<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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:1-9468
NEW ENGLAND INVESTMENT COMPANIES, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3405992
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
399 Boylston Street, Boston, MA 02116
(Address of principal executive offices)
(617) 578-3500
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since
last report.)
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.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Index to Form 10-Q
PART I - Financial Information
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of
December 31, 1994 and June 30, 1995 3
Condensed Consolidated Statement of
Income for the three and six months ended
June 30, 1994 and 1995 5
Condensed Consolidated Statement of Cash Flows
for the six months ended June 30, 1994 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - Other Information
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
- 2 -
<PAGE>
PART ONE
FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
<CAPTION>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
December 31, 1994 June 30, 1995
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 16,884 $ 11,924
Accounts receivable 28,645 32,531
Receivable from secuities sale - 39,381
Accounts receivable-affiliates 12,310 12,961
Marketable securities and other 4,756 4,330
-------- --------
Total current assets 62,595 101,127
Prepaid pension costs 16,583 17,658
Cash surrender value of
officers' life insurance 10,368 11,136
Intangible assets 149,123 144,543
U.S. Government agency securities 203,808 -
Net fixed assets 15,286 16,104
Deferred sales commissions 7,223 10,292
Other noncurrent assets 13,413 14,398
-------- --------
Total assets $478,399 $315,258
======== ========
Liabilities and Partners'Capital
Current liabilities:
Accounts payable and
accrued expenses $ 15,488 $ 18,795
Accrued compensation and
benefits 19,594 19,222
Distributions payable 13,436 14,071
Securities sold under
agreement to repurchase 197,365 30,495
Notes payable 5,000 -
-------- --------
Total current liabilities 250,883 82,583
Deferred compensation,
benefits and other 16,800 16,678
-------- --------
Total liabilities 267,683 99,261
-------- --------
- 3 -
<PAGE>
Partners' capital
Unrealized loss on securities (3,041) -
Public limited partner units 22,189 23,900
Principal unitholder
limited partner units 190,832 191,353
General partner 736 744
-------- --------
Total partners' capital 210,716 215,997
-------- --------
Total liabilities and
partners' capital $478,399 $315,258
======== ========
<FN>
See accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
- 4 -
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per unit data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Revenues: 1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Management and advisory fees $49,572 $53,873 $98,802 $105,505
Other revenues 6,224 8,045 12,628 15,259
Interest income and other 544 3,825 921 7,005
Gain on partial sale of
affiliate - - 4,746 4,712
------- ------- ------- --------
56,340 65,743 117,097 132,481
======= ======= ======= ========
Expenses:
Compensation and benefits 26,846 30,708 53,860 59,610
Restricted unit plan
compensation 1,929 1,415 3,921 2,942
Distribution costs 4,511 5,620 8,781 10,026
Occupancy and equipment 2,425 2,616 4,715 4,959
rental
Amortization of intangibles 2,740 2,740 5,480 5,480
Interest expense 67 1,246 186 3,877
Other 8,049 9,796 15,698 18,253
------- ------- ------- --------
46,567 54,141 92,641 105,147
------- ------- ------- --------
Income before income taxes 9,773 11,602 24,456 27,334
Provision for income taxes 200 225 550 625
------- ------- ------- --------
Net income $ 9,573 $11,377 $23,906 $ 26,709
======= ======= ======= ========
Net income $ 9,573 $11,377 $23,906 $ 26,709
Restricted unit plan
compensation 1,929 1,415 3,921 2,942
------- ------- ------- --------
Income available for
proportionate allocation $11,502 $12,792 $27,828 $ 29,651
======= ======= ======= =======
Income per publicly held
LP Unit $ .36 $ .40 $ .87 $ .93
======= ======= ======= ========
Distributions declared per
per unit $ .42 $ .44 $ .84 $ .86
======= ======= ======= =======
Weighted average partner
units outstanding 31,994 31,990 31,994 31,990
<FN>
See accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
- 5 -
<PAGE>
<TABLE>
<CAPTION>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1994 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $23,906 $26,709
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 7,661 8,964
Restricted unit plan compensation 3,921 2,942
Gain on sale of and accretion of discount
on securities - (3,545)
Increase in deferred sales commissions (2,387) (4,090)
Increase (decrease) in accrued
compensation and benefits 3,578 (1,010)
Increase in receivables and other assets (2,966) (6,940)
Increase in other liabilities 1,326 3,821
Equity in earnings of partnerships
and gain on partial sale of affiliate (8,988) (9,239)
Cash distributions from partnerships 4,225 5,211
-------- ---------
Net cash provided by operations 30,276 22,823
-------- ---------
Cash flows from investing activities:
Sale of U.S. Government agency securities - 209,551
Increase in receivable from securities sales - (39,381)
Capital expenditures and other (4,548) (4,055)
Net sales (purchases) of marketable
securities (958) 132
Proceeds from sale of affiliate 4,746 4,712
-------- ---------
Net cash provided (used) in investing activities (760) 170,959
-------- ---------
Cash flows from financing activities:
Securities sold under agreement to
repurchase (net) - (166,870)
Loan payments - (5,000)
Distributions paid (26,235) (26,872)
-------- ---------
Net cash used in financing activities (26,235) (198,742)
-------- ---------
Net increase (decrease) in cash and
cash equivalents 3,281 (4,960)
Cash and cash equivalents, beginning of year 42,238 16,884
-------- ---------
Cash and cash equivalents, end of period $45,519 $ 11,924
======== =========
<FN>
See accompanying notes to the condensed consolidated financial statements.
</FN>
</TABLE>
- 6 -
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of New
England Investment Companies, L.P. ("NEIC" or the "Partnership")
included herein have been prepared in accordance with the instructions
to Form 10-Q pursuant to the rules and regulations of the Securities
and Exchange Commission. Therefore, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and
notes included in NEIC's Annual Report incorporated by reference in
NEIC's Form 10-K for the year ended December 31, 1994. In the opinion
of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly (a) the results of operations
for the three and six months ended June 30, 1994 and 1995, (b) the
financial position as of June 30, 1995, and (c) cash flows for the
six months ended June 30, 1994 and 1995, have been made.
Certain reclassifications have been made to the accompanying 1994
consolidated financial statements to conform with the 1995
presentation.
NOTE 2 - INCOME PER UNIT
Income per publicly held limited partnership unit ("LP Unit") is
calculated by adding back to net income the restricted unit plan
expense, and dividing the result by the weighted average number of
units outstanding.
NOTE 3 - TAX CONSIDERATIONS FOR UNITHOLDERS
Management believes that, as a result of the Omnibus Budget
Reconciliation Act of 1993 and a special tax election which NEIC has
made, unitholders purchasing units in the open market after August 10,
1993 will be allocated current amortization over fifteen years of a
substantial portion of the purchase price of the units. Taking into
account the amortization deductions and other book-tax differences,
the Partnership expects that Partnership distributions will
significantly exceed net taxable income allocable to unitholders. The
amortization deductions represent the amortization over fifteen years
of the portion of each unitholder's purchase price allocated to the
intangible assets of the Partnership qualifying under Code Section
197. Such amortization deductions will decrease the unitholder's tax
basis, and will likely be recaptured as ordinary income upon
disposition of the LP Units. The following example of this benefit
assumes an individual purchased units during December 1994 and held
them for the entire two quarters of 1995. This unitholder would have
a convention purchase price as defined in NEIC's Partnership Agreement
of $15.50 of which $14.50 is allocated to Section 197 assets.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
<S> <C>
Estimated tax amortization per LP Unit $.48
Less financial statement amortization per publicly
held unit .17
----
Tax benefit for the first six months of 1995 $.31
====
</TABLE>
The amount of amortization deductions allocated to purchasers depends on
a number of factors. Under federal tax law, a unitholder will be
required to pay tax on his or her allocable share of the Partnership's
income regardless of the amount of distributions made by the Partnership.
As individual tax situations may vary, each prospective purchaser of LP
units is urged to consult his or her tax advisor. Individual K-1s are
being prepared for each unitholder which will identify the specific tax
benefit applicable to that unitholder.
NOTE 4 - CONTINGENT LIABILITIES
The Washington State Investment Board (the "SIB") filed suit on July
30, 1993 against Copley and New England Mutual Life Insurance Company
("New England Mutual") alleging that the SIB retirement funds have
lost over $600 million of the $800 million they invested in the
Prentiss Copley Investment Group ("PCIG") and other real estate
investments advised by Copley. Also on July 30, 1993, the State
Teachers Retirement System of Ohio (the "Ohio Board") filed suit
against Copley and New England Mutual, alleging it had lost
substantially all the value of its $50 million investment in PCIG.
These suits allege breach of fiduciary duty, breach of contract, gross
negligence and misrepresentation and violation of various state
statues. The suits seek return of amounts invested together with
interest, disgorgement of fees and profits, and related costs and
expenses.
Copley and New England Mutual intend to defend the actions vigorously.
New England Mutual has agreed to indemnify Copley against any and all
liability and expense arising from these suits or out of other claims
or actions related to the SIB retirement funds' or the Ohio Board's
investments (and pursuant to the agreement is currently paying all
expenses of the pending actions). Management believes that
significant losses as a result of these suits are remote and should
not have a material adverse effect on the financial condition, results
of operations and cash flows of NEIC. Management has based its
conclusion on its assessment of the merits of the cases, the current
status of the cases, the background of the litigation, and, in light
of these factors, New England Mutual's agreement to indemnify Copley
for its expense and liabilities, if any.
- 8 -
<PAGE>
NOTE 5 - INVESTMENT IN AFFILIATE
NEIC held a limited partner interest in Capital Growth Management Limited
Partnership ("CGM") of approximately 58% and 54% as of December 31, 1994 and
June 30, 1995, respectively. The remaining partnership interest is
owned indirectly by the management of CGM, who are obligated to apply
a defined portion of their CGM earnings to purchase additional
partnership interests from NEIC at a pre-determined formula price
until NEIC's ownership interest is reduced to 50%. NEIC recognized a
gain in the first quarter of 1994 and 1995 of $4,746,000 and
$4,712,000, respectively, based on the settlement of this contractual
obligation.
NOTE 6 - SALE OF U.S. GOVERNMENT AGENCY SECURITIES
Securities with an amortized cost basis of $207,527,000 were sold
during the first half of 1995. Gross realized gains of $2,083,000
were recognized during the second quarter of 1995. Securities sold in
June of 1995 were settled on July 5, 1995. The sales proceeds of
$39,381,000 were used to repay the $30,495,000 remaining balance on
the securities sold under agreement to repurchase.
NOTE 7 - SIGNIFICANT ACQUISITIONS
Harris Associates L.P.
NEIC signed an agreement on June 22, 1995 to acquire the assets and
certain liabilities of Harris Associates L.P. (Harris), a Chicago-
based investment management company with more than $6.5 billion in
assets under management. Under the agreement, NEIC will purchase the
assets and certain liabilities of Harris for an initial payment of
$175 million at the closing, payable in a combination of cash and
newly issued L.P. units, the proportions to be determined under an
election formula. NEIC will make an additional payment in early 1997,
also in cash and units pursuant to a further election by the partners
of Harris, as a purchase price adjustment based upon the performance
of Harris' business in 1996. The acquisition will be accounted for
under the purchase method of accounting and will result in the
recording of approximately all of the consideration as intangible
assets for financial reporting purposes. The closing of the
transaction is subject to the fulfillment of certain conditions
including the approval of the shareholders of the mutual funds advised
by Harris, and is expected to occur during the third quarter of 1995.
- 9 -
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Statement of Income for the Three Months Ended June 30, 1995
Compared to the Three Months Ended June 30, 1994
Management and advisory fees of $53.9 million for the three months
ended June 30, 1995 were up $4.3 million (or 8.7%) over the fees for
the three months ended June 30, 1994. Strong equity and bond markets
for the quarter, combined with growth in new assets under management
throughout 1994, resulted in a $4.9 million (or 19.7%) increase in equity
and fixed income institutional revenues. Real estate revenues
remained basically unchanged from a year ago, reflecting the
stabilization of market values. Growth in fees from the equity mutual funds
resulting from market growth of assets was offset by a decline in fees from
the money market fund business when compared to the same period a year ago.
Other revenues of $8.0 million for the three months ended June 30,
1995 were up $1.8 million over revenues for the three months ended
June 30, 1994. Most of this increase results from increased transfer
agency revenues and mutual fund administration and distribution fees.
Interest and other income of $3.8 million for the three months ended
June 30, 1995 increased $3.3 million compared to the second quarter of
1994. Interest earned on the U.S. Government agency securities, which
were purchased in November of 1994, totaled $1.5 million. The interest
income of $1.5 million was partially offset by $1.2 million in interest
expense on the reverse repurchase agreements used to finance the
securities. An additional $2.1 million of the increase is due to gains
realized on the sale of all of these securities during the second
quarter of 1995 when management took advantage of favorable market
conditions.
Compensation and benefits expenses of $30.7 million for the three
months ended June 30, 1995 were up $3.9 million (or 14.4%) over the
results for the second quarter of 1994. A $2.5 million increase in
base compensation and benefits over the second quarter of 1994 is
primarily the result of annual salary increases, combined with
increased staffing at the advisory offices. NEIC's variable
compensation plans, which are generally based on subsidiary
profitability, portfolio performance and sales growth, increased $1.4
million over the second quarter of 1994.
The non-cash restricted unit plan compensation expense of $1.4 million
in 1995 relates to the vesting of certain LP Units which were
contributed to NEIC in 1993 by New England Mutual and Reich & Tang,
Inc. ("RTI"), and were in turn granted at that time as compensation to
certain employees of NEIC. NEIC's partnership agreement provides that
the resulting compensation expense be allocated exclusively to New
England Mutual and RTI. As a result, the publicly held LP Units bear
no expense of this plan and the cost of the plan is not reflected in
NEIC's net income per publicly held LP Unit. To determine net income
per unit, the cost of the restricted unit plan expense of $1.4 million
is added back to net income of $11.4 million, resulting in income
available for proportionate allocation of $12.8 million. The result
is then divided by the 1995 weighted average units outstanding of
31,990,000.
- 10 -
<PAGE>
Distribution costs of $5.6 million increased $1.1 million for the
three months June 30, 1995. Amortization of commissions from Class B
mutual fund sales increased $0.4 million compared to the second quarter
of 1994. Promotional costs associated with the launching of a new fund
and a new 401(k) marketing initiative account for the balance of the increase.
The amortization of intangible assets for 1994 and 1995 is a non-cash
expense and does not reduce cash available for distribution to
unitholders.
Other expenses of $9.8 million increased $1.7 million for the three
months ended June 30, 1995. Included in the 1995 results are
approximately $1.2 million in one-time expenses, related to a variety of
different business ventures, development efforts and measures at NEIC's
subsidiaries.
Net income of $11.4 million for the three months ended June 30, 1995
was up $1.8 million from the second quarter of 1994. The results
reflect the growth of the equity and fixed income institutional
revenues. The gains realized from the sales of securities generally
offset several one-time expenses.
Net income of $0.40 per publicly held LP Unit was up $0.04 (or 11.1%)
from the second quarter of 1994.
NEIC's subsidiary, Copley, and New England Mutual have been named in
the litigation described in Note 4 of the Condensed Consolidated
Financial Statements. Management believes that significant losses as
a result of these suits are remote and should not have a material
adverse effect on the financial condition, results of operations and
cash flows of NEIC. Management has based its conclusion on its
assessment of the merits of the cases, the current status of the
cases, the background of the litigation, and, in light of these
factors, New England Mutual's agreement to indemnify Copley for its
expenses and liability, if any.
- 11 -
<PAGE>
Statement of Income for the Six Months Ended June 30, 1995
Compared to the Six Months Ended June 30, 1994
Management and advisory fees of $105.5 million for the six months
ended June 30, 1995 were up $6.7 million (or 6.8%) over the fees for
the six months ended June 30, 1994. Strong equity and bond markets,
combined with growth in new assets under management throughout 1994,
resulted in an $8.1 million (or 16.3%) increase in equity and fixed income
institutional revenues. Real estate revenues were down $0.7 million
on a year-to-date basis, due to selected portfolio sales and certain
one-time adjustments to 1994 revenues. Growth in fees from the equity
mutual funds resulting from market growth of assets was offset by a
decline in fees from the money market fund business when compared to the
same period a year ago.
Other revenues of $15.3 million for the six months ended June 30, 1995
were up $2.6 million over revenues for the six months ended June 30,
1994. Most of this increase results from increased transfer agency
revenues and mutual fund administration and distribution fees.
Interest and other income of $7.0 million for the six months ended
June 30, 1995 increased $6.1 million compared to the first half of
1994. Interest earned on the U.S. Government agency securities, which
were purchased in November 1994, totaled $4.4 million. The interest
income of $4.4 million was partially offset by $3.9 million in interest
expense on the reverse repurchase agreements used to finance the securities.
An additional $2.0 million of the increase is due to gains realized on
the sales of all of these securities during 1995 when management took
advantage of favorable market conditions.
NEIC recognized a gain of $4.7 million on the partial sale of its
interest in an affiliate during the first quarter of 1994 and 1995
(see Note 5).
Compensation and benefits expenses of $59.6 million for the six months
ended June 30, 1995 were up $5.8 million (or 10.7%) over the results
for the first half of 1994. A $3.8 million increase in base
compensation and benefits is primarily the result of annual salary
increases, combined with increased staffing at the advisory offices.
NEIC's variable compensation plans, which are generally based on
subsidiary profitability, portfolio performance and sales growth,
increased $2.0 million compared to 1994.
The non-cash restricted unit plan compensation expense of $2.9 million
in 1995 relates to the vesting of certain LP Units which were
contributed to NEIC in 1993 by New England Mutual and Reich & Tang,
Inc. ("RTI"), and were in turn granted at that time as compensation to
certain employees of NEIC. NEIC's partnership agreement provides that
the resulting compensation expense be allocated exclusively to New
England Mutual and RTI. As a result, the publicly held LP Units bear
no expense of this plan and the cost of the plan is not reflected in
NEIC's net income per publicly held LP Unit. To determine net income
per unit, the cost of the restricted unit plan expense of $2.9 million
is added back to net income of $26.7 million, resulting in income
available for proportionate allocation of $29.6 million. The result
is then divided by the 1995 weighted average units outstanding of
31,990,000.
- 12 -
<PAGE>
Distribution costs of $10.0 million increased $1.2 million for the six
months ended June 30, 1995. Most of the increase resulted from amortization
of commissions from Class B mutual fund sales, which increased $0.7 million
compared to the same period a year ago.
The amortization of intangible assets for 1994 and 1995 is a non-cash
expense and does not reduce cash available for distribution to
unitholders.
Other expenses of $18.3 million increased $2.6 million compared to the
first half of 1994. Included in the 1995 results are $1.4 million in
one-time expenses, related to a variety of different business ventures,
development efforts and measures at NEIC's subsidiaries.
Net income of $26.7 million for the six months ended June 30, 1995 was
up $2.8 million from 1994. The results reflect the growth of the
equity and fixed income institutional revenues. The gains realized
from the sales of securities generally offset several one-time
expenses.
Net income of $0.93 per publicly held LP Unit was up $0.06 (or 6.9%)
from the first half of 1994.
Assets Under Management
As of June 30, 1995, NEIC had $68.3 billion of assets under
management, up $8.0 billion (or 13.3%) from June 30, 1994. Excluding
institutional real estate, assets under management were up 18.0%
compared to June 30, 1994. Since June 30, 1994, there has been a 5%
increase in the bond market, as measured by the Merrill Lynch
Government Corporate Bond Index and a 23% increase in the stock
market, as measured by the S&P 500 Index.
<TABLE>
<CAPTION>
December 31, June 30, December 31, June 30,
1993 1994 1994 1995
(in billions)
<S> <C> <C> <C> <C>
Institutional fixed
income and equity $37.0 $36.8 $39.3 $44.9
Institutional real estate 8.3 7.6 6.6 6.1
Mutual funds 13.1 13.2 12.8 14.6
Private accounts and
other 2.8 2.7 2.6 2.7
----- ----- ----- -----
Totals $61.2 $60.3 $61.3 $68.3
===== ===== ===== =====
</TABLE>
Capital Resources and Liquidity
NEIC's operating cash flow is generally distributed to its unitholders
on a quarterly basis. Distributions are typically declared at a
meeting during the last month of the quarter to which the distribution
relates. On June 20, 1995, NEIC declared a distribution of
$14,071,000 or $0.44 per unit. The distribution is payable on August
15, 1995 to unitholders of record on June 30, 1995.
- 13 -
<PAGE>
NEIC's liquidity is used for general corporate purposes. NEIC had a
cash balance of $11.9 million as of June 30, 1995, and an additional
$20.0 million available on its bank line of credit. The $5.0 million
balance outstanding as of December 31, 1994 under this line of credit
was repaid during the first half of 1995.
Net cash provided by operations of $22.8 million was down from the
$30.3 million generated during the first half of 1994. This decrease
was mostly a result of the payment in 1995 of compensation accrued in
1994. A similar payment did not occur in 1994, as much of the
compensation accrued during 1993 was paid in December 1993.
Receivables also increased $4.0 million more than the first half of
1994 mostly due to the growth in the institutional revenues.
All of the U.S. Government agency securities were sold during the
first half of 1995. The proceeds were used to repay $166.9 million of
the related financing on these securities. The remaining $30.5
million in financing was repaid on July 5, 1995 when $39.4 million in
proceeds from June securities sales transactions were collected.
NEIC's cash on hand also increased $8.9 million on July 5, 1995 as a
result of this transaction.
NEIC is currently evaluating the costs and benefits of selling its
current and prospective deferred sales commissions on Class B mutual
fund sales to an outside party. The balance in deferred sales
commissions as of June 30, 1995 is $10.3 million. A sale of these
commissions could free up cash flow to NEIC on a short-term and on-
going basis.
NEIC signed an agreement on June 22, 1995 to acquire the assets and
certain liabilities of Harris Associates L.P. (Harris), a Chicago-
based investment management company with more than $6.5 billion in
assets under management. Under the agreement, NEIC will purchase the
assets and certain liabilities of Harris for an initial payment of
$175 million at the closing, payable in a combination of cash and
newly issued L.P. units, the proportions to be determined under an
election formula. NEIC will make an additional payment in early 1997,
also in cash and units pursuant to a further election by the partners
of Harris, as a purchase price adjustment based upon the performance
of Harris' business in 1996. The acquisition will be accounted for
under the purchase method of accounting and will result in the
recording of approximately all of the consideration as intangible
assets for financial reporting purposes. The closing of the
transaction is subject to the fulfillment of certain conditions
including the approval of the shareholders of the mutual funds advised
by Harris, and is expected to occur during the third quarter of 1995.
- 14 -
<PAGE>
Part II.
OTHER INFORMATION
Item 5. Other Information
Distribution Policy
The Partnership intends to distribute to Unitholders
substantially all of its Operating Cash Flow per LP Unit not required
for normal business operations and working capital needs, including
support of the Partnership's growth strategy. Operating Cash Flow per
LP Unit is defined as net income per publicly held LP Unit plus
amortization of the intangible assets associated with acquisitions
adjusted for any other material non-cash items. Management does not
consider capital gains as part of the Operating Cash Flow.
The following calculation of Operating Cash Flow per Unit should
be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements of NEIC, and the notes thereto. Operating Cash
Flow per Unit should not be construed as an alternative to net income
per publicly held LP Unit or as an alternative to cash flow from
operating activities as reported in the Condensed Consolidated
Statement of Cash Flows.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1994 1995
(In thousands, except per unit data) $ Per Unit $ Per Unit
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net income per publicly held LP Unit $27,827 $ 0.87 $29,651 $ 0.93
Add amortization of intangible assets 5,480 .17 5,480 .17
------- -------- ------- --------
Subtotal 33,307 1.04 35,131 1.10
Less capital gains (4,746) (.15) (4,712) (.15)
-------- -------- -------- --------
Operating cash flow per unit $28,561 $ 0.89 $30,419 $ 0.95
======= ======= ======= =======
Distributions declared $26,872 $ 0.84 $27,507 $ 0.86
</TABLE>
- 15 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
- Partnership Admission Agreement dated June 22, 1995 (Acquisition
by New England Investment Companies of the assets of Harris
Associates L.P.).
(b) NEIC filed a report on Form 8-K dated June 22, 1995. The Form 8-K
reported the signing of an agreement on June 22, 1995 to acquire the
assets and certain liabilities of Harris Associates L.P. A press
release dated June 23, 1995 was filed as an exhibit to the Form 8-K.
There were no financial statements or other exhibits filed as part of
this Form 8-K.
