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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ____________________
Commission File Number 1-9468
NEW ENGLAND INVESTMENT COMPANIES, L.P.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3405992
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
399 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 578-3500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Units of Limited Partnership Interest New York Stock Exchange
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Securities registered pursuant to section 12(g) of the Act:
None
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Units of Limited Partnership Interest ("Units")
held by non-affiliates of the registrant at March 15, 1996 (based on the closing
price at which the Units of Limited Partnership Interest were sold on the New
York Stock Exchange) was approximately $80,500,000.
The issuer is a limited partnership. There were 37,285,516 Limited
Partnership Interests outstanding at March 15, 1996.
Page 1 of 56
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PART I
ITEM 1. BUSINESS.
HISTORICAL
New England Investment Companies, L.P. ("NEIC" or the "Partnership")
results from the contribution by New England Mutual Life Insurance Company ("New
England Mutual"), on September 15, 1993, of the businesses and substantially all
of the assets of New England Investment Companies, Inc. (a wholly-owned indirect
subsidiary of New England Mutual) to Reich & Tang L.P. ("Reich & Tang"), a
publicly traded limited partnership listed on the New York Stock Exchange.
At the time of this transaction, characterized herein as an
acquisition, a new corporation named New England Investment Companies, Inc.
became the sole general partner of the Partnership, succeeding Reich & Tang,
Inc. ("RTI"). New England Investment Companies, Inc. (the "General Partner") is
a wholly owned subsidiary of New England Mutual. As of March 15, 1996, New
England Mutual beneficially owned all of the Partnership's general partnership
units ("GP Units") and approximately 20.8 million (56%) of the Partnership's
limited partnership units ("Units").
GENERAL
The Partnership is a major investment manager that offers a broad
array of investment management products and styles across a wide range of asset
categories to institutions and individuals. NEIC operates through eight
investment management firms (the "Investment Management Firms") and five
distribution and consulting firms (the "Distribution and Consulting Firms" and,
together with the Investment Management Firms, the "Firms" or "Subsidiaries").
NEIC's assets under management include domestic and international fixed income
and equity securities, real estate, money market funds and options.
The Partnership's strategy is to capitalize on growth opportunities
for investment management services in the institutional, mutual fund and private
client markets. It offers its clients investment management services through a
decentralized organization that enables its firms to implement their own
distinct investment specialties and philosophies. The Partnership believes this
approach fosters an entrepreneurial environment which encourages the development
of new, innovative investment management products and services, while
maintaining access to the significant resources of the larger organization. The
Partnership supports the Firms' existing businesses and new initiatives that
demonstrate substantial potential for growth in assets under management by
allocating capital and other resources to those businesses and initiatives. In
addition, the Partnership and the Firms identify opportunities for joint
marketing efforts, enhanced distribution of investment products (such as mutual
funds) and operational efficiencies across the organization.
The Investment Management Firms are primarily responsible for
developing and implementing their own investment philosophy, business plans and
management fees. Each Investment Management Firm manages its business
independently on a day-to-day basis and maintains an image and identity that is
separate from both the Partnership and the other Investment Management Firms.
The Partnership makes available distribution, consulting and
administrative services which the Investment Management Firms draw upon as
needed. These services include assistance in marketing and product development,
primarily on behalf of its smaller Investment Management Firms. The Partnership
also provides several of the firms with certain financial, legal, management
information, employee benefits and administrative support services.
The Partnership seeks to grow by expanding the Investment Management
Firms' capabilities; increasing and focusing its marketing efforts; selectively
expanding its distribution channels; and selectively pursuing the acquisition of
investment management firms.
In August 1995, New England Mutual, NEIC's largest investor and sole
shareholder of the General Partner, announced an agreement to merge (the
"Merger") with Metropolitan Life, with Metropolitan Life to be the surviving
entity. This merger, which is subject to various policyholder and regulatory
approvals,
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is expected to take place in the first half of 1996. See Item 1, The Proposed
Merger of New England Mutual and Metropolitan Life.
ACQUISITION STRATEGY
The Partnership seeks to increase cash flow and unitholder
("Unitholder") distributions through internal growth and the acquisition of
investment management firms serving institutional and individual clients. The
Partnership generally seeks acquisitions that are expected to be "accretive,"
meaning that the acquisition would be expected to increase cash flow available
for distribution to Unitholders. The Partnership has identified several key
aspects of its general acquisition strategy.
In accordance with this strategy, the Partnership expects to preserve
the independent identity of acquired firms, which (as in the case of the current
Investment Management Firms) would operate with substantial autonomy, retaining
control of investment decisions, investment philosophy and day-to-day
operations. The Partnership would generally have minority representation on the
board managing the acquired firm, but the firm's executive personnel would be
responsible for reviewing their firm's results, plans and budgets. Key employees
would generally be expected to continue as active participants in the acquired
business under employment agreements executed at the time of acquisition.
The Partnership is prepared to consider various types of financial
arrangements with the owners of the acquired firm, depending on their
circumstances. The Partnership believes that, in many situations, its current
and expected future ability to operate by means of flow-through entities for tax
purposes will permit a significant majority of cash flow to be preserved for the
principals of the acquired firm through the ownership of Units and through
tailored incentive plans. This ability may be particularly helpful in permitting
the owners of firms currently structured as flow-through entities (partnerships
and "S" corporations) to achieve diversification while maintaining cash flow.
Under the Partnership's strategy for possible acquisitions, key
employees of acquired firms may be compensated through firm profit-sharing plans
and Partnership Unit option plans. A portion of the acquired firm's profit or
revenue may be retained for management, subject to later exchange for Units or
cash pursuant to a prearranged formula. In this way, the next "generation" of
management will have the opportunity to participate in the growth of the firm,
while the current principals retain a portion of their cash flow interest
directly in the firm.
The Partnership may provide support to acquired firms in appropriate
situations, through capital advances (for internal growth or the acquisition of
compatible businesses) and through services provided by the Distribution and
Consulting Firms, including mutual fund and institutional marketing.
Recently the market for investment management firms has been
relatively active, with many firms seeking to be acquired or forming strategic
partnerships. At the same time, the competition to acquire successful firms has
increased significantly. The success of the Partnership's acquisition strategy
will depend on its ability to offer terms competitive in the marketplace. The
1995 acquisition of Harris Associates L.P. (the "Harris Acquisition") is an
example of the Partnership's implementation of its strategy. The Partnership
continues to actively evaluate investment management firms for potential
acquisition as part of its growth strategy.
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ASSETS UNDER MANAGEMENT AND ASSET CLASSES
The following table summarizes the Partnership's assets under management as
if the acquisition of Reich & Tang and the Harris Acquisition had occurred on
January 1, 1991:
<TABLE>
<CAPTION>
AT DECEMBER 31, (a)
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1991 1992 1993 1994 1995
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(in millions)
<S> <C> <C> <C> <C> <C>
Institutions:
Fixed Income and Equity $31,250 $32,686 $38,024 $40,642 $50,180
Real Estate Assets 13,120 11,399 8,276 6,600 5,942
Mutual Funds 9,731 11,170 15,465 15,537 20,260
Private Accounts and Other 3,900 3,978 4,405 4,239 4,602
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$58,001 $59,233 $66,170 $67,018 $80,984
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</TABLE>
(a) Includes all assets under management for Capital Growth Management Limited
Partnership ("CGM") which, as of December 31, 1995, was 54% owned by the
Partnership. Assets are shown at net asset value except for real estate
which is shown at gross asset value.
PRIMARY MARKETS
The two primary markets for the investment management services offered by
NEIC's Investment Management Firms are the institutional and mutual fund
markets. Several of the Investment Management Firms also accept individually
managed private accounts for high net worth individuals.
The Institutional Market. The institutional market for investment management
services includes corporate, government and labor union pension plans,
charitable endowments and foundations and corporations purchasing investment
management services for their own account. All of NEIC's Investment Management
Firms serve the institutional market.
The Partnership's Investment Management Firms market their services to the
institutional market through a number of channels. Several of the Investment
Management Firms employ full-time marketing or client relations specialists to
serve the institutional market while others receive marketing assistance from
the Partnership and New England Investment Associates ("NEIA"), one of the
Distribution and Consulting Firms. The Partnership believes that significant
cross-marketing opportunities exist within each Investment Management Firm,
particularly with respect to the large client and consultant-driven markets. In
addition to the efforts of full-time marketing professionals, senior management
personnel and investment professionals at most of the Investment Management
Firms actively market their respective firm's services to institutional clients.
Mutual Funds. The Partnership's Investment Management Firms advise or sub-
advise a total of eighty-two open-end mutual funds, the great majority of which
are grouped into six fund "families" and are marketed through a variety of
channels, as set out below.
The Reich & Tang Funds consist of two fixed income, two equity and sixteen
money market funds marketed on a no-load basis. The money market funds are
offered primarily on a "private label" basis through financial intermediaries to
their customers. At December 31, 1995, the total assets managed by the Reich &
Tang Funds were approximately $6.5 billion, all of which are managed by Reich &
Tang Mutual Funds or Reich & Tang Capital Management.
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The New England Fund Group consists of ten fixed income, eight equity, one
balanced and three money market funds marketed on a commission basis through
broker-dealers, including New England Securities, which serves as broker-dealer
for the New England Mutual insurance agent field force. At December 31, 1995,
the total assets sub-advised by various of the Investment Management Firms were
approximately $5.4 billion.
The Oakmark Funds consist of five equity funds managed by Harris Associates
L.P. marketed on a no-load basis. At December 31, 1995, total assets managed by
The Oakmark Fund Group, all of which are managed by Harris, were approximately
$4.1 billion. The group includes the $3.3 billion Oakmark Fund and the $0.8
billion Oakmark International Fund. In October 1995, Harris Associates L.P.
added three new no-load equity funds to its family of funds.
The CGM Funds consist of two fixed income, two equity and one balanced fund
marketed on a no load basis. At December 31, 1995, total assets managed by the
CGM Funds, all of which are managed by CGM, were approximately $1.7 billion.
The New England Zenith Funds, managed by the Partnership's Investment
Management Firms, consist of one fixed income, six equity, two managed (multi-
sector) and one money market fund which serve as investment vehicles for
variable annuity and variable life insurance products issued by New England
Mutual and an affiliate and sold through broker-dealers, including New England
Securities. At December 31, 1995, total assets sub-advised for New England
Zenith Funds by the Partnership's Investment Management Firms were approximately
$1.6 billion.
The Loomis Sayles Funds consist of five fixed income and four equity funds
managed by Loomis Sayles and are marketed on a no-load basis to individuals who
are clients of Loomis Sayles and others. At December 31, 1995, total assets were
approximately $0.6 billion.
In addition, the Investment Management Firms sub-advise eleven funds not
included in the above groups with total assets of $0.4 billion at December 31,
1995.
INVESTMENT MANAGEMENT FIRMS
NEIC has eight Investment Management Firms, each of which follows an
independent investment strategy and philosophy. The following is a brief
description of their respective businesses.
Loomis, Sayles & Company, L.P. ("Loomis Sayles"). Loomis Sayles was
established in 1926 and was acquired by New England Mutual in 1968. At December
31, 1995, Loomis Sayles managed more than one-half of all assets managed by the
Investment Management Firms.
Loomis Sayles actively manages portfolios of publicly traded fixed-income
securities, equity securities, options and other financial instruments for a
client base consisting of institutional clients (with the largest client groups
being corporate, governmental and union pension funds), endowments and
foundations, and third-party corporate investment portfolios. Loomis Sayles also
manages assets for private accounts for high net worth individuals and mutual
funds, and launched the Loomis Sayles Funds in May 1991.
Loomis Sayles has offices in twelve cities nationwide. Each office maintains
its own independent investment strategies and styles tailored to its particular
investment expertise and client mix, subject to the requirement that portfolios
generally be constructed from securities which are followed by Loomis Sayles'
centralized research group. Loomis Sayles utilizes an internal national
marketing group to supplement and coordinate the marketing efforts of the
professionals in the various offices, to broaden the firm's geographic
representation, and to better focus on Loomis Sayles' relationships with major
investment management consultants.
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Harris Associates L.P. ("Harris"). Founded in 1976, Harris is a Chicago-
based investment advisory firm with institutional, private client and multi-
manager product offerings. Harris also serves as the investment advisor for the
Oakmark Fund Group. Prior to its acquisition on September 29, 1995, Harris was a
privately held partnership. Harris mostly manages equity securities and
generally follows a value approach to investing.
Back Bay Advisors, L.P. ("Back Bay"). Organized in 1986 as a spin-off from
New England Mutual, Back Bay manages mutual funds in two of the Partnership's
mutual fund groups as well as investment portfolios for the New England Mutual
general account ("General Account") and a limited number of other institutional
investors. Back Bay's principal investment specialty is fixed-income management
with an emphasis on intermediate term, low volatility, higher quality
portfolios.
Copley Real Estate Advisors, Inc. ("Copley"). Organized by New England
Mutual in 1981, Copley provides real estate investment services to New England
Mutual, tax exempt institutional investors and others. Copley's tax-exempt
investment clients typically participate in one or more of the several pooled
funds sponsored by Copley, although some have entered into direct management
contracts with Copley. Copley also manages a real estate investment trust and
real estate limited partnerships designed for and distributed to individual
investors.
Copley's traditional value-added approach to client investing typically
emphasizes development joint ventures with local real estate firms. Copley's
strategy also concentrates on certain geographic markets. Copley has
traditionally focused on selected property classes, including industrial and
warehouse facilities, research and development facilities, residential
developments, suburban office parks and undeveloped land. Copley's properties
encompass industrial, office, single-family residential, multifamily, retail and
land. See also Item 1, Services Involving Real Estate.
Reich & Tang Mutual Funds ("R&T Mutual Funds"). Started in 1974, R&T Mutual
Funds manages mutual funds that are marketed primarily through brokerage houses
and regional commercial banks, many of which offer the funds to customers as
their own "private label" products. In addition, it acts as administrator for
mutual funds advised by others and for the equity funds managed by R&T Capital
Management.
Reich & Tang Capital Management ("R&T Capital Management"). Established in
1970, R&T Capital Management manages mutual funds, private investment
partnerships and equity securities for institutions and individuals. R&T Capital
Management emphasizes fundamental research and its philosophy is to seek
investment opportunities in companies with small to medium market
capitalization, strong management, significant market share and relatively low
risk.
Westpeak Investment Advisors, L.P. ("Westpeak"). Established in 1991,
Westpeak provides customized quantitative equity management for institutional
investors, such as pension plans, foundations, and endowments, including assets
of New England Mutual and of mutual funds.
In 1995, the Partnership converted its equity in two smaller investment
management firms, which together managed $437 million in assets at December 31,
1995, into carried interests.
Other Investment Management Firms
Capital Growth Management Limited Partnership ("CGM"). CGM provides
investment management services for mutual funds and for a limited number of
large institutions and individual clients. CGM follows primarily an aggressive,
growth-oriented strategy. CGM was established in 1990 through a spin-off of its
operations from Loomis Sayles. As of December 31, 1995, the Partnership held a
54% limited partnership interest in CGM. The remaining interest is primarily
held by its corporate general partner which is owned by CGM's principals, who
are obligated to apply a defined portion of their CGM earnings to purchase
additional partnership interests from the Partnership at a pre-determined
formula price until such time as the Partnership's ownership interest is reduced
to 50%, which is expected to occur in 1996. The Partnership regards its interest
in CGM as a passive investment and accounts for this interest using the equity
method.
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New England Funds Management, L.P. ("NEFM"). Established in 1995, NEFM serves as
the investment advisor for all funds in the New England Funds Group, twenty of
which are solely sub-advised by, and two of which are partially sub-advised by,
other investment management firms.
DISTRIBUTION AND CONSULTING FIRMS
NEIC and its five Distribution and Consulting Firms provide the Investment
Management Firms with a network of distribution, marketing and administrative
services.
New England Funds, L.P. ("NEF"). NEF serves as the distributor, transfer
agent and administrator of the twenty-two mutual funds in the New England Fund
Group. NEF is registered with the Securities and Exchange Commission (the
"Commission") as a broker-dealer and transfer agent. It is responsible for
product development, marketing, and shareholder services and relations for the
New England Funds Group, which had approximately 344,000 shareholder accounts at
December 31, 1995.
NEF distributes mutual funds through the retail sales network of New England
Securities Corporation ("NES"), a broker-dealer subsidiary of New England Mutual
and through unaffiliated broker-dealers. NEF has devoted significant efforts to
building stable, long-term relationships with regional and national brokerage
firms.
New England Investment Associates, Inc. ("NEIA"). Established in 1989, NEIA
provides institutional marketing and consulting services to the Partnership and
certain of the Investment Management Firms. NEIA also assists the Partnership in
identifying and designing new product opportunities which may be offered through
existing subsidiaries, new ventures or acquired companies.
Reich & Tang Distributors L.P. ("R&T Distributors"). R&T Distributors serves
as the distributor for all of the Reich & Tang Funds. It operates primarily as a
"wholesaler" of fund shares to financial intermediaries, who have direct contact
with the funds' retail shareholders.
Reich & Tang Services L.P. ("R&T Services"). R&T Services acts as transfer
agent with respect to approximately 279,000 shareholder accounts in the Reich &
Tang Funds at December 31, 1995.
Graystone Partners L.P. ("Graystone"). Graystone serves as a consultant and
marketing agent with respect to asset allocation and management services
provided to individuals and families of substantial wealth.
INVESTMENT MANAGEMENT AGREEMENTS AND FEES
Services to Clients Other than New England Mutual. The investment management
accounts of the Partnership's Investment Management Firms generally are managed
pursuant to written investment management agreements with clients which, with
very limited exceptions, are terminable at any time or upon relatively short
notice (typically 30-60 days) by either party. Copley's investment management
contracts are generally either with New England Mutual on behalf of one of its
segregated asset accounts, or with a partnership in which Copley or its
principal subsidiary serves as a general partner.
Services generally are offered on a discretionary basis, where an Investment
Management Firm would make the investment decisions for the assets under
management, and in certain cases on an advisory basis, where the firm recommends
securities and investment policies and strategies to its clients. The
Partnership's Investment Management Firms' contracts may not be assigned without
the consent of the client. Investment management agreements with mutual funds
may be terminated at any time by the fund upon 60 days' notice, and terminate
automatically in the event of their assignment. For purposes of all contracts
entered into by those Investment Management Firms which are investment advisors
registered with the Commission, "assignment" of investment management contracts
is defined to include certain changes in ownership of the Partnership (or New
England Mutual) or the Investment Management Firms themselves.
In providing investment management services, the Partnership's Investment
Management Firms are principally compensated on the basis of fees calculated as
a percentage of assets under management. For
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the Investment Management Firms other than Copley, the fee schedules typically
provide lower incremental fees above certain levels of managed assets.
Management fees for mutual funds are calculated based upon the fund's
average daily net assets. Fees paid by a fund are negotiated between the fund's
advisor and the fund's board of trustees or directors, including a majority of
those who are disinterested. Subsequent changes in the fees must generally be
approved by the fund's shareholders. As a practical matter, mutual fund fees are
revised infrequently, and fee negotiations are influenced by competitive forces
in the mutual fund industry.
Services to New England Mutual General Account. As of December 31, 1995
certain of the Investment Management Firms managed approximately $6.8 billion of
New England Mutual's General Account assets. These services were provided
principally under separate investment management agreements (the "Management
Agreements") with several of the Investment Management Firms and contain annual
fee rates depending upon the class of asset advised and investment objectives.
NEIC earned $15.0 million under this agreement in 1995. NEIC also earned $1.5
million in 1995 under a special incentive fee arrangement for the sale of real
estate assets, in support of New England Mutual's General Account portfolio
reallocation goals. For 1996, the Management Agreements have been amended to
effect minor variations in the annual fee rates in effect based on current
market rates and to set the aggregate minimum fee payable at $13.0 million.
Additionally, there is an opportunity to continue to earn special incentive fees
if real estate assets are sold to unaffiliated buyers. Although the Management
Agreements can be terminated and assets can be allocated to outside managers,
the $13.0 million minimum fee for 1996 is payable to NEIC in the absence of a
material breach of the Management Agreements. Any future rate changes will be
negotiated, and management expects that such negotiated rates will be
competitive in the market at such time.
Services Involving Real Estate. As a real estate investment manager, Copley
is subject to a number of special considerations. From 1990-1993, Copley
experienced declines in assets under management and related fee income primarily
due to the sale of real estate and the withdrawal of Copley as a manager of a
$1.2 billion pooled fund ("PCIG"). This decline was accentuated at Copley
because its investment program featured developmental real estate and the use of
leverage, and because approximately 33% of its advised real estate was located
in Southern California. In addition, Copley's largest client, New England
Mutual, embarked in 1990 on a program to reallocate a significant amount of its
real estate assets to other asset classes.
The difficult real estate investment market of the late 1980's and early
1990's resulted in Copley's primary focus being placed on the management of its
existing portfolios and a limited emphasis being placed on new business
opportunities. However, real estate appears to have stabilized, including real
estate in Southern California. Also in 1995, all of Copley's noninstitutional
real estate limited partnerships had positive annual returns and three out of
the four institutional portfolios had positive annual returns. Also, in 1995,
Copley raised over $200 million in new equity capital for two new major real
estate initiatives and was involved in new product development and new
acquisitions for existing funds.
Although a majority of Copley's client portfolios do not currently permit
client withdrawal, several significant portfolios are now subject to or over the
next five years will become open to client requests for withdrawals.
Although Copley primarily serves as investment manager rather than an owner
of real estate, Copley or an affiliate serves as general partner with respect to
many of the investment funds sponsored by Copley. As a result, Copley or its
affiliate might have potential liability for tort and environmental claims, and,
in a limited number of cases, for debt related to the real estate portfolios.
Copley has taken specific steps to manage these contingencies and believes there
are generally several sources of prior responsibility for these potential
liabilities. Copley is a defendant in litigation relating to one of the
portfolios it formerly advised, as to which it has received indemnification from
New England Mutual. See Item 3, "Legal Proceedings".
COMPETITION
The investment management business is highly competitive. NEIC and the
Investment Management Firms compete with a large number of investment management
firms, commercial banks, insurance
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companies and others, many of which are larger and have access to greater
resources. Furthermore, in some instances the Investment Management Firms may
compete with one another and with New England Mutual for client assets.
NEIC believes that the most important factors affecting its competition for
clients are: the abilities, performance records and reputations of investment
managers; the ability to hire and retain key investment managers; the
effectiveness of marketing and client services programs; the development of new
investment strategies and information technologies; and competitiveness in fees.
The Partnership's competitive position also is dependent, in part, on the
relative attractiveness of the types of investment products offered and the
investment philosophies, strategies and methods of the various Investment
Management Firms under prevailing market conditions.
A large number of mutual funds are sold to the public by investment
management firms, broker-dealers, insurance companies and banks in competition
with mutual funds sponsored by the Partnership. The retention of client assets
is dependent on investment performance and shareholder account service. The
retention of assets in load mutual funds, which the New England Fund Group has
traditionally offered, is dependent to a significant degree on the ability to
attract, retain and compensate retail brokerage salespersons, including both
unaffiliated brokers and participating insurance agents in New England Mutual's
agent field force.
REGULATION
The Partnership is subject to extensive governmental regulation and
supervision in much of its operations. The Partnership and the Investment
Management Firms are subject to the Investment Advisers Act of 1940, as amended
(the "Investment Advisers Act") and the mutual funds that they advise,
distribute or administer are subject to the Investment Company Act of 1940.
Various Partnership entities are also subject to: the net capital and other
requirements of broker-dealer registration under the Securities Exchange Act of
1934; commodity trading advisor and commodity pool operator regulation by the
Commodity Futures Trading Commission; federal and state laws regulating
securities and insurance product offerings; and state laws and regulations
regarding investment advisors, broker-dealers and other financial
intermediaries. In addition, the Investment Management Firms are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and to
regulations promulgated thereunder, insofar as they are "fiduciaries" under
ERISA with respect to their clients.
Because New England Mutual owns the General Partner and has a significant
ownership interest in the Partnership, Massachusetts law relating to the
subsidiaries of life insurance companies may apply to the business activities
conducted by the Partnership. After the proposed Merger of New England Mutual
into Metropolitan Life, Metropolitan Life succeeds to such ownership interests
and New York Law may have similar application. However, in neither case is this
expected to impose any limitations on the scope or nature of the Partnership's
business activities.
The laws and regulations relating to the Partnership's business generally
grant supervisory agencies and bodies broad administrative powers, including the
power to limit or restrict any of the firms or individuals associated with such
firms from conducting their business in the event that they fail to comply with
such laws and regulations. In addition, changes in these laws or regulations
could have a material adverse impact on the profitability and mode of operations
of the Partnership and the Firms.
EMPLOYEES
As of December 31, 1995, the Firms (other than CGM) employed approximately
1,000 persons. NEIC believes that, overall, its relations with its employees are
satisfactory. Employees are compensated with a combination of salary,
discretionary or performance-based bonus, profit sharing and fringe benefits.
NEIC has sought to retain its senior employees through compensation arrangements
which it believes are competitive in the industry.
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POSSIBLE FUTURE RESTRUCTURING OF THE PARTNERSHIP
The Partnership will cease to be classified as a partnership for federal
income tax purposes, and will be treated as a corporation, immediately after
December 31, 1997 (or sooner if the Partnership adds a substantial new line of
business or otherwise fails to satisfy certain requirements) unless the
Partnership ceases to be publicly traded prior to that time. In view of the
potentially adverse tax consequences to certain Unitholders, including New
England Mutual, of such a change in tax classification ("Change of Tax Status"),
the Partnership Agreement confers on the General Partner broad authority to
effect a restructuring ("Restructuring") of the Partnership, subject to a
standard of good faith on the part of the General Partner.
The range of possibilities for a Restructuring is broad. Under all possible
forms, however, all Unitholders will, independent of tax consequences, continue
their respective proportionate participation in the earnings of the
Partnership's business. Under several possible forms, however, different
Unitholders may participate through different entities. Management believes that
it is likely that Non-Public Partners (which generally includes New England
Mutual, RTI and other significant Unitholders which have contributed appreciated
property to the Partnership as a result of an acquisition by the Partnership)
would hold their interests through a private partnership where distributions to
owners would not be subject to entity level tax. Management also believes that
it is likely that Public Partners (which generally includes all Unitholders
other than Non-Public Partners) would participate through an entity which is
taxable as a corporation in order to preserve public market liquidity for their
interests. Other forms of Restructuring might not involve disparate tax results
for the Public and non-Public Partners.
The General Partner expects that any Restructuring would provide holders of
publicly traded Units with the ongoing benefit of public market liquidity for
their interests in the Partnership's business. While the partnership agreement
(the "Partnership Agreement") provides that the General Partner may impose
restrictions on transfer as part of a Restructuring (which may have the effect
of preserving the Partnership's tax status as a partnership), the General
Partner believes that trading restrictions will not be necessary.
The General Partner is obligated, in determining the form any Restructuring,
to seek to accomplish certain objectives in a specified order of priority. These
objectives include: (i) to prevent New England Mutual, and any other partners
that may have contributed appreciated property to the Partnership, from
recognizing taxable gain as a result of a Change of Tax Status of the
Partnership; (ii) to prevent, to the extent reasonably practicable, the interest
of New England Mutual and other non-Public Partners from being subject, directly
or indirectly, to corporate-level federal income taxes; (iii) to preserve, to
the extent reasonably practicable, a public market for the Public Partners'
interests in the Partnership (or successor or affiliated entity) following a
Change of Tax Status or Restructuring; and (iv) to preserve, to the extent
reasonably practicable, the ability of non-Public Partners to dispose of all or
part of their interests in the Partnership (or a successor or affiliated entity
that has publicly tradable interests) in the public market.
The General Partner may seek to accomplish the foregoing objectives through
a variety of actions, including without limitation the transfer of business
assets of the Partnership to existing or new affiliated entities, the mandatory
exchange of Units for interests in such affiliated entities and, as discussed
above, the imposition of restrictions on the transferability of interests in the
Partnership or affiliates of the Partnership, provided that no Restructuring may
subject a Unitholder to liability to Partnership creditors without such
Unitholder's consent. There can be no assurance that a Restructuring would in
fact achieve any of the Partnership objectives. In addition, the Partnership
Agreement relieves the General Partner and its affiliates from any fiduciary or
other duties to the Partnership or any other Partner for any actions taken or
omitted by the General Partner in good faith with respect to a Restructuring.
The General Partner may commence or effect a Restructuring at any time.
However, unless it believes that a Change of Tax Status would otherwise occur
prior to January 1, 1998, no Restructuring may be effected which will, prior to
December 31, 1997, (i) restrict the transferability of Units held by the public,
(ii) subject interests in the Partnership to corporate-level tax; or (iii) limit
the access of non-Public Partners to the public trading market for the Units.
10
<PAGE>
THE PROPOSED MERGER OF NEW ENGLAND MUTUAL AND METROPOLITAN LIFE
In August 1995, New England Mutual announced an agreement to merge (the
"Merger") with Metropolitan Life, with Metropolitan Life to be the surviving
entity. This merger, which is subject to various policyholder and regulatory
approvals, is expected to take place in the first half of 1996. Metropolitan
Life is the second largest life insurance company in the United States in terms
of total assets, having assets of over $130 billion (and adjusted capital of
over $8 billion) as of June 30, 1995. Incident to the Merger, New England
Mutual's ownership interests in NEIC and the General Partner will be transferred
to Metropolitan Life, and Metropolitan Life will assume the various contractual
obligations of New England Mutual to NEIC and the Firms. This transaction will
constitute a technical "change of control" of NEIC under federal securities law.
As a consequence, the Investment Management Firms are in the process of
soliciting the consent of individual investment advisory clients and the
reapproval by mutual fund shareholders of investment management contracts with
the funds they advise.
The transfer of New England Mutual's interest in NEIC to Metropolitan Life
incident to the proposed merger is expected to cause a technical termination and
reconstitution of NEIC as a partnership for federal income tax purposes. Were
this to occur, management expects to preserve to public unitholders
substantially all of the benefits of amortization tax deductions that they would
have enjoyed if the termination had not occurred. Termination, if it occurred,
would have no effect on NEIC continuing its status as a master limited
partnership.
Copley serves as investment manager of a number of New England Mutual
separate accounts, holding interests in real estate for third party clients. The
proposed merger may constitute a transfer of these interests in certain
circumstances resulting in the incurrence of additional expenses at the separate
accounts and a possible need to refinance debt relating to certain properties.
Copley and New England Mutual are developing a plan to deal with these matters
and to protect the interests of Copley and its clients. NEIC does not expect any
material adverse financial consequences resulting from this transfer.
FORWARD-LOOKING STATEMENTS
From time to time, management of the Partnership may make written or oral
statements that express its views on the Partnership's future performance. As
with any forward-looking statement, these statements should be considered in
light of certain risks and uncertainties that may cause actual results to vary
materially from what had been anticipated. These important factors include the
following:
Conditions Affecting Fee Revenues. The Partnership's revenues, cash flows and
earnings may be adversely affected by shifts in client preferences toward
classes of assets that produce lower fees or by a decline in assets under
management resulting from changing economic conditions or the performance of the
capital markets generally.
Reliance on Key Personnel. The departure of key personnel, such as skilled
portfolio managers or employees responsible for significant client
relationships, could have a material adverse effect on the Partnership's results
of operations.
Competition. The Partnership may experience losses due to the highly competitive
nature of its business. The performance of accounts managed by NEIC's Firms as
compared to the performance of competitors' accounts or the market generally,
the abilities and reputations of NEIC's Firms and the relative attractiveness of
the types of investment products, philosophies and strategies offered by NEIC's
firms impact the Partnership's ability to increase and retain assets under
management.
Regulatory and Legal Factors. NEIC's business may be affected by developments or
changes in the regulation of its Firms or its Firms' clients or other legal
developments.
Tax Considerations. Tax benefits, if any, resulting from the classification of
the Partnership as a partnership depend on many circumstances that are beyond
NEIC's control. Changes in the law, any termination of the Partnership
(technical or otherwise), certain transfers of Units and certain changes in the
market price of NEIC's Units all are occurrences, among others, that may affect
NEIC's results or taxable income reported to Unitholders. NEIC's status as a
limited partnership for federal income tax purposes is currently scheduled to
expire at the end of 1997.
11
<PAGE>
ITEM 2. PROPERTIES.
The Partnership and Firms collectively occupy approximately 400,000 square
feet of leased space in various locations, including 200,000 square feet in
Boston, Massachusetts, 50,000 square feet in New York, New York and 75,000
square feet in Chicago, Illinois. In addition, space is leased by various of the
Firms in a number of locations in major U.S. cities.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership and its Firms are subject to no material legal proceedings
except as set forth below.
On July 30, 1993, the Washington State Investment Board (the "SIB") filed
suit against New England Mutual and Copley (the "Defendants") in the Superior
Court of the State of Washington for Thurston County. The SIB's suit alleges
that certain Washington State public employee retirement funds for which it has
investment responsibility have lost over $600 million of the $800 million they
invested in Prentiss Copley Investment Group ("PCIG"), a closed-end, commingled
fund managed by Copley, which owns commercial real estate and certain other real
estate ventures advised by Copley. The suit seeks rescission of the investments
and repayment of the amounts invested, or, alternatively, money damages, plus
interest, attorneys' fees and costs, together with disgorgement of fees and
profits received by the Defendants.
Also on July 30, 1993, the State Teachers Retirement System of Ohio (the
"Ohio Board") filed suit against the Defendants in the U.S. District Court for
the Southern District of Ohio. The Ohio Board alleges that it has lost all or
substantially all of the value of its $50 million investment in PCIG and seeks
restoration of that amount plus interest and disgorgement of profits, as well as
attorneys' fees and costs.
In general, the Ohio Board and the SIB suits allege breach of fiduciary
duty, breach of contract, gross negligence and misrepresentation and violation
of various state statutes. Both plaintiffs have demanded jury trials. The
Defendants have filed answers to both suits denying all liability and raising a
number of affirmative defenses.
Previous actions raising many of the same issues as the SIB action had been
filed by individuals alleging to be beneficiaries of the Washington State
retirement plans involved in the SIB action. The dismissal of these actions by
the U.S. District Court for the Western District of Washington was appealed by
the plaintiffs to the United States Circuit Court of Appeals for the Ninth
Circuit, which affirmed the District Court's dismissal.
The Defendants intend to defend the actions vigorously. New England Mutual
has agreed to indemnify Copley against any and all liability and expense arising
out of these suits or out of other claims or actions relating to the SIB
retirement plans' 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 the Partnership. 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, and, subsequent to the Merger, Metropolitan Life's agreement to
indemnify Copley for its expenses and liabilities, if any.
NEIC and its Subsidiaries are from time to time involved in various legal
proceedings and claims incurred in the conduct of their investment businesses.
These include two instances of client dissatisfaction expressed to Loomis, one
involving purported losses of $22 million claimed to have arisen from the
purchase of certain securities and the other involving losses as a result of an
options overwrite program. No litigation has been commenced in either situation.
However, if litigation is commenced, Loomis believes it has meritorious defenses
and will vigorously contest both allegations of liability and damages.
Management believes that these claims and the other claims and legal proceedings
will not have a material adverse effect on NEIC's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of Unitholders during the fourth quarter
of 1995.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
UNIT INFORMATION
- ----------------
NEIC's Units are listed on the New York Stock Exchange under the symbol
"NEW." High and low sales prices for the Units together with distributions
declared for the years ended December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DISTRIBUTIONS
1995 HIGH LOW DECLARED
---- ---- --- -------------
<S> <C> <C> <C>
First Quarter $18 3/8 $15 3/8 $0.42
Second Quarter 18 3/4 16 1/4 0.44
Third Quarter 22 3/8 18 1/2 0.44
Fourth Quarter 21 3/8 20 0.48
DISTRIBUTIONS
1994 HIGH LOW DECLARED
---- ---- --- -------------
First Quarter $23 5/8 $19 1/4 $0.42
Second Quarter 20 3/8 17 3/4 0.42
Third Quarter 20 1/2 17 7/8 0.42
Fourth Quarter 19 1/2 15 1/8 0.42
</TABLE>
On March 15, 1996, the closing price of the Units on the New York Stock
Exchange was $23 3/8 per Unit. As of such date, NEIC had approximately 3,600
Unitholders of record. On March 19, 1996, a distribution of $0.48 per Unit was
declared payable on May 15, 1996 to unitholders of record on March 31, 1996.
13
<PAGE>
DISTRIBUTION POLICY
- -------------------
The Partnership intends to distribute to Unitholders substantially all of
its operating cash flow ("Operating Cash Flow") not required for normal business
operations and working capital needs, including support of the Partnership's
growth strategy. Management defines Operating Cash Flow per Unit as net income
per publicly held LP Unit ("Public Unit") plus amortization of intangible assets
adjusted for any other significant non-cash items. Management does not consider
capital gains as part of Operating Cash Flow.
The following calculation of Operating Cash Flow per Unit for the years ended
December 31 should be read in conjunction with the historical financial
statements of NEIC, and the notes thereto, included in Item 8. Operating Cash
Flow per Unit should not be construed as an alternative to net income per Public
Unit or as an alternative to cash flow from operating activities as reported in
the Consolidated Statement of Cash Flows in the audited financial statements.
<TABLE>
<CAPTION>
1994 1995
------- -------
PER UNIT
--------
<S> <C> <C>
Net income per Public Unit $ 1.13 $ 1.73
Add: Amortization of intangible assets (1) 0.32 0.44
Mutual fund support charge (2) 0.48 -
Less: Capital gains (0.15) (0.14)
-------- --------
Operating Cash Flow $ 1.78 $ 2.03
------- -------
Distributions Declared $ 1.68 $ 1.78
------- -------
Weighted Average Units Outstanding (in thousands) (3) 31,992 33,824
-------- --------
</TABLE>
- --------------------
(1) Amortization of intangible assets is a non-cash expense and does not reduce
amounts available for cash distributions to Unitholders.
(2) The mutual fund support charge of $15.3 million was incurred when U.S.
Government agency securities with a par value of $221.8 million were
purchased from three money market funds advised by Reich & Tang Mutual
Funds. The charge represents the difference between the purchase price, at
par, and the fair value of the securities, all of which were sold by the
Partnership by June 1995.
(3) Includes 1,940,828 Units that would be issued at market value, assuming the
deferred purchase consideration payment was made entirely in Units as
determined under a formula set forth in the acquisition agreement of
Harris.
The board of directors of the General Partner typically declares
distributions at its meeting during the last month of the quarter to which the
distribution relates, payable to Unitholders of record on the last day of the
quarter. Following any loss of the Partnership's current tax status as described
under Item 1, "Possible Future Restructuring of the Partnership," it is likely
that the distribution policy would be reviewed in light of the then applicable
scheme for taxation of the Partnership's business and its Unitholders.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED HISTORICAL FINANCIAL DATA
- -----------------------------------
The following historical financial data should be read in conjunction with
the historical financial statements of NEIC, and the notes thereto.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
(in thousands, except per unit data)
STATEMENT OF INCOME DATA:
Revenues $147,626 $153,784 $ 178,720 $ 234,034 $280,258
Expenses 87,950 86,324 146,343 204,009/(6)/ 225,953
-------- -------- ---------- ------------- --------
Income before income taxes 59,676 67,460 32,377 30,025 54,305
Provision for income taxes 24,250 27,500 16,705 1,100 1,555
-------- -------- ---------- ------------- --------
Net income $ 35,426 $ 39,960 $ 15,672 $ 28,925/(6)/ $ 52,750
-------- -------- ---------- ------------- --------
DISTRIBUTIONS DECLARED $ 15,000 $ 20,000 $ 25,596 $ 53,745 $ 59,527
-------- -------- ---------- ------------- --------
NET INCOME PER PUBLIC UNIT n/m/(4)/ n/m/(4)/ $ 0.43 $ 1.13/(6)/ $ 1.73
-------- -------- ---------- ------------- --------
DISTRIBUTIONS DECLARED PER UNIT n/m/(4)/ n/m/(4)/ $ 1.56/(3)/ $ 1.68 $ 1.78
-------- -------- ---------- ------------- --------
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C>
(in thousands)
BALANCE SHEET DATA:
Total assets /(1)/ $141,011 $106,117 $ 295,355 $ 478,399 $520,873
Promissory notes - - - - 80,919
Deferred purchase consideration - - - - 41,000
Deferred compensation, benefits and other 65,697 28,904 15,736 16,800 17,666
Total liabilities 119,270 83,461 63,894 267,683 211,850
Partners' capital /(2)/ 21,741 22,656 231,461 210,716 309,023
ASSETS UNDER MANAGEMENT (in billions) /(5)/ $49.7B $50.4B $61.2B $61.3B $81.0B
</TABLE>
- ----------------
/(1)/ Approximately $162 million of intangible assets resulted from the
acquisition of Reich & Tang in 1993 and approximately $219 million of
intangible assets resulted from the acquisition of Harris in 1995.
/(2)/ In 1993, partners' capital increased due to approximately $162 million of
intangible assets which resulted from the acquisition of Reich & Tang,
and by approximately $51 million due to capital contributions from New
England Mutual. In 1995, partners' capital increased by approximately $95
million due to the issuance of 5,366,898 newly issued Units to acquire
Harris on September 29, 1995.
/(3)/ 1993 distributions declared represent those of Reich & Tang prior to its
acquisition and by NEIC thereafter.
/(4)/ Not meaningful as the acquisition of Reich & Tang took place in September
1993.
/(5)/ Includes all assets under management for CGM which, as of December 31,
1995, was 54% owned by the Partnership. Assets are shown at net asset
value except for real estate which is shown at gross asset value.
/(6)/ 1994 results include a charge of $15.3 million for the purchase of U.S.
Government agency securities.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
- -------
Consolidated summary financial information of New England Investment Companies,
L.P. for the years ended December 31 follows (in thousands, except per unit
data).
<TABLE>
<CAPTION>
1993 /(3)/ 1994 1995 /(4)/
-------- --------- --------
REVENUES
<S> <C> <C> <C>
Management and advisory fees $159,307 $203,889 $240,123
Other revenues and interest income 15,450 25,399 35,423
Gain from partial sale of affiliate 3,963 4,746 4,712
-------- -------- --------
178,720 234,034 280,258
-------- -------- --------
EXPENSES
Compensation and benefits 89,592 108,286 131,155
Restricted unit plan compensation 6,962 7,187 5,843
Amortization of intangibles 3,305 10,961 14,801
Other 63,189 63,375 75,709
-------- -------- --------
163,048 189,809 227,508
-------- -------- --------
INCOME BEFORE SUPPORT CHARGE 15,672 44,225 52,750
Mutual fund support charge - 15,300 -
-------- -------- --------
NET INCOME $ 15,672 $ 28,925 $ 52,750
-------- -------- --------
NET INCOME PER PUBLIC UNIT $ 0.43 $ 1.13 $ 1.73
-------- -------- --------
OPERATING CASH FLOW/ (1)/ n/m /(5)/ $ 57,627 $ 68,682
--------- -------- --------
OPERATING CASH FLOW PER PUBLIC UNIT/(1)/ n/m /(5)/ $ 1.78 $ 2.03
--------- -------- --------
DISTRIBUTIONS DECLARED PER UNIT/(2)/ $ 1.56 $ 1.68 $ 1.78
-------- -------- --------
WEIGHTED AVERAGE UNITS OUTSTANDING 31,994 31,992 33,824
-------- -------- --------
</TABLE>
- -------------------
/(1)/ Operating Cash Flow represents income before support charge plus
restricted unit plan compensation and amortization of intangibles reduced
by capital gains. Operating Cash Flow per Unit should not be construed as
an alternative to Net income per Public Unit or cash flow from operating
activities.
/(2)/ Distributions declared represent those of Reich & Tang prior to its
acquisition and by NEIC thereafter.
/(3)/ Includes the results of Reich & Tang effective September 15, 1993.
/(4)/ Includes the results of Harris effective October 1, 1995.
/(5)/ Not meaningful as the acquisition of Reich & Tang took place in September
1993.
16
<PAGE>
STATEMENT OF INCOME FOR 1995 COMPARED TO 1994
- ---------------------------------------------
Net income of $52.8 million or $1.73 per Public Unit in 1995 increased $23.8
million (or 53% per Public Unit) as compared to net income of $28.9 million or
$1.13 per Public Unit in 1994. The increase primarily reflects a $19.7 billion
increase in assets under management in 1995. Included in the 1994 results was a
charge of $15.3 million associated with NEIC's support of three mutual funds
advised by one of its subsidiaries. Included in the 1995 increase in assets
under management is $7.9 billion which resulted from the September 29, 1995
acquisition of Harris.
Management and advisory fees of $240.1 million in 1995 were up $36.2 million
(or 18%) as compared to $203.9 million in 1994. Strong investment performance,
combined with increases in assets under management, resulted in a $23.0 million
(or 18%) increase in equity and fixed income institutional revenues. Mutual fund
revenues increased $12.1 million (or 22%) resulting from market growth of equity
funds, increases in money market fund assets and the addition of assets managed
by Harris when compared to 1994. Real estate revenues increased $1.1 million
when compared to 1994 due primarily to incentive fees associated with asset
sales.
