such
statements. All such forward-looking statements are current only as of the date
and time they are made. The Company has no obligation, and will not undertake,
to release publicly any revisions to such forward-looking statements (for
example, to reflect events or circumstances occurring after the date and time
such statements were made, or to reflect events or circumstances that were not
anticipated at the date and time such statements were made).
41
<PAGE>
United Asset Management Corporation
Eleven-year review
(In thousands, unless otherwise indicated,
except per-share amounts)
<TABLE>
<CAPTION>
1998 1997 1996(1)
<S> <C> <C> <C> <C>
..............................................................................................................
Statement of Revenues $ 961,854 $ 941,621 $ 883,267
operations data ----------------------------------------------------------------------------------------------
Operating expenses:
..............................................................................................
Compensation and related expenses 474,721 470,372 431,877
..............................................................................................
Amortization of cost assigned
to contracts acquired 113,296 105,242 101,935
..............................................................................................
Other operating expenses 179,342 163,927 138,450
..............................................................................................
Reduction in value of intangible assets -- 170,982(2) --
----------------------------------------------------------------------------------------------
767,359 910,523 672,262
----------------------------------------------------------------------------------------------
Operating income 194,495 31,098 211,005
----------------------------------------------------------------------------------------------
Interest expense, net and other amortization 57,246 38,321 39,757
----------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 137,249 (7,223) 171,248
..............................................................................................
Income tax expense (benefit) 58,742 (3,090) 73,426
----------------------------------------------------------------------------------------------
Net income (loss) $ 78,507 $ (4,133) $ 97,822
==============================================================================================
..............................................................................................................
Per-share Basic earnings (loss) per share $ 1.19 $ (.06) $ 1.43
data ..............................................................................................
Diluted earnings (loss) per share $ 1.15 $ (.06) $ 1.36
..............................................................................................
Dividends declared per share $ .80 $ .77 $ .66
..............................................................................................
..............................................................................................................
Operating data Operating Cash Flow(3) $ 211,404 $ 213,652 $ 211,371
..............................................................................................
Assets under management at end of year (in millions) $ 201,393 $ 197,489 $ 171,027
..............................................................................................
..............................................................................................................
Balance sheet Total assets $1,439,511 $1,513,500 $1,449,049
data ..............................................................................................
Cost assigned to contracts acquired, net $ 931,815 $1,018,172 $ 959,886
..............................................................................................
Long-term debt (including current portion) $ 890,361 $ 773,255 $ 610,967
..............................................................................................
Total stockholders' equity $ 269,844 $ 458,152 $ 552,244
..............................................................................................
Number of common shares outstanding
at end of year 61,554 69,257 68,711
..............................................................................................
<CAPTION>
1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
.............................................................................................................................
Statement of Revenues $ 734,353 $ 521,369 $ 476,729 $ 396,074
operations data -------------------------------------------------------------------------------------------------------------
Operating expenses:
.............................................................................................................
Compensation and related expenses 362,516 261,031 237,403 200,884
.............................................................................................................
Amortization of cost assigned
to contracts acquired 93,192 55,121 48,493 37,279
.............................................................................................................
Other operating expenses 115,454 86,895 78,537 70,650
.............................................................................................................
Reduction in value of intangible assets -- -- -- --
-------------------------------------------------------------------------------------------------------------
571,162 403,047 364,433 308,813
-------------------------------------------------------------------------------------------------------------
Operating income 163,191 118,322 112,296 87,261
-------------------------------------------------------------------------------------------------------------
Interest expense, net and other amortization 44,181 12,829 15,328 16,232
-------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 119,010 105,493 96,968 71,029
.............................................................................................................
Income tax expense (benefit) 51,754 45,108 41,989 30,298
-------------------------------------------------------------------------------------------------------------
Net income (loss) $ 67,256 $ 60,385 $ 54,979 $ 40,731
=============================================================================================================
.............................................................................................................................
Per-share Basic earnings (loss) per share $ .99 $ .95 $ .92 $ .76
data .............................................................................................................
Diluted earnings (loss) per share $ .95 $ .90 $ .84 $ .68
.............................................................................................................
Dividends declared per share $ .58 $ .50 $ .42 $ .34
.............................................................................................................
.............................................................................................................................
Operating data Operating Cash Flow(3) $ 169,008 $ 121,979 $ 109,552 $ 83,681
.............................................................................................................
Assets under management at end of year (in millions) $ 151,606 $ 111,507 $ 106,082 $ 90,240
.............................................................................................................
.............................................................................................................................
Balance sheet Total assets $1,419,031 $ 947,598 $ 708,412 $ 658,900
data .............................................................................................................
Cost assigned to contracts acquired, net $1,055,676 $ 674,526 $ 480,101 $ 460,523
.............................................................................................................
Long-term debt (including current portion) $ 680,300 $ 369,268 $ 216,230 $ 275,110
.............................................................................................................
Total stockholders' equity $ 491,769 $ 406,158 $ 358,301 $ 288,751
.............................................................................................................
Number of common shares outstanding
at end of year 67,540 63,772 61,530 56,986
.............................................................................................................
<CAPTION>
10-year
annual
compound
growth
1991 1990 1989 1988 rate
<S> <C> <C> <C> <C> <C> <C>
....................................................................................................................................
Statement of Revenues $ 324,772 $ 268,022 $ 227,745 $ 189,839 17.6%
operations data --------------------------------------------------------------------------------------------------------------------
Operating expenses:
....................................................................................................................
Compensation and related expenses 163,054 130,095 108,595 86,789 18.5%
....................................................................................................................
Amortization of cost assigned
to contracts acquired 30,535 27,157 23,808 21,387 18.1%
....................................................................................................................
Other operating expenses 58,825 57,665 43,446 39,951 16.2%
....................................................................................................................
Reduction in value of intangible assets -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------
252,414 214,917 175,849 148,127 17.9%
--------------------------------------------------------------------------------------------------------------------
Operating income 72,358 53,105 51,896 41,712 16.6%
--------------------------------------------------------------------------------------------------------------------
Interest expense, net and other amortization 17,040 13,158 13,166 13,203 15.8%
--------------------------------------------------------------------------------------------------------------------
Income (loss) before income tax expense (benefit) 55,318 39,947 38,730 28,509 17.0%
....................................................................................................................
Income tax expense (benefit) 22,936 16,664 15,107 11,380 17.8%
--------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 32,382 $ 23,283 $ 23,623 $ 17,129 16.4%
====================================================================================================================
.......................................................................................................................... ........
Per-share Basic earnings (loss) per share $ .65 $ .48 $ .51 $ .36 12.7%
data ....................................................................................................................
Diluted earnings (loss) per share $ .58 $ .44 $ .45 $ .34 13.0%
....................................................................................................................
Dividends declared per share $ .28 $ .22 $ .17 $ .13 19.9%
.......................................................................................................... ........
....................................................................................................................................
Operating data Operating Cash Flow(3) $ 67,572 $ 54,772 $ 51,416 $ 42,954 17.3%
....................................................................................................................
Assets under management at end of year (in millions) $ 76,182 $ 58,123 $ 53,319 $ 40,628 17.4%
.......................................................................................................... ........
....................................................................................................................................
Balance sheet Total assets $ 532,610 $ 461,626 $ 406,952 $ 345,747 --
data ....................................................................................................................
Cost assigned to contracts acquired, net $ 343,421 $ 320,940 $ 292,199 $ 258,804 --
....................................................................................................................
Long-term debt (including current portion) $ 208,475 $ 190,635 $ 157,459 $ 133,541 --
....................................................................................................................
Total stockholders' equity $ 226,904 $ 190,185 $ 175,528 $ 160,359 --
....................................................................................................................
Number of common shares outstanding
at end of year 50,926 47,986 46,518 46,436 --
....................................................................................................................
</TABLE>
(1) Nonrecurring gains contributed approximately $12,000,000 to revenues, or
$.10 to earnings per share.
(2) Reduction in value of intangible assets of approximately $170,982,000 was
charged to operating expenses ($99,347,000 net of taxes), or $1.37 to loss
per share.
(3) Net income (loss) plus amortization, depreciation and the reduction in
value of intangible assets, net of taxes.
<PAGE>
United Asset Management Corporation
Consolidated balance sheet
<TABLE>
<CAPTION>
December 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Current assets:
...................................................................................
Cash and cash equivalents $ 153,616,000 $ 173,638,000
...................................................................................
Investment advisory fees receivable 169,061,000 180,921,000
...................................................................................
Other current assets 12,419,000 11,863,000
-----------------------------------------------------------------------------------
Total current assets 335,096,000 366,422,000
...................................................................................
Fixed assets, net 42,148,000 41,110,000
...................................................................................
Cost assigned to contracts acquired, net of
accumulated amortization of $598,621,000
in 1998 and $508,087,000 in 1997 931,815,000 1,018,172,000
...................................................................................
Other assets 130,452,000 87,796,000
-----------------------------------------------------------------------------------
Total assets $1,439,511,000 $1,513,500,000
===================================================================================
...........................................................................................................
Liabilities and Current liabilities:
stockholders' equity ...................................................................................
Accounts payable and accrued expenses $ 143,559,000 $ 118,386,000
...................................................................................