- 16 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date July 25, 1995 /s/G. Neal Ryland
------------- ----------------------------
G. Neal Ryland
Executive Vice President,
Chief Financial Officer, and
Chief Accounting Officer
- 17 -
<PAGE>
PARTNERSHIP ADMISSION AGREEMENT
dated
June 22, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PARTNERSHIP CONTRIBUTION................................................ 7
1.1 CONTRIBUTION OF ASSETS AND ASSUMPTION
OF LIABILITIES................................................ 7
1.2 CONSIDERATION FOR PARTNERSHIP CONTRIBUTIONS................... 8
1.3 CERTAIN LIMITATIONS........................................... 15
ARTICLE II
CLOSING................................................................. 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HALP AND THE GENERAL
PARTNER................................................................. 17
3.1 ORGANIZATION AND GENERAL PARTNER AND LIMITED
PARTNERSHIP AUTHORITY......................................... 17
3.2 CHARTER, BY-LAWS, AGREEMENTS OF LIMITED
PARTNERSHIP AND MINUTES....................................... 17
3.3 AUTHORITY..................................................... 18
3.4 NO VIOLATION.................................................. 18
3.5 APPROVALS..................................................... 19
3.6 FINANCIAL STATEMENTS.......................................... 19
3.7 NO ADVERSE CHANGE............................................. 20
3.8 SUBSIDIARIES.................................................. 20
3.9 TAXES......................................................... 21
3.10 INTERESTS OF PARTNERS......................................... 22
3.11 TITLE TO ASSETS; PROPERTY..................................... 23
3.12 INSURANCE..................................................... 24
3.13 OTHER MATERIAL CONTRACTS...................................... 24
3.14 BANK ACCOUNTS AND MONEY MARKET FUNDS.......................... 25
3.15 LITIGATION.................................................... 25
3.16 BROKERS AND FINDERS........................................... 25
3.17 EMPLOYEE BENEFIT PLANS........................................ 26
3.18 FILINGS, ETC.................................................. 28
3.19 REPRESENTATIONS AND WARRANTIES REGARDING THE
INVESTMENT ADVISORY BUSINESS.................................. 29
3.20 DISCLOSURE.................................................... 36
3.21 REGISTRATION AS A BROKER-DEALER............................... 36
-ii-
<PAGE>
3.22 REGISTRATION UNDER THE COMMODITY
EXCHANGE ACT.................................................. 37
3.23 REGISTRATION AS AN INSURANCE AGENT............................ 38
3.24 REGISTRATION AS A TRANSFER AGENT.............................. 38
3.25 INVESTMENT REPRESENTATIONS.................................... 38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEIC.................................. 39
4.1 ORGANIZATION AND LIMITED PARTNERSHIP
AUTHORITY..................................................... 39
4.2 BINDING OBLIGATION............................................ 39
4.3 NO DEFAULTS OR CONFLICTS...................................... 39
4.4 NO AUTHORIZATION OR CONSENTS REQUIRED......................... 40
4.5 NO ACTIONS; SUITS OR PROCEEDINGS.............................. 40
4.6 INELIGIBLE PERSONS............................................ 40
4.7 NO OTHER BROKER............................................... 40
4.8 NEIC FINANCIAL STATEMENTS..................................... 40
4.9 NO ADVERSE CHANGE............................................. 41
4.10 LP UNITS...................................................... 41
4.11 EXCHANGE ACT FILINGS.......................................... 41
4.12 NEIC CHARTER DOCUMENTS........................................ 41
4.13 DISCLOSURE.................................................... 42
4.14 TAXES......................................................... 42
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING................................ 42
5.1 CONDUCT PRIOR TO CLOSING...................................... 42
5.2 CONSENTS AND APPROVALS........................................ 44
5.3 SCHEDULES..................................................... 44
ARTICLE VI
ADDITIONAL AGREEMENTS................................................... 45
6.1 ADVISORY CONTRACT CONSENTS.................................... 45
6.2 AGREEMENTS RELATING TO MUTUAL FUNDS........................... 45
6.3 LP UNITHOLDER CONSENTS; RELATED INDEMNITIES................... 45
6.4 SECTION 15(f)................................................. 48
6.5 COMPLIANCE WITH SECURITIES LAWS............................... 49
6.6 CURRENT INFORMATION........................................... 49
6.7 ACCESS; INFORMATION........................................... 49
6.8 NON-SOLICITATION.............................................. 50
-iii-
<PAGE>
6.9 NOTIFICATION OF CERTAIN MATTERS............................... 50
6.10 CUSTOMERS..................................................... 50
6.11 QUALIFICATION OF THE FUNDS.................................... 50
6.12 PRESS RELEASES, ETC........................................... 51
6.13 TAX INFORMATION............................................... 51
6.14 POST-CLOSING OPERATIONS....................................... 51
6.15 INSURANCE..................................................... 53
6.16 UPDATED FINANCIAL STATEMENTS.................................. 53
6.17 EXCLUDED ACCOUNTS RECEIVABLE.................................. 54
ARTICLE VII
CONDITIONS.............................................................. 54
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS
TO CONSUMMATE................................................. 54
7.2 CONDITIONS PRECEDENT TO NEIC'S OBLIGATIONS.................... 56
7.3 CONDITIONS PRECEDENT TO HALP'S OBLIGATIONS.................... 59
ARTICLE VIII
TERMINATION............................................................. 61
8.1 TERMINATION................................................... 61
8.2 EFFECT OF TERMINATION AND ABANDONMENT......................... 61
ARTICLE IX
INDEMNIFICATION......................................................... 62
9.1 INDEMNIFICATION BY HALP AND THE GENERAL
PARTNER....................................................... 62
9.2 INDEMNIFICATION BY NEIC....................................... 62
9.3 CERTAIN LIMITATIONS ON INDEMNIFICATION........................ 63
9.4 TERMINATION OF RIGHTS HEREUNDER............................... 63
ARTICLE X
POST-CLOSING COVENANTS.................................................. 64
10.1 EMPLOYEE BENEFITS AND OTHER MATTERS........................... 64
10.2 CERTAIN TAX MATTERS........................................... 64
10.3 CONFIDENTIALITY AND NONCOMPETITION............................ 65
10.4 HALP'S CONTINUED EXISTENCE.................................... 68
10.5 SUBORDINATION OF ACCRUALS OF PARTNERSHIP
BONUS REVENUES................................................ 68
10.6 LISTING OF LP UNITS........................................... 68
-iv-
<PAGE>
10.7 AGREEMENT OF LIMITED PARTNERSHIP OF HALP...................... 68
10.8 TRANSFERS OF LP UNITS FOLLOWING A RESTRUCTURING............ .. 69
10.9 TRANSFERS OF HALP LIMITED PARTNERSHIP INTERESTS............... 69
10.10 PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES................... 69
ARTICLE XI
GUARANTEES.............................................................. 69
11.1 GUARANTEE..................................................... 69
ARTICLE XII
GENERAL PROVISIONS...................................................... 69
12.1 SURVIVAL...................................................... 69
12.2 NOTICES....................................................... 69
12.3 COUNTERPARTS.................................................. 71
12.4 GOVERNING LAW................................................. 71
12.5 EXPENSES...................................................... 71
12.6 WAIVER; AMENDMENT............................................. 72
12.7 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES; ETC........... 72
12.8 ASSIGNMENT.................................................... 72
12.9 INTERPRETATION................................................ 72
12.10 FURTHER ASSURANCES............................................ 72
12.11 CONSISTENT ACCOUNTING......................................... 72
12.12 SEVERABILITY.................................................. 72
<PAGE>
Exhibits
--------
7.1(i) Form of Registration Rights Agreement
7.2(d)(i) Form of Executive Employment Agreement
7.2(d)(ii) Form of Employment Agreement
7.2(e) Form of Partnership Agreement
7.2(f) Form of Opinions of Winston & Strawn, Katten Muchin & Zavis and
Bell, Boyd & Lloyd
7.3(b)(i) Bonus Compensation Plan
7.3(b)(ii) Form of Option Certificate
7.3(c)(i) Form of Opinion of Ropes & Gray
7.3(c)(ii) Form of Opinion of TNE
Schedules
---------
0.1A Excluded Assets
0.1B Assumed Liabilities
0.1C Investment Partnerships
0.1D Terminable Contracts
1.1(b) Minimum Cash/Capital Requirement
1.3A HALP's Annualized Revenue as of February 28, 1995
1.3B HALP's Annualized Revenue as of the Month Preceding Closing
3.6(a) Audited Financials
3.6(b) Unaudited Financials
3.7 Distributions
3.9 Tax Matters
3.10 Interests of Partners
3.11(a) Liens
3.11(c) Intellectual Property
3.12 Insurance
3.13 Material Contracts
3.14 Bank Accounts and Money Market Funds
3.15 Litigation
3.17 Employee Benefit Plans
3.19(a) The Funds
3.19(b) Limitations on Fees under Investment Contracts
3.19(d)(i) Qualifications of HALP's Adviser Representatives
3.19(d)(ii) Inspection Reports
3.19(d)(iii) Advisory or Sub-Advisory Relationship with Investment Companies
3.19(d)(vi)(A) Investor Complaints and Redemption Requests
3.19(e) Exceptions to Due Issuances of Shares of the Funds
3.21 Principal and Registered Representatives of HASLP
4.8A NEIC Financial Statements
-vi-
<PAGE>
4.9 Adverse Changes
5.1 Bonuses
7.2(d) Employees
-vii-
<PAGE>
This PARTNERSHIP ADMISSION AGREEMENT is dated as of the 22nd day of June,
1995 (this "Agreement"), by and among New England Investment Companies, L.P., a
---------
Delaware limited partnership ("NEIC"), Harris Associates L.P., a Delaware
----
limited partnership ("HALP") and HALP's General Partner, Harris Associates,
----
Inc., a Delaware corporation. The terms "Partner", "General Partner", "Limited
------- --------------- -------
Partner" and "Class B Unit Limited Partner" shall have the meanings ascribed to
- ------- ----------------------------
such terms in the HALP Agreement of Limited Partnership dated December 11, 1986,
as amended (the "Agreement of Limited Partnership").
--------------------------------
RECITALS
WHEREAS, HALP serves as (i) investment adviser to individuals, trusts,
pension funds and other institutional accounts, (ii) investment manager,
national distributor and shareholder services agent for open-end investment
funds, (iii) the general partner and investment manager for investment
partnerships, and (iv) through a subsidiary, as a registered broker-dealer;
WHEREAS, NEIC is a publicly traded limited partnership with limited
partners' interests represented by LP Units ("LP Units") listed on the New York
--------
Stock Exchange;
WHEREAS, the parties desire that NEIC issue an agreed-upon number of LP
Units to HALP in exchange for HALP's contribution to NEIC of certain of the
assets of HALP, subject to certain liabilities of HALP;
WHEREAS, at the Closing the General Partner will withdraw as the general
partner of Harris Associates Securities L.P., a Delaware limited partnership
("HASLP"), and be replaced by a wholly owned indirect subsidiary of NEIC, GLS
- -------
Partners Inc. ("NHGP"); and
----
WHEREAS, NEIC, as the limited partner, and NHGP, as the general partner,
have caused to be formed a Delaware limited partnership named "GLS Partners,
L.P.", which shall be treated for federal income tax purposes as a partnership
("NHLP"); and
----
WHEREAS, the parties understand and intend that at the Closing, NEIC will
contribute to NHLP directly or indirectly through one or more subsidiaries the
assets attributable to HALP's current business, subject to certain liabilities
of HALP;
NOW, THEREFORE, in consideration of and premised upon the various
representations, warranties, covenants and other agreements and undertakings of
NEIC, HALP and the General Partner contained in this Agreement and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, NEIC, HALP and the General Partner agree as follows:
-1-
<PAGE>
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Arbitration" means with respect to a matter of disagreement between the
parties hereto relating solely to the Adjusted 1996 Payment as provided for in
Section 1.2(b)(iv) hereof and to the Closing Balance Sheet, the referral of such
- ------------------
matter for final determination to an independent accounting firm that is
considered to be one of the "big six" and is not otherwise then providing
services to NEIC, HALP or their affiliates, which determination of the matter of
disagreement submitted to it, including the allocation among the parties of the
costs of such determination, shall be final and binding on the parties hereto.
"Assets" of any Person means all of such Person's business, assets,
security deposits and prepaid items, goodwill and rights of every kind and
description, tangible and intangible, wherever located, including, without
limitation, all of such Person's right, title and interest in, to and under the
following properties and assets:
(a) machinery, parts, tools, equipment, supplies, vehicles,
furniture, furnishings, fixtures and other tangible properties
(including artwork);
(b) accounts receivable and notes receivable that are not
excluded assets identified on Schedule 0.1A hereto;
-------------
(c) leasehold interests and leasehold improvements arising
under or relating to all leases, contracts, agreements and
commitments, and all claims and rights of the Person arising under or
relating to all such leases, contracts, agreements and commitments;
(d) trade secrets and processes and proprietary properties;
(e) trade names, trademarks, servicemarks, trademark
applications and servicemark applications;
(f) customer lists, customer records, supplier lists, mailing
lists and other customer or marketing information;
(g) the Person's rights to the use of its name and any
variations thereof;
(h) the Person's interest in all other proprietary names,
formulations, copyrights and slogans;
-2-
<PAGE>
(i) the originals or, if not available, copies thereof, of
contracts, leases, files, records, plans, notebooks, production data,
books and other data;
(j) computer software, computer hardware and information
systems, including copies of all existing documentation and existing
source codes with respect to such software;
(k) sales and promotional materials, catalogues and
advertising literature;
(l) license agreements, distribution agreements, sales
representative agreements and other agency agreements, service
agreements, supplier agreements, franchise agreements and technical
service agreements, software support agreements, permits, licenses,
registrations and operating rights;
(m) in the case of any Person that is an investment adviser,
such Person's rights and interests in or under Investment Contracts
and other contracts between such Person and its clients and
customers;
(n) other leases (including any equipment leases or any
subleases in which such Person is sublessor), contracts, purchase
orders, purchase contracts, agreements and commitments;
(o) books and records, and information electronically stored
or otherwise recorded;
(p) payments made to such Person prior to the Closing Date in
respect of obligations to be performed by such Person on or after the
Closing Date;
(q) prepaid expenses as of the Closing Date;
(r) any securities owned by such Person and issued by any
other Person; and
(s) all employee benefit plan assets reflected in the
Financial Statements, to the extent transferred to NHLP;
provided, however, that, with respect to HALP, the term Assets shall
exclude those assets identified on Schedule 0.1A hereto.
-------------
"Assumed Liabilities" means HALP's obligations and liabilities, including
without limitation all contractual obligations arising from Investment Contracts
and employment contracts and obligations arising under all employee benefit
plans, that are reflected as
-3-
<PAGE>
liabilities in the most recent balance sheet of the Audited Financials (as
defined in Section 3.6(a)) or set forth on Schedule 0.1B hereto and any other
-------------- -------------
obligations approved in writing by NEIC prior to the Closing but in no event
shall include any liabilities described in clauses (i) through (ix) of the
definition of "Excluded Liabilities."
"Closing" has the meaning set forth in Section 2.1 hereof.
-----------
"Closing Balance Sheet" means the balance sheet of HALP as of the Closing
Date reflecting the assets and liabilities to be transferred by HALP to NEIC
that are required to be reflected in a balance sheet prepared in accordance with
GAAP. The Closing Balance Sheet shall be prepared on a basis substantially
consistent with the balance sheet as of April 30, 1995 attached hereto as
Exhibit 0.1 and shall reflect the fact that HALP is entitled to exclude from
- -----------
transfer to NEIC all previously earned income of HALP, which will result in the
Closing Balance Sheet reflecting partners' capital of approximately $1,000,000
comprised entirely of regulatory capital in HASLP and leasehold improvements,
furniture and equipment. At least five business days prior to the Closing, HALP
shall have delivered a preliminary draft satisfactory to NEIC of the Closing
Balance Sheet. A final draft Closing Balance Sheet shall be delivered within 10
days following the Closing Date and shall be prepared consistently with the
preliminary draft. NEIC and HALP shall resolve any objections with respect to
the Closing Balance Sheet within 20 days following delivery of the Closing
Balance Sheet. Should NEIC and HALP fail to resolve all objections to the
Closing Balance Sheet, then the parties hereto shall submit the disputed matters
to Arbitration. The final Closing Balance Sheet after resolution of all
disputed matters shall be the Closing Balance Sheet.
"Closing Date" has the meaning set forth in Section 2.1 hereof.
-----------
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Exchange Act" means the Commodity Exchange Act of 1974, as
amended.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange" means the New York Stock Exchange.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Liabilities" means all liabilities, contingent or otherwise, of
HALP and the HALP Entities related to (i) loans to HALP or any HALP Entity from
Partners, employees, officers or affiliates of HALP or any HALP Entity, other
than loans made to satisfy the Minimum Cash/Capital Requirement (as defined in
Section 1.1(b) hereof), (ii) fees, indemnities or other liabilities or
- --------------
obligations in connection with the arrangements described in Section 3.16, (iii)
------------
any liabilities for any costs to be borne by HALP pursuant to Section 12.5, (iv)
------------
any liabilities of HALP, any HALP Entity or any Partner in respect of Taxes, (v)
any liabilities not reflected on the balance sheet of HALP delivered at Closing
other than Assumed Liabilities, (vi) any liabilities of or relating to former
partners of HALP, including but not limited to liabilities of the type described
in (i), (iv) and (v) hereof, (vii) liabilities of HALP
-4-
<PAGE>
relating to its general partnership interest in the Investment Partnerships;
(viii) liabilities of the General Partner relating to its general partnership
interests in HALP and HASLP; (ix) liabilities of HALP or its Partners as a
result of this Agreement, the Related Agreements or the transactions
contemplated hereby and thereby and (x) those further liabilities, contingent or
otherwise, of HALP which are not Assumed Liabilities.
"Form ADV" means the filing on Form ADV required to be made under the
Investment Advisers Act with the SEC in connection with the registration of the
filing party as an investment adviser under the Investment Advisers Act.
"GAAP" means United States generally accepted accounting principles applied
on a consistent basis.
"HALP Entities" means the General Partner, HASLP, the Funds and the
Investment Partnerships.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as
amended.
"Investment Contracts" means, with respect to any Person that is an
investment adviser, the respective contracts between such Person and the clients
of that Person relating to the provision by that Person of investment advisory,
asset management, consulting or administrative services.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Partnerships" means those "multi-manager" investment
partnerships listed on Schedule 0.1C in which HALP owns a general partnership
-------------
interest and for which HALP is the investment manager.
"Lien" means any agreement, restriction, pledge, lien, option, security
interest, mortgage, claim, charge or other encumbrance of any kind whatsoever.
"Material Adverse Effect" means a material adverse effect on the business,
assets, financial condition, results of operations or prospects (in the case of
prospects, not taking into account general economic and securities market
conditions or general industry developments) of HALP, any HALP Entity or NHLP.
"Permitted Transferee" means (i) prior to or on the First Record Date (as
defined in Section 1.2(c) hereof), any Person to whom any Partner transfers LP
--------------
Units for estate and tax planning purposes or by operation of law and who has
delivered to NEIC a certificate containing (A) representations by such Person
substantially identical to those representations contained in Sections 3.25(a)
----------------
and (c) hereof and such other documentation to demonstrate to NEIC's
---
satisfaction that the transfer is exempt from registration under the Securities
Act and (B) an acknowledgment by such Person that such Person's sole right to a
distribution in respect of the First Record Date is to receive on a per LP Unit
basis the distributions made in respect of each LP Unit listed on the Exchange
multiplied by a fraction the numerator of which
-5-
<PAGE>
is equal to the number of days between the Closing Date and the First Record
Date and the denominator of which is equal to the number of days in the calendar
quarter in which the Closing Date falls and (ii) following the First Record
Date, any Person to whom LP Units issued hereunder are transferred and who
either (A) has delivered to NEIC a certificate containing representations by
such Person substantially identical to those representations contained in
Sections 3.25(a) and (c) and such other documentation to demonstrate to NEIC's
- ---------------- ---
satisfaction that the transfer is exempt from registration under the Securities
Act or (B) has purchased such LP Units pursuant to a sale in compliance with
Rule 144 under the Securities Act or pursuant to a registered offering.
"Person" means any individual, partnership, corporation, limited liability
company, association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
"Related Agreements" means any agreement, instrument or certificate
executed by NEIC, HALP or any Partner in connection with this Agreement,
including: (i) the employment agreements between NHLP and the Class B Unit
Limited Partners who are employees of HALP and (ii) the Registration Rights
Agreement between NEIC and HALP.
"Securities Act" means the Securities Act of 1933, as amended.
"SEC" means the Securities and Exchange Commission.
"Taxes" means all federal, state, county, local, foreign and other taxes
(including, without limitation, income, gross income, profits, premium,
estimated, excise, sales, services, use, occupancy, gross receipts, franchise,
license, ad valorem, severance, capital levy, production, stamp, transfer,
withholding, employment, unemployment, social security, payroll and property
taxes, customs duties and other governmental charges and assessments), together
with any interest, additions to tax or penalties.
"Tax Returns" means all returns, amended returns, declarations, reports,
estimates, information returns and statements required or permitted to be filed
in respect of Taxes.
"Terminable Contracts" means those contracts of HALP or any HALP Entity
(other than Investment Contracts) which, by their terms or under applicable law,
would, or would be required to, terminate as a result of the consummation of the
transactions contemplated by this Agreement unless the parties' consent to the
transfer of such contract is obtained, such Terminable Contracts being listed on
Schedule 0.1D.
- -------------
"TNE" means New England Mutual Life Insurance Company.
"Trading Days" means those days on which the Exchange is open for trading.
-6-
<PAGE>
ARTICLE I
PARTNERSHIP CONTRIBUTION
1.1 CONTRIBUTION OF ASSETS AND ASSUMPTION OF LIABILITIES.
At the Closing and upon the terms and conditions set forth herein, the
following actions shall occur:
(a) HALP shall contribute all of its Assets to NEIC free and
clear of any Lien other than those identified in Section 3.11(a), and
---------------
NEIC will assume and become responsible for the Assumed Liabilities,
but in no event including the Excluded Liabilities. The General
Partner shall withdraw as the general partner of HASLP and be
replaced by NHGP. The contribution of the Assets of HALP and the
assumption of the Assumed Liabilities contemplated by this Section
-------
1.1(a) are referred to in this Agreement as the "Asset Contribution."
------ ------------------
HALP shall continue to be responsible for the Excluded Liabilities.
(b) To the extent required to meet the Minimum Cash/Capital
Requirement if not satisfied by the Assets of HALP contributed
pursuant to Section 1.1(a) above, HALP shall provide NEIC for the
--------------
benefit of NHLP at Closing with cash, cash equivalents and accounts
receivable equal to such additional required amount, if any. "Minimum
-------
Cash/Capital Requirement" means sufficient working capital, in the
------------------------
form of cash, cash equivalents and accounts receivable (excluding
working capital received as prepayment for obligations to be
performed by NHLP as successor to HALP on or after the Closing Date)
for the near term operations of NHLP and the payment of required
distributions to the partners of NHLP, as described in the attached
Schedule 1.1(b). HALP shall also ensure that its Assets contributed
---------------
at the Closing include sufficient cash, cash equivalents or other
eligible capital to meet all investment advisor and broker-dealer net
capital and any other regulatory capital requirements applicable to
NHLP and/or HASLP, as the case may be, and to produce positive
consolidated net worth at NHLP exclusive of amounts contributed to
satisfy the Minimum Cash/Capital Requirement, also as described in
Schedule 1.1(b). If necessary, HALP may loan or arrange for a loan to
---------------
NHLP of funds in a sufficient amount to satisfy the Minimum
Cash/Capital Requirement at the Closing.
(c) Immediately upon completion of the events described in
Sections 1.1(a) and (b), NEIC shall contribute to NHLP (i) the Assets
--------------- ---
of HALP subject to the Assumed Liabilities but not the Excluded
Liabilities and (ii) any amount necessary to meet the Minimum
Cash/Capital Requirement that is not loaned directly to NHLP by HALP
at Closing. NEIC's contribution to NHLP
-7-
<PAGE>
described in the preceding sentence shall occur in such a way that an
appropriate percentage of both the Assets and the additional amount
contributed to NEIC by HALP to meet the Minimum Cash/Capital
Requirement (such percentage to be determined in the sole discretion
of NEIC and its affiliates) is first contributed directly or
indirectly through one or more subsidiaries to NHGP and is then
contributed by NHGP to NHLP in exchange for a general partnership
interest in NHLP. The remainder of both the Assets of HALP and the
additional amount contributed by HALP to NEIC to meet the Minimum
Cash/Capital Requirement shall be contributed directly by NEIC to
NHLP in exchange for a limited partnership interest in NHLP. NHLP may
contribute directly or indirectly through one or more subsidiaries
the general partnership interests in the Investment Partnerships to
one or more wholly owned (directly or indirectly) subsidiaries of
NHLP.
1.2 CONSIDERATION FOR PARTNERSHIP CONTRIBUTIONS.
(a) PURCHASE PRICE AT CLOSING.
(i) In consideration for the Asset Contribution, the
aggregate purchase price (the "Purchase Price") shall be $175
--------------
million payable in LP Units at the Exchange Price. The
"Exchange Price" means the average of (i) $16.00 and (ii) the
--------------
average of the closing prices of the LP Units on the Exchange
during the first 20 Trading Days following 30 days from the
date hereof, provided, however, that the Exchange Price shall
-------- -------
be no more than $19.00 and no less than $16.00. The number of
LP Units to be received by HALP in accordance with this
Section 1.2(a)(i) shall be referred to herein as the
-----------------
"Required Number of LP Units."