Other revenues and interest income of $35.4 million in 1995 increased $10.0
million as compared to $25.4 million in 1994 due to interest income and the gain
on U.S. Government agency securities which together totaled $4.8 million, higher
transfer agency fees and sales commissions.
A $4.7 million gain on the partial sale of the NEIC's interest in its
affiliate, CGM, was realized during the first quarter of 1995 in accordance with
an agreement with CGM management to increase its ownership interest.
Compensation and benefits of $131.1 million in 1995 increased $22.8 million
(or 21%) as compared to $108.3 million in 1994. The increase reflects total
compensation of $8.4 million for Harris recorded in the fourth quarter of 1995,
increased variable compensation of $7.9 million due to subsidiary profitability,
portfolio performance and sales growth and higher base compensation and benefits
resulting from annual salary and staffing increases at certain advisory offices.
Restricted unit plan compensation of $5.8 million in 1995 decreased $1.4
million or 19% as compared to $7.2 million in 1994 due to a shorter initial
vesting period of Units in 1994 as compared to 1995.
Distribution costs of $21.0 million in 1995 increased $2.0 million as
compared to 1994. The increase results primarily from higher 12b-1 fees paid to
brokers, promotional costs associated with the launching of several new funds
and a new 401(k) marketing initiative.
Amortization of intangible assets of $14.8 million in 1995 increased $3.8
million from $11.0 million in 1994 due to the acquisition of Harris on September
29, 1995.
Interest expense of $5.3 million in 1995 increased $3.6 million from $1.7
million in 1994. The increase results from interest on promissory notes to fund
the acquisition of Harris ($1.2 million) and securities sold under agreements to
repurchase ($2.4 million) to finance the U.S. Government agency securities.
Other expenses of $33.5 million in 1995 increased $4.6 million compared to
$28.9 million in 1994. The 1995 increase is primarily the result of an increase
in general and administrative expenses associated with higher business
activities and the addition of Harris for the fourth quarter of 1995.
Copley and New England Mutual have been named in litigation described in
note 12 of the financial statements. Management believes that significant losses
as a result of these suits are remote and the suits 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.
17
<PAGE>
STATEMENT OF INCOME FOR 1994 COMPARED TO 1993
- ---------------------------------------------
1994 results include a full year of Reich & Tang's operations while 1993
results include only three and one half months of Reich & Tang's operations.
Management and advisory fees of $203.9 million for the year ended December
31, 1994 were up $44.6 million over 1993. The 1993 fees exclude $29.6 million
earned by Reich & Tang during the first eight and one half months of 1993. The
remaining increase in management and advisory fees of $15.0 million is mainly
the result of growth in new equity and fixed income institutional business.
Mutual fund revenue also increased $5.4 million over 1993. These increases were
partially offset by a $3.0 million decrease in institutional real estate
management fees compared to the same period a year ago primarily as a result of
the disposition of assets under management.
Other revenues and interest income of $25.4 million increased $9.9 million
over 1993. The 1993 results exclude eight and one half months of Reich & Tang's
revenues of $3.2 million. The remaining increase of $6.7 million primarily
results from an increase in transfer agency fees of $4.5 million for services
NEIC began performing in September 1993.
A $4.7 million gain on the partial sale of NEIC's interest in its affiliate,
CGM, was realized during the first quarter of 1994 in accordance with an
agreement with CGM management to increase its ownership interest.
Compensation and benefits of $108.3 million in 1994 increased $18.7 million
compared to 1993. Results for 1993 exclude eight and one half months of Reich &
Tang's expenses of $8.7 million. Results for 1994 include an $8.9 million
increase in base compensation and benefits due to annual salary increases,
staffing for new and expanded advisory offices, and the addition of the transfer
agency function. Variable compensation plans, which are generally based on
subsidiary profitability, portfolio performance, and sales growth, increased
$1.1 million in 1994 as compared to 1993.
Restricted unit plan compensation of $7.2 million in 1994 results from the
vesting of Units granted to certain employees in 1993 by New England Mutual and
Reich & Tang, Inc.
Distribution costs of $19.0 million increased $7.4 million as compared to
1993. The 1993 results exclude eight and one half months of Reich & Tang's
distribution costs of $7.2 million.
Amortization of intangible assets was $11.0 million in 1994 whereas 1993
results include amortization expense for only the three and one half month
period subsequent to September 15, 1993.
Occupancy and equipment of $12.7 million in 1994 increased $2.6 million as
compared to 1993. Results for 1993 exclude eight and one half months of Reich &
Tang's expenses of $1.1 million.
A mutual fund support charge of $15.3 million was incurred in 1994 when U.S.
Government agency securities with a par value of $221.8 million were purchased,
at fair value, from three money market funds advised by Reich & Tang Asset
Management L.P. Management took this action to ensure the fund shareholders were
protected from any potential lack of liquidity or volatility in the market.
Interest expense of $1.7 million in 1994 is due to financing costs
associated with the U.S. Government agency securities.
Other expenses of $28.9 million in 1994 increased $5.6 million as compared
to 1993. Results for 1993 exclude eight and one half months of Reich & Tang's
expenses of $4.6 million.
Income tax expense of $1.1 million in 1994 decreased $15.6 million from 1993
due to the tax effect of the acquisition of Reich & Tang.
18
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Operating cash flow not required for working capital or growth strategies is
generally distributed to unitholders each quarter. Distributions to unitholders
are typically declared during the last month of calendar quarters.
On December 19, 1995, the Board of Directors declared a distribution of
$18.0 million or $0.48 per Unit payable on February 15, 1996 to unitholders of
record on December 31, 1995. The comparable distribution rate on December 31,
1994 was $0.42.
Cash and cash equivalents at December 31, 1995 of $34.4 million increased
$17.5 million from December 31, 1994. The increase reflects the sale of the
deferred sales commissions and the proceeds (net of associated debt) from the
sale of the U.S. Government agency securities and the CGM gain.
NEIC acquired the assets and assumed certain liabilities of Harris on
September 29, 1995 for an initial payment of $175.0 million paid in $79.7
million of promissory notes, due and paid on January 9, 1996 and $95.3 million
of newly issued Units. An additional payment will be made on April 2, 1997 in
Units, cash or a combination thereof, based upon a multiple of the greater of
1995 or 1996 revenues. Based on 1995 results, this payment would be $41 million.
The $79.7 million of promissory notes, together with accrued interest of
$1.2 million, matured in January 1996 and were financed with senior notes due
2003 with an effective interest rate of 7.06%. The approximate $30 million of
excess proceeds from the senior notes will be used for acquisitions or general
purposes. An additional $15.0 million of liquidity is available from an unused
line of credit at December 31, 1995.
ASSETS UNDER MANAGEMENT
- -----------------------
Assets under management at December 31 follow:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1993 1994 1995
-------- -------- --------
(in billions)
<S> <C> <C> <C>
Institutions:
Fixed income and equity $37.0 $39.3 $50.2
Real estate assets 8.3 6.6 5.9
Mutual funds 13.1 12.8 20.3
Private accounts and other 2.8 2.6 4.6
----- ----- -----
$61.2 $61.3 $81.0
----- ----- -----
</TABLE>
At December 31, 1995, assets under management were $81.0 billion, an
increase of $19.7 billion (or 32%) as compared to $61.3 billion at December 31,
1994. Harris contributed $7.9 billion of this increase including $4.1 billion of
mutual funds, $1.9 billion of institutional fixed income and equity funds and
$1.9 billion of private accounts. Excluding the $7.9 billion of Harris' assets
under management, assets under management increased $11.8 billion (or 19%) as
compared to December 31, 1994. Assets under management include all assets under
management for CGM which, as of December 31, 1995, was 54% owned by the
Partnership.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -----------------------------------------------------
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31,
---------------------
1994 1995
---------- ---------
<S> <C> <C>
(in thousands)
Assets
- ------
Current Assets:
Cash and cash equivalents $ 16,884 $ 34,385
Accounts receivable 40,955 54,403
Other 4,756 11,697
-------- --------
Total current assets 62,595 100,485
Intangible assets 149,123 355,122
Fixed assets 15,286 17,167
U.S. Government agency securities 203,808 -
Other assets 47,587 48,099
-------- --------
Total assets $478,399 $520,873
-------- --------
<CAPTION>
Liabilities and Partners' Capital
- ---------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 15,488 $ 22,289
Accrued compensation and benefits 19,594 29,541
Distribution payable 13,436 17,950
Note payable 5,000 2,485
Securities sold under agreement to
repurchase 197,365 -
-------- --------
Total current liabilities 250,883 72,265
Deferred compensation, benefits and other 16,800 17,666
Promissory notes - 80,919
Deferred purchase consideration - 41,000
-------- --------
Total liabilities 267,683 211,850
-------- --------
Commitments and contingent liabilities
(note 12)
Partners' Capital:
Partners' capital 213,757 309,023
Unrealized loss on securities (3,041) -
-------- --------
Total partners' capital 210,716 309,023
-------- --------
Total liabilities and partners'
capital $478,399 $520,873
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
-------- -------- --------
(in thousands, except per unit data)
<S> <C> <C> <C>
Revenues
- --------
Management and advisory fees $159,307 $203,889 $240,123
Other revenues and interest income 15,450 25,399 35,423
Gain on partial sale of affiliate 3,963 4,746 4,712
-------- -------- --------
178,720 234,034 280,258
-------- -------- --------
Expenses
- --------
Compensation and benefits 89,592 108,286 131,155
Restricted unit plan compensation 6,962 7,187 5,843
Distribution costs 11,584 18,955 20,955
Amortization of intangibles 3,305 10,961 14,801
Occupancy and equipment 10,114 12,717 14,418
Interest expense 1,477 1,705 5,301
Mutual fund support charge - 15,300 -
Other 23,309 28,898 33,480
-------- -------- --------
146,343 204,009 225,953
-------- -------- --------
Income before income taxes 32,377 30,025 54,305
Income tax expense 16,705 1,100 1,555
-------- -------- --------
Net income $ 15,672 $ 28,925 $ 52,750
-------- -------- --------
Net income per Public Unit (note 3) $ 0.43 $ 1.13 $ 1.73
-------- -------- --------
Weighted average Units outstanding 31,994 31,992 33,824
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,672 $ 28,925 $ 52,750
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 3,305 10,961 14,801
Restricted unit plan compensation 6,962 7,187 5,843
Mutual fund support charge - 15,300 -
Gain on partial sale of affiliate (3,963) (4,746) (4,712)
-------- --------- ---------
Sub-total 21,976 57,627 68,682
Depreciation and amortization 3,150 4,527 5,446
Increase in accounts receivable and other assets (7,923) (12,082) (13,113)
Equity in earnings of partnerships (7,735) (8,662) (9,543)
Cash distributions from partnerships 8,953 7,741 8,619
Gain on sale and accretion of discount on
U.S. Government agency securities - - (3,545)
Increase (decrease) in accounts payable and other
liabilities (10,736) 3,606 14,256
-------- --------- ---------
Net cash provided by operating activities 7,685 52,757 70,802
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from partial sale of affiliate 3,963 4,746 4,712
Acquisition payments, net of cash acquired 2,949 - (6,653)
Capital expenditures and other (9,286) (8,284) (6,018)
Proceeds from sale (purchase) of U.S. Government
agency securities - (221,532) 209,551
-------- --------- ---------
Net cash provided by (used in) investing activities (2,374) (225,070) 201,592
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayment) of notes payable 951 2,701 (2,515)
Proceeds (repayment) of securities sold under agreements
to repurchase - 197,365 (197,365)
Distributions paid to unitholders (12,798) (53,107) (55,013)
Capital contribution 24,340 - -
-------- --------- ---------
Net cash provided by (used in) financing activities 12,493 146,959 (254,893)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents 17,804 (25,354) 17,501
Cash and cash equivalents, beginning of year 24,434 42,238 16,884
-------- --------- ---------
Cash and cash equivalents, end of year $ 42,238 $ 16,884 $ 34,385
-------- --------- ---------
Cash paid during the year for interest $ 2,150 $ 1,226 $ 5,241
Cash paid during the year for income taxes - 1,122 2,150
Supplemental disclosure of non-cash transactions
(Harris acquisition):
Increase in intangible assets $ - $ - $ 216,000
Increase in promissory notes - - 79,738
Increase in deferred purchase consideration - - 41,000
Increase in partners' capital - - 95,262
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Total Public Private Pre-
Partners' Limited Limited General Combination
Capital Partners Partners Partner Capital
--------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
(in thousands)
BALANCE AT DECEMBER 31, 1992 $ 22,655 $ 22,655
New England Mutual capital contribution 51,379 51,379
Net income before the acquisition of Reich & Tang 4,628 4,628
Conversion to partnership - $ 6,499 $ 71,878 $ 285 (78,662)
Purchase method adjustment 159,904 12,535 146,819 550
Net income 11,044 1,215 9,782 47
Distributions declared ($0.80 per Unit) (25,596) (2,253) (23,255) (88)
Unit sales/transfers - 1,808 (1,808)
Restricted unit plan compensation 6,962 6,962
Other 485 39 445 1
-------- ------- -------- ----- -------
BALANCE AT DECEMBER 31, 1993 (2,734 Public,
29,150 Private and 110 General Partner Units) 231,461 19,843 210,823 795 -
Net income 28,925 3,348 25,452 125
Distributions declared ($1.68 per Unit) (53,745) (5,287) (48,274) (184)
Unit sales/transfers - 2,647 (2,647)
Units retired (71) (71)
Restricted unit plan compensation 7,187 7,187
Unrealized loss on securities (3,041) (316) (2,715) (10)
-------- ------- -------- ----- --------
BALANCE AT DECEMBER 31, 1994 (3,095 Public,
28,785 Private and 110 General Partner Units) 210,716 20,235 189,755 726 -
Net income 52,750 6,171 46,385 194
Distributions declared ($1.78 per Unit) (59,527) (6,397) (52,935) (195)
Units issued, Harris acquisition 95,262 95,262
Units issued, other 1,063 1,063
Unit sales/transfers - 2,345 (2,345)
Units retired (216) (26) (190)
Restricted unit plan compensation 5,843 5,843
Other 91 10 81
Reduction in unrealized loss on securities 3,041 316 2,715 10
-------- ------- -------- ----- --------
BALANCE AT DECEMBER 31, 1995 (3,397 Public,
33,889 Private and 110 General Partner Units) $309,023 $22,654 $285,634 $ 735 $ -
-------- ------- -------- ----- --------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION
- ---------------------
New England Investment Companies, L.P. ("NEIC" or the "Partnership") was formed
on September 15, 1993 when New England Mutual Life Insurance Company ("New
England Mutual") contributed the businesses and substantially all of the assets
of New England Investment Companies, Inc. (a wholly-owned subsidiary of The New
England Companies, Inc., which was a wholly-owned subsidiary of New England
Mutual) to Reich & Tang L.P. ("Reich & Tang"), a publicly traded limited
partnership on the New York Stock Exchange. On September 29, 1995, NEIC acquired
Harris Associates L.P. ("Harris"). The general partner of NEIC is a wholly-owned
subsidiary of New England Mutual which also owns 56% of the limited partnership
Units ("Units") outstanding at December 31, 1995.
NEIC is an investment manager that offers a broad array of investment management
products and styles across a wide range of asset categories to institutions and
individuals. The Investment Management Firms included in these financial
statements follow:
. Loomis, Sayles & Company, L.P. ("Loomis Sayles") manages fixed income, equity
and option securities, predominantly for institutions.
. Harris Associates L.P. ("Harris") manages equity, equity and fixed income and
alternative investments for institutions, private individuals and mutual
funds.
. Copley Real Estate Advisors, Inc. ("Copley") manages real estate investments,
primarily for tax-exempt institutions and the New England Mutual general
account.
. Reich & Tang Capital Management ("R&T Capital Management") manages mutual
funds, private investment partnerships and equity securities for institutions
and private clients.
. Reich & Tang Funds ("R&T Funds") manages and administers money market mutual
funds sold through financial intermediaries.
. Back Bay Advisors, L.P. ("Back Bay") manages fixed income securities for
mutual funds, the New England Mutual general account and a limited number of
other institutions.
. Westpeak Investment Advisors, L.P. ("Westpeak") provides customized
quantitative equity management for mutual funds and institutions (including
the New England Mutual general account).
. Capital Growth Management Limited Partnership ("CGM") manages aggressive
growth-oriented equities for mutual funds and institutions. NEIC held a 54%
limited partnership interest in CGM at December 31, 1995, accounted for under
the equity method as a passive investment. NEIC's limited partnership interest
is expected to be reduced to 50% in 1996.
The Investment Management Firms are supported by a network of distribution and
consulting firms as follows:
. New England Funds, L.P. ("NEF"), the principal distributor for the mutual
funds in the New England Funds Group, provides administrative services to the
funds and assists in developing new mutual fund products.
. Graystone Partners L.P. ("Graystone") serves as a consultant and marketing
agent with respect to asset allocation and management services provided to
individuals and families of substantial wealth.
. Reich & Tang Distributors L.P. ("R&T Distributors") provides distribution
services for the mutual funds of the R&T Funds.
24
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
. Reich & Tang Services L.P. ("R&T Services") provides transfer agency services
to certain funds served by the R&T Funds.
. New England Investment Associates, Inc. ("NEIA") provides marketing services
and consulting services to selected investment management affiliates.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
Significant accounting policies followed in preparing the consolidated financial
statements follow:
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of NEIC and its
subsidiaries. Investments in partnerships are generally accounted for under the
equity method. All material intercompany accounts and transactions have been
eliminated in consolidation.
Cash Equivalents
- ----------------
Cash equivalents include financial instruments purchased with an original
maturity of three months or less.
Investment Securities
- ---------------------
The U.S. Government agency securities are reported at fair value with unrealized
losses reported as a separate component of partners' capital.
Intangible Assets - Impairment Policy
- -------------------------------------
The carrying value and amortization period of intangible assets are evaluated
periodically to determine whether current events and circumstances warrant
adjustment. As no impairment of the intangible asset has occurred, no reduction
of the carrying value of the assets or their estimated useful lives is
warranted.
Depreciation and Amortization
- -----------------------------
Fixed assets are stated at cost and are depreciated or amortized over three to
twelve years using the straight-line and accelerated methods. Leasehold
improvements are amortized using the straight-line method over the life of the
respective lease. Additions and improvements are capitalized and repair and
maintenance costs are expensed as incurred.
Fair Value of Financial Instruments
- -----------------------------------
The fair value of financial instruments approximates the carrying value.
Net Capital Requirement
- -----------------------
Certain subsidiaries are subject to broker dealer net capital requirements. At
December 31, 1995, each subsidiary was in compliance with its actual capital
requirement.
Management and Advisory Fees
- ----------------------------
Management and advisory fees are recognized as services are rendered and are
based primarily on a percentage of assets under management. Commissions on
mutual fund sales are recognized as income on the trade date.
Use of Estimates
- ----------------
The preparation of the Partnership's consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of certain
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements.
Reclassifications
- -----------------
Certain amounts in prior year financial statements have been reclassified to
conform with the 1995 presentation.
25
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 3 - NET INCOME PER PUBLICLY HELD UNIT
- ------------------------------------------
Net income per publicly held LP Unit ("Public Unit") is calculated by adding
back to net income the restricted unit plan compensation expense to arrive at
net income available for allocation. Units held by Public limited partners bear
no expense of the restricted unit plan as such costs are allocated exclusively
to New England Mutual and Reich & Tang, Inc. Net income per Public Unit is
computed by dividing income available for allocation by the weighted average
number of Units outstanding.
The calculation of Net income per Public Unit for the years ended December 31
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ----------- ----------
<S> <C> <C> <C>
(in thousands, except per unit data)
Net income $15,672 $28,925 $52,750
Restricted unit plan compensation 2,720 7,187 5,843
Less net income before the acquisition
of Reich & Tang (4,628) - -
------- ------- -------
Income available for allocation $13,764 $36,112 $58,593
------- ------- -------
Net income per Public Unit $ 0.43 $ 1.13 $ 1.73
------- ------- -------
Weighted average Units outstanding 31,994 31,992 33,824
------- ------- -------
</TABLE>
Weighted average Units outstanding include the dilutive effect of 1,941,000
Units assumed outstanding from the deferred purchase consideration of
$41,000,000 at December 31, 1995 resulting from the acquisition of Harris (see
note 4). The deferred purchase consideration will be settled in April 1997 in
either Units, cash or a combination thereof based on selection by the seller's
partners. Accordingly, the actual number of Units issued could be substantially
lower than the Units assumed outstanding in the calculation of Net income per
Public Unit. As the market value of Units varies prior to the actual payment
date, the number of Units assumed outstanding in the calculation of Net income
per Public Unit will be adjusted and previously reported Net income per Public
Unit will be restated, if significant.
26
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 4 - ACQUISITIONS
- ---------------------
Reich & Tang
- ------------
On September 15, 1993, Reich & Tang, a publicly traded limited partnership
listed on the New York Stock Exchange, was acquired under the purchase method of
accounting. The purchase price of Reich & Tang was established as the market
value of publicly traded units on March 26, 1993 plus direct costs of the
acquisition. The excess of the purchase price over acquired net tangible assets
of Reich & Tang as of September 15, 1993 was $162,000,000. The resulting
intangible assets are being amortized over the expected lives of the underlying
advisory contracts of either 9 or 22 years using the straight-line method.
Accumulated amortization was $13,950,000 and $24,750,000 for 1994 and 1995,
respectively. Amortization of intangibles expense was $10,800,000 for 1994 and
1995.
Harris
- ------
On September 29, 1995, NEIC purchased substantially all of the assets and
acquired certain liabilities of Harris, a Chicago-based investment management
company with approximately $7 billion of assets under management. The
acquisition has been accounted for under the purchase method of accounting. The
excess purchase price over acquired net tangible assets at September 29, 1995
was $219,000,000 and includes $5,000,000 of acquisition related costs. The
resulting intangible assets are being amortized over the expected lives of the
underlying advisory contracts of 15 years using the straight-line method.
Results of operations of Harris are included in the statement of income
beginning October 1, 1995.
The purchase price of $175,000,000 was paid in 5,366,898 of newly issued Units
totaling $95,262,000 and promissory notes due January 9, 1996 of $79,738,000
which were paid in full on that date. The Unit price of $17.75 was determined at
market value under a formula as set forth in the Partnership Admission
Agreement. An additional payment will be made on April 2, 1997, also in Units,
cash or a combination thereof (based on selection by the seller's partners), as
a purchase price adjustment based upon a multiple of the greater of 1995 or 1996
qualifying revenues. The minimum payment of $41,000,000 is based upon the 1995
qualifying revenues of Harris. Accumulated amortization and amortization of
intangibles expense was $3,657,000 for 1995.
The pro forma, unaudited, statement of income shown below gives effect to the
Harris acquisition as if it had occurred on January 1, 1994. Adjustments include
the amortization of the intangible assets, financing costs and compensation
expense. The pro forma statement of income does not necessarily reflect the
results of operations that would have been obtained had the acquisition occurred
on the assumed date, nor is the pro forma statement of income necessarily
indicative of the results of the combined entities that may be achieved for any
future period.
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(in thousands, except per unit data)
<S> <C> <C>
Revenues $288,894 $325,636
-------- --------
Expenses:
Compensation and benefits 134,862 153,536
Restricted unit plan compensation 7,187 5,843
Amortization of intangibles 25,587 25,772
Interest expense 7,334 9,762
Other 81,500 73,187
-------- --------
256,470 268,100
-------- --------
Income before income taxes 32,424 57,536
Income tax expense 1,261 1,615
-------- --------
Net income $ 31,163 $ 55,921
-------- --------
Net income per Public Unit $ 0.97 $ 1.57
-------- --------
Weighted average Units outstanding 39,337 39,337
-------- --------
</TABLE>
27
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 5 - INVESTMENT IN AFFILIATE
- --------------------------------
NEIC held a 58% and 54% limited partner interest in CGM at December 31, 1994 and
1995, respectively, accounted for using the equity method since NEIC does not
have the ability to control CGM and its majority ownership position is
temporary. CGM is obligated to apply a defined portion of CGM earnings to
purchase additional partnership interests from NEIC at a pre-determined formula
until NEIC's ownership interest is reduced to 50%. The Partnership's investment
in CGM of $3,551,000 and $3,559,000 at December 31, 1994 and 1995, respectively,
includes the unpaid balance of a revolving note receivable from CGM.
Included in the statement of income are the following transactions related to
CGM for the years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(in thousands)
Equity in earnings of affiliate $ 7,863 $ 8,000 $ 7,953
Gain on partial sale of affiliate 3,963 4,746 4,712
------- ------- -------
Total $11,826 $12,746 $12,665
------- ------- -------
</TABLE>
The summarized balance sheet of CGM at December 31 follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
(in thousands)
Assets:
Current assets $ 5,700 $ 6,395
Non-current assets 877 784
------- -------
$ 6,577 $ 7,179
------- -------
Liabilities and Partners' Capital:
Accrued expenses $ 1,350 $ 1,721
Loan payable to NEIC 1,500 1,257
Partners' capital 3,727 4,201
------- -------
$ 6,577 $ 7,179
------- -------
</TABLE>
The summarized statement of income of CGM for the years ended December 31
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
(in thousands)
Revenues $28,336 $30,866 $32,885
------- ------- -------
Expenses:
Compensation and benefits 8,744 9,406 12,171
Mutual fund expenses 5,343 6,081 4,426
Other 1,471 1,456 1,490
------- ------- -------
Total expenses 15,558 16,943 18,087
------- ------- -------
Net income $12,778 $13,923 $14,798
------- ------- -------
</TABLE>
28
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 6 - BORROWINGS
- -------------------
Senior Notes
- ------------
Promissory notes outstanding of $80,919,000, at 5.88%, at December 31, 1995 were
financed with a portion of the $110,000,000 in privately placed seven-year
financing obtained on January 9, 1996. The promissory notes were paid to the
Harris partners as initial purchase consideration and included $1,181,000 of
interest expense (see note 4). The $110,000,000 in long-term financing has an
all-in effective interest rate of 7.06% after considering deferred debt issuance
costs which are amortized to interest expense over the term of the Senior Notes.
Line of Credit
- --------------
NEIC has an unsecured line of credit totaling $15,000,000 with a commercial bank
with an annual commitment fee on the unused line of credit of 15 basis points
per annum. Borrowings of $5,000,000 were outstanding under this line of credit
at December 31, 1994.
NOTE 7 - INCENTIVE COMPENSATION PLANS
- -------------------------------------
Incentive Compensation
- ----------------------
NEIC and each of its principal subsidiaries have incentive compensation plans
which are generally dependent upon earnings and cash flow, individual
performance and profit margins. In certain business units, the payments are
deferred and therefore dependent on continued employment. In addition, NEIC has
special compensation programs for its portfolio managers which are based on the
performance of the funds managed. Incentive compensation plan expense was
$31,764,000, $35,852,000 and $49,772,000 for the years ended December 31, 1993,
1994 and 1995, respectively.
Restricted Unit Plan
- --------------------
In connection with the acquisition of Reich & Tang, NEIC adopted the Restricted
Unit Plan which authorized the award of 1,426,000 restricted unit grants to
NEIC's management. All awards made under the Plan are from Units contributed to
the Partnership by New England Mutual and R&T, Inc. (the "Principal
Unitholders"). Therefore, the cost of this non-cash compensation expense is
fully allocated to the Principal Unitholders, with the Public unitholders
bearing no expense of this plan.
At December 31, 1994 and 1995, respectively, 1,127,700 and 1,122,100 unit grants
had been awarded. The plan provides for vesting of units to participants over a
four year period with approximately 20% vesting upon award. Compensation expense
is recognized over the vesting period based on the market value of the units on
the date they were awarded and was $6,962,000 in 1993, $7,187,000 in 1994 and
$5,843,000 in 1995. All unvested units immediately vest upon a change in control
of NEIC (see note 11). Distributions paid on unvested units are also included in
compensation expense.
1993 Equity Incentive Plan
- --------------------------
At December 31, 1995, 278,500 options had been awarded to employees at a
weighted average exercise price of $20.48 per Unit under the 1993 Equity
Incentive Plan. The options provide for the purchase of Units at market value on
the grant date. Options, which vest over various periods, expire 10 years
subsequent to the grant date. Approximately 52,300 options were exercisable at
December 31, 1995. No options were exercised in 1995. A total of 1,774,000
options may be awarded under the plan.
29
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 8 - INCOME TAXES
- ---------------------
The Partnership's corporate subsidiaries account for income taxes using the
liability method specified in FAS No. 109 "Accounting for Income Taxes." No
provision for federal income taxes is necessary for the Partnership and the
majority of its subsidiaries because the tax effect of its operations accrues to
and is reportable by the respective partners of the Partnership. The Partnership
and some of its subsidiaries are subject to state and city taxes in various
jurisdictions. Prior to September 15, 1993, New England Investment Companies,
Inc. and its subsidiaries were subject to federal and state corporate income
taxes.
The net deferred tax asset at December 31 is comprised of the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
(in thousands)
Gross deferred tax asset $ 2,174 $2,150
Gross deferred tax liability (1,028) (852)
-------- ------
Net deferred tax asset before
valuation allowance 1,146 1,298
Valuation allowance (667) (270)
-------- ------
Net deferred tax asset $ 479 $1,028
-------- ------
<CAPTION>
Income tax expense for the years ended December 31 follows:
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Partnership income tax expense $ 489 $ 924 $ 825
------- ------ ------
Corporate subsidiaries income tax
expense (benefit):
Current - Federal 11,528 172 965
- State 3,555 40 314
Deferred - Federal (4,895) (36) (512)
- State (1,462) - (37)
------- ------ ------
8,726 176 730
------- ------ ------
Reversal of deferred tax asset upon
conversion to partnership form 7,490 - -
------- ------ ------
Total income tax expense $16,705 $1,100 $1,555
------- ------ ------
</TABLE>
"Expected" income tax expense, by applying the U.S. statutory federal income tax
rate to income before income taxes, differs from reported income tax expense for
the years ended December 31 as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Income tax expense, at "expected"
income tax rate $11,332 $ 10,124 $ 19,006
------- -------- --------
Increase (decrease) in income tax expense
resulting from:
Partnership net income not subject
to income taxes (4,644) (10,072) (18,139)
Reversal of deferred tax asset 7,490 - -
State income taxes 1,361 - 180
Partnership taxes 489 924 825
Other 677 124 (317)
------- -------- --------
Income tax expense, as reported $16,705 $ 1,100 $ 1,555
------- -------- --------
</TABLE>
30
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 9 - TAX CONSIDERATIONS FOR UNITHOLDERS (UNAUDITED)
- -------------------------------------------------------
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 for those who
purchased units after August 10, 1993. The amortization deductions represent the
amortization over 15 years of the portion of each unitholder's purchase price
allocated to the intangible assets, qualifying under Code Section 197, of the
Partnership. Such amortization deductions will decrease the unitholder's tax
basis and will likely be recaptured as ordinary income upon disposition of the
Units. The following example of this benefit assumes an individual purchased
Units during December 1994 and held them for the entire year. This unitholder
would have a convention purchase price as defined in NEIC's Partnership
Agreement of $15.375 of which $14.375 is allocated to Section 197 assets
resulting in an effective income tax rate on the distribution of 26%.
<TABLE>
<CAPTION>
Per Unit
-----------
<S> <C>
Distributions declared for calendar $1.78
year 1995
Allocation of taxable income prior
to tax amortization $2.13
Less estimated tax amortization
allocation (1/15 of $14.375) (.96)
-----
Net taxable income $1.17
-----
Estimated income tax (assumed 40% rate) (.47)
-----
Distributions declared for calendar
year 1995, net of income taxes $1.31
-----
<CAPTION>
The tax basis of Unitholders having a convention purchase price of $15.375
per Unit at December 31, 1995 follows:
Per Unit
-----------
<S> <C>
Tax basis at January 1, 1995 (assumed $15.375
convention purchase price)
Add 1995 taxable income (per above) 1.170
Less 1995 distributions declared (1.780)
-------
Tax basis at December 31, 1995 $14.765
-------
</TABLE>
The convention purchase price at year-end 1995 was $20.25. A unitholder who
purchased at year-end 1995 and holds the Units for a full year will have a tax
amortization deduction of $1.28 per Unit in 1996 (1/15 of $19.25) (see note 11).
Each year, a Schedule K-1 is sent to each unitholder identifying their
amortization tax benefit. Under federal tax law, a unitholder is 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 Units is urged to consult their tax
advisor.
31
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 10 - MUTUAL FUND SUPPORT CHARGE
- ------------------------------------
During the fourth quarter of 1994, U.S. Government agency securities, with a par
value of $221,750,000, were purchased from three money market funds advised by
Reich & Tang Asset Management, L.P. NEIC financed the acquisition of the
securities with repurchase agreements collateralized by the securities. NEIC
incurred a $15,300,000 charge in the fourth quarter of 1994 representing the
difference between the purchase price, at par, and the fair value of the
securities. The securities had an amortized cost of $206,849,000 and a carrying
value, at market, of $203,808,000 at December 31, 1994. At December 31, 1994, an
unrealized loss of $3,041,000 was recorded as an adjustment to partners' capital
when these securities were marked-to-market. During 1995, all U.S. Government
agency securities with an amortized cost of $207,527,000 were sold for
$209,551,000 resulting in gross gains of $2,189,000 and gross losses of
$165,000. In connection with the sale of the U.S. Government agency securities,
the related repurchase agreements of $197,365,000 were liquidated.
NOTE 11 - THE PROPOSED MERGER OF NEW ENGLAND MUTUAL AND METROPOLITAN LIFE
- -------------------------------------------------------------------------
In August 1995, New England Mutual, NEIC's largest investor, announced an
agreement to merge (the "Merger") with Metropolitan Life, with Metropolitan Life
to be the surviving entity. This merger, which is subject to various
policyholder and regulatory approvals, is expected to take place in the first
half of 1996. Metropolitan Life is the second largest life insurance company in
the United States in terms of total assets, having assets of over $130 billion
(and adjusted capital of over $8 billion) at June 30, 1995. Incident to the
Merger, New England Mutual's ownership interests in NEIC and the General Partner
will be transferred to Metropolitan Life and Metropolitan Life will assume the
various contractual obligations of New England Mutual to NEIC and the Firms.
This transaction will constitute a technical "change of control" of NEIC under
federal securities law. As a consequence, the Investment Management Firms are in
the process of soliciting the consent of individual investment advisory clients
and the reapproval by mutual fund shareholders of investment management
contracts with the funds they advise.
The transfer of New England Mutual's interest in NEIC to Metropolitan Life
incident to the proposed merger is expected to cause a technical termination and
reconstitution of NEIC as a partnership for federal income tax purposes. Were
this to occur, management expects to preserve to public unitholders
substantially all of the benefits of amortization tax deductions that they would
have enjoyed if the termination had not occurred. Termination, if it occurred,
would have no effect on NEIC continuing its status as a master limited
partnership.
Copley serves as investment manager of a number of New England Mutual separate
accounts, holding interests in real estate for third party clients. The proposed
merger may constitute a transfer of these interests in certain circumstances
resulting in the incurrence of additional expenses at the separate accounts and
a possible need to refinance debt relating to certain properties. Copley and New
England Mutual are developing a plan to deal with these matters and to protect
the interests of Copley and its clients. NEIC does not expect any material
adverse financial consequences resulting from this transfer.
32
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
Litigation
- ----------
Two state pension funds which are major Copley clients have each brought suit
against New England Mutual and Copley alleging that they are legally responsible
for losses on investments by the PCIG funds sponsored by Copley. In general, the
suits allege breach of fiduciary duty, breach of contract, gross negligence and
misrepresentation and violation of various state statutes. One suit seeks
repayment or damages of approximately $600 million and certain other relief and
the other suit seeks repayment or damages of approximately $50 million and
certain other relief. New England Mutual and Copley intend to defend the suits
vigorously. New England Mutual, and Metropolitan Life subsequent to the Merger,
has agreed to indemnify Copley against any and all liability and expense arising
out of these suits or out of other claims or actions relating to these pension
funds (and pursuant to the agreement is currently paying all expenses of the
pending suits). Management believes that significant losses as a result of these
suits are remote and the suits 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.
The Partnership is subject to other legal proceedings and claims which have been
incurred in the ordinary course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions, if any, will not
materially affect the financial position of the Partnership.
Lease Commitments
- -----------------
Rental expense, net of sublease income, totaled $6,791,000, $7,558,000 and
$8,470,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
Annual minimum lease commitments under non-cancelable operating leases are
$8,429,000 in 1996, $8,114,000 in 1997, $8,134,000 in 1998, $8,249,000 in 1999,
$7,877,000 in 2000 and $22,115,000 thereafter.
NOTE 13 - POST-RETIREMENT BENEFITS
- ----------------------------------
Post-retirement benefits are provided under group plans sponsored by NEIC and
its subsidiary, Loomis Sayles. Benefits provided include contributory medical
and dental coverage and life insurance coverage with such costs being funded as
incurred. Effective January 1, 1995, medical benefits for certain participants
will be capped at the 1996 level.
Post-retirement benefit expense for the years ended December 31 follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------- ------
(in thousands)
<S> <C> <C> <C>
Service cost $ 253 $ 229 $ 226
Interest cost 387 335 341
Accretion (65) (92) (108)
----- ----- -----
Post-retirement benefit expense $ 575 $ 472 $ 459
----- ----- -----
</TABLE>
33
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
The funded status of the plan at December 31 follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
(in thousands)
Accumulated post-retirement benefit
obligation (APBO):
<S> <C> <C>
Retirees $2,250 $2,199
Fully eligible active plan participants 881 775
Other active plan participants 1,611 1,631
------ ------
Accumulated post-retirement benefit obligation 4,742 4,605
Unrecognized gain and plan amendments 1,757 2,157
------ ------
Accrued post retirement benefit cost $6,499 $6,762
------ ------
</TABLE>
The weighted average discount rate used in determining the APBO was 8.0% at
December 31, 1994 and 7.25% at December 31, 1995 and the weighted average salary
increase assumed was 5% at December 31, 1994 and 1995. For the 1995 valuation,
the medical indemnity plan rate is assumed to decrease from 9% to 5% (by .5%
annual increments) and the health maintenance organization and dental care trend
rates were assumed to decrease from 6% to 4% (by .5% annual increments). A 1%
increase in the assumed health care cost trend rates would increase the APBO by
$513,000 at December 31, 1995 and would increase net post-retirement benefit
expense $82,000 for the year ended December 31, 1995.
NOTE 14 - PENSION PLANS
- -----------------------
Defined Contribution Plans
- --------------------------
Effective January 1, 1995, NEIC adopted a defined contribution plan for all
employees, which replaced the New England Mutual Home Office Retirement Plan.
Employees of Loomis continue to have their own defined benefit plan. Defined
contribution plan expense for the year ended December 31, 1995 was $1,919,000.
Benefits accrued under the New England Mutual Home Office Retirement Plan have
been frozen at December 31, 1994 with the liability satisfied by New England
Mutual. Pension expense under the New England Mutual Home Office Retirement Plan
was $970,000 and $1,533,000 in 1993 and 1994, respectively.
Defined Benefit Plan - Loomis Sayles
- ------------------------------------
Loomis Sayles sponsors a defined benefit funded pension plan covering
substantially all of its employees. Benefits are determined based on years of
service and average compensation calculations. Loomis Sayles' funding policy
provides that payments to the pension trust shall equal or exceed the minimum
funding requirements of the Employee Retirement Income Security Act of 1974. The
plan's transition surplus is being amortized over 22 years.
Loomis Sayles also sponsors a defined benefit unfunded (nonqualified)
supplemental pension plan for certain employees who meet service, age and base
compensation requirements and who are elected into the plan. Loomis' policy is
to pay plan benefits directly to the employees as they become due. The plan's
transition obligation was amortized over 7.5 years.
34
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
Net periodic pension income for the funded and unfunded plans for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Actual return on plan assets $ 7,299 $(1,750) $12,127
Amortization of deferred (gain) loss (2,530) 6,597 (6,977)
------- ------- -------
Expected return on plan assets 4,769 4,847 5,150
Service costs - benefits earned (824) (907) (1,022)
Interest cost on projected benefit obligations (2,610) (2,563) (2,745)
Amortization of unrecognized net surplus at
transition and plan amendments 398 608 444
Amortization of excess cumulative difference (138) (123) (36)
------- ------- -------
Net periodic pension income $ 1,595 $ 1,862 $ 1,791
------- ------- -------
Assumptions:
- ------------
Discount rate 7.50% 8.00% 7.25%
Increase in compensation levels 5.00% 5.00% 5.00%
Long-term return on plan assets 10.50% 10.50% 10.50%
</TABLE>
The funded status of the plans at December 31 follows:
<TABLE>
<CAPTION>
1994 1995
------------------------ --------------------
FUNDED SUPP. FUNDED SUPP.
PLAN PLAN PLAN PLAN
---- ---- ---- ----
<S> <C> <C> <C> <C>
(in thousands)
Actuarial present value of benefit
obligation:
Vested benefits $28,798 $ 3,408 $33,202 $ 4,629
Non-vested benefits 963 54 1,129 27
------- ------- ------- -------
Accumulated benefit obligation 29,761 3,462 34,331 4,656
Effect of anticipated future compensation
levels 2,102 - 3,200 6
------- ------- ------- -------
Projected benefit obligation 31,863 3,462 37,531 4,662
Plan assets at fair value 47,273 - 57,802 -
------- ------- ------- -------
Plan assets in excess (less than) projected
benefit obligation 15,410 (3,462) 20,271 (4,662)
Unrecognized net loss 6,833 455 2,890 1,518
Unrecognized plan amendments 639 (197) 1,386 (150)
Unrecognized net overfunding at
transition (6,299) - (5,815) -
Additional recognized pension liability - (258) - (1,362)
------- ------- ------- -------
Pension asset (liability) $16,583 $(3,462) $18,732 $(4,656)
------- ------- ------- -------
</TABLE>
January 1, 1994 and 1995 were used to determine the various pension
measurements, including plan assets and benefit obligations as of December 31,
1994 and 1995, respectively. The change in actuarial assumptions resulted in
increases of $3,057,000 and $272,000 in the December 31, 1995 projected benefit
obligation of the funded plan and supplemental plan, respectively. Plan assets
are invested primarily in Loomis Sayles mutual funds and NEIC affiliated
investment funds.
35
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
NOTE 15- RELATED PARTY TRANSACTIONS
- -----------------------------------
Mutual Fund Affiliations
- ------------------------
NEIC and its subsidiaries provide investment management, distribution and
consulting services to mutual funds sponsored by NEIC subsidiaries. NEIC also
invests cash in affiliated money market funds. Related party transactions
included in the consolidated financial statements at or for the years ended
December 31 follow:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash - money market funds $23,818 $12,827 $25,911
Receivables - mutual funds 8,118 6,910 7,211
Statement of Income Data:
Management and advisory fees 28,938 55,654 67,794
Other revenues and interest income 5,794 11,846 15,845
Mutual fund support charge - 15,300 -
</TABLE>
New England Mutual
- ------------------
NEF pays a commission to New England Securities ("NES"), a wholly-owned
subsidiary of New England Mutual, for sales made by NES representatives of
mutual funds distributed by NEF. Commissions related to these sales for 1993,
1994 and 1995 totaled $22,629,000, $20,736,000 and $19,488,000, respectively.
Loomis Sayles maintains a death benefit plan for substantially all of its
officers. The plan is substantially funded by life insurance policies issued by
New England Mutual on the lives of the officers. Loomis Sayles is the
beneficiary under all of the plan's insurance policies. Cash surrender value of
these policies totaled $10,368,000 and $8,370,000 at December 31, 1994 and 1995,
respectively.
NEIC provides investment management services for New England Mutual by managing
certain New England Mutual general account and segregated asset accounts. The
general account services are provided under separate investment management
agreements (the "Management Agreements") with several Investment Management
Firms. For 1993 and 1994, NEIC earned a fee from New England Mutual that was
the greater of 0.30% of the general account net assets under management or
$16,000,000. For 1995, these Management Agreements contained annual fee rates
ranging from 0.18% to 0.50% of assets advised, depending upon the class of
asset, with a minimum fee payable of $14.4 million. NEIC earned $15,000,000
under this agreement in 1995. NEIC also earned $1,503,000 in 1995 under a
special incentive fee arrangement for the sale of real estate assets in support
of New England Mutual's general account portfolio reallocation goals. For 1996,
general account fees earned will range from 0.166% to 0.50%, based on current
market rates with a minimum guaranteed fee of $13,000,000.
36
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to Consolidated Financial Statements
Aggregate amounts included in the consolidated financial statements for
transactions related to New England Mutual and its affiliates at or for the year
ended December 31 follow:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Accounts receivable $ 4,405 $ 4,423 $ 5,709
Accounts payable 2,597 2,168 1,129
Distribution payable 8,683 9,042 10,244
Income Statement Data:
Revenues:
Management and advisory fees:
General Account 16,278 16,207 16,503
Segregated Asset Accounts 8,555 6,689 6,178
Expenses:
Occupancy and equipment 2,742 2,837 2,854
Data processing, interest and 4,097 2,749 3,248
other Employee benefit plans 2,819 3,675 1,226
</TABLE>
Deferred Fees Receivable from Affiliated Partnerships
- -----------------------------------------------------
Deferred management fees receivable from affiliated real estate partnerships of
$2,506,000 and $2,003,000 at December 31, 1994 and 1995, respectively, are
classified as non-current other assets on the consolidated balance sheet. These
balances are net of reserves of $3,267,000 and $3,572,000 at December 31, 1994
and 1995, respectively. The collection of these fees is expected from cash
flows generated by long-term operation and eventual sale of the real estate
assets. Fees totaling $359,000 were collected during 1995.