Accrued compensation 108,222,000 143,633,000
-----------------------------------------------------------------------------------
Total current liabilities 251,781,000 262,019,000
...................................................................................
Senior notes payable 687,521,000 514,843,000
...................................................................................
Subordinated notes payable 202,840,000 258,412,000
...................................................................................
Deferred income taxes 27,525,000 20,074,000
-----------------------------------------------------------------------------------
Total liabilities 1,169,667,000 1,055,348,000
-----------------------------------------------------------------------------------
Commitments and contingencies
...................................................................................
Stockholders' equity:
...................................................................................
Common stock, par value $.01 per share:
Authorized: 200,000,000 shares
Issued: 70,346,577 shares in 1998 and 1997 703,000 703,000
...................................................................................
Capital in excess of par value 360,781,000 357,239,000
...................................................................................
Retained earnings 140,751,000 133,291,000
...................................................................................
Accumulated other comprehensive income (10,132,000) (4,369,000)
-----------------------------------------------------------------------------------
492,103,000 486,864,000
...................................................................................
Less treasury shares at cost: 8,792,879 shares
in 1998 and 1,089,548 in 1997 (222,259,000) (28,712,000)
-----------------------------------------------------------------------------------
Total stockholders' equity 269,844,000 458,152,000
-----------------------------------------------------------------------------------
Total liabilities and stockholders' equity $1,439,511,000 $1,513,500,000
===================================================================================
</TABLE>
See notes to consolidated financial statements.
44
<PAGE>
Consolidated statement of operations
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C> <C>
........................................................................................................
Revenues Revenues $ 961,854,000 $941,621,000 $ 883,267,000
------------------------------------------------------------------------------------------
........................................................................................................
Operating Compensation and related expenses 474,721,000 470,372,000 431,877,000
expenses ..........................................................................................
Amortization of cost assigned
to contracts acquired 113,296,000 105,242,000 101,935,000
..........................................................................................
Other operating expenses 179,342,000 163,927,000 138,450,000
..........................................................................................
Reduction in value of intangible assets -- 170,982,000 --
------------------------------------------------------------------------------------------
767,359,000 910,523,000 672,262,000
------------------------------------------------------------------------------------------
Operating income 194,495,000 31,098,000 211,005,000
------------------------------------------------------------------------------------------
........................................................................................................
Non-operating Interest expense, net 52,770,000 35,879,000 37,523,000
expenses ..........................................................................................
Other amortization 4,476,000 2,442,000 2,234,000
------------------------------------------------------------------------------------------
57,246,000 38,321,000 39,757,000
------------------------------------------------------------------------------------------
Income (loss) before income
tax expense (benefit) 137,249,000 (7,223,000) 171,248,000
..........................................................................................
Income tax expense (benefit) 58,742,000 (3,090,000) 73,426,000
------------------------------------------------------------------------------------------
........................................................................................................
Net income Net income (loss) $ 78,507,000 $ (4,133,000) $ 97,822,000
(loss) ==========================================================================================
Basic earnings (loss) per share $ 1.19 $ (.06) $ 1.43
==========================================================================================
Diluted earnings (loss) per share $ 1.15 $ (.06) $ 1.36
==========================================================================================
</TABLE>
See notes to consolidated financial statements.
45
<PAGE>
United Asset Management Corporation
Consolidated statement
of cash flows
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C> <C>
................................................................................................................................
Cash flow related to Net income (loss) $ 78,507,000 $ (4,133,000) $ 97,822,000
operating activities ........................................................................................................
Adjustments to reconcile net income (loss)
to net cash flow from operating activities:
........................................................................................................
Amortization of cost assigned to contracts acquired 113,296,000 105,242,000 101,935,000
........................................................................................................
Depreciation 13,767,000 10,754,000 9,380,000
........................................................................................................
Amortization of goodwill and other 5,834,000 2,442,000 2,234,000
........................................................................................................
Reduction in value of intangible assets, net of taxes -- 99,347,000 --
--------------------------------------------------------------------------------------------------------
Net income (loss) plus amortization, depreciation
and the reduction in value of intangible assets,
net of taxes 211,404,000 213,652,000 211,371,000
................................................................................................................................
Changes in assets Decrease (increase) in investment advisory fees
and liabilities receivable 12,181,000 (35,970,000) (14,234,000)
........................................................................................................
Decrease (increase) in other current assets (513,000) (43,000) 2,446,000
........................................................................................................
Increase in accounts payable and accrued expenses 21,560,000 7,134,000 16,512,000
........................................................................................................
Increase (decrease) in accrued compensation (35,276,000) 27,795,000 28,965,000
........................................................................................................
Increase (decrease) in deferred income taxes 2,669,000 919,000 (6,887,000)
--------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 212,025,000 213,487,000 238,173,000
--------------------------------------------------------------------------------------------------------
................................................................................................................................
Cash flow related to Purchase of fixed assets (14,828,000) (21,715,000) (10,897,000)
investing activities ........................................................................................................
Cash additions to cost assigned to contracts acquired (18,477,000) (152,068,000) (292,000)
........................................................................................................
Change in other assets (43,247,000) (8,866,000) 10,291,000
--------------------------------------------------------------------------------------------------------
Net cash flow used in investing activities (76,552,000) (182,649,000) (898,000)
--------------------------------------------------------------------------------------------------------
................................................................................................................................
Cash flow related to Purchase of treasury shares (270,579,000) (76,411,000) (43,718,000)
financing activities ........................................................................................................
Additions to notes payable 237,501,000 303,161,000 61,750,000
........................................................................................................
Reductions in notes payable (94,112,000) (313,619,000) (117,597,000)
........................................................................................................
Issuance or reissuance of equity securities 25,924,000 29,029,000 22,743,000
........................................................................................................
Dividends paid (53,675,000) (51,543,000) (40,204,000)
--------------------------------------------------------------------------------------------------------
Net cash flow used in financing activities (154,941,000) (109,383,000) (117,026,000)
--------------------------------------------------------------------------------------------------------
................................................................................................................................
Effect of foreign exchange rate changes
on cash flow (554,000) 3,784,000 2,702,000
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents (20,022,000) (74,761,000) 122,951,000
........................................................................................................
Cash and cash equivalents at beginning of year 173,638,000 248,399,000 125,448,000
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 153,616,000 $ 173,638,000 $ 248,399,000
========================================================================================================
</TABLE>
See notes to consolidated financial statements.
46
<PAGE>
Consolidated statement of changes in stockholders' equity
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C> <C>
.......................................................................................................................
Common stock Balance, beginning of year $ 703,000 $ 692,000 $ 692,000
at par value ......................................................................................................
Exercise of stock options and warrants -- 11,000 --
-----------------------------------------------------------------------------------------------------
Balance, end of year 703,000 703,000 692,000
-----------------------------------------------------------------------------------------------------
.......................................................................................................................
Capital in Balance, beginning of year 357,239,000 346,017,000 341,631,000
excess of ......................................................................................................
par value Issuance of stock (2,000) -- --
......................................................................................................
Exercise of stock options and warrants 3,293,000 9,928,000 4,284,000
......................................................................................................
Issuance of warrants 251,000 1,294,000 102,000
-----------------------------------------------------------------------------------------------------
Balance, end of year 360,781,000 357,239,000 346,017,000
-----------------------------------------------------------------------------------------------------
.......................................................................................................................
Retained Balance, beginning of year 133,291,000 216,989,000 183,198,000
earnings ......................................................................................................
Exercise of stock options and warrants (18,912,000) (25,852,000) (21,302,000)
......................................................................................................
Net income (loss) 78,507,000 (4,133,000) 97,822,000
......................................................................................................
Dividends declared ($.80, $.77, $.66 per share) (52,135,000) (53,713,000) (42,729,000)
-----------------------------------------------------------------------------------------------------
Balance, end of year 140,751,000 133,291,000 216,989,000
-----------------------------------------------------------------------------------------------------
.......................................................................................................................
Accumulated Balance, beginning of year (4,369,000) 714,000 (2,248,000)
other ......................................................................................................
comprehensive Foreign currency translation adjustment, net of tax (7,026,000) (5,083,000) 2,962,000
income (loss) ......................................................................................................
Unrealized gain on marketable securities, net of tax 1,263,000 -- --
-----------------------------------------------------------------------------------------------------
Balance, end of year (10,132,000) (4,369,000) 714,000
-----------------------------------------------------------------------------------------------------
.......................................................................................................................
Treasury shares Balance, beginning of year (28,712,000) (12,168,000) (31,504,000)
at cost ......................................................................................................
Issuance of stock 19,007,000 -- --
......................................................................................................
Exercise of stock options and warrants 58,025,000 59,867,000 63,054,000
......................................................................................................
Purchase of treasury shares (270,579,000) (76,411,000) (43,718,000)
-----------------------------------------------------------------------------------------------------
Balance, end of year (222,259,000) (28,712,000) (12,168,000)
-----------------------------------------------------------------------------------------------------
Total stockholders' equity $ 269,844,000 $ 458,152,000 $ 552,244,000
=====================================================================================================
.......................................................................................................................
Shares issued Balance, beginning of year 70,346,577 69,217,426 69,217,426
......................................................................................................
Exercise of stock options and warrants -- 1,129,151 --
-----------------------------------------------------------------------------------------------------
Balance, end of year 70,346,577 70,346,577 69,217,426
-----------------------------------------------------------------------------------------------------
.......................................................................................................................