---------------------------
(ii) Upon or after the Closing, HALP may distribute all
or a portion of the LP Units its receives from NEIC to the
Partners. At any time on the Closing Date or during the 15
days immediately following the Closing Date, each of HALP and
any Partner may, by notice to NEIC (the "Repurchase Notice"),
-----------------
elect to sell to NEIC (and NEIC agrees to purchase from HALP
or such Partner) at the Repurchase Price, such number of LP
Units received by HALP from NEIC or by such Partner from
HALP, as are specified in the Repurchase Notice. Immediately
upon HALP's or a Partner's delivery of a Repurchase Notice,
HALP or such Partner will have as of the date of the
Repurchase Notice irrevocably surrendered the LP Units
specified in the Repurchase Notice and forfeited all rights
as a holder of such LP Units, including the right to receive
any distributions on such LP Units the record date for which
fell on the Closing Date or within 17 days immediately
-8-
<PAGE>
following the Closing Date. HALP and each such Partner shall
promptly deliver to NEIC the certificates for the LP Units
specified in HALP's or such Partner's Repurchase Notice. The
"Repurchase Price" for each LP Unit repurchased by NEIC
----------------
pursuant to this Section 1.2(a)(ii) means (A) on the Closing
------------------
Date or on the two days immediately following the Closing
Date, the Exchange Price and (B) starting on the third day
following the Closing Date, the lower of (x) the Exchange
Price and (y) the closing price of LP Units on the Exchange
on the last Trading Day immediately preceding the date of
repurchase.
Within 10 days following the date on which the Exchange
Price is first determinable, HALP and each of the Partners
shall indicate to NEIC in writing the number of LP Units, if
any, that HALP or such Partner would have an interest in
selling to NEIC pursuant to this Section 1.2(a)(ii) (the
------------------
"Interest List"). To the extent that the number of LP Units
-------------
set forth in HALP's or a Partner's Repurchase Notice is less
than or equal to the number of LP Units listed for HALP or
such Partner on the Interest List, then the repurchase and
payment by NEIC of the Repurchase Price for all such LP Units
will take place on the second business day following NEIC's
receipt of the Repurchase Notice. With respect to that number
of LP Units set forth in HALP's or a Partner's Repurchase
Notice that exceeds the number of LP Units listed for HALP or
such Partner on the Interest List, the repurchase and payment
by NEIC of the Repurchase Price for all such LP Units shall
occur on such date within 45 days following the Closing Date
as NEIC shall specify.
(iii) In the event that the Exchange Price is less than
$17.00, then on the date 16 days immediately following the
Closing Date, NEIC shall have the right to repurchase at the
Exchange Price from HALP and the Partners the Redeemable
Number of LP Units. The "Redeemable Number of LP Units" means
-----------------------------
that number of LP Units, if any, that is designated by NEIC
for repurchase in accordance with this Section 1.2(a)(iii),
-------------------
such number being no greater than (A) (x) $35 million divided
-------
by (y) the Exchange Price minus (B) the total number of LP
-- -----
Units subject to a Repurchase Notice pursuant to Section
-------
1.2(a)(ii). Immediately upon designation by NEIC of the
----------
Redeemable Number of LP Units for repurchase from HALP and
the Partners pursuant to this Section 1.2(a)(iii), HALP and
-------------------
each Partner will have irrevocably surrendered its respective
portion, if any, of the Redeemable Number of LP Units and
forfeited all rights as a holder of such LP Units, including
any rights to distributions on such LP Units the record date
for which fell on the Closing Date or within 15 days
-9-
<PAGE>
immediately following the Closing Date. HALP and each Partner
shall promptly deliver to NEIC
the certificates for HALP's or such Partner's portion of the
Redeemable Number of LP Units. The Redeemable Number of LP
Units, and the Exchange Price paid for such LP Units, shall
be apportioned among each of HALP and the Partners in
proportion to HALP's and such Partners' share of the Required
Number of LP Units following NEIC's repurchase of all LP
Units subject to a Repurchase Notice under
Section 1.2(a)(ii).
------------------
(b) 1996 PAYMENT.
(i) In addition to the Purchase Price paid at the
Closing, on April 2, 1997, NEIC will pay to HALP the
following amount (the "1996 Payment"): the product of (A) (x)
------------
NHLP's Qualifying Revenue for the fiscal year ended
December 31, 1996 multiplied by 41% minus (y) $20 million all
------------- ----- ---
multiplied by (B) 8.90. The 1996 Payment shall not be less
-------------
than the amount by which (A)(x) NHLP's Pro Forma Qualifying
Revenue for 1995 multiplied by (y) 41% multiplied by (z) 8.5,
------------- -------------
exceeds (B) $175 million. The 1996 Payment shall be paid to
-------
HALP in LP Units valued at the 1996 Exchange Price, with any
fractional amount paid in cash. The "1996 Exchange Price"
-------------------
means the average of the closing prices of the LP Units on
the Exchange during the first 20 Trading Days of 1997. NEIC
may set off against the 1996 Payment claims made by any NEIC
Indemnified Party under Article IX. Prior to or at the time
----------
of such set-off, NEIC shall give HALP written notice of any
such claim stating the nature and basis of such claim.
As used in this Section 1.2(b) and elsewhere in this
--------------
Agreement, the following terms have the following meanings:
"NHLP's Qualifying Revenue" means for a fiscal year (A)
-------------------------
all recurring consulting and regular advisory fees, (B)
incentive advisory fees up to a maximum of $2.8 million, (C)
net brokerage commissions up to a maximum of 6.6% of regular
advisory fees and (D) all recurring revenue received from
third-party sponsors of money market funds in connection with
such funds, all based on the audited financial statements for
NHLP for such fiscal year; provided, however, that NEIC
-------- -------
Qualifying Revenue for such fiscal year shall be excluded
from NHLP's Qualifying Revenue if and to the extent agreed to
by NEIC and the Inside Directors (as defined in Section
-------
-10-
<PAGE>
6.14(c)) of NHGP prior to the execution of contracts giving
--------
rise to such revenue and provided further that no payments
-------- -------
received from Wanger Asset Management L.P. will be included
in NHLP's Qualifying Revenue.
"NEIC Qualifying Revenue" means for a fiscal year any
-----------------------
revenue of NHLP received from contracts or arrangements with
NEIC or any majority-owned affiliates of NEIC or any fund
sponsored by NEIC or any of its affiliates for such fiscal
year.
"NHLP's Pro Forma Qualifying Revenue for 1995" means
--------------------------------------------
with respect to NHLP, the lesser of (x) for the fiscal year
ended December 31, 1995, the sum of (A) all recurring
consulting and regular advisory fees, (B) incentive advisory
fees up to a maximum of $500,000, (C) net brokerage
commissions up to a maximum of 6.6% of regular advisory fees
and (D) all recurring revenue received from third-party
sponsors of money market funds in connection with such funds,
all based on the audited financial statements of NHLP
(computed, in the case of items (A), (B) and (C) on a pro
forma basis with respect to such revenues of HALP prior to
Closing) or (y) NHLP's Run Rate Revenue as of December 31,
1995; provided, however, that any NEIC Qualifying Revenue for
-------- -------
the relevant period shall be excluded from NHLP's Pro Forma
Qualifying Revenue for 1995 if and to the extent agreed to by
NEIC and the Inside Directors of NHGP prior to the execution
of contracts giving rise to such revenue and provided further
-------- -------
that no payments received from Wanger Asset Management L.P.
will be included in NHLP's Pro Forma Qualifying Revenue for
1995. For purposes of determining the 1996 Payment, NHLP's
Pro Forma Qualifying Revenue for 1995 shall be determined no
later than July 15, 1996.
"NHLP's Run Rate Revenue" as of a particular date means
-----------------------
the sum of (A) annualized gross revenue from all of NHLP's
recurring consulting and regular advisory fees as of such
date, (B) actual incentive advisory fees for NHLP or HALP as
its predecessor, as applicable, for the 12 months ended on
such date up to a maximum of $500,000, (C) the lesser of (x)
NHLP's actual brokerage commissions for the three months
ended on such date multiplied by four and (y) 6.6% of
-------------
annualized gross revenue from all of NHLP's regular advisory
fees as of such date, and (D) NHLP's annualized gross revenue
from third-party sponsors of money market funds in connection
with such funds as of such date, all based on the audited
financials of NHLP.
(ii) Upon or after the 1996 Payment Date, HALP may
distribute all or a portion of the LP Units it receives from
-11-
<PAGE>
NEIC to the Partners. At any time on the 1996 Payment Date or
during the 15 days immediately following the date on which
NEIC pays to HALP the 1996 Payment (the "1996 Payment Date"),
-----------------
each of HALP and any Partner may, by notice to NEIC (the
"1996 Repurchase Notice"), elect to sell to NEIC (and NEIC
----------------------
agrees to purchase from HALP or such Partner) at the
1996 Repurchase Price, such number of LP Units received by
HALP from NEIC or by such Partner from HALP as a result of
the 1996 Payment as are specified in the 1996 Repurchase
Notice. Immediately upon HALP's or a Partner's delivery of a
1996 Repurchase Notice, HALP or such Partner will as of the
date of the 1996 Repurchase Notice have irrevocably
surrendered the LP Units, if any, specified in the 1996
Repurchase Notice and forfeited all rights as a holder of
such LP Units. HALP and each Partner shall promptly deliver
to NEIC the certificates for the number of LP Units specified
in HALP's or such Partner's 1996 Repurchase Notice. The "1996
----
Repurchase Price" for each LP Unit repurchased by NEIC
----------------
pursuant to this Section 1.2(b)(ii) means (A) on the 1996
------------------
Payment Date or on the two days immediately following the
1996 Payment Date, the 1996 Exchange Price and (B) starting
on the third day following the 1996 Payment Date, the lower
of (x) the 1996 Exchange Price and (y) the closing price of
LP Units on the Exchange on the last Trading Day immediately
preceding the date of repurchase.
On or before February 7, 1997, NEIC shall provide a
schedule to HALP (and HALP shall immediately provide to the
Partners copies of such schedule) setting forth the 1996
Exchange Price and the amount of the 1996 Payment, which
shall be based on revenue information then available. On or
before February 14, 1997, HALP and each of the Partners shall
indicate to NEIC in writing the number of LP Units, if any,
HALP or such Partner would have an interest in selling to
NEIC pursuant to this Section 1.2(b)(ii) (the "1996 Interest
------------------ -------------
List"). To the extent that the number of LP Units set forth
----
in HALP's or a Partner's 1996 Repurchase Notice is less than
or equal to the number of LP Units listed for HALP or such
Partner on the 1996 Interest List, then the repurchase and
payment by NEIC of the Repurchase Price for all such LP Units
will take place on the second business day following NEIC's
receipt of the 1996 Repurchase Notice (the "1996 First
----------
Repurchase Date"). With respect to that number of LP Units
---------------
set forth in HALP's or a Partner's 1996 Repurchase Notice
that exceeds the number of LP Units listed for HALP or such
Partner on the 1996 Interest List, the repurchase and payment
by NEIC of the 1996 Repurchase Price for all such LP Units
shall occur on such date within 45 days following the 1996
-12-
<PAGE>
Payment Date as NEIC shall specify (the "1996 Second
-----------
Repurchase Date").
---------------
(iii) NEIC hereby agrees that in the event that HALP or
one or more Partners delivers a 1996 Repurchase Notice to
NEIC during the 15 days immediately following the 1996
Payment Date and NEIC fails to pay to HALP or each Partner
who delivers such a notice (each of HALP and such Partners, a
"1996 Redeeming Person"), all amounts due thereunder pursuant
---------------------
to Section 1.2(b)(ii) hereof on or before the 1996
------------------
First Repurchase Date or the 1996 Second Repurchase Date, as
the case may be, then NEIC, as the limited partner of NHLP,
----
for the benefit of each of the Partners who are 1996
Redeeming Persons, hereby irrevocably directs NHGP, as the
general partner of NHLP, to cause all distributions of Net
Distributable Revenues and all distributions of the Net
Proceeds of a Capital Transaction (as such terms are defined
in the GLS Partners, L.P. Agreement of Limited Partnership
(the "NHLP Partnership Agreement")) that would otherwise be
--------------------------
made to NEIC pursuant to Section 3.1 of the NHLP Partnership
-----------
Agreement from and after the first date on which NEIC is
required, but fails, to make a payment pursuant to Section
-------
1.2(b)(ii) hereof (the "Assigned Distributions") to be made
---------- ----------------------
instead to the 1996 Redeeming Persons until such time as each
such 1996 Redeeming Person's 1996 Cash Shortfall has been
eliminated. All related income shall continue to be allocated
to NEIC. Each Assigned Distribution shall be paid by NHLP to
the 1996 Redeeming Persons in proportion to the 1996 Cash
Shortfall of each such 1996 Redeeming Person as of the date
such Assigned Distribution is paid. For each 1996 Redeeming
Person, the "1996 Cash Shortfall" as of the date an Assigned
-------------------
Distribution is paid shall be equal to the difference, if
any, between (a) the aggregate payments required to be made
to such 1996 Redeeming Person prior to such date pursuant to
Section 1.2(b)(ii) plus interest accruing on amounts required
------------------
to be so paid that have not yet been so paid calculated on
such difference as it from time to time exists, starting from
the date such payment should have been made, at a rate equal
to two percent (2%) above the prime rate as in effect during
the period when a 1996 Cash Shortfall remains outstanding, as
is announced from time to time by the Morgan Guaranty Trust
Company of New York, and (b) the sum of the payments
previously made to such 1996 Redeeming Person pursuant to
Section 1.2(b)(ii) and this Section 1.2(b)(iii).
----------------- ------------------
-13-
<PAGE>
(iv) On or before the fifth business day following
receipt of audited financial statements for NHLP for fiscal
year 1996, certified without qualification, NEIC shall
recalculate the 1996 Payment based on such audited financial
statements and deliver to HALP a schedule setting forth the
amount of such recalculated 1996 Payment (the "Adjusted 1996
-------------
Payment"). As soon as practicable following delivery of such
-------
schedule and in any event prior to seven days following such
delivery, HALP shall either inform NEIC that such schedule is
acceptable or object to such schedule by delivering to NEIC a
written statement setting forth a specific description of
HALP's objections to such schedule. NEIC and HALP shall
attempt to resolve any such objections on or before the
twentieth day following receipt of audited financial
statements, certified without qualification, for NHLP for
fiscal year 1996 (the "Adjustment Date"). Should NEIC and
---------------
HALP fail to resolve all objections to the
amount of the Adjusted 1996 Payment, then the parties hereto
shall submit the matter to Arbitration.
(v) On the Adjustment Date (or on the earliest date
practicable following any Arbitration under Section 1.2(iv)),
---------------
an adjustment, if necessary, shall be made for the difference
between the Adjusted 1996 Payment and the 1996 Payment. If
the Adjusted 1996 Payment exceeds the 1996 Payment, then NEIC
shall pay to HALP the difference between such amounts in a
combination of cash and LP Units such that upon distribution
by HALP of such difference to the Partners, each Partner will
receive a combination of cash and LP Units on a pro rata
basis based upon the amount of cash and LP Units received in
connection with the 1996 Payment (taking into account the
repurchase by NEIC of LP Units under Section 1.2(b)(ii)).
------------------
NEIC may set off against the difference claims made by any
NEIC Indemnified Party under Article IX. Prior to or at the
----------
time of such set-off, NEIC shall give HALP written notice of
any such claim stating the nature and basis of such claim. If
the 1996 Payment exceeds the Adjusted 1996 Payment, then HALP
shall pay to NEIC the difference between such amounts by
paying over to NEIC a combination of cash and LP Units on a
pro rata basis based upon the amount of cash and LP Units
paid by NEIC in connection with the 1996 Payment (taking into
account repurchases by NEIC from HALP or the Partners under
Section 1.2(b)(ii)). The Partners shall deliver to NEIC
------------------
certificates for LP Units to be paid pursuant to this
Section 1.2(b)(v). For purposes of this Section 1.2(b)(v), LP
----------------
Units shall be valued at the 1996 Exchange Price. In the
event the Adjusted 1996 Payment is submitted to Arbitration,
-14-
<PAGE>
any payment required as a result of such Arbitration shall
bear interest starting from the Adjustment Date at a rate
equal to NEIC's then current short-term borrowing rate.
(c) LP UNITS. The LP Units issued hereunder except as
otherwise described in this Section 1.2(c) are intended to be
--------------
substantially similar to LP units listed on the Exchange except as to
restrictions on transferability set forth in Section 3.25(c). In
---------------
addition, except for transfers by HALP to the Partners or by any
Partner to a Permitted Transferee and as provided in
Section 1.2(a)(ii), the LP Units shall not be transferable until the
------------------
day immediately following the first record date (the "First Record
Date") for NEIC's quarterly distributions following the Closing Date.
Distributions on the LP Units issued hereunder shall be the same as
distributions on LP Units listed on the Exchange except that
distributions made to holders of any of the Required Number of LP
Units that are holders of record on the First Record Date shall equal
on a per LP Unit basis the distributions made in respect of each LP
Unit listed on the Exchange multiplied by a fraction the numerator of
which is equal to the number of days between the Closing Date and the
First Record Date and the denominator of which is equal to the number
of days in the calendar quarter in which the
Closing Date falls. Each of HALP and the General Partner waives any
right to receive any quarterly distribution in respect of LP Units
for which the record date is the First Record Date except as set
forth in this Section 1.2(c). Following the payment of distributions
--------------
for which the record date is the First Record Date, NEIC will treat
the LP Units issued hereunder as possessing the same book capital
accounts (on a per LP Unit basis) and as entitled to the same
distributions (including distributions in complete liquidation of
NEIC) as LP Units traded on the Exchange and will, to the extent
permitted by applicable law, treat each LP Unit issued hereunder as
fungible with LP Units listed on the Exchange following the sale of
such LP Unit in a public market, and NEIC may adopt such conventions
as are necessary or desirable to obtain the foregoing results.
(d) CALCULATION OF LP UNITS. In calculating the number of LP
Units to be issued to HALP or any Partner, any remaining amount not
issuable in a whole number of LP Units, shall be paid in cash.
1.3 CERTAIN LIMITATIONS. Schedule 1.3A hereto sets forth HALP's
-------------
Annualized Revenue as of February 28, 1995. Prior to the Closing, HALP shall
have delivered to NEIC for its review Schedule 1.3B hereto setting forth HALP's
-------------
Annualized Revenue as of the end of the month immediately preceding the Closing
Date. Each of Schedule 1.3A and Schedule 1.3B shall be prepared in accordance
------------- -------------
with GAAP applied on a basis consistent with the Financial Statements (as
defined in Section 3.6). As promptly as possible following the delivery of each
-----------
such schedule and prior to the date hereof or Closing, as the case may be, NEIC
shall either inform HALP that such schedule is acceptable or object to such
schedule by delivering to HALP a written statement setting forth a specific
-15-
<PAGE>
description of NEIC's objections to such schedule. HALP shall attempt to
resolve any such objections by the Closing Date. In the event the percentage
(rounded to the nearest whole percent) obtained by dividing HALP's Annualized
--------
Revenue as set forth on Schedule 1.3B by HALP's Annualized Revenue as set forth
------------- --
on Schedule 1.3A is less than 85%, NEIC may elect not to proceed under this
-------------
Agreement. "HALP's Annualized Revenue" as of the end of any month means the
-------------------------
revenues accrued by HALP for the period beginning January 1, 1995 and ending on
such date, divided by the number of months in 1995 elapsed through such date,
----------
and multiplied by twelve.
-------------
ARTICLE II
CLOSING
2.1 The closing of the initial transactions contemplated by this Agreement
(the "Closing") will take place at ___ .m. on _____, 1995 at the
-------
offices of Ropes & Gray, One International Place, Boston, Massachusetts, or at
such other time and place as the parties hereto may mutually agree upon (the
"Closing Date"). At the Closing, the following shall occur (and shall be deemed
- -------------
to occur in immediate succession):
-16-
<PAGE>
(a) HALP and the Partners shall deliver to NEIC any
contribution, assignment and other instruments relating to the Asset
Contribution as NEIC and its counsel reasonably request to effect the
contribution and transfer of such Assets and the withdrawal of the
General Partner as the general partner of HASLP and its replacement
by NHGP as contemplated by this Agreement;
(b) HALP shall deliver to NEIC the amount, if any, required
to satisfy the Minimum Cash/Capital Requirement, which amount may
take the form of a loan from or arranged by HALP to NHLP and shall be
transferred in such manner as NEIC may request;
(c) NEIC shall deliver to HALP or HALP's designees, as HALP
shall direct, certificates representing the Required Number of LP
Units and HALP shall be duly admitted to NEIC as a limited partner
holding the Required Number of LP Units;
(d) NEIC shall deliver any contribution, assignment and other
instruments as HALP and its counsel reasonably request to evidence
(i) the contribution of the Assets from NEIC to NHLP and (ii) the
contribution by NEIC to NHLP of any amount contributed to NEIC by
HALP to satisfy the Minimum Cash/Capital Requirement, all as
described in Section 1.1(d) of this Agreement; and
--------------
(e) HALP shall deliver to NEIC, and NEIC shall deliver to
HALP, the various certificates, instruments and documents referred to
in Article VII.
-----------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HALP AND THE GENERAL PARTNER
HALP and the General Partner hereby represent and warrant, jointly and
severally, to NEIC as follows:
3.1 ORGANIZATION AND GENERAL PARTNER AND LIMITED PARTNERSHIP AUTHORITY.
HALP is a limited partnership duly formed, validly existing and in good standing
and the General Partner is a Delaware corporation, duly organized, validly
existing and in good standing, each under the laws of the State of Delaware,
with full power and authority to own or lease and use its properties and assets,
to carry on its business as such business is now conducted, to execute and
deliver this Agreement, and to consummate the transactions contemplated hereby.
Each of HALP and the General Partner possesses all material licenses,
franchises, permits and other rights necessary to conduct its business as such
business is now or proposed to be conducted. HALP is duly qualified to do
business as a foreign limited partnership and the General Partner is duly
qualified to do business as a foreign corporation, each under the laws of the
State of Illinois and is not by reason of the nature of its
-17-
<PAGE>
business or the ownership or leasing of its properties required to be qualified
to do business in any other jurisdiction.
3.2 CHARTER, BY-LAWS, AGREEMENTS OF LIMITED PARTNERSHIP AND MINUTES. The
copies of the certificate of limited partnership of each of HALP, HASLP and each
of the Investment Partnerships as certified by the Secretary of States of
Delaware and Illinois, as the case may be; the Agreement of Limited Partnership
of each of HALP, HASLP and each of the Investment Partnerships as certified by
its respective general partner; the certificate of incorporation of the General
Partner as certified by the Secretary of State of Delaware; the by-laws of the
General Partner as certified by the Secretary of the General Partner; and the
minutes of meetings of the partners (or consents in lieu thereof) of each of
HALP, HASLP and each of the Investment Partnerships and the minutes of meetings
of the board of directors or stockholders of the General Partner (or consents in
lieu thereof) furnished or made available to NEIC by HALP or the General
Partner, are true, correct and complete and conform to the originals thereof,
and there will have been no subsequent amendments or other modifications (other
than amendments and modifications to which NEIC has consented) of such documents
before the Closing Date, except for minutes of meetings of the partners of each
of HALP, HASLP and the Investment Partnerships or of the board of directors or
stockholders of the General Partner (or consents in lieu thereof) held after the
date hereof and on or before the Closing Date, true, correct and complete copies
of which shall have been furnished to NEIC before the Closing Date.
3.3 AUTHORITY.
(a) Each of HALP and the General Partner has full right,
power and authority to execute, deliver and perform this Agreement
and the Related Agreements to which it is a party, all proper actions
of the Partners and the board of directors and the shareholders of
the General Partner authorizing the execution, delivery and
performance hereof and thereof having been taken. This Agreement has
been duly executed and delivered by HALP and the General Partner and
constitutes, and the other Related Agreements to which they will be a
party when executed and delivered, will be duly executed and
delivered and will constitute, valid and legally binding obligations
of HALP and the General Partner enforceable in accordance with their
respective terms, except as the enforceability thereof may be subject
to or limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or affecting the rights of creditors
generally and judicial limitations upon the specific performance of
certain types of obligations. There are no proceedings or actions
pending or, other than as set forth in HALP's amended partnership
agreement, a true and correct copy of which has been delivered to
NEIC, or as contemplated in this agreement or the Related Agreements,
contemplated to dissolve HALP or the General Partner.
(b) Each of the Employment Agreements has been executed and
delivered by each employee to be party thereto pursuant to
Section 7.2(d) as of
--------------
-18-
<PAGE>
the date hereof, has been duly and validly approved by all necessary
action of each such employee to become effective, will be in full
force and effect as of the Closing, and will constitute valid and
legally binding obligations of each such employee, enforceable in
accordance with its terms, except as the enforceability thereof may
be subject to or limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting the rights of
creditors generally and judicial limitations upon the specific
performance of certain types of obligations.