Investments in Partnerships
- ---------------------------
NEIC subsidiaries serve as general partner in 37 partnerships, most of which are
real estate partnerships. The general partnership interest in these
partnerships is generally 1% or less. The investment in the partnerships is
generally accounted for under the equity method since there is the ability to
exercise significant influence over the management, conduct and operation of the
various businesses. The carrying value of the investment in partnerships, which
approximates market value, was $2,778,000 and $5,150,000 at December 31, 1994
and 1995, respectively, and is included in other non-current assets. NEIC's
equity in partnership earnings is immaterial. New England Mutual is a partner
in five of these partnerships as of December 31, 1995 through its segregated
asset account vehicle. Management and advisory fees from New England Mutual's
portion of these five partnerships totaled $10,124,000, $9,455,000, and
$8,637,000 for 1993, 1994, and 1995, respectively. The remaining management and
advisory fees from the partnerships totaled $6,258,000, $6,079,000, and
$5,562,000 for 1993, 1994, and 1995, respectively.
37
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to consolidated financial Statements
NOTE 16 - FIXED ASSETS
- ----------------------
Fixed assets at December 31 consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---- ----
(in thousands)
<S> <C> <C>
Property and equipment $22,665 $27,146
Leasehold improvements 9,114 11,452
------- -------
31,779 38,598
Less accumulated depreciation and
amortization 16,493 21,431
------- -------
$15,286 $17,167
------- -------
</TABLE>
Depreciation and amortization expense for 1993, 1994 and 1995 was $3,088,000,
$4,178,000 and $4,938,000, respectively.
38
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to consolidated financial Statements
NOTE 17 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------
<TABLE>
<CAPTION>
1995
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER/1/ QUARTER/1/ QUARTER/1/ QUARTER
-------- -------- -------- -------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
REVENUES:
Management and advisory
fees and other $61,097 $64,751 $63,797 $85,901
Gain on partial sale of affiliate 4,712 - - -
------- ------- ------- -------
65,809 64,751 63,797 85,901
------- ------- ------- -------
EXPENSES:
Compensation and benefits 28,348 30,003 30,102 42,702
Other expenses 21,729 23,146 20,823 29,100
------- ------- ------- -------
50,077 53,149 50,925 71,802
------- ------- ------- -------
Income before income taxes 15,732 11,602 12,872 14,099
Income tax expense 400 225 350 580
------- ------- ------- -------
Net income $15,332 $11,377 $12,522 $13,519
======= ======= ======= =======
Net income per Public Unit $ 0.53 $ 0.40 $ 0.43 $ 0.38
======= ======= ======= =======
Distributions declared per Unit $ 0.42 $ 0.44 $ 0.44 $ 0.48
======= ======= ======= =======
Operating Cash Flow/2/ $14,887 $15,532 $16,803 $21,460
======= ======= ======= =======
Weighted Average Units Outstanding 31,990 31,990 32,134 39,336
======= ======= ======= =======
<CAPTION>
1994
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(in thousands, except per unit data)
<S> <C> <C> <C> <C>
REVENUES:
Management and advisory
fees and other $56,011 $56,340 $57,630 $59,307
Gain on partial sale of affiliate 4,746 - - -
------- ------- ------- -------
60,757 56,340 57,630 59,307
------- ------- ------- -------
EXPENSES:
Compensation and benefits 29,007 28,774 29,077 28,615
Other expenses 17,067 17,793 18,118 20,258
Mutual fund support charge/3/ - - - 15,300
------- ------- ------- -------
46,074 46,567 47,195 64,173
------- ------- ------- -------
Income (loss) before income taxes 14,683 9,773 10,435 (4,866)
Income tax expense 350 200 250 300
------- ------- ------- -------
Net income (loss) $14,333 $ 9,573 $10,185 $(5,166)
======= ======= ======= =======
Net income per Public Unit $ 0.51 $ 0.36 $ 0.37 $ (0.11)
======= ======= ======= =======
Distributions declared per Unit $ 0.42 $ 0.42 $ 0.42 $ 0.42
======= ======= ======= =======
Operating Cash Flow/2/ $14,319 $14,242 $14,568 $14,498
======= ======= ======= =======
Weighted Average Units Outstanding 31,994 31,994 31,990 31,990
======= ======= ======= =======
</TABLE>
/1/ Certain amounts have been reclassified to conform to the 1995 annual
presentation.
/2/ Operating Cash Flow represents income before support charge plus restricted
unit plan compensation and amortization of intangibles reduced by capital
gains. Operating Cash Flow per Unit should not be construed as an
alternative to Net income per Public Unit or cash flow from operating
activities.
/3/ Represents a charge of $15.3 million for the purchase of U.S. Government
agency securities as described in note 10.
39
<PAGE>
NEW ENGLAND INVESTMENT COMPANIES, L.P.
Notes to consolidated financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of New England Investment Companies, L.P.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 52 of this Form 10-K present fairly, in
all material respects, the financial position of New England Investment
Companies, L.P., its predecessor corporation, New England Investment Companies,
Inc. and their subsidiaries (collectively, the "Partnership") at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Boston, Massachusetts
January 31, 1996
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Under the Partnership Agreement and Delaware Law, the Partnership's
activities are managed by the General Partner, New England Investment Companies,
Inc. The General Partner has agreed that it will conduct no business other than
that of managing the Partnership except the management of its own passive
investments. The General Partner is a wholly owned subsidiary of New England
Mutual, which has the right to elect all directors of the General Partner,
subject to its obligation to elect one designee of RTI.
The following table sets forth the name, age and positions of each of the
General Partner's directors and executive officers at December 31, 1995. The
executive officers of the General Partner hold comparable posts with the
Partnership, in which they act pursuant to delegated authority from the General
Partner.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter S. Voss 49 Chairman of the Board, Chief Executive Officer and
President; Chairman of Executive Committee
William S. Antle III 51 Director
Robert J. Blanding 48 Director
Thomas J. Galligan, Jr. 76 Director; Chairman of Audit Committee and member
of Compensation Committee
Paul E. Gray 64 Director
Charles M. Leighton 60 Director; member of Audit and Compensation
Committees
Victor A. Morgenstern 53 Director
Edward E. Phillips 68 Director
Robert A. Shafto 60 Director; Chairman of Compensation Committee and
member of Executive Committee
Oscar L. Tang 57 Director; member of Compensation Committee
G. Neal Ryland 54 Executive Vice President, Treasurer and Chief
Financial Officer
Sherry A. Umberfield 41 Executive Vice President, Corporate Development
Edward N. Wadsworth 58 Executive Vice President, General Counsel
and Secretary
</TABLE>
For purposes of the following description, references to New England
Investment Companies, Inc. include the predecessor organization.
Messrs. Blanding and Morgenstern serve pursuant to a program whereby two
General Partner board positions are held, on a periodic rotating basis, by Chief
Executive Officers of Investment Management, Distribution or Consulting Firms.
Following the proposed Merger, the General Partner will be a direct or indirect
wholly owned subsidiary of Metropolitan Life, which is expected to nominate new
directors to replace selected New England Mutual representatives.
Mr. Voss is Chairman of the Board of Directors and Chief Executive Officer
of the Partnership and the General Partner. He was Chief Executive Officer and a
director of New England Investment Companies, Inc. from October 1992, and
Chairman of the Board of New England Investment Companies, Inc. from December
1992 until the acquisition of Reich and Tang. Mr. Voss was Group Executive Vice
President, Bank of America, responsible for its global asset management and
private banking business, from April 1992 to October 1992. Mr. Voss was
Executive Vice President of Security Pacific National Bank and Chief Executive
Officer of Security Pacific Hoare Govett Companies, a wholly owned subsidiary of
Security Pacific Corporation, from April 1988 to April 1992. Mr. Voss became a
director of New England Mutual in March 1993. Mr. Voss serves as Chairman or a
member of the Board of Directors of each of the Partnership's corporate
subsidiaries and the general partners of the Partnership's partnership
subsidiaries, as well as serving as Chairman of the Board of Trustees of all the
mutual funds in the New England Fund Group and serving as trustee of Harris
Associates Investment Trust. Mr. Voss serves as a member of the Board of
Governors of the Investment Company Institute.
42
<PAGE>
Mr. Antle became a director of the General Partner in January 1996. He has
been President and Chief Executive Officer of Oak Industries Inc., a
manufacturer of communications components, since December 1989. From June to
December 1989, he was President of the Hadleigh Group, a consulting firm
specializing in improving the profitability of underperforming companies. Prior
to that time, Mr. Antle was Executive Vice President of Bain and Company, an
international strategy consulting firm, where he served in several executive
positions from 1980 until his departure. Mr. Antle is also a director of ESCO
Electronics Corporation and GenRad, Inc.
Mr. Blanding became director of the General Partner in January 1996. Since
April 1995, Mr. Blanding has served as President, Chief Executive Officer and a
director of Loomis Sayles. He was President, Chief Operating Officer and a
director of Loomis Sayles from August 1992 until April 1995, and an Executive
Vice President and director of Loomis Sayles from September 1991 to August 1992.
References to Loomis Sayles include the general partner of Loomis Sayles as well
as a predecessor organization.
Mr. Galligan became a director of New England Investment Companies, Inc. in
May 1990 and serves as director of the General Partner. Mr. Galligan was
Chairman of the Board of Directors of Boston Edison Company from 1979 until his
retirement in December 1986, served as its Chief Executive Officer from 1970 to
1984 and served as a director until May 1990. Mr. Galligan formerly served as a
director of New England Mutual.
Dr. Gray became a director of the General Partner in March of 1996. He has
been Chairman of the Corporation at the Massachusetts Institute of Technology
since October 1990 and a member of the faculty since 1960. Dr. Gray also serves
as a director of The Boeing Company, Eastman Kodak Company and New England
Mutual.
Mr. Leighton became a director of New England Investment Companies, Inc. in
May 1990 and serves as director of the General Partner. Mr. Leighton has been
Chairman of the Board and Chief Executive Officer of CML Group, Inc., a
specialty consumer products company, since 1969. Mr. Leighton also serves as a
director of New England Mutual.
Mr. Morgenstern became a director of the General Partner in January 1996.
Since January 1992, Mr. Morgenstern has been the President, Chief Executive
Officer and a director of Harris. Prior to such time, he was a Vice President
and director of Harris. Mr. Morgenstern also serves as President and a Trustee
of Harris Associates Investment Trust. References to Harris include the general
partner of Harris as well as a predecessor organization.
Mr. Phillips was Chairman of the Board of Directors of New England
Investment Companies, Inc. from December 1989 until December 1991 and from
August 1992 until December 1992. He currently serves as a director of the
General Partner. He was Chief Executive Officer of New England Investment
Companies, Inc. from August 1992 until October 1992. Mr. Phillips served as
Chairman of the Board of Directors of New England Mutual from 1978 to June 1993
and Chief Executive Officer of New England Mutual from 1978 to January 1992. Mr.
Phillips serves as a director of NYNEX Corporation.
Mr. Shafto, a director of New England Investment Companies, Inc. since
August 1992, became Chairman of the Board of Directors of New England Mutual in
July 1993, and is President and Chief Executive Officer of New England Mutual,
having served in that capacity since January 1992. He currently serves as a
director of the General Partner. Mr. Shafto was President and Chief Operating
Officer of New England Mutual from 1990 to 1992 and President- Insurance and
Personal Finance Services of New England Mutual from 1988 to 1990. Mr. Shafto
also serves as a director of Fleet Bank of Massachusetts, N. A. and Keane, Inc.
Mr. Tang became a director of the General Partner in September 1993 at the
time of the acquisition of Reich & Tang. Mr. Tang, a founder of RTI and Reich &
Tang, has been an officer and director of RTI since its organization in 1970,
and was Chairman of the Board of Directors and Chief Executive Officer of RTI
from 1981 until 1987 when he became President and Chief Executive Officer. He
currently serves as a consultant to the Partnership and serves as a director for
IFR Systems, Inc.
Certain background information is provided below with respect to the
executive officers of the General Partner in addition to Mr. Voss. The executive
officers of the General Partner hold comparable posts with the Partnership, in
which they act pursuant to delegated authority from the General Partner.
43
<PAGE>
Mr. Ryland is Executive Vice President, Treasurer and Chief Financial
Officer of the General Partner. He assumed comparable posts with New England
Investment Companies, Inc. in July 1993. Mr. Ryland also serves as a director of
Copley, Harris and R&T Asset Management L.P. Mr. Ryland was Executive Vice
President and Chief Financial Officer of The Boston Company, a diversified
financial services company, from March 1989 until July 1993.
Ms. Umberfield is Executive Vice President, Corporate Development of the
General Partner. She held a comparable position with New England Investment
Companies, Inc. from December 1989 until September 1993. Ms. Umberfield was a
Vice President of New England Mutual from December 1988 to December 1992. She is
a Chartered Financial Analyst. Ms. Umberfield is a director of NEIA and
Graystone and of the general partners of NEF and Westpeak.
Mr. Wadsworth is Executive Vice President, General Counsel and Secretary of
the General Partner. He held comparable posts with New England Investment
Companies, Inc. since December 1989. Mr. Wadsworth was Senior Vice President and
Associate General Counsel of New England Mutual from 1981 until December 1992.
Mr. Wadsworth is the Clerk of NEIA and of Westpeak's and R&T Asset Management
L.P.'s general partners.
Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's directors and executive officers, and persons who own more than 10% of
the Units, to file with the SEC and NYSE initial reports of ownership and
reports of changes in ownership of Units. To the best of the Partnership's
knowledge, during the year ended December 31, 1995, all Section 16(a) filing
requirements applicable to its executive officers, directors and 10% beneficial
owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all plan and non-plan compensation paid to the
chief executive officer and to all persons who served as executive officers of
the Partnership in 1995 (such persons being hereinafter collectively referred to
as the "Named Executive Officers"):
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
--------------------------------- ---------------------------------
Name and Restricted All Other
Principal Position Year Salary Bonus Other Unit Awards (3) Compensation (4)
- ------------------ ---- ------- ----- ----- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Voss 1995 $440,000 $1,020,000 - - $48,946
Chairman and Chief 1994 400,000 400,000 - - 16,005
Executive Officer 1993 400,000 400,000 $177,286(2) $9,250,000 18,808
G. Neal Ryland 1995 235,000 235,000 - - 27,512
Executive Vice 1994 220,000 150,000 - - 22,459
President, Treasurer 1993 100,000 50,000 - 809,375 16,544
and Chief Financial Officer
Sherry A. Umberfield 1995 205,000 140,000 - - 24,375
Executive Vice 1994 205,000 45,000 - - 10,861
President, Corporate 1993 205,000 50,000 - 1,734,375 12,044
Development
Edward N. Wadsworth 1995 212,500 145,000 - - 36,209
Executive Vice 1994 212,500 53,000 - - 13,046
President, General 1993 212,500 50,000 - 1,734,375 15,235
Counsel and Secretary
- -----------------------------
</TABLE>
(1) Includes annual compensation paid by the Partnership, and by New England
Investment Companies, Inc. prior to the acquisition of Reich & Tang, which
occurred on September 15, 1993. Mr. Ryland became employed by New England
Investment Companies, Inc. on July 19, 1993.
44
<PAGE>
(2) Represents relocation and related expenses paid for the benefit of or
reimbursed to Mr. Voss, including related tax gross-up payments.
(3) The Restricted Unit valuations set out in the table above were calculated
using $23.125 per Unit, which was the Unit value at date of grant,
September 15, 1993. Calculated using the December 31, 1995 Unit valuation
of $21.125, the ownership and valuation of unvested Units held by the Named
Executive Officers under the Partnership's Restricted Unit Plan are as
follows: Mr. Voss, 160,000 Units valued at $3,380,000; Mr. Ryland, 14,000
Units valued at $295,750; Ms. Umberfield, 30,000 Units valued at $633,750;
and Mr. Wadsworth, 30,000 Units valued at $633,750. These Units are
scheduled to vest one-half on each of June 30, 1996 and June 30, 1997.
Partnership distributions are paid on these Units.
(4) With respect to 1995, consists of insurance payments for term life (in each
case less than $2,000) and contributions under defined contribution plans
as follows: $46,940 for the benefit of Mr. Voss; $26,440 for the benefit
of Mr. Ryland; $23,440 for the benefit of Ms. Umberfield; and $35,240 for
the benefit of Mr. Wadsworth.
RESTRICTED UNIT PLAN
At the time of the acquisition of Reich & Tang on September 15, 1993, the
Partnership established the Restricted Unit Plan ("RUP") pursuant to which New
England Mutual and RTI contributed 1,100,000 and 326,000 Units, respectively, to
the Partnership to be used for Unit grants. Under the Partnership Agreement,
the expense and associated tax benefit of restricted Units grants under the RUP
are specially allocated to New England Mutual and RTI, so that publicly-traded
Units bear no expense or related tax deduction from the RUP. There was no cost
to the executive for the restricted Units, and each executive has the right to
vote and to receive Partnership distributions made on such Units.
The Partnership's Restricted Unit Plan provides for the immediate vesting of all
restricted Units held by all plan participants in the event of a "change of
control" of the Partnership, as in the case of the proposed Merger of New
England Mutual with Metropolitan Life. See Item 1, The Proposed Merger of New
England Mutual and Metropolitan Life.
EMPLOYMENT AGREEMENTS
NEIC and the General Partner are party to an employment agreement ("the
Employment Agreement") dated as of August 16, 1995 (the "Effective Date") with
Peter S. Voss providing for the employment of Mr. Voss as Chairman of the Board,
Chief Executive Officer and President of the Partnership and the General Partner
for an initial term of three years. The term of the Employment Agreement will
be automatically extended for an additional two-year period unless terminated by
any party prior to the second anniversary of the Effective Date of the
Employment Agreement. During the term of the Employment Agreement, Mr. Voss
will receive an annual salary established from time to time by the Board of
Directors of the General Partner. In addition, Mr. Voss will be entitled to
receive an annual bonus determined by the Board. In the event that Mr. Voss is
terminated by the Partnership without Cause or Mr. Voss elects to terminate his
employment as a result of a Constructive Discharge Event (as defined in the
Employment Agreement), Mr. Voss shall be entitled to lump sum payment equal to
three times his Salary (as then in effect) and three times his Bonus Amount (as
defined in the Employment Agreement). In addition, in the event of such a
termination, Mr. Voss shall be deemed to be fully vested in any restricted units
or other equity incentives held by him on the date of such termination. In the
event that the Partnership timely elects not to extend the Employment Agreement
for an additional two-year period as described above, Mr. Voss shall be entitled
to one times his Salary and one times his Bonus Amount.
In addition, the Partnership and the General Partner are also party to
agreements dated as of August 16, 1995 (the "Named Executive Agreements") with
each of G. Neal Ryland, Sherry A. Umberfield and Edward N. Wadsworth providing,
in each case, that if the employment of such Named Executive Officer is
terminated by the Partnership prior to the third anniversary of the Effective
Date of such Named Executive Agreements other than for Cause or disability or if
the Partnership constructively Discharges such Named Executive Officer and if
Peter S. Voss or his designee, in his capacity as Administrator under the Named
Executive Agreements, determines that such termination of employment or
Constructive Discharge was not primarily related to such Named Executive
Officer's performance or the ordinary course of business, then
45
<PAGE>
such Named Executive Officer shall be entitled to lump sum payments equal to one
and one-half times his or her salary and his or her bonus amount.
COMPENSATION OF DIRECTORS
Directors of the General Partner who are not employees of the Partnership or its
subsidiary firms ("Outside Directors") receive a retainer of $20,000 annually.
In addition, the Partnership pays each Outside Director fees of $1,500 per
meeting of the Board of Directors attended and $750 per meeting of a Board
Committee attended. Chairmen of Committees of the Board of Directors who are
Outside Directors are paid an additional annual retainer of $1,500. Directors
may defer payment of retainer and meeting fees under a directors deferred
compensation plan. Mr. Tang has a consulting arrangement with the Partnership
that provides for the payment of annual consulting fees of $150,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert A. Shafto, the Chairman, President and Chief Executive Officer of New
England Mutual, serves as Chairman of the Compensation Committee of the Board of
Directors of the General Partner of the Partnership. Other members of the
Compensation Committee are Thomas J. Galligan, Charles M. Leighton and Oscar L.
Tang. Peter S. Voss serves on the Board of Directors of New England Mutual.
See Item 13, "Certain Relationships and Related Transactions," for a discussion
of the relationship between the Partnership and the General Partner with New
England Mutual.
46
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ------- ---------------------------------------------------------------
PRINCIPAL SECURITY HOLDERS
- --------------------------
The following table sets out information as of January 31, 1996 as to all
persons known by the Partnership to hold 5% or more of the outstanding Units.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
<S> <C> <C>
New England Mutual 20,790,000 (1) 55.8%
Life Insurance Company
501 Boylston Street
Boston, Massachusetts 02117
Reich & Tang, Inc. 6,582,400 (1) 17.7%
125 Cove Neck Road
Oyster Bay, New York 11771
Oscar L. Tang 3,119,370 (2) 8.4%
600 Park Avenue
New York, New York 10020
</TABLE>
- ----------------------
(1) Does not include 551,800 Units and 166,300 Units contributed to the RUP by
New England Mutual and RTI, respectively, as to which the contributing
organizations retain certain income or reversionary rights. See Item 11
for a further description of the RUP. The ownership of New England Mutual
shown excludes 110,000 GP Units owned by the General Partner, which
represent all GP Units outstanding.
All stockholders of RTI are parties to a stockholders' agreement relating
to the maintenance of such corporation's status as an "S" corporation
under the Internal Revenue Code and which creates numerous reciprocal and
other rights relating to the disposition of stock in RTI by the
stockholders.
(2) All Mr. Tang's Units are beneficially owned indirectly through stock
ownership in RTI, and such Units are included in the ownership attributed
to RTI set out immediately above. Included are (i) 36,349 Units
indirectly held by a trust for the lifetime benefit of Mr. Tang of which
Mr. Tang is one of two trustees, and (ii) 885,584 Units indirectly held by
trusts for Mr. Tang's children, as to which Mr. Tang disclaims beneficial
ownership. Mr. Tang is a director of the General Partner of the
Partnership and serves as a consultant to the Partnership.
47
<PAGE>
MANAGEMENT
- ----------
The following table sets out the beneficial ownership of Units as of
January 31, 1996 of each director of the General Partner, of each Named
Executive Officer of the General Partner and of all directors and executive
officers of the General Partner as a group:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ---------------------------------------- ------------------------------------------- -------------------
<S> <C> <C>
Peter S. Voss (1)(2) 400,300 1.1%
William S. Antle III (3) - -
Robert S. Blanding 9,000 *
Thomas J. Galligan, Jr. 2,000 *
Paul E. Gray (4) - -
Charles M. Leighton (3) 1,750 *
Victor A. Morgenstern (5) 700,000 1.9%
Edward E. Phillips 3,000 *
Robert A. Shafto 2,700 *
Oscar L. Tang (6) 3,119,370 8.4%
G. Neal Ryland (1)(7) 36,000 0.1%
Sherry A. Umberfield (1) 70,000 0.2%
Edward N. Wadsworth (1) 67,380 0.2%
All directors and executive officers of the
General Partner as a group (12 persons) 4,411,500 11.8%
</TABLE>
* Represents less than 1%.
(1) Includes Units granted under the Partnership's RUP. See Item 11 for a
description of the RUP.
(2) Includes 300 Units held by a child of Mr. Voss, as to which Mr. Voss
disclaims beneficial ownership.
(3) Does not include accounts holding values equal to 118 Units and 8,159
Units for Messrs. Antle and Leighton, respectively, under a plan
whereby directors of the General Partner can defer some or all of their
Board retainer and meeting fees.
(4) Dr. Gray became a director of the General Partner on March 19, 1996.
(5) Includes 180,000 Units held by a limited partnership as to which Mr.
Morgenstern serves as general partner.
(6) For a statement of Mr. Tang's beneficial ownership, see under the caption
Principal Security Holders immediately above.
(7) Includes 1,000 Units held by Mr. Ryland's children, as to which he
disclaims beneficial ownership.
48
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIPS WITH NEW ENGLAND MUTUAL
As of December 31, 1995, New England Mutual owned 56% of the outstanding
Units, and four of its directors (one of whom is New England Mutual's Chief
Executive Officer) also serve as directors of the General Partner. In addition,
the General Partner is a wholly owned subsidiary of New England Mutual and has
the rights of a general partner under NEIC's partnership agreement. The
Partnership and New England Mutual maintain several important business
relationships as summarized below.
Asset Management and Related Matters. As of December 31, 1995 certain of
the Partnership's Investment Management Firms managed approximately $6.8 billion
of New England Mutual's General Account assets. These services are provided
principally under investment management agreements (the "Management Agreements")
with several of the Investment Management Firms. For 1995, these Management
Agreements contained annual fee rates ranging from 0.18% to 0.50% of assets
advised, depending upon the class of asset, with a minimum fee payable of $14.4
million. NEIC earned $15.0 million under this agreement in 1995. NEIC also
earned $1.5 million in 1995 under a special incentive fee arrangement for the
sale of real estate assets in support of New England Mutual's General Account
portfolio reallocation goals. For 1996, General Account fees earned will range
from 0.166% to 0.50%, based on current market rates, with a minimum guaranteed
fee of $13.0 million. Additionally, there is the opportunity to continue to earn
special incentive fees if real estate assets are sold to unaffiliated buyers.
Although the Management Agreements can be terminated and assets can be allocated
to outside managers, the $13.0 million minimum fee for 1996 is payable to NEIC
in the absence of a material breach of the Management Agreements. Any future
rate changes will be negotiated, and management expects that such negotiated
rates will be competitive in the market at such time.
In addition, certain Investment Management Firms, as of December 31, 1995,
managed approximately $3.9 billion of assets held directly or indirectly in
segregated asset accounts of New England Mutual. Of this total, Copley managed
$3.2 billion. For such services, the Firms received directly from New England
Mutual approximately $14.2 million in 1995. The Firms also managed 10 mutual
funds for the New England Zenith Funds which contain $1.5 billion in assets
segregated to meet obligations under variable life insurance and variable
annuity products issued by New England Mutual and a subsidiary of New England
Mutual, as well as investments backing certain other insurance products issued
by New England Mutual.
New England Mutual has made mortgage loans to several real estate projects
owned by joint ventures in which a Copley-sponsored fund participates. New
England Mutual also serves as sole or joint guarantor of joint venture-related
indebtedness in certain instances. In certain other cases New England Mutual is
a coinvestor in investment funds sponsored by the Investment Management Firms,
principally Copley.
Services and Office Space. New England Mutual provides various services to
the Partnership and the Firms pursuant to a services agreement between New
England Mutual and NEIC dated as of January 1, 1992. These services include
certain data processing, internal audit and various other administrative support
services. All such services are provided at competitive rates established from
time to time by negotiation between New England Mutual and the General Partner.
In 1995, the Partnership paid New England Mutual approximately $3.2 million for
such services. New England Mutual can discontinue providing, and the Partnership
and the Firms can discontinue receiving, any or all of these services at any
time on 60 days' notice.
The Partnership and certain of its Subsidiaries lease office space and
certain office equipment in a building owned by New England Mutual, for which,
in 1995, New England Mutual received $2.9 million. The leases commenced at
various dates ranging from July 1991 to January 1993 and expire at various
dates. The rates are generally at current market rates.
Retail Mutual Fund Distribution. Certain mutual funds sponsored by the
Partnership, including the 22 mutual funds in the New England Fund Group, are
sold in the retail market through broker-dealers including NES, which is owned
by New England Mutual. NES's retail sales force consists of registered
securities representatives who are part of New England Mutual's insurance agent
field force. New England Funds paid $19.5 million to NES in 1995, including
commissions on the sales of load mutual funds, 12-B1 distribution fees, and
servicing fees on no-load mutual funds. In addition, NES is the principal
underwriter
49
<PAGE>
for the funding vehicles for certain New England Mutual variable life and
variable annuity products which are advised by the Partnership's Investment
Management Firms.
Tax Indemnification. For periods prior to the acquisition of Reich & Tang,
New England Investment Companies, Inc. and its subsidiaries filed consolidated
returns for federal and certain state income taxes together with certain
subsidiaries of New England Mutual. In connection with the acquisition of Reich
& Tang, all liabilities for taxes owed by New England Investment Companies, Inc.
under these agreements were canceled and were not transferred to the
Partnership. New England Mutual will indemnify and hold harmless the Partnership
for any additional federal income taxes for New England Investment Companies,
Inc. imposed for periods prior to the acquisition of Reich & Tang, offset by any
tax benefit for periods prior to the acquisition of Reich & Tang.
Participation in New England Mutual's Employee Benefit Plans. Employees of
the Partnership and certain of its Subsidiaries have participated in various
retirement, profit-sharing, supplemental insurance and health care and welfare
benefit plans sponsored by New England Mutual. As of December 31, 1994, the
Partnership has instituted its own retirement and profit sharing plans, and
benefits have been frozen under New England Mutual's defined benefit retirement
plan. During 1995, the Partnership revised the Health and Welfare program to
allow employees to participate in health maintenance organization plans or New
England Mutual's medical indemnity plan, based on individual election. Amounts
paid by the Partnership and its Subsidiaries during 1995 relating to employees'
participation in plans sponsored by New England Mutual was $1.2 million. In
addition, Loomis Sayles purchased cash value life insurance policies from New
England Mutual to satisfy Loomis Sayles obligations under a death benefit plan
for senior executives. Premiums paid on these policies were $1.1 million in
1995.
Certain Other Matters. New England Mutual has agreed to indemnify Copley
against any and all liability and expense arising out of certain suits and out
of other claims or actions involving certain investments relating to retirement
plans managed by the Washington State Investment Board and the State Teachers
Retirement Board of Ohio. See Item 3, "Legal Proceedings" for a description of
these actions.
New England Mutual has agreed to advance funds to Copley to meet Copley's
contribution obligation, if it should arise, with respect to one investment
partnership where a Copley subsidiary has a less than 1% general partnership
interest. This obligation arose in 1992 incident to the contribution by Copley
of various real estate interests to a subsidiary of New England Mutual in
exchange for preferred stock.
The Partnership and New England Mutual expect to maintain many of these
relationships for the foreseeable future. Transactions between New England
Mutual and the Partnership entered into in the future, including changes to the
investment management fees the Partnership charges New England Mutual and
service fees New England Mutual charges the Partnership, will be determined by
negotiation from time-to-time. The Partnership believes that the financial
aspects of these relationships are no less favorable to the Partnership than
those available from unaffiliated third parties.
Incident to New England Mutual's proposed Merger with Metropolitan Life,
New England Mutual's ownership interests in NEIC and the General Partner will be
transferred to Metropolitan Life, and Metropolitan Life will succeed to the
various arrangements of New England Mutual with NEIC. For additional information
regarding the Merger, see Item 1, "The Proposed Merger of New England Mutual and
Metropolitan Life."
New England Mutual and RTI have notified the General Partner that they may,
subject to market and other conditions, seek to sell a portion of their holdings
of Units in the future pursuant to certain registration rights contained in a
Registration Rights Agreement by and among such parties and the Partnership.
RELATIONSHIPS WITH RTI
As of December 31, 1995, RTI owns approximately 17.8% of the outstanding
Units. Numerous actions were taken in 1993 involving RTI incident to or as a
condition of the acquisition of Reich & Tang, including the Partnership
undertaking to use its best efforts, through September 15, 1996, to maintain
liability insurance coverage with respect to actions or omissions occurring
prior to the acquisition of Reich & Tang for the benefit of RTI and its officers
and directors with coverage being substantially the same as that historically
maintained by RTI.
50
<PAGE>
OTHER RELATIONSHIPS
As of January 31, 1996, the Partnership had guaranteed loans by a commercial
bank in an aggregate principal amount of $2.0 million to certain key employees
of the Partnership and its Subsidiaries for the payment of income taxes arising
upon the vesting of restricted LP Units granted to such employees under the
Partnership's Restricted Unit Plan. See Item 11, "Executive Compensation" for
further information on the Restricted Unit Plan. Prior to collecting on such
indemnity, in addition to realizing on the Units that have been pledged by the
key employees as collateral, the bank must, for a period of 90 days, use all
reasonable means available to recover on loans in default directly from the
borrower.
51
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
(1) Financial Statements.
---------------------
The consolidated financial statements of New England Investment Companies, L.P. are included under
Item 8 of this Form 10-K as follows:
Page
----
<S> <C>
Consolidated Balance Sheet at December 31, 1994 and 1995 20
Consolidated Statement of Income
for the three years ended December 31, 1995 21
Consolidated Statement of Cash Flows
for the three years ended December 31, 1995 22
Consolidated Statement of Changes in Partners' Capital
for the three years ended December 31, 1995 23
Notes to Consolidated Financial Statements 24
Report of Independent Accountants 40
</TABLE>
(2) Financial Statement Schedules
-----------------------------
Schedules are omitted because they are not applicable or the required
information is shown on the notes thereto.
(3) Exhibits
--------
The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith or incorporated herein by reference, as indicated.
Executive Compensation Plans and Arrangements:
10.1 1993 Equity Incentive Plan. (1)
10.2 Restricted Unit Plan. (1)
10.3 Restricted Unit Plan Agreement with Peter S. Voss. (1)
10.4 Restricted Unit Plan Agreement with G. Neal Ryland. (1)
10.5 Restricted Unit Plan Agreement with Sherry A. Umberfield. (1)
10.6 Restricted Unit Plan Agreement with Edward N. Wadsworth. (1)
10.7 New England Mutual Progress Sharing Plan and Amendments thereto.
(1)
10.8 New England Mutual Retirement Plan and Amendments thereto. (1)
10.9 New England Mutual Supplemental Retirement Plan. (1)
10.10 New England Mutual Supplemental Insurance Plan for Executives
and Amendments thereto. (1)
10.11 Employment Agreement with Peter S. Voss. (2)
52
<PAGE>
10.12 Agreement with G. Neal Ryland. (2)
10.13 Agreement with Sherry A. Umberfield. (2)
10.14 Agreement with Edward N. Wadsworth. (2)
10.15 Defined Contribution Retirement Plan of the Partnership.
10.16 401 (k) Savings Plan of the Partnership.
10.17 Directors Deferred Compensation Plan.
Other Exhibits:
3. Charter Documents.
3.1 Articles of Organization of New England Investment
Companies, Inc. (1)
3.2 By-Laws of New England Investment Companies, Inc. (1)
3.3 Certificate of Limited Partnership of New England Investment
Companies, L.P., together with all amendments thereto. (1)
3.4 Amended and Restated Agreement of Limited Partnership of New
England Investment Companies, L.P. (1)
3.5 Agreement Amending the Amended and Restated Agreement of
Limited Partnership of New England Investment Companies,
L.P. in respect of Certain Employee Compensation Liabilities
Accrued in 1993. (1)
4. Instruments Defining the Rights of Security Holders.
4.1 Form of Certificate Evidencing Units Representing Limited
Partnership Interests. (1)
4.2 Form of Senior Note Certificate. (Included as an exhibit to
Exhibit 4.3)
4.3 Form of Note Purchase Agreement.
9. Voting Agreement by and among New England Investment Companies,
Inc., Reich & Tang, Inc. and New England Mutual Life Insurance
Company. (1)
10. Material Contracts.
10.18 Second Amended and Restated Limited Partnership Agreement of
Capital Growth Management Limited Partnership. (1)
10.19 Registration Rights Agreement by and among Reich & Tang,
Inc., New England Mutual Life Insurance Company and New
England Investment Companies, L.P. (1)
10.20 Amendment Number 1 to Investment Management Agreement among
New England Mutual Life Insurance Company, New England
Investment Companies, L.P. and Back Bay Advisors, L.P.
10.21 Investment Management Agreement among New England Mutual
Life Insurance Company and Copley Real Estate Advisors, Inc.
53
<PAGE>
10.22 Investment Management Agreement among New England Mutual
Life Insurance Company and Loomis, Sayles & Company, L.P.
(5)
10.23 Services Agreement between New England Mutual Life Insurance
Company and New England Investment Companies, L.P. (1)
10.24 Indemnification Agreement between New England Mutual Life
Insurance Company, and Copley Real Estate Advisors, Inc.,
together with Amendment No. 1 thereto. (1)
10.25 Lease between New England Mutual Life Insurance Company, New
England Investment Companies, L.P. and certain Subsidiaries.
(1)
10.25 Partnership Admission Agreement dated June 22, 1995
(Acquisition by the Partnership of the assets of Harris
Associates L.P.). (3)
10.26 Amendment No. 1 to Partnership Admission Agreement dated
June 22, 1995. (4)
10.27 Registration Rights Agreement between the Partnership and
Harris Associates L.P.
10.28 Investment Management Agreement among New England Mutual
Life Insurance Company, New England Investment Companies,
L.P. and Back Bay Advisors.(5)
21. Subsidiaries of New England Investment Companies, L.P.
23. Consent of Price Waterhouse LLP.
27. Financial Data Schedule.
NOTES
---------------------
(1) Filed as an Exhibit to Registrant's 1993 Form 10-K Annual Report
(File No. 1-9468).
(2) Filed as an Exhibit to Registrant's Current Report on Form 8-K
(File No. 1-9468) dated November 8, 1995.
(3) Filed as an Exhibit to Registrant's Quarterly Report on Form
10-Q (File No. 1-9468) for the quarter ended June 30, 1995.
(4) Filed as an Exhibit to Registrant's Current Report on Form 8-K
(File No. 1-9468) dated September 29, 1995 and filed with the
Commission on October 10, 1995.
(5) Filed as an Exhibit to Registrant's 1994 Form 10-K Annual Report
(File No. 1-9468).
54
<PAGE>
(b) Form 8-K filings:
(i) On October 10, 1995, the Partnership filed with the Commission a
Current Report on Form 8-K dated September 29, 1995 reporting
the consummation of the acquisition of Harris Associates L.P.
and certain operating policies resulting from the Harris
acquisition relating to the payment of distributions to holders
of Units. The following financial statements and pro forma
financial information were filed therewith:
(A) Consolidated Audited Financial Statements of Harris
Associates L.P. and Subsidiaries as of December 31, 1994,
1993 and 1992.
(B) Consolidated Unaudited Financial Statements of Harris
Associates L.P. and Subsidiaries as of June 30, 1995 and
1994.
(C) Unaudited Pro Forma Condensed Combined Balance Sheet of New
England Investment Companies, L.P. as of June 30, 1995.
(D) Unaudited Pro Forma Condensed Combined Statement of
Operations of New England Investment Companies, L.P. for
the Six Months Ended June 30, 1995.
(E) Unaudited Pro Forma Condensed Combined Statement of
Operations of New England Investment Companies, L.P. for
the Year Ended December 31, 1994.
(ii) On November 9, 1995, the Partnership filed with the Commission a
Current Report on Form 8-K dated November 8, 1995 (A) reporting
certain employment arrangements with the Partnership's Chairman,
Chief Executive Officer and President; Executive Vice President
and Chief Financial Officer; Executive Vice President, Corporate
Development and Executive Vice President and General Counsel and
(B) filing an audited balance sheet of New England Investment
Companies, Inc., NEIC's general partner, as of December 31, 1993
and 1994.
55
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: NEW ENGLAND INVESTMENT COMPANIES, L.P.
By: NEW ENGLAND INVESTMENT COMPANIES, INC.
General Partner
By: /s/ Edward N. Wadsworth
-----------------------
Edward N. Wadsworth
Executive Vice President
Date: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ G. Neal Ryland Executive Vice President, Chief March 19, 1996
- -------------------------- Financial Officer and Treasurer
G. Neal Ryland
/s/ Stephen D. Martino Senior Vice President and Controller March 19, 1996
- --------------------------
Stephen D. Martino
/s/ Peter S. Voss Chairman, Chief Executive Officer March 19, 1996
- -------------------------- and President
Peter S. Voss
Director March, 1996
- ---------------------------
William S. Antle III
/s/ Robert J. Blanding Director March 19, 1996
- ---------------------------
Robert J. Blanding
/s/ Thomas J. Galligan, Jr. Director March 19, 1996
- ----------------------------
Thomas J. Galligan, Jr.
Director March, 1996
- ----------------------------
Paul E. Gray
/s/ Charles M. Leighton Director March 19, 1996
- ----------------------------
Charles M. Leighton
/s/ Victor A. Morgenstern Director March 19, 1996
- ----------------------------
Victor A. Morgenstern
/s/ Edward E. Phillips Director March 19, 1996
- ----------------------------
Edward E. Phillips
/s/ Robert A. Shafto Director March 19, 1996
- ----------------------------
Robert A. Shafto
/s/ Oscar L. Tang Director March 19, 1996
- ----------------------------
Oscar L. Tang
</TABLE>
56
<PAGE>
Exhibit 10.15
-------------
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NEIC RETIREMENT ACCOUNT PLAN
Plan effective date: January 1, 1995
<PAGE>
NEIC RETIREMENT ACCOUNT PLAN
TABLE OF CONTENTS
Page
INDEX OF TERMS................................................................iv
ARTICLE 1 INTRODUCTION........................................................1
1.1 Establishment of Plan...............................................1
1.2 Compliance with Code and ERISA......................................1
1.3 Exclusive Benefit of Participants...................................1
1.4 Limitation on Rights Created By Plan................................1
1.5 Application of Plan's Terms.........................................1
1.6 Benefits Payable Only from Trust Fund...............................1
ARTICLE 2 DEFINITIONS.........................................................1
2.1 Affiliated company..................................................1
2.2 Applicable compensation.............................................2
2.3 Beneficiary.........................................................2
2.4 Code................................................................2
2.5 Employee............................................................2
2.6 Employer............................................................2
2.7 ERISA...............................................................2
2.8 Participant.........................................................3
2.9 Plan................................................................3
2.10 Plan manager........................................................3
2.11 Plan year...........................................................3
2.12 NEIC................................................................3
2.13 TeleTrust...........................................................3
2.14 Trust agreement.....................................................3
2.15 Trust fund..........................................................3
2.16 Trustees............................................................3
ARTICLE 3 PARTICIPATION.......................................................3
3.1 Participation.......................................................3
3.2 Months of Service...................................................4
3.3 Year of Eligibility Service.........................................4
i
<PAGE>
3.4 End of Participation.................................................5
3.5 Reentry of Former Active Participant.................................5
ARTICLE 4 EMPLOYER RETIREMENT CONTRIBUTIONS....................................5
4.1 Retirement Contributions.............................................5
4.2 Transition Benefit Contributions.....................................5
4.3 Form and Time of Contribution........................................6
4.4 Maximum Additions....................................................6
4.5 Excess Benefit Plan..................................................7
ARTICLE 5 ACCOUNTS AND CREDITS.................................................8
5.1 Establishment of Accounts............................................8
5.2 Charges to Accounts..................................................8
ARTICLE 6 INVESTMENT FUNDS AND CREDITING INVESTMENT EXPERIENCE.................8
6.1 Investment Funds.....................................................8
6.2 Participants' Investment Directions and Transfers Among Funds........9
6.3 Valuation of Assets and Crediting Investment Experience..............9
ARTICLE 7 DISTRIBUTIONS........................................................9
7.1 Distribution Upon Retirement or Disability...........................9
7.2 Distribution Upon Termination of Employment.........................10
7.3 Distribution Upon Death.............................................11
7.4 Time of Distribution................................................12
7.5 Forms of Payment....................................................13
7.6 Standard Form of Payment............................................13
7.7 Election of Optional Form of Payment................................13
7.8 Automatic Joint and Surviving Spouse Annuity for Married
Participant Who Does Not Elect Otherwise............................14
7.9 Rehire Before Distribution..........................................15
7.10 Direct Rollovers....................................................15
ARTICLE 8 AMENDMENT, MERGER AND TERMINATION OF PLAN...........................16
8.1 Amendment of Plan...................................................16
8.2 Merger of Plans.....................................................16
8.3 Termination.........................................................16
8.4 Effect of Termination...............................................16
ii
<PAGE>
ARTICLE 9 NAMED FIDUCIARIES...................................................17
9.1 Identity of Named Fiduciaries......................................17
9.2 Responsibilities and Authority of Plan Manager.....................17
9.3 Responsibilities and Authority of Trustees.........................17
9.4 Responsibilities of NEIC...........................................17
9.5 Responsibilities Not Shared........................................18
9.6 Dual Fiduciary Capacity Permitted..................................18
9.7 Actions by NEIC....................................................18
9.8 Procedure for Allocation and Delegation of
Responsibilities...................................................18
9.9 Advice.............................................................18
9.10 Indemnification....................................................18
ARTICLE 10 THE PLAN MANAGER...................................................19
10.1 Appointment........................................................19
10.2 Notice to Trustees.................................................19
10.3 Administration of Plan.............................................19
10.4 Reporting and Disclosure...........................................19
10.5 Records............................................................19
10.6 Compensation and Expenses..........................................19
10.7 Decisions, Rules and Regulations...................................20
10.8 Claims Review Procedure............................................20
ARTICLE 11 MISCELLANEOUS......................................................20
11.1 Qualified Domestic Relations Orders................................20
11.2 Nonalienation of Benefits..........................................21
11.3 Payment to Minors and Incompetents.................................21
11.4 Current Address of Payee...........................................21
11.5 Disputes over Entitlement to Benefits..............................21
11.6 Payment of Benefits................................................21
11.7 Top-Heavy Plan Provisions..........................................21
11.8 Excess Contribution................................................24
11.9 Return of Contribution Made in Error or Not Deductible.............24
11.10 Statutory References..............................................24
11.11 Rules of Construction.............................................24
11.12 Text Controls.....................................................24
11.13 Applicable State Law..............................................25
iii
<PAGE>
INDEX OF TERMS
The items listed below are defined or explained in the plan sections or
articles indicated.