Treasury shares Balance, beginning of year (1,089,548) (506,046) (1,676,930)
......................................................................................................
Issuance of stock 769,000 -- --
......................................................................................................
Exercise of stock options and warrants 2,255,769 2,284,398 3,113,184
......................................................................................................
Purchase of treasury shares (10,728,100) (2,867,900) (1,942,300)
-----------------------------------------------------------------------------------------------------
Balance, end of year (8,792,879) (1,089,548) (506,046)
-----------------------------------------------------------------------------------------------------
Shares outstanding 61,553,698 69,257,029 68,711,380
=====================================================================================================
.......................................................................................................................
Comprehensive Net income (loss) $ 78,507,000 $ (4,133,000) $ 97,822,000
income (loss) ......................................................................................................
Other comprehensive income (loss) (5,763,000) (5,083,000) 2,962,000
-----------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 72,744,000 $ (9,216,000) $ 100,784,000
=====================================================================================================
</TABLE>
See notes to consolidated financial statements.
47
<PAGE>
United Asset Management Corporation
Notes to consolidated
financial statements
Note 1
Summary of significant accounting policies
The Company
The principal business activities of United Asset Management Corporation (the
Company) are investment advisory services, primarily for institutional clients,
and the acquisition of institutional investment management firms. The Company's
wholly owned subsidiaries operate in one business segment, that is, as
investment advisers, managing both domestic and international investment
portfolios for corporate, government and union benefit plans, mutual funds,
individuals, endowments, and foundations. While the Company's subsidiaries
primarily specialize in the management of U.S. equities, bonds and cash, other
asset classes under management include international securities, real estate,
and stable value assets.
The Company has arrangements with its affiliates and certain of their principal
officers to share revenues (revenue sharing plans). Under these revenue sharing
plans, the affiliates retain a portion (determined by formula) of their revenues
to meet all their operating expenses, including compensation, at the discretion
of the subsidiaries' management. The remaining portion of those revenues is used
by the Company to meet its operating and cash flow needs. All operating expenses
incurred by the affiliates are charged to operations and reported as
compensation and related expenses or as other operating expenses in these
consolidated financial statements.
Consolidation
The Company's consolidated financial statements include the accounts of the
Company and all of its subsidiaries. Inter-company balances and transactions
have been eliminated.
Revenue recognition
The majority of the Company's revenues are derived from fees for investment
advisory services provided to institutional and other clients. Investment
advisory fees are generally a function of the overall fee rate charged to each
account and the level of assets under management by the affiliated firms.
Assets under management can be affected by the addition of new client accounts
or client contributions to existing accounts, withdrawals of assets from or
terminations of client accounts, and investment performance, which may depend
on general market conditions. Any fees collected in advance are deferred and
recognized as income over the period earned. Transaction-based fees, including
performance fees, are recognized when all contractual obligations have been
satisfied. All investment advisory fees receivable are expected to be
collected.
Fixed assets and depreciation
Equipment and other fixed assets are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the term of
the lease.
Cost assigned to contracts acquired and goodwill
The purchase price for the acquisition of a firm acquired in a business
combination accounted for as a purchase transaction is allocated based on the
fair value of the net assets acquired, primarily investment advisory contracts.
The cost assigned to contracts acquired is amortized using the straight-line
method over periods ranging from five to 20 years. These lives represent the
estimated weighted average lives of the contracts acquired and are based
generally on the historical experience of the individual companies acquired.
The estimated remaining weighted average lives of contracts acquired are
periodically reevaluated. If experience after the acquisition indicates that
the estimate of the average remaining lives should be shortened, the cost
assigned to contracts acquired will be amortized over the shorter life
commencing in the year in which the new estimate is determined.
48
<PAGE>
Amounts paid to certain key employees for entering into long-term employment
contracts and noncompete agreements at the time of purchase business
combinations are included in cost assigned to contracts acquired and are
amortized on a straight-line basis over the lives of such arrangements. Purchase
price in excess of the fair value of the net assets acquired is recorded as
goodwill and amortized using the straight-line method over 40 years. Goodwill,
net of accumulated amortization, was $83,493,000 and $59,144,000 at December 31,
1998 and 1997, respectively, and is included in other assets on the accompanying
consolidated balance sheet.
The Company evaluates its long-lived assets for impairment when circumstances
indicate that the carrying value of such assets may not be fully recoverable.
Such an evaluation compares the carrying value of the asset against the
estimated undiscounted future cash flows associated with the asset. If the
evaluation indicates that the undiscounted future cash flows are not sufficient
to recover the carrying value of the asset, the asset is adjusted to its
estimated fair value. During the fourth quarter of 1997, due to a projected
decline in revenues at two affiliates, the Company recorded a noncash reduction
in value of intangible assets to reflect an impairment of the cost assigned to
contracts acquired. The Company estimated the fair value of the contracts based
on estimated discounted future cash flow projections. The total impairment
charge was $170,982,000 ($99,347,000 net of taxes).
Retirement and pension plans
The Company has certain retirement and pension plans which cover eligible
employees of the Company and its subsidiaries. All plans are defined
contribution retirement plans, with the exception of a defined benefit pension
plan maintained by a non-U.S. subsidiary. The expense related to all plans was
$11,631,000, $11,780,000 and $10,428,000 in 1998, 1997 and 1996, respectively.
The defined benefit pension plan has an excess of plan assets over plan
obligations. Excess plan assets and pension expense relating to this plan are
not significant in relation to the Company's consolidated financial statements.
Stock-based compensation plans
As permitted under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (FAS 123), the Company accounts for its
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). (See Note 5.)
Earnings (loss) per share
Basic earnings (loss) per share are computed by dividing income (loss)
available to common shareholders by the weighted-average common shares
outstanding during the period. Diluted earnings (loss) per share are computed
by giving effect to all dilutive potential common shares that were outstanding
during the period.
Following is a reconciliation of the numerators and denominators used in
calculating basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Numerator:
...................................................................................
Net income (loss) for basic
and diluted earnings (loss)
per share $78,507,000 $(4,133,000) $97,822,000
====================================================================================
Denominator:
...................................................................................
Weighted average common
shares -- basic calculation 66,158,000 69,611,000 68,515,000
...................................................................................
Effect of dilutive securities 1,911,000 -- 3,536,000
...................................................................................
Weighted average common
shares -- diluted calculation 68,069,000 69,611,000 72,051,000
====================================================================================
Basic earnings (loss) per share $ 1.19 $ (0.06) $ 1.43
====================================================================================
Diluted earnings (loss) per share $ 1.15 $ (0.06) $ 1.36
====================================================================================
</TABLE>
During 1998, 1997 and 1996, options on 2,014,000, 7,013,000 and 96,000 shares
of common stock and warrants on 1,523,000, 9,350,000, and 708,000 shares of
common stock were outstanding, respectively, but were not included in computing
diluted earnings (loss) per share in each of these years because their effects
were antidilutive.
49
<PAGE>
United Asset Management Corporation
Cash and cash equivalents
Cash equivalents represent highly liquid investments purchased with a remaining
maturity of three months or less. The Company invests its excess cash in
deposits with major banks, in money market funds or in securities composed
primarily of commercial paper of companies with strong credit ratings in
diversified industries for all of which cost approximates fair value. At
December 31, 1998 and 1997, cash equivalents included $8,454,000 and
$10,628,000, respectively, of short-term interest-bearing debt securities, which
were classified as held to maturity.
Investments in mutual funds
During 1998, the Company invested in mutual funds advised by the Company's
affiliates. In accordance with Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities, these
securities are classified as available-for-sale and as such, unrealized gains
(losses) are recorded as a component of accumulated other comprehensive income
on the accompanying consolidated balance sheet.
At December 31, 1998, the fair value and cost basis of these investments totaled
$7,564,000 and $6,301,000, respectively, resulting in an unrealized gain of
$1,263,000. Any related tax effects are not considered material. For the year
ended December 31, 1998, gross realized gains (losses) from sales of
available-for-sale securities were not material. The cost of securities sold is
based on the specific identification method.
Foreign operations
The financial statements of all non-U.S. subsidiaries are translated into U.S.
dollars as follows: assets and liabilities at year-end exchange rates; income,
expenses and cash flows at average exchange rates; and stockholders' equity at
historical exchange rates. The resulting translation adjustment is recorded as a
component of accumulated other comprehensive income on the accompanying
consolidated balance sheet. Any related tax effects are not considered material.
Interest-rate protection agreements
The Company periodically enters into interest-rate protection agreements to
reduce the potential impact of interest-rate increases associated with the
Company's outstanding variable-rate borrowings. Premiums paid for these
instruments are amortized as interest expense over the terms of the agreements.
Any amounts receivable under these agreements are recorded as a reduction of
interest expense.
Deferred incentive compensation plan
The Company has a deferred incentive compensation plan for employees of
affiliates that is based on each affiliate's growth. The deferred compensation
is payable over seven years and is subject to increases or decreases in value
during that period based on performance. The expense of this incentive plan is
recorded over the period in which the incentive compensation is earned.
Use of estimates and reclassifications
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts and disclosures reported in the accompanying consolidated
financial statements. Certain amounts have been reclassified to conform with
the current year's presentation.