3.4 NO VIOLATION. Neither the execution and delivery by the General
Partner and HALP of this Agreement or of any Related Agreement to which the
General Partner or HALP may be a party, nor consummation of the transactions
herein or therein contemplated, nor compliance with the terms, conditions and
provisions hereof or thereof will conflict with or violate any provision of law
or the certificate of limited partnership of HALP, HASLP or any of the
Investment Partnerships or the Agreement of Limited Partnership of HALP, HASLP
or any of the Investment Partnerships or the certificate of incorporation or by-
laws of the General Partner or result in a violation or default in any provision
of any regulation, order, writ, injunction or decree of any court or
governmental agency or authority or of any agreement or instrument to which the
General Partner or HALP is a party or by which the General Partner or HALP is
bound or to which the General Partner or HALP is subject, or constitute a
default thereunder or result in the creation or imposition of any Lien upon the
Assets of HALP or the General Partner's general partnership interest in HASLP
pursuant to the terms of any such agreement or instrument (except as
contemplated by this Agreement or where such violation or default would not have
a Material Adverse Effect), assuming that all of the consents contemplated by
Sections 7.1 and 7.2 have been received and provided that the actions
- ------------ ---
contemplated by Article VII are taken and the provisions of 15 U.S.C. Section
-----------
18(a) and (b) (the "HSR Act") shall have been complied with pursuant to Section
------- -------
7.1(b). The parties recognize that consummation of the transaction contemplated
- ------
herein will result in the automatic termination of HALP's investment advisory
agreements relating to its individual accounts and to the Funds (as defined in
Section 3.19(a)) and that new agreements may only be entered into by NHLP in
- ---------------
accordance with the procedures established by the Investment Company Act and the
regulations promulgated thereunder.
3.5 APPROVALS. No approval, authorization, order, license or consent
of or registration, qualification or filing with any governmental authority and
no approval or consent by any other person or entity is required in connection
with the execution, delivery or performance by HALP or the General Partner, as
the case may be, of this Agreement and the Related Agreements, other than as
contemplated by Article VII.
-----------
3.6 FINANCIAL STATEMENTS.
(a) HALP has delivered to NEIC audited balance sheets of HALP
as at the close of its fiscal years ended December 31, 1992 through
December 31, 1994, together with the related financial statements for
the fiscal years ended December 31, 1992 through December 31, 1994,
certified by Arthur Andersen
-19-
<PAGE>
& Co., all of which balance sheets and financial statements
(including the notes thereto) for such periods are collectively
called the "Audited Financials" and are attached hereto as
------------------
Schedule 3.6(a).
---------------
(b) HALP will deliver to NEIC prior to the Closing an
unaudited balance sheet as of the last day (the "Balance Sheet Date")
------------------
of the month immediately preceding the month in which the Closing
Date occurs, together with unaudited statements of income, Partners'
capital and cash flows of HALP for the post-December 31, 1994 period
ending on the Balance Sheet Date, certified by the principal
financial and accounting officer of HALP, all of which balance sheets
and financial statements (including the notes thereto) are referred
to collectively as the "Unaudited Financials" and are or prior to the
--------------------
Closing will be attached hereto as Schedule 3.6(b). The Audited
---------------
Financials, the Unaudited Financials and Schedules 1.3A and 1.3B are
-------------- ----
hereinafter sometimes collectively referred to as the "Financial
---------
Statements".
----------
(c) The Financial Statements, when delivered in accordance
with this Agreement, will fairly present the financial position and
results of operations of HALP on the dates thereof and for the fiscal
periods then ended, in accordance with GAAP which, except as may
otherwise be noted in the footnotes thereto, shall have been applied
on a basis consistent with prior periods. The Financial Statements
reflect or provide for claims against and debts and liabilities of
HALP, absolute, accrued, contingent or otherwise, as at the dates
thereof in accordance with GAAP, except for normal recurring year-end
accruals reflected on or omitted from the Unaudited Financials which
are not individually or in the aggregate material.
3.7 NO ADVERSE CHANGE. Since December 31, 1994, (a) there has been no
Material Adverse Effect; (b) there have been no distributions paid or declared
to the Partners except as reflected in the Financial Statements or disclosed to
NEIC in Schedule 3.7; (c) HALP has not issued or sold any interest, option, note
------------
or other security of HALP; and (d) the physical properties owned or leased by
HALP or HASLP have not suffered any destruction or damage, regardless of whether
or not the loss suffered was insured, that could, individually or in the
aggregate, have a Material Adverse Effect.
3.8 SUBSIDIARIES.
(a) Except for HASLP, HALP has no subsidiaries. Neither HALP,
HASLP nor the General Partner owns, directly or indirectly, except
solely for investment purposes, any of the capital stock of or any
other equity interest in any corporation, association, trust or
similar entity, any interest in the equity of any partnership (other
than HASLP and the general partnership interests in the Investment
Partnerships), or similar entity, any share in any joint venture, or
any other equity or proprietary interest in any entity or enterprise,
however organized and however such interest may be denominated or
evidenced.
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<PAGE>
Neither HASLP nor HALP has any rights, options, subscriptions,
warrants or other agreements of any kind to purchase or otherwise to
receive or be issued any shares of such capital stock, or securities
or obligations of any kind convertible into shares of such capital
stock, existing in favor of any Person.
(b) Either HALP or the General Partner is the sole record and
beneficial owner of all outstanding interests in HASLP. HALP is the
sole record and beneficial owner of all outstanding general
partnership interests in each Investment Partnership. Each of HASLP
and the Investment Partnerships is a limited partnership duly formed,
validly existing and in good standing under the laws of the State of
Delaware or other state of organization, with full power and
authority to own or lease and use its properties and assets and to
carry on its business as such business is now conducted. Each of
HASLP and the Investment Partnerships possesses all material
licenses, franchises, permits and other rights necessary to conduct
its business as such business is now or proposed to be conducted.
Neither HASLP nor any Investment Partnership is by reason of the
nature of its business or its ownership of properties or otherwise
required to be qualified to do business as a foreign limited
partnership in any jurisdiction other than the State of Illinois,
except where such failures to be so qualified could not, individually
or in the aggregate, have a Material Adverse Effect.
3.9 TAXES.
(a) All Tax Returns required by applicable law to be filed by
HALP, HASLP and the Investment Partnerships through the date hereof
have been timely filed, or requests for extensions have been timely
filed, granted, and have not yet expired. Each of the Tax Returns
filed by either HALP, HASLP or any Investment Partnership in cases
where any such person is required to pay a Tax liability directly,
correctly and accurately reflects the amount of its Tax liability and
any other material information required to be set forth on such Tax
Return, and, in all other cases, correctly and accurately reflects
such person's income, gains, losses, deductions and credits for the
relevant fiscal year (or other period) and any other material
information required to be set forth on such Tax Return. All Taxes
shown on filed Tax Returns, or to be shown on Tax Returns that have
been extended but not yet filed, have been paid. In the case of Taxes
required to be paid directly by HALP, HASLP or any Investment
Partnership for any period ending on or prior to the date hereof for
which no Tax Return is yet due, all such Taxes have been adequately
reserved for on the books of HALP, HASLP or the respective Investment
Partnership. Except with respect to those matters set forth on
Schedule 3.9 attached hereto, no audit examination of any Tax Return
------------
of HALP, HASLP or any Investment Partnership is in progress and
neither HALP nor HASLP nor any Investment Partnership nor any partner
of any of them has been notified by any Tax authority that any such
audit examination is contemplated. Except with respect
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to those matters set forth on Schedule 3.9 attached hereto, there is
------------
no Tax deficiency or claim for additional Taxes or interest thereon
or penalties in connection therewith asserted, or which may be
asserted, against HALP, HASLP or any Investment Partnership with
respect to periods prior to the date hereof. The Tax Returns filed by
HALP, HASLP and each Investment Partnership to date have not been
audited. No claim has ever been made by an authority in a
jurisdiction where any of HALP, HASLP or any Investment Partnership
does not file reports or returns that any such person not filing
reports or returns in that jurisdiction is or may be, or its partners
are or may be, subject to taxation by that jurisdiction which has not
yet been resolved, or if resolved and any amount was determined to be
payable, in respect of which such amount has not yet been paid. There
are no liens on any of the assets of HALP, HASLP or any Investment
Partnership that arose in connection with any failure to pay Taxes.
Neither HALP, HASLP nor any Investment Partnership nor any partner of
any of them has ever, in the case of HALP, HASLP or any Investment
Partnership, entered into a closing agreement, or, in the case of a
partner of any such partnership, entered into a closing agreement in
respect of a deficiency or other matter arising in connection with
ownership of a partnership interest in any such entity pursuant to
Section 7121 of the Code or any similar provision of state law.
Neither HALP, HASLP nor any Investment Partnership has agreed to, or
is required to, make any adjustments under Section 481(a) of the Code
by reason of a change in accounting method or otherwise.
(b) Neither HALP, HASLP, any Investment Partnership nor any
partner of any such partnership (on behalf of such partnership) has
executed an extension or waiver, that is currently in effect, of any
statute of limitations in respect of the assessment or collection of
any Tax due or in respect of any adjustment to any Tax Return.
(c) Adequate provision for any Taxes of HALP, HASLP and each
Investment Partnership due or to become due, in respect of its
assets, properties, businesses and operations (i) for any period or
periods through and including December 31, 1994, has been made and is
reflected in the December 31, 1994 financial statements, and (ii) for
any subsequent periods ending on or prior to the date hereof, has
been made and is reflected on the books of the relevant entity.
(d) Deferred Taxes of HALP, HASLP and each Investment
Partnership have been provided for in accordance with GAAP, except
for such failures to so provide that would not be material.
(e) Each of HALP, HASLP and the Investment Partnerships is,
and at all times since its formation has been, properly classified
for federal and state income tax purposes as a partnership that is
not publicly traded (within the
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meaning of Section 7704 of the Code) (and not as a publicly traded
partnership, association or corporation).
(f) The sole Industry SIC Codes for HALP's and HASLP's
businesses are 6282 (Investment Advice) and 6211 (Security Brokers,
Dealers, and Flotation Companies), and these are the proper SIC Codes
for all current and past activities of HALP and HASLP. The sole
Internal Revenue Service Principal Business Activity Code for each of
the Investment Partnerships is 6748 (Other Holding and Investment
Companies), and this is the proper Internal Revenue Service Principal
Business Activity Code for all current and past activities of each
Investment Partnership.
3.10 INTERESTS OF PARTNERS. Except as set forth on Schedule 3.10 and
-------------
except for Partners' draws and normal advances for business expenses incurred in
the ordinary course of business, no current or former officer, director,
stockholder or Partner of HALP or of any HALP Entity, nor any affiliate of any
of the foregoing parties, (i) has any loan (except participant loans under HALP
Benefit Plans as permitted by applicable law) or other obligation outstanding to
or from HALP or any HALP Entity, or for which HALP or any HALP Entity is or may
be liable under a guaranty or otherwise, or (ii) has any material interest in
any firm, person or entity (other than as an officer, director, stockholder or
partner) with which HALP has entered into any contract or lease, or with which
HALP does business and which would influence that person in doing business with
HALP.
3.11 TITLE TO ASSETS; PROPERTY.
(a) At the Closing, each of HALP and HASLP shall have good
and sufficient title to, or valid and subsisting leasehold interests
in, all of their Assets, including the Assets reflected in the
Financial Statements, except such assets as have been disposed of in
the ordinary course of the business consistent with past practice,
free and clear of any Liens, except for (i) such minor imperfections
of title, or insignificant Liens, as do not, individually or in the
aggregate, materially detract from the values of such Assets, or
materially interfere with the present uses thereof, (ii) such Liens
arising by operation of law, and (iii) the Liens listed on
Schedule 3.11(a) hereto which collectively are not material. HALP's
----------------
Assets including those Assets reflected on the Closing Balance Sheet
and any amounts loaned to NHLP to satisfy the Minimum Cash/Capital
Requirement include all the assets necessary to conduct its business
in the same manner conducted by HALP prior to the Closing Date.
(b) All of HALP's and HASLP's personal property is in good
order and repair and is operable and fit to be used for its intended
purposes in all material respects. Neither HALP nor HASLP owns any
real estate. Each of HALP and HASLP holds its leased real and
personal properties that are material to the operation of its
business under valid and binding leases, each such lease is effective
in accordance with its respective terms, and there is not under any
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<PAGE>
such lease any existing material default pertaining to HALP or HASLP,
or to the knowledge of each of HALP, the General Partner or HASLP,
pertaining to the lessor thereunder or, to the knowledge of HALP, the
General Partner or HASLP, any event which with notice or lapse of
time or both would become a material default.
(c) Schedule 3.11(c) sets forth all trademarks, trade names,
----------------
service marks and copyrights (whether or not such trademarks, trade
names, service marks and copyrights are registered), and all pending
applications therefor, owned by HALP or HASLP or in which HALP or
HASLP has any interest, which are material to its business. Each of
HALP and the HALP Entities has, or has the right to use, and after
consummation of the transactions contemplated hereby, NHLP will have,
or have the right to use, free and clear of any claims of others, all
franchises, permits, licenses, trademarks, service marks (whether
registered or unregistered), trademark applications, service mark
applications, trade names, copyrights, trade secrets, designs, ideas
and other proprietary rights necessary to own and operate their
respective properties and to carry on their respective business as
currently conducted. HALP owns the right to the HALP and Oakmark
names and licenses the Oakmark name to the Funds under license
agreements contained in the applicable investment advisory agreement
with the Funds. Neither HALP nor any HALP Entity has infringed,
misappropriated or violated in any material way any valid trademark,
trade name, copyright, trade secret or other intellectual property
rights or contractual relationships of others, and has not received
any notice, claim or protest respecting any such infringements or
violations. Neither HALP nor any HALP Entity has given any
indemnification to any Person for any such infringements,
misappropriations or violations. There is no pending or threatened
claim asserted in writing by HALP or any HALP Entity against others
for infringement or misappropriation of any patent, trademark, trade
name, service mark or copyright owned by HALP or any HALP Entity.
(d) Each of HALP and the HALP Entities owns or licenses all
computer software developed or currently used by them that is
material to the conduct of their respective businesses and have the
right to use such software without infringing upon the intellectual
property rights (including trade secrets rights) of a third party.
(e) The General Partner holds no assets, other than its
general partnership interest in each of HASLP and HALP, necessary to
conduct the business of HALP or HASLP.
3.12 INSURANCE. Each insurance policy that is maintained by HALP with
respect to its business or properties or upon the life of any person employed by
HALP is set forth on Schedule 3.12 showing the amount of coverage under each
-------------
such policy and claims made to date under each such policy. The listed policies
are reasonably adequate to protect the insured
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<PAGE>
business or properties against the insured risks, at current replacement values,
subject to reasonable deductibles, and the risks insured against are normal for
the industry. All such policies are assignable, except as set forth on
Schedule 3.12.
- -------------
3.13 OTHER MATERIAL CONTRACTS.
(a) All contracts (other than the Investment Contracts
subject to the representations and warranties set forth in
Section 3.19(b)) to which HALP or any HALP Entity is a party or by
---------------
which HALP or any HALP Entity is bound and that are material to the
business of HALP or any HALP Entity are listed on Schedule 3.13, and
-------------
all of such contracts are valid and effective in accordance with
their respective terms. Neither HALP nor any HALP Entity is a party
to any contract that contains a term or provision that is unduly
burdensome as compared to similar contracts customarily entered into
for similar purposes in HALP's industry.
(b) Except as listed on Schedule 3.13, neither HALP nor any
-------------
HALP Entity is a party to any loan agreement or bank credit
agreement.
(c) Neither HALP nor any HALP Entity is in default under (nor
is HALP or any HALP Entity aware of any fact or event which with the
lapse of time or the giving of notice or both would constitute a
default under) any contract made or obligation owed by it except for
defaults which could not, individually or in the aggregate, have a
Material Adverse Effect.
(d) Neither HALP nor any HALP Entity has given a power of
attorney to any person which is presently outstanding or in force for
any purpose whatsoever.
(e) Except for the Terminable Contracts for which the
parties' consent will be obtained pursuant to Article VII and for the
-----------
Investment Contracts for which the client's consent will be obtained
pursuant to Section 6.1, no contract to which HALP or any HALP Entity
-----------
is a party requires consent to assignment, the failure of which to
receive, could, individually or in the aggregate, have a Material
Adverse Effect.
3.14 BANK ACCOUNTS AND MONEY MARKET FUNDS. Set forth on Schedule 3.14 is
-------------
the name and location of each bank and money market fund in which HALP or any
HALP Entity has an account or accounts or safe deposit boxes, the name and
number of each account or box, the names of persons authorized to draw thereon
or having access thereto, and the balance of each account and the contents of
each box as of the date indicated thereon.
3.15 LITIGATION. Except as set forth on Schedule 3.15, there are no legal,
-------------
administrative or arbitration actions, suits, proceedings or investigations of
any kind pending, or, to the best of HALP's and each HALP Entity's knowledge
after due inquiry, threatened
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<PAGE>
before any court, commission, agency or other administrative authority by or
against, or affecting, HALP's or any HALP Entity's businesses or properties, the
Assets or the HASLP GP Interest or which would interfere with the marketing of
services or products of HALP or NHLP, and neither HALP nor any HALP Entity is
the subject of any order or decree.
There are no actions, suits or proceedings pending or, to the knowledge of
HALP or any HALP Entity, threatened before any court, commission, agency or
other administrative authority by or against HALP, any HALP Entity, NHLP or any
Partner which, if adversely determined, would adversely affect the acquisition
of assets contemplated hereby by NEIC or which would restrain or enjoin the
consummation of the transactions contemplated by this Agreement or the Related
Agreements or declare unlawful the transactions or events contemplated by this
Agreement or cause such transactions to be rescinded. There are no judgments,
injunctions, orders or other judicial or administrative mandates outstanding
against or affecting HALP or any HALP Entity which would restrain or enjoin the
consummation of the transactions contemplated by this Agreement.
3.16 BROKERS AND FINDERS. Except for Goldman, Sachs & Co., HALP has not
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker or
finder has acted, directly or indirectly, for HALP, in connection with this
Agreement or the transactions contemplated hereby. Such fees as HALP may owe to
Goldman, Sachs & Co. shall be the sole obligation of HALP.
3.17 EMPLOYEE BENEFIT PLANS.
(a) HALP has delivered or made available to NEIC, prior to
the execution of this Agreement, true and complete copies (or, with
respect to unwritten plans, written descriptions) of (i) each of
HALP's pension, retirement, deferred compensation, savings, or other
similar plans or arrangements, as in effect on the date of this
Agreement, including, without limitation, any "employee pension
benefit plan", as that term is defined in Section 3(2) of ERISA,
which benefits or is intended to benefit any of the present or former
employees, officers, directors, stockholders or partners of HALP or
of any HALP Entity or the dependents, spouses, or other beneficiaries
of any of such persons (the "HALP Pension Plans"), (ii) each of
------------------
HALP's employment or consulting agreements, severance agreements
(including, without limitation, change of control or golden parachute
agreements or arrangements), bonus, profit-sharing, incentive,
deferred compensation, supplemental or excess retirement, life
insurance, health, or other plans, policies, contracts, or
arrangements as in effect on the date of this Agreement, other than a
HALP Pension Plan or HALP Welfare Plan (as hereinafter defined) that
provides benefits or perquisites to or in respect of any of the
present or former employees, officers, directors, stockholders or
partners of HALP or of any HALP Entity or the dependents, spouses, or
other beneficiaries of any of such persons and (iii) each of HALP's
severance, bonus,
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<PAGE>
profit-sharing, incentive, deferred compensation, supplemental or
excess retirement, life insurance, health, vacation, tuition
assistance or reimbursement, legal services, salary continuation,
travel or accident insurance or benefits, disability insurance or
benefits, or unemployment benefits plans, policies, contracts or
arrangements, including, without limitation, each "employee welfare
benefit plan" within the meaning of Section 3(l) of ERISA as in
effect on the date of this Agreement that provides benefits or
perquisites to or in respect of present or former employees,
officers, directors, stockholders or partners of HALP or of any HALP
Entity or the dependents, spouses, or other beneficiaries of, any of
such persons, (the "HALP Welfare Plans") (all the foregoing being
------------------
collectively the "HALP Benefit Plans"). All HALP Benefit Plans are
------------------
listed on Schedule 3.17. Neither HALP nor any HALP Entity has
-------------
participated in or been a member of, or been required to contribute
to, and no HALP Benefit Plan is or has been, a "multiemployer plan"
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA
that is subject to Title IV of ERISA.
(b) HALP has made or caused to be made all contributions to
and all premiums or payments under the HALP Benefit Plans required to
be made through the date hereof under the terms of such HALP Plans or
applicable law, and has properly accrued or otherwise reflected in
its financial statements in accordance with GAAP all other
liabilities or charges with respect to such HALP Plans required so to
have been accrued or reflected. There are no claims or proceedings
pending or, to the best knowledge of HALP, threatened, nor is there
any reasonable basis known (or that reasonably should be known) to
HALP for any such claim or proceeding, by or involving the IRS, the
U.S. Department of Labor, the PBGC, or any participant or
beneficiary, with respect to any HALP Benefit Plan or any employee
benefit plan formerly maintained by HALP or to which it has
contributed, other than claims for benefits in the normal course
including claims pursuant to domestic relations orders. Neither the
projected benefit obligations under each HALP Benefit Plan,
determined in accordance with FASB Statement No. 87, nor the benefit
liabilities of such HALP Benefit Plan on a termination basis, exceed
the fair market value of the assets of such HALP Benefit Plan.
(c) Each of the HALP Benefit Plans in all material respects
conforms to and has been administered in accordance with the
applicable provisions of ERISA and the Code and all other applicable
laws, rules, and regulations. To the best of HALP's and any HALP
Entity's knowledge, no non-exempt prohibited transaction has occurred
with respect to any HALP Benefit Plan which is subject to ERISA. With
respect to the HALP Benefit Plans, no event has occurred and, to the
best knowledge of HALP's management, there exists no condition or set
of circumstances, in connection with which HALP would be subject to
any liability, penalty, tax, excise, lien or encumbrance or loss of
tax deduction under ERISA or the Code, including, without limitation,
Sections
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<PAGE>
302(f), 409 or 502, Part 6 of Title I or Title IV of ERISA, or
Sections 162(n), 404 or 412(n) or Chapters 43 or 99 of the Code that
could, individually or in the aggregate, have a Material Adverse
Effect (except liability for benefit claims and funding obligations
payable in the ordinary course).
(d) Each HALP Pension Plan that is intended to qualify under
Section 401(a) of the Code has received a favorable determination
letter and nothing has occurred since the date of such letter that
could reasonably be expected to affect adversely the qualified status
of any such HALP Pension Plan. Each trust created under any HALP
Pension Plan has been at all times exempt from federal income tax
under Section 501(a) of the Code, and each trust created under any
HALP Welfare Plan intended to qualify as a voluntary employee benefit
association has been at all times exempt from federal income tax
under Section 501(c)(9) of the Code.
(e) Except as disclosed on Schedule 3.17, no HALP Welfare
-------------
Plan provides medical or death benefits (whether or not insured) with
respect to current or former employees, officers, directors,
stockholders or partners beyond their date of retirement or other
termination of service (other than continuation of health coverage to
the extent required under Part 6 of Title I or ERISA).
(f) Except as disclosed on Schedule 3.17, the consummation of
-------------
the transactions contemplated by this Agreement will not obligate
HALP to provide any current or former officer, director, stockholder,
partner or employee of HALP, including, but not limited to, Continued
Employees (as defined in Section 10.2), with severance pay,
------------
unemployment compensation or any similar payment.
(g) Neither HALP nor any HALP Entity is bound by any
collective bargaining unit agreement or any other legally binding
agreement, whether or not in writing, to maintain an employee pension
plan or employee welfare plan now in force with respect to any of the
employees of HALP or any HALP Entity.
(h) With respect to HALP Benefit Plans, the transactions
contemplated by this Agreement shall not result in any action or the
establishment of any relationship prohibited by Sections 406 and 407
of ERISA (determined after taking into account any applicable
exemptions).
3.18 FILINGS, ETC.
(a) Since December 31, 1991, HALP and the HALP Entities have
had and now have all material permits, licenses, certificates of
authority, orders and approvals of, and have made all filings,
applications and registrations with,
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<PAGE>
federal, state or local governmental or regulatory bodies, and self-
regulatory bodies that are required (including by the rules of any
self-regulatory body) in order to permit each of them to carry on its
respective business as presently conducted, and such permits,
licenses, certificates of authority, registrations, orders and
approvals are in full force and effect, except where such failures to
have or make or keep in full force and effect any permit, license,
certificate of authority, registration, order or approval referred to
above could not, individually or in the aggregate, have a Material
Adverse Effect. The conduct of its respective business by HALP and
each Fund has not, since December 31, 1991, and currently does not,
violate or infringe any applicable material federal, state or local
law, statue, ordinance, license, rule or regulation including those
of the self-regulatory bodies which violations or infringements
could, individually or in the aggregate, have a Material Adverse
Effect.
(b) Without limiting the foregoing, HALP, the HALP Entities
and each of their officers and employees that is or who are required
to be registered as an investment adviser, a broker-dealer, a
registered representative or a sales person with the SEC, CFTC, the
securities commission or any other commission of any state or any
self-regulatory body is duly registered as such and such registration
is in full force and effect, except where the failure to be so
registered or to have such registration in full force and effect
would in the aggregate not have a Material Adverse Effect.