Accounts................................................................5.1
Affiliated company......................................................2.1
Annual additions.....................................................4.4(c)
Applicable compensation.................................................2.2
Beneficiary.............................................................2.3
Claim..................................................................10.8
Claimant...............................................................10.8
Code....................................................................2.4
Defined benefit plan fraction....................................4.4(d)(ii)
Defined contribution plan fraction................................4.4(d)(i)
Employee................................................................2.5
Employer................................................................2.6
ERISA...................................................................2.7
Limitation year......................................................4.4(a)
Maximum additions.......................................................4.4
Named fiduciaries.........................................Article 9, 9.1(a)
NEIC...................................................................2.12
Participant.............................................................2.8
Participation...........................................................3.1
Plan....................................................................2.9
Plan manager...............................................Article 10, 2.10
Plan year..............................................................2.11
Projected annual benefit.........................................4.4(d)(ii)
Qualified domestic relations orders....................................11.1
Retirement contribution.................................................4.1
Service.........................................................3.2, 7.2(c)
Top-heavy..............................................................11.7
Total compensation...................................................4.4(a)
Transition benefit contribution.........................................4.2
Trust agreement........................................................2.14
Trust fund.............................................................2.15
Trustees...............................................................2.16
Vested interest......................................................7.2(b)
iv
<PAGE>
Exhibit 10.15
-------------
ARTICLE 1
INTRODUCTION
1.1 Establishment of Plan. New England Investment Companies, L.P.
established this plan effective as of January 1, 1995.
1.2 Compliance with Code and ERISA. This plan is intended to qualify as a
"money purchase pension plan" under Code Section 401(a) and to comply with the
applicable provisions of ERISA.
1.3 Exclusive Benefit of Participants. The plan is for the exclusive benefit
of participants and their beneficiaries. Contributions are made to the trust
fund by the employers for the purpose of distributing benefits to participants
and their beneficiaries from the trust fund in accordance with the plan. Except
as provided in section 11.9, no part of the trust fund or any distribution
therefrom will be used for or diverted to purposes other than for the exclusive
benefit of participants and their beneficiaries and defraying those reasonable
expenses of administering the plan and trust fund not paid by the employers.
1.4 Limitation on Rights Created By Plan. Nothing appearing in the plan will
be construed (a) to give any person any benefit, right or interest except as
expressly provided herein, or (b) to create a contract of employment or to give
any employee the right to continue as an employee or to affect or modify his
terms of employment in any way.
1.5 Application of Plan's Terms. The benefits and rights of a participant
and his beneficiaries under the plan will be determined in accordance with the
terms of the plan that are in effect on the date that contributions on a
participant's behalf are made or credited to his accounts, or on the date of the
participant's retirement, death or other termination of employment, whichever
may be applicable.
1.6 Benefits Payable Only from Trust Fund. The employers, the trustee and
the plan manager do not guarantee the payment of benefits hereunder. Benefits
will be paid only from the assets of the trust fund and are limited to the
amount of assets therein.
ARTICLE 2
DEFINITIONS
This article contains a number of definitions of terms used in the plan.
Other terms are defined, explained or clarified in other articles. This is done
for convenience of plan administration. There is no other significance to the
location of a definition.
2.1 Affiliated company means (a) any corporation (other than an employer)
which is included in a controlled group of corporations with an employer, as
defined in Section 414(b) of the Code; (b) any unincorporated trade or business
which is under common control with an
1
<PAGE>
employer, as determined under Section 414(c) of the Code; or (c) any entity
aggregated with an employer under Code Section 414(m) or (o) or the regulations
thereunder.
2.2 Applicable compensation of an employee, other than an employee who is a
New England Funds wholesaler, for any calendar year or other period of reference
means his base compensation from his employer for services while he was an
active participant during such calendar year or other period. Applicable
compensation also includes contributions made by his employer from the
employee's base compensation to another employee benefit program on behalf of
the employee in accordance with a salary reduction agreement with the employee.
Applicable compensation does not include overtime, bonuses, severance pay, and
any other "extra" compensation from his employer, reimbursed expenses, excess
life insurance premiums, or any other items not constituting direct compensation
for services. Applicable compensation also does not include payments to or
benefits under this or any other public or private employee benefit plan (other
than salary deferrals or salary reduction contributions under any other employee
benefit program). Applicable compensation for an employee who is a New England
Funds wholesaler will be 200% of the employee's base compensation.
Applicable compensation of an employee taken into account under the plan
in a particular plan year will not exceed $150,000 (as adjusted from time to
time in accordance with Code Section 401(a)(17)). In determining the
compensation of an employee for purposes of this limitation, the rules of Code
Section 414(q)(6) (which provides for treating certain family members as if they
were a single employee) will apply, except that the term "family" will include
only the employee's spouse and any lineal descendants of the participant who
have not attained age 19 before the close of the plan year.
2.3 Beneficiary means a person, class of persons or trust designated by a
participant or, if there is no such designation, by the plan to receive a
benefit hereunder upon the death of the participant.
2.4 Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute enacted in its place.
2.5 Employee means a person employed by an employer as a common law employee,
but not including persons employed on a retainer basis.
2.6 Employer means New England Investment Companies, L.P.; Back Bay Advisors,
L.P.; Copley Real Estate Advisors, Inc.; Marlborough Capital Advisors, L.P.; New
England Funds, L.P.; New England Investment Associates, Inc.; Reich & Tang Asset
Management L.P. and WestPeak Investment Advisors, L.P. or any successor
organization to each of them, or other entity that adopts the plan for its
employees with the consent of NEIC upon such terms and conditions as NEIC
determines. Employer may refer to each employer individually, or to all the
employers collectively, as the context may require.
2.7 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute enacted in its place.
2
<PAGE>
2.8 Participant means an employee or former employee whose participation in
the plan has begun and has not yet ended.
2.9 Plan means the NEIC Retirement Account Plan, as set forth in this plan
instrument, and as it may be amended from time to time.
2.10 Plan manager means the plan manager designated under Article 10 hereof
to administer the plan.
2.11 Plan year means the 12-month period beginning each January 1 during the
continuance of the plan.
2.12 NEIC means New England Investment Companies, L.P. or its successor.
2.13 TeleTrust means TeleTrust Line, an electronic voice response system
accessed over the telephone and maintained by Defined Contribution Services of
The New England, or any successor voice response system that replaces TeleTrust
Line.
2.14 Trust agreement means the master trust agreement executed by NEIC and
the trustees, as amended from time to time, fixing the rights and
responsibilities of each party with respect to the holding, investment and
administration of the trust fund.
2.15 Trust fund means the property held by the trustees for the purposes of
the plan.
2.16 Trustees mean the persons serving as co-trustees, or the persons,
individual or corporate, serving as sole trustee, at any time under the terms of
the trust agreement.
ARTICLE 3
PARTICIPATION
3.1 Participation. Each employee, other than a person employed on a
temporary or intermittent basis, will join the plan beginning on the first entry
date that falls on or after he completes six months of service. In the case of
a person employed on a temporary or intermittent basis, one year of eligibility
service will be required for eligibility. Each person who transfers his
employment directly from an affiliated company to an employer will join the
plan on the entry date coinciding with or next following his date of transfer,
provided he has completed the applicable six months of service or year of
eligibility service requirement.
An entry date falls on the first day of every month.
----------
3
<PAGE>
3.2 Months of Service.
(a) Service. Service of an employee means the sum of all periods of his
-------
employment, whether or not continuous, and each period, if any, between a
termination of his employment and his earliest subsequent reemployment, but only
if such reemployment occurs within one year after such termination of
employment.
(b) Determining Months of Service. To determine an employee's months of
-----------------------------
service, all periods of service will be aggregated and 30 days will constitute a
month of service.
(c) Employment. Employment of a person means his active service as an
----------
employee of an employer including, for this purpose, an affiliated company. A
period of absence from active service will be considered part of his employment
if he receives compensation from an employer for such period or if such period
falls in one of the following categories (whether or not he receives
compensation for such period):
(i) absence for military service for which his reemployment rights
are protected by law; provided (but only for that part of the absence which
exceeds one year in length) he returns to active service as an employee within
the period when his reemployment rights are protected by law (or within such
longer period as his employer in its discretion permits); and
(ii) leave of absence due to sickness, accident, disability or other
reason, for the period authorized by the employer, provided (but only for that
part of such leave of absence which exceeds one year in length) he returns to
active service with his employer at the end of such period of authorized
absence.
3.3 Year of Eligibility Service. An employee will be credited with a year of
eligibility service after any twelve consecutive month eligibility service
computation period in which he is credited with at least 1,000 hours of service.
The first eligibility service computation period will begin on the date the
employee is first credited with an hour of service and subsequent eligibility
service computation periods will begin on each anniversary of the date the
employee was first credited with an hour of service.
An employee will be credited with an hour of service for each hour for which he
is directly or indirectly paid, or entitled to payment, by the employer or
affiliated employer for:
(a) the performance of duties for the employer; such hours will be
credited to the employee for the eligibility service computation period or
periods in which the duties were performed;
(b) back pay (irrespective of mitigation of damages) which has been
either awarded or agreed to by the employer. Such hours will be credited to the
employee for the eligibility service computation period or periods to which the
award or agreement pertains, rather than
4
<PAGE>
the eligibility service computation period in which the award, agreement or
payment is made, but no such hours will be credited if they already have been
credited under (a) immediately above; or
(c) absence due to illness or injury, absence for military service during
which reemployment rights are guaranteed by law, layoff not involving a
termination of employment, vacation time, holiday time, jury duty and a leave of
absence authorized by the employer.
Hours of service will be determined in accordance with Section
2530.200b-2 of the Department of Labor Regulations which are hereby incorporated
herein by this reference. Not more than 501 hours of service will be credited
for any single period of absence described in (b) or (c) above except in the
case of an absence for military service. Hours of service credited during a
paid absence are credited for the eligibility service computation period(s)
during which the absence occurs. The number of hours credited is determined by
dividing the payments received or due by the lesser of: (i) the employee's most
recent hourly rate of applicable compensation; or (ii) the employee's average
hourly rate of applicable compensation for the most recent plan year in which
the employee completed more than 500 hours of service.
3.4 End of Participation. A participant's active participation in the plan
will end upon the termination of his service as an employee for any reason. His
participation will end when he has no further interest under the plan.
3.5 Reentry of Former Active Participant. A former active participant who
returns to service as an employee will again be an active participant starting
on his date of rehire.
ARTICLE 4
EMPLOYER RETIREMENT CONTRIBUTIONS
4.1 Retirement Contributions. For each plan year, the employers will make a
contribution on behalf of each participant equal to 5% of his applicable
compensation, plus 5% of his applicable compensation in excess of the Social
Security taxable wage base for such year. The employer contribution for a plan
year required by this section will be reduced by any forfeitures occurring
during such year under section 7.2. The employer contribution under this
section is called the employer retirement contribution.
--------------------------------
4.2 Transition Benefit Contributions. The employers will make an additional
transition benefit contribution on behalf of the individuals, and in the
amounts, indicated on Appendix A attached hereto, entitled Transition Benefit.
The employer contribution under this section is called the transition benefit
------------------
contribution.
- ------------
5
<PAGE>
4.3 Form and Time of Contribution. The employers' retirement contributions
for a plan year will be paid to the trustees in cash. Such contributions will
normally be paid as soon as practicable after each payroll period payment.
Employer transition benefit contributions will be paid to the trustees in cash
once a year as of each December 31 (or, in the case of terminated employees,
such earlier date as the plan manager may decide). In any event, such
contributions will be paid to the trustees no later than the due date (including
extensions) for filing the employer's federal income tax return (or the
consolidated return including the employer) for such year.
4.4 Maximum Additions.
(a) The annual additions to a participant's accounts for any plan year
(which will be the limitation year for purposes of Code Section 415) may not
---------------
exceed the lesser of (i) $30,000, as adjusted periodically for cost-of-living
changes in accordance with Code Section 415 and regulations thereunder, or (ii)
25 percent of his total compensation for such year. For purposes of this
section, total compensation means a participant's total non-deferred
------------------
compensation from his employer for a plan year, as defined in Code Section 415
and regulations thereunder.
(b) If the annual additions for a plan year to a participant's accounts
would exceed the limitations of subsection (a) above, such amount will be held
in a suspense account and used to reduce the employer's contribution required on
behalf of the participant for the following plan year unless the participant is
not entitled to a contribution for the plan year in which case the amount will
be used to reduce the employer's contribution for the remaining participants.
(c) For purposes of this section 4.4, annual additions to a participant's
----------------
accounts for any plan year means the sum of the following amounts credited to
his accounts for such year: employer contributions under this plan and under the
NEIC 401(k) Savings Plan (including retirement contributions, transition benefit
contributions and matching contributions), and salary deferrals under said
401(k) plan.
(d) For any plan year, the sum of a participant's defined contribution
plan fraction and his defined benefit plan fraction may not exceed one, as
follows:
(i) His defined contribution plan fraction for any plan year is the
------- ------------ ---- --------
fraction (A) whose numerator is the sum of annual additions (as defined in Code
Section 415(c)(2)) to his accounts under all qualified defined contribution
plans maintained by NEIC (or any other employer that is included in a
controlled group or under common control with NEIC within the meaning of Code
Sections 414(b) and (c) and 415(h)) as of the close of such plan year, and (B)
whose denominator is the sum of the lesser of the following amounts determined
for such year and for each prior year of service with his employer: the
product of 1.25 (1.0 if the plan is top-heavy) and the dollar limitation in
effect for such year, or the product of 1.4 and 25 percent of the participant's
compensation for such year.
(ii) His defined benefit plan fraction for any plan year is a
-----------------------------
fraction (A) whose numerator is his aggregate projected annual benefit under
all defined benefit plans sponsored by NEIC (or any other employer that is
included in a controlled group or under common control
6
<PAGE>
with NEIC within the meaning of Code Sections 414(b) and (c) and 415(h)) as of
the close of such plan year, and (B) whose denominator is the lesser of the
product of 1.25 (1.0 if the plan is top-heavy) and the dollar limitation in
effect under Section 415(b)(1)(A) of the Code, and the product of 1.4 and the
participant's highest average compensation as determined under Section
415(b)(1)(B) of the Code. For this purpose, the projected annual benefit of a
--------- ------ -------
participant means the total normal retirement benefit to which he would be
entitled on the assumptions that his employment continues until his normal
retirement date and his annual earnings and all other relevant factors remain
the same for all future years as in the year when the projection is made.
(iii) If the sum of such fractions would exceed one without the
application of this section, his benefit under the defined benefit plan or
plans will be reduced to a benefit that will produce a defined benefit plan
fraction and a defined contribution plan fraction that equal one.
4.5 Excess Benefit Plan. If the annual addition of any participant entitled
to a transition benefit contribution is limited by the foregoing provisions of
section 4.4 of the NEIC Retirement Account Plan, there is hereby established for
affected participants an excess benefit plan which is separate from the NEIC
Retirement Account Plan and is intended to satisfy the definition of an excess
benefit plan under Section 3(36) of ERISA. The terms of the excess benefit plan
hereby established are as follows:
(a) This excess benefit plan is an unfunded plan. Payments under the plan
will be made directly by the participant's employer to the participant or the
participant's beneficiary at the time the participant or participant's
beneficiary is eligible for the payment.
(b) For bookkeeping purposes only, the plan manager will maintain an
excess benefit plan account for each affected participant to which excess
transition benefit amounts will be credited. Excess transition benefit credits
will be equal to the amounts that cannot be allocated under the NEIC Retirement
Account Plan because of the limitations of section 4.4 of the NEIC Retirement
Account Plan. Excess benefit plan accounts will be credited with interest at the
rate of two percent for each calendar quarter.
(c) Participants will be fully vested in the amounts credited to their
excess benefit plan accounts.
(d) The amount credited to a participant's excess benefit plan account
will be distributed to the participant or the participant's beneficiary in a
lump sum payment as soon as practicable following the participant's termination
of employment, disability or death.
(e) No person, including any participant, will have any right, other than
the right of an unsecured general creditor, against the employer with respect to
the amounts payable under the plan.
(f) No participant or beneficiary will have the right to alienate or
assign his right to a payment under the plan.
7
<PAGE>
(g) The terms "annual addition," "beneficiary," "disability," "employer,"
"ERISA," "participant," "plan manager," and "transition benefit contribution"
when used in this excess benefit plan will have the same meaning as under the
NEIC Retirement Account Plan.
ARTICLE 5
ACCOUNTS AND CREDITS
5.1 Establishment of Accounts. The plan manager will establish and maintain
in the name of each participant a retirement account to which employer
retirement contributions and transition benefit contributions (if any) will be
credited.
5.2 Charges to Accounts. Any amount distributed, paid or transferred from an
account will be a charge against such account as of the date of distribution,
payment or transfer.
ARTICLE 6
INVESTMENT FUNDS AND CREDITING INVESTMENT EXPERIENCE
6.1 Investment Funds. The trustees may establish two or more separate
investment funds within the trust fund and invest each such separate investment
fund in different types or categories of assets (e.g., equities or fixed-income
securities, or shares of particular mutual funds) or in accordance with
investment objectives specified by the plan manager. Initially, the trustees
have divided the trust fund into the following investment funds:
(a) Reich & Tang Short Term Income Fund;
(b) New England Limited Term US Government Fund;
(c) New England Bond Income Fund;
(d) New England Balanced Fund;
(e) Reich & Tang Equity Fund;
(f) New England Growth Fund;
(g) New England International Equity Fund; and
(h) Loomis Sayles Small Cap Fund.
The plan manager will maintain records reflecting the portion of each
account of a participant that is invested in each separate investment fund. The
existence of such records and of participants' accounts will not be deemed to
give any person any right, title or interest in or to any specific assets or
part of the trust fund or any separate investment fund.
8
<PAGE>
6.2 Participants' Investment Directions and Transfers Among Funds. Each
participant may direct and redirect the separate investment fund or funds in
which contributions on his behalf will be invested (subject to the rules of the
plan manager), initially by filing a form filed with the plan manager, and
subsequently for changes by contacting the TeleTrust system.
A participant may direct investment of contributions on his behalf
entirely in one investment fund or in any combination of two or more (up to all)
of the investment funds, provided that combinations must be specified in whole
percentages. In addition, the participant may direct transfers among the
investment funds so that his accounts are invested entirely in one investment
fund or in a combination of two or more (up to all) of the investment funds,
provided that combinations must be specified in whole percentages.
The participant will have sole responsibility for the investment of
contributions to his accounts and for transfers among the available investment
funds, and no named fiduciary or other person will have any liability for any
loss or diminution in value resulting from the participant's exercise of such
investment responsibility. It is intended that Section 404(c) of ERISA will
apply to a participant's exercise of investment responsibilities under this
section.
6.3 Valuation of Assets and Crediting Investment Experience. The fair market
value of the assets in each separate investment fund of the trust fund and any
expenses not paid by the employers, investment income and gains and losses in
asset values will be determined and credited or charged to the participants'
accounts on a daily basis.
ARTICLE 7
DISTRIBUTIONS
7.1 Distribution Upon Retirement or Disability.
(a) Amount. A participant who retires or who terminates service with the
------
employer because of disability will receive the full amount in his retirement
account even if he is not 100% vested under the schedule in section 7.2.
Payment will be made at the time provided in section 7.4.
(b) Retirement Defined. Retirement means the participant's termination of
------------------
employment on or after his normal retirement date. A participant's normal
----------------------
retirement date is his 65th birthday.
(c) Disability Defined. Disability means the participant's apparently
------------------
permanent inability to perform satisfactorily the duties of his position with
the employer because of a physical or mental impairment. The plan manager will
determine disability. The plan manager may require a participant to be examined
by a duly qualified physician (or other specialist) selected by the plan
manager, and may rely upon the physician's (or other specialists's) opinion in
determining the participant's disability.
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7.2 Distribution Upon Termination of Employment.
(a) Amount. A participant who terminates employment for any reason other
------
than retirement, disability or death will receive the vested amount in his
retirement account at the time specified in section 7.4.
(b) Vested Interest. A participant who terminates employment for any
---------------
reason other than retirement, disability or death will have a vested interest in
that percentage of his retirement account specified in the following table based
upon his number of years of service as of the date of his termination of
employment:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
(c) Years of Service
----------------
(i) Service. Service of an employee means the sum of all periods of
-------
his employment, whether or not continuous, and each period, if any, between a
termination of his employment and his earliest subsequent reemployment, but
only if such reemployment occurs within one year after such termination of
employment.
(ii) Determining Years of Service. To determine an employee's years
----------------------------
of service, all periods of service will be aggregated and 365 days will
constitute a year of service.
(iii) Employment. Employment of a person means his active service
as an employee of an employer including, for this purpose, an affiliated
company. A period of absence from active service will be considered part of his
employment if he receives compensation from an employer for such period or if
such period falls in one of the following categories (whether or not he
receives compensation for such period):
(A) absence for military service for which his reemployment
rights are protected by law; provided (but only for that part of the absence
which exceeds one year in length) he returns to active service as an employee
within the period when his reemployment rights are protected by law (or within
such longer period as his employer in its discretion permits); and
(B) leave of absence due to sickness, accident, disability or
other reason, for the period authorized by the employer, provided (but only for
that part of such leave of absence which exceeds one year in length) he returns
to active service with his employer at the end of such period of authorized
absence.
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(d) Forfeiture of Non-Vested Interest. The non-vested portion of a
---------------------------------
terminated participant's accounts, if any, will be forfeited by him when an
employee takes a distribution of the vested portion of his account, or after an
employee has a six-year break in service in his employment. If a terminated
participant whose accounts were wholly or partially forfeited returns to
employment with the employer (or a related company) before he has a six-year
break in service in his employment, the amount forfeited will be restored to his
account. The amount restored will equal the amount forfeited without change to
reflect investment results.
The term "remaining balance" as used in this subsection means a
participant's interest in his retirement account remaining after distribution of
a portion or all of his vested interest therein if he left employment and was
rehired by the employer before he has a six-year break in service. The
remaining balance of participant will be credited to a separate account within
his retirement account, or accounting records will be maintained in a manner
which has the same effect as establishing a separate account. Notwithstanding
section 7.2(b), the participant's vested interest in any such separate account
at any subsequent time will be expressed by the formula: P(A + D) - D, where P
is his vested percentage at such time determined without regard to this section;
A is the amount in such separate account at such time; and D is the amount of
the distribution.
(e) Treatment of Forfeitures. Any forfeitures occurring during a plan
------------------------
year under subsection (c) above will be treated as an employer retirement
contribution under section 4.1 (up to the amount that the employer had otherwise
determined to contribute under section 4.1) and will be credited to
participants' accounts as provided in the plan. Forfeiture amounts described in
the preceding sentence will offset the amount the employer would otherwise
contribute under section 4.1.
7.3 Distribution Upon Death.
(a) In General. If a participant dies while in the employ of the
----------
employer, his accounts will be fully vested regardless of his number of years of
service. Otherwise, his vested interest in his accounts will be determined as of
his termination of employment before his death. His beneficiary will receive the
vested amount (if any) remaining in his accounts.
(b) Designation of Beneficiary. A participant may designate one or more
--------------------------
beneficiaries to receive any distribution payable under subsection (a) and may
revoke or change such a designation at any time. If the participant names two
or more beneficiaries, distribution to them will be in such proportions as the
participant designates or, if the participant does not so designate, in equal
shares. Any designation of beneficiary will be in writing on such form as the
employer may prescribe and will be effective upon filing with the employer.
Notwithstanding the preceding paragraph, the sole beneficiary of a
married participant will be the participant's spouse unless the spouse consents
in writing to the designation of another person as beneficiary. The spouse's
consent must acknowledge the effect of such consent and be witnessed by a plan
representative or a notary public. A married participant may designate (with
spousal consent) a person other than his spouse as beneficiary only after the
first day of the plan year in which his 35th birthday occurs.
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(c) No Designation. Any portion of a distribution payable upon the death
--------------
of a participant which is not disposed of by a designation of beneficiary under
subsection (b), for any reason whatsoever, will be paid to the participant's
spouse if living at his death, otherwise to the participant's estate.
(d) Payment Under Prior Designation. The employer may direct payment in
-------------------------------
accordance with a prior designation of beneficiary (and will be fully protected
in so doing) if such direction (i) is given before a later designation is
received, or (ii) is due to the employer's inability to verify the authenticity
of a later designation. Such a distribution will discharge all liability
therefor under the plan.
7.4 Time of Distribution.
(a) Active Employee. Distribution of a participant's accounts will be
---------------
made (or installment payments will begin) no later than the April 1 following
the year in which such participant reaches age 70-1/2 even though the
participant continues in employment thereafter.
(b) Retired or Disabled Employee. Payment to a retired or disabled
----------------------------
participant will be made (or installment payments will begin) as soon as
practicable after his date of retirement or disability.
(c) Beneficiary. Distribution to a participant's beneficiary will be made
-----------
(or installment payments will begin) as soon as practicable after the date when
the employer receives such evidence of the participant's death and the right of
any beneficiary to receive such payment as it deems necessary. However, if the
beneficiary is the participant's spouse, the spouse may in a form filed with the
employer elect to defer distribution until the date the participant would have
reached age 70-1/2.
(d) Terminated Participants. A participant who terminates employment for
-----------------------
any reason other than retirement, disability or death will receive payment of
his vested accounts (or the first installment payment) as soon as practicable
after his date of termination.
(e) Election to Defer. Notwithstanding subsections (b) and (d), if the
-----------------
balance in the participant's accounts in this plan and the NEIC 401(k) Savings
Plan exceeds $3,500, the participant may defer payment to a subsequent date, not
later than the date payments must begin under the next subsection below entitled
"Age 70-1/2," specified in a notice to the plan manager, and distribution of his
vested account (or the first installment payment) will be made on the date
specified. A participant who deferred payment of his account may accelerate
such payment by filing a notice with the plan manager specifying the new
distribution date.
(f) Age 70-1/2. Notwithstanding the preceding subsections, distribution
----------
of a participant's account must be made or begin no later than the April 1 of
the year following the year in which such participant reaches age 70-1/2 even
though the participant continues in employment thereafter. In the event that
distributions under the preceding sentence to a participant are required, the
amount of the distribution for any plan year will be determined by dividing the
balance in the participant's accounts as of the end of the preceding plan year
by the
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number of years in the participant's life expectancy or the joint life
expectancies of the participant and designated beneficiary (where applicable)
determined as of the year in which the employee attains age 70-1/2, in
accordance with regulations under Code Section 401(a)(9).
7.5 Forms of Payment. A participant's account will be distributed at the
relevant time to the participant (or to his beneficiary in the event of his
death) by one of the following forms of payment, as elected by the participant
or beneficiary:
(a) a single payment;
(b) substantially equal installments over a period of 5, 10 or 15 years,
as chosen by the participant; or
(c) purchase of a non-transferable annuity contract from an insurance
company and distribution of such contract to the participant (hereafter all
references to an annuity contract are to a non-transferable annuity contract).
Such a contract may be a life annuity for the participant or a joint and
surviving spouse annuity for the participant and his spouse as described in
section 7.8.
Any payment will be based upon the vested amount in the participant's
account.
7.6 Standard Form of Payment.
(a) Participant. The standard form of payment described in this section
-----------
will be paid unless the participant (or beneficiary) elects another form of
payment under section 7.5. The standard form of payment of a participant's
retirement account is the purchase of a life annuity contract with monthly
payments for the participant's lifetime starting on the date payment is to be
made under section 7.4. If a participant is married, the standard form of
payment of the participant's defined contribution account is a qualified joint
and surviving spouse annuity, as described in section 7.8. The rules in this
subsection apply only if the vested amount in the participant's account when
added to his accounts in the NEIC 401(k) Savings Plan exceed $3,500.
(b) Beneficiary. Except as provided in the following sentence, the
-----------
standard form of payment to a beneficiary is a single payment. If the
participant's spouse is the beneficiary of his retirement account, such account
will be used to purchase a life annuity contract for the spouse unless the
spouse elects otherwise.
7.7 Election of Optional Form of Payment. A participant may elect an
optional form of payment, may revoke a prior election, or make a new election
after revoking a prior election, by completing and filing the prescribed form
with the employer. Any election, revocation, or failure to make an election
will become effective and irrevocable on the date the participant's benefit
payments begin; the participant may not make an election or change an election
after the date benefit payments begin, except that the employer in its
discretion may permit a later election or change of election if it determines
that the circumstances so warrant. If a participant elects
13
<PAGE>
installments or a joint and surviving spouse annuity contract, the participant
must designate the beneficiary (for installments) and provide such information
about the beneficiary or surviving spouse as the employer may require.
7.8 Automatic Joint and Surviving Spouse Annuity for Married Participant Who
Does Not Elect Otherwise. The joint and surviving spouse annuity rules of this
section apply to the payment of a married participant's retirement account. In
addition, the rules of this section apply only if the amount that would be used
to purchase a joint and surviving spouse annuity contract exceeds $3,500.
(a) In General. If a participant has a spouse on the date under section
----------
7.4 when he is to receive payment (or the first installment payment), the vested
amount in such account will be used to purchase a joint and surviving spouse
annuity contract unless the participant elects otherwise and the participant's
spouse consents to such election. Under the joint and surviving spouse annuity
contract, the participant will receive a monthly pension payable for his
lifetime and ending with the payment immediately before his death, with monthly
payments equal to 50% of the participant's monthly payment amount continuing
thereafter to his surviving spouse (if any) and ending with the payment
immediately before the spouse's death.
(b) Married Participant's Election of Another Form of Payment.
---------------------------------------------------------
(i) Election. A married participant may elect not to receive
--------
payment in the form of a joint and surviving spouse annuity contract by
filing a written election form with the employer during an election period
consisting of the 90 days immediately preceding the participant's annuity
starting date (which is the first day of the first period for which he
receives an amount payable in the form of an annuity or any other form).
During the election period, a participant may revoke an election and may make
a new election after revoking a prior election.
(ii) Written Notification of Election. The employer will furnish
--------------------------------
each married participant with a notification of the right to elect another
form of payment, by personal delivery or mailing so as to reach him a
reasonable time before the start of his election period. The notification
will be written in non-technical language and will include an explanation of
the terms and conditions of the automatic joint and surviving spouse annuity
form, the participant's right to make and the effect of an election not to
receive benefits in such form, the rights of the participant's spouse, and
the participant's right to revoke and the effect of a revocation of a
previous election not to receive benefits in such form.
(iii) Spousal Consent Required. A participant's election under
------------------------
paragraph (i) above will be valid only if the participant's spouse consents
in writing to such election. The spouse's consent must acknowledge the
effect of such consent and must be witnessed by a representative of the plan
or a notary public.
14
<PAGE>
The foregoing spousal consent requirement will apply to a participant
unless he establishes that he is not married or that his spouse cannot be
located. In making determinations of marital status, the employer may rely
upon the participant's representation as to his marital status and the
identity of his spouse.
(iv) Compliance with Regulations. Notifications, elections and spousal
---------------------------
consents under this section, and any of the committee's procedures relating
thereto, will comply with Code Sections 401(a)(9), 401(a)(11) and 417 and
regulations and rulings thereunder.
7.9 Rehire Before Distribution. If a participant is rehired before
distribution of his accounts has started, such distribution will be deferred
until his subsequent termination of employment. If a partial distribution has
been made, the plan manager will determine whether distribution is to be
continued, or is to be suspended until his subsequent termination of employment.
7.10 Direct Rollovers.
(a) In General. Notwithstanding any provision of the plan to the contrary
----------
that would otherwise limit a distributee's election under this section, a
distributee may elect, at the time and in the manner prescribed by the plan
manager, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover.
(b) Definitions. The following definitions apply for purposes of this
-----------
section.
(i) Eligible rollover distribution is any distribution of all or any
------------------------------
portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that
is one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the
portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities). In addition, an
eligible rollover distribution will not include any distribution that is
below any threshold amount established by applicable regulations
(including any threshold amount for direct rollovers when only a portion
of a distributee's distribution is being rolled over).
(ii) An eligible retirement plan is an individual retirement account
------------------------
described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code
Section 403(a), or a qualified trust described in Code Section 401(a),
that will accept the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity.
15
<PAGE>
(iii) A distributee includes an employee or former employee. In
-----------
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Code Section 414(p), are distributees with regard to the interest of the
spouse or former spouse.
(iv) A direct rollover is a payment by this plan to the eligible
---------------
retirement plan specified by the distributee, with such payment being
made in any manner permitted by applicable regulations.
ARTICLE 8
AMENDMENT, MERGER AND TERMINATION OF PLAN
8.1 Amendment of Plan. At any time and from time to time, NEIC may amend or
modify any or all of the provisions of the plan without the consent of any
person, provided that no amendment will reduce any participant's nonforfeitable
account balance as of the date such amendment is adopted (or its effective date
if later), and provided further that no amendment will permit any part of the
trust fund to revert to the employers or be used for or diverted to purposes
other than for the exclusive benefit of participants or their beneficiaries.
8.2 Merger of Plans. A merger or consolidation with, or transfer of assets
or liabilities to, any other plan will be permitted only if the benefit each
participant would receive if such plan were terminated immediately after the
merger, consolidation or transfer is not less than the benefit he would have
received if this plan had terminated immediately before the merger,
consolidation or transfer.
8.3 Termination. NEIC has established the plan and the employers are
maintaining the plan with the bona fide expectation and intention that they will
be able to continue the plan and contributions thereto indefinitely, but they
will not be under any obligation or liability whatsoever to continue its
contributions or maintain the plan for any particular length of time.
Notwithstanding any other provision hereof, an employer in its discretion may
discontinue contributions to the plan indefinitely or temporarily and NEIC may
terminate this plan at any time. There will be no liability to any participant,
beneficiary or other person as a result of any such discontinuance or
termination.
An employer's failure to make contributions in any year or years will not
operate to terminate the plan in the absence of formal action by NEIC to
terminate the plan.
8.4 Effect of Termination. Upon complete discontinuance of contributions or
termination or partial termination of the plan, the accounts of participants
will be nonforfeitable. After such termination, no employee will become a
participant and no further salary deferrals or employer contributions will be
made hereunder on behalf of participants.
16
<PAGE>
The trustees will continue to hold the assets of the trust fund attributable
to the accounts of participants for distribution as directed by the plan
manager. The plan manager will determine whether to direct the trustees to
disburse the plan's assets as immediate benefit payments, to retain and disburse
them in the future, or to follow any other procedure which she deems advisable.
ARTICLE 9
NAMED FIDUCIARIES
9.1 Identity of Named Fiduciaries.
(a) Named Fiduciaries. NEIC, the trustees, and the plan manager will be
-----------------
the named fiduciaries under the plan and will control and manage the plan and
its assets to the extent and in the manner indicated in this article and in the
trust agreement. Any responsibility assigned to a named fiduciary will not be
deemed to be a duty of a "fiduciary" (as defined in ERISA) solely because of
such assignment.
(b) Plan Administrator. NEIC will be the "plan administrator" as defined
------------------
in ERISA.
9.2 Responsibilities and Authority of Plan Manager. The plan manager will
control and manage the operation and administration of the plan except to the
extent that such responsibilities are specifically assigned hereunder to NEIC,
to an investment manager or to the trustees. The responsibilities and authority
of the plan manager are set forth in detail in various articles of this plan and
primarily in article 10.
9.3 Responsibilities and Authority of Trustees. The trustees will manage and
control the assets of the plan, except to the extent that such responsibilities
are specifically assigned hereunder or under the trust agreement to NEIC or the
plan manager or are exercised by the participants with respect to the investment
of their accounts among the available investment funds. The responsibilities
and authority of the trustees are set forth in detail primarily in the trust
agreement.
9.4 Responsibilities of NEIC. NEIC will have the following responsibilities
and authority with respect to control and management of the plan and its assets:
(a) to amend or terminate the plan;
(b) to merge or consolidate the plan with, or transfer all or part of
the assets or liabilities to, any other plan;
(c) to appoint, remove and replace the trustees and the plan manager and
to monitor their performances;
17
<PAGE>
(d) to communicate such information to the plan manager and trustees as
they may need for the proper performance of their duties; and
(e) to perform such additional duties as are imposed by the plan or by
law.
The responsibilities and authority of NEIC are set forth in further
detail in the various articles of the plan and in the trust agreement.
9.5 Responsibilities Not Shared. Except as otherwise provided herein or
required by law, each named fiduciary will have only those responsibilities that
are specifically assigned to it hereunder, and no named fiduciary will incur
liability because of improper performance or nonperformance of responsibilities
assigned to another named fiduciary.
9.6 Dual Fiduciary Capacity Permitted. Any person or group of persons may
serve in more than one fiduciary capacity, including service both as trustee and
plan manager.
9.7 Actions by NEIC. Wherever the plan specifies that NEIC is required or
permitted to take any action, such action will be taken by its board of
directors, or by a duly authorized plan manager thereof, or by one or more
directors, officers, employees or other persons duly authorized to do so by the
board of directors.
9.8 Procedure for Allocation and Delegation of Responsibilities. The plan
manager or the members of the board of directors of NEIC or of a committee of
such board may allocate their responsibilities among themselves in any
reasonable manner and may delegate any of their responsibilities to any other
person or persons by so specifying in a written instrument. No plan manager or
director will be liable for the improper discharge or nonperformance of any
responsibility so allocated or delegated to another person except to the extent
liability is imposed by law.
9.9 Advice. A named fiduciary may employ or retain such attorneys,
accountants, investment advisors, consultants, specialists and other persons or
firms as it deems necessary or desirable to advise or assist it in the
performance of its duties. Unless otherwise provided by law, the fiduciary will
be fully protected with respect to any action taken or omitted by him or it in
reliance upon any such person or firm rendered within his or its area of
expertise.
9.10 Indemnification. To the extent permitted by law and not prohibited by
NEIC's charter and by-law, NEIC and the other employers will indemnify and hold
harmless every person serving as a fiduciary (whether a named fiduciary or
otherwise), and the estate of such an individual if he is deceased, from and
against all claims, loss, damages, liability, and reasonable costs and expenses,
incurred in carrying out his fiduciary responsibilities, unless due to the gross
negligence, bad faith or willful misconduct of such individual; provided that
counsel fees and amounts paid in settlement must be approved by NEIC and
provided further that this section 9.10 will not apply to any claim, loss,
damages, liability, or costs and expenses which are covered by a liability
insurance policy maintained by NEIC, or by the plan or by an individual
fiduciary.
18
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The preceding sentence will not apply to a corporate trustee, an insurance
company, an investment manager or outside service provider (or to an employee of
any of the foregoing) unless NEIC otherwise specifies in writing.
ARTICLE 10
THE PLAN MANAGER
10.1 Appointment. NEIC will appoint a plan manager who may, but need not, be
a plan participant or an employee or officer of NEIC. NEIC may remove the plan
manager at any time, with or without cause, by filing written notice of her
removal with the trustees. A plan manager member may resign at any time by
filing her written resignation with NEIC. A vacancy, however arising, will be
filled by NEIC.
10.2 Notice to Trustees. NEIC will notify the trustees in writing of the
plan manager appointment, and the trustees may assume such appointment continues
in effect until written notice to the contrary is given by NEIC.
10.3 Administration of Plan. The plan manager will have all powers and
authority necessary or appropriate to carry out its responsibilities with
respect to the operation and administration of the plan. She will have full
discretion to interpret and apply all plan provisions and may correct any
defect, supply any omission or reconcile any inconsistency or ambiguity in such
manner as she deems advisable. She will make all final determinations
concerning eligibility, benefits and rights hereunder, and all other matters
concerning plan administration and interpretation. All determinations and
actions of the plan manager will be conclusive and binding upon all persons,
except as otherwise provided herein or by law, and except that the plan manager
may revoke or modify a determination or action previously made in error. Any
action or omission by the plan manager will be subject to review (by a court or
otherwise) only for an abuse of discretion. The plan manager will exercise all
powers and authority given to her in a nondiscriminatory manner, and will apply
uniform administrative rules of general application in order to assure similar
treatment of persons in similar circumstances.
10.4 Reporting and Disclosure. The plan manager or her designated agent will
prepare, file, submit, distribute or make available any plan descriptions,
reports, statements, forms or other information to any government agency,
employee, former employee, or beneficiary as may be required by law or by the
plan.
10.5 Records. The plan manager will keep or cause to be kept all data,
records, books of account and instruments pertaining to plan administration,
which will be subject to inspection or audit by NEIC at any time. The employers
will supply all information required by the plan manager to administer the plan,
and the plan manager may rely upon the accuracy of such information.
10.6 Compensation and Expenses. The plan manager will serve without
compensation unless otherwise determined by NEIC, provided that in no event will
an employee of an employer be compensated for her services as a plan manager.
All reasonable expenses of
19
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administering the plan will be paid out of the trust fund unless paid by the
employers at the option of NEIC (with each employer bearing such share of the
expenses that NEIC specifies). Such expenses include the compensation of all
persons employed or retained by the plan manager, premiums for bonds and
insurance protecting the plan or trust fund and required by law or deemed
advisable by the plan manager, and all other costs of plan administration.
10.7 Decisions, Rules and Regulations. The plan manager may adopt and amend
such rules for the conduct of her business and the administration of the plan as
she deems advisable.
10.8 Claims Review Procedure. Any request for benefits (the "claim") by a
-----
participant or his beneficiary (the "claimant") will be filed in writing with
--------
the plan manager. Within a reasonable period after receipt of a claim, the plan
manager will provide written notice to any claimant whose claim has been wholly
or partly denied, including: (a) the reasons for the denial, (b) the plan
provisions on which the denial is based, (c) any additional material or
information necessary to perfect the claim and the reasons it is necessary, and
(d) the plan's claims review procedure. A claimant will be given a full and
fair review by the plan manager of the denial of his claim if he requests a
review in writing within a reasonable period after notification of the denial.
The claimant may review pertinent documents and may submit issues and comments
orally, in writing, or both. The plan manager will render her decision on
review promptly and in writing and will include specific reasons for the
decision and reference to the plan provisions on which the decision is based.
ARTICLE 11
MISCELLANEOUS
11.1 Qualified Domestic Relations Orders.
(a) A qualified domestic relations order (QDRO) is a judgment, decree, or
order which meets the requirements of Code Section 414(p) as determined by the
plan manager. An alternate payee is an individual named in the QDRO who is to
receive some or all of the participant's benefit.
(b) Upon receipt of any domestic relations order, the plan manager will
notify as soon as practicable the participant involved and each alternate payee
under the order (and under any previous QDRO relating to the participant's
benefits). The plan manager will determine whether the order is a QDRO and will
notify each affected individual of its determination. In general, subject to
the provisions of Code Section 414(p), the plan's claims procedure rules under
section 10.8 apply to this determination and any subsequent determination
relating to the order. To the extent permitted by law, the plan manager's
determination that an order is or is not a QDRO is final. Any subsequent change
in this determination is applied only prospectively unless the plan manager
rules otherwise.
(c) If an order is determined by the plan manager to be a QDRO , the
provisions of the QDRO will take precedence over any conflicting provisions of
the plan (including section 11.2 relating to nonalienation of benefits). The
plan manager may carry out the requirements of a
20
<PAGE>
QDRO and may make distribution to an alternate payee in accordance with a QDRO
regardless of the age of the participant and regardless of whether the
participant himself would be eligible to receive a distribution at such time.
To the extent provided in a QDRO, a former spouse will be treated as the spouse
or surviving spouse of a participant for purposes of the death benefit
provisions of sections 7.3 and 7.6 and any other relevant provision of the plan.
11.2 Nonalienation of Benefits. Unless required by law, no benefit, right or
interest hereunder of any person will be subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, or to seizure,
attachment or other legal, equitable or other process, or be liable for, or
subject to, the debts, liabilities or other obligations of such person, except
that the plan manager may prescribe rules for the payment of benefits in
accordance with a qualified domestic relations order as defined in section 11.1.
11.3 Payment to Minors and Incompetents. If the plan manager deems any
person incapable of giving a binding receipt for benefit payments because of his
minority, illness, infirmity or other incapacity, she may direct payment
directly for the benefit of such person, or to any person selected by the plan
manager to disburse it. Such payment, to the extent thereof, will discharge all
liability for such payment under the plan.
11.4 Current Address of Payee. Any person entitled to benefits is
responsible for keeping the plan manager informed of his current address at all
times. The plan manager, trustees and the employers have no obligation to
locate such person, and will be fully protected if all payments and
communications are mailed to his last known address, or are withheld pending
receipt of proof of his current address and proof that he is alive.