Derivative instruments and hedging activities
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. The standard is effective for fiscal years beginning
after June 15, 1999 and, based on current activities, is not expected to have a
material impact on the Company's consolidated financial position, its
consolidated results of operations or its consolidated cash flows.
Note 2
Fixed assets and lease obligations
Fixed assets, which have estimated useful lives of up to 10 years, consisted of
the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C> <C>
Equipment, leasehold improvements
and other fixed assets $ 97,357,000 $ 89,841,000
..........................................................................
Accumulated depreciation and
amortization (55,209,000) (48,731,000)
..........................................................................
$ 42,148,000 $ 41,110,000
==========================================================================
</TABLE>
50
<PAGE>
At December 31, 1998, future minimum rentals for operating leases that had
initial or noncancelable lease terms in excess of one year were payable as
follows:
<TABLE>
<CAPTION>
Year ended Required
December 31, minimum payment
<S> <C>
1999 $24,044,000
....................................
2000 $22,247,000
....................................
2001 $20,508,000
....................................
2002 $17,773,000
....................................
2003 $12,847,000
....................................
Thereafter $24,928,000
....................................
</TABLE>
Rent expense for 1998, 1997 and 1996 approximated $23,735,000, $24,475,000 and
$21,361,000, respectively.
Note 3
Notes payable
In April 1998, the Company amended and restated its Reducing Revolving Credit
Agreement (the Credit Agreement) with a group of banks, increasing the amount
which the Company may borrow, prepay and reborrow from $500,000,000 to
$750,000,000 through April 29, 2003. Any principal amount of borrowings
outstanding under the Credit Agreement will be due and payable at that date.
At December 31, 1998, an annual commitment fee of .30% was payable on the daily
average unused portion of the Credit Agreement. Interest rates available for
amounts outstanding under this arrangement are currently: prime, 1.5% over LIBOR
or a money market bid option. At December 31, 1998 and 1997, the Company had
borrowings outstanding under its Credit Agreement of $287,000,000 and
$303,000,000, respectively. The effective interest rate on the outstanding
borrowings at December 31, 1998 was 7.11%.
In addition, the Company has $150,000,000 in Senior Notes outstanding with a
group of institutional investors which mature in accordance with a scheduled
payment plan calling for equal annual payments beginning August 25, 2000 and
ending August 25, 2005. The Senior Notes bear interest at a fixed rate of 8.92%.
In August 1998, the Company issued an aggregate of $250,000,000 in additional
Senior Notes to institutional investors. Principal payments on these Senior
Notes are due over periods beginning in July 2005 and ending in July 2008 and
bear interest at fixed rates ranging from 8.52% to 8.72%.
Under the terms of the Credit Agreement and both Senior Notes, the Company is
required to meet certain financial covenants, including maintaining certain
cash flow and debt ratios. Borrowings under these credit facilities are secured
by the stock of the Company's subsidiaries.
At December 31, 1998, the Company was a party to interest-rate protection
agreements entered into with certain members of the Company's banking group,
which extend up to three years and limit interest rates to an average of 8.5%.
The notional principal amount of debt covered by these arrangements over their
remaining lives ranges from $100,000,000 to $275,000,000. At December 31, 1998
and 1997, unamortized premiums were not significant. Amortization of premiums,
which is included in interest expense, was $541,000, $960,000 and $1,381,000 for
the years ended December 31, 1998, 1997 and 1996, respectively. Currently, the
Company mitigates the credit risk associated with interest-rate protection
agreements by entering into these arrangements only with members of the group of
banks who are party to the Credit Agreement. The Company monitors the credit
standing of these counterparties on a continuous basis.
At December 31, 1998 and 1997, the Company also had $202,840,000 and
$258,549,000, respectively, of subordinated notes outstanding. These notes
primarily represent a portion of the consideration paid to selling shareholders
of businesses acquired, the majority of whom remain employed by the Company's
subsidiaries after the date of acquisition. The notes mature at various dates
through 2005, and as of December 31, 1998, have interest rates ranging from
5.5% to 7.5%. The notes outstanding may be tendered upon the exercise of
warrants issued in conjunction with the notes. In connection with the exercise
of warrants through the tender of subordinated notes, subordinated debt of
$16,158,000, $11,391,000 and $19,375,000 was extinguished in 1998, 1997 and
1996, respectively. In addition, $24,698,000, $313,619,000 and $49,832,000 was
paid in cash during 1998, 1997 and 1996, respectively, primarily as a result of
subordinated notes maturing which
51
<PAGE>
United Asset Management Corporation
were issued at the time of acquisition. The Company intends to finance
subordinated debt that becomes due which has not been tendered in connection
with the exercise of warrants by utilizing its Credit Agreement. As such, the
$10,657,000 of subordinated notes due in 1999 have been included in the payments
due in 2003, the year the line of credit expires.
The aggregate cash repayments of all outstanding borrowings during the five
years after December 31, 1998 total the following amounts:
<TABLE>
<CAPTION>
Year ended Required
December 31, minimum payment
<S> <C>
1999 $ 0
....................................
2000 $ 30,107,000
....................................
2001 $115,936,000
....................................
2002 $ 82,699,000
....................................
2003 $324,582,000
....................................
</TABLE>
The recorded cost of the Senior Notes approximates fair value. Due to the unique
nature of each of the subordinated debt instruments issued to the sellers of
firms, the assessment of current fair value is not practicable.
Accrued interest of $19,898,000 and $11,981,000 was included in accounts payable
and accrued expenses at December 31, 1998 and 1997, respectively. Interest
expense and interest paid for each of the three years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest expense $60,275,000 $43,156,000 $43,289,000
..................................................................
Interest paid $51,817,000 $47,156,000 $51,272,000
..................................................................
</TABLE>
Note 4
Stockholders' equity
In 1998, the Company issued 239,320 shares of common stock in connection with an
acquisition of an equity interest. Also, during 1998, the Company issued 529,680
shares of common stock in connection with additional purchase price commitments
related to a prior year acquisition. In 1996, the Company issued 7,586,402
shares of common stock to effect acquisitions accounted for as poolings of
interests.
The Company issued 167,100, 1,097,566 and 62,010 warrants during 1998, 1997 and
1996, respectively, to effect acquisitions accounted for as purchases.
The Company has a systematic program to repurchase shares of its common stock
to meet the requirements for future issuance of shares upon the exercise of
stock options and warrants. Since the program began in 1987, 24,788,134 shares
of common stock have been repurchased at a cost of $497,753,000, including
certain shares repurchased under the terms of the Company's systematic program.
As of December 31, 1998, all but 8,792,879 shares had been reissued from
treasury upon the exercise of stock options and warrants. During 1998, the
Company's directors increased the number of shares authorized for repurchase
from 16,000,000 as of December 31, 1997 to a total of 32,000,000 shares as of
December 31, 1998.
Included in accounts payable and accrued expenses at December 31, 1998 and 1997
were dividends payable of $12,311,000 and $13,851,000, respectively.
At December 31, 1998, the following warrants were outstanding at a weighted
average exercise price of $23.70 per share:
<TABLE>
<CAPTION>
Year of Shares Range of
expiration issuable exercise prices
<S> <C> <C>
1999 552,278 $16.50-17.50
..................................................................
2000 240,840 $14.50-16.50
..................................................................
2001 3,755,268 $14.50-28.75
..................................................................
2002 2,494,198 $19.50-28.75
..................................................................
2003 59,565 $23.00
..................................................................
2004 1,097,566 $23.00-34.00
..................................................................
2005 167,100 $22.66
- -------------------------------------------------------------------
8,366,815
===================================================================
</TABLE>
The Company is authorized to issue 5,000,000 shares of $1.00 par value
preferred stock, none of which had been issued through December 31, 1998.
52
<PAGE>
Note 5
Stock option plans
Under the Company's Amended and Restated 1994 Stock Option Plan, the Board of
Directors is authorized to grant options for the purchase of 11,900,000 shares
of the Company's common stock to directors, officers and other key employees of
the Company and its subsidiaries. The exercise price of the options granted to
officers and other key employees is not less than the fair market value of the
Company's common stock at the date of the grant. These options expire five years
from the date of the grant and may not be exercised for one year from the date
of the grant. Thereafter, they may be exercised ratably over the ensuing four
years.
Each eligible director is granted 14,000 options annually for the purchase of
shares of the Company's common stock at the fair market value at the date of the
grant. Eligible directors may also elect to receive discounted options in lieu
of a portion of their directors' fees. All options granted to directors expire
five years from the date of the grant and may not be exercised for six months
from the date of the grant. In 1998, 98,000 options were granted under the
annual provision and 15,841 discounted options were issued in lieu of directors'
fees. The Company applies APB 25 in accounting for its stock option plans. Had
compensation cost for the Company's plans been determined based on the fair
value of the awards at the grant dates, consistent with the methodology
prescribed by FAS 123, the Company's net income (loss) and earnings (loss) per
share, including tax effects if any, would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) $71,580,000 $(9,277,000) $94,932,000
................................................................................
Basic earnings (loss)
per share $1.08 $(.13) $1.39
................................................................................
Diluted earnings
(loss) per share $1.05 $(.13) $1.33
................................................................................