(c) There are no proceedings pending or, to the knowledge of
HALP or any HALP Entity, threatened, that are reasonably likely to
result in the revocation, cancellation or suspension, or any adverse
modification, of any material permit, license, certificate of
authority, order or approval referred to in Section 3.18(a) and the
---------------
execution and delivery of this Agreement and the consummation of any
transactions contemplated hereby will not result in any such
revocation, cancellation, suspension, or any adverse modification, of
any material permit, license, certificate of authority, order or
approval referred to in Section 3.18(a) other than in connection with
---------------
the various filings required hereby.
(d) Except as listed in HALP's Form ADV, neither HALP, any
HALP Entity nor, to the knowledge of HALP or any HALP Entity, any
officer, director, partner or employee thereof, is a party or subject
to any order, judgment or decree (other than exemptive orders)
relating to its business with or by any federal, state, local or
foreign regulatory authority.
3.19 REPRESENTATIONS AND WARRANTIES REGARDING THE INVESTMENT ADVISORY
BUSINESS.
(a) DEFINITION OF INVESTMENT COMPANY AND FUNDS. As used in
this Agreement, (i) the term "Investment Company" shall have the
------------------
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<PAGE>
meaning provided in the Investment Company Act, provided that for
purposes of this Agreement the term Investment Company shall include
persons that would be an investment company, as defined in that Act,
but for the exemption contained in Section 3(c)(1), the final clause
of Section 3(c)(3) or Section 3(c)(11) of the Investment Company Act
and (ii) the term "Fund" shall mean each registered investment
----
company for which HALP acts as investment adviser or in the case of
such investment company that has multiple series of shares, Fund
shall mean either such investment company or a series of such
investment company as the context may require. Each Fund is
identified on Schedule 3.19(a).
----------------
(b) INVESTMENT CONTRACTS, FUNDS AND CLIENTS.
(i) To the knowledge of HALP or any HALP Entity, and
except as could not, individually or in the aggregate, have a
Material Adverse Effect, (x) each Investment Contract and any
subsequent renewal thereof has been duly authorized, executed
and delivered by each party thereto and, to the extent
applicable, has been adopted in compliance with Section 15 of
the Investment Company Act and is a valid and binding
agreement of each such party, enforceable in accordance with
its terms (subject to ERISA or to bankruptcy, insolvency,
moratorium, fraudulent transfer and similar laws affecting
creditors' rights generally and to general equity principles)
and (y) in the case of Investment Contracts with Investment
Companies and Clients (as defined below), each of HALP, the
Funds and the Client party thereto is in compliance in all
material respects with the terms of each Investment Contract
to which it is a party, and no event has occurred or
condition exists that constitutes or with notice or the
passage of time would constitute a default thereunder. Except
as set forth on Schedule 3.19 (b), none of the Investment
-----------------
Contracts, or any other arrangements or understandings
relating to rendering of investment advisory or management
services, including without limitation all subadvisory
services or administration services to any Fund, Client or
other person, contains any undertaking by HALP to cap fees or
to reimburse any or all fees thereunder, except as required
by the applicable law of any jurisdiction in which the shares
of any Fund party thereto are qualified for distribution,
which exceptions are not likely, either individually or in
the aggregate, to have a Material Adverse Effect. Each of
HALP and the General Partner believes that HALP has good
client relations with each of the Funds and, except as could
not individually or in the aggregate have a Material Adverse
Effect, with each of the Clients. None of the Funds or,
except as could not individually or in the aggregate have a
Material Adverse Effect, any of the Clients has notified HALP
or the General Partner that it intends to discontinue its
relationship with HALP. As used in this Section, the term
"Client" means any client to which HALP provides investment
------
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<PAGE>
management, investment advisory, administration or consulting
services on the date hereof.
(ii) Each Fund has been and is being operated in
compliance in all material respects with its respective
objectives, policies and restrictions, including without
limitation any limitation set forth in the applicable
Prospectus (as defined in Section 3.19(e)(vi)) for a Fund or
-------------------
governing instruments for a Client.
(iii) The accounts of each Client that is subject to
ERISA have been managed by HALP such that HALP in the
exercise of such management is in compliance in all material
respects with the applicable requirements of ERISA, and
consummation of the transactions contemplated hereby will not
result in a violation of such ERISA requirements.
(iv) Each Fund is eligible to elect to be treated as a
"regulated investment company" under Subchapter M of Chapter
1 of Subtitle A of the Code, has so elected, has qualified
for taxation as a regulated investment company in each of its
taxable years and has complied with all applicable provisions
of law necessary to preserve and retain such Fund's election
and ability to be taxed as a regulated investment company.
Each Fund has timely filed all federal, state, local and
foreign income and other Tax Returns and reports that such
Fund is required to file and each such return correctly and
accurately reflects the amount of its Tax liability, if any,
and any other material information required to be set forth
in such return. Each Fund has timely paid, or reserved for,
Taxes that such Fund is required to pay and neither Fund has
been the subject of an audit examination.
(v) Neither HALP, HASLP nor any Fund is a party or
subject to any plan adopted in accordance with Rule 12b-1
under the Investment Company Act. No Fund has offered shares
subject to a contingent deferred sales charge.
(c) FUND AND INVESTMENT PARTNERSHIP FINANCIAL STATEMENTS.
(i) The audited balance sheets of each Investment
Partnership as of December 31, 1994 and 1993, and the related
financial statements for the years ended December 31, 1994
and 1993, as reported on by Ernst & Young and the unaudited
balance sheet of each Investment Partnership as of March 31,
1995 and the related unaudited financial statements for the
period then ended, and the unaudited balance sheets of each
Investment Partnership and the related unaudited financial
statements as
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<PAGE>
of a date or for a period subsequent to March 31, 1995, have
been or will be prepared in accordance with GAAP, which has
been and will be consistently applied, except as otherwise
disclosed therein, and present or will present fairly, in all
material respects, the financial position and other financial
results of each Investment Partnership at the dates, and for
the periods, stated therein. Except as disclosed in its most
recent balance sheet and related financial statements and
liabilities incurred in the ordinary course of business
consistent with past practice, since the date of the most
recent balance sheet, each Investment Partnership has no
other liabilities, whether accrued, contingent or
determinable that are required to be reflected in such
financial statements (including the notes thereto) pursuant
to the requirements of GAAP.
(ii) The audited statements of assets and liabilities of
each Fund as of October 31, 1994 and 1993, and the related
financial statements for the years ended October 31, 1994 and
1993, as reported on by Arthur Andersen & Co., and the
unaudited statements of assets and liabilities of each Fund
as of April 30, 1995 and the related unaudited financial
statements for the period then ended, and the statements of
assets and liabilities of each Fund and the related unaudited
financial statements, if any, as of a date or for a period
subsequent to April 30, 1995, have been or will be prepared
in accordance with GAAP, which has been and will be
consistently applied, except as otherwise disclosed therein,
and present or will present fairly, in all material respects,
the financial position and other financial results of each
Fund at the dates, and for the periods, stated therein.
Except as disclosed in its most recent statements of assets
and liabilities and related financial statements and
liabilities incurred in the ordinary course of business
consistent with past practice, since the date of the most
recent statements of assets and liabilities, each Fund has no
other liabilities, whether accrued, contingent or
determinable that are required to be reflected in such
financial statements (including the notes thereto) pursuant
to the requirements of GAAP.
(iii) HALP has delivered to NEIC the report filed
pursuant to Rule 30d-l under the Investment Company Act by
each Fund with respect to such Fund's most recent fiscal
year, and any reports filed pursuant to such Rule 30d-l by
any such Fund with respect to any half year ended since the
end of such most recent fiscal year (collectively, the "HALP
----
Fund Reports").
------------
(iv) The financial statements contained in the HALP Fund
Reports have been prepared in accordance with GAAP applied on
a consistent basis (unless otherwise noted in the notes
thereto) and fairly present the financial position of the
mutual funds to which they relate at the respective dates
thereof and the results of their operations for the
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periods covered thereby. The statements of assets and
liabilities contained in the HALP Fund Reports reflect or
provide for, to the extent required by GAAP, all claims
against and all debts and liabilities of the mutual funds to
which they relate, absolute, accrued, contingent or
otherwise, as at the dates hereof.
(d) REGULATORY COMPLIANCE OF HALP, HASLP AND THE INVESTMENT
PARTNERSHIPS. Except where the violation of any of the
representations and warranties contained in this Section 3.19(d)
---------------
would not have a Material Adverse Effect:
(i) HALP is and has been since 1986 duly registered as
an investment adviser under the Investment Advisers Act. HALP
is registered as an investment adviser in the states
referenced in item 7, Part I of its current Form ADV (such
states constituting all jurisdictions where such registration
is required in order to conduct its business except for such
states in which the failure to register could not,
individually or in the aggregate, have a Material Adverse
Effect), and is in compliance with all federal and state laws
requiring registration, licensing or qualification as an
investment adviser. Each such federal and state registration
is in full force and effect. HALP has made available to NEIC
a true and complete copy of its Form ADV and the Offering
Memorandum of each of the Investment Partnerships, each as
amended to date, filed with the SEC; copies of all state
registration forms, likewise as amended to date; and copies
of all current reports required to be kept by HALP pursuant
to the Investment Advisers Act and rules promulgated
thereunder, and required pursuant to applicable state
statutes. The information contained in such forms and reports
was true and complete at the time of filing in all material
respects. HALP has filed all amendments required to be filed
to its Form ADV and state registration forms under federal
and state law. Schedule 3.19(d)(i) identifies the examination
-------------------
and/or certification qualifications of each of HALP's adviser
representatives.
(ii) Neither HALP, HASLP nor any of the Investment
Partnerships is, nor immediately following the consummation
of the transactions contemplated hereby, will any of them be,
an "investment company," within the meaning of the Investment
Company Act, which is required to be registered under that
Act in order to engage in the transactions described in
Section 7 of that Act. Neither HALP nor any of the Investment
Partnerships is a "broker" or "dealer" within the meaning of
the Exchange Act. Copies of all inspection reports or similar
documents furnished to HALP by the SEC or state regulatory
authorities or any self-regulatory organization since
January 1, 1990 are listed on Schedule 3.19(d)(ii) and have
--------------------
been provided to NEIC. There is
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<PAGE>
not pending or underway any investigation of HALP, HASLP or
any of the Investment Partnerships or any of their records by
the SEC or any state regulatory authority or any self-
regulatory organization, and since December 31, 1991 and
except as listed on Schedule 3.19(d)(ii), neither HALP, HASLP
--------------------
nor any of the Investment Partnerships has been notified by
the SEC or any state regulatory authority or any self-
regulatory organization that any past inspection has revealed
any deficiency in any such entity's recordkeeping or
compliance with the Investment Advisers Act, the Exchange
Act, the Securities Act, the Investment Company Act or
applicable state statutes. No such deficiency will have a
Material Adverse Effect. Neither HALP nor any of the
Investment Partnerships is required to disclose any
information to clients under SEC Rule 206(4)-4 promulgated
under the Investment Advisers Act. Except as listed on
Schedule 3.19(d)(ii), the assets of each Investment
--------------------
Partnership do not constitute "plan assets" for purposes of
ERISA.
(iii) Except with respect to the Funds and as listed on
Schedule 3.19(d)(iii), neither HALP nor any of the Investment
---------------------
Partnerships acts as investment adviser or sub-adviser to any
investment company, as defined in the Investment Company Act,
which is registered under such Act. HALP has a written
investment advisory agreement with each Fund pursuant to
which HALP serves as investment adviser to each Fund, and has
delivered to NEIC true and complete copies of such
agreements. Each of such agreements is in full force and
effect, HALP is not in default thereunder and, to the best
knowledge of HALP, no Fund that is a party thereto is in
default thereunder. The investment advisory agreement
relating to each Fund will terminate upon the consummation of
the transaction contemplated by this Agreement, and new
agreements may only be entered into by NHLP in accordance
with the procedures established by the Investment Company Act
and the regulations promulgated thereunder.
(iv) Except brokerage commissions of HASLP on portfolio
securities transactions for the Funds in compliance with
procedures adopted under 17e-1 of the Investment Company Act,
neither HALP nor any HALP Entity nor any Partner nor any
other "affiliated person" of HALP, as such term is defined in
the Investment Company Act, receives or is entitled to
receive any compensation directly or indirectly (i) from any
person in connection with the purchase or sale of securities
or other property to, from or on behalf of any of the Funds,
or (ii) from the Funds or its security holders for other than
bona fide investment advisory services, or other services.
(v) A true and complete list of the sub-advisors as of
the most recent month end for each Investment Partnership has
been provided to
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<PAGE>
NEIC. Each sub-advisor has complied in all material respects
with all applicable investment objectives and guidelines.
(vi) Except as set forth on Schedule 3.19(d)(vi)(A),
-----------------------
during the preceding 12 months neither HALP nor any of the
Investment Partnerships has received any material written
investor complaints that have not been resolved, nor has any
of the Investment Partnerships received redemption requests
which continue to be to be outstanding, except those that
will be satisfied in the ordinary course of business or
pursuant to the terms of such Investment Partnership's
partnership agreement.
(e) REGULATORY COMPLIANCE OF THE FUNDS. Except where the
violation of any of the representations and warranties contained in
this Section 3.19(e) would not have a Material Adverse Effect:
---------------
(i) (A) each Fund required by law to be so registered is
duly registered as an investment company under the Investment
Company Act; (B) except as set forth on Schedule 3.19(e), the
----------------
shares of each Fund are duly and validly issued, fully paid
and nonassessable and are qualified for sale, or an exemption
therefrom is in full force and effect, in each state and
territory of the United States and the District of Columbia
to the extent required under applicable law; (C) all
outstanding shares of each Fund that were required to be
registered under the Securities Act have been sold pursuant
to an effective registration statement filed thereunder; (D)
to the knowledge of HALP in the case of documents applicable
to the Funds, no such registration statement contained, as of
its effective date, any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein in order to make the statements therein not
misleading or is subject to any stop order or similar order
restricting its use; and (E) each Fund has operated and is
currently operating in compliance in all material respects
with all laws, rules, regulations and orders applicable to it
or its business, including but not limited to the Securities
Act and the Investment Company Act, and consummation of the
transactions contemplated hereby will not result in a
violation of any such laws, rules, regulations or orders.
(ii) Each Fund is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
organization and has full power, right and authority to own
its properties and to carry on its business as it is now
conducted, and is qualified to do business in each
jurisdiction where it is required to do so under applicable
law.
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<PAGE>
(iii) Each Fund has duly adopted procedures pursuant to
Rule 17e-1 under the Investment Company Act, to the extent
applicable; and each Fund has complied, since their
respective dates of inception, and currently complies with
the requirements of Section 17(e) of the Investment Company
Act and Rule 17e-1 thereunder, to the extent applicable.
(iv) HALP has adopted a formal code of ethics and a
written policy regarding insider trading. Such code and
policy comply with Section 17(j) of the Investment Company
Act, Rule 17j-1 thereunder and Section 204A of the Investment
Advisers Act, respectively. The policies of HALP with respect
to avoiding conflicts of interest have been made available to
NEIC. To the knowledge of HALP, there have been no material
violations or allegations of material violations of such
policies that have occurred or been made.
(v) Neither HALP nor any Fund nor, to the knowledge of
HALP or any HALP Entity, any person "associated" (as defined
under the Investment Advisers Act) with HALP or any Fund, has
for the period beginning not less than five years prior to
the date hereof and ending on the date hereof been convicted
of any crime or is or has been subject to any
disqualification that would be a basis for denial, suspension
or revocation of registration of an investment adviser under
Section 203(e) of the Investment Advisers Act or Rule 206
(4)-4(b) thereunder or of a broker-dealer under Section 15 of
the Exchange Act, or for disqualification as an investment
adviser for any Investment Company pursuant to Section 9(a)
of the Investment Company Act, and to HALP's knowledge there
is no basis for, or proceeding or investigation that is
reasonably likely to become the basis for, any such
disqualification, denial, suspension or revocation.
(vi) Each current "Prospectus" (which term, as used in
this Agreement, shall include any related statement of
additional information and any private placement memorandum),
as amended or supplemented, relating to each Fund, and all
current supplemental advertising and marketing material
relating to each Fund complies with the Securities Act and
the Investment Company Act, applicable state laws and, where
applicable, the rules of the National Association of
Securities Dealers (the "NASD") . None of such Prospectuses,
----
amendments, supplements or supplemental advertising and
marketing materials, as of their respective dates, includes,
included or will as of the Closing Date include an untrue
statement of a material fact or omits, omitted or will as of
the Closing Date omit to state a material fact necessary in
order to make the statements made therein, in the light of
the circumstances under which they were made, not misleading.
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<PAGE>
3.20 DISCLOSURE. The representations and warranties made by HALP in this
Agreement and the statements made in any of the Related Agreements, Exhibits or
Schedules do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make any such representation,
warranty or statement, in the light of the circumstances under which it was
made, not misleading.
3.21 REGISTRATION AS A BROKER-DEALER.
(a) HASLP is duly registered under the Exchange Act as a
broker-dealer with the SEC and is in compliance in all material
respects with the applicable provisions of the Exchange Act and the
applicable rules and regulations thereunder, including, but not
limited to, the net capital requirements thereof. HASLP is a member
in good standing of the NASD and is in compliance in all material
respects with all applicable rules and regulations of the NASD,
including without limitation the NASD's rules of fair practice (the
"Rules of Fair Practice"). HASLP is duly registered as a broker-
----------------------
dealer under, and is in compliance in all material respects with, the
applicable laws of all jurisdictions in which it is required to be so
registered except where the failure to be so registered could not
have, individually or in the aggregate, a Material Adverse Effect,
and the rules and regulations thereunder (collectively, the "State
-----
Laws").
----
(b) HALP has delivered to NEIC a true, correct and complete
copy of HASLP's Uniform Application for Broker-Dealer Registration on
Form BD, reflecting all amendments thereto filed with the SEC to the
date hereof (the "BD"), true, correct and complete copies of the
--
Uniform Application for Securities Industry Registration or Transfer
on Form U-4, as filed by each current principal and registered
representative of HASLP (each, a "U-4"), and true, correct and
---
complete copies of each report filed since January 1, 1992 with the
SEC, the NASD or any state securities agency, including without
limitation quarterly focus reports and annual statements of financial
condition (each, a "Report"). Schedule 3.21 hereto sets forth a
------ -------------
complete list of the identities of each principal and registered
representative of HASLP, their series licenses and each Report. The
BD and each U-4 and other Report (i) are in compliance in all
material respects with the applicable requirements of the Exchange
Act and the rules and regulations thereunder, the applicable
requirements of the By-Laws of the NASD and any schedule thereto and
rules thereunder and the State Laws and the rules and regulations
thereunder and (ii) do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each
registered representative and principal has at least the minimum
series license for the activities which such registered
representative or principal performs for HASLP.
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<PAGE>
(c) The net capital, as such term is defined in Rule 15c3-1
under the Exchange Act, of HASLP is now and since its inception has
been and immediately following the transactions contemplated hereby
will be in excess of the minimum net capital requirements of the
Exchange Act and of the laws of any jurisdiction in which HASLP
conducts business. HASLP is not party to, or bound by, the terms of
any restriction agreement with the NASD.
3.22 REGISTRATION UNDER THE COMMODITY EXCHANGE ACT.
(a) HALP is duly registered under the Commodity Exchange Act
as a commodity pool operator ("CPO") and as a commodity trading
---
advisor ("CTA") and is in compliance in all material respects with
---
the Commodity Exchange Act and the rules and regulations thereunder.
As required by Part 4 of the regulations under the Commodity Exchange
Act, HALP has delivered all relevant disclosure documents to its
commodity trading advisory clients and to all pools in respect of
which it acts as a CPO.
(b) HALP is a member in good standing of the National Futures
Association both in its capacity as a CTA and as a CPO.
3.23 REGISTRATION AS AN INSURANCE AGENT. Neither HALP nor any HALP Entity
is required to register as an insurance agent, broker, consultant or advisor
under the laws of any state.
3.24 REGISTRATION AS A TRANSFER AGENT. Neither HALP nor any HALP Entity
(i) is registered as a transfer agent under the Exchange Act or (ii) is engaged
in any conduct or activity that would require it to be so registered.
3.25 INVESTMENT REPRESENTATIONS.
(a) Each of HALP and the General Partner acknowledges that
the LP Units to be received by it are not registered under the
Securities Act and that such LP Units may not be sold or otherwise
transferred in the absence of registration under the Securities Act
or an exemption therefrom under such Act.
(b) Each of HALP and the General Partner is acquiring the LP
Units to be received by it for its own account for investment
purposes and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing
or selling the same in violation of the Securities Act. Except as
contemplated by this Agreement, neither HALP nor the General Partner
has any present or contemplated agreement, undertaking, arrangement,
obligation, or commitment providing for the disposition thereof.
(c) Each of HALP and the General Partner acknowledges,
understands and agrees that any LP Units received as a result of the
transactions
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<PAGE>
contemplated hereby are subject to the following restrictions on
transferability in addition to those described in Section 3.25(a):
---------------
(i) LP Units may be sold or otherwise transferred only
to Permitted Transferees.
(ii) In the event of a Restructuring (as defined in
NEIC's partnership agreement), LP Units that continue to be
outstanding following the Restructuring may not be
transferred without permission from NEIC's general partner.
Each of HALP and the General Partner acknowledges that certificates
representing the LP Units to be received by it will bear a legend
reflecting the restrictions on transferability referenced in this
Section 3.25(c).
---------------
(d) Each of HALP and the General Partner has had the
opportunity to make a detailed inquiry concerning NHLP and NEIC and
their businesses and personnel. The officers of NEIC have made
available to HALP and the General Partner any and all written
information which they have requested and have answered to HALP's and
the General Partner's satisfaction all inquiries made by HALP or the
General Partner.
(e) Each of HALP and the General Partner is an "accredited
investor" as defined in Regulation D under the Securities Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF NEIC
NEIC represents and warrants to HALP that:
4.1 ORGANIZATION AND LIMITED PARTNERSHIP AUTHORITY. Each of NEIC and NHLP
is a limited partnership duly formed, validly existing and in good standing and
NHGP is a Delaware corporation, duly organized, validly existing and in good
standing, each under the laws of the state of Delaware. Each of NEIC and NHLP
has all requisite power and authority to enter into this Agreement and the
Related Agreements to which it is a party and to perform its obligations
hereunder and thereunder.
4.2 BINDING OBLIGATION. This Agreement has been duly authorized, executed
and delivered by NEIC and NHLP and, assuming this Agreement constitutes a valid
and binding obligation of the other parties hereto, and upon approval by holders
of the LP Units as contemplated by Section 6.3 hereof, constitutes, and the
-----------
Related Agreements to which they will be a party when executed and delivered
will be executed and delivered and will constitute, the legal, valid and binding
obligation of NEIC and NHLP, enforceable against them in accordance with their
respective terms except as the enforceability thereof may be limited by
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<PAGE>
or subject to bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights and by
the availability of equitable remedies.
4.3 NO DEFAULTS OR CONFLICTS. The execution and delivery by NEIC and
NHLP of this Agreement or of any Related Agreement to which NEIC or NHLP may be
a party and performance by each of NEIC and NHLP of its obligations hereunder
and thereunder have been duly authorized by all necessary action on the part of
NEIC and NHLP, except for the approval by holders of the LP Units as
contemplated by Section 6.3 hereof, and, assuming such approval by such holders:
-----------
(i) do not and, at the Closing Date, will not result in any violation of the
certificate of limited partnership or limited partnership agreement or other
constituent documents of NEIC or NHLP; and (ii) does not, and, at the Closing
Date, will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute (with or without the giving of notice or the lapse
of time or both) a default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation or imposition of any Lien upon any
property or assets of NEIC (except for such conflicts, breaches or defaults or
Liens that would not reasonably be expected, individually or in the aggregate,
to adversely affect the consummation of the transactions contemplated hereby)
under: (A) any indenture, mortgage or loan or any other agreement or instrument
to which NEIC is a party or by which it may be bound or to which any of its
properties may be subject; or (B) any existing applicable law, rule, regulation,
judgment, order or decree of any governmental authority having jurisdiction over
NEIC or any of its properties, subject to the effectiveness of the consents,
approvals and notices, which are set forth in Article VII, the Investment
-----------
Company Act and the Investment Advisers Act.
4.4 NO AUTHORIZATION OR CONSENTS REQUIRED. No authorization or approval
or other action by, and no notice to or filing with, any governmental authority
or the Exchange will be required to be obtained or made by NEIC or NHLP in
connection with the due execution and delivery by NEIC or NHLP of this Agreement
or any Related Agreement to which NEIC or NHLP may be a party and the
consummation by each of NEIC and NHLP of the transactions contemplated hereby
and thereby, other than as contemplated by Sections 6.1 and 6.3, Article VII or
------------ --- -----------
Section 10.6 hereof.
- ------------
4.5 NO ACTIONS; SUITS OR PROCEEDINGS. There is no pending action, suit or
proceeding, nor to NEIC's knowledge after due inquiry, has any litigation been
overtly threatened in writing or, if probable of assertion, orally, against
NEIC, NHGP or NHLP before any governmental authority which questions the
validity or legality of this Agreement or of the transactions contemplated
hereby, or which seeks to prevent the consummation of the transactions
contemplated hereby.