11.5 Disputes over Entitlement to Benefits. If two or more persons claim
entitlement to payment of the same benefit hereunder, the plan manager in her
discretion may withhold payment of such benefit until the dispute has been
determined by a court of competent jurisdiction or has been settled by the
persons concerned.
11.6 Payment of Benefits. Subject to section 7.4, unless he elects
otherwise, a participant's benefit payments under the plan will begin no later
than 60 days after the close of the plan year in which the latest of the
following dates occurs: (a) the date he terminates service with his employer;
(b) his 65th birthday; and (c) the tenth anniversary of the year in which he
began participating in the plan.
11.7 Top-Heavy Plan Provisions.
(a) Applicability of Section. This section is included in the plan to
------------------------
meet the requirements of Code Section 416, and the provisions of this section
will be operative only if, when and to the extent that Code Section 416 applies
to the plan. At such time as the requirements of Code Section 416 apply to the
plan because the plan is top-heavy as defined in paragraph (b)(i) below, the
provisions of this section will apply and will govern over any contrary
provision of the plan.
21
<PAGE>
(b) Definitions.
-----------
(i) The plan will be top-heavy for a plan year if, as of the
---------
determination date, the sum of the aggregate amount in the accounts of
participants who are key employees exceeds 60 percent of such amount
determined for all participants in this plan.
Notwithstanding the preceding paragraph, if the plan is included
within a required or permissive aggregation group, the plan will be top heavy
for a plan year if, as of the determination date, the sum of (A) the
aggregate amount in the accounts of participants who are key employees
(including all defined contribution plans within such group) and (B) the
aggregate present value of cumulative accrued benefits of participants who
are key employees (including all defined benefit plans within such group),
exceeds 60 percent of such amount determined for all participants in all such
plans.
In determining the amounts in participants' accounts and present values of
accrued benefits under the preceding two paragraphs, (V) the present value of
accrued benefits will be based on the actuarial assumptions used to determine
the minimum funding requirement of Code Section 412(b); if there is more than
one defined benefit plan in the aggregation group, each plan will use the
same actuarial assumptions for purposes of the top heavy test, as determined
by the actuary; (W) distributions made during the five years ending on the
determination date will be taken into account; (X) rollover contributions
after December 31, 1983, will be taken into account only to the extent
provided in regulations under Code Section 416(g)(4)(A); (Y) account balances
and accrued benefit values of a person who was but no longer is a key
employee will be disregarded; and (Z) account balances and accrued benefit
values of any individual who has not received any compensation from an
employer (other than benefits under the plan) at any time during the five
years ending on the determination date will be disregarded.
(ii) The determination date for purposes of determining whether the
------------------
plan is top-heavy under paragraph (i) above for a particular plan year is the
last day of the preceding plan year. In the case of the first plan year, the
determination date is the last day of that year.
(iii) A key employee is any employee or former employee in the plan
------------
(including a beneficiary of such an employee) who at any time during the plan
year or any of the four preceding plan years was:
(A) an officer of an employer having annual compensation
greater than 50 percent of the amount in effect under Section
415(b)(1)(A) of the Code for such plan year (but no more than the lesser
of 50 employees or 10 percent of all employees will be taken into account
under this subparagraph (A) as key employees);
22
<PAGE>
(B) one of the ten employees owning (or considered as owning
within the meaning of Code Section 318) the largest interests in an
employer (or any direct or indirect parent of an employer) but only if
such employee's compensation for such plan year exceeds the amount
specified in Code. For purposes of the preceding sentence, if two
participants have the same interest in an employer, the participant
having greater annual compensation will be treated as having a larger
interest;
(C) a person owning (or considered as owning within the
meaning of Code Section 318) more than five percent of the outstanding
stock of an employer (or any direct or indirect parent of an employer) or
stock possessing more than five percent of the total combined voting
power of all stock of an employer (or any direct or indirect parent of an
employer); or
(D) a person who has annual compensation from an employer of
more than $150,000 and who would be described in subparagraph (C) above
if one percent were substituted for five percent.
For purposes of applying Code Section 318 to the provisions
of this paragraph (iii), subparagraph (C) of Code Section 318(a)(2) will
be applied by substituting "five percent" for "50 percent". In addition,
the rules of Code Section 414 (b), (c) and (m) will not apply for
purposes of determining ownership under subparagraphs (C) and (D) above.
(iv) A non-key employee is any employee in the plan (including a
----------------
beneficiary of such an employee) who is not a key employee under paragraph
(iii) above.
(v) A required aggregation group includes all qualified plans of the
--------------------------
employers in which a key employee participates and each other qualified plan
of the employers that enables any of such plans to meet the requirements of
Section 401(a)(4) or Section 410 of the Code. A permissive aggregation group
----------------------------
includes (in addition to plans in a required aggregation group) any plan
which the plan manager designates for inclusion provided that inclusion of
such plan does not cause the group to fail the requirements of Section
401(a)(4) or Section 410 of the Code.
(c) Minimum Contribution. For any plan year in which the plan is top-
--------------------
heavy, the employers will make a minimum contribution on behalf of each employee
who is a non-key employee equal to three percent of his total compensation (as
defined in section 0), or four percent of his total compensation if necessary to
prevent any reduction in the amount of annual additions to the accounts of a key
employee or accrued benefits of a key employee under Code Section 415(e) as
modified by Code Section 416(h). However, the minimum contribution called for
under the preceding sentence will not exceed the contribution (determined as a
percentage of his total compensation) for such plan year under this plan (and
any other defined contribution plan included in an aggregation group with this
plan) on behalf of the key employee for whom such contribution is the highest.
Also, such minimum contribution will be reduced as permitted under regulations
under Code Section 416 to reflect contributions on behalf of or benefits accrued
by such non-key employee under any other plan maintained by the employers.
23
<PAGE>
11.8 Excess Contribution. If, due to miscalculation or error, an employer
contributes an amount for a plan year which exceeds the amount required by
section 4.1, such excess may be treated as a matching contribution for the
succeeding taxable year or years. If, due to miscalculation or error, an
employer makes a retirement savings contribution for a plan year in an amount
that exceeds the amount provided under section 6.1, such excess may be treated
as a retirement savings contribution for the succeeding taxable year or years.
11.9 Return of Contribution Made in Error or Not Deductible. Employer
contributions under article 4 are conditioned upon the requirement that the
amount of the contribution will be deductible under Code Section 404. If all or
part of any employer contribution under article 4 is made because of a mistake
of fact or if the deduction under Code Section 404 of any portion of any such
contribution is disallowed, the amount contributed because of a mistake of fact
or the amount for which the deduction is disallowed will be returned to the
contributing employer if demand therefor is made within the time allowed by law.
11.10 Statutory References. A reference to any statute includes reference to
any similar provision of any successor statute.
11.11 Rules of Construction.
(a) A word or phrase defined or explained in any section or article has
the same meaning throughout the plan unless the context indicates otherwise.
(b) Where the context so requires, the masculine includes the feminine,
the feminine includes the masculine, the singular includes the plural, and the
plural includes the singular.
(c) Unless the context indicates otherwise, the words "herein", "hereof",
"hereunder", and words of similar import refer to the plan as a whole and not
only to the section in which they appear.
11.12 Text Controls. Headings and titles are for convenience only, and the
text will control in all matters.
24
<PAGE>
11.13 Applicable State Law. To the extent that state law applies, the
provisions of the plan will be construed, enforced and administered according to
the laws of the Commonwealth of Massachusetts.
Executed on December 1, 1995 NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By: New England Investment
Companies, Inc., its General Partner
By: /s/ Edward N. Wadsworth
------------------------------------
Edward N. Wadsworth
Executive Vice President
& General Counsel
25
<PAGE>
APPENDIX A
NEIC Retirement Account Plan
Transition Benefit Contribution (Section 4.2)
<TABLE>
<CAPTION>
Company Name Transition Benefit Contribution
(percentage of applicable
compensation)
<S> <C> <C>
Back Bay Decouto, Joan E 1%
Glueck Jr, Charles 2%
Zamagni, Paul E 4%
Copley Phillips Jr, John C 3%
Twining, Peter P 3%
Marlborough Bianchi, Lorrey M 3%
NEIA Berge, Thor I 7%
NEIC Magruder, Barbara H 6%
Wadsworth, Edward 5%
Wilde, Marilyn J 3%
New England Funds Ballerene, Louis T 4%
Breen, Kathleen F 3%
Burke, Glen 1%
Lucas Jr, Joseph J 9%
Puls-Burns, Elizabeth 5%
Winters, Geraldine 7%
</TABLE>
26
<PAGE>
Exhibit 10.16
-------------
NEW ENGLAND INVESTMENT COMPANIES, L.P.
NEIC 401(k) SAVINGS PLAN
Plan effective date: January 1, 1995
<PAGE>
NEIC 401(k) SAVINGS PLAN
TABLE OF CONTENTS
Page
INDEX OF TERMS............................................................. iv
ARTICLE 1 INTRODUCTION..................................................... 1
1.1 Establishment of Plan............................................ 1
1.2 Compliance with Code and ERISA................................... 1
1.3 Exclusive Benefit of Participants................................ 1
1.4 Limitation on Rights Created By Plan............................. 1
1.5 Application of Plan's Terms...................................... 1
1.6 Benefits Payable Only from Trust Fund............................ 1
ARTICLE 2 DEFINITIONS...................................................... 1
2.1 Affiliated company............................................... 2
2.2 Applicable compensation.......................................... 2
2.3 Beneficiary...................................................... 2
2.4 Code............................................................. 2
2.5 Employee......................................................... 2
2.6 Employer......................................................... 2
2.7 ERISA............................................................ 3
2.8 Participant...................................................... 3
2.9 Plan............................................................. 3
2.10 Plan manager..................................................... 3
2.11 Plan year........................................................ 3
2.12 NEIC............................................................. 3
2.13 TeleTrust........................................................ 3
2.14 Trust agreement.................................................. 3
2.15 Trust fund....................................................... 3
2.16 Trustees......................................................... 3
ARTICLE 3 PARTICIPATION.................................................... 3
3.1 Participation.................................................... 3
3.2 Months of Service................................................ 4
3.2 Year of Elgibility Service....................................... 4
3.4 End of Participation............................................. 5
3.5 Reentry of Former Active Participant............................. 5
i
<PAGE>
ARTICLE 4 SALARY DEFERRALS BY EMPLOYEES.................................... 5
4.1 Salary Deferrals................................................. 5
4.2 Changing, Suspending and Resuming Salary Deferrals............... 8
4.3 Collection of Salary Deferrals................................... 8
4.4 Rollover Contributions........................................... 9
ARTICLE 5 EMPLOYER MATCHING CONTRIBUTIONS.................................. 9
5.1 Employer Matching Contributions.................................. 9
5.2 Form and Time of Contribution.................................... 11
ARTICLE 6 ACCOUNTS AND CREDITS............................................. 11
6.1 Establishment of Accounts........................................ 11
6.2 Crediting Participants' Salary Deferrals......................... 11
6.3 Crediting Employer Matching Contributions........................ 11
6.4 Crediting Prior Plan Profit Sharing and After-Tax Accounts....... 11
6.5 Crediting Rollovers.............................................. 11
6.6 Charges to Accounts.............................................. 12
6.7 Full Vesting of Accounts......................................... 12
6.8 Maximum Additions................................................ 12
ARTICLE 7 INVESTMENT FUNDS AND CREDITING INVESTMENT EXPERIENCE............. 13
7.1 Investment Funds................................................. 13
7.2 Participants' Investment Directions and Transfers Among Funds.... 14
7.3 Valuation of Assets and Crediting Investment Experience.......... 14
ARTICLE 8 LOANS AND WITHDRAWALS............................................ 14
8.1 Loans to Participants............................................ 14
8.2 In-Service Withdrawals from Rollover or After-Tax Account........ 16
8.3 In-Service Withdrawals from Salary Deferral Account and Prior Plan
Profit Sharing Account........................................... 17
ARTICLE 9 DISTRIBUTIONS UPON RETIREMENT OR TERMINATION..................... 18
9.1 Distribution Upon Retirement or Other Termination of Employment... 18
9.2 Distribution Upon Death........................................... 19
9.3 Manner of Payment................................................. 19
9.4 Rehire Before Distribution........................................ 20
ii
<PAGE>
ARTICLE 10 AMENDMENT, MERGER AND TERMINATION OF PLAN........................ 21
10.1 Amendment of Plan................................................ 21
10.2 Merger of Plans.................................................. 21
10.3 Termination...................................................... 21
10.4 Effect of Termination............................................ 21
ARTICLE 11 NAMED FIDUCIARIES................................................ 22
11.1 Identity of Named Fiduciaries.................................... 22
11.2 Responsibilities and Authority of Plan Manager................... 22
11.3 Responsibilities and Authority of Trustees....................... 22
11.4 Responsibilities of NEIC......................................... 22
11.5 Responsibilities Not Shared...................................... 23
11.6 Dual Fiduciary Capacity Permitted................................ 23
11.7 Actions by NEIC.................................................. 23
11.8 Procedure for Allocation and Delegation of Responsibilities...... 23
11.9 Advice........................................................... 23
11.10 Indemnification.................................................. 23
ARTICLE 12 THE PLAN MANAGER................................................. 24
12.1 Appointment...................................................... 24
12.2 Notice to Trustees............................................... 24
12.3 Administration of Plan........................................... 24
12.4 Reporting and Disclosure......................................... 24
12.5 Records.......................................................... 24
12.6 Compensation and Expenses........................................ 24
12.7 Decisions, Rules and Regulations................................. 25
12.8 Claims Review Procedure.......................................... 25
ARTICLE 13 MISCELLANEOUS.................................................... 25
13.1 Qualified Domestic Relations Orders.............................. 25
13.2 Nonalienation of Benefits........................................ 26
13.3 Payment to Minors and Incompetents............................... 26
13.4 Current Address of Payee......................................... 26
13.5 Disputes over Entitlement to Benefits............................ 26
13.6 Payment of Benefits.............................................. 26
13.7 Direct Rollovers................................................. 26
13.8 Top-Heavy Plan Provisions........................................ 27
13.9 Excess Contribution.............................................. 30
13.10 Return of Contribution Made in Error or Not Deductible........... 30
13.11 Statutory References............................................. 30
13.12 Rules of Construction............................................ 30
13.13 Text Controls.................................................... 30
13.14 Applicable State Law............................................. 30
iii
<PAGE>
INDEX OF TERMS
The items listed below are defined or explained in the plan sections or articles
indicated.
<TABLE>
<CAPTION>
<S> <C>
Accounts....................................................6.1
Affiliated company..........................................2.1
Annual additions.........................................6.8(c)
Applicable compensation.....................................2.2
Base compensation...........................................2.2
Beneficiary.................................................2.3
Claim......................................................12.8
Claimant...................................................12.8
Code........................................................2.4
Deferral percentage......................................4.1(e)
Defined benefit plan fraction........................6.8(d)(ii)
Defined contribution plan fraction....................6.8(d)(i)
Employee....................................................2.5
Employer....................................................2.6
Employer matching contributions.............................5.1
ERISA.......................................................2.7
Financial hardship.......................................8.3(b)
Limitation year..........................................6.8(a)
Loans.......................................................8.1
Maximum additions...........................................6.8
Named fiduciaries..............................article 11, 11.1
Participant.................................................2.8
Participation....................................article 3, 3.1
Plan........................................................2.9
Plan manager...................................article 12, 2.10
Plan year..................................................2.11
Projected annual benefit.............................6.8(d)(ii)
Qualified domestic relations order.........................13.1
Rollover contributions......................................4.4
Salary deferrals............................................4.1
Service..................................................3.2(a)
NEIC.......................................................2.12
Top-heavy..................................................13.8
Total compensation.......................................6.8(a)
Trust agreement............................................2.14
Trust fund.................................................2.15
Trustee....................................................2.16
Valuation date..............................................7.3
Withdrawals............................................8.2, 8.3
</TABLE>
iv
<PAGE>
EXHIBIT 10.16
-------------
ARTICLE 1
INTRODUCTION
1.1 Establishment of Plan. New England Investment Companies, L.P.
established this plan effective as of January 1, 1995. This plan is the
successor plan to the TNE Progress Sharing/401(k) Plan; the Copley Real Estate
Advisors, Inc. Employee Profit Sharing Retirement Plan and 401(k) Plan; and the
Profit Sharing and 401(k) Plan of Reich & Tang Asset Management, L.P.
1.2 Compliance with Code and ERISA. This plan is intended to qualify as a
"profit-sharing plan" under Code Section 401(a) (although there is no
correlation between current or accumulated profits and contributions by the
employers), with a qualified cash or deferred arrangement under Code Section
401(k), and to comply with the applicable provisions of ERISA.
1.3 Exclusive Benefit of Participants. The plan is for the exclusive benefit
of participants and their beneficiaries. Contributions are made to the trust
fund by the employers and by participants for the purpose of distributing
benefits to participants and their beneficiaries from the trust fund in
accordance with the plan. Except as provided in section 13.10, no part of the
trust fund or any distribution therefrom will be used for or diverted to
purposes other than for the exclusive benefit of participants and their
beneficiaries and defraying those reasonable expenses of administering the plan
and trust fund not paid by the employers.
1.4 Limitation on Rights Created By Plan. Nothing appearing in the plan will
be construed (a) to give any person any benefit, right or interest except as
expressly provided herein, or (b) to create a contract of employment or to give
any employee the right to continue as an employee or to affect or modify his
terms of employment in any way.
1.5 Application of Plan's Terms. The benefits and rights of a participant
and his beneficiaries under the plan will be determined in accordance with the
terms of the plan that are in effect on the date that contributions on a
participant's behalf are made or credited to his accounts, or on the date of the
participant's retirement, death or other termination of employment, whichever
may be applicable.
1.6 Benefits Payable Only from Trust Fund. The employers, the trustee and
the plan manager do not guarantee the payment of benefits hereunder. Benefits
will be paid only from the assets of the trust fund and are limited to the
amount of assets therein.
ARTICLE 2
DEFINITIONS
This article contains a number of definitions of terms used in the plan.
Other terms are defined, explained or clarified in other articles. This is done
for convenience of plan administration. There is no other significance to the
location of a definition.
1
<PAGE>
2.1 Affiliated company means (a) any corporation (other than an employer)
which is included in a controlled group of corporations with an employer, as
defined in Section 414(b) of the Code; (b) any unincorporated trade or business
which is under common control with an employer, as determined under Section
414(c) of the Code; or (c) any entity aggregated with an employer under Code
Section 414(m) or (o) or the regulations thereunder.
2.2 Applicable compensation of an employee, other than an employee who is a
New England Funds wholesaler, for any calendar year or other period of reference
means his base compensation from his employer for services while he was an
active participant during such calendar year or other period. Applicable
compensation also includes contributions made by his employer from the
employee's base compensation to this plan or another employee benefit program on
behalf of the employee in accordance with a salary reduction agreement with the
employee. Applicable compensation does not include overtime, bonuses, severance
pay, and any other "extra" compensation from his employer, reimbursed expenses,
excess life insurance premiums, or any other items not constituting direct
compensation for services. Applicable compensation also does not include
payments to, or benefits under, this or any other public or private employee
benefit plan (other than salary deferrals hereunder or salary reduction
contributions under any other employee benefit program). Applicable
compensation for an employee who is a New England Funds wholesaler will be 200%
of the employee's base compensation.
Applicable compensation of an employee taken into account under the plan
in a particular plan year will not exceed $150,000 (as adjusted from time to
time in accordance with Code Section 401(a)(17)). In determining the
compensation of an employee for purposes of this limitation, the rules of Code
Section 414(q)(6) (which provides for treating certain family members as if they
were a single employee) will apply, except that the term "family" will include
only the employee's spouse and any lineal descendants of the participant who
have not attained age 19 before the close of the plan year.
2.3 Beneficiary means a person, class of persons or trust designated by a
participant or, if there is no such designation, by the plan to receive a
benefit hereunder upon the death of the participant.
2.4 Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute enacted in its place.
2.5 Employee means a person employed by an employer as a common law employee,
but not including persons employed on a retainer basis.
2.6 Employer means New England Investment Companies, L.P.; Back Bay Advisors,
L.P.; Copley Real Estate Advisors, Inc.; Draycott Partners Limited; Marlborough
Capital Advisors, L.P.; New England Funds, L.P.; New England Investment
Associates, Inc.; Reich & Tang Asset Management L.P. and WestPeak Investment
Advisors, L.P. or any successor organization to each of them, or other entity
that adopts the plan for its employees with the consent of NEIC upon such terms
and conditions as NEIC determines. Employer may refer to each employer
individually, or to all the employers collectively, as the context may require.
2
<PAGE>
2.7 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute enacted in its place.
2.8 Participant means an employee or former employee whose participation in
the plan has begun and has not yet ended.
2.9 Plan means the NEIC 401(k) Savings Plan, as set forth in this plan
instrument, and as it may be amended from time to time.
2.10 Plan manager means the plan manager designated under article 12 hereof
to administer the plan.
2.11 Plan year means the 12-month period beginning each January 1 during the
continuance of the plan.
2.12 NEIC means New England Investment Companies, L.P. or its successor.
2.13 TeleTrust means TeleTrust Line, an electronic voice response system
accessed over the telephone and maintained by Defined Contribution Services of
The New England, or any successor voice response system that replaces TeleTrust
Line.
2.14 Trust agreement means the master trust agreement executed by NEIC and
the trustees, as amended from time to time, fixing the rights and
responsibilities of each party with respect to the holding, investment and
administration of the trust fund.
2.15 Trust fund means the property held by the trustees for the purposes of
the plan.
2.16 Trustees mean the persons serving as co-trustees, or the persons,
individual or corporate, serving as sole trustee, at any time under the terms of
the trust agreement.
ARTICLE 3
PARTICIPATION
3.1 Participation. Each employee, other than a person employed on a temporary
or intermittent basis, will be eligible to join the plan beginning on the first
entry date that falls on or after he completes six months of service. Each
eligible employee who elects to make salary deferrals under section 4.1 will
become an active participant when his first salary deferral is collected. In the
case of a person employed on a temporary or intermittent basis, one year of
eligibility service will be required for eligibility. Each person who transfers
his employment directly from an affiliated company to an employer will join the
plan on the entry date coinciding with or next following his date of transfer,
provided he has completed the applicable six months of service or year of
eligibility service requirement.
An entry date falls on the first day of every month.
----------
3
<PAGE>
3.2 Months of Service.
(a) Service. Service of an employee means the sum of all periods of his
-------
employment, whether or not continuous, and each period, if any, between a
termination of his employment and his earliest subsequent reemployment, but only
if such reemployment occurs within one year after such termination of
employment.
(b) Determining Months of Service. To determine an employee's months of
-----------------------------
service, all periods of service will be aggregated and 30 days will constitute a
month of service.
(c) Employment. Employment of a person means his active service as an
----------
employee of an employer including, for this purpose, an affiliated company. A
period of absence from active service will be considered part of his employment
if he receives compensation from an employer for such period or if such period
falls in one of the following categories (whether or not he receives
compensation for such period):
(i) absence for military service for which his reemployment rights
are protected by law; provided (but only for that part of the absence which
exceeds one year in length) he returns to active service as an employee within
the period when his reemployment rights are protected by law (or within such
longer period as his employer in its discretion permits); and
(ii) leave of absence due to sickness, accident, disability or other
reason, for the period authorized by the employer, provided (but only for that
part of such leave of absence which exceeds one year in length) he returns to
active service with his employer at the end of such period of authorized
absence.
3.3 Year of Eligibility Service. An employee will be credited with a year of
eligibility service after any twelve consecutive month eligibility service
computation period in which he is credited with at least 1,000 hours of service.
The first eligibility service computation period will begin on the date the
employee is first credited with an hour of service and subsequent eligibility
service computation periods will begin on each anniversary of the date the
employee was first credited with an hour of service.
An employee will be credited with an hour of service for each hour for which he
is directly or indirectly paid, or entitled to payment, by the employer or
affiliated employer for:
(a) the performance of duties for the employer; such hours will be
credited to the employee for the eligibility service computation period or
periods in which the duties were performed;
(b) back pay (irrespective of mitigation of damages) which has been
either awarded or agreed to by the employer. Such hours will be credited to the
employee for the eligibility service computation period or periods to which the
award or agreement pertains, rather than the eligibility service computation
period in which the award, agreement or payment is made, but no such hours will
be credited if they already have been credited under (a) immediately above; or
4
<PAGE>
(c) absence due to illness or injury, absence for military service
during which reemployment rights are guaranteed by law, layoff not involving a
termination of employment, vacation time, holiday time, jury duty and a leave of
absence authorized by the employer.
Hours of service will be determined in accordance with Section
2530.200b-2 of the Department of Labor Regulations which are hereby incorporated
herein by this reference. Not more than 501 hours of service will be credited
for any single period of absence described in (b) or (c) above except in the
case of an absence for military service. Hours of service credited during a
paid absence are credited for the eligibility service computation period(s)
during which the absence occurs. The number of hours credited is determined by
dividing the payments received or due by the lesser of: (i) the employee's most
recent hourly rate of applicable compensation; or (ii) the employee's average
hourly rate of applicable compensation for the most recent plan year in which
the employee completed more than 500 hours of service.
3.4 End of Participation. A participant's active participation in the plan
will end upon the termination of his service as an employee for any reason. His
participation will end when he has no further interest under the plan.
3.5 Reentry of Former Active Participant. A former active participant who
returns to service as an employee will again be eligible to make salary
deferrals starting on his date of rehire and he will again be an active
participant when the first such salary deferral is collected.
ARTICLE 4
SALARY DEFERRALS BY EMPLOYEES
4.1 Salary Deferrals.
(a) Salary Deferrals by Employees. Each eligible employee may make salary
-----------------------------
deferrals to the plan in any whole percentage of his applicable compensation he
elects up to 12% by agreeing to reduce his applicable compensation by such
amount, provided that his salary deferrals do not exceed the limits of
subsection (c), or result in a violation of the limitations of section 6.8. For
the plan year an employee first becomes eligible to make salary deferrals,
applicable compensation will include applicable compensation paid in such plan
year prior to the employee's entry date. For the 1995 plan year, applicable
compensation will include bonuses paid to employees of Reich & Tang Associates
Management L.P. The inclusion of the additional amounts of applicable
compensation under the preceding two sentences will apply solely for salary
deferral purposes and not for employer matching contributions. However, the
plan manager may limit salary deferrals by highly-compensated employees to a
percentage of applicable compensation determined by the plan manager to
facilitate meeting the requirements of subsection (c) and the "415 limits" of
section 6.8.
Such amounts are referred to herein as the participant's salary deferrals.
----------------
5
<PAGE>
(b) Sign-Up Procedure for Savings Deferrals. An eligible employee who
---------------------------------------
wishes to make salary deferrals must complete a form specifying the amount of
his salary deferrals, agreeing to reduce his applicable compensation by such
amount, and providing such other information as the plan manager may require.
An employee will be given the opportunity to elect salary deferrals starting on
the first date specified in section 3.1. If the employee elects to begin salary
deferrals on such date, his salary deferrals will begin with the payroll period
starting on such date provided he gives the plan manager at least two weeks'
advance written notice (or such lesser period as the plan manager in its
discretion may establish). If the employee initially declines to make salary
deferrals, he may elect to begin making salary deferrals effective with the
first payroll period of any subsequent month, provided he files the required
form with the plan manager at least two weeks beforehand.
(c) 401(k) Limits.
-------------
(i) Limits. Salary deferrals by highly-compensated participants must
------
not exceed such amounts that, as of the last day of each plan year, the average
of the individual deferral percentages of the highly-compensated employees (the
"HDP") does not exceed the average of the individual deferral percentages of
---
the lower-compensated employees (the "LDP") by more than the amount specified
---
under the following table:
If LDP is: HDP may not exceed:
--------- ------------------
Less than 2% 2 times LDP
At least 2% but 2% more than LDP
less than 8%
8% or higher 1.25 times LDP
In addition, the salary deferrals of a participant for any calendar year will
be limited to $9,240 (as adjusted periodically in accordance with Code Section
402(g)).
(ii) Monitoring and Adjustment of Salary Deferrals. The plan manager
---------------------------------------------
will monitor salary deferral elections and deferral percentages and will adjust
the amount of salary deferrals elected or made by highly-compensated employees
to the extent necessary to satisfy paragraph (i) above. Any necessary
adjustment will be accomplished by reducing the salary deferrals of the
participant (or participants) in the highly compensated group with the highest
deferral percentage first, next the participant (or participants) in such group
with the second-highest deferral percentage, and so on until paragraph (i) is
satisfied.
Such adjustments will be made by the plan manager at such time or
times during a plan year as the plan manager determines to meet the
requirements of paragraph (i) above, and will be made in accordance with
procedures established by the plan manager. In addition, the plan manager may
make such adjustments after the end of a plan year by paying to a participant
the amount of his excess salary deferrals plus earnings on such excess salary
deferrals, with such repayment to be made no later than the end of the
succeeding plan year. If repayments of
6
<PAGE>
excess salary deferrals are made, matching contributions plus earnings
associated with the amounts repaid will also be distributed. For purposes of
the preceding sentence, excess salary deferrals means salary deferrals by a
------ ----------------
participant in the highly compensated group in excess of the amount that would
satisfy the requirements of paragraph (i) above. Any such payment of excess
salary deferrals will be designated as such by the plan manager. However, the
amount to be paid will be reduced by any amounts relating to such plan year
previously identified as excess salary deferrals and withdrawn by, or
distributed, to the affected participant.
The amount of earnings (or losses) to be distributed with a
participant's excess salary deferrals will be determined under section 7.3 with
the following special rules: payments to correct excess salary deferrals will
be paid from each separate investment fund under section 7.1 in which the
participant's salary deferrals accounts are invested in accordance with the
ordering rules established by the plan manager for withdrawals (or pro rata
from each investment fund if there are no ordering rules); and the amount of
earnings (or losses) will be the earnings or losses of such investment fund for
the valuation period of the correcting distribution multiplied by a fraction
whose numerator is the amount of excess salary deferrals being distributed and
whose denominator is the fund balance.
(iii) Highly-Compensated and Lower-Compensated Employees. An employee
--------------------------------------------------
is considered a highly-compensated employee for a plan year if at any time
---------------------------
during the plan year, he:
(A) owns (or is considered to own within the meaning of Code
Section 318) more than five percent of the outstanding stock of his
employer (or the direct or indirect parent of his employer) or stock
possessing more than five percent of the total combined voting power of all
stock of his employer (or the direct or indirect parent of his employer);
or
(B) received annual compensation from his employer (before any
reductions for salary deferrals) in excess of $75,000 (as adjusted for cost
of living changes in accordance with Code Section 415); or
(C) received annual compensation from his employer (before any
reductions for salary deferrals hereunder or salary reductions under Code
Section 125) in excess of $50,000 (as adjusted for cost of living changes
in accordance with Code Section 415) and is in the highest paid 20% of all
employees; or
(D) is an officer of his employer having annual compensation
greater than 50 percent of the amount in effect under Section 415(b)(1)(A)
of the Code for the year (but no more than the lesser of 50 employees or 10
percent of all employees will be considered highly-compensated employees
under this subparagraph (D)).
In determining the highly-compensated employees for a plan year, the
rules specified in Section 414(q)(2), (6) and (8) will be applied.
If an employee is not a highly-compensated employee for a plan year,
then he is a lower-compensated employee for such plan year.
--------------------------
7
<PAGE>
In determining which employees are highly-compensated and lower-
compensated for a plan year, the plan manager elects to make such
determinations based solely on the plan year in question (rather than the
plan year in question and the preceding plan year).
(d) 415 Limits. In addition to monitoring participants' deferral
----------
percentages, the plan manager will monitor participants' salary deferrals to
insure that the annual additions to each participant's accounts are within the
limits in section 6.8. If additional salary deferrals by a participant would
cause a violation of such limits, his salary deferrals will be reduced or cease
immediately.
(e) Deferral Percentage Defined. For purposes of subsection (c) above,
---------------------------
the deferral percentage of an employee means his salary deferrals, if any, for
-------- ----------
any plan year, computed as a percentage of his total compensation for such year
as defined in Section 414(s) of the Code.
(f) Character of Salary Deferrals. For purposes of Section 414(h) of the
-----------------------------
Code, it is specifically provided that salary deferrals are employer
contributions.
4.2 Changing, Suspending and Resuming Salary Deferrals.
(a) Change. A participant making salary deferrals may change the rate of
------
his salary deferrals (increase, reduce or suspend) to any other rate he elects
(subject to the limitations stated in section 4.1) by so specifying on a form
filed with the plan manager. The changed rate will become effective with the
first day of the first payroll period of the month that is at least two weeks
after he files the completed form with the plan manager (or such lesser period
as the plan manager in her discretion may establish).
(b) Resumption. A participant who suspended his salary deferrals under
----------
subsection (a) above may resume such deferrals as of any monthly entry date by
filing a new salary deferral sign-up form with the plan manager. His salary
deferrals will resume effective with the first day of the first payroll period
of the month that is at least two weeks after he files the completed form with
the plan manager (or such lesser period as the plan manager in her discretion
may establish).
(c) Plan Manager Rules. The plan manager may establish rules limiting the
-------------------
number of times during a plan year that a participant may change, suspend or
resume his salary deferrals. The plan manager may establish such other rules
and procedures for salary deferrals as the plan manager deems necessary for the
efficient administration of the plan.
4.3 Collection of Salary Deferrals. The employers will collect participants'
salary deferrals through payroll deduction and will deliver the amounts
collected to the trustees at the earliest date when such deposits can reasonably
be segregated from an employer's general assets, but not later than 90 days
after the date on which such amounts would otherwise have been payable to the
participant in cash.
8
<PAGE>
4.4 Rollover Contributions.
(a) With the approval of the plan manager, an employee may make a rollover
or a direct rollover to the plan (or cause to be transferred to the trustees
directly from a qualified trust, qualified annuity plan, individual retirement
account or individual retirement annuity) in an amount which constitutes (i) all
or part of a qualifying rollover distribution (as defined in Section 402(c), or
Section 403(a)(4) of the Code), or (ii) a rollover contribution (as defined in
Section 408(d)(3) of the Code). However, a rollover to this plan of accumulated
deductible employee contributions made under another plan will not be permitted,
and a direct or indirect transfer to this plan from another qualified plan will
not be permitted if such transfer would subject this plan to the qualified joint
and survivor rules of Code Section 401(a)(11) or to any other requirement that
the plan manager in its discretion determines would be burdensome.
(b) The employers, the plan manager and the trustees have no responsibility
for determining the propriety of, proper amount or time of, or status as a tax-
free transaction of any transfer under subsection (a) above.
(c) If an employee who is not yet a participant makes a rollover
contribution under subsection (a) above, he will be considered to be a
participant with respect to such contribution only. He will not be a
participant for any other purpose of the plan until he completes the
requirements for participation under article 3.
(d) A rollover will be credited to a separate rollover account in the name
of the employee making such rollover contribution.
(e) The plan manager in her discretion may direct the return to the
employee (or the retransfer to another trustee or custodian designated by the
employee) of any rollover contributions to the extent the plan manager
determines that such return may be necessary to insure the continued
qualification of this plan under Section 401(a) of the Code or that the holding
of such rollover contribution would be administratively burdensome.
ARTICLE 5
EMPLOYER MATCHING CONTRIBUTIONS
5.1 Employer Matching Contributions.
(a) Amount. For each payroll period, each employer (except Draycott
------
Partners Limited) will make a matching contribution on behalf of participants in
its employ who made salary deferrals during the period (subject to the
limitations specified in this section).
The employer's matching contribution will be 66-2/3% of a participant's
qualifying salary deferrals. A participant's salary deferrals up to 6% of his
applicable compensation qualify for a match.
9
<PAGE>
If a participant's salary deferrals reach the maximum limit on salary
deferrals permitted under Code Section 402(g) ($9,240 in 1995) before the end of
the plan year thereby causing employer matching contributions to cease
prematurely before reaching the maximum provided under the plan for that
employee, his employer will make an additional matching contribution as of
December 31 to adjust for the shortfall of that year, provided the employee is
still employed by the employer on that date.
(b) 401(m) Limits. As of the last day of each plan year, the average of
-------------
the individual matching contribution percentages of the highly-compensated
employees (the "HCP") may not exceed the average of the individual matching
contribution percentages of the lower-compensated employees (the "LCP") by more
than the amount specified in the following table.
If LCP is: HCP may not exceed:
--------- ------------------
Less than 2% 2 times LCP
At least 2% but not less than 8% 2% more than LCP
8% or higher 1.25 times LCP
(c) Matching Contribution Percentage Defined. For purposes of this
----------------------------------------
section, the matching contribution percentage of a participant for a plan year
--------------------------------
means employer matching contributions on his behalf for such year, computed as a
percentage of his total compensation for such year as defined in Section 414(s)
of the Code.
(d) The highly-compensated and lower-compensated employees are defined in
section 4.1(c)(iii).
(e) Monitoring and Adjustment of Matching Contributions. The plan manager
---------------------------------------------------
will monitor and adjust participants' matching contribution percentages to
insure compliance with the requirements of subsection (b) above. Such
monitoring and adjustments will be accomplished under procedures similar to
those specified in section 4.1(c)(ii). Any reduction in employer matching
contributions will be effected by distributing the necessary amount (plus
earnings) to the participant, with such distribution to be made no later than
the end of the succeeding plan year. The amount of earnings will be determined
under rules similar to those specified in the third paragraph of section
4.1(c)(ii).
(f) Combined 401(k) and 401(m) Limits. The sum of HDP under section 4.1
---------------------------------
and the HCP under this section cannot exceed the sum of the following:
(i) 125 percent of the LDP (under section 4.1) or the LCP (under this
section), whichever is greater; and
(ii) two percentage points more than such LDP or such LCP, whichever is
smaller, but in no event more than twice such smaller amount.
10
<PAGE>
If the sum of the HDP and the HCP exceed the limit specified in the
preceding paragraph, the plan manager will reduce the deferral percentages of
participants in the higher paid group in accordance with section 4.1(c), to the
extent necessary to meet the preceding paragraph.
5.2 Form and Time of Contribution. The employers' matching contributions for
a plan year will be paid to the trustees in cash. Such contributions will
normally be paid as soon as practicable after each payroll period payment; but
in any event such contributions will be paid to the trustees no later than the
due date (including extensions) for filing the employer's federal income tax
return (or the consolidated return including the employer) for such year.
ARTICLE 6
ACCOUNTS AND CREDITS
6.1 Establishment of Accounts. The plan manager will establish and maintain
in the name of each participant such of the following accounts as are
appropriate for the participant:
(a) salary deferral account (called in TeleTrust the "Salary Deferral");
(b) employer matching contributions account (called in TeleTrust the
"Company Match");
(c) prior plan profit sharing account (called in TeleTrust the "Prior
Plan PS Account");
(d) prior plan after-tax account (called in TeleTrust the "Prior Plan
After-Tax Account");
(e) rollover contribution account (called in TeleTrust the "Rollover
Account").
Credits and charges to such accounts will be made as provided in the plan.
6.2 Crediting Participants' Salary Deferrals. Salary deferrals by a
participant will be credited to such participant's salary deferral account.
6.3 Crediting Employer Matching Contributions. Each employer's matching
contributions under section 5.1 will be credited to the employer matching
contributions accounts of participants in its employ as specified in section
5.1.
6.4 Crediting Prior Plan Profit Sharing and After-tax Accounts. Accounts
previously maintained by the employers for the benefit of their employees under
the TNE Progress Sharing/401(k) Plan; Copley Real Estate Advisors, Inc. Employee
Profit Sharing Retirement Plan and 401(k) Plan; and Profit Sharing and 401(k)
Plan of Reich & Tang Asset Management, L.P. were transferred to this plan in
January, 1995, and were credited to participants' prior plan profit sharing
accounts and prior plan after-tax accounts, as appropriate.
6.5 Crediting Rollovers. Rollovers by, or on behalf of, an employee will be
credited to the employee's rollover contribution account.
11
<PAGE>
6.6 Charges to Accounts. Any amount distributed, paid, loaned, withdrawn or
transferred from an account will be a charge against such account as of the date
of distribution, payment, loan, withdrawal or transfer.
6.7 Full Vesting of Accounts. Each participant's accounts will be fully
vested and nonforfeitable at all times.
6.8 Maximum Additions.
(a) The annual additions to a participant's accounts for any plan year
(which will be the limitation year for purposes of Code Section 415) may not
---------------
exceed the lesser of (i) $30,000 as adjusted periodically for cost-of-living
changes in accordance with Code Section 415 and regulations thereunder, or (ii)
25 percent of his total compensation for such year. For purposes of this
section, total compensation means a participant's total non-deferred
------------------
compensation from his employer for a plan year, as defined in Code Section 415
and regulations thereunder.
(b) If the annual additions under this plan for any plan year to a
participant's accounts would exceed the limitations of subsection (a) above, the
salary deferrals made on his behalf for such year which would be credited to his
accounts but for the limitations of subsection (a) will be returned to him, but
only to the extent necessary for the annual additions under this plan to comply
with subsection (a). If an excess annual addition would result from allocations
made for the plan year under the NEIC Retirement Account Plan or any other
qualified defined contribution plan maintained by the employer, the terms of the
NEIC Retirement Account Plan or the other plan will govern the method of
correcting the excess.
(c) For purposes of this section 6.8, annual additions to a participant's
----------------
accounts for any plan year means the sum of the amounts credited to his accounts
for such year under the NEIC Retirement Account Plan and any other qualified
defined contribution plan maintained by the employer, as defined in subsection
(d)(i) below; including matching contributions, retirement contributions,
transition benefit contributions, and salary deferrals under a 401(k) plan.
(d) For any plan year, the sum of a participant's defined contribution plan
fraction and his defined benefit plan fraction may not exceed one, as follows:
(i) His defined contribution plan fraction for any plan year is the
----------------------------------
fraction (A) whose numerator is the sum of annual additions (as defined in Code
Section 415(c)(2)) to his accounts under all qualified defined contribution
plans maintained by NEIC (or any other employer that is included in a
controlled group or under common control with NEIC within the meaning of Code
Sections 414(b) and (c) and 415(h)) as of the close of such plan year, and (B)
whose denominator is the sum of the lesser of the following amounts determined
for such year and for each prior year of service with his employer: the
product of 1.25 (1.0 if the plan is top-heavy) and the dollar limitation in
effect for such year, or the product of 1.4 and 25 percent of the participant's
compensation for such year.
12
<PAGE>
(ii) His defined benefit plan fraction for any plan year is a fraction
------- ------- ---- --------
(A) whose numerator is his aggregate projected annual benefit under all defined
benefit plans sponsored by NEIC (or any other employer that is included in a
controlled group or under common control with NEIC within the meaning of Code
Sections 414(b) and (c) and 415(h)) as of the close of such plan year, and (B)
whose denominator is the lesser of the product of 1.25 (1.0 if the plan is top-
heavy) and the dollar limitation in effect under Section 415(b)(1)(A) of the
Code, and the product of 1.4 and the participant's highest average compensation
as determined under Section 415(b)(1)(B) of the Code. For this purpose, the
projected annual benefit of a participant means the total normal retirement
--------- ------ -------
benefit to which he would be entitled on the assumptions that his employment
continues until his normal retirement date and his annual earnings and all
other relevant factors remain the same for all future years as in the year when
the projection is made.
(iii) If the sum of such fractions would exceed one without the
application of this section, his benefit under the defined benefit plan or
plans will be reduced to a benefit that will produce a defined benefit plan
fraction and a defined contribution plan fraction that equal one.
ARTICLE 7
INVESTMENT FUNDS AND CREDITING INVESTMENT EXPERIENCE
7.1 Investment Funds. The trustees will establish two or more separate
investment funds within the trust fund, invested in different types or
categories of assets (e.g., equities or fixed-income securities, or shares of
particular mutual funds) or in accordance with investment objectives specified
by the trustees. Initially, the trustees have divided the trust fund into the
following investment funds:
(a) Reich & Tang Short Term Income Fund;
(b) New England Limited Term US Government Fund;
(c) New England Bond Income Fund;
(d) New England Balanced Fund;
(e) Reich & Tang Equity Fund;
(f) New England Growth Fund;
(g) New England International Equity Fund;
(h) Loomis Sayles Small Cap Fund;
(i) TNE Accumulation Fund (only for prior plan accounts from the TNE
Progress Sharing/401(k) Plan); and
13
<PAGE>
(j) Reich & Tang Delafield Fund (only for prior plan accounts from the
Profit Sharing and 401(k) Plan of Reich & Tang Asset Management,
L.P.).
The plan will maintain records that reflect the portion of each account
of a participant that is invested in each separate investment fund. The
existence of such records and of participants' accounts will not be deemed to
give any person any right, title or interest in or to any specific assets or
part of the trust fund or any separate investment fund.
7.2 Participants' Investment Directions and Transfers Among Funds. Each
participant may direct and redirect the separate investment fund or funds in
which contributions on his behalf will be invested (subject to the rules of the
plan manager), initially by filing a form filed with the plan manager, and
subsequently for changes by contacting the TeleTrust system.