</TABLE>
During the initial phase-in period of FAS 123, pro forma disclosures may not be
representative of the effects on reported net income (loss) and earnings (loss)
per share for future years because the FAS 123 method of accounting has not
been applied to options granted prior to January 1, 1995.
The fair value of each option grant is estimated on the date of each grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for options granted in 1998, 1997 and 1996,
respectively: expected life of 4.5 years for all years; stock price volatility
of 22.5, 22.1 and 23.9 percent; risk-free interest rates of 5.3, 6.3, and 5.7
percent; and dividend yield of 3.4, 2.6, and 2.9 percent. The weighted-average
fair value of options granted during 1998, 1997 and 1996 was $4.46, $6.08 and
$4.55, respectively.
A summary of the Company's stock option plans as of December 31, 1998, 1997 and
1996, and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted- Weighted-
Number of average Number of average
options exercise options exercise
outstanding price exercisable price
<S> <C> <C> <C> <C>
................................................................................
Balance,
December 31, 1995 7,212,422 $15.23 3,026,974 $11.94
................................................................................
Options granted 1,658,644 $20.72
................................................................................
Options exercised (1,693,498) $13.77
................................................................................
Options canceled (159,372) $17.79
- --------------------------------------------------------------------------------
Balance,
December 31, 1996 7,018,196 $16.83 3,015,657 $13.83
................................................................................
Options granted 2,047,125 $26.90
................................................................................
Options exercised (2,102,764) $11.86
................................................................................
Options canceled (203,446) $21.19
- --------------------------------------------------------------------------------
Balance,
December 31, 1997 6,759,111 $21.29 2,558,059 $18.79
................................................................................
Options granted 3,519,027 $23.42
................................................................................
Options exercised (1,345,494) $17.80
................................................................................
Options canceled (1,018,793) $23.66
- --------------------------------------------------------------------------------
Balance,
December 31, 1998 7,913,851 $22.53 2,823,398 $20.83
================================================================================
</TABLE>
53
<PAGE>
United Asset Management Corporation
At December 31, 1998, the Company had 3,669,219 options available for future
grants. Shares reserved but unissued at December 31, 1998 and 1997 were
11,583,070 and 12,979,814, respectively.
The following table summarizes information about all stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
Weighted- Weighted-
Range of Number of average Number of average
Year of exercise options exercise options exercise
expiration price outstanding price exercisable price
<S> <C> <C> <C> <C> <C>
..........................................................................................
1999 $13.41 - 20.38 965,697 $19.21 868,197 $18.71
..........................................................................................
2000 $13.36 - 19.94 1,132,919 $18.44 802,069 $18.41
..........................................................................................
2001 $18.19 - 26.75 1,121,363 $20.79 550,264 $21.08
..........................................................................................
2002 $21.09 - 29.50 1,610,695 $26.96 491,951 $27.19
..........................................................................................
2003 $18.56 - 27.19 3,083,177 $23.39 110,917 $25.44
- ------------------------------------------------------------------------------------------
$13.36 - 29.50 7,913,851 $22.53 2,823,398 $20.83
==========================================================================================
</TABLE>
Note 6
Income taxes
Income taxes for financial reporting purposes are recorded in accordance with an
asset and liability approach which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of the Company's assets
and liabilities.
Income (loss) before income tax expense (benefit) was taxed under the following
jurisdictions:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 1997 1996
<S> <C> <C> <C>
Domestic $118,135,000 $(27,290,000) $159,436,000
.........................................................................
Foreign 19,114,000 20,067,000 11,812,000
- -------------------------------------------------------------------------
$137,249,000 $ (7,223,000) $171,248,000
=========================================================================
</TABLE>
Income tax expense (benefit) consisted of the following:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 1997 1996
<S> <C> <C> <C>
Current:
.........................................................................
Federal $41,462,000 $54,910,000 $65,031,000
.........................................................................
State 8,485,000 8,797,000 11,371,000
.........................................................................
Foreign 6,737,000 5,527,000 3,911,000
.........................................................................
Deferred:
.........................................................................
Federal 2,615,000 (58,131,000) (5,914,000)
.........................................................................
State 2,080,000 (13,693,000) (973,000)
.........................................................................
Foreign (2,637,000) (500,000) --
- -------------------------------------------------------------------------
$58,742,000 $(3,090,000) $73,426,000
=========================================================================
</TABLE>
Deferred income taxes consisted of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
<S> <C> <C>
Deferred tax assets:
..........................................................................
Deferred incentive compensation $ 6,167,000 $ 2,358,000
..........................................................................
Additional contract amortization
for book purposes 55,071,000 56,430,000
..........................................................................
State net operating loss
carryforwards 7,495,000 3,523,000
..........................................................................
Foreign tax credit carryforwards 6,749,000 5,788,000
- --------------------------------------------------------------------------
Total gross deferred tax assets 75,482,000 68,099,000
..........................................................................
Deferred tax assets valuation
allowance (7,602,000) (3,780,000)
- --------------------------------------------------------------------------
67,880,000 64,319,000
- --------------------------------------------------------------------------
Deferred tax liabilities:
..........................................................................
Additional contract amortization
for tax purposes 51,377,000 41,698,000
..........................................................................
Contracts acquired in
nontaxable transactions 34,992,000 36,692,000
..........................................................................
Other 9,036,000 6,003,000
- --------------------------------------------------------------------------
95,405,000 84,393,000
- --------------------------------------------------------------------------
Net deferred tax liability $27,525,000 $20,074,000
==========================================================================
</TABLE>
54
<PAGE>
A component of the Company's deferred tax asset consists of the future tax
benefits from domestic net operating loss carryforwards and foreign tax credits.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires that a valuation allowance be recorded against deferred tax
assets for which it is believed that it is more likely than not that all or a
portion of the benefits of the carryforward losses and tax credits will not be
realized. In establishing a valuation reserve, management considers such factors
as earnings in recent years and the scheduled expiration of the net operating
loss carryforwards and tax credits. During 1998, the Company increased its
deferred tax valuation allowance by $3,822,000, to a total of $7,602,000 as of
December 31, 1998.
At December 31, 1998, the Company had state net operating loss carryforwards of
approximately $80,616,000 which will begin to expire in 2003. Also, at December
31, 1998, the Company had approximately $6,749,000 of foreign tax credit
carryforwards of which $1,328,000, $3,008,000, $1,432,000 and $981,000 expire in
1999, 2000, 2001 and 2002, respectively.
The effective income tax rate differed from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997 1996
<S> <C> <C> <C>
Federal income tax statutory rate 35% (35)% 35%
.......................................................................
State income taxes, net of federal
benefit 4 (15) 5
.......................................................................
Foreign tax rate differential -- (11) --
.......................................................................
Nondeductible items and other 4 18 3
- -----------------------------------------------------------------------
43% (43)% 43%
=======================================================================
</TABLE>
Excluding the effect of the 1997 charge reducing the value of intangible assets,
the percentages presented above for 1997 would have been similar to those
reported for 1998 and 1996. Income taxes of approximately $48,500,000,
$76,800,000 and $61,500,000 were paid in 1998, 1997 and 1996, respectively.
For purchase acquisitions which occurred prior to the Revenue Reconciliation Act
of 1993 (the Act), the additional contract amortization for income tax purposes
results from the application of a method under which the deductions for income
tax purposes are determined by: (1) amortizing the cost assigned to contracts
acquired on a straight-line basis over the same estimated useful lives as those
used for financial reporting purposes; and (2) deducting the unamortized balance
of such cost which is allocated to an individual contract when the contract is
terminated. For acquisitions after the Act, the deduction for income tax
purposes is determined by amortizing the cost assigned to contracts acquired on
a straight-line basis over a 15-year period, with no deduction for the
unamortized balance of individual contract terminations.
The Company's federal income tax returns for the years ending December 31, 1984
through December 31, 1992 are under audit by the Internal Revenue Service. The
Company received a Revenue Agent's Report on December 27, 1996 proposing
certain adjustments for these years. The principal issue raised in the Report
is the amount of deductions claimed by the Company for amortization of the cost
of acquired investment management contracts. The Company is appealing the
results of the audit to the Appellate Division of the Internal Revenue Service.
Previously, in a 1992 Revenue Agent's Report covering the years ending December
31, 1984, 1985 and 1986, the Internal Revenue Service challenged the Company's
practice of deducting the amortization of cost assigned to acquired investment
management contracts on the premise that no part of these costs could be
amortized and deducted because such assets were in the nature of nonamortizable
goodwill. The Revenue Agent's Report received in 1996 agrees with the Company's
position that costs properly assigned to acquired contracts are amortizable and
deductible, but proposes adjustments to the Company's valuation of the acquired
contracts. If the adjustments proposed in the Revenue Agent's Report were
upheld in their entirety, the Company's additional liability for federal income
tax for the years 1984 through 1992 would approximate $56,000,000, plus
statutory interest thereon. Management and its advisors believe that there are
substantial defects in the Revenue Agent's Report with respect to the valuation
of the acquired contracts and that the audit will be resolved without material
adverse effect on the Company's consolidated financial position, its
consolidated results of operations or its consolidated cash flows.