4.6 INELIGIBLE PERSONS. Neither NEIC nor any "affiliated person" thereof,
as defined in the Investment Company Act: (i) is ineligible pursuant to Section
9(a) of the Investment Company Act to serve as an investment adviser (or in any
other capacity contemplated by the Investment Company Act) to a registered
investment company; or (ii) to the best knowledge of NEIC's senior officers, as
the date hereof, has engaged since January 1,
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<PAGE>
1992 or is currently engaging in any of the conduct specified in Section 9(b) of
the Investment Company Act or Section 203(e) of the Investment Advisers Act,
that would reasonably be expected to result in SEC action to disqualify NEIC or
any of its affiliates as an investment adviser.
4.7 NO OTHER BROKER. Other than Putnam, Lovell & Thornton, no broker,
finder or similar intermediary has acted for on or behalf of NEIC in connection
with this Agreement or the transactions contemplated hereby, and no broker,
finder, agent or similar intermediary is entitled to any broker's, finder's or
similar fee or other commission in connection therewith based on any agreement,
arrangement or understanding with NEIC or any action taken by NEIC. Such fees as
NEIC may owe to Putnam, Lovell & Thornton shall be the sole obligation of NEIC.
4.8 NEIC FINANCIAL STATEMENTS. NEIC has delivered to HALP audited
consolidated balance sheets of NEIC as of the close of its fiscal years ended
December 31, 1993 and December 31, 1994 and statements of income, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1994, accompanied by a report of independent auditors, and NEIC's
unaudited consolidated balance sheet at March 31, 1995 and statements of income,
changes in partners' capital and cash flows for the three-month period then
ended, all of which financial statements (including the notes thereto) are
collectively referred to as "NEIC Financial Statements" and are attached hereto
-------------------------
as Schedule 4.8A.
-------------
The NEIC Financial Statements, when delivered in accordance with this
Section, will fairly present the financial position and results of operations of
NEIC on the dates and for the fiscal periods then ended, in accordance with GAAP
which, except as may otherwise be noted in the footnotes thereto, have been
applied on a basis consistent with prior periods. The Financial Statements
reflect or provide for claims against and debts and liabilities of NEIC and its
consolidated group, absolute, accrued, contingent or otherwise, as at the dates
thereof in accordance with GAAP, except for normal year-end accruals reflected
on or omitted from those of the Financial Statements which are unaudited which
are not individually or in the aggregate material.
4.9 NO ADVERSE CHANGE. Since December 31, 1994 and (a) except as set
forth on Schedule 4.9, there has been no material adverse change in the
------------
business, financial condition, results of operations or prospects (in the case
of prospects, not taking into account general economic and securities market
conditions or general industry developments) of NEIC; (b) there have been no
dividends or other distributions declared with respect to NEIC's partnership
interests other than regular quarterly partnership distributions; (c) NEIC has
not sold any partnership interests; and (d) the physical properties owned or
leased by NEIC have not suffered any destruction or damage, regardless of
whether or not the loss suffered was insured, that would materially adversely
affect the business, financial condition or results of operations of NEIC.
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<PAGE>
4.10 LP UNITS. Any LP Units issued by NEIC to HALP hereunder, when issued
by NEIC to HALP, will be duly and validly issued, free and clear of all Liens
and fully paid.
4.11 EXCHANGE ACT FILINGS. NEIC's Annual Report on Form 10-K for its
fiscal year ended December 31, 1994 (and the information incorporated by
reference therein) (the "Form 10-K") and NEIC's Quarterly Report on Form 10-Q
---------
for the fiscal quarter ended March 31, 1995 (the "Form 10-Q") each contained all
---------
information required to be contained therein and otherwise complied in all
material respects with the Exchange Act and the rules and regulations
thereunder. Neither the Form 10-K nor the Form 10-Q contained any untrue
statement of material fact or omitted to state a material fact necessary in
order to make the statements contained therein not misleading in the light of
the circumstances under which they were made.
4.12 NEIC CHARTER DOCUMENTS. The copies of the respective certificates of
incorporation, articles of organization, certificates of limited partnership,
limited partnership agreements and by-laws, as the case may be, of NEIC, NHGP
and NHLP (collectively, the "NEIC Charter Documents") and the respective minutes
----------------------
of all meetings of the board of directors or the partners, as the case may be,
of NEIC, NHGP and NHLP (or consents in lieu thereof) have been furnished to HALP
by NEIC and are true, correct and complete copies thereof.
4.13 DISCLOSURE. The representations and warranties made by NEIC in this
Agreement and the statements made in any Related Agreements, Exhibits or
Schedules do not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make any such representation,
warranty or statement, in light of the circumstances under which it was made,
not misleading.
4.14 TAXES. Each of NEIC and NHLP is properly classified for federal
and state tax purposes as a partnership (and not as an association taxable as a
corporation) and has never been treated as a corporation pursuant to Section
7704 of the Code.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1 CONDUCT PRIOR TO CLOSING. HALP hereby covenants and agrees with NEIC
that each of HALP and the HALP Entities shall operate its business only in the
usual, regular and ordinary course. Each of HALP and the HALP Entities shall
meet all of its obligations as they become due, shall pay all valid accounts
payable in due course in accordance with its practice heretofore, shall incur no
additional long-term indebtedness and shall use its best efforts to continue to
solicit new clients and to offer investment advisory and related services (as
applicable) in the ordinary course of business, to maintain its corporate and
partnership records, to keep its accounts receivable current, to preserve its
business
-42-
<PAGE>
organization and assets and maintain its rights, franchises and business and
customer relations necessary to run the business as currently run in all
material respects, to keep available the services of its employees, and to
preserve the goodwill of its clients, suppliers, and others with whom business
relationships exist. Without in any way limiting the foregoing, HALP agrees that
neither HALP nor any of the HALP Entities (other than the Funds) will do any of
the following prior to the Closing without the prior written consent of NEIC:
(a) issue or sell any interest, option, note or other
securities of HALP or HASLP or any general partnership interest of
any of the Investment Partnerships;
(b) incur any indebtedness for borrowed money, except in the
ordinary course of business consistent with past practice, or issue
or sell any debt securities of HALP or any of the HALP Entities;
(c) except in the ordinary course of business, mortgage,
pledge or otherwise subject to any material Lien, any of its
properties or assets, tangible or intangible;
(d) except as required to accomplish the purposes of this
Agreement or where required in the exercise of its fiduciary
obligations, in the case of any Fund, request that any action be
taken by the Fund Board (as defined in Section 6.2), other than the
-----------
authorization and registration of new Funds and routine actions that
would not be reasonably expected to have a Material Adverse Effect;
(e) except for those items listed on Schedule 5.1 and bonuses
------------
to be paid by HALP as a result of the transactions contemplated
hereby, pay any bonus to any officer, employee, sales representative,
agent or consultant, or grant to any officer, director, employee,
sales representative, agent or consultant any other increase in
compensation in any form except in accordance with past practice and
in the ordinary course of business, which shall include the annual
salary review of HALP conducted in June of each year, or hire any
additional directors, officers, employees or agents except in the
ordinary course of business;
(f) except to the extent that NEIC has otherwise expressly
agreed in writing as of the date hereof, or as may be required by
law, or as otherwise specifically provided herein, adopt, or amend in
any material respect, any employment (including without limitation
any amendment of the Employment Agreements (as defined in
Section 7.2(d)), collective bargaining, bonus, profit-sharing,
--------------
compensation, pension, health insurance, welfare, retirement,
deferred compensation or other plan, agreement, trust, fund or
arrangement for the
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benefit of officers, directors, partners, stockholders, employees,
sales representatives, agents or others except in the ordinary course
of business;
(g) amend its certificate of limited partnership, Agreement
of Limited Partnership, certificate of incorporation or by-laws, as
the case may be, except as required by law;
(h) change in any material respect its accounting practices
or principles, except as required by law or GAAP;
(i) enter into or recommend that any Fund enter into any type
of business materially different from that conducted by HALP, HASLP
or a Fund as of the date of this Agreement (including, in the case of
HALP and HASLP, any business, whether conducted directly or
indirectly through any pass-through entity, that would be properly
represented by a SIC Code other than 6282 or 6211) or enter into or
participate in any joint venture or partnership;
(j) acquire direct or indirect control over any corporation
or other organization or make any acquisition of all or a substantial
part of a business or operations;
(k) pay or declare any dividend or distribution in cash or
property in respect of any HALP or HASLP partnership interest or make
any other payment to its affiliates that would impair the Minimum
Cash/Capital Requirement;
(l) allow any partnership interest of HALP or HASLP or
general partnership interest of any of the Investment Partnerships or
capital stock of the General Partner to be transferred other than
transfers of limited partnership interests in HALP for estate and tax
planning purposes or by operation of law; and
(m) agree or commit to do any of the foregoing.
5.2 CONSENTS AND APPROVALS.
(a) Subject to the terms and conditions herein provided, each
of the parties hereto agrees to cooperate with the other and use all
reasonable efforts (except for those actions with respect to which
this Agreement requires the use of best efforts) to take, or cause to
be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable to consummate the transactions
contemplated by this Agreement as promptly as practicable, including,
without limitation, under the HSR Act and all other applicable laws
and regulations.
(b) To the extent that the rights of HALP or any HALP Entity
under any agreement, including any Investment Contract or Terminable
Contract, may not
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be assigned without the consent or approval of another party thereto,
HALP shall use all reasonable efforts to obtain any such consent.
Without limiting the foregoing, HALP as promptly as practicable, will
(i) use all reasonable efforts to obtain, or cause to be obtained,
all consents necessary to be obtained in order to consummate the
transactions contemplated hereby, (ii) use all reasonable efforts to
prepare or cause to be prepared, file with or cause to be filed with
and cause to be cleared by the SEC and all other governmental and
regulatory agencies having jurisdiction thereover, as promptly as
practicable after the date hereof, all proxy solicitation materials
required to be distributed to Fund shareholders in connection with
such consents, and (iii) mail such proxy solicitation materials to
such Fund shareholders promptly and hold meetings of shareholders of
the Funds as promptly thereafter as practicable.
5.3 SCHEDULES. HALP shall from time to time prior to the Closing Date
promptly supplement and update the schedules thereto as necessary, provided,
--------
however, that in no event shall any such supplement or update constitute an
- -------
amendment to the schedules attached hereto.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 ADVISORY CONTRACT CONSENTS. As soon as reasonably practicable, HALP
shall cause all of the Clients under HALP's Investment Contracts to be informed
of the transactions contemplated by this Agreement and shall, in compliance with
the Investment Advisers Act, give each such Client an opportunity to terminate
its Investment Contract. HALP shall use its best efforts to obtain each such
Client's actual written consent to assignment of its Investment Contract on
terms at least as favorable to NHLP as the terms of such Investment Contract on
the date hereof (each a "Client Consent" and collectively, the "Client
-------------- ------
Consents").
- --------
Promptly following the execution and delivery of this Agreement, HALP shall
establish, subject to NEIC's approval, appropriate procedures to notify the
limited partners in the Investment Partnerships of the transaction contemplated
hereby and to obtain all necessary consents from such limited partners,
including but not limited to any consents necessary to amend the agreement of
limited partnership of each Investment Partnership to permit consummation the
transactions contemplated hereby and so that no consolidation is required and an
unqualified opinion on NHLP's audited financial statements may be rendered. The
initial notifications to such limited partners and the related consent requests
shall be sent no later than four weeks prior to the Closing. HALP shall obtain
copies of all written responses to such notifications and a written report
describing all oral responses to such notifications, all of which shall be made
available to NEIC.
6.2 AGREEMENTS RELATING TO MUTUAL FUNDS. HALP agrees to use its best
efforts to cause to be prepared and filed with the SEC proxy materials for
meetings of the
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shareholders of the Funds and to use its best efforts to cause proxy
solicitations to be undertaken in order that such meetings be held prior to the
Closing, at which the approval of the shareholders of the Funds will be sought
for new investment advisory agreements with NHLP having terms substantially
similar to and at least as favorable as the current investment advisory
agreements with HALP (the "New Fund Agreements") with respect to the Funds to be
-------------------
effective on or as promptly as practicable after the Closing Date, and for such
other matters as may be required by the Investment Company Act. HALP shall
deliver drafts of such proxy materials to NEIC a reasonable time prior to filing
such documents with the SEC and prior to mailing such documents to shareholders
of the Fund in order to afford NEIC an opportunity to review and comment on such
documents. HALP agrees to seek the approval of the New Fund Agreements by the
Funds' boards of trustees ("Fund Boards") acting in accordance with Section
-----------
15(c) of the Investment Company Act.
6.3 LP UNITHOLDER CONSENTS; RELATED INDEMNITIES.
(a) Following the execution and delivery of this Agreement
and prior to the Closing, the parties hereto shall cooperate with one
another to obtain the approval of the issuance of the Required Number
of LP Units to HALP as may be required by the rules of the Exchange
(such approval being referred to hereinafter as the "Requisite LP
------------
Unitholder Consents").
--------------------
(b) In connection with obtaining the Requisite LP Unitholder
Consents, the parties shall cooperate with one another to make full
and complete disclosure of all facts material to the giving of such
Consents, and NEIC shall take prompt steps to prepare, file and clear
with the SEC the Proxy Materials (as defined below) and to
disseminate to its security holders the Proxy Materials. NEIC shall
use all reasonable efforts to obtain the Requisite LP Unitholder
Consents. The term "Proxy Materials" means the proxy statement, form
---------------
of proxy and any additional soliciting materials, including all
amendments and supplements thereto, used or intended for use in
connection with obtaining the Requisite LP Unitholder Consents.
(c) NEIC shall deliver drafts of the Proxy Materials to HALP
a reasonable time prior to filing such documents with the SEC and
prior to mailing the Proxy Statement to partners or others so as to
afford HALP an opportunity to review and comment on such documents.
NEIC shall notify HALP promptly of the receipt of any comments of the
SEC regarding the Proxy Materials and of any request by the SEC for
amendments or supplements or for additional information with respect
thereto, and will supply HALP with copies of all correspondence
between NEIC and its representatives, on the one hand, and the SEC or
the members of its staff, on the other hand, with respect to the
Proxy Materials. NEIC and HALP each shall use all reasonable efforts
to obtain and furnish the information required to be included in the
Proxy Materials. The information provided and to be provided by NEIC
and HALP, respectively, for use in the Proxy Materials shall, on the
date such materials are
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<PAGE>
filed with the SEC, on the date such materials are first mailed to
NEIC's partners and on the date of the partners' meeting at which the
Requisite LP Unitholder Consents are sought (and on the dates of any
adjourned sessions of such meeting), be true and correct in all
material respects and shall not omit to state any material fact
required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under
which made, not false or misleading, and NEIC and HALP each agree to
take all reasonable actions within their power to correct any such
information provided by it for use in the Proxy Materials which shall
have become false or misleading in any material respect. The Proxy
Materials, when filed by NEIC with the SEC, shall comply as to form
in all material respects with all requirements of applicable law.
HALP shall provide information to be used in the Proxy Materials and
its comments (or written notice that it has no comments) on drafts of
the Proxy Materials to NEIC under this Section 6.3(c) promptly.
--------------
(d) HALP and the General Partner, jointly and severally, will
indemnify and hold harmless NEIC and its directors, partners,
officers and controlling persons within the meaning of the Exchange
Act (the "NEIC Indemnified Parties"), against any and all expenses,
------------------------
losses, claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the NEIC Indemnified
Parties in connection with, arising out of or resulting from any
claim, action, suit or proceeding in which any one or more of the
NEIC Indemnified Parties may be involved or with which any one or
more of the NEIC Indemnified Parties may be threatened by reason of
any untrue statement or alleged untrue statement of a material fact
relating to HALP or any subsidiary of HALP contained in the Proxy
Materials or arising out of or based upon the omission or alleged
omission to state in the foregoing a material fact relating to HALP
required to be stated therein or necessary to make the statements
relating to HALP therein not misleading, or otherwise, including
without limitation any amounts paid by any one or more of the NEIC
Indemnified Parties in a reasonable compromise or settlement of any
such claim, action, suit or proceeding, or threatened claim, action,
suit or proceeding, made with the consent of HALP, which consent
shall not be unreasonably withheld. The NEIC Indemnified Parties will
notify HALP in writing within ten days after the receipt by any one
or more of the NEIC Indemnified Parties of any notice of legal
process of any suit brought against or claim made against such NEIC
Indemnified Party as to any matters covered by this paragraph. HALP
shall be entitled to participate at its own expense in the defense of
any claim, action, suit or proceeding covered by this paragraph, or,
if it so elects, to assume at its expense by counsel reasonably
satisfactory to the NEIC Indemnified Parties the defense of any such
claim, action, suit or proceeding, and if HALP elects to assume such
defense, the NEIC Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or
proceeding at their expense. Each of HALP's and the General Partner's
obligation under this paragraph to indemnify and hold harmless the
NEIC
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<PAGE>
Indemnified Parties shall constitute a guarantee of payment so that
each will pay in the first instance any expenses, losses, claims,
damages and liabilities required to be paid by it under this
paragraph without the necessity of the NEIC Indemnified Parties'
first paying the same.
NEIC will indemnify and hold harmless HALP, its partners,
officers and controlling persons within the meaning of the Exchange
Act (for purposes of this paragraph, the "HALP Indemnified Parties")
------------------------
against any and all expenses, losses, claims, damages and liabilities
at any time imposed upon or reasonably incurred by any one or more of
the HALP Indemnified Parties in connection with, arising out of or
resulting from any claim, action, suit or proceeding in which any one
or more of the HALP Indemnified Parties may be involved or with which
any one or more of the HALP Indemnified Parties may be threatened by
reason of any untrue statement or alleged untrue statement of a
material fact relating to NEIC contained in the Proxy Materials or
arising out of or based upon the omission or alleged omission to
state in the foregoing a material fact relating to NEIC required to
be stated therein or necessary to make the statements relating to
NEIC therein not misleading, or otherwise, including without
limitation any amounts paid by any one or more of the HALP
Indemnified Parties in a reasonable compromise or settlement of any
such claim, action, suit or proceeding, or threatened claim, action,
suit or proceeding, made with the consent of NEIC which consent shall
not be unreasonably withheld. The HALP Indemnified Parties will
notify NEIC in writing within ten days after the receipt by any one
or more of the HALP Indemnified Parties of any notice of legal
process of any suit brought against or claim made against such HALP
Indemnified Party as to any matters covered by this paragraph. NEIC
shall be entitled to participate at its own expense in the defense of
any claim, action, suit or proceeding covered by this paragraph, or,
if it so elects, to assume at its expense by counsel reasonably
satisfactory to the HALP Indemnified Parties the defense of any such
claim, action, suit or proceeding, and if NEIC elects to assume such
defense, the HALP Indemnified Parties shall be entitled to
participate in the defense of any such claim, action, suit or
proceeding at their expense. NEIC's obligations under this paragraph
to indemnify and hold harmless the HALP Indemnified Parties shall
constitute a guarantee of payment so that NEIC will pay in the first
instance any expenses, losses, claims, damages and liabilities
required to be paid by it under this paragraph without the necessity
of the HALP Indemnified Parties' first paying the same.
6.4 SECTION 15(f). The parties each agree to use all reasonable efforts
to assure compliance with the conditions of Section 15(f) of the Investment
Company Act as it applies to the transactions contemplated by this Agreement.
NEIC and NHLP jointly and severally agree as follows:
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<PAGE>
(a) For a period of not less than three years after the
Closing Date, NEIC and NHLP jointly and severally shall use all
reasonable efforts to assure that no more than 25% of the members of
the board of directors or trustees of any Fund shall be "interested
persons" (as defined in the Investment Company Act) of HALP or NEIC,
or any entity that succeeds HALP or NEIC as investment advisor to a
Fund or any person that before or after the Closing Date was or is an
affiliated person of any of the foregoing within the meaning of the
Investment Company Act. Without limiting the generality of the
foregoing, NEIC and NHLP will not take or recommend any action that
would cause more than 25% of the number of any such board to be
"interested persons."
(b) NEIC and NHLP each represent and warrant that there is no
express or implied understanding, arrangement or intention to impose
an "unfair burden" within the meaning of Section 15(f) of the
Investment Company Act on any of the Funds as a result of the
transactions contemplated hereby, and that for a period of not less
than two years after the Closing Date neither of them will take or
recommend any act that would constitute an "unfair burden" on any
Fund.
6.5 COMPLIANCE WITH SECURITIES LAWS.
(a) Prior to or on the Closing Date, HALP shall prepare for
NHLP, and NEIC shall cooperate fully with HALP in preparing and
causing NHLP to file with the SEC, Form ADV, and such Form ADV shall
have become effective under the Investment Advisers Act. NEIC shall
file with the Exchange all documents and other information required
under its rules (or by any agreement between NEIC and the Exchange),
and obtain any approvals required by such rules (or by any such
agreement), in connection with the execution and delivery of this
Agreement and the transactions contemplated by this Agreement.
(b) In addition, HALP shall file, and NEIC shall cooperate
fully with HALP in preparing and filing, all such other forms and
amendments to forms and other documents required to be filed or
delivered under applicable federal and state laws, and regulations
promulgated thereunder, including without limitation the Investment
Advisers Act, the Exchange Act, the Securities Act, the Commodity
Exchange Act and applicable state laws relating to or regulating the
activities of investment advisers and broker-dealers, as a result of
the consummation of the transaction contemplated by this Agreement.
(c) It is the parties' intention that all approvals necessary
for NHLP's continuation of the business of HALP shall have been
obtained prior to or immediately after Closing.
6.6 CURRENT INFORMATION. During the period from the date of this
Agreement to the Closing, each party will cause one or more of their
representatives to confer
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<PAGE>
on a regular and frequent basis with representatives of the other party with
respect to the status of its ongoing operations (and, in the case of HALP, the
Funds). Each party will promptly notify the other party of any material change
in the normal course of its business (or, in the case of HALP, any Fund) or of
any complaints from a governmental or regulatory authority or a self-regulatory
body, investigations or hearings (or communications indicating that the same may
be contemplated), or the institution or the threat of any litigation that comes
to their attention which would, in any manner, challenge, prevent, alter or
materially delay any of the transactions contemplated hereby and each party will
keep the other party informed with respect to such events. HALP and NEIC will
notify each other of the status of regulatory applications and third party
consents related to the transactions contemplated hereby.
6.7 ACCESS; INFORMATION.
(a) Each party shall afford to the other parties and their
representatives such access during normal business hours and without
material business interruption to its books, records (including,
without limitation, tax returns and appropriate work papers of
independent auditors under normal professional courtesy), properties,
and to such other information as such party may reasonably request.
NEIC shall retain or cause NHLP to retain for tax and regulatory
purposes and to otherwise comply with this Agreement, all related
books and records and other information relating to years 1988-1995
for at least seven years after each of the respective taxable years
1988-1995.
(b) All non-public records, books, contracts, instruments,
computer data and other data and information (collectively, the
"Information") concerning the other parties or the Funds furnished
-----------
pursuant to this Agreement shall be subject to the confidentiality
agreements between the parties previously entered into and
Section 10.5. In the event of the termination of this Agreement, each
------------
party shall return or destroy all Information furnished to such party
and its representatives hereunder and all analyses, compilations,
data, studies, other documents prepared by such party or its
representatives containing or based in whole or in part on any such
Information.
6.8 NON-SOLICITATION. HALP agrees that neither it, the General Partner,
nor any of its officers, employees, agents or representatives (including,
without limitation, any investment banker, attorney or accountant retained by
any of them) shall initiate, solicit, encourage or entertain, directly or
indirectly, any inquiries or the making of any proposal or offer with respect to
a merger, consolidation or similar transaction involving, or any purchase of any
substantial portion of the assets or any substantial portion of the equity
securities of HALP, or the assignment of any substantial portion of any
investment advisory, subadvisory, administrative or distribution agreement by
HALP, or the transfer of HALP's general partnership interest in any of the
Investment Partnerships, or the entering into by any Fund of an investment
advisory, subadvisory, administrative or distribution agreement with any company
other than HALP. HALP shall promptly send to NEIC copies of any written
communications received by it or any Fund from any person or entity with respect
to any
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transaction or proposed transaction of the type referred to in the preceding
sentence, and shall promptly notify NEIC of any oral or other unwritten
communication of such nature received by it or any Fund.
6.9 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt notice
to the other parties of: (i) any breach by such party of a representation and
warranty contained herein and (ii) any inability by such party to fulfill a
condition or agreement contained herein or in any Related Agreement.
6.10 CUSTOMERS. After execution of this Agreement and prior to the
Closing, HALP shall, after consultation with NEIC, notify the Fund Boards, the
Clients and any other customers of HALP of the transactions contemplated hereby.
6.11 QUALIFICATION OF THE FUNDS. Subject to applicable fiduciary duties to
the Funds, HALP will take no action (i) that would prevent any Fund from
qualifying for taxation as a "regulated investment company" under subchapter M
of the Code or cause any Fund to suffer materially adverse tax consequences, or
(ii) that would be inconsistent in any material respect with any Fund's
Prospectus and other offering, advertising and marketing materials.