A participant may direct investment of contributions on his behalf
entirely in one investment fund or in any combination of two or more (up to all)
of the investment funds, provided that combinations must be specified in whole
percentages. In addition, the participant may direct transfers among the
investment funds so that his accounts are invested entirely in one investment
fund or in a combination of two or more (up to all) of the investment funds,
provided that combinations must be specified in whole percentages.
The participant will have sole responsibility for the investment of
contributions to his accounts and for transfers among the available investment
funds, and no named fiduciary or other person will have any liability for any
loss or diminution in value resulting from the participant's exercise of such
investment responsibility. It is intended that Section 404(c) of ERISA will
apply to a participant's exercise of investment responsibilities under this
section.
7.3 Valuation of Assets and Crediting Investment Experience. The fair market
value of the assets in each separate investment fund of the trust fund and any
expenses not paid by the employers, investment income and gains and losses in
asset values will be determined and credited or charged to the participants'
accounts on a daily basis.
ARTICLE 8
LOANS AND WITHDRAWALS
8.1 Loans to Participants.
(a) Availability of Loans. Upon application by a participant, the plan
---------------------
manager may direct the trustees to make a loan to the participant from his plan
accounts. Loans will be available to each eligible participant on a reasonably
equivalent basis under uniform, nondiscriminatory borrowing rules established by
the plan manager. Such borrowing rules must be formulated and administered so
that the requirements of Code Section 72(p) for non-taxable loans, the
applicable Department of Labor regulations on plan loans, and the following
provisions of this section are satisfied. Any loan hereunder will bear a
reasonable rate of interest
14
<PAGE>
and will be evidenced by a promissory note signed by the participant in such
form as the plan manager may require. The amount of any such loan will be
withdrawn from the participant's accounts and the investment fund or funds in
which the participant's accounts are invested in the manner specified in the
plan manager's borrowing rules.
(b) Borrowing Rules of the Plan Manager. The plan manager may adopt
-----------------------------------
borrowing rules for loans hereunder and may revise such rules from time to time.
The rules may contain such requirements pertaining to loans as the plan manager
deems necessary or desirable and which are not specified herein. The borrowing
rules may govern the procedures and cut-off dates for applying for loans
hereunder and the terms of such loans, including (i) the number of loans that a
participant may request in any year and the number of loans that may be
outstanding at any time to a participant, (ii) any restrictions on reborrowing
not stated in this section, (iii) the interest rate in effect from time to time
for loans or the method of ascertaining such interest rate, and (iv) the
repayment schedule for loans or the method for determining the repayment
schedule.
(c) Amount of Loans. The minimum loan amount is $1,000 or such lesser
---------------
amount as the plan manager may from time to time set forth in its borrowing
rules. The maximum aggregate loan amount to any participant is based upon the
vested balance in the participant's accounts. No participant loan, when
aggregated with the participant's other loans, will exceed the smallest of (i)
one-half of the participant account balances, or (ii) $50,000 (reduced by the
highest outstanding loan balance to the participant during the 12 months
preceding the loan). For purposes of applying such limits, account values
immediately preceding the date when the loan is made will be used.
(d) Maximum Repayment Period.
------------------------
(i) Other than Residential Loans. Except as provided in paragraph
----------------------------
(ii) below, the maximum term of a loan will be five years (provided that the
plan manager may establish a shorter repayment period for small loans).
(ii) Residential Loans. If a participant requests a loan for the
-----------------
acquisition or construction of his principal residence, the repayment period
will be determined by reference to bank loans for the same purpose but may not
exceed 10 years.
(e) Security for Repayment. Each loan hereunder will be a participant-
----------------------
directed investment for the benefit of the participant requesting such loan;
accordingly, any default in the repayment of principal or interest of any loan
hereunder will reduce the amount available for distribution to such participant
(or his beneficiary). Thus, any loan hereunder will be effectively and
adequately secured by a security interest in the participant's accounts in an
amount equal to one-half of the amount in the participant's accounts. The plan
manager acting under its borrowing rules may require other security for
repayment of a loan in any instance. A participant receiving a loan must
execute such instruments as the plan manager requests and must pay any fees for
filings required by the plan manager to perfect any security interest in the
participant's accounts or other security.
15
<PAGE>
(f) Repayment. The plan manager may require a participant to execute an
---------
agreement to repay the principal and interest of a loan through regular payroll
deduction payments from the participant's compensation. The plan manager may
establish back-up repayment procedures for participants who do not make payroll
deduction repayment. Except as otherwise may be permitted under Treasury
regulations, any such back-up procedures will provide for substantially level
amortization payments made quarterly or more frequently. Any loan hereunder may
be prepaid in whole at any time without penalty. If a participant's service as
an employee is terminated for any reason, the entire unpaid principal and
interest of any loan then outstanding to such participant will become due and
payable 60 days thereafter.
(g) Action Upon Default. If a participant defaults on any payment of
-------------------
interest or principal of a loan hereunder or defaults upon any other obligation
relating to such loan, the plan manager may take (or direct the trustees to
take) such action or actions as it determines to be necessary to protect the
interests of the plan. Such actions may include commencing legal proceedings
against the participant, or foreclosing on any security interest in the
participant's accounts or other security given in connection with a loan
hereunder; however, the plan manager will not direct foreclosure on the
participant's salary deferrals or employer matching contributions accounts at a
time when the participant would not be entitled to withdraw from such account
under section 8.3.
(h) Distribution to Participant With Loan. In the case of any participant
-------------------------------------
with a loan outstanding hereunder, the amount available for distribution to such
participant (or his beneficiary) will consist of the portion of his accounts
invested in the investment funds of the trust fund. In addition, the
participant's note will be distributed to him (or his beneficiary), and the
trustees will report the value of the note for income tax purposes as the amount
of unpaid principal and any interest due thereon at the date of distribution.
(i) Accounting for Loans.
--------------------
(i) Source of Loan. The plan manager will establish procedures and
--------------
ordering rules for liquidating the participant's accounts to make a loan to
him.
(ii) Loan Account. The plan manager will establish and maintain a loan
------------
account for each borrowing participant. The unpaid principal and accrued but
unpaid interest on the loans to a participant will be reflected for plan
accounting purposes in the participant's loan account. Repayments by the
participant will be credited to his loan account. The plan manager will
establish uniform procedures for transferring repayment amounts from his loan
account to the participant's other accounts.
8.2 In-Service Withdrawals from Rollover or After-Tax Account.
(a) Amount. A participant may elect to withdraw from his rollover account
------
or his after-tax account any amount he specifies from a minimum of $100 (or the
amount in the account if less) to a maximum of the total amount in those
accounts. An election to make an in-service withdrawal under this section will
be in writing on such form as the plan manager may prescribe.
16
<PAGE>
(b) Payment. Such an in-service withdrawal by a participant will be paid
-------
to him as soon as practicable after the participant files the form requesting
the withdrawal.
8.3 In-Service Withdrawals from Salary Deferral Account and Prior Plan Profit
Sharing Account.
(a) Application. A participant may apply to the plan manager for a
-----------
withdrawal from his salary deferral account or prior plan profit sharing
account. Except as provided in subsection (d) below, such withdrawals will be
available only in cases of financial hardship. The participant will file a
written application setting forth the specific immediate and heavy financial
needs prompting his request and the amount needed to meet such immediate
financial need. The minimum withdrawal amount is $500, and the maximum
withdrawal amount is the lesser of (i) the amount of salary deferrals by the
participant in his salary deferral account, plus the total amount in his prior
plan profit sharing account, or (ii) the amount needed to alleviate his
financial hardship (including the amount reasonably expected to be needed for
income taxes and penalties payable on the amount withdrawn).
(b) Financial Hardship Defined. Financial hardship means that a
--------------------------
participant has an immediate and heavy financial need and that the withdrawal is
necessary to meet the need.
(i) Immediate and Heavy Financial Need. A withdrawal for an immediate
----------------------------------
and heavy financial need must be occasioned by: (A) medical expenses incurred
or needed by the participant or his spouse or any of his dependents; (B)
tuition and related educational fees for the next 12 months of post-secondary
education for the participant, his spouse, child or dependent; (C) purchase
of the participant's principal residence (not including mortgage payments);
(D) rent or mortgage payments to prevent the participant's eviction from or
the foreclosure of the mortgage on his principal residence; (E) such other
event or circumstance as the Internal Revenue Service permits; or (F) any
other extraordinary personal need which the plan manager in its sole
discretion may determine under uniform rules of general application.
Financial need under subparagraph (A) through (E) above will be deemed to be
a financial hardship without evidence of the participant's other financial
resources.
(ii) Evidence of Need and Necessity. A participant must establish to
------------------------------
the plan manager's satisfaction both that the participant has an immediate
and heavy financial need and that the withdrawal is necessary to meet the
need. In addition, the participant must show that the participant cannot meet
the need from other reasonably available financial resources.
(iii) Plan Manager Determinations. A participant's application for a
---------------------------
hardship withdrawal will be in writing on such form and containing such
information (or other evidence or materials establishing the participant's
financial hardship) as the plan manager may require. In determining whether a
participant has a financial hardship and has shown that he cannot meet the need
from other available financial resources, the plan manager may reasonably rely
upon the participant's representations, including representations concerning
his inability to meet the need through other resources such as insurance
proceeds, reasonable liquidation of other assets, distributions or non-taxable
loans from other plans, or borrowing from other sources on
17
<PAGE>
reasonable terms, or through cessation of salary deferrals hereunder. The plan
manager's determination of the existence of, and the amount needed, to meet a
financial hardship will be binding on the participant.
(c) Payment. If approved by the plan manager, a hardship withdrawal will
-------
be paid to the participant as soon as is practicable after the hardship
withdrawal is approved.
(d) Exceptions. The requirement for financial hardship will not apply to
----------
withdrawals requested by a participant in the following situations: (i) after
the participant has reached age 59 1/2, or (ii) to remove salary deferrals
during a calendar year which, when added to salary deferrals under Code Section
401(k) or salary reduction contributions under Code Section 403(b) during the
same year to another plan, exceed the limits on elective deferrals under Code
Section 402(g). A request to remove excess salary deferrals under (ii) above
must be in writing and filed with the plan manager no later than the March 1
following such calendar year. Such a withdrawal will be paid to the participant
as soon as practicable and will include income and investment gain or loss
allocable to such withdrawn amount.
ARTICLE 9
DISTRIBUTIONS UPON RETIREMENT OR TERMINATION
9.1 Distribution Upon Retirement or Other Termination of Employment.
(a) Timing of Distribution. A participant who retires or otherwise
----------------------
terminates employment (except by death) will receive distribution of his
accounts (or will begin to receive installment distributions) as soon as
practicable after his date of retirement or other termination of employment.
However, if the balance in the participant's accounts in this plan and the NEIC
Retirement Account Plan exceeds $3,500, the participant may defer payment to a
subsequent date, not later than the date payments must begin under the next
subsection below entitled "Age 70-1/2," specified in a notice to the plan
manager, and distribution of his accounts (or the first installment payment)
will be made on the date specified. A participant who deferred payment of his
accounts may accelerate such payment by filing a notice with the plan manager
specifying the new distribution date.
(b) Age 70-1/2. Notwithstanding the preceding subsection, distribution of
----------
a participant's accounts must be made or begin no later than the April 1 of the
year following the year in which such participant reaches age 70-1/2 even though
the participant continues in employment thereafter. In the event that
distributions under the preceding sentence to a participant are required, the
amount of the distribution for any plan year will be determined by dividing the
balance in the participant's accounts as of the end of the preceding plan year
by the number of years in the participant's life expectancy or the joint life
expectancies of the participant and designated beneficiary (where applicable)
determined as of the year in which the employee attains age 70-1/2, in
accordance with regulations under Code Section 401(a)(9).
18
<PAGE>
9.2 Distribution Upon Death.
(a) In General. If a participant dies before complete distribution of his
----------
account balances, his beneficiary will receive the amount remaining in his
accounts. Distribution will be made (or installment payments will begin) as
soon as practicable after the date when the plan manager receives such
evidence of the participant's death and the right of any beneficiary to
receive such payment as it deems necessary. However, if the beneficiary is the
participant's spouse, the spouse may in a form filed with the plan manager
elect to defer distribution (or the start of installment payments) until the
date the participant would have reached age 70-1/2.
(b) Designation of Beneficiary. A participant may designate one or more
--------------------------
beneficiaries to receive any distribution payable under subsection (a) above and
may revoke or change such a designation at any time. If the participant names
two or more beneficiaries, distribution to them will be in such proportions as
the participant designates or, if the participant does not so designate, in
equal shares. Any designation of beneficiary will be in writing on such form as
the plan manager may prescribe and will be effective upon filing.
Notwithstanding the preceding paragraph, the sole beneficiary of a
married participant will be the participant's spouse unless the spouse consents
in writing to the designation of another person as beneficiary. The spouse's
consent must acknowledge the effect of such consent and be witnessed by a plan
representative or a notary public.
(c) No Designation. Any portion of a distribution payable upon the death
--------------
of a participant which is not disposed of by a designation of beneficiary under
subsection (b) above, for any reason whatsoever, will be paid to the
participant's spouse if living at his death, otherwise to the participant's
estate.
(d) Payment Under Prior Designation. The plan manager may direct payment
-------------------------------
in accordance with a prior designation of beneficiary (and will be fully
protected in so doing) if such direction (i) is given before a later designation
is received, or (ii) is due to the plan manager's inability to verify the
authenticity of a later designation. Such a distribution will discharge all
liability therefor under the plan.
9.3 Manner of Payment. The amount payable (with earnings or losses thereon)
will be distributed at the relevant time to the participant (or to his
beneficiary in the event of his death) by one of the following forms of payment,
as elected by the participant or beneficiary, as applicable:
(a) a single, lump sum payment;
(b) substantially equal installments over a period of 5, 10 or 15 years,
as chosen by the participant; or
(c) purchase of a non-transferable annuity contract from an insurance
company and distribution of such contract to the participant (hereafter all
references to an annuity contract are to a non-transferable annuity contract).
If an annuity contract under this subsection (c) is
19
<PAGE>
purchased and distributed, the terms of the annuity contract will include the
following joint and surviving spouse annuity rules. The rules of this section
apply only if the participant's accounts exceed $3,500.
(i) In General. If a participant has a spouse on the date when he is to
----------
receive payment (or the first installment payment) from or under the annuity
contract, unless the participant elects otherwise and the participant's spouse
consents to such election, the participant will receive a monthly pension
payable for his lifetime and ending with the payment immediately before his
death, with monthly payments equal to 50% of the participant's monthly payment
amount continuing thereafter to his surviving spouse (if any) and ending with
the payment immediately before the spouse's death.
(ii) Married Participant's Election of Another Form of Payment.
---------------------------------------------------------
(A) Election. A married participant may elect not to receive payment
--------
in the form of a joint and surviving spouse annuity under the annuity contract
by filing a written election form with the insurer during an election period
consisting of the 90 days immediately preceding the participant's annuity
starting date (which is the first day of the first period for which he receives
an amount under the annuity contract). During the election period, a participant
may revoke an election and may make a new election after revoking a prior
election.
(B) Written Notification of Election. The insurance company will
--------------------------------
furnish each married participant with a notification of the right to elect
another form of payment, by personal delivery or mailing so as to reach him a
reasonable time before the start of his election period. The notification will
be written in non-technical language and will include an explanation of the
terms and conditions of the automatic joint and surviving spouse annuity form,
the participant's right to make and the effect of an election not to receive
benefits in such form, the rights of the participant's spouse, and the
participant's right to revoke and the effect of a revocation of a previous
election not to receive benefits in such form.
(C) Spousal Consent Required. A participant's election under
------------------------
subparagraph (A) above will be valid only if the participant's spouse consents
in writing to such election. The spouse's consent must acknowledge the effect
of such consent and must be witnessed by a representative of the plan or a
notary public.
The foregoing spousal consent requirement will apply to a
participant unless he establishes that he is not married or that his spouse
cannot be located. In making determinations of marital status, the insurer may
rely upon the participant's representation as to his marital status and the
identity of his spouse.
(D) Compliance with Regulations. Notifications, elections and
---------------------------
spousal consents under this section, and any of the plan manager's procedures
relating thereto, will comply with Code Sections 401(a)(9), 401(a)(11) and 417
and regulations and rulings thereunder.
9.4 Rehire Before Distribution. If a former active participant is rehired
before distribution of his accounts has started, such distribution will be
deferred until his subsequent termination of
20
<PAGE>
employment. If a partial distribution has been made, the plan manager will
determine whether distribution is to be continued, or is to be suspended until
his subsequent termination of employment.
ARTICLE 10
AMENDMENT, MERGER AND TERMINATION OF PLAN
10.1 Amendment of Plan. At any time and from time to time, NEIC may amend or
modify any or all of the provisions of the plan without the consent of any
person, provided that no amendment will reduce any participant's nonforfeitable
account balance as of the date such amendment is adopted (or its effective date
if later), and provided further that no amendment will permit any part of the
trust fund to revert to the employers or be used for or diverted to purposes
other than for the exclusive benefit of participants or their beneficiaries.
10.2 Merger of Plans. A merger or consolidation with, or transfer of assets
or liabilities to, any other plan will be permitted only if the benefit each
participant would receive if such plan were terminated immediately after the
merger, consolidation or transfer is not less than the benefit he would have
received if this plan had terminated immediately before the merger,
consolidation or transfer.
10.3 Termination. NEIC has established the plan and the employers are
maintaining the plan with the bona fide expectation and intention that they will
be able to continue the plan and contributions thereto indefinitely, but they
will not be under any obligation or liability whatsoever to continue its
contributions or maintain the plan for any particular length of time.
Notwithstanding any other provision hereof, an employer in its discretion may
discontinue contributions to the plan indefinitely or temporarily and NEIC may
terminate this plan at any time. There will be no liability to any participant,
beneficiary or other person as a result of any such discontinuance or
termination.
An employer's failure to make contributions in any year or years will
not operate to terminate the plan in the absence of formal action by NEIC to
terminate the plan.
10.4 Effect of Termination. Upon complete discontinuance of contributions or
termination or partial termination of the plan, the accounts of participants
will be nonforfeitable. After such termination, no employee will become a
participant and no further salary deferrals or employer contributions will be
made hereunder on behalf of participants.
The trustees will continue to hold the assets of the trust fund
attributable to the accounts of participants for distribution as directed by the
plan manager. The plan manager will determine whether to direct the trustees to
disburse the plan's assets as immediate benefit payments, to retain and disburse
them in the future, or to follow any other procedure which she deems advisable.
21
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ARTICLE 11
NAMED FIDUCIARIES
11.1 Identity of Named Fiduciaries.
(a) Named Fiduciaries. NEIC, the trustees, and the plan manager will be
-----------------
the named fiduciaries under the plan and will control and manage the plan and
its assets to the extent and in the manner indicated in this article and in the
trust agreement. Any responsibility assigned to a named fiduciary will not be
deemed to be a duty of a "fiduciary" (as defined in ERISA) solely because of
such assignment.
(b) Plan Administrator. NEIC will be the "plan administrator" as defined
------------------
in ERISA.
11.2 Responsibilities and Authority of Plan Manager. The plan manager will
control and manage the operation and administration of the plan except to the
extent that such responsibilities are specifically assigned hereunder to NEIC,
to an investment manager or to the trustees. The responsibilities and authority
of the plan manager are set forth in detail in various articles of this plan and
primarily in article 12.
11.3 Responsibilities and Authority of Trustees. The trustees will manage
and control the assets of the plan, except to the extent that such
responsibilities are specifically assigned hereunder or under the trust
agreement to NEIC or the plan manager or are exercised by the participants with
respect to the investment of their accounts among the available investment
funds. The responsibilities and authority of the trustees are set forth in
detail primarily in the trust agreement.
11.4 Responsibilities of NEIC. NEIC will have the following responsibilities
and authority with respect to control and management of the plan and its assets:
(a) to amend or terminate the plan;
(b) to merge or consolidate the plan with, or transfer all or part of the
assets or liabilities to, any other plan;
(c) to appoint, remove and replace the trustees and the plan manager and
to monitor their performances;
(d) to communicate such information to the plan manager and trustees as
they may need for the proper performance of their duties; and
(e) to perform such additional duties as are imposed by the plan or by
law.
The responsibilities and authority of NEIC are set forth in further
detail in the various articles of the plan and in the trust agreement.
22
<PAGE>
11.5 Responsibilities Not Shared. Except as otherwise provided herein or
required by law, each named fiduciary will have only those responsibilities that
are specifically assigned to it hereunder, and no named fiduciary will incur
liability because of improper performance or nonperformance of responsibilities
assigned to another named fiduciary.
11.6 Dual Fiduciary Capacity Permitted. Any person or group of persons may
serve in more than one fiduciary capacity, including service both as trustee and
plan manager.
11.7 Actions by NEIC. Wherever the plan specifies that NEIC is required or
permitted to take any action, such action will be taken by its board of
directors, or by a duly authorized plan manager thereof, or by one or more
directors, officers, employees or other persons duly authorized to do so by the
board of directors.
11.8 Procedure for Allocation and Delegation of Responsibilities. The plan
manager or the members of the board of directors of NEIC or of a committee of
such board may allocate their responsibilities among themselves in any
reasonable manner and may delegate any of their responsibilities to any other
person or persons by so specifying in a written instrument. No plan manager or
director will be liable for the improper discharge or nonperformance of any
responsibility so allocated or delegated to another person except to the extent
liability is imposed by law.
11.9 Advice. A named fiduciary may employ or retain such attorneys,
accountants, investment advisors, consultants, specialists and other persons or
firms as it deems necessary or desirable to advise or assist it in the
performance of its duties. Unless otherwise provided by law, the fiduciary will
be fully protected with respect to any action taken or omitted by him or it in
reliance upon any such person or firm rendered within his or its area of
expertise.
11.10 Indemnification. To the extent permitted by law and not prohibited by
NEIC's charter and by-law, NEIC and the other employers will indemnify and hold
harmless every person serving as a fiduciary (whether a named fiduciary or
otherwise), and the estate of such an individual if he is deceased, from and
against all claims, loss, damages, liability, and reasonable costs and expenses,
incurred in carrying out his fiduciary responsibilities, unless due to the gross
negligence, bad faith or willful misconduct of such individual; provided that
counsel fees and amounts paid in settlement must be approved by NEIC and
provided further that this section 11.10 will not apply to any claim, loss,
damages, liability, or costs and expenses which are covered by a liability
insurance policy maintained by NEIC, or by the plan or by an individual
fiduciary. The preceding sentence will not apply to a corporate trustee, an
insurance company, an investment manager or outside service provider (or to an
employee of any of the foregoing) unless NEIC otherwise specifies in writing.
23
<PAGE>
ARTICLE 12
THE PLAN MANAGER
12.1 Appointment. NEIC will appoint a plan manager who may, but need not, be
a plan participant or an employee or officer of NEIC. NEIC may remove the plan
manager at any time, with or without cause, by filing written notice of her
removal with the trustees. A plan manager member may resign at any time by
filing her written resignation with NEIC. A vacancy, however arising, will be
filled by NEIC.
12.2 Notice to Trustees. NEIC will notify the trustees in writing of the
plan manager appointment, and the trustees may assume such appointment continues
in effect until written notice to the contrary is given by NEIC.
12.3 Administration of Plan. The plan manager will have all powers and
authority necessary or appropriate to carry out its responsibilities with
respect to the operation and administration of the plan. She will have full
discretion to interpret and apply all plan provisions and may correct any
defect, supply any omission or reconcile any inconsistency or ambiguity in such
manner as she deems advisable. She will make all final determinations
concerning eligibility, benefits and rights hereunder, and all other matters
concerning plan administration and interpretation. All determinations and
actions of the plan manager will be conclusive and binding upon all persons,
except as otherwise provided herein or by law, and except that the plan manager
may revoke or modify a determination or action previously made in error. Any
action or omission by the plan manager will be subject to review (by a court or
otherwise) only for an abuse of discretion. The plan manager will exercise all
powers and authority given to her in a nondiscriminatory manner, and will apply
uniform administrative rules of general application in order to assure similar
treatment of persons in similar circumstances.
12.4 Reporting and Disclosure. The plan manager or her designated agent will
prepare, file, submit, distribute or make available any plan descriptions,
reports, statements, forms or other information to any government agency,
employee, former employee, or beneficiary as may be required by law or by the
plan.
12.5 Records. The plan manager will keep or cause to be kept all data,
records, books of account and instruments pertaining to plan administration,
which will be subject to inspection or audit by NEIC at any time. The employers
will supply all information required by the plan manager to administer the plan,
and the plan manager may rely upon the accuracy of such information.
12.6 Compensation and Expenses. The plan manager will serve without
compensation unless otherwise determined by NEIC, provided that in no event will
an employee of an employer be compensated for her services as a plan manager.
All reasonable expenses of administering the plan will be paid out of the trust
fund unless paid by the employers at the option of NEIC (with each employer
bearing such share of the expenses that NEIC specifies).
24
<PAGE>
Such expenses include the compensation of all persons employed or retained by
the plan manager, premiums for bonds and insurance protecting the plan or trust
fund and required by law or deemed advisable by the plan manager, and all other
costs of plan administration.
12.7 Decisions, Rules and Regulations. The plan manager may adopt and amend
such rules for the conduct of her business and the administration of the plan as
she deems advisable.
12.8 Claims Review Procedure. Any request for benefits (the "claim") by a
-----
participant or his beneficiary (the "claimant") will be filed in writing with
--------
the plan manager. Within a reasonable period after receipt of a claim, the plan
manager will provide written notice to any claimant whose claim has been wholly
or partly denied, including: (a) the reasons for the denial, (b) the plan
provisions on which the denial is based, (c) any additional material or
information necessary to perfect the claim and the reasons it is necessary, and
(d) the plan's claims review procedure. A claimant will be given a full and
fair review by the plan manager of the denial of his claim if he requests a
review in writing within a reasonable period after notification of the denial.
The claimant may review pertinent documents and may submit issues and comments
orally, in writing, or both. The plan manager will render her decision on
review promptly and in writing and will include specific reasons for the
decision and reference to the plan provisions on which the decision is based.
ARTICLE 13
MISCELLANEOUS
13.1 Qualified Domestic Relations Orders.
(a) A qualified domestic relations order (QDRO) is a judgment, decree,
or order which meets the requirements of Code Section 414(p) as determined by
the plan manager. An alternate payee is an individual named in the QDRO who is
to receive some or all of the participant's benefit.
(b) Upon receipt of any domestic relations order, the plan manager will
notify as soon as practicable the participant involved and each alternate payee
under the order (and under any previous QDRO relating to the participant's
benefits). The plan manager will determine whether the order is a QDRO and will
notify each affected individual of its determination. In general, subject to
the provisions of Code Section 414(p), the plan's claims procedure rules under
section 12.8 apply to this determination and any subsequent determination
relating to the order. To the extent permitted by law, the plan manager's
determination that an order is or is not a QDRO is final. Any subsequent change
in this determination is applied only prospectively unless the plan manager
rules otherwise.
(c) If an order is determined by the plan manager to be a QDRO, the
provisions of the QDRO will take precedence over any conflicting provisions of
the plan (including section 13.2 relating to non-alienation of benefits). The
plan manager may carry out the requirements of a QDRO and may make distribution
to an alternate payee in accordance with a QDRO regardless
25
<PAGE>
of the age of the participant and regardless of whether the participant himself
would be eligible to receive a distribution at such time. To the extent
provided in a QDRO, a former spouse will be treated as the spouse or surviving
spouse of a participant for purposes of the death benefit provisions of section
9.2 and any other relevant provision of the plan.
13.2 Nonalienation of Benefit. Unless required by law, no benefit, right or
interest hereunder of any person will be subject to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, or to seizure,
attachment or other legal, equitable or other process, or be liable for, or
subject to, the debts, liabilities or other obligations of such person, except
that the plan manager may prescribe rules for the payment of benefits in
accordance with a qualified domestic relations order as defined in section 13.1.
13.3 Payment to Minors and Incompetents. If the plan manager deems any
person incapable of giving a binding receipt for benefit payments because of his
minority, illness, infirmity or other incapacity, she may direct payment
directly for the benefit of such person, or to any person selected by the plan
manager to disburse it. Such payment, to the extent thereof, will discharge all
liability for such payment under the plan.
13.4 Current Address of Payee. Any person entitled to benefits is
responsible for keeping the plan manager informed of his current address at all
times. The plan manager, trustees and the employers have no obligation to
locate such person, and will be fully protected if all payments and
communications are mailed to his last known address, or are withheld pending
receipt of proof of his current address and proof that he is alive.
13.5 Disputes over Entitlement to Benefits. If two or more persons claim
entitlement to payment of the same benefit hereunder, the plan manager in her
discretion may withhold payment of such benefit until the dispute has been
determined by a court of competent jurisdiction or has been settled by the
persons concerned.
13.6 Payment of Benefits. Subject to section 9.1(a), unless he elects
otherwise, a participant's benefit payments under the plan will begin no later
than 60 days after the close of the plan year in which the latest of the
following dates occurs: (a) the date he terminates service with his employer;
(b) his 65th birthday; and (c) the tenth anniversary of the year in which he
began participating in the plan.
13.7 Direct Rollovers.
(a) In General. Notwithstanding any provision of the plan to the
----------
contrary that would otherwise limit a distributee's election under this section,
a distributee may elect, at the time and in the manner prescribed by the plan
manager, to have any portion of an eligible rollover distribution paid directly
to an eligible retirement plan specified by the distributee in a direct rollover
(however, a distributee may designate only one eligible retirement plan to
receive such a direct payment).
26
<PAGE>
(b) Definitions. The following definitions apply for purposes of this
-----------
section.
(i) An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any distribution that is one
of a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section
401(a)(9); and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities). However, an eligible rollover
distribution will not include any distribution that is below any threshold
amount established by the plan manager in compliance with applicable regulations
(including any threshold amount for direct rollovers when only a portion of a
distributee's distribution is being rolled over).
(ii) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual retirement annuity.
(iii) A distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(iv) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee, with such a payment being made in
any manner permitted by applicable regulations.
13.8 Top-Heavy Plan Provisions.
(a) Applicability of Section. This section is included in the plan to
------------------------
meet the requirements of Code Section 416, and the provisions of this section
will be operative only if, when and to the extent that Code Section 416 applies
to the plan. At such time as the requirements of Code Section 416 apply to the
plan because the plan is top-heavy as defined in subsection (b)(i) below, the
provisions of this section will apply and will govern over any contrary
provision of the plan.
27
<PAGE>
(b) Definitions.
-----------
(i) The plan will be top-heavy for a plan year if, as of the
---------
determination date, the sum of the aggregate amount in the accounts of
participants who are key employees exceeds 60 percent of such amount determined
for all participants in this plan.
Notwithstanding the preceding paragraph, if the plan is included
within a required or permissive aggregation group, the plan will be top heavy
for a plan year if, as of the determination date, the sum of (A) the aggregate
amount in the accounts of participants who are key employees (including all
defined contribution plans within such group) and (B) the aggregate present
value of cumulative accrued benefits of participants who are key employees
(including all defined benefit plans within such group), exceeds 60 percent of
such amount determined for all participants in all such plans.
In determining the amounts in participants' accounts and present values of
accrued benefits under the preceding two paragraphs, (V) the present value of
accrued benefits will be based on the actuarial assumptions used to determine
the minimum funding requirement of Code Section 412(b); if there is more than
one defined benefit plan in the aggregation group, each plan will use the same
actuarial assumptions for purposes of the top heavy test, as determined by the
actuary; (W) distributions made during the five years ending on the
determination date will be taken into account; (X) rollover contributions after
December 31, 1983, will be taken into account only to the extent provided in
regulations under Code Section 416(g)(4)(A); (Y) account balances and accrued
benefit values of a person who was but no longer is a key employee will be
disregarded; and (Z) account balances and accrued benefit values of any
individual who has not received any compensation from an employer (other than
benefits under the plan) at any time during the five years ending on the
determination date will be disregarded.
(ii) The determination date for purposes of determining whether
------------------
the plan is top-heavy under paragraph (i) for a particular plan year is the last
day of the preceding plan year. In the case of the first plan year, the
determination date is the last day of that year.
(iii) A key employee is any employee or former employee in the
------------
plan (including a beneficiary of such an employee) who at any time during the
plan year or any of the four preceding plan years was:
(A) an officer of an employer having annual compensation
greater than 50 percent of the amount in effect under Section 415(b)(1)(A)
of the Code for such plan year (but no more than the lesser of 50 employees
or 10 percent of all employees will be taken into account under this
subparagraph (A) as key employees);
(B) one of the ten employees owning (or considered as owning
within the meaning of Code Section 318) the largest interests in an employer
(or any direct or indirect parent of an employer) but only if such
employee's compensation for such plan
28
<PAGE>
exceeds the amount specified in Code. For purposes of the preceding
sentence, if two participants have the same interest in an employer, the
participant having greater annual compensation will be treated as having a
larger interest;
(C) a person owning (or considered as owning within the
meaning of Code Section 318) more than five percent of the outstanding stock
of an employer (or any direct or indirect parent of an employer) or stock
possessing more than five percent of the total combined voting power of all
stock of an employer (or any direct or indirect parent of an employer); or
(D) a person who has annual compensation from an employer of
more than $150,000 and who would be described in subparagraph (C) above if
one percent were substituted for five percent.
For purposes of applying Code Section 318 to the provisions
of this subsection (iii), subparagraph (C) of Code Section 318(a)(2) will be
applied by substituting "five percent" for "50 percent". In addition, the
rules of Code Section 414 (b), (c) and (m) will not apply for purposes of
determining ownership under subparagraphs (C) and (D) above.
(iv) A non-key employee is any employee in the plan (including a
----------------
beneficiary of such an employee) who is not a key employee under paragraph (iii)
above.
(v) A required aggregation group includes all qualified plans of
--------------------
the employers in which a key employee participates and each other qualified plan
of the employers that enables any of such plans to meet the requirements of
Section 401(a)(4) or Section 410 of the Code. A permissive aggregation group
includes (in addition to plans in a required aggregation group) any plan which
the plan manager designates for inclusion provided that inclusion of such plan
does not cause the group to fail the requirements of Section 401(a)(4) or
Section 410 of the Code.
(c) Minimum Contribution. For any plan year in which the plan is top-
--------------------
heavy, the employers will make a minimum contribution on behalf of each employee
who is a non-key employee equal to three percent of his total compensation (as
defined in section 6.8(a)), or four percent of his total compensation if
necessary to prevent any reduction in the amount of annual additions to the
accounts of a key employee or accrued benefits of a key employee under Code
Section 415(e) as modified by Code Section 416(h). However, the minimum
contribution called for under the preceding sentence will not exceed the
contribution (determined as a percentage of his total compensation) for such
plan year under this plan (and any other defined contribution plan included in
an aggregation group with this plan) on behalf of the key employee for whom such
contribution is the highest. Also, such minimum contribution will be reduced as
permitted under regulations under Code Section 416 to reflect contributions on
behalf of or benefits accrued by such non-key employee under any other plan
maintained by the employers.
29
<PAGE>
13.9 Excess Contribution. If, due to miscalculation or error, an employer
contributes an amount for a plan year which exceeds the amount required by
section 5.1, such excess may be treated as a matching contribution for the
succeeding taxable year or years.
13.10 Return of Contribution Made in Error or Not Deductible. Employer
matching contributions under section 5.1 are conditioned upon the requirement
that the amount of the contribution will be deductible under Code Section 404.
If all or part of any employer matching contribution under section 5.1 is made
because of a mistake of fact or if the deduction under Code Section 404 of any
portion of any such contribution is disallowed, the amount contributed because
of a mistake of fact or the amount for which the deduction is disallowed will be
returned to the contributing employer if demand therefor is made within the time
allowed by law.
13.11 Statutory References. A reference to any statute includes reference to
any similar provision of any successor statute.
13.12 Rules of Construction.
(a) A word or phrase defined or explained in any section or article has
the same meaning throughout the plan unless the context indicates otherwise.
(b) Where the context so requires, the masculine includes the feminine,
the feminine includes the masculine, the singular includes the plural, and the
plural includes the singular.
(c) Unless the context indicates otherwise, the words "herein",
"hereof", "hereunder", and words of similar import refer to the plan as a whole
and not only to the section in which they appear.
13.13 Text Controls. Headings and titles are for convenience only, and the
text will control in all matters.
13.14 Applicable State Law. To the extent that state law applies, the
provisions of the plan will be construed, enforced and administered according to
the laws of the Commonwealth of Massachusetts.
Executed on December 1, 1995 NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By: New England Investment
Companies, Inc., its General Partner
By: /s/ Edward N. Wadsworth
------------------------------------
Edward N. Wadsworth
Executive Vice President
& General Counsel
30
<PAGE>
Exhibit 10.17
-------------
NEW ENGLAND INVESTMENT COMPANIES, L.P.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
-----------------------------------------------------
1. Purpose
-------
The purpose of this plan is to enable certain persons who are members of
the Board of Directors of New England Investment Companies, Inc. (the "Board")
to defer payment of compensation for Board service until after termination of
Board service in the form of phantom units whose value is measured by the market
price of the publicly-traded securities of New England Investment Companies,
L.P. ("NEIC") or by the net asset value of certain mutual funds managed by NEIC
or its affiliates.
2. Eligibility
-----------
Each member of the Board of Directors of New England Investment Companies,
Inc. (the "Company") who is not an employee of the Company, NEIC or any of
NEIC's subsidiaries (a "Director") is eligible to participate in this Deferred
Compensation Plan for Non-Employee Directors (the "Plan").
3. Participation
-------------
(a) Time of Election. Prior to the beginning of any calendar year, each
----------------
eligible Director may elect to participate in the Plan by electing to defer
payment of all or any part (in increments of 25%) of the retainer, fees, or
retainer and fees (including any retainer and fees payable for services as a
member or chairperson of any committee of the Board) which would otherwise be
paid currently for services as a Director during such calendar year and
succeeding calendar years. Any person who shall become a Director during any
calendar year, and who was not a Director prior to the beginning of such
calendar year, may likewise elect, before 30 days elapse after the Director's
first term begins, to participate in the Plan by electing to defer payment of
all or any part (in increments of 25%) of the retainer, fees, or retainer and
fees (including any retainer and fees payable for services as a member or
chairperson of any committee of the Board) which would otherwise be payable
currently for services as a Director during such calendar year and succeeding
calendar years. Whenever payment of any amount is deferred pursuant to the
foregoing provisions of this paragraph, the Company shall credit a deferred
compensation account in the Director's name on the Company's books with a number
of phantom units determined in accordance with the provisions of paragraph 4(c)
below. The number of phantom units which are credited to the Director's account
shall determine the amount of cash which the Company will pay the Director after
termination of Board service in accordance with the provisions of sections 5 and
6 of the Plan.
<PAGE>
(b) Form and Duration of Election. An election to participate in the Plan
-----------------------------
shall be made by written notice executed by the Director on a form supplied for
that purpose by the Company and filed with the Corporate Secretary of the
Company. Such election shall continue in effect until the Director terminates
such election by written notice filed with the Corporate Secretary of the
Company. Any such termination shall become effective as of the end of the
calendar year in which such notice is given and only with respect to
compensation payable for services as a Director thereafter. Amounts credited to
the Director's account prior to the effective date of such termination shall not
be affected by such termination and shall be paid only in accordance with the
terms of the Plan.
(c) Adjustment of Amount Deferred. Prior to the beginning of any calendar
-----------------------------
year, a Director participating in the Plan may file another written notice with
the Corporate Secretary of the Company electing to change the amount of
compensation to be deferred and credited to the Director's account for services
as a Director commencing with such calendar year. Amounts credited to the
Director's account prior to the effective date of such change shall not be
affected by such change and shall be paid only in accordance with the terms of
the Plan.
(d) Renewal. A Director who has terminated his election to participate
-------
may thereafter file another election to participate for the calendar year
subsequent to the filing of such election to participate and succeeding calendar
years.
4. The Director's Account
----------------------
(a) Phantom Units. The amount of cash which a participating Director
-------------
shall be paid following termination of Board service on account of his
participation in the Plan shall be based upon the number and value of the
phantom units that the Company has credited to such Director pursuant to the
Plan, as provided in paragraph 5(b) below. Such phantom units shall represent
hypothetical units only, shall not represent any right to receive any security
of any kind (including but not limited to limited partnership units of NEIC or
shares of any mutual fund), and are only bookkeeping entries whose sole purpose
is to enable the Company and participants to determine the amount of cash which
shall be paid to participating Directors as a result of their participation in
the Plan.
(b) Election of Bookkeeping Accounts. At the time a Director elects to
--------------------------------
participate in the Plan in accordance with the provisions of paragraph 3(a)
above, the Director shall also file with the Corporate Secretary of the Company
a written election of the bookkeeping account or accounts to which amounts
deferred pursuant to such election shall be allocated. Such amounts may be
allocated among the bookkeeping accounts in increments of 25%. The bookkeeping
Page 2 of 10
<PAGE>
accounts from which the Director may choose shall consist of the following--
(i) a phantom NEIC Limited Partnership ("LP") Unit account, the
value of which shall be determined by reference to the market price of NEIC LP
Units in accordance with the provisions of paragraphs 4(c)(i) and 5(b)(i) below;
(ii) a phantom Short-Term Income Fund account, the value of which
shall be determined by reference to the net asset value of shares of the Reich &
Tang Short-Term Income Fund managed by Reich & Tang Asset Management L.P., in
accordance with the provisions of paragraphs 4(c)(ii) and 5(b)(ii) below;
(iii) a phantom Bond Income Fund account, the value of which shall be
determined by reference to the net asset value of shares of the New England Bond
Income Fund managed by Back Bay Advisors, L.P., in accordance with the
provisions of paragraphs 4(c)(iii) and 5(b)(iii) below;
(iv) a phantom Equity Fund account, the value of which shall be
determined by reference to the net asset value of shares of the Reich & Tang
Equity Fund managed by Reich & Tang Asset Management L.P., in accordance with
the provisions of paragraphs 4(c)(iv) and 5(b)(iv) below; and
(v) a phantom Growth Fund account, the value of which shall be
determined by reference to the net asset value of shares of the New England
Growth Fund managed by Capital Growth Management Limited Partnership, in
accordance with the provisions of paragraphs 4(c)(v) and 5(b)(v) below.
If, at the time a Director elects to participate in the Plan, s/he fails to file
a written election of the bookkeeping account or accounts to which amounts
deferred pursuant to such election shall be allocated, the participant shall be
conclusively deemed to have elected to allocate such amounts to the phantom
Short-Term Income Fund account described in paragraph 4(b)(ii) above. Such
election may be changed in accordance with the provisions of paragraph 4(e)
below.
(c) Determination of Number of Phantom Units to be Credited to Account.
------------------------------------------------------------------
On each date on which any amount would have been paid had it not been deferred
pursuant to an election under paragraph 3(a) above, the Company shall credit the
bookkeeping account or accounts elected by the participant with a number of
phantom units determined as follows:
(i) in the case of an amount credited to the phantom NEIC LP Unit
account, by dividing such amount by the closing price of one NEIC LP Unit on the
Page 3 of 10
<PAGE>
New York Stock Exchange ("NYSE") on such date (or, if there were no sales so
reported for such date, on the most recent prior date for which such sales were
so reported);
(ii) in the case of an amount credited to the phantom Short-Term
Income Fund account, by dividing such amount by the net asset value of one share
of the Reich & Tang Short-Term Income Fund on such date (or, if such net asset
value is not computed for such date, on the most recent prior date for which
such net asset value was computed);
(iii) in the case of an amount credited to the phantom Bond Income
Fund account, by dividing such amount by the net asset value of one share of the
New England Bond Income Fund on such date (or, if such net asset value is not
computed for such date, on the most recent prior date for which such net asset
value was computed);
(iv) in the case of an amount credited to the phantom Equity Fund
account, by dividing such amount by the net asset value of one share of the
Reich & Tang Equity Fund on such date (or, if such net asset value is not
computed for such date, on the most recent prior date for which such net asset
value was computed); and
(v) in the case of an amount credited to the phantom Growth Fund
account, by dividing such amount by the net asset value of one share of the New
England Growth Fund on such date (or, if such net asset value is not computed
for such date, on the most recent prior date for which such net asset value was
computed).
(d) Phantom Dividends and Distributions Deemed Reinvested. On each date
-----------------------------------------------------
on which NEIC pays a cash distribution to its publicly-traded limited
partnership unitholders, the Company shall credit each participating Director's
phantom NEIC LP Unit account with a number of additional phantom limited
partnership units determined by multiplying (i) the cash distribution which NEIC
paid per unit on such date, by (ii) the number of phantom limited partnership
units credited to the Director's NEIC LP Unit account as of the record date for
determining unitholders entitled to such cash distribution, and dividing the
product of (i) and (ii) by the closing price of NEIC's LP Units on the NYSE on
the cash distribution payment date (or, if there were no sales so reported for
such date, on the most recent prior date for which such sales were so reported).