55
<PAGE>
United Asset Management Corporation
Note 7
Segment information
The Company operates in one business segment, that is, as investment advisers,
managing both domestic and international investment portfolios for corporate,
government and union benefit plans, mutual funds, individuals, endowments, and
foundations. Although each affiliated firm operates under its own name with its
own investment philosophy and approach, the firms' regulatory environments and
the economic characteristics of their products, services, client bases and
manner of distribution are similar. Therefore, the affiliated firms are
aggregated as one business segment.
Revenues and long-lived assets shown below are classified according to the
affiliate's geographic location. Revenues are derived primarily from fees for
investment advisory services provided to institutional and other clients. These
fees are generally a function of the overall fee rate charged to each account
and the level of assets under management by the affiliated firms.
<TABLE>
<CAPTION>
Year ended
December 31, 1998 1997 1996
<S> <C> <C> <C>
Domestic revenues $869,706,000 $ 864,957,000 $ 829,212,000
.........................................................................................
Foreign revenues $ 92,148,000 $ 76,664,000 $ 54,055,000
.........................................................................................
Domestic long-lived assets $941,116,000 $1,015,714,000 $1,023,115,000
.........................................................................................
Foreign long-lived assets $163,299,000 $ 131,364,000 $ 15,979,000
.........................................................................................
</TABLE>
Note 8
Acquisitions, commitments and other
At the beginning of January 1998, the Company acquired an interest in Integra
Capital Management Company and during the year provided financing for Pell,
Rudman & Co., Inc. to acquire Sovereign Financial Services, Inc. The Company
also sold Analytic[bullet]TSA International, Inc. and announced its plans to
close UAM Retirement Plan Services, Inc. In addition, Heitman Financial LLC, an
affiliate of the Company, sold its non-retail property management operations.
The Company's results of operations reflect this activity as of their respective
transaction dates. These transactions did not have a material effect on the
Company's consolidated results of operations, either individually or in the
aggregate.
During 1997, the Company acquired J.R. Senecal & Associates Investment Counsel
Corp., Pacific Financial Research, Inc., and Thomson Horstmann & Bryant, Inc.
through purchase transactions. The Company also acquired an interest in
Lincluden Management Limited. In addition, the Company organized Expertise
Asset Management and Palladyne Asset Management B.V. and acquired InvestLink
Technologies, Inc.
During 1996, the Company issued shares of its common stock to acquire Rogge
Global Partners and Clay Finlay Inc. through transactions accounted for as
poolings of interests. The Company also acquired OSV Partners in a purchase
transaction as well as provided financing for an affiliate, Analytic Investment
Management, Inc., to acquire TSA Capital Management, now called Analytic
Investors, Inc.
The purchase price, including direct costs, associated with the acquisitions
accounted for as purchases and the allocations thereof are summarized as
follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 1997 1996
<S> <C> <C> <C>
Consideration:
............................................................................
Cash $32,923,000 $160,167,000 $651,000
............................................................................
Notes payable -- 105,176,000 --
............................................................................
Common stock
and warrants 7,016,000 1,294,000 --
- ----------------------------------------------------------------------------
$39,939,000 $266,637,000 $651,000
============================================================================
Allocation of
purchase price:
............................................................................
Net tangible assets $ 708,000 $ 1,562,000 $ --
............................................................................
Cost assigned to
contracts acquired 18,209,000 258,492,000 251,000
............................................................................
Other assets 21,022,000 6,583,000 400,000
- ----------------------------------------------------------------------------
$39,939,000 $266,637,000 $651,000
============================================================================
</TABLE>
56
<PAGE>
During 1997, in conjunction with an acquisition, goodwill and a deferred tax
liability of $35,844,000 were recorded in purchase accounting related to the
cost of contracts capitalized for financial reporting purposes.
At December 31, 1998, $521,000 was accrued in senior notes payable and
capitalized to cost assigned to contracts acquired in connection with an
additional purchase price commitment that is payable in 1999 to the former owner
of an affiliate.
At December 31, 1997, a total of $79,098,000 was accrued in senior notes payable
and subordinated notes payable and capitalized to cost assigned to contracts
acquired in connection with additional purchase price commitments that were
payable in 1998 to the former owners of two affiliates. The actual contingent
payments totaled $82,492,000 and during the first quarter of 1998, 81% of this
amount was paid in cash, 15% was issued in the Company's common stock, and 4%
was issued as subordinated notes.
At December 31, 1996, $12,500,000 was accrued in connection with an additional
purchase price commitment that was paid in 1997 to the former owners of an
affiliate. Of this amount, $6,250,000 was paid in cash and the remainder was
issued as subordinated notes.
In conjunction with certain acquisitions, employment arrangements and incentive
plans, the Company is contingently liable to make payments totaling as much as
$104,000,000 related to acquisitions and employment agreements, and $23,000,000
related to incentive plans. These payments may be in the form of cash and
subordinated notes on dates through 2005 and are dependent upon the achievement
and maintenance of stipulated performance measures.
Unaudited pro forma data for the years ended December 31, 1998, 1997 and 1996
are set forth below, giving consideration to the acquisition activity in the
respective three-year period, assuming revenue sharing plans (see Note 1) had
been in effect and after certain other pro forma adjustments have been made.
<TABLE>
<CAPTION>
Year ended
December 31, 1998 1997 1996
<S> <C> <C> <C>
Revenues $961,854,000 $974,324,000 $937,865,000
................................................................................
Net income (loss) $ 78,507,000 $ (5,642,000) $103,970,000
................................................................................
Basic earnings
(loss) per share $1.19 $(.08) $1.51
................................................................................
Diluted earnings
(loss) per share $1.15 $(.08) $1.44
................................................................................
</TABLE>
57
<PAGE>
United Asset Management Corporation
Report of Independent Accountants
To the Board of Directors and Stockholders of United Asset Management
Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity present fairly, in all material respects, the financial
position of United Asset Management Corporation and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 3, 1999
58
<PAGE>
Common stock The Company's common stock is listed on the New York Stock
information Exchange. Presented below are the high, low and closing
quarterly stock prices for 1997 and 1998, as reported on the
New York Stock Exchange composite tape, together with
quarterly dividends declared.
Ticker Symbol: UAM
<TABLE>
<CAPTION>
1st quarter 2nd quarter 3rd quarter 4th quarter
<S> <C> <C> <C> <C>
............................................................................
1997 High $29-1/8 $28-7/8 $28-13/16 $30-3/16
.......................................................................
Low $25-5/8 $24-1/4 $26 $24-1/4
.......................................................................
Close $25-5/8 $28-5/16 $28-11/16 $24-7/16
.......................................................................
Dividend declared $.185 $.185 $.20 $.20
.......................................................................
............................................................................
1998 High $29-5/8 $27-7/16 $29-1/16 $26-1/8
.......................................................................
Low $21-3/16 $24-7/8 $20-1/16 $20-3/8
.......................................................................
Close $27-1/4 $26-1/16 $ 21-1/2 $26
.......................................................................
Dividend declared $.20 $.20 $.20 $.20
.......................................................................
</TABLE>
Selected quarterly
financial data
<TABLE>
<CAPTION>
1st quarter 2nd quarter 3rd quarter 4th quarter(1)
<S> <C> <C> <C> <C> <C>
................................................................................................
1997 Revenues $ 215,522 $ 219,572 $ 241,710 $ 264,817
..........................................................................................
Operating income (loss) $ 50,452 $ 51,027 $ 51,075 $ (121,456)
..........................................................................................
Income (loss) before
income tax expense (benefit) $ 42,054 $ 42,011 $ 40,693 $ (131,981)
..........................................................................................
Net income (loss) $ 24,055 $ 24,030 $ 23,226 $ (75,444)
..........................................................................................
Basic earnings (loss) per share(2) $.35 $.34 $.33 $(1.09)
..........................................................................................
Diluted earnings (loss) per share(2) $.33 $.33 $.32 $(1.09)
..........................................................................................
Operating Cash Flow(3) $ 51,824 $ 52,722 $ 54,214 $ 54,892
..........................................................................................
................................................................................................
1998 Revenues $ 241,820 $ 254,376 $ 226,745 $ 238,913
..........................................................................................
Operating income $ 50,370 $ 52,046 $ 47,155 $ 44,924
..........................................................................................
Income before
income tax expense $ 38,635 $ 38,665 $ 31,034 $ 28,915
..........................................................................................
Net income $ 22,098 $ 22,117 $ 17,753 $ 16,539
..........................................................................................
Basic earnings per share(2) $.32 $.33 $.27 $.26
..........................................................................................
Diluted earnings per share(2) $.31 $.32 $.27 $.26
..........................................................................................
Operating Cash Flow(3) $ 53,642 $ 57,159 $ 51,243 $ 49,360
..........................................................................................
</TABLE>
(1) Reduction in value of intangible assets of approximately $170,982,000 was
charged to operating expenses ($99,347,000 net of taxes), or $1.37 to loss
per share in 1997.
(2) Under generally accepted accounting principles, when earnings (loss) per
share are computed under the treasury stock method, the total of four
quarters' earnings (loss) per share may not equal the earnings (loss) per
share for the year.
(3) Net income (loss) plus amortization, depreciation and the reduction in
value of intangible assets, net of taxes.