6.12 PRESS RELEASES, ETC. Each of HALP, the General Partner and NEIC agree
that, without notification to the other a reasonable time in advance of such
disclosure, it shall not disclose the negotiation or execution of this Agreement
or of any information concerning the transactions contemplated hereunder to LP
Unitholders or clients of HALP or NEIC or to other persons (other than persons
employed by HALP, NEIC any of NEIC's subsidiaries or affiliates, and their
respective attorneys, investment bankers and accountants) in advance of the
publication by HALP and NEIC of press releases (as appropriate) on such matters
pursuant to this Section 6.12. HALP and NEIC will consult with each other as to
------------
the form, substance and timing of any press release or other public disclosure
of the existence of this Agreement, matters related to this Agreement or any of
the transactions contemplated hereby and no such press release or other public
disclosure shall be made without the consent of the other party, which shall not
be unreasonably withheld or delayed; provided, however, that the parties may
-------- -------
make such disclosures as are required by law after making reasonable efforts in
the circumstances to consult in advance with the other parties. The provisions
of this Section 6.12 shall apply not only to the initial public disclosures by
------------
each party but also to the form and content of any and all subsequent publicity.
6.13 TAX INFORMATION. HALP shall cooperate in obtaining from the
appropriate taxing authority for NEIC's review, tax account information for
federal, state or local taxes of HALP and the HALP Entities, as reasonably
requested by NEIC.
6.14 POST-CLOSING OPERATIONS. From and after the Closing Date, NEIC and
NHLP shall take or cause to be taken, or not take and not cause to be taken, as
the case may be, the following actions:
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(a) Throughout the five-year period following the Closing
Date, NHLP will operate the business formerly operated by HALP as a
direct or indirect subsidiary of NEIC to be headquartered in the
Chicago Metropolitan Area and to be known under HALP's current name.
(b) For a period of five years following the Closing Date,
NEIC shall not, without the prior written consent of the Inside
Directors, other than in the ordinary course of business, sell any
Asset of NEIC existing immediately prior to Closing and contributed
to NEIC by HALP unless such sale is effected as part of a sale of all
or substantially all the Assets of NEIC or as part of the liquidation
and dissolution of NEIC.
(c) The current intention of the parties hereto, without
prejudice to NEIC's rights under Delaware law as sole stockholder of
NHGP, is that following the Closing the Board of Directors of NHGP
will consist of seven members, five of whom, including the chairman,
shall be initially selected by HALP (collectively, and as may be
replaced from time to time by their successors, the "Inside
Directors") and the remaing two of whom shall be Peter S. Voss and G.
Neal Ryland. From and after the Closing, the parties' expectation,
without prejudice to NEIC's rights under Delaware law, is that the
Board of Directors of NHGP will consist of no more than seven
members, two of whom will be representatives of NEIC and the
remainder of whom will be then-current executives of NHLP.
(d) On the Closing Date, NEIC shall make a long-term loan to
NHLP, in a principal amount not to exceed $3.0 million sufficient to
replace the indirect capital of the Partners invested in general
partnership interests in the Investment Partnerships, such
investments as of the date of this Agreement aggregating
approximately $1.4 million, such loans to bear interest at NEIC's
long-term intercompany borrowing rate in effect from time to time.
The interest costs of such loans shall be an operating expense of
NHLP. Return of capital from NHLP's investments in the Investment
Partnerships shall be used to repay any loans made pursuant to this
Section 6.14(d). Such loan will be subordinated to other debt of NHLP
---------------
to the extent necessary to permit NHLP to satisfy the net capital
requirements imposed on investment advisors by the various
jurisdictions in which NHLP does business.
(e) On December 31 of each year (or, if earlier, the last
business day of such year), NEIC shall make a short-term loan to
NHLP, payable on or prior to February 15 of the following year, in
principal amount sufficient to enable NHLP to pay the portion of
bonuses expected to be paid by year end pursuant to the terms of the
NHLP Partnership Agreement, such loan to bear interest at NEIC's
short-term intercompany borrowing rate in effect from time to time.
The interest costs of any such loan shall be an operating expense of
NHLP.
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(f) NEIC shall not enter into any agreement or take any other
action, restricting the irrevocable direction of NEIC to make the
Assigned Distributions as described in Section 1.2(b)(iii) hereof,
-------------------
except to the extent required by law.
(g) Without the prior approval of NEIC, the Employment
Agreements (as defined in Section 7.2(d)) shall not be amended.
--------------
(h) If NHLP is or becomes treated as an association taxable
as a corporation (rather than a partnership) for federal income tax
purposes, it is agreed that federal, state and local taxes based upon
or measured in whole or in part by reference to the income of NHLP
(or its successors) shall be treated as provided in the NHLP
Partnership Agreement.
(i) From and after the Closing, NEIC and NHLP and their
successors and assigns shall reasonably cooperate to minimize Taxes
for which NHLP would be directly or indirectly liable.
(j) For a period of five years from Closing, NEIC shall not
amend the NHLP Partnership Agreement in a manner that would effect
the economics of such Agreement without the prior written consent of
a majority of the Inside Directors.
(k) For a period of five years from Closing, NEIC agrees not
to cause NHGP to withdraw as the general partner of NHLP or to
voluntarily cause the dissolution of NHLP.
(l) NHLP shall make compensatory payments to employees in
accordance with Bonus Compensation Plan (as defined in
Section 7.3(b)(i)).
-----------------
6.15 INSURANCE. HALP shall maintain in effect following the Closing, at
its own expense, HALP's existing directors' and officers' liability insurance
and HALP's errors and omissions insurance to cover claims made with respect to
actions or occurrences at or prior to the Closing Date for a period of at least
two years following the Closing Date.
6.16 UPDATED FINANCIAL STATEMENTS.
(a) HALP will deliver to NEIC within 30 days of the date
hereof, audited balance sheets as at the close of its fiscal years
ended December 31, 1993 and December 31, 1994, together with the
related financial statements for the fiscal years ended December 31,
1992 through December 31, 1994, certified without qualification by
Arthur Andersen & Co., all of which balance sheets and financial
statements (including the notes thereto) are collectively called the
"Unqualified Audited Financials".
------------------------------
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(b) Prior to the Closing Date and as soon as possible
following the completion of HALP's last fiscal quarter ending prior
to the Closing Date, HALP will deliver to NEIC (i) a balance sheet as
at the last date of such fiscal quarter together with the related
financial statements for the period January 1, 1995 through such date
and (ii) a balance sheet and related financial statements for the
corresponding periods of the prior year, certified by the principal
financial and accounting officer of HALP, all as required to be
included in NEIC's Form 8-K under the Exchange Act and all of which
balance sheets and financial statements (including the notes thereto)
are collectively called the "Interim Financials". Arthur Andersen &
------------------
Co. shall have issued an unqualified review report with respect to
the Interim Financials.
(c) The Unqualified Audited Financials and the Interim
Financials shall be Financial Statements for purposes of Section 3.6
-----------
and shall comport with the requirements of the Exchange Act and
Regulation S-X.
6.17 EXCLUDED ACCOUNTS RECEIVABLE. Schedule 0.1A hereto includes a list of
-------------
all accounts receivable as of the Closing Date not reflected on the Closing
Balance Sheet and that therefore constitute Excluded Assets not transferred
hereby (the "Excluded Accounts Receivable"). NHLP agrees to use its normal
----------------------------
business efforts, for a period of one hundred eighty (180) days, as collection
agent for HALP to diligently collect the Excluded Accounts Receivable following
the Closing Date in the ordinary course of business in accordance with NHLP's
standard collection practice, provided, however, that NHLP shall not be required
-------- -------
to institute a legal proceeding or utilize any collection agency. NHLP shall
provide to HALP and HALP's representative full access to NHLP's books and
records to the extent required to confirm compliance by NHLP with this
Section 6.17. Any funds received by NHLP payable in respect of Excluded Accounts
- ------------
Receivable in accordance with the terms of this Section 6.17, shall be held for
------------
the account of HALP in a segregated bank account and all funds accumulated shall
be transferred to HALP within five (5) days of each month end. HALP shall
promptly advise NHLP in the event a customer directly pays HALP in respect of
any of the Excluded Accounts Receivable. Nothing herein shall preclude HALP from
taking any action to collect the Excluded Accounts Receivable. After one hundred
eighty (180) days, NHLP shall cease to act as collection agent for HALP
hereunder and HALP shall be responsible therefor.
ARTICLE VII
CONDITIONS
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or waiver at or prior to the
Closing of the following conditions:
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(a) NO TERMINATION. Neither NEIC nor HALP shall have
terminated this Agreement pursuant to Section 8.1.
-----------
(b) REGULATORY REQUIREMENTS. The transactions contemplated by
this Agreement shall have been approved by any federal, state,
foreign or local governmental or regulatory authority or self-
regulatory body the approval of which is required to permit
consummation thereof, without the imposition of any condition,
requirement or commitment which is reasonably likely to have a
material adverse effect on the business, assets, financial condition,
results of operations, or prospects of either HALP or NEIC; and all
waiting periods arising under the HSR Act or any other applicable law
shall have duly lapsed or been terminated.
(c) ABSENCE OF LITIGATION; NO ORDERS. No action or proceeding
shall have been instituted or threatened on or before the Closing
Date before any court or governmental body or authority pertaining to
the transactions contemplated by this Agreement, the result of which
could prevent or make illegal the consummation of such transactions
or which could be materially adverse to the business, financial
condition or results of operations of HALP or NEIC. None of NEIC, the
General Partner, HALP or any Fund shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction
which either enjoins or prohibits the consummation of any of the
transactions contemplated by this Agreement.
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the other party set forth or referred to in this
Agreement and in any schedule or exhibit hereto shall be true and
correct in all material respects as of the date of this Agreement and
as of the Closing Date with the same effect as though all such
representations and warranties had been made on and as of the Closing
Date, except (i) for any such representations and warranties made as
of a specified date, which shall be true and correct in all material
respects as of such date, or (ii) as expressly contemplated or
permitted by this Agreement.
(e) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of
the agreements and covenants of the other party to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Closing Date shall have been duly
performed and complied with by it in all material respects.
(f) CERTIFICATES. Each of the parties shall have delivered to
the other a certificate, dated as of the Closing Date and signed on
its behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions of its obligations set
forth in Sections 7.1(d) and (e) of this Agreement with respect to it
--------------- ---
have been satisfied.
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(g) REQUISITE LP UNITHOLDER CONSENTS. If required by
Section 6.3, the Requisite LP Unitholder Consents shall have been
-----------
obtained.
(h) INVESTMENT ADVISERS ACT REGISTRATION. Registration of
NHLP as an investment adviser and withdrawal of the registration of
HALP as an investment adviser under the Investment Advisers Act of
1940 and under applicable state investment advisory statutes shall
have been filed and become effective prior to or immediately after
Closing, if so requested by NEIC.
(i) REGISTRATION RIGHTS AGREEMENT. NEIC, HALP and the Limited
Partners shall have entered into a Registration Rights Agreement in
substantially the form of Exhibit 7.1(i).
--------------
(j) APPROVAL OF DOCUMENTATION. The form and substance of all
opinions, certificates and other documents delivered hereunder shall
be reasonably satisfactory in all respects to NEIC, HALP and their
respective counsel.
7.2 CONDITIONS PRECEDENT TO NEIC'S OBLIGATIONS. The obligation of NEIC to
consummate the transactions contemplated hereby shall be subject to the
fulfillment or waiver at or prior to the Closing of the following conditions:
(a) DELIVERY OF ASSETS AND MINIMUM CASH/CAPITAL REQUIREMENT.
HALP shall have delivered to NEIC any contribution, assignment or
other instruments relating to the Asset Contribution as NEIC and its
counsel reasonably request to effect the contribution and transfer of
HALP's Assets and the General Partner's withdrawal as the general
partner of HASLP and its replacement by NHGP. HALP shall have
delivered to NEIC or loaned to NHLP, as the case may be, the amount,
if any, required to satisfy the Minimum Cash/Capital Requirement,
such amount to be transferred in such manner as NEIC may request.
(b) CONDUCT OF HALP'S BUSINESS PRIOR TO CLOSING. HALP's
business shall have been conducted in accordance with the provisions
of Section 5.1.
-----------
(c) INVESTMENT REPRESENTATIONS. NEIC shall have received
evidence satisfactory to it that each of the Partners has made
written representations substantially identical to those contained in
Section 3.25 or as will make an exemption from registration available
------------
under Regulation D of the Securities Act.
(d) EMPLOYMENT AGREEMENTS. Each of the Class B Unit Limited
Partners who are employees of HALP and certain other agreed upon
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individuals shall have entered into an employment agreement with
NHLP, to become effective at Closing for each such employee who
continues to be an employee of HALP prior to the Closing,
substantially in the form of Exhibit 7.2(d)(i) hereto with respect to
-----------------
the executives designated in Schedule 7.2(d) (such employment
---------------
agreements referred to collectively as the "Executive Employment
--------------------
Agreements") and substantially in the form of Exhibit 7.2(d)(ii) with
---------- ------------------
respect to the other employees on such Schedule (such employment
agreements, together with the Executive Employment Agreements,
referred to collectively as the "Employment Agreements"). Each
---------------------
Executive Employment Agreement shall have been entered into on or
prior to the date hereof and delivered to NEIC on the date hereof.
Each Employment Agreement shall be in full force and effect as of the
Closing.
(e) PARTNERSHIP AGREEMENT. NHGP and NEIC shall have entered
into the NHLP Partnership Agreement in substantially the form of
Exhibit 7.2(e) hereto, with such changes therein as the parties
--------------
hereto and thereto may agree.
(f) OPINION OF COUNSEL. NEIC shall have received from Winston
& Strawn, Katten Muchin & Zavis and Bell, Boyd & Lloyd, counsel to
HALP, an opinion in substantially the form set forth in
Exhibit 7.2(f) hereto, addressed to NEIC and dated as of the Closing
--------------
Date.
(g) EXAMINATION OF BOOKS AND RECORDS. For purposes of
compliance with and performance of this Agreement, NEIC, acting
through management and personnel or through counsel, accountants or
other representatives designated by it, shall have been afforded full
and complete opportunity reasonably to examine and investigate all
aspects of HALP's business and affairs and assets and liabilities,
including, without limitation, their minute books and stock transfer
records, financial books and records, Investment Contracts, titles
and leases to properties, loan and other agreements and the condition
of their facilities and equipment and the collectibility of their
accounts receivable. NEIC shall also have been afforded a reasonable
opportunity to confer, in consultation with HALP, with HALP's
advisory clients, including wholesalers of investment services.
(h) NO ELECTION NOT TO PROCEED. NEIC shall not have elected
pursuant to Section 1.3 not to proceed under this Agreement.
-----------
(i) CONSENTS AND FUND APPROVALS.
(i) HALP shall have complied with the consent procedures
referred to in Section 6.1.
-----------
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(ii) In accordance with Section 15 of the 1940 Act, the
respective Fund Boards, including in each case a majority of
trustees who are not parties to the Investment Contracts of
such Funds or "interested persons" (as such term is defined
in the 1940 Act) of any such party (the "Non-Interested
--------------
Trustees"), and holders of a majority of the outstanding
--------
voting securities (as such term is defined in the Investment
Company Act) of each Fund, shall have approved the New Fund
Agreement with NHLP acting as investment adviser of such
Fund.
(iii) HALP shall have obtained written consents to
assignment of all of the Terminable Contracts.
(j) INVESTMENT PARTNERSHIPS. The agreement of limited
partnership of each Investment Partnership shall have been amended as
necessary to permit consummation of the transactions contemplated
hereby and so that no consolidation is required and an unqualified
opinion on NHLP's audited financial statements may be rendered, with
the form and substance of such amendments satisfactory to NEIC. NEIC
shall be satisfied that appropriate measures have been taken to
permit NHLP or its designee to succeed HALP as the sole general
partner under the Limited Partnership of each Investment Partnership.
(k) AGREEMENT OF LIMITED PARTNERSHIP OF HALP. HALP shall have
amended and restated its First Amended and Restated Agreement of
Limited Partnership, such Second Amended and Restated Agreement of
Limited Partnership to contain provisions satsifactory to NEIC for
NEIC's benefit establishing an obligation to recontribute up to $10
million to cover unknown Excluded Liabilities through the date that
is one year after the Adjustment Date, in addition to the obligation
to contribute amounts required to be recontributed by law, and to be
in form and substance satisfactory to NEIC.
(l) LEASE. HALP shall have given its landlord under its lease
(the "Lease") pertaining to its offices at Two North LaSalle Street,
-----
Suite 500, Chicago, Illinois 30 days' notice of assignment as
required by the terms of the Lease.
(m) SECRETARY'S CERTIFICATE. HALP and the General Partner
shall together have delivered a certificate, dated as of the Closing
Date and signed on both their behalfs by the secretary of the General
Partner, certifying that since the delivery of the charter documents
of HALP and the General Partner and the minutes of meetings of the
Partners and of the board of directors of the General Partner (or
consents in lieu thereof) pursuant to Section 3.2 hereof, there have
-----------
been no amendments or other modifications thereof except for minutes
of meetings of the Partners and of the board of directors of the
General Partner held after the date hereof and on or before the
Closing
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Date, true, correct and complete copies of which shall have been
furnished to NEIC, and that the officers of HALP and the General
Partner are those persons named in the certificate.
(n) CERTIFIED FINANCIAL STATEMENTS. HALP shall have delivered
to NEIC the Unqualified Audited Financials and Interim Financials,
all as required by Section 6.16.
------------
(o) NAME CHANGE. Immediately prior to Closing, HALP shall
have ceased to be named "Harris Associates, L.P."; Harris Associates,
Inc. shall have ceased to be named "Harris Associates, Inc."; and
HALP and the General Partner shall cooperate with NEIC to the extent
necessary for NHLP to be named "Harris Associates, L.P." and NHGP to
be named "Harris Associates, Inc."
7.3 CONDITIONS PRECEDENT TO HALP'S OBLIGATIONS. The obligation of HALP to
consummate the transactions contemplated hereby shall be subject to fulfillment
at or prior to the Closing of the following conditions:
(a) DELIVERY OF PURCHASE PRICE. NEIC shall have delivered to
HALP or HALP's designees, as HALP shall direct, certificates
representing the Required Number of LP Units, if any. All such
certificates shall be accompanied by such necessary supporting
documents as HALP or its counsel or HALP's designees may reasonably
require.
(b) EMPLOYMENT ARRANGEMENTS. (i) NEIC and NHLP shall have
adopted a plan (the "Bonus Compensation Plan") for the establishment
-----------------------
of a bonus compensation pool for the benefit of the active employees
of NHLP (the "Bonus Pool") on the terms set forth in the outline of
----------
the bonus compensation plan attached hereto as Exhibit 7.3(b)(i). The
-----------------
persons participating in the Bonus Pool for each fiscal year of NHLP
will be paid, in the aggregate, an amount equal to Partnership Bonus
Pool Revenues (as defined in the NHLP Partnership Agreement) for such
year plus the Special Bonus Pool Revenues (as defined in the NHLP
Partnership Agreement) for such year. The Bonus Compensation Plan
shall be administered by the Board of Directors of NHGP based on the
recommendations of management of NHLP; provided, however, that
-------- -------
without the approval of NEIC the Bonus Compensation Plan shall not be
amended. The Bonus Compensation Plan may not be terminated without
the prior approval of a two-thirds, by interest, of the participants
in the such plan (based on the sharing ratios for the prior fiscal
year of participants in the plan who are still employed by NHLP on
the date of determination). In the event of any sale from time to
time of any of the assets of NHLP that has the effect of reducing
NHLP's revenues that would otherwise be available for distribution
pursuant to the Bonus Compensation Plan to a third party or, with
approval by a majority, by interest, of the participants in the Bonus
Compensation Plan, to an affiliate
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<PAGE>
of NEIC, NHLP shall pay to the participants in the Bonus Plan an
amount equal to 19.6% of the net proceeds of such sale, subject to
the more specific terms set forth in the definition of "Special Bonus
Pool Revenues" in the NHLP Partnership Agreement. In the event of any
sale or transfer from time to time of the assets of NHLP to an
affiliate of NEIC that is not approved by a majority, by interest, of
the participants in such plan, the Bonus Compensation Plan shall
continue to include the revenues generated by such assets in
computing the Partnership Bonus Pool Revenues.
(ii) As an inducement to continue their employment with NHLP,
NEIC and NHLP shall have provided for the grant of options in
substantially the form of Exhibit 7.3(b)(ii) to certain employees of
------------------
NHLP pursuant to an "Options for Growth" program under NEIC's 1993
Equity Incentive Plan. At the Closing, the NEIC Board of Directors
will grant in the aggregate 200,000 options to designated employees
of NHLP. Additionally, options will be granted by such Board in
respect of each of the 1995 and 1996 fiscal years of NHLP at the
first meeting of such Board to be held after March 31, 1996 and March
31, 1997, respectively. For years following 1996, it is expected that
the Board will approve option grants under the program.
Notwithstanding the foregoing, the Board retains sole discretion to
grant any such options upon such terms as it shall specify, but on
substantially the same basis as options are granted by such Board to
employees of other subsidiaries of NEIC, taking into account
considerations relating to NHLP, the other subsidiaries and
individual performance. One-fifth of the options granted at Closing
and in respect of each of 1995 and 1996 shall vest on each of the
first through fifth anniversaries of the date of grant and may be
exercised at any time after the later of vesting or December 31, 1997
until the tenth anniversary of the date of grant. Options not
exercised by that date shall expire. The number of options to be
granted in respect of 1995 will be equal to (x) the excess of 41% of
NHLP's Run Rate Revenue as of December 31, 1995 over 41% of NHLP's
Run Rate Revenue as of the Closing Date divided by (y) the average of
----------
the closing price of the LP Units on the Exchange during the last 20
Trading Days of 1995. The number of options to be granted in respect
of 1996 will be determined by dividing (A) the excess, if any, of
NEIC's Allocated Revenues for 1996 over the Revenue Target for such
year by (B) the average of the closing prices of the LP Units on the
Exchange during the last 20 Trading Days of 1996. "NEIC's Allocated
----------------
Revenues" for the 1996 fiscal year means the aggregate amount of Net
--------
Distributable Revenues (as defined in the NHLP Partnership Agreement)
distributed by NHLP to NEIC for such year. "Revenue Target" for 1996
--------------
means 108% of Net Distributable Revenues for 1995, calculated as if
the Closing had occurred on January 1, 1995. Notwithstanding any
other treatment of such expense or proceeds under GAAP, the exercise
of options granted pursuant to this Section 7.3(b)(ii) shall not
------------------
impact NHLP's revenues and expenses.
(c) OPINIONS OF COUNSEL.
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(i) HALP shall have received from Ropes & Gray, counsel
to NEIC, an opinion in substantially the form set forth in
Exhibit 7.3(c)(i) hereto.
-----------------
(ii) HALP shall have received from TNE an opinion in
substantially the form set forth in Exhibit 7.3(c)(ii).
------------------
(d) NEIC shall have delivered a certificate, dated as of the
Closing Date and signed on its behalf by the secretary of NEIC's
general partner, certifying that since the date hereof, there have
been no amendments or other modifications to NEIC's agreement of
limited partnership, and that the officers of NEIC are those persons
named in the certificate.
ARTICLE VIII
TERMINATION
8.1 TERMINATION. This Agreement may, by written notice, be terminated at
any time prior to the Closing:
(a) by the mutual written consent of the General Partners of
HALP and NEIC; or
(b) by either HALP or NEIC, at any time after December 31,
1995 by action of their respective General Partner if the Closing
shall not theretofore have occurred; or
(c) by NEIC, if shareholders of one or more Funds shall have
met and failed to approve the proposal recommended pursuant to
Section 6.2; or
-----------
(d) by either HALP or NEIC, if any permanent injunction or
action by any court or other governmental agency or body of competent
jurisdiction enjoining, denying approval of, or otherwise prohibiting
the consummation of the transactions contemplated hereby shall have
become final and nonappealable; or
(e) by either of such parties if the waiting period (and any
extensions thereof) under the HSR Act shall not have expired or been
terminated prior to the Closing Date; or
(f) by either HALP or NEIC in the event of the breach by the
other party of representations, warranties or agreements contained
herein that would have a material adverse effect on the business,
assets, financial condition or results of operation of the party
committing such breach, and which cannot be
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or has not been cured within 30 days after written notice to the
party committing such breach; or
(g) by NEIC as set forth in Section 1.3.
-----------
Notwithstanding the foregoing, a party in material breach of any
provision of this Agreement may not terminate this Agreement pursuant to this
Section 8.1.
- -----------
8.2 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby pursuant
to this Article VIII, except as otherwise specifically provided herein, no party
------------
hereto (or any of its partners, shareholders, directors, officers, employees,
agents, consultants or representatives) shall have any liability or further
obligation to any other party to this Agreement, except for any obligations to
reimburse costs and expenses as set forth in Section 12.5 and except that
------------
nothing herein will relieve any party from liability for any breach of this
Agreement.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY HALP AND THE GENERAL PARTNER. From and after the
Closing Date, each of HALP and the General Partner, jointly and severally, will
indemnify and hold harmless the NEIC Indemnified Parties against any and all
expenses, losses, claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the NEIC Indemnified Parties in
connection with, arising out of or resulting from any claim, action, suit or
proceeding in which any one or more of the NEIC Indemnified Parties may be
involved or with which any one or more of the NEIC Indemnified Parties may be
threatened by, arising from or relating to (i) the Excluded Liabilities or (ii)
any breach of any representation or warranty made by HALP hereunder or under any
Exhibit, Schedule or Related Agreement or certificate furnished pursuant hereto,
including without limitation any amounts paid by any one or more of the NEIC
Indemnified Parties in a reasonable compromise or settlement of any such claim,
action, suit or proceeding, or threatened claim, action, suit or proceeding,
made with the consent of HALP, which consent shall not be unreasonably withheld.