On each date on which the Reich & Tang Short-Term Income Fund, the New England
Bond Income Fund, the Reich & Tang Equity Fund or the New England Growth Fund
pays a cash or stock dividend or distribution to its shareholders, the Company
shall
Page 4 of 10
<PAGE>
credit each participating Director's corresponding phantom account with a number
of additional phantom units determined by multiplying (iii) the amount of cash
or number of Fund shares which the Fund in question paid as a dividend or
distribution per share on such date, by (iv) the number of phantom units
credited to the Director's corresponding phantom account as of the record date
for determining shareholders entitled to such dividend or distribution, and, in
the case of a cash dividend or distribution only, dividing the product of (iii)
and (iv) by the net asset value of one share of the Fund in question on the cash
dividend or distribution payment date (or, if such net asset value is not
computed for such date, on the most recent prior date for which such net asset
value was computed).
(e) Elections to Change Bookkeeping Accounts. Effective as of the end of
----------------------------------------
any calendar month as provided below, but no more often than once in any 12
month period, a participant may change the bookkeeping account or accounts to
which amounts deferred pursuant to the Plan shall be allocated, by a written
notice on a form approved for that purpose by and filed with the Corporate
Secretary of the Company in advance of the effective date of such change. Such
change may apply to amounts deferred after the effective date of such change (in
increments of 25%), to the balance in any of the Director's accounts as of the
effective date of such change (in increments of 25%), or to both amounts
deferred after the effective date of such change and the Director's account
balances as of the effective date of such change (in increments of 25%);
provided that no such change may apply to any phantom NEIC LP Units that were
credited to a Director's phantom NEIC LP Unit account before the effective date
of such change. The bookkeeping accounts to which any of the foregoing amounts
may be allocated shall consist of the same accounts described in paragraph 4(b)
above. Any such change shall become effective as of the close of business on
the last trading day on the New York Stock Exchange of the calendar month in
which the Corporate Secretary of the Company receives written notice of such
change in accordance with the foregoing provisions of this paragraph 4(e) or as
of the close of business on the last trading day on the New York Stock Exchange
of any later calendar month specified in such notice, unless it has been revoked
in writing by the Director on or before such day. If a participant elects to
change the bookkeeping account(s) to which any of his or her accounts shall be
allocated, the amount to be re-allocated to the new bookkeeping account shall be
based upon the closing price of one NEIC LP Unit on the NYSE on the effective
date of the change (or, if there were no sales reported for such date, on the
most recent prior date for which sales were reported), in the case of the
phantom NEIC LP Unit account, or the net asset value of one share of the
applicable Fund on the effective date of the change (or, if such net asset value
is not computed for such date, on the most recent prior date for which such net
asset value was computed), in the case of the other phantom accounts. A change
in the bookkeeping account or accounts to which amounts
Page 5 of 10
<PAGE>
deferred pursuant to the Plan shall be allocated shall not change the number (or
time) of payments which the Company is to make in respect of the phantom units
to which such change in bookkeeping account(s) applies. The number and time of
payments which the Company is to make to any participant following termination
of Board service in respect of any phantom units that have been credited to such
participant's account may not be changed under this Plan. The number or time of
payments which the Company is to make to any participant following termination
of Board service in respect of any phantom units to be credited to such
participant's account may be changed only in accordance with and subject to the
provisions of paragraph 5(c) below.
(f) Transfer of Prior Plan Credits to this Plan. Effective as of the end
-------------------------------------------
of any calendar month as provided below, but no more often than once in any 12
month period, a Director whose fees for Board service in any year prior to 1996
were deferred under the Deferred Compensation Plan of the Company as in effect
prior to the adoption of this Plan (the "Prior Plan") may elect to allocate any
amount credited to his or her account under the Prior Plan on the effective date
of such election (in increments of 25%) to one or more of the bookkeeping
accounts described in paragraph 4(b) above, in lieu of the account to which it
is then credited under the Prior Plan, by written notice on a form approved for
that purpose by and filed with the Corporate Secretary of the Company in advance
of the effective date of such election. Any such election shall become
effective as of the close of business on the last trading day on the New York
Stock Exchange of the calendar month in which the Corporate Secretary of the
Company receives written notice of such election in accordance with the
foregoing provisions of this paragraph 4(f) or as of the close of business on
the last trading day on the New York Stock Exchange of any later calendar month
specified in such notice, unless it has been revoked in writing by the Director
on or before such day. If such an election becomes effective, the number of
phantom units to be credited to the bookkeeping account(s) under this Plan
elected by the Director shall be based upon the closing price of one NEIC LP
Unit on the NYSE on the effective date of the election (or, if there were no
sales reported for such date, on the most recent prior date for which sales were
reported), in the case of the phantom NEIC LP Unit account, or the net asset
value of one share of the applicable Fund on the effective date of the election
(or, if such net asset value is not computed for such date, on the most recent
prior date for which such net asset value was computed), in the case of the
other phantom accounts. Once any amount is allocated to a bookkeeping account
under this Plan pursuant to this paragraph 4(f), such amount shall thereafter be
subject to all of the terms and conditions of this Plan, except that in no event
shall any election to allocate any Prior Plan amount to a bookkeeping account
under this Plan pursuant to this paragraph 4(f), or any allocation of any amount
pursuant to this paragraph, or any provision of this
Page 6 of 10
<PAGE>
paragraph 4(f), change the time or method (i.e., lump sum or 5 or 10
installments) of payment that applies to such amount under the Prior Plan. The
time and method of payment that applies to such amount under the Prior Plan
shall likewise apply to the corresponding amount allocated to a bookkeeping
account under this Plan pursuant to this paragraph, including any phantom units
credited to the Director's account(s) in connection therewith.
5. Payment of Accounts
-------------------
(a) Payment Election. At the time a Director elects to participate in the
----------------
Plan in accordance with the provisions of paragraph 3(a) above, the Director
shall also elect the number of payments that the Company shall make following
termination of Board service in respect of phantom units that may be credited to
each account referred to in paragraph 4(b) above pursuant to such participation
election. Such election of the number of payments shall be made in writing on a
form filed with and approved by the Corporate Secretary of the Company and shall
apply to all phantom units that may be credited to the Director's account(s)
pursuant to such participation election, including any phantom units that may be
credited in respect of such phantom units pursuant to paragraph 4(d) above
(relating to cash or stock dividends or distributions) and any phantom units
credited to the Director's account(s) pursuant to such participation election
that may be transferred from one account to another pursuant to the provisions
of paragraph 4(e) above. A Director may elect to be paid in one lump sum
payment or in any whole number of annual installments up to ten. A lump sum
payment or the first installment shall be paid on or about the first business
day of the calendar year immediately following the calendar year in which the
Director ceases to be a Director. Subsequent installments shall be paid on or
about the first business day of each succeeding calendar year until the Company
has made payments in respect of all phantom units credited to the Director's
account(s). A Director may also elect to be paid in a single lump sum if and
when a "Change in Control" of NEIC occurs (as such term is defined in the next
sentence) before s/he has been paid all amounts credited pursuant to such
participation election; provided that no such election may be made with respect
to any amount credited to the phantom NEIC LP Unit account. For purposes of the
foregoing sentence, a "Change in Control" of NEIC shall have the same meaning as
under the NEIC Restricted Unit Plan, except that such term shall not include the
merger of New England Mutual Life Insurance Company with and into Metropolitan
Life Insurance Company. Subject to the proviso in the second preceding
sentence, if phantom units have been credited to more than one account pursuant
to such participation election, the phantom units credited to each account
pursuant to such participation election shall be paid at the same times and in
the same number of installments as the phantom units credited to the other
account(s) pursuant to such participation election. If a Director fails to
Page 7 of 10
<PAGE>
make a written payment election in accordance with the foregoing provisions of
this paragraph at the time he makes a participation election, the Director shall
be conclusively deemed to have elected to receive payment in respect of phantom
units credited to the Director's account(s) pursuant to such participation
election in one lump sum payment on or about the first business day of the
calendar year immediately following the calendar year in which the Director
ceases to be a Director or, in the case of accounts other than the phantom NEIC
LP Unit account, in a single lump sum if and when a "Change in Control" of NEIC
occurs before that day.
(b) Amount to be Paid in Respect of Phantom Units. Each payment in
---------------------------------------------
respect of phantom units credited to a participating Director's account shall be
made in cash in an amount determined by multiplying the number of such units
that will be extinguished by such payment (including, if applicable, any
fractional units), by the following--
(i) in the case of phantom units credited to the phantom NEIC LP
Unit account, by the closing price of one NEIC LP Unit on the payment date (or,
if there were no sales so reported for such date, for the most recent prior date
for which such sales were so reported);
(ii) in the case of phantom units credited to the phantom Short-Term
Income Fund Account, by the net asset value of one share of the Reich & Tang
Short-Term Income Fund on the payment date (or, if such net asset value is not
computed for such date, on the most recent prior date for which such net asset
value was so computed);
(iii) in the case of phantom units credited to the phantom Bond
Income Fund account, by the net asset value of one share of the New England Bond
Income Fund on the payment date (or, if such net asset value is not computed for
such date, on the most recent prior date for which such net asset value was so
computed);
(iv) in the case of phantom units credited to the phantom Equity
Fund account, by the net asset value of one share of the Reich & Tang Equity
Fund on the payment date (or, if such net asset value is not computed for such
date, on the most recent prior date for which such net asset value was so
computed); and
(v) in the case of phantom units credited to the phantom Growth
Fund account, by the net asset value of one share of the New England Growth Fund
on the payment date (or, if such net asset value is not computed for such date,
on the most recent prior date for which such net asset value was so
Page 8 of 10
<PAGE>
computed).
The number of phantom units credited to a participating Director's account that
will be extinguished by any such payment shall be determined by dividing the
number of phantom units credited to the participating Director's account by the
number of payments yet to be made.
(c) Changes to the Number of Payments. Whether or not a Director has
---------------------------------
filed a notice pursuant to paragraph 3(c) electing to change the amount of
compensation to be deferred pursuant to the Plan, a participating Director may,
prior to the beginning of any calendar year, file another written notice with
the Corporate Secretary of the Company electing to change the number of payments
which the Company is to make in respect of phantom units credited to the
Director's account for services as a Director commencing with such calendar
year. Phantom units credited to the Director's account prior to such calendar
year and any phantom units credited on account of cash or stock dividends or
distributions in respect of such phantom units shall not be affected by such
change and shall be paid only in accordance with the election pursuant to which
such phantom units were credited to the Director's account.
6. Payment on Death
----------------
Notwithstanding any election pursuant to paragraph 5(a) or 5(c) to the
contrary, if a Director should die before payment has been made in respect of
all phantom units credited to the Director's account in accordance with the
election referred to in paragraph 5(a) or 5(c) above (as applicable), payment
shall be made in respect of all phantom units credited to the Director's account
as soon as practicable following the date of the Director's death, but in no
event later than 60 days following such date, to the beneficiary theretofore
designated in writing by the Director on a form provided for that purpose by,
filed with and accepted in writing by the Corporate Secretary of the Company.
Such payment shall be made to the estate of the Director if no such designation
has been made or the designated beneficiary is not alive or in existence at the
time such payment is made. A Director may change the designated beneficiary at
any time during the Director's lifetime by filing a subsequent designation in
writing on a form provided for that purpose by, filed with and accepted in
writing by the Corporate Secretary of the Company.
7. General Provisions
------------------
(a) The right of a Director to receive payment in respect of any phantom
units credited to the Director's account shall not be transferable or assignable
by
Page 9 of 10
<PAGE>
the Director, except to a beneficiary designated pursuant to the provisions of
paragraph 6 above or, absent such a beneficiary, by will or by the laws of
descent and distribution. To the extent that any person acquires a right to
receive any amount credited to a Director's account hereunder, such right shall
be no greater than the rights of an unsecured general creditor of the Company.
No person shall be entitled to anticipate any payment to be made under the Plan
by assignment, alienation, sale, pledge, encumbrance or transfer in any form or
manner prior to actual payment thereof.
(b) As of the effective date of any Restructuring as set out in Section
12.4 of the Agreement of Limited Partnership of NEIC, the phantom NEIC LP Units
already credited to a Director will automatically be restated, if necessary, so
that they reflect on an equitable basis the equivalent number of phantom units
or phantom shares in the publicly-traded entity that will represent public
participation in NEIC from and after such effective date (the "Equivalent
Phantom Units/Shares"). From and after such effective date, all references in
the Plan to phantom NEIC LP Units shall mean Equivalent Phantom Units/Shares.
(c) If there is any change in the number or class of NEIC LP Units (other
than those changes referred to in paragraph 7(b) above) or shares of any mutual
fund referred to in paragraph 4(b)(ii), (iii), (iv) or (v) above, as a result of
a recapitalization, stock split, combination, exchange of shares, spin-off or
similar transaction, the amounts credited to each participant's bookkeeping
account shall be equitably adjusted by the Corporate Secretary of the Company to
reflect such change.
(d) The Corporate Secretary of the Company shall interpret the Plan and
make all determinations deemed necessary or desirable for the Plan's
implementation, consulting with the Chief Executive Officer and such other
officers and advisors as the Corporate Secretary may deem appropriate.
(e) The Board may at any time amend or terminate the Plan. No amendment
or termination shall impair or adversely affect the rights of a Director with
respect to phantom units then credited to the Director's account.
(f) The validity, construction, interpretation and administration of the
Plan and of any determination or decisions made thereunder, and the rights of
all persons having or claiming to have any interest therein or thereunder, shall
be governed by and determined exclusively in accordance with the laws of the
Commonwealth of Massachusetts, but without giving effect to the principles of
conflicts of laws thereof.
Page 10 of 10
<PAGE>
Exhibit 4.3
-----------
================================================================================
NEW ENGLAND INVESTMENT COMPANIES, L.P.
$110,000,000
6.54% Senior Notes due January 9, 2003
_______
FORM OF
NOTE PURCHASE AGREEMENT
_______
Dated as of December 28, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. AUTHORIZATION OF NOTES ................................................. 1
2. SALE AND PURCHASE OF NOTES ............................................. 1
3. CLOSING ................................................................ 2
4. CONDITIONS TO CLOSING .................................................. 2
4.1. Representations and Warranties ................................... 2
4.2. Performance; No Default .......................................... 3
4.3. Compliance Certificates .......................................... 3
4.4. Opinions of Counsel .............................................. 3
4.5. Purchase Permitted By Applicable Law, etc. ....................... 3
4.6. Sale of Other Notes .............................................. 4
4.7. Payment of Special Counsel Fees .................................. 4
4.8. Private Placement Number ......................................... 4
4.9. Changes in Structure ............................................. 4
4.10. Proceedings and Documents ........................................ 4
4.11. Rating ........................................................... 5
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .......................... 5
5.1. Organization; Power and Authority ................................ 5
5.2. Authorization, etc. .............................................. 5
5.3. Disclosure ....................................................... 6
5.4. Organization and Ownership of Shares of Subsidiaries ............. 6
5.5. Financial Statements ............................................. 7
5.6. Compliance with Laws, Other Instruments, etc. .................... 7
5.7. Governmental Authorizations, etc. ................................ 8
5.8. Litigation; Observance of Statutes and Orders .................... 8
5.9. Taxes ............................................................ 8
5.10. Title to Property; Leases ........................................ 8
5.11. Licenses, Permits, etc. .......................................... 9
5.12. Compliance with ERISA ............................................ 9
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.13. Private Offering by the Company ................................. 10
5.14. Use of Proceeds; Margin Regulations ............................. 10
5.15. Existing Indebtedness ........................................... 11
5.16. Foreign Assets Control Regulations, etc. ........................ 11
5.17. Status under Certain Statutes ................................... 11
5.18. Status of Obligations under this Agreement and the Notes ........ 11
5.19. Restrictions on Subsidiaries .................................... 12
6. REPRESENTATIONS OF THE PURCHASER ...................................... 12
6.1. Purchase for Investment ......................................... 12
6.2. Source of Funds ................................................. 12
7. INFORMATION AS TO COMPANY ............................................. 14
7.1. Financial and Business Information .............................. 14
7.2. Officer's Certificate ........................................... 16
7.3. Inspection ...................................................... 17
8. PREPAYMENT OF THE NOTES ............................................... 17
8.1. Optional Prepayments with Make-Whole Amount ..................... 17
8.2. Special Prepayment for Change of Control. ....................... 18
8.3. Prepayments in Connection with Transfers ........................ 19
8.4. Allocation of Partial Prepayments ............................... 20
8.5. Maturity; Surrender, etc. ....................................... 20
8.6. Purchase of Notes ............................................... 20
8.7. Make-Whole Amount ............................................... 21
9. AFFIRMATIVE COVENANTS ................................................. 22
9.1. Compliance with Law ............................................. 22
9.2. Insurance ....................................................... 23
9.3. Maintenance of Properties ....................................... 23
9.4. Payment of Taxes ................................................ 23
9.5. Existence, etc. ................................................. 24
9.6. Keeping of Books. ............................................... 24
10. NEGATIVE COVENANTS .................................................... 24
10.1. Transactions with Affiliates .................................... 24
</TABLE>
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10.2. Limitations on Mergers, Consolidations and Sales of Substantially
All Assets ...................................................... 25
10.3. Transfer of Assets .............................................. 25
10.4. Disposal of Ownership of a Subsidiary ........................... 27
10.5. Leverage Ratios ................................................. 28
10.6. Interest Coverage Ratio ......................................... 28
10.7. Liens ........................................................... 28
10.8. Indebtedness .................................................... 28
10.9. Restricted Payments ............................................. 29
10.10.Investments ..................................................... 29
10.11.Limitation on Acquisitions ...................................... 29
10.12.Restrictions Affecting Subsidiaries ............................. 29
11. EVENTS OF DEFAULT ..................................................... 30
12. REMEDIES ON DEFAULT, ETC. ............................................. 32
12.1. Acceleration .................................................... 32
12.2. Other Remedies .................................................. 33
12.3. Rescission ...................................................... 33
12.4. No Waivers or Election of Remedies, Expenses, etc. .............. 34
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES ......................... 34
13.1. Registration of Notes ........................................... 34
13.2. Transfer and Exchange of Notes .................................. 35
13.3. Replacement of Notes ............................................ 35
14. PAYMENTS ON NOTES ..................................................... 36
14.1. Place of Payment ................................................ 36
14.2. Home Office Payment ............................................. 36
15. EXPENSES, ETC. ........................................................ 37
15.1. Transaction Expenses ............................................ 37
15.2. Survival ........................................................ 37
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT .......... 37
</TABLE>
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17. AMENDMENT AND WAIVER .................................................. 38
17.1. Requirements .................................................... 38
17.2. Solicitation of Holders of Notes ................................ 38
17.3. Binding Effect, etc. ............................................ 39
17.4. Notes held by Company, etc. ..................................... 39
18. NOTICES ............................................................... 39
19. REPRODUCTION OF DOCUMENTS ............................................. 40
20. CONFIDENTIAL INFORMATION .............................................. 40
21. SUBSTITUTION OF PURCHASER ............................................. 41
22. MISCELLANEOUS ......................................................... 42
22.1. Successors and Assigns .......................................... 42
22.2. Payments Due on Non-Business Days ............................... 42
22.3. Severability .................................................... 42
22.4. Construction .................................................... 42
22.5. Counterparts .................................................... 43
22.6. Governing Law ................................................... 43
</TABLE>
SCHEDULE A -- INFORMATION RELATING TO PURCHASERS
SCHEDULE B -- DEFINED TERMS*
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
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SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.15 -- Existing Indebtedness and Liens
SCHEDULE 10.7 -- Existing Investments
SCHEDULE 13.2 -- Competitors
EXHIBIT 1 -- Form of 6.54% Senior Note due January 9, 2003*
EXHIBIT 4.4(a)(i) -- Form of Opinion of Special Counsel for the
Company
EXHIBIT 4.4(a)(ii) -- Form of Opinion of General Counsel for the General
Partner
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel
for the Purchasers
* Those schedules and exhibits marked with an asterisk are filed herewith.
Except to the extent covered by an application for an order pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended, granting
confidential treatment of certain contractual provisions, which application
may be filed in the future, the Company agrees to furnish supplementally a
copy of any omitted schedule or exhibit to the Commission upon request.
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the Company is entering into separate Note Purchase Agreements (the "OTHER
AGREEMENTS") identical with this Agreement with each of the other purchasers
named in Schedule A (the "OTHER PURCHASERS"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount
specified opposite its name in Schedule A. Your obligation hereunder and the
obligations of the Other Purchasers under the Other Agreements are several and
not joint obligations and you shall have no obligation under any Other Agreement
and no liability to any Person for the performance or non-performance by any
Other Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the
Other Purchasers shall occur at the offices of Milbank, Tweed, Hadley & McCloy,
One Chase Manhattan Plaza, New York, New York 10005, at 11:00 a.m., New York
time, at a closing (the "CLOSING") on January 9, 1996, or on such other Business
Day thereafter on or prior to January 11, 1996 as may be agreed upon by the
Company and you and the Other Purchasers. At the Closing the Company will
deliver to you the Notes to be purchased by you in the form of a single Note (or
such greater number of Notes in denominations of at least $1,000,000 (multiples
of $200,000) as you may request) dated the date of the Closing and registered in
your name (or in the name of your nominee), against delivery by you to the
Company or its order of immediately available funds in the amount of the
purchase price therefor by wire transfer of immediately available funds for the
account of the Company to account number 53174819 at Bank of Boston, 100 Federal
Street, Boston MA, ABA 011 000 390. If at the Closing the Company shall fail to
tender such Notes to you as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
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4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Section 5.14) no Default or Event of Default shall have occurred and be
continuing.
4.3. COMPLIANCE CERTIFICATES.
(a) Officer's Certificate. The Company shall have delivered to you an
---------------------
Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The General Partner shall have delivered
-----------------------
to you a certificate certifying as to the resolutions attached thereto and other
partnership proceedings relating to the authorization, execution and delivery of
the Notes and the Agreements.
4.4. OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from Debevoise & Plimpton, special
-
counsel for the Company, and from Edward N. Wadsworth, Esq., General Counsel for
the General Partner, covering the matters set forth in Exhibits 4.4(a)(i) and
4.4(a)(ii), respectively, and each covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably request
(and the Company hereby instructs such counsel to deliver such opinions to you)
and (b) from Milbank, Tweed, Hadley & McCloy, your special New York counsel in
-
connection with such transactions, substantially in the form set forth in
Exhibit 4.4(b) and covering such other matters incident to such transactions as
you may reasonably request.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve System) or
any order, judgment, decree or ruling
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of any court, arbitrator or Governmental Authority and (iii) not subject you to
any tax, penalty or liability under or pursuant to any applicable law or
regulation, which law or regulation was not in effect on the date hereof. If
requested by you, you shall have received an Officer's Certificate certifying as
to such matters of fact as you may reasonably specify to enable you to determine
whether such purchase is so permitted.
4.6. SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased by
them at the Closing as specified in Schedule A.
4.7. PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall
have paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
4.9. CHANGES IN STRUCTURE.
Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of organization or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of the
liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.
4.10. PROCEEDINGS AND DOCUMENTS.
All corporate, partnership and other proceedings in connection with
the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be satisfactory to you and your
special counsel, and you and your special counsel shall have
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received all such counterpart originals or certified or other copies of such
documents as you or they may reasonably request.
4.11. RATING.
You shall have received evidence satisfactory to you that Duff &
Phelps Credit Rating Co. has assigned a credit rating of at least A- to the
Notes.
4.12. TERMINATION OF LETTER OF CREDIT.
The Letter of Credit dated September 29, 1995 issued by Citibank, N.A.
in favor of Old HALP, L.P. and for the account of the Company shall have been
terminated.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1 ORGANIZATION; POWER AND AUTHORITY.
The Company is a limited partnership duly organized, validly existing
and in good standing under the laws of Delaware, and is duly qualified as a
foreign partnership and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has all requisite partnership power and authority to own or hold under lease the
properties it purports to own or hold under lease, to transact the business it
transacts and proposes to transact, to execute and deliver this Agreement and
the Other Agreements and the Notes and to perform the provisions hereof and
thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Other Agreements and the Notes have been duly
authorized by all necessary corporate or partnership (as the case may be) action
on the part of the Company and the General Partner, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the
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enforcement of creditors' rights generally and (ii) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
5.3. DISCLOSURE.
The Company, through its agents, Citicorp Securities, Inc. and
Prudential Securities Incorporated has delivered to you and each Other Purchaser
a copy of a Confidential Private Placement Memorandum, dated November, 1995 (the
"Memorandum"), relating to the transactions contemplated hereby. This Agreement,
the Memorandum, the documents, certificates or other writings identified in
Schedule 5.3 and the financial statements listed in Schedule 5.5, taken as a
whole, do not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made. Except as disclosed in
the Memorandum or as expressly described in Schedule 5.3 or in one of the
documents, certificates or other writings identified therein or in the financial
statements listed in Schedule 5.5, since December 31, 1994, there has been no
change in the financial condition, operations, business or properties of the
Company or any of its Subsidiaries except changes that individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.
5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES.
(a) Schedule 5.4 is (except as noted therein) a complete and correct
list of the Company's Subsidiaries, showing, as to each Subsidiary, the correct
name thereof, the jurisdiction of its organization, and the percentage of shares
of each class of its capital stock or similar equity interests outstanding owned
by the Company and each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien.
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or partnership or other legal entity and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
would not,
6
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individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate, partnership or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.
(d) Each Subsidiary of the Company required to register with the
Securities and Exchange Commission as an "investment adviser" (as defined in the
Investment Advisers Act) has so registered and is in compliance in all material
respects with the Investment Advisers Act.
5.5. FINANCIAL STATEMENTS.
The Company has delivered to each Purchaser copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, the Partnership Agreement
or any indenture, mortgage, deed of trust, loan, purchase or credit agreement,
lease, corporate or partnership charter or by-laws, or any other Material
agreement or instrument to which the Company or any Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any Subsidiary
or (iii) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.
7
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5.7. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
5.8. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no actions, suits
or proceedings pending or, to the knowledge of the Company, threatened against
or affecting the Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any
order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
5.9. TAXES.
The Company and its Subsidiaries have filed all income tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (i) the amount of which is not individually or in the
aggregate Material or (ii) the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Company or a Subsidiary, as the case may be, has
established adequate reserves in accordance with GAAP. The Federal income tax
liabilities of the Company and its Subsidiaries have been paid for all fiscal
years up to and including the fiscal year ended December 31, 1994.
5.10. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient title to
their respective Material properties, including all such properties reflected in
the most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary
8
<PAGE>
after said date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this Agreement,
except for those defects in title and Liens that, individually or in the
aggregate, would not have a Material Adverse Effect. All Material leases are
valid and subsisting and are in full force and effect in all material respects.
5.11. LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11, the Company and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
are Material, without known conflict with the rights of others, except for those
conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.
5.12. COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that would reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "benefit liabilities" has the
meaning specified in section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
9
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(d) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is subject to
the prohibitions of section 406 of ERISA or in connection with which a tax could
be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation
by the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds to be used to pay the purchase price of the Notes to be
purchased by you.
5.13. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any person other than you, the Other Purchasers and not more than 65 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of Section 5 of the Securities Act.
5.14. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes to
finance the Harris Acquisition, to pay related costs and expenses and for
general business purposes. The Company is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock and no
part of the proceeds from the sale of the Notes hereunder will be used, directly
or indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR 207), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 25% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 25% of the value of such assets. As used
in this Section, the terms "margin stock"
10
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and "purpose of buying or carrying" shall have the meanings assigned to them in
said Regulation G.
5.15. EXISTING INDEBTEDNESS.
Except as described therein, Schedule 5.15 sets forth a complete and
correct list of all outstanding Indebtedness of the Company and its Subsidiaries
as of December 1, 1995, since which date there has been no Material change in
the amounts, interest rates, sinking funds, instalment payments or maturities of
the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any
Subsidiary is in default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Indebtedness of the Company or such
Subsidiary and no event or condition exists with respect to any Indebtedness of
the Company or any Subsidiary the outstanding principal amount of which exceeds
$5,000,000 that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Indebtedness to become due and
payable before its stated maturity or before its regularly scheduled dates of
payment.
5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. STATUS UNDER CERTAIN STATUTES.
The Company is not subject to regulation as an "investment company"
under the Investment Company Act. Neither the Company nor any Subsidiary is
subject to regulation under the Public Utility Holding Company Act of 1935, as
amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as
amended. The Company is registered as an "investment adviser" (as defined in the
Investment Advisers Act).
5.18. STATUS OF OBLIGATIONS UNDER THIS AGREEMENT AND THE NOTES.
All obligations and liabilities of the Company under this Agreement
and the Notes constitute direct, unconditional and general obligations of the
Company and rank in right of payment either pari passu or senior to all other
Indebtedness of the Company, except for such
11
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Indebtedness which is preferred as a result of being secured (but then only to
the extent of such security).
5.19. RESTRICTIONS ON SUBSIDIARIES.
No Material Subsidiary is subject to any restriction of any kind on
its ability to pay dividends or make other distributions to the Company or any
Subsidiary of the Company or to pay any Indebtedness owed to the Company or any
Subsidiary of the Company.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account
or for one or more separate accounts maintained by you or for the account of one
or more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an insurance company general account as such term
is used in Prohibited Transaction Exemption ("PTE") 95-60 issued by the
United States Department of Labor and your purchase of the Notes hereunder
is entitled to the exemption granted by PTE 95-60; or
(b) the Source is a separate account that is maintained solely in
connection with your fixed contractual obligations under which the amounts
payable, or credited, to any employee benefit plan (or its related trust)
that has any interest in such separate account (or to any participant or
beneficiary of such plan (including any annuitant)) are not affected in any
manner by the investment performance of the separate account; or
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(c) the Source is either (i) an insurance company pooled separate
account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii)
a bank collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as you have disclosed to the Company in
writing pursuant to this paragraph (c), no employee benefit plan or group
of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity
of such QPAM and (ii) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (f); or
(g) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
13
<PAGE>
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to you, so long as you shall be obligated to
purchase Notes hereunder, and to each holder of Notes that is an Institutional
Investor:
(a) Quarterly Statements -- within 45 days after the end of each
--------------------
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies
of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in owners'
equity and cash flows of the Company and its Subsidiaries, for such
quarter and (in the case of the second and third quarters) for the
portion of the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer as fairly
presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the Company's
Quarterly Report on Form 10-Q prepared in compliance with the requirements
therefor and filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements -- within 90 days after the end of each fiscal
-----------------
year of the Company, duplicate copies of,
(iii) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(iv) consolidated statements of income, changes in owners'
equity and cash flows of the Company and its Subsidiaries, for such
year,
14
<PAGE>
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP,
and accompanied by an unqualified opinion thereon of Price Waterhouse,
L.L.P. or other independent certified public accountants of recognized
national standing, which opinion shall state that such financial statements
present fairly, in all material respects, the financial position of the
companies being reported upon and their results of operations and cash
flows and have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for such opinion
in the circumstances, provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-K for such fiscal
year (together with the Company's annual report to partners, if any,
prepared in accordance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming available,
---------------------
one copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement that shall have become effective (without exhibits except as
expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Company or any Subsidiary with the
Securities and Exchange Commission;
(d) Notice of Default or Event of Default -- promptly, and in any
-------------------------------------
event within five Business Days after a Responsible Officer becoming aware
of the existence of any Default or Event of Default, a written notice
specifying the nature and period of existence thereof and what action the
Company is taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five Business
-------------
Days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(v) with respect to any Plan, any reportable event, as defined
in section 4043(b) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date hereof; or
15
<PAGE>
(vi) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(vii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
would reasonably be expected to have a Material Adverse Effect; and
(f) Requested Information -- with reasonable promptness, such other
---------------------
data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
7.2. OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(b) Covenant Compliance -- the information (including detailed
-------------------
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.5, 10.6 and 10.8 hereof,
inclusive, during the quarterly or annual period covered by the statements
then being furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then in
existence); and
(a) Event of Default -- a statement that such officer has reviewed
----------------
the relevant terms hereof and has made, or caused to be made, under his or
her supervision, a review
16
<PAGE>
of the transactions and conditions of the Company and its Subsidiaries from
the beginning of the quarterly or annual period covered by the statements
then being furnished to the date of the certificate and that such review
shall not have disclosed the existence during such period of any condition
or event that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
7.3. INSPECTION.
The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists, at
----------
the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
Company's officers, and, with the consent of the Company (which consent
will not be unreasonably withheld) to visit the other offices and
properties of the Company, all at such reasonable times and as often as may
be reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at the
-------
expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said accountants
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be reasonably
requested.
8. PREPAYMENT OF THE NOTES.
8.1. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of, the Notes, in an amount not
less than 5% of the aggregate principal amount of the Notes then outstanding in
the case of a partial prepayment, at
17
<PAGE>
100% of the principal amount so prepaid, plus the Make-Whole Amount determined
for the prepayment date with respect to such principal amount. The Company will
give each holder of Notes written notice of each optional prepayment under this
Section 8.1 not less than 30 days and not more than 60 days prior to the date
fixed for such prepayment. Each such notice shall specify such date, the
aggregate principal amount of the Notes to be prepaid on such date, the
principal amount of each Note held by such holder to be prepaid (determined in
accordance with Section 8.4), and the interest to be paid on the prepayment date
with respect to such principal amount being prepaid, and shall be accompanied by
a certificate of a Senior Financial Officer as to the estimated Make-Whole
Amount due in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
8.2. SPECIAL PREPAYMENT FOR CHANGE OF CONTROL.
Promptly and in any event within five Business Days after the
occurrence of a Change of Control, the Company will give written notice thereof
to the holders of all outstanding Notes, which notice shall (a) refer
specifically to this Section 8.2 and describe such Change of Control in
reasonable detail, (b) specify the Change of Control Prepayment Date and the
Response Date (as respectively defined below) in respect thereof and (c) offer
to prepay all Notes (at the unpaid principal amount of such Notes, together with
interest accrued thereon to the date fixed for such prepayment plus the Make-
Whole Amount) on the date therein specified (the "CHANGE OF CONTROL PREPAYMENT
DATE"), which shall be not less than 45 nor more than 60 days after the date of
the giving of such notice. Each holder of a Note shall notify the Company of
such holder's acceptance or rejection of such offer by giving written notice of
such acceptance or rejection to the Company on a date (the "RESPONSE DATE") at
least ten Business Days prior to the Change of Control Prepayment Date, and the
Company shall prepay on the Change of Control Prepayment Date all of the Notes
held by the holders who have accepted such offer in accordance with this Section
8.2 at a price in respect of each Note held by such holder equal to the unpaid
principal amount of such Note, together with interest accrued thereon to the
Change of Control Prepayment Date plus the Make-Whole Amount; provided, however,
that the failure by a holder of any Note to respond to such offer in writing on
or before the Response Date shall be deemed to be an acceptance of such offer in
respect of such Change of Control. In connection with any offer to prepay Notes
under this Section 8.2, (x) the notice provided pursuant to the first sentence
of this Section 8.2 shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation and
18
<PAGE>
(y) two Business Days prior to such prepayment, the Company shall deliver to
each holder of Notes a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.
8.3. PREPAYMENTS IN CONNECTION WITH TRANSFERS.
If at any time the Company intends to apply any proceeds from a
Transfer pursuant to Section 10.3 or 10.4 (such proceeds referred to herein as
the "DISPOSITION PROCEEDS") to the prepayment of Indebtedness as contemplated by
Section 10.3 or 10.4, the Company will give written notice thereof to the
holders of all outstanding Notes, which notice shall (a) refer specifically to
this Section 8.3, (b) specify the Disposition Prepayment Date and the
Disposition Response Date (as respectively defined below) in respect thereof,
(c) set forth (i) the aggregate amount of Disposition Proceeds to be applied to
the prepayment of the Notes and (ii) the amount of such Proceeds allocable to
each Note and (d) offer to prepay a principal amount of each Note equal to the
amount of such Proceeds so allocable to such Note, together with interest
accrued thereon to the date fixed for such prepayment plus the applicable Make-
Whole Amount, on the date therein specified (the "DISPOSITION PREPAYMENT DATE"),
which shall be not less than 45 nor more than 60 days after the date of the
giving of such notice. Each holder of a Note shall notify the Company of such
holder's acceptance or rejection of such offer by giving written notice of such
acceptance or rejection to the Company on a date (the "DISPOSITION RESPONSE
DATE") at least ten Business Days prior to the Disposition Prepayment Date, and
the Company shall prepay on the Disposition Prepayment Date the applicable
portion of each Note held by each holder by whom such offer has been accepted in
accordance with this Section 8.3 at a price in respect of each Note held by such
holder equal to the principal amount of such Note so to be prepaid as specified
above, together with interest accrued thereon to the Disposition Prepayment Date
plus the Make-Whole Amount; provided, however, that the failure by the holder of
any Note to respond to such offer in writing on or before the Disposition
Response Date shall be deemed to be an acceptance of such offer in respect of
such Disposition. In connection with any offer to prepay Notes under this
Section 8.3, (x) the notice provided pursuant to the first sentence of this
Section 8.3 shall be accompanied by a certificate of a Senior Financial Officer
as to the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation and (y) two Business Days prior to
such prepayment, the Company shall deliver to each holder of Notes a certificate
of a Senior Financial Officer specifying the calculation of such Make-Whole
Amount as of the specified prepayment date.
19
<PAGE>
8.4. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding (or, in the case of a prepayment under Section 8.2 or 8.3,
the Notes being so prepaid) in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.5. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make-
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.6. PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except (a) upon the payment or prepayment of the Notes in
-
accordance with the terms of this Agreement and the Notes or (b) pursuant to an
-
offer to purchase made by the Company or an Affiliate pro rata to the holders of
all Notes at the time outstanding upon the same terms and conditions. Any such
offer shall provide each holder with sufficient information to enable it to make
an informed decision with respect to such offer, and shall remain open for at
least 15 Business Days. If the holders of more than a majority of the principal
amount of the Notes then outstanding accept such offer, the Company shall
promptly notify the remaining holders of such fact and the expiration date for
the acceptance by holders of Notes of such offer shall be extended by the number
of days necessary to give each such remaining holder at least five Business Days
from its receipt of such notice to accept such offer. The Company will promptly
cancel all Notes acquired by it or any Affiliate pursuant to any payment,
prepayment or purchase of Notes pursuant to any provision of this Agreement and
no Notes may be issued in substitution or exchange for any such Notes.
20
<PAGE>
8.7. MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.1, 8.2 or 8.3 or has
become or is declared to be immediately due and payable pursuant to Section
12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, 0.50% over the yield to maturity implied by (i) the yields
-
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Telerate Access Service (or such
other display as may replace Page 678 on Telerate Access Service) for
actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date,
or (ii) if such yields are not reported as of such time or the yields
--
reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields
have been so reported as of the second Business Day preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury securities having a constant maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary, by
(a) converting U.S. Treasury bill quotations to bond-equivalent yields in
-
accordance with accepted financial practice and (b) interpolating linearly
-
between (1) the actively traded U.S. Treasury security with the duration
-
closest to and greater than the Remaining Average Life and (2) the actively
-
traded U.S. Treasury security with the duration closest to and less than
the Remaining Average Life.
21
<PAGE>
"REMAINING AVERAGE LIFE" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number
of years (calculated to the nearest one-twelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a date
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.1, 8.2,
8.3 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.1, 8.2 or 8.3 or has become or is declared to be immediately due
and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as you shall be obligated to
purchase Notes hereunder or any of the Notes are outstanding:
9.1. COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, ERISA and
the Investment Advisers Act, and will obtain and maintain in effect all
licenses, certificates, permits, registrations, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, registrations, franchises and other
governmental authorizations would not reasonably be expected, individually or in
the aggregate,
22
<PAGE>
to have a materially adverse effect on the business, operations, affairs,
financial condition, properties or assets of the Company and its Subsidiaries
taken as a whole.
9.2. INSURANCE.
The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles, co-
insurance and self-insurance, if adequate reserves are maintained with respect
thereto) as is customary in the case of entities of established reputations
engaged in the same or a similar business and similarly situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance would not, individually
or in the aggregate, have a materially adverse effect on the business,
operations, affairs, financial condition, properties or assets of the Company
and its Subsidiaries taken as a whole.
9.4. PAYMENT OF TAXES.
The Company will and will cause each of its Subsidiaries to file all
income tax or similar tax returns required to be filed in any jurisdiction and
to pay and discharge all taxes shown to be due and payable on such returns and
all other taxes, assessments, governmental charges, or levies payable by any of
them, to the extent such taxes and assessments have become due and payable and
before they have become delinquent, provided that neither the Company nor any
Subsidiary need pay any such tax or assessment if (i) the amount, applicability
-
or validity thereof is contested by the Company or such Subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary or (ii) the nonpayment of all such
--
taxes and assessments in the aggregate would not reasonably be expected to have
a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a
whole.
23
<PAGE>
9.5. EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its legal existence. Subject to Sections 10.2 and 10.3, the Company will
at all times preserve and keep in full force and effect the legal existence of
each of its Subsidiaries and all rights and franchises of the Company and its
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such legal
existence, right or franchise would not, individually or in the aggregate, have
a materially adverse effect on the business, operations, affairs, financial
condition, properties or assets of the Company and its Subsidiaries taken as a
whole.
9.6. KEEPING OF BOOKS.
The Company will keep, and will cause each of its Subsidiaries to
keep, proper records and books of account as are necessary to prepare
consolidated financial statements in accordance with GAAP, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each such Subsidiary in accordance with GAAP.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Subsidiary to enter into
directly or indirectly any Material transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would be obtainable in a comparable arm's-length transaction with a Person
not an Affiliate. Any transaction or arrangement that has been approved by a
majority of the Disinterested Directors of the Board of Directors of the General
Partner shall be deemed to have satisfied the requirements of the preceding
sentence. For purposes of this Section 10.1, the term "DISINTERESTED DIRECTOR"
means with respect to any transaction, series of transactions or arrangements, a
member of the Board of Directors of the General Partner that does not have any
material financial interest, direct or indirect, in such transaction, series of
transactions or arrangements.
24
<PAGE>
10.2. LIMITATIONS ON MERGERS, CONSOLIDATIONS AND SALES OF SUBSTANTIALLY All
ASSETS.
The Company will not, and will not permit any of its Subsidiaries to,
merge or consolidate with or into, or convey, transfer, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to any
Person, except that
(a) any Subsidiary of the Company may merge or consolidate with
or into, or convey, transfer, lease or otherwise dispose of all or
substantially all of its assets, (i) to the Company or any Significant
Subsidiary of the Company, provided that in the case of any such
merger or consolidation, the Company or (in the case of a transaction
between a Subsidiary and a Significant Subsidiary) such Significant
Subsidiary is the surviving Person or (ii) as part of a Transfer
permitted under Section 10.3 or 10.4; and
(b) the Company may merge or consolidate with or into, or
convey, transfer, lease or otherwise dispose of all or substantially
all of its assets to, any other Person, if (i) the surviving entity of
such consolidation or merger or the transferee or lessee of such
assets (the "Successor Entity") is a solvent corporation or limited
partnership organized under the laws of the United States of America
or any state thereof and, if not the Company, expressly assumes in
writing the due performance of all obligations of the Company under
this Agreement and the Notes and (ii) immediately prior to and after
giving effect to such transaction, no Default or Event of Default
shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the
assets of the Company shall have the effect of releasing the Company (or any
Successor Entity permitted under this Section 10.2) from its liability under
this Agreement or the Notes.
10.3. TRANSFER OF ASSETS.
The Company will not, and will not permit any of its Subsidiaries to,
make any Transfer, provided that the foregoing restriction does not apply to a
Transfer if:
(a) such Transfer takes place in the ordinary course of business
of the Company or the relevant Subsidiary, including, without
limitation, any Transfer of (i) inventory held for sale or (ii)
equipment, fixtures, supplies or materials that
25
<PAGE>
are obsolete or no longer required in the operation of the business of
the Company or such Subsidiary (in each case, an "Ordinary Course
Transfer");
(b) such Transfer is (i) a Transfer from a Subsidiary of the
Company to the Company or a Significant Subsidiary of the Company,
(ii) a Transfer from the Company to a Significant Subsidiary of the
Company or (iii) a Transfer from a Subsidiary of the Company to
another Subsidiary of the Company (including by way of a merger or
consolidation of such Subsidiary with or into such other Subsidiary)
and in either case is for Fair Market Value, as determined in good
faith by the Company or the Subsidiary making such Transfer, as the
case may be; provided that in the case of any Transfer under clause
(i), (ii) or (iii) above, immediately before and after giving effect
to such Transfer, and after giving Pro Forma Effect thereto as if such
transfer has occurred, no Default or Event of Default shall have
occurred and be continuing (each such Transfer, an "Intergroup
Transfer"); or
(c) all of the following conditions shall have been satisfied
with respect thereto: (i) such Transfer does not involve a Substantial
Part of the property of the Company or any of its Subsidiaries, (ii)
in the good faith opinion of the Company, the Transfer is in exchange
for consideration with a Fair Market Value at least equal to that of
the property exchanged and (iii) immediately before and after giving
effect to such Transfer, and after giving Pro Forma Effect thereto, no
Default or Event of Default shall have occurred and be continuing.