59
Exhibit 21.1
UNITED ASSET MANAGEMENT CORPORATION
SUBSIDIARIES OF THE REGISTRANT
------------------------------
<TABLE>
<CAPTION>
Jurisdiction of Financial
Affiliated Firm Organization Statements
- --------------- ------------ ----------
<S> <C> <C>
Acadian Asset Management, Inc. Massachusetts Consolidated
Analytic Investors, Inc. (1) California Consolidated
Barrow, Hanley, Mewhinney & Strauss, Inc. Nevada Consolidated
Cambiar Investors, Inc. Colorado Consolidated
The Campbell Group, Inc. Delaware Consolidated
Chicago Asset Management Company Delaware Consolidated
Clay Finlay Inc. New York Consolidated
Colony Capital Management, Inc. Delaware Consolidated
Cooke & Bieler, Inc. Pennsylvania Consolidated
Dewey Square Investors Corporation Delaware Consolidated
Dwight Asset Management Company Delaware Consolidated
Expertise Asset Management France Consolidated
Fiduciary Management Associates, Inc. Delaware Consolidated
First Pacific Advisors, Inc. Massachusetts Consolidated
GSB Investment Management, Inc. Delaware Consolidated
Hanson Investment Management Company California Consolidated
Heitman Financial LLC (2) Delaware Consolidated
Heitman Financial Services LLC Illinois Consolidated
Heitman Capital Management LLC Illinois Consolidated
Hellman, Jordan Management Company, Inc. Delaware Consolidated
Integra Capital Financial Corporation Ontario Consolidated
Integra Capital Management Corporation Ontario Consolidated
InvestLink Technologies, Inc. New Jersey Consolidated
Investment Counselors of Maryland, Inc. Maryland Consolidated
Investment Research Company Illinois Consolidated
Jacobs Asset Management Delaware Consolidated
Tom Johnson Investment Management, Inc. Massachusetts Consolidated
L&B Realty Advisors, Inc. (3) Delaware Consolidated
L&B Institutional Property Managers, Inc. (4) Delaware Consolidated
Lincluden Management Limited Ontario Consolidated
C. S. McKee & Company, Inc. Pennsylvania Consolidated
Murray Johnstone Limited Scotland Consolidated
Nelson, Benson & Zellmer, Inc. Colorado Consolidated
Northern Capital Management, Inc. Wisconsin Consolidated
NWQ Investment Management Company Massachusetts Consolidated
OSV Partners Delaware Consolidated
Pacific Financial Research, Inc. Massachusetts Consolidated
Palladyne Asset Management B.V. The Netherlands Consolidated
Pell, Rudman & Co., Inc. Delaware Consolidated
Pilgrim Baxter & Associates, Ltd. Delaware Consolidated
Provident Investment Counsel Massachusetts Consolidated
Rice, Hall, James & Associates California Consolidated
Rogge Global Partners Plc United Kingdom Consolidated
Rothschild/Pell Rudman, Inc. Maryland Consolidated
J. R. Senecal & Associates Investment Counsel Corp. Ontario Consolidated
Sirach Capital Management, Inc. Washington Consolidated
Spectrum Asset Management, Inc. Connecticut Consolidated
Sterling Capital Management Company North Carolina Consolidated
Suffolk Capital Management, Inc. Delaware Consolidated
Thompson, Siegel & Walmsley, Inc. Virginia Consolidated
Thomson Horstmann & Bryant, Inc. Delaware Consolidated
UAM Fund Distributors, Inc. Massachusetts Consolidated
UAM Fund Services, Inc. Delaware Consolidated
UAM Investment Services, Inc. Delaware Consolidated
UAM Shareholder Service Center, Inc. Delaware Consolidated
UAM Trust Company Maryland Consolidated
UAM (Japan) Inc. (5) Delaware Consolidated
</TABLE>
(1) During 1998, Analytic o TSA Global Asset Management, Inc. changed its
name to Analytic Investors, Inc.
(2) During 1998, Heitman Financial Ltd. reorganized as Heitman Financial LLC.
(3) During 1998, The L&B Group changed its name to L&B Realty Advisors, Inc.
(4) L&B Institutional Property Managers, Inc. has seven property management
subsidiaries operating in the U.S.
(5) During 1998, United Asset Management (Japan), Inc. changed its name to UAM
(Japan) Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 333-11397 and
333-72581) and in the Registration Statements on Form S-8 (Nos. 33-10621,
33-21756, 33-34288, 33-48858, 33-54233 and 333-28981) of United Asset Management
Corporation of our report dated February 3, 1999 appearing on page 58 of the
Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page F-1 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE COMPANY'S YEAR ENDED DECEMBER 31, 1998 CONSOLIDATED
STATEMENT OF OPERATIONS (SEE ANNUAL REPORT PAGE 45) AND THE CONSOLIDATED
BALANCE SHEET (SEE ANNUAL REPORT PAGE 44). THIS INFORMATION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000796370
<NAME> United Asset Management Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 153,616
<SECURITIES> 0
<RECEIVABLES> 169,061
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 335,096
<PP&E> 97,357
<DEPRECIATION> (55,209)
<TOTAL-ASSETS> 1,439,511<F1>
<CURRENT-LIABILITIES> 251,781
<BONDS> 890,361<F2>
0
0
<COMMON> 703
<OTHER-SE> 269,141
<TOTAL-LIABILITY-AND-EQUITY> 1,439,511
<SALES> 0
<TOTAL-REVENUES> 961,854
<CGS> 0
<TOTAL-COSTS> 654,063
<OTHER-EXPENSES> 113,296<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,246
<INCOME-PRETAX> 137,249
<INCOME-TAX> 58,742
<INCOME-CONTINUING> 78,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,507
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.15
<FN>
<F1> INCLUDES $931,815 OF COST ASSIGNED TO CONTRACTS ACQUIRED, NET.
<F2> INCLUDES $687,521 IN SENIOR NOTES PAYABLE AND $202,840 IN SUBORDINATED
NOTES PAYABLE.
<F3> REPRESENTS AMORTIZATION OF COST ASSIGNED TO CONTACTS ACQUIRED.
</FN>
</TABLE>
Exhibit 99.1
------------
RISK FACTORS
UAM's management may make "forward-looking" statements in the Form 10-K
to which the document is filed as an exhibit, in other documents filed with the
SEC (including those documents incorporated by reference into the Form 10-K), in
press releases, and in discussions with analysts, investors and others. These
statements include:
o descriptions of UAM's operational plans,
o expectations about future earnings and other results of operations,
o views of future industry or market conditions, and
o other statements that include words like "may," "expects,"
"believes," and "intends," and that describe opinions about future
events.
Investors should not rely on these statements as though they were
guarantees. These statements are current only when they are made. UAM's
management has no obligation to revise or update these statements based on
future developments. Known and unknown risks may cause UAM's actual results and
performances to be materially different from those expressed or implied by these
statements. Some of these risks are identified and explained below.
MOST OF UAM'S REVENUES ARE BASED ON THE MARKET VALUE OF MANAGED ASSETS AND,
THEREFORE, WILL RISE AND FALL WITH CHANGES IN THE ECONOMY AND FINANCIAL MARKETS
Most of the revenues of UAM's affiliated firms are investment advisory
fees, which are based primarily on the market value of assets under management.
Consequently, UAM's financial results depend directly on changes in the economy
and financial markets. These changes can be extremely volatile and are difficult
to predict.
However, changes in the financial markets may also have an inverse
effect on assets under management. First, when prices in financial markets rise,
U.S. employers may make net withdrawals from their defined benefit plans. The
Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal
Revenue Code of 1986 (the "Tax Code") require employers to fund their plans
sufficiently to generate the benefits they have promised, based on actuarial
calculations. However, the Tax Code also discourages employers from overfunding
these plans by limiting tax deductions for contributions to fully funded plans.
UAM believes that the high investment returns experienced in the 1980s and 1990s
have caused many defined benefit plans to reach or exceed their full funding
limits. Therefore, many employers may have ceased to contribute additional cash
to these plans, even though these employers may be withdrawing assets from the
plans to pay benefits as they become due.
<PAGE>
Second, many investors wish to maintain a particular balance in their
portfolios among various asset classes and investment styles. Over time, if
funds allocated to one asset class outperform the rest of the portfolio, the
portfolio may become overweighted in that asset class. If the investor has not
changed its optimal asset allocation, the investor may rebalance the portfolio
by withdrawing funds from the asset class that outperformed and redistributing
those funds among the other asset classes and styles in the portfolio. In this
way, an advisor that manages in one particular asset class or style may
experience negative client cash flows after relative performance was positive,
and positive client cash flows after relative performance was negative.
THE INVESTMENT MANAGEMENT BUSINESS IS HIGHLY COMPETITIVE
UAM's affiliated firms compete to manage domestic and international
investment portfolios for corporate benefit plans, mutual funds, government and
union benefit plans, individuals, endowments, and foundations. UAM believes that
the most important factors affecting competition in the investment management
industry are:
o the abilities and reputations of investment managers,
o stability of a firm's workforce, especially of portfolio managers,
o an effective marketing force with broad access to channels of distribution,
o differences in the investment performance of investment management firms,
o adherence to particular investment styles,
o quality of client service,
o the development of new investment strategies,
o resources to invest in information technologies, and
o public recognition of trade names in retail markets
UAM's affiliated firms face many competitors, including public and
private investment advisers, as well as affiliates of securities broker-dealers,
commercial banks, investment banks, and insurance companies. Barriers to entry
are low, and firms in the investment management business are relatively
long-lived.