The NEIC Indemnified Parties will notify HALP in writing within ten days after
the receipt by any one or more of the NEIC Indemnified Parties of any notice of
legal process of any suit brought against or claim made against such NEIC
Indemnified Party as to any matters covered by this Section 9.1. HALP shall be
-----------
entitled to participate at its own expense in the defense of any claim, action,
suit or proceeding covered by this paragraph, or, if it so elects, to assume at
its expense by counsel satisfactory to the NEIC Indemnified Parties the defense
of any such claim, action, suit or proceeding, and if HALP elects to assume such
defense, the NEIC Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense. HALP's
obligation under this paragraph to indemnify and hold harmless the NEIC
Indemnified Parties shall constitute a guarantee of payment so that they will
pay in the first instance any expenses, losses, claims, damages and
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liabilities required to be paid by it under this paragraph without the necessity
of the NEIC Indemnified Parties' first paying the same.
9.2 INDEMNIFICATION BY NEIC. From and after the Closing Date, NEIC will
indemnify and hold harmless the HALP Indemnified Parties against any and all
expenses, losses, claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the HALP Indemnified Parties in
connection with, arising out of or resulting from any claim, action, suit or
proceeding in which any one or more of the HALP Indemnified Parties may be
involved or with which any one or more of the HALP Indemnified Parties may be
threatened by, arising from or relating to any breach of any representation or
warranty made by NEIC hereunder or under any Exhibit, Schedule or Related
Agreement or certificate furnished pursuant hereto, including without limitation
any amounts paid by any one or more of the HALP Indemnified Parties in a
reasonable compromise or settlement of any such claim, action, suit or
proceeding, or threatened claim, action, suit or proceeding, made with the
consent of NEIC, which consent shall not be unreasonably withheld. The HALP
Indemnified Parties will notify NEIC in writing within ten days after the
receipt by any one or more of the HALP Indemnified Parties of any notice of
legal process of any suit brought against or claim made against such HALP
Indemnified Party as to any matters covered by this Section 9.2. NEIC shall be
-----------
entitled to participate at its own expense in the defense of any claim, action,
suit or proceeding covered by this paragraph, or, if it so elects, to assume at
its expense by counsel satisfactory to the HALP Indemnified Parties the defense
of any such claim, action, suit or proceeding, and if NEIC elects to assume such
defense, the HALP Indemnified Parties shall be entitled to participate in the
defense of any such claim, action, suit or proceeding at their expense. NEIC's
obligation under this paragraph to indemnify and hold harmless the HALP
Indemnified Parties shall constitute a guarantee of payment so that they will
pay in the first instance any expenses, losses, claims, damages and liabilities
required to be paid by it under this paragraph without the necessity of the HALP
Indemnified Parties' first paying the same.
9.3 CERTAIN LIMITATIONS ON INDEMNIFICATION.
(a) Neither HALP and the General Partner's liability for
indemnification obligations (other than obligations in respect of the
Excluded Liabilities which shall have no limit) under Section 9.1 nor
-----------
NEIC's liability for indemnification obligations under Section 9.1
-----------
shall exceed the amount of the 1996 Payment, or if greater, the
Adjusted 1996 Payment.
(b) Neither HALP nor NEIC shall be liable for indemnification
obligations under this Article IX in respect of any breach of
----------
representation or warranty until the aggregate cumulative amount of
such obligations of such party hereunder exceeds $1 million,
whereupon such party shall be liable for the full amount of such
obligations.
(c) Notwithstanding anything contained herein to the
contrary, no NEIC Indemnified Party shall have the right to settle or
make any payment to a third
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party wih respect to any Excluded Liability without the prior written
consent of HALP, which shall not be unreasonably withheld.
9.4 TERMINATION OF RIGHTS HEREUNDER.
(a) No claim may be made under the provisions of Section 9.1
-----------
(except for Reserved Claims or claims in respect of the Excluded
Liabilities) after the 1996 Second Repurchase Date.
(b) No claim may be made under the provisions of Section 9.2
-----------
(except for Reserved Claims) after the 1996 Second Repurchase Date.
(c) "Reserved Claims" means any claims as to which any NEIC
---------------
Indemnified Party has given HALP notice or any HALP Indemnified Party
has given NEIC notice on or prior to the 1996 Second Repurchase Date.
ARTICLE X
POST-CLOSING COVENANTS
10.1 EMPLOYEE BENEFITS AND OTHER MATTERS.
(a) NHLP shall offer continued employment on and after the
Closing Date to all common law employees of HALP who were such
immediately prior to the Closing Date (the "Continued Employees").
-------------------
Notwithstanding anything in this subsection (a) to the contrary, any
such offer of continued employment shall not be construed to limit
the ability of NHLP to terminate Continued Employees at any time for
cause or for valid business purposes.
(b) Where feasible prior to, and in all events as soon as
practicable following, the Closing Date, NEIC and NHLP shall take
such steps as are necessary or appropriate to cause NEIC and NHLP to
assume and continue from and after the Closing Date, for the benefit
of the Continued Employees, each of the HALP Benefit Plans. Where
necessary or appropriate to accomplish the foregoing and after
consultation and agreement with HALP and with the cooperation of
HALP, NEIC and NHLP shall either (i) establish new plans or programs,
in all events providing that the benefits afforded to the Continuing
Employees shall be substantially identical to and provide benefits
comparable to those previously offered by HALP, (ii) assume one or
more existing HALP Benefit Plans (or where any such HALP Benefit Plan
is sponsored by any person or entity other than HALP, take such steps
as are necessary or appropriate to join in such Plan), or (iii)
modify existing plans or programs to incorporate terms and conditions
similar to the terms and conditions of the HALP Benefit Plans.
Nothing in this Agreement shall be deemed to preclude or restrict the
modification or termination of any of the HALP Benefit Plans in
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accordance with its terms, whether before or after the Closing.
10.2 CERTAIN TAX MATTERS.
(a) Upon any sale by NEIC or any of its subsidiaries of
assets contributed by HALP, NEIC shall, to the extent consistent with
applicable law under Section 704(c) of the Code, allocate to each
Person holding, at the time of sale, LP Units issued in accordance
with the terms of this Agreement (including Persons who are
subsequent holders of such LP Units) such Person's proportionate
share of the income associated with the sale of such assets, to the
extent that such income does not, in the aggregate, exceed the
difference between (A) the basis of such assets (immediately
following the exercise, if any, of repurchase rights under
Sections 1.2(a)(ii), 1.2(a)(iii) and 1.2(b)(ii) hereof and any
------------------- ----------- ----------
adjustments to the purchase price under Section 1.2(b)(v) hereof) and
-----------------
(B) the fair market value of such assets at the time of contribution.
NEIC may make "curative" allocations to overcome limitations imposed
by the "ceiling rule" only upon the sale of all or a portion of the
assets of NEIC (held directly or through any subsidiary); provided,
--------
however, that in the event that following the Closing Date, a
-------
material amount of cash or other property is contributed to NEIC by
any Person, NEIC shall not be precluded from making, following such
contribution, such curative allocations as are appropriate to reflect
a difference in the relative tax characteristics of such contributed
assets and the various assets held (directly or indirectly) by NEIC
immediately prior to such contribution. NEIC shall in all events
abide by the terms of its Partnership Agreement, as may be amended
from time to time, in making any such curative allocations.
(b) For federal and state income tax purposes, the parties
hereto agree to report the transaction described in this Agreement
for Tax purposes consistent with the form of the transaction as
described herein, and the parties further agree to report in a manner
consistent with, and make reasonable efforts to sustain, the position
that: (i) no portion of the 1996 Payment which is in the form of LP
Units represents imputed interest; (ii) the Asset Contribution is a
contribution by HALP of property to NEIC in exchange for interests in
NEIC and, accordingly, a nonrecognition transaction pursuant to
Section 721(a) of the Code; (iii) distributions of LP Units to
partners of HALP pursuant to HALP's partnership agreement do not give
rise to gain under Code Section 731 and (iv) any payments by NEIC of
Repurchase Price, amounts for LP Units repurchased pursuant to
Section 1.2(a)(iii) and 1996 Repurchase Price to a retiring partner
-------------------
shall be treated as a distribution in liquidation of such interest
pursuant to Section 736(b) of the Code and any payments to
nonretiring partners shall be treated as distributions by NEIC under
Section 731 of the Code. The parties further agree that NEIC may,
through application to the District Director of the IRS or otherwise,
allocate increases in basis attributable to the operation of Code
Section 732 or 734 in connection with the payment of the Repurchase
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Price, amounts for LP Units repurchased pursuant to Section
-------
1.2(a)(iii) and 1996 Repurchase Price to assets contributed to NEIC
-----------
by HALP; provided that NEIC will not, on any such application to the
District Director, make any representations or assertions that are
inconsistent with the positions set forth in the preceding sentence.
NEIC agrees to utilize its authority under Section 5.1(e) of NEIC's
partnership agreement to "book-up" assets of NEIC immediately prior
to the Asset Contribution pursuant to this Agreement.
(c) The parties hereto agree that neither HALP nor its
partners intend to form a partnership with or be partners of NHLP.
10.3 CONFIDENTIALITY AND NONCOMPETITION.
(a) CONFIDENTIAL INFORMATION.
(i) Each of HALP and the General Partner acknowledges
that HALP continually developed Confidential Information and
HALP and the Partners may have learned or may learn
Confidential Information. Each of HALP and the General
Partner will comply with the policies and procedures of NEIC
and its subsidiaries and affiliates for protecting
Confidential Information and shall never disclose to any
Person (except as required by applicable law or to NEIC and
its subsidiaries and affiliates), or use for its own benefit
or gain, any Confidential Information without the prior
written consent of a specifically authorized representative
of NEIC. Each of HALP and the General Partner understands
that this restriction shall continue to apply after the
Closing.
(ii) Each of HALP and the General Partner shall protect
the integrity of Confidential Information and shall keep
confidential all documents, records, tapes and other media of
every kind and description relating to the business, present
or otherwise, of HALP, NEIC or their subsidiaries and
affiliates and any copies, in whole or in part, thereof (the
"Documents") containing Confidential Information. All
---------
Documents, whether or not containing Confidential Information
and whether or not prepared by HALP, shall be the sole and
exclusive property of NEIC and its subsidiaries and
affiliates. Each of HALP and the General Partner shall
safeguard all Documents, and all Confidential Information
they contain, and shall surrender to NEIC at Closing all
Documents then in its possession or control.
(iii) "Confidential Information" means any and all
------------------------
information of HALP, NHLP, NEIC and the subsidiaries and
affiliates of each of them that is not generally known by
others with whom they did or do compete or do business, or
with whom they plan to compete or do business and any and all
information, publicly known in whole or in part or not, that,
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<PAGE>
if disclosed would assist in competition against NEIC or its
subsidiaries and affiliates. Confidential Information
includes without limitation such information relating to (i)
the development, research, testing, marketing and financial
activities of NEIC and its subsidiaries and affiliates, (ii)
the Products and Services, (iii) the financial performance
and strategic plans of NEIC and its subsidiaries and
affiliates, (iv) the identity and special needs of the
clients of NEIC and its subsidiaries and affiliates and (v)
the people and organizations with whom NEIC and its
subsidiaries and affiliates have business relationships and
those relationships. Confidential Information also includes
comparable information that NEIC or any of its subsidiaries
and affiliates receive, or have received, belonging to
clients or others who do business with NEIC or any of its
subsidiaries and affiliates or any other information that is,
or has been, received by NEIC or any of its subsidiaries and
affiliates with any understanding, express or implied, that
it will not be disclosed.
(iv) "Products and Services" mean all products and
---------------------
services offered, planned, researched, developed, tested,
sold, licensed, marketed or otherwise provided by HALP or
NEIC or any of their subsidiaries and affiliates.
(b) RESTRICTED ACTIVITIES. HALP agrees that some restrictions
on HALP's activities from and after the Closing are necessary to
protect the goodwill, Confidential Information and other legitimate
interests of NEIC and its subsidiaries and affiliates:
(i) Until the earlier of fifteen (15) years after the
effective date hereof or the time at which HALP is dissolved
(the "Non-Competition Period"), HALP shall not, directly or
----------------------
indirectly, whether as owner, partner, principal, investor,
consultant, agent, employee, co-venturer or otherwise,
compete with NEIC or any of its subsidiaries or affiliates
within the United States or undertake any planning for any
business competitive with NEIC or any of its subsidiaries or
affiliates. Specifically, but without limiting the
foregoing, HALP agrees not to engage in any manner in any
activity that is directly or indirectly competitive with the
business of NEIC or any of its subsidiaries or affiliates as
conducted or under consideration at any time. Restricted
activity includes without limitation accepting an advisory or
consulting position with any Person who is, or at any time
prior to the Closing has been, a client of HALP, NEIC or any
of their subsidiaries and affiliates. For the purposes of
this Section, the business of NEIC and its subsidiaries and
affiliates shall include all Products and Services offered by
HALP, NEIC or any of their subsidiaries and affiliates or
under development and HALP's undertaking shall encompass all
products and services that may be used in substitution for
Products and Services.
-67-
<PAGE>
(ii) HALP agrees that during the Non-Competition Period,
HALP will not hire or attempt to hire any employee of NEIC or
any of its subsidiaries and affiliates, assist in such hiring
by any Person or encourage any such employee to terminate his
or her relationship with NEIC or any of its subsidiaries and
affiliates. HALP further agrees that during the Non-
Competition Period, HALP will not solicit or encourage any
clients or others who do business with NEIC or any of its
subsidiaries and affiliates to terminate or diminish its
relationship with any of them or to violate any agreement
with any of them, or to conduct with any Person any business
or activity that such client or other person conducts or
could conduct with NEIC or any of its subsidiaries and
affiliates.
(c) ENFORCEMENT OF COVENANTS. The parties intend that the
noncompetition provisions contained in this Section 10.3 shall be
------------
deemed to be a series of separate covenants, one for each and every
county of each and every state of the United States of America and
each and every political subdivision of each and every country
outside the United States of America where this provision is intended
to be effective. HALP acknowledges that it has carefully read and
considered all the terms and conditions of this Section 10.3,
------------
including the restraints imposed upon it pursuant to Sections 10.3(a)
----------------
and (b). HALP agrees that said restraints are necessary for the
---
reasonable and proper protection of NHLP and its subsidiaries and
affiliates and that each and every one of the restraints is
reasonable in respect to subject matter, length of time and
geographic area, in view of the receipt of the Purchase Price and the
1996 Payment received pursuant to this Agreement, the geographic
scope and nature of the business in which HALP is and NHLP and NEIC
will be engaged, HALP's knowledge of NHLP and NEIC's business, and
HALP's relationships with NHLP and NEIC's investment advisory
clients. HALP further acknowledges that, were it to breach any of the
covenants contained in Sections 10.3(a) and (b), the damage to NEIC
---------------- ---
would be irreparable. HALP therefore agrees that NEIC, in addition to
any other remedies available to it, shall be entitled to preliminary
and permanent injunctive relief against any breach or threatened
breach by HALP of any of said covenants, without having to post bond.
The parties further agree that, in the event that any provision of
Section 10.3(a) or (b) shall be determined by any court of competent
--------------- ---
jurisdiction to be unenforceable by reason of its being extended over
too great a time, too large a geographic area or too great a range of
activities, such provision shall be deemed to be modified to permit
its enforcement to the maximum extent permitted by law.
10.4 HALP'S CONTINUED EXISTENCE. The General Partner will not cause HALP
to, and HALP will not, dissolve or otherwise wind up until such time promptly
after the 1996 Second Repurchase Date as HALP shall have delivered to the
Limited Partners their
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<PAGE>
respective portion of the Adjusted 1996 Payment, if any, and collected and
delivered to NEIC such certificates evidencing LP Units repurchased or redeemed
by NEIC.
10.5 SUBORDINATION OF ACCRUALS OF PARTNERSHIP BONUS REVENUES. The
parties hereto acknowledge and agree that, to the extent necessary to permit
NHLP to satisfy the net capital requirements imposed on investment advisors by
the various jurisdictions in which NHLP does business, any accruals by NHLP of
Partnership Bonus Revenues (as defined in the NHLP Partnership Agreement) during
its fiscal year shall be subordinated to other debt of NHLP.
10.6 LISTING OF LP UNITS. NEIC shall use its reasonable efforts to
obtain listing on the Exchange of all LP Units issued and outstanding under the
Agreement following each of (i) completion of all repurchases of LP Units under
Section 1.2(a)(ii) and (ii) the Adjustment Date.
- ------------------
10.7 AGREEMENT OF LIMITED PARTNERSHIP OF HALP. Without NEIC's prior
written consent, HALP shall not (i) amend those provisions of its Second Amended
and Restated Agreement of Limited Partnership of which NEIC is a third party
beneficiary or (ii) amend Article 12 of such agreement.
10.8 TRANSFERS OF LP UNITS FOLLOWING A RESTRUCTURING. In the event
of a Restructuring (as defined in NEIC's partnership agreement), NEIC agrees
that for purposes of permitting transfers of LP Units by the Partners, it shall
treat the Partners equitably in view of the treatment of other Non-Public
Holders (as defined in NEIC's partnership agreement) of LP Units.
10.9 TRANSFERS OF HALP LIMITED PARTNERSHIP INTERESTS. From the
Closing and until completion of all repurchases of LP Units pursuant to Section
-------
1.2(b)(ii), HALP shall not allow any limited partnership interest in HALP to be
- ----------
transferred other than transfers of limited partnership interests in HALP for
estate and tax planning purposes or by operation of law.
ARTICLE XI
GUARANTEES
11.1 GUARANTEES. NEIC hereby guarantees for the benefit of HALP the
performance by NHLP of all of its obligations under this Agreement and each
Related Agreement executed and delivered by NHLP. The General Partner hereby
guarantees for the benefit of NEIC the performance by HALP of all of its
obligations under this Agreement and each Related Agreement executed and
delivered by HALP.
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<PAGE>
ARTICLE XII
GENERAL PROVISIONS
12.1 SURVIVAL. If the Closing occurs, the representations and warranties
contained in this Agreement shall survive the Closing until the 1996 Second
Repurchase Date. If this Agreement is terminated prior to the Closing Date, the
agreements of the parties in Sections 8.2 and 12.5 shall survive.
------------ ----
12.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly received (i) on the date given if
delivered personally or by cable, telegram, telex or telecopy or (ii) on the
date received if mailed by registered or certified mail (return receipt
requested), to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to NEIC: New England Investment Companies, Inc.
399 Boylston Street
Boston, Massachusetts 02117
(617) 578-3500
Fax: (617) 247-1447
Attention: Edward N. Wadsworth, General
Counsel
Copies to: Ropes & Gray
One International Place
Boston, Massachusetts 02110
(617) 951-7000
Fax: (617) 951-7050
Attention: Christopher A. Klem
and
(b) if to HALP: Harris Associates L.P.
Two North LaSalle Street
Suite 500
Chicago, Illinois 60602-3790
(312) 621-0600
Fax: (312) 621-0636
Attention: Victor A. Morgenstern
Copies to: Katten, Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
(312) 902-5267
Fax: (312) 902-1069
Attention: Herbert S. Wander
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9703
(312) 558-5699
Fax: (312) 558-5700
Attention: Robert F. Wall
-70-
<PAGE>
12.3 COUNTERPARTS. This Agreement may be executed in counterparts
(including executed counterparts delivered and exchanged by facsimile
transmission) each of which shall be deemed to constitute an original, but all
of which together shall constitute one and the same instrument.
12.4 GOVERNING LAW. THE VALIDITY, INTERPRETATION AND EFFECT OF THIS
AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE LAWS OF THE STATE OF DELAWARE,
EXCLUDING THE "CONFLICT OF LAWS" RULES OF THAT STATE.
12.5 EXPENSES.
(a) Except as provided in paragraph (b) of this Section 12.5,
------------
each party hereto will bear its own expenses in connection with this
Agreement and the transactions contemplated hereby except that NEIC
and HALP shall each bear half of (i) any sales or transfer taxes
payable by reason of the transfer of the Assets by HALP or the
General Partner to NEIC (or by NEIC to NHLP) or the issuance or
transfer of LP Units contemplated hereunder and (ii) HALP's out-of-
pocket expenses incurred in connection with this Agreement and the
transactions contemplated hereby, such as the cost of HALP's proxy
solicitation pursuant to Section 6.2 and costs associated with
-----------
filings required pursuant to Section 6.5, provided, however, that
----------- -------- -------
NEIC shall pay no more than $250,000 pursuant to this
Section 12.5(a).
---------------
(b) If this Agreement is terminated pursuant to Section 8.1
-----------
hereof (other than clauses (a) or (e) thereof), by reason of the
willful failure of a party to fulfill a condition to the performance
of the other party's obligations or to perform a covenant of this
Agreement or by reason of a willful breach by any party to this
Agreement, such party shall be fully liable for any and all costs and
expenses (including, but not limited to, reasonable attorneys' fees
and expenses)
in connection with this Agreement and the transactions contemplated
hereby incurred by the other party or parties.
12.6 WAIVER; AMENDMENT. Any provision of this Agreement may be (i) amended
or modified at any time (including the structure of the transactions
contemplated hereby, or any part thereof), by an agreement in writing among the
parties hereto and executed in the same manner as this Agreement or (ii) waived
by the party benefitted by the provision.
12.7 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES; ETC. All exhibits and
schedules hereto shall be deemed to be incorporated into and made part of this
Agreement. This Agreement, together with the Related Agreements and the exhibits
and schedules hereto and thereto, represents the entire understanding of the
parties hereto with reference to the transactions contemplated hereby and
supersedes any and all other oral or written agreements heretofore made. All
terms and provisions of the Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective personal representatives,
heirs, successors and permitted assigns. Except for Article X and
---------
-71-
<PAGE>
Section 1.2(b)(iii) and except as otherwise explicitly stated herein, nothing in
- -------------------
this Agreement is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
12.8 ASSIGNMENT. This Agreement may not be assigned by any party hereto
without the written consent of the other parties and any purported assignment in
violation hereof shall be null and void.
12.9 INTERPRETATION. Unless otherwise expressly provided or unless the
context requires otherwise, (a) all references in this Agreement to Articles,
Sections, Schedules and Exhibits shall mean and refer to Articles, Sections,
Schedules and Exhibits of this Agreement, (b) all references to statutes and
related regulations shall include all amendments of the same and any successor
or replacement statutes and regulations, (c) words of any gender shall be deemed
to include each other gender, (d) words used using the singular or plural number
also shall include the plural and singular number, respectively, (e) references
to "hereof," "herein," "hereby" and similar terms shall refer to this entire
Agreement (including the Schedules and Exhibits hereto) and (f) references to
any Person shall be deemed to mean and include the successors and permitted
assigns of such Person (or in the case of a governmental authority, Persons
succeeding to the relevant functions of such Person).
12.10 FURTHER ASSURANCES. The parties hereto agree to execute and deliver
any and all papers and documents which may be reasonably necessary to carry out
the terms of this Agreement.
12.11 CONSISTENT ACCOUNTING. The parties to this Agreement shall consult
with each other for the purpose of arriving at consistent accounting, tax and
reporting treatment, whether public or private, of the transactions contemplated
hereby.
12.12 SEVERABILITY. The provisions of this Agreement are severable and the
invalidity of any provision shall not affect the validity of any other
provision.
-72-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
HARRIS ASSOCIATES L.P.
By: HARRIS ASSOCIATES, INC.,
its general partner
By: /s/ Victor S. Morgenstern
------------------------------------
Title: President
HARRIS ASSOCIATES, INC.
By: /s/ Victor S. Morgenstern
------------------------------------------
Title: President
NEW ENGLAND INVESTMENT COMPANIES, L.P.
By: NEW ENGLAND INVESTMENT COMPANIES,
INC., its general partner
By: /s/ Peter S. Voss
-------------------------------------
Title: Chairman
Acknowledged and Agreed to
as to Sections 6.4 and 6.14:
GLS PARTNERS, L.P.
By: GLS PARTNERS INC.,
its general partner
By: /s/ Edward N. Wadsworth
---------------------------------
Title: President
-73-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Income as of June 31, 1995 (Unaudited) and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JAN-01-1995
<CASH> 11,924
<SECURITIES> 0
<RECEIVABLES> 84,873
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,127
<PP&E> 16,104
<DEPRECIATION> 0
<TOTAL-ASSETS> 315,258
<CURRENT-LIABILITIES> 82,583
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 215,997
<TOTAL-LIABILITY-AND-EQUITY> 315,258
<SALES> 0
<TOTAL-REVENUES> 132,481
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,877
<INCOME-PRETAX> 27,334
<INCOME-TAX> 625
<INCOME-CONTINUING> 26,709
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,709
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0
</TABLE>