Institutional clients typically may terminate investment management
contracts without penalty upon 30-days' notice. Mutual funds typically may
terminate investment management contracts without penalty upon 60-days' notice,
and retail clients may redeem investments in mutual funds at any time.
THE INVESTMENT MANAGEMENT BUSINESS IS SUSCEPTIBLE TO INTERNAL SHIFTS AND
FREQUENTLY REQUIRES FIRMS TO ADAPT
Firms typically position themselves to provide investment management
services within certain asset classes (equities, debt, real estate, etc.) and
investment styles (value, growth, sector rotation, etc.). Periodic shifts in the
investment management industry may favor firms with strength in particular areas
and firms that have the ability to adjust to these shifts.
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For example, the implementation of the European Monetary Union includes
the elimination of the national currencies and the coordination of economic
policy of the 11 member countries. These developments may cause several shifts
in the industry including:
o The preferred basis for equity asset allocation may shift from
regional and country selection to industry selection;
o Investors in member countries may be more willing to invest in
equity and debt securities from other member countries since there
will no longer be exchange rate risk; and
o Investors may no longer require certain hedging techniques that seek to
reduce exchange rate risk.
As another example, the press release attached as Exhibit 99.1 to the
Company's Form 8-K filed on January 22, 1998, describes a shift in the market
for institutionally managed real estate. Many investors now seek management
through investment vehicles like real estate investment trusts that offer
liquidity and public pricing, rather than investment vehicles like group trusts
that offer a more traditional form of long-term management.
UAM'S AFFILIATED FIRMS DEPEND SIGNIFICANTLY ON KEY EMPLOYEES
Individual investment managers at UAM's affiliated firms often have
regular direct contact with clients, which may cause the clients to base their
relationships largely on trust in that individual manager. Some clients could
withdraw assets if an affiliated firm loses a key investment manager. UAM's
success depends on its ability to attract, retain, and motivate sufficient
numbers of qualified managers at its affiliated firms.
In most cases, key managers have signed long-term employment contracts
and have agreed not to provide investment advisory services to any of their
firm's clients for a period after their employment ends. Also, UAM uses a
combination of short-term and long-term financial incentives to help its firms
retain these individuals. UAM depends on the enforceability of these employment
and non-competition agreements. However, these methods do not guarantee that
these individuals will remain with UAM's firms for the specified term of the
agreements or for any further term. The market for investment managers is
extremely competitive. Increasingly, in the industry, investment managers are
moving among different firms and starting new firms.
UAM'S GROWTH STRATEGY DEPENDS, IN PART, ON A SUCCESSFUL ACQUISITION PROGRAM
To date, UAM has acquired substantial ownership interests in over 50
investment management firms. UAM intends to continue this acquisition program in
the future, although more selectively than in the past. The success of this
program depends on UAM's ability to identify suitable firms and to negotiate
agreements on acceptable terms. Success also depends on UAM's ability to finance
acquisitions through additional borrowing, by issuing additional stock in
private or public transactions, or through internally generated cash flow.
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The market for acquisition of interests in investment management firms
is highly competitive. There are several other holding companies that invest in
investment management firms. In addition, many domestic and foreign commercial
and investment banks, insurance companies, and investment management firms
maintain active acquisition programs, and many of these companies have longer
operating histories and significantly greater resources than UAM.
Over the past few years, because of competition for acquisitions,
prices for firms have increased, and therefore the expected returns on these
investments have decreased. Further, as the total assets managed by UAM's
affiliated firms rises, this program may require larger or more frequent
acquisitions in order to continue to have a material effect on UAM's financial
results.
UAM'S REPORTED NET EARNINGS MAY BE AFFECTED BY CHANGES IN ITS AMORTIZATION OF
CLIENT CONTRACTS
When UAM acquires an investment advisory firm in a purchase business
transaction, UAM's balance sheet gains a new intangible asset - the cost
assigned to investment advisory contracts acquired. UAM amortizes this amount on
a straight-line basis over the estimated weighted average useful life of the
contracts. Determinations of these estimates consider historical patterns of
terminations by clients and the size and age of the contracts. If actual client
terminations occur significantly sooner than originally estimated or in certain
other circumstances, generally accepted accounting principles require that UAM
amortize the remaining asset over the revised estimated (shorter) life. This
acceleration of amortization further lowers UAM's reported net earnings during
the revised estimated life of the contracts.
In addition, UAM regularly analyzes the value of investment advisory
contracts. Many factors can affect the value of these contracts, including
changes in advisory fee rates, strategic planning at the affiliated firm,
realignment of client and consultant relationships, and performance in managing
assets. In its analysis, UAM compares the carrying value of the contracts
against the estimated undiscounted future cash flows associated with the
contracts. If the undiscounted future cash flows are not sufficient to recover
the carrying value of the asset, accounting principles require that UAM adjust
the carrying cost of the contracts to their estimated fair value. Such an
adjustment, known to accountants as an "impairment" charge, would lower UAM's
reported net earnings. The press release attached as Exhibit 99.1 to UAM's Form
8-K filed on January 22, 1998, describes a charge in the fourth quarter of
fiscal year 1997 resulting from the impairment of client contracts at two of
UAM's affiliated firms.
THE IRS IS SEEKING ADJUSTMENTS TO SEVERAL OF UAM'S FEDERAL INCOME TAX RETURNS
The Notes to Consolidated Financial Statements which are included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
describe UAM's method for amortizing investment advisory contracts for tax
purposes in years prior to 1993 and the method permitted by the Revenue
Reconciliation Act of 1993 (the "93 Act") for subsequent years. The Internal
Revenue Service ("IRS") has audited UAM's federal income tax returns for 1984
through 1992 and is challenging UAM's amortization prior to the 93 Act. The
Notes
<PAGE>
address this audit and the IRS's position in more detail. UAM believes that it
will prevail in the audit. However, if the IRS prevails in all aspects, UAM
would owe approximately $56,000,000, plus interest, in additional tax.
UAM DELEGATES AUTHORITY TO MAKE DECISIONS OVER THE OPERATIONS OF ITS AFFILIATED
FIRMS
As sole or principal stockholder, UAM has the power to elect and remove
directors of its affiliated firms and to veto any major actions that the firm
may take. However, UAM authorizes the principals of the affiliated firms to
manage their own day-to-day operations, including employee matters, investment
management policies and fee structures, product development, marketing, client
relationships, compensation programs, and compliance activities. Indeed, UAM
itself is not registered as an investment adviser either with the SEC or with
any state or foreign regulatory agency and therefore cannot render investment
advisory services except through its affiliated firms which are properly
registered. Accordingly, UAM has only limited ability to alter or coordinate the
investment management practices and policies of its affiliated firms.
THE YEAR 2000 ISSUE AFFECTS UAM'S COMPUTER HARDWARE AND SOFTWARE
Many computer programs use two digits, rather than four, to identify
the year in a date. These programs cannot accurately process dates after
December 31, 1999. This failure may cause systems to crash and may cause
programs to generate erroneous results when they process data. This issue
affects personal computers, mainframe computers, networks, and other information
technology systems. This issue also affects any equipment that contains embedded
software (non-IT systems), including telephone lines, elevators, and other
infrastructure. All companies that use or rely on IT systems or non-IT systems
face this issue.
In 1997, UAM started a program to assess its IT systems, to modify,
upgrade or replace all hardware or software that is not Year 2000 compliant, and
to develop a contingency plan in case its IT systems or its business partners'
IT systems are not Year 2000 compliant by January 1, 2000. This program also
addresses UAM's exposure to non-IT systems that may not be Year 2000 compliant.
UAM is assessing its non-IT systems, seeking assurance from the providers of
these systems that they are or soon will be Year 2000 compliant, and developing
a contingency plan in case these non-IT systems are not Year 2000 compliant by
January 1, 2000. UAM hired an outside consultant to assist UAM and its
affiliated firms with the development and implementation of this program. The
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of UAM's Form 10-K for the year ended December 31, 1998,
provides more detailed information on this program.
UAM expects to complete this program by June 30, 1999, and expects that
the cost will not be material. However, UAM cannot guarantee that this program
will achieve full and timely Year 2000 compliance, particularly with respect to
its business partners and non-IT systems that are not owned by UAM or under its
control. A failure by UAM, any of its affiliated firms, any of its business
partners, or any of its providers of non-IT system to achieve full and timely
<PAGE>
compliance could have a material adverse effect on UAM's business and financial
results.
ADOPTION OF THE NEW "EURO" CURRENCY AFFECTS UAM'S COMPUTER HARDWARE AND SOFTWARE
On January 1, 1999, 11 countries in the European Monetary Union adopted
the "Euro" as their common currency. Existing national currencies in these
countries will cease to be legal tender on July 1, 2002. Many computer programs
do not recognize the "Euro."
In 1998, UAM, together with its affiliated firms, started a program to
assess its computer hardware and software and to revise or replace any systems
that do not recognize the "Euro." In some cases, UAM's affiliated firms have
coordinated these changes with changes required by their Year 2000 Program. UAM
expects to complete this program in a timely manner and does not expect the
costs will be material. However, UAM cannot guarantee that this program will be
completely successful, and a failure to successfully revise or replace these
systems could have a material adverse effect on UAM's business and financial
results.