Notwithstanding the foregoing, but subject to Sections 10.2 and 10.4,
the Company and its Subsidiaries shall be permitted to make a Transfer of a
Substantial Part of their respective property, if in the good faith opinion of
the Company or the Subsidiary making such Transfer, the Transfer is in exchange
for consideration with a Fair Market Value at least equal to the property
exchanged and if contemporaneously with such Transfer, the Company or such
Subsidiary delivers to the holders of the outstanding Notes a certificate of a
Senior Financial Officer certifying that the Net Cash Payments (if any) in
respect of such Transfer will be used in accordance with either of the following
clauses (a) or (b) and, in accordance with such certificate, within six-months
of the receipt of any Net Cash Payments from any such Transfer, the Company
shall, or shall cause such Subsidiary to, either (a) apply such Net Cash
Payments to the purchase of assets useful and intended to be used in the
business of the Company and its Subsidiaries or (b) offer to prepay the Notes in
accordance with Section 8.3 in an amount equal to such Net Cash Payments;
provided that the aggregate principal amount of Notes required to be prepaid in
connection with any such Transfer shall not exceed the product of (A) the
percentage that the
26
<PAGE>
revenues of, or attributable to, such assets represents to the consolidated
revenues of the Company and its Subsidiaries and (B) the aggregate outstanding
principal amount of the Notes at the time of such Transfer.
No Transfer of a Substantial Part of the assets of the Company shall
have the effect of releasing the Company (or any Successor Entity permitted
under Section 10.2) from its liability under this Agreement or the Notes.
10.4. DISPOSAL OF OWNERSHIP OF A SUBSIDIARY.
The Company will not, and will not permit any of its Subsidiaries to,
Transfer any of its Subsidiary Stock nor will the Company permit any such
Subsidiary to Transfer any shares of its own capital stock or equity interests,
provided that the foregoing restriction does not apply to:
(a) the issuance by any such Subsidiary of directors' qualifying
shares;
(b) any Transfer of Subsidiary Stock that constitutes an
Intergroup Transfer; and
(c) any Transfer of Subsidiary Stock of the Company if all of
the following conditions shall have been satisfied with respect thereto:
(i) such Transfer does not involve a Substantial Part of the property of
the Company, (ii) in the good faith opinion of the Company, the Transfer is
in exchange for consideration with a Fair Market Value at least equal to
that of the property exchanged and (iii) immediately before and after
giving effect to such transaction, and after giving Pro Forma Effect
thereto, no Default or Event of Default shall have occurred and be
continuing.
Notwithstanding the foregoing, but subject to Sections 10.2 and 10.3,
the Company shall be permitted to Transfer any of its Subsidiary Stock, if in
the good faith opinion of the Company the Company receives in exchange therefore
consideration with a Fair Market Value at least equal to that of the property
exchanged and if, contemporaneously with any such Transfer, the Company delivers
to the holders of the outstanding Notes a certificate of a Senior Financial
Officer of the Company certifying that the Net Cash Payments (if any) in respect
of such Transfer will be used in accordance with either of the following clauses
(a) or (b), and in accordance with such certificate, within six-months of the
receipt of any Net Cash Payments from any such Transfer, the Company (a) applies
such Net Cash Payments to the purchase of assets useful and
27
<PAGE>
intended to be used in the business of the Company and its Subsidiaries or (b)
offers to prepay the Notes in accordance with Section 8.3 in an amount equal to
such Net Cash Payments; provided that the aggregate principal amount of Notes
--------
required to be prepaid in connection with any such Transfer shall not exceed the
product of (A) the percentage that the revenues of, or attributable to, the
Subsidiary Stock so transferred represents to the consolidated revenues of the
Company and its Subsidiaries and (B) the aggregate outstanding principal amount
of the Notes at the time of such Transfer.
No Transfer of substantially all of the assets of the Company shall
have the effect of releasing the Company (or any Successor Entity permitted
under Section 10.2) from its liability under this Agreement or the Notes.
10.5. LEVERAGE RATIOS.
The Company will not permit at any time (a) the Senior Debt Leverage
Ratio to exceed 3.25 to 1 or (b) the Total Debt Leverage Ratio to exceed 4.0 to
1.
10.6. INTEREST COVERAGE RATIO.
The Company will not permit the Interest Coverage Ratio to be less
than 3.5 to 1 as at the end of each fiscal quarter.
10.7. LIENS.
The Company will not, and will not permit any of its Subsidiaries to,
create or suffer to exist, any Lien other than Permitted Liens.
10.8. INDEBTEDNESS.
The Company will not, and will not permit any of its Subsidiaries to,
create, incur, assume, or in any manner become liable, directly or indirectly in
respect of, or suffer to exist any Indebtedness (other than Excluded
Indebtedness) unless at the time such Indebtedness is incurred and after giving
Pro Forma Effect thereto, (a) the total amount of Priority Debt does not exceed
15% of Cash Flow for the most recently completed Rolling Fiscal Period and (b)
no Default or Event of Default shall have occurred and be continuing.
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10.9. RESTRICTED PAYMENTS.
The Company will not, and will not permit any Subsidiary to, declare,
order, pay, make or set apart any sums or property for Restricted Payments, if
at the time of the making of such Restricted Payment and after giving effect
thereto, (a) any Default or Event of Default shall have occurred and be
continuing or (b) the aggregate amount of Restricted Payments made in the fiscal
quarter in which such Restricted Payment is made and in the three full
immediately preceding fiscal quarters would exceed 105% of Cash Flow for the
Rolling Fiscal Period as of the date of such Restricted Payment. Notwithstanding
the occurrence or continuance of a Default or Event of Default, the Company may
make distributions to any of its limited partners in amounts sufficient to allow
any such limited partner to pay all federal income taxes with respect to the
amount of income and gain of the Company allocated to such limited partner
(assuming for this purpose that such limited partner is taxable at the highest
applicable rate of taxation).
10.10. INVESTMENTS.
The Company will not, and will not permit any of its Subsidiaries to,
make or hold any Investment other than (a) Permitted Investments and (b) Exempt
Investments, provided that at the time of, and after giving effect to any Exempt
Investment, no Default under Section 11(b) or Event of Default shall have
occurred and be continuing.
10.11. LIMITATION ON ACQUISITIONS.
The Company will not, and will not permit any Subsidiary to, acquire
any business or property from, or capital stock or other equity interest of, any
Person, provided that the foregoing restriction does not apply to any
acquisition (whether by asset or stock purchase or pursuant to a merger) if (a)
such acquisition is directly or indirectly related to the principal lines of
business of the Company and its Subsidiaries and (b) after giving effect to such
acquisition, and after giving Pro Forma Effect thereto, no Default or Event of
Default shall have occurred and be continuing.
10.12. RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company will not, and will not permit any of its Material
Subsidiaries to, create or permit to exist any restriction of any kind on the
ability of any such Subsidiary to (a) pay dividends or make other distributions
to the Company or any Subsidiary or (b) pay any Indebtedness owed to the Company
or any Subsidiary.
29
<PAGE>
10.13. CHANGE IN NATURE OF BUSINESS.
The Company will not, and will not permit any of its Material
Subsidiaries to, make any material change in the nature or conduct of its
business as carried on as of the date hereof.
10.14. CONSOLIDATED NET WORTH.
The Company will not permit Consolidated Net Worth to be less than
$75,000,000 at any time.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-
Whole Amount, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in Section 10; or
(d) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer obtaining actual knowledge
-
of such default and (ii) the Company receiving written notice of such
--
default from any holder of a Note (any such written notice to be identified
as a "notice of default" and to refer specifically to this paragraph (d) of
Section 11); or
(e) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date
as of which made; or
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<PAGE>
(f) (i) the Company or any Material Subsidiary is in default (as
-
principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $10,000,000 beyond
any period of grace provided with respect thereto, or (ii) the Company or
--
any Material Subsidiary is in default in the performance of or compliance
with any term of any evidence of any Indebtedness in an aggregate
outstanding principal amount of at least $10,000,000 or of any mortgage,
indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Indebtedness
has become, or has been declared due and payable before its stated maturity
or before its regularly scheduled dates of payment; or
(g) the General Partner, the Company or any Material Subsidiary (i)
-
is generally not paying, or admits in writing its inability to pay, its
debts as they become due, (ii) files, or consents by answer or otherwise to
--
the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or
other similar law of any jurisdiction, (iii) makes an assignment for the
---
benefit of its creditors, (iv) consents to the appointment of a custodian,
--
receiver, trustee or other officer with similar powers with respect to it
or with respect to any substantial part of its property, (v) is adjudicated
-
as insolvent or to be liquidated, or (vi) takes partnership or corporate
--
action (as the case may be) for the purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the General Partner, the
Company or any of its Material Subsidiaries, a custodian, receiver, trustee
or other officer with similar powers with respect to it or with respect to
any substantial part of its property, or constituting an order for relief
or approving a petition for relief or reorganization or any other petition
in bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up
or liquidation of the General Partner, the Company or any of its Material
Subsidiaries, or any such petition shall be filed against the General
Partner, the Company or any of its Material Subsidiaries and such petition
shall not be dismissed within 60 days; or
(i) a final judgment or judgments (either uninsured or insured but as
to which the insurer thereof has not admitted liability) for the payment of
money aggregating in excess of $10,000,000 are rendered against one or more
of the Company and its Material Subsidiaries and which judgments are not,
within 30 days after entry thereof, bonded,
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<PAGE>
discharged or stayed pending appeal, or are not discharged within 30 days
after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
--
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
may become a subject of any such proceedings, (iii) the aggregate "amount
---
of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
of ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $10,000,000, (iv) the Company or any ERISA Affiliate shall
--
have incurred or is reasonably expected to incur any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA Affiliate
-
withdraws from any Multiemployer Plan, or (vi) the Company or any
--
Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, would
reasonably be expected to have a Materially Adverse Effect; or
(k) any Regulatory Intervention shall occur.
As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company described in
paragraph (g) or (h) of Section 11 (other than an Event of Default described in
clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by
virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has
occurred, all the Notes then outstanding shall automatically become immediately
due and payable.
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<PAGE>
(b) If any other Event of Default has occurred and is continuing, the
Required Holders may at any time at its or their option, by notice or notices to
the Company, declare all the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b) of
Section 11 has occurred and is continuing, any holder or holders of Notes at the
time outstanding affected by such Event of Default may at any time, at its or
their option, by notice or notices to the Company, declare all the Notes held by
it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
-
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
-
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3. RESCISSION.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 60%
in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
-
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than
33
<PAGE>
by reason of such declaration, and all interest on such overdue principal and
Make-Whole Amount, if any, and (to the extent permitted by applicable law) any
overdue interest in respect of the Notes, at the Default Rate, (b) all Events of
-
Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for the
-
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any
Note in exercising any right, power or remedy shall operate as a waiver thereof
or otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under Section 15, the
Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register
for the registration and registration of transfers of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes shall be registered in such
register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner
and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
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<PAGE>
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred (a) to a Competitor without the prior written consent of the
Company, provided that any holder of a Note may transfer a Note to a Competitor
that is purchasing such Note for resale to a Person that is not a Competitor or
(b) in denominations of less than $1,000,000, provided that if necessary to
enable the registration of transfer by a holder of its entire holding of Notes,
one Note may be in a denomination of less than $1,000,000. Any transferee, by
its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Section 6.2.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is,
or is a nominee for, an original Purchaser or another holder of a Note with
a minimum net worth of at least $50,000,000, such Person's own unsecured
agreement of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
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<PAGE>
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in New
York, New York at the principal office of Citibank, N.A. in such jurisdiction.
The Company may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be either
the principal office of the Company in such jurisdiction or the principal office
of a bank or trust company in such jurisdiction.
14.2. HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in exchange
for a new Note or Notes pursuant to Section 13.2. The Company will afford the
benefits of this Section 14.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 14.2.
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<PAGE>
15. EXPENSES, ETC.
15.1. TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel and, if reasonably required, local or other counsel)
incurred by you and each Other Purchaser or holder of a Note in connection with
such transactions and in connection with any amendments, waivers or consents
under or in respect of this Agreement or the Notes (whether or not such
amendment, waiver or consent becomes effective), including, without limitation:
(a) the costs and expenses incurred in enforcing or defending (or determining
whether or how to enforce or defend) any rights under this Agreement or the
Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of the Company or any Subsidiary or in connection with any work-
out or restructuring of the transactions contemplated hereby and by the Notes.
The Company will pay, and will save you and each other holder of a Note harmless
from, all claims in respect of any fees, costs or expenses if any, of brokers
and finders (other than those retained by you).
15.2. SURVIVAL.
The obligations of the Company under Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between
37
<PAGE>
you and the Company and supersede all prior agreements and understandings
relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or
20 (it being understood that any amendment to Section 10.3 or 10.4 or to the
definition of "Change of Control" in Schedule B that does not terminate the
Company's obligation to offer to prepay Notes in the circumstances contemplated
by Section 8, will not be deemed an amendment of Section 8 or a change in the
amount or time of any prepayment).
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the Notes
------------
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause
-------
to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any holder of
Notes or any waiver or amendment of any of the terms and
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<PAGE>
provisions hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
17.4. NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,
39
<PAGE>
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of G. Neal Ryland, Chief Financial
Officer, or at such other address as the Company shall have specified to
the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior
to the time of such disclosure, (b) subsequently becomes publicly known through
no act or omission by you or any person acting on your behalf, (c) otherwise
becomes known to you other than through disclosure by the Company or any
Subsidiary or (d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available. You will maintain the
40
<PAGE>
confidentiality of such Confidential Information in accordance with procedures
adopted by you in good faith to protect confidential information of third
parties delivered to you, provided that you may deliver or disclose Confidential
Information to (i) your directors, officers, employees, agents, attorneys and
-
affiliates, (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes), (ii) your financial
--
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor
--- --
to which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
20), (v) any Person from which you offer to purchase any security of the Company
-
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
--
or state regulatory authority having jurisdiction over you, (vii) the National
---
Association of Insurance Commissioners or any similar organization, or any
nationally recognized rating agency that requires access to information about
your investment portfolio, or (viii) any other Person to which such delivery or
----
disclosure may be necessary or appropriate (w) to effect compliance with any
-
law, rule, regulation or order applicable to you, (x) in response to any
-
subpoena or other legal process, (y) in connection with any litigation to which
-
you are a party or (z) if an Event of Default has occurred and is continuing, to
-
the extent you may reasonably determine such delivery and disclosure to be
necessary or appropriate in the enforcement or for the protection of the rights
and remedies under your Notes and this Agreement. Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 20 as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any holder of a Note of information required to be delivered to such holder
under this Agreement or requested by such holder (other than a holder that is a
party to this Agreement or its nominee), such holder will enter into an
agreement with the Company embodying the provisions of this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes
41
<PAGE>
then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
22. MISCELLANEOUS.
22.1. SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or
on behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
22.3. SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4. CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
42
<PAGE>
22.5. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
* * * * *
43
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
NEW ENGLAND INVESTMENT COMPANIES,
L.P.
By NEW ENGLAND INVESTMENT COMPANIES,
INC., its General Partner
By KEVIN P. CHARLESTON
Title: Assistant Treasurer and
Manager of Financial Planning
[The forms of signature by each
of the Purchasers, as they appear
in the respective Note Purchase
Agreements, are set forth below.]
The foregoing is hereby
agreed to as of the
date thereof.
THE TRAVELERS INSURANCE THE TRAVELERS INDEMNITY
COMPANY COMPANY
By CRAIG H. FARNSWORTH By CRAIG H. FARNSWORTH
Second Vice President Second Vice President
44
<PAGE>
CONNECTICUT GENERAL LIFE LIFE INSURANCE COMPANY OF
INSURANCE COMPANY NORTH AMERICA
By CIGNA Investments, Inc. By CIGNA Investments, Inc.
By LAWRENCE A. DRAKE By LAWRENCE A. DRAKE
Managing Director Managing Director
GREAT-WEST LIFE & ANNUITY PACIFIC MUTUAL LIFE INSURANCE
INSURANCE COMPANY COMPANY
By MARK CORBETT By WILLIAM R. SCHMIDT
Vice President Assistant Vice President
Private Placement Investments
By ERNIE P. FRIESEN
Manager
Private Placement Investments
NORTHERN LIFE INSURANCE NORTHWESTERN NATIONAL LIFE
COMPANY INSURANCE COMPANY
By FRANK P. PINTENS By FRANK P. PINTENS
Assistant Treasurer Authorized Representative
UNITED SERVICES LIFE INSURANCE THE NORTH ATLANTIC LIFE
COMPANY INSURANCE COMPANY OF
AMERICA
By FRANK P. PINTENS
Assistant Treasurer By FRANK P. PINTNES
Assistant Treasurer
45
<PAGE>
GENERAL AMERICAN LIFE PROVIDENT MUTUAL LIFE
INSURANCE COMPANY INSURANCE COMPANY
By DOUGLAS R. KOESTER By CRAIG SNYDER
Vice President Vice President
PROVIDENTMUTUAL LIFE AND PROVIDENT MUTUAL LIFE
ANNUITY COMPANY OF AMERICA INSURANCE COMPANY --
COVENANT
By ROSEANNE GATTA
Treasurer By CRAIG SNYDER
Vice President
AMERICAN FAMILY LIFE JOHN ALDEN LIFE INSURANCE
INSURANCE COMPANY COMPANY
By PHILLIP HANNIFAN By MICHAEL E. HALLIGAN
Investment Director Vice President, Investments
JOHN ALDEN LIFE INSURANCE
COMPANY OF NEW YORK
By MICHAEL E. HALLIGAN
Vice President
46
<PAGE>
Schedule B
----------
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"AFFILIATE" means, at any time, and with respect to any Person, any
other Person (other than an Investment Company) that at such time directly or
indirectly through one or more intermediaries Controls, or is Controlled by, or
is under common Control with, such first Person. As used in this definition,
"Control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Company.
"ANNUALIZED BASIS" means the method used to adjust any calculation for
each Rolling Fiscal Period consisting of less than four full fiscal quarters
following the date of Closing as follows:
(a) the Rolling Fiscal Period shall begin on the first day of the
first full fiscal month following the date of Closing; and
(b) the results during such Rolling Fiscal period shall be multiplied
by a fraction, the numerator of which shall be 12 and the
denominator shall be the actual number of full fiscal months
included in such Rolling Fiscal Period under clause (a) above.
"BROKER COMMISSION" means any amount to be paid by the Company or any
of its Subsidiaries to NESC or any broker, dealer or distributor in connection
with the distribution by NESC or such broker, dealer or distributor of any
shares in any Investment Company sponsored by the Company or any Subsidiary of
the Company.
"BROKER COMMISSION DEBT" means any Indebtedness of the Company or any
of its Subsidiaries, the proceeds of which are used, directly or indirectly, to
pay Broker Commissions and which is secured by Collections Rights of the Company
or such Subsidiary.
"BUSINESS Day" means (a) for the purposes of Section 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required
1
<PAGE>
or authorized to be closed, and (b) for the purposes of any other provision of
this Agreement, any day other than a Saturday, a Sunday or a day on which
commercial banks in New York, New York or Boston, Massachusetts are required or
authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CASH FLOW" means, for any period, for the Company and its
Subsidiaries, determined on a consolidated basis in accordance with GAAP, net
income (or net loss) for such period plus (a) Interest Expense plus (b) income
---- ----
tax expense plus (c) depreciation expense plus (d) amortization expense plus (e)
---- ---- ----
non-cash expenses to the extent deducted in determining such net income plus (f)
----
capital losses from the sale of assets determined in accordance with GAAP for
such period, plus (g) the Support Charge (not to exceed $20,000,000 in any
----
fiscal year) minus (h) capital gains on the sale of assets determined in
-----
accordance with GAAP for such period minus (i) earnings (only if positive) of
-----
any Person (other than the Company or any of its consolidated Subsidiaries) in
which the Company or any Subsidiary holds an Investment to the extent such
earnings are not distributed or otherwise paid (or are not eligible to be
distributed or paid without restriction) to the Company or any of its
consolidated Subsidiaries minus (j) cash flow attributable to Collection Rights
-----
securing Excluded Broker Commission Debt and minus (k) earnings (only if
-----
positive) attributable to any Support Investment to the extent the holder of any
Support Investment Indebtedness has recourse thereto; provided that upon any
-------- ----
acquisition permitted by Section 10.11, the calculation of Cash Flow for any
Rolling Fiscal Period commencing prior to the effective date of such acquisition
shall be adjusted to give Pro Forma Effect to such acquisition.
"CHANGE OF CONTROL" means the occurrence of any one of the following:
(a) New England Mutual Life Insurance Company (or the survivor of a
merger or consolidation of New England Mutual Life Insurance Company with
or into Metropolitan Life Insurance Company or any successor thereto) shall
cease to have beneficial ownership, directly or indirectly, of at least 50%
of the voting stock of all classes of stock of the General Partner; and
2
Schedule B
<PAGE>
(b) New England Mutual Life Insurance Company (or the survivor of a
merger or consolidation of New England Mutual Life Insurance Company with
or into Metropolitan Life Insurance Company or any successor thereto) shall
cease to own directly or indirectly, through one or more of its
Subsidiaries, at least 15% of the limited partnership interests in the
Company.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"COLLECTION RIGHTS" means any amount owed to the Company or any of its
Subsidiaries (a) pursuant to any 12b-1 Plan of, or any similar or successor plan
of, or arrangement with, any Fund, (b) in respect of administrative or
investment advisory services furnished, pursuant to written agreements, to a
Fund by the Company or such Subsidiary or (c) from the payment of contingent
deferred sales charges or other similar charges by the shareholders of a Fund.
"COMPANY" means New England Investment Companies, L.P. , a Delaware
limited partnership.
"COMPETITOR" means any Person listed in Schedule 13.2 or reasonably
designated as such in a written notice to the holder of each Note, provided that
the Company shall not make any such designation more than once in any twelve-
month period and provided further that no more than 20 Persons shall be
Competitors at any one time.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED NET WORTH" means, at any time,
(a) the total assets of the Company and its Subsidiaries which would
be shown as assets on a consolidated balance sheet of the Company and its
Subsidiaries as of such
3
Schedule B
<PAGE>
time prepared in accordance with GAAP, after eliminating all amounts
properly attributable to minority interests, if any, in Subsidiaries, minus
(b) the total liabilities of the Company and its Subsidiaries which
would be shown as liabilities on a consolidated balance sheet of the
Company and its Subsidiaries as of such time prepared in accordance with
GAAP.
"CURRENCY HEDGING AGREEMENT" means, for any Person, a foreign exchange
contract, currency swap, collar or cap agreement or similar arrangement between
such Person and one or more financial institutions providing for the transfer or
mitigation of currency risks either generally, periodically or under specific
contingencies. The "CREDIT EXPOSURE" at any time of any Person under a Currency
---------------
Hedging Agreement to which such Person is a party shall be determined as of the
end of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Currency Hedging Agreement had terminated at the end of
such fiscal quarter and, in making such determination, if any agreement relating
to such Currency Hedging Agreement provides for the netting of amounts payable
by and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such credit exposure shall be the net amount so determined.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is the greater of (i)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (ii) 1% over the rate of interest publicly announced
by Citibank, N.A. in New York, New York as its "base" or "prime" rate.
"DUFF & PHELPS" means Duff & Phelps Credit Rating Co.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to
4
Schedule B
<PAGE>
pollution and the protection of the environment or the release of any materials
into the environment, including but not limited to those related to hazardous
substances or wastes, air emissions and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED BROKER COMMISSION DEBT" means Broker Commission Debt (a)
which is secured by, and intended to be repaid solely out of the proceeds of,
Collection Rights except to the extent provided in clause (b) below and (b)
which is otherwise nonrecourse to the Company and its Subsidiaries except in the
event of (i) the amendment or termination of a 12b-1 Plan or similar plan under
which such Collection Rights would arise, (ii) changes in applicable law
relating to 12b-1 Plans which have a material adverse effect on the ability of
the Company or any applicable Subsidiary to satisfy its obligations with respect
to such Broker Commission Debt, (iii) the occurrence of any breach of a covenant
or representation customarily found in an asset-backed transaction of this type
that relate to Collection Rights, including, without limitation, fraud, willful
misconduct or gross negligence by the Company or such Subsidiary or (iv) any
amendment, modification (including any amendment or termination arising from a
change in law) or termination of any underwriting agreement, prospectus or sales
charge arrangement between the Company or such Subsidiary and any Fund relating
to the Collection Rights that secure such Broker Commission Debt; provided that
if any of the circumstances described in clauses (i) through (iv) above occurs
with respect to any Broker Commission Debt, such Broker Commission Debt shall no
longer constitute Excluded Broker Commission Debt.
5
Schedule B
<PAGE>
"EXCLUDED INDEBTEDNESS" means any of the following Indebtedness:
(a) Excluded Broker Commission Debt;
(b) Support Investment Indebtedness;
(c) Purchase Money Obligations of the Company and any of its
Subsidiaries in an aggregate principal amount at no time exceeding $10,000,000
and Indebtedness incurred to refinance such Purchase Money obligations, provided
that the unpaid balance thereof is not increased and the Lien securing such
Purchase Money Obligations is not extended to any other assets;
(d) Indebtedness of the Company or any of its Subsidiaries for money
borrowed from any insurance company against the cash surrender value of any
insurance policy issued by such insurance company insuring the life or lives of
one or more senior management employees, which policies are owned by the Company
or such Subsidiary, as to which the Company or such Subsidiary is the named
insured beneficiary and as to which the Company or such Subsidiary is entitled
to the full cash surrender value; provided that such Indebtedness does not
exceed the cash surrender value of such policy;
(e) Indebtedness of the Company under Currency Hedging Agreements and
Interest Rate Protection Obligations of the Company; provided that (i) in the
case of any Interest Rate Protection Agreement, such Interest Rate Protection
Agreement has been entered into to protect the Company or any of its
Subsidiaries from fluctuations either (x) in interest rates in respect of
Indebtedness incurred or to be incurred by the Company or such Subsidiary and
the credit exposure of the Company or such Subsidiary thereunder is at no time
no greater than necessary to hedge its interest rate exposure with respect to
the aggregate principal amount of such Indebtedness or (y) in the value of
investments in fixed income securities that were acquired in the ordinary course
of business and (ii) in the case of any Currency Hedging Agreement, such
Currency Hedging Agreement covers the assets or liabilities of the Company or
any of
6
Schedule B
<PAGE>
its Subsidiaries that are denominated in a currency other than dollars of the
United States of America;
(f) Indebtedness of the Company or any of its Subsidiaries to the
Company or any Significant Subsidiary; and
(g) liabilities in respect of letters of credit or bankers
acceptances that are issued or accepted in connection with obligations that do
not constitute Indebtedness.
"EXEMPT INVESTMENTS" means, for the Company and its Subsidiaries:
(a) Investments in Significant Subsidiaries of the Company engaged,
for a fee or other remuneration, in an Investment Management Business;
(b) Seed Money Obligations and other Investments in Funds
constituting partnerships, trusts, limited liability corporations or similar
Persons, which Investments are acquired in the ordinary course of business;
(c) securities acquired from any Fund or any other Person if, in the
case of any such other Person, such securities were held by such Person as a
result of investment management or advisory services provided by the Company or
any of its Subsidiaries, provided that such securities are expected to be
disposed of within twelve months of such acquisition and are not held by the
Company or any of its Subsidiaries for more than twelve months;
(d) securities held by the Company or any of its Subsidiaries pending
the formation of a Fund to which such securities will be transferred, provided
that such securities are expected to be transferred or otherwise disposed of
within twelve months of such investment;
(e) Investments in other Subsidiaries of the Company or joint
ventures engaged in the Investment Management Business, provided that
immediately prior and after giving effect to each such Investment, and after
giving Pro Forma Effect thereto,
7
Schedule B
<PAGE>
the aggregate amount of all such Investments does not exceed 25% of Cash
Flow for the most recently completed Rolling Fiscal Period;
(f) Investments by the Company or a Subsidiary of the Company in the
ordinary course of its Investment Management Business (including but not
limited to unit investment trusts); and
(g) other Investments not exceeding $10,000,000 in the aggregate.
"FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an arm's-
length sale at such time between an informed and willing buyer and an informed
and willing seller (neither being under compulsion to buy or sell).
"FITCH" means Fitch Investors' Service Incorporated.
"FUND" means any Investment Company and any Person that would be an
Investment Company but for Section 3(c)(1) of the Investment Company Act that
is, in any such case, managed or sponsored by the Company or any of its
Subsidiaries or for which the Company or any such Subsidiary provides advisory,
administrative, supervisory, management, consulting, underwriting, transfer-
agency, shareholder or share-servicing or similar services.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GENERAL PARTNER" means NEIC and such other Person or Persons as may
be a general partner of the Company from time to time.
"GOVERNMENTAl AUTHORITY" means
(a) the government of
8
Schedule B
<PAGE>
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
9
Schedule B
<PAGE>
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HARRIS ACQUISITION" means the acquisition by the Company of all of
the assets of Harris Associates L.P., a Delaware limited partnership.
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
determined in accordance with GAAP (other than any part of such price payable in
equity interests of the Company) acquired by such Person (excluding accounts
payable arising in the ordinary course of business but including all liabilities
created or arising under any conditional sale or other title retention agreement
with respect to any such property);
(c) its liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
(d) its liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and other
financial institutions (whether or not representing obligations for borrowed
money);
10
Schedule B
<PAGE>
(f) its credit exposure under Interest Rate Protection Agreements and
Currency Hedging Agreements;
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof; and
(h) all other liabilities of a type described in clause (a) through
(g) above of such Person resulting from such Person being a general partner or a
member of a joint venture, whether by provision of applicable law, contract or
otherwise.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 10% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"INTEREST COVERAGE RATIO" means, for any date, the ratio of (a) Cash
Flow for the Rolling Fiscal Period ending on or immediately prior to such date
to (b) Interest Expense for such Rolling Fiscal Period.
"INTEREST EXPENSE" means, for the Company and its Subsidiaries, for
any period, gross interest expense for such period (excluding interest on any
Excluded Indebtedness) plus capitalized interest for such period, in each case
determined on a consolidated basis, without duplication, in accordance with
GAAP.
"INTEREST RATE PROTECTION AGREEMENT" means, for any Person, an
interest rate swap, collar or cap agreement or similar arrangement between such
Person and one or more financial institutions providing for the transfer or
mitigation of interest risks either generally, periodically or under specific
contingencies. The "credit exposure" at any time of any Person under an Interest
---------------
Rate Protection Agreement to which such Person is a party shall be determined as
of the end of the then most recently ended fiscal quarter of such Person, based
on the assumption that such Interest Rate Protection Agreement had terminated at
the end of such fiscal quarter and, in making such determination, if any
agreement relating to such
11
Schedule B
<PAGE>
Interest Rate Protection Agreement provides for the netting of amounts payable
by and to such Person thereunder or if any such agreement provides for the
simultaneous payment of amounts by and to such Person, then in each such case,
the amount of such credit exposure shall be the net amount so determined.
"INTERGROUP TRANSFER" has the meaning specified in Section 10.3.
"INVESTMENT" means, for any Person, (a) the acquisition (whether for
cash, property, services, securities or otherwise) of capital stock, bonds,
notes, debentures, partnership or other ownership interests or other securities
of any other Person and (b) the making of any advance, loan or other extension
of credit to, any other Person (including the purchase of property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such property to such Person, but excluding any such advance, loan or
extension of credit representing the purchase price of inventory or supplies
sold by such Person in the ordinary course of business).
"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of 1940,
as amended.
"INVESTMENT COMPANY" means an "investment company" as such term is
defined in the Investment Company Act.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"INVESTMENT MANAGEMENT BUSINESS" means the business of providing
services involving (i) the management of an investment account or fund (or
portions thereof or a group of investment accounts or funds), (ii) the giving of
advice with respect to the investment of specific assets or funds, (iii) the
distribution of investment management products or (iv) broker-dealer operations
associated with the activities or operations described in any of the foregoing
clauses (i), (ii) and (iii).
12
Schedule B
<PAGE>
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person.
"MAKE-WHOLE AMOUNT" is defined in Section 8.7.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, or properties of the Company and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Notes, or (c) the
validity or enforceability of this Agreement or the Notes.
"MATERIAL SUBSIDIARY" means any Subsidiary of the Company that would
constitute a "significant subsidiary" as such term is used in Regulation S-X of
the Securities and Exchange Commission as in effect on the date of Closing.
"MEMORANDUM" is defined in Section 5.3.
"MOODY'S" means Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NEIC" means New England Investment Companies, Inc., a Massachusetts
corporation.
"NESC" means the New England Securities Corporation, a Massachusetts
corporation.
13
Schedule B
<PAGE>
"NET CASH PAYMENTS" means, with respect to any Transfer, the aggregate
amount of all cash payments, the Fair Market Value of all marketable securities
and the cash proceeds of any non-cash consideration (other than Exempt
Investments) received by the Company and its Subsidiaries directly or indirectly
in connection with such Transfer; provided that (a) Net Cash Payments shall be
net of (i) the amount of any legal, title and recording tax expenses,
commissions and other reasonable fees and expenses (including reasonable
expenses of preparing the relevant property for sale) paid by the Company and
its Subsidiaries in connection with such Transfer and (ii) any Federal, state
and local income or other taxes estimated in good faith to be payable by the
Company and its Subsidiaries as a result of such Transfer and (b) Net Cash
Payments shall be net of any repayments by the Company or any of its
Subsidiaries of Indebtedness to the extent that (i) such Indebtedness is secured
by a Lien on the property that is the subject of such Transfer and (ii) the
transferee of (or holder of a Lien on) such property requires that such
Indebtedness be repaid as a condition to the purchase of such property.
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"ORDINARY COURSE TRANSFER" has the meaning specified in Section 10.3.
"OTHER AGREEMENTS" is defined in Section 2.
"OTHER PURCHASERS" is defined in Section 2.
"PARTNERS" means the General Partner and each other Person that is a
party to the Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of
Limited Partnership of the Company, as amended from time to time.
14
Schedule B
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PERMITTED INVESTMENTS" means, for the Company and its Subsidiaries,
any of the following:
(a) Investments in commercial paper rated A-1 or better by S&P
or P-1 or better by Moody's, that matures not more than 270 days from
the date of issuance thereof, that is issued by a corporation (other
than an Affiliate of the Company) organized under the laws of the
United States of America or any state thereof, Canada or any state
thereof, any member of the European Union or Japan;
(b) Investments in direct obligations of the United States of
America, or of any agency thereof, or obligations guaranteed as to
principal and interest by the United States of America, or of any
agency thereof, in either case, maturing not more than one year from
the date of acquisition thereof and other than derivative securities
such as interest-only and principal-only mortgage-backed securities
and collateralized mortgage obligations;
(c) Investments in certificates of deposit or banker's
acceptances maturing not more than one year from the date of issuance
thereof that are issued by a bank or trust company that is either (i)
organized under the laws of the United States of America, or any state
thereof, and has capital, surplus and undivided profits of at least
$1,000,000,000 and whose long-term certificates of deposit or long-
term unsecured debt, at the time of acquisition of such Investment,
are rated A or better by S&P, Duff & Phelps or Fitch or A2 or better
by Moody's or (ii) organized under the laws of any other country whose
commercial paper is rated A-1 or better by S&P or P-1 or better by
Moody's or
15
Schedule B
<PAGE>
whose long-term debt, at the time of acquisition of such Investment,
is rated AA or better by S&P or Aa2 or better by Moody's and has
capital, surplus and undivided profits of at least $1,000,000,000;
(d) Investments in master note or deposit arrangements involving
securities of the type described in clauses (a), (b) or (c) above;
(e) Investments in money market programs of Investment Companies
registered with the Securities and Exchange Commission, which
Investments, at the time of acquisition thereof, are either rated A-1
or better by S&P or P-1 or better by Moody's (or if such programs are
not rated, the substantial majority of underlying investments of such
program, or issuers of such underlying investments, are so rated) or
invested only in the types of securities described in clauses (a)
through (d) above;
(f) Investments in repurchase agreements maturing not more than
365 days from the creation thereof, with, or accepted by, a bank,
trust company or other financial institution whose long-term unsecured
debt, at the time of acquisition of such Investment, is rated A or
better by S&P, Duff & Phelps or Fitch or A2 or better by Moody's;
(g) Investments by the Company or any of its Subsidiaries made
in (i) Interest Rate Protection Agreements and Currency Hedging
Agreements to the extent any Indebtedness thereunder constitutes
Excluded Indebtedness; provided, in any case, that the long-term
senior unsecured debt of the counterparty thereto is rated A- or
better by S&P or A3 or better by Moody's, at the time the Investment
is made; and
(h) Investments of the Company and its Subsidiaries in existence
on the date hereof and listed in Schedule 10.7 hereto.
"PERMITTED LIENS" means, for the Company and its Subsidiaries, any of
the following:
16
Schedule B
<PAGE>
(a) Liens outstanding on the date hereof and listed in Schedule
5.15;
(b) Liens securing Indebtedness of any Subsidiary to the Company
or any Significant Subsidiary of the Company;
(c) Liens for taxes, assessments and governmental charges or
levies which are not yet due or are payable without penalty or of
which the amount, applicability or validity is being contested by the
Company or one of its Subsidiaries in good faith by appropriate
proceedings and as to which adequate reserves are being maintained in
accordance with GAAP;
(d) Liens resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or
which shall in good faith be prosecuted by an appeal or proceeding for
a review and in respect of which a stay of execution pending such
appeal or proceeding shall have been secured, and as to which, in any
case, adequate reserves are being maintained in accordance with GAAP;
(e) Liens imposed by law, such as landlord's, materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other
similar Liens arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being
contested or defended in good faith by appropriate proceedings and as
to which adequate reserves are being maintained in accordance with
GAAP, or which are suspended or released by the filing of lien bonds,
or deposits to obtain the release of such Liens;
(f) pledges, deposits and other Liens made in the ordinary
course of business to secure obligations under worker's compensation
laws, unemployment insurance, social security legislation or similar
legislation or to secure public or statutory obligations;
(g) Liens to secure the performance of bids, tenders, contracts,
leases or statutory obligations, or to secure surety, stay or appeal
or other
17
Schedule B
<PAGE>
similar types of deposits, Liens or pledges, incurred in the ordinary
course of business (to the extent such Liens do not secure obligations
for the payment of Indebtedness for borrowed money and provided that
any such obligation is not overdue or if overdue is being contested in
good faith by appropriate proceedings and as to which adequate
reserves are being maintained in accordance with GAAP);
(h) Liens solely securing Purchase Money Obligations incurred in
the ordinary course of business provided that any such Lien does not
extend to or cover any property or assets other than the property so
financed;
(i) Liens on Collection Rights securing Broker Commission Debt
provided that in the case of any Broker Commission Debt that does not
qualify as Excluded Broker Commission Debt, such Broker Commission
Debt is permitted under Section 10.8;
(j) Liens securing Support Investment Indebtedness and Liens on
the cash value of life insurance policies securing Indebtedness
referred to in clause (d) of the definition of Excluded Indebtedness;
(k) minor survey exceptions or minor encumbrances, easements,
rights-of-way, restrictions and other similar encumbrances incurred in
the ordinary course of business and encumbrances consisting of zoning
restrictions, easements, licenses, restrictions on the use of property
or minor imperfections in title thereto which, in the aggregate, are
not material in amount, and which do not in any case materially
detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Company or any of its
Subsidiaries;
(l) all other Liens, provided that, after giving effect to the
creation thereof, the total amount of Priority Debt on the date of
such creation does not exceed 15% of Cash Flow for the mostly recently
completed Rolling Fiscal Period; and
18
Schedule B
<PAGE>
(m) any modification, extension, renewal or replacement of the
foregoing, provided, however, that the Liens permitted hereunder shall
not be spread to cover any additional Indebtedness or property (other
than a substitution of like property).
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PRIORITY DEBT" means the sum (without duplication) of (a) all
Indebtedness (other than Excluded Indebtedness) of the Company secured by any
Lien on property of the Company or any of its Subsidiaries and (b) all
Indebtedness (other than Excluded Indebtedness) of the Subsidiaries of the
Company.
"PRO FORMA EFFECT" means, for any event, calculating the operating
results for the Rolling Fiscal Period for the date of such event as if such
event had occurred on the first day of such Rolling Fiscal Period.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PURCHASE MONEY OBLIGATIONS" means any Indebtedness secured by a Lien
on assets of the Company or any Subsidiary of the Company, and any additions and
accessions thereto, that are purchased by the Company or any Subsidiary of the
Company at any time after the Notes are issued; provided that (a) the security
agreement or conditional sales or other title retention contract pursuant to
which such Lien is created (a "PURCHASE MONEY SECURITY AGREEMENT") shall be
entered into within 90 days after the purchase or substantial
19
Schedule B
<PAGE>
completion of the construction of such assets and the Lien created thereunder
shall at all times be confined solely to the assets so purchased or acquired,
and, if required by such Purchase Money Security Agreement, any additions and
accessions thereto, (b) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and in respect of fees and
other obligations in respect of such Indebtedness and (c)(i) the aggregate
outstanding principal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions) shall not at the
time such Purchase Money Security Agreement is entered into exceed 100% of the
purchase price to the Company or any Subsidiary of the assets subject thereto or
(ii) the Indebtedness secured thereby shall be with recourse solely to the
assets so purchased or acquired, any accessions thereto and any proceeds
therefrom.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"REQUIRED HOLDERS" means, at any time, the holders of at least 51% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).
"REGULATORY INTERVENTION" means (i) in the case of the Company and any
Subsidiary that is a registered investment adviser under the Investment Advisers
Act, the giving of any order by the Securities and Exchange Commission or any
state governmental body placing limitations on the activities, functions or
operations of, or suspending or revoking the registration of, the Company or
such Subsidiary or (ii) in the case of any Subsidiary that is a registered
broker-dealer, (a) any revocation by any self-regulatory organization (as
defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended)
of such Subsidiary's membership therein, (b) any revocation by the Securities
and Exchange Commission of such Subsidiary's status as a broker-dealer or (c)
any application by the Securities Investor Protection Corporation for a decree
adjudicating that customers of such Subsidiary are in need of protection under
the Securities Investor Protection Act of 1940, as amended; provided that in any
such case, such event could reasonably be expected to have a Material Adverse
Effect.
20
Schedule B
<PAGE>
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this agreement.
"RESTRICTED PAYMENTS" means for the Company and any of its
Subsidiaries, (a) any dividends or other distributions or payments on or in
respect of any equity interest of the Company or any such Subsidiary or to the
holders of any such equity interests in their capacity as such (other than
payments made solely in equity interests and dividends or distributions payable
to the Company or any Subsidiary), (b) any purchase, redemption or other
acquisition for value of any equity interest of the Company or any such
Subsidiary or (c) any purchase, redemption or other acquisition or retirement
for value, prior to any scheduled maturity, of any Subordinated Indebtedness;
provided that such term shall not include any payment of a type described in
clause (a) or (b) above that is made to the holders of equity interests in the
Company to satisfy deferred obligations (whether liquidated or contingent) with
respect to the Harris Acquisition.
"ROLLING FISCAL PERIOD" means, for any date, until such time as each
of four consecutive fiscal quarters of the Company have commenced and ended
after the date of Closing, the period consisting of each full fiscal month of
the Company that has commenced and ended after the date of Closing on an
Annualized Basis and thereafter the most recently ended full fiscal quarter of
the Company with respect to which the Company has delivered or is required to
have delivered, the financial statements referred to in Section 7.1(a) or (b)
and the three immediately preceding full fiscal quarters.
"S&P" means Standard & Poor's Ratings Group, a Division of McGraw
Hill, Inc.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SEED MONEY OBLIGATION" means an Investment made to provide start-up
capital to a Fund.
21
Schedule B
<PAGE>
"SENIOR DEBT" means, for the Company and its Subsidiaries, on a
consolidated basis, all Indebtedness of the Company and its Subsidiaries (other
than Excluded Indebtedness) required to be reported a such on the consolidated
financial statements of the Company in accordance with GAAP other than
Subordinated Indebtedness.
"SENIOR DEBT LEVERAGE RATIO" means, for any date, the ratio of (a) the
aggregate amount of Senior Debt as at such date to (b) Cash Flow for the Rolling
Fiscal Period ending on or immediately prior to such date.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"SIGNIFICANT SUBSIDIARY" means at any time any Subsidiary for which
the Company alone or together with any other Significant Subsidiary beneficially
owns or holds 80% or more of the Voting Interests and an 80% or greater interest
in the profits or capital thereof.
"SUBORDINATED INDEBTEDNESS" means Indebtedness (including perpetual
debt that the Company is not required to repay) that is issued or assumed
pursuant to, or evidenced by, an indenture or other instrument containing
provisions for the subordination of such Indebtedness to the Notes which provide
at a minimum that (v) the weighted average life to maturity of such Indebtedness
is longer than the maturity of the Notes, (w) in the event of any bankruptcy, or
other similar proceeding in respect of the Company, the holders of the Notes
shall be entitled to receive payment in full in cash of all principal, Make-
Whole Amount and interest on the Notes (including all interest arising after the
commencement of such proceeding whether or not an allowed claim in such
proceeding) before the holder or holders of any such Subordinated Indebtedness
shall be entitled to receive any payment of principal, interest or premium
thereon, (x) if Company has defaulted in the payment of principal, Make-Whole
Amount or interest on the Notes, the holder or holders of any such Subordinated
Indebtedness shall not be entitled to payment of any principal, premium or
interest in respect thereof unless or until such default shall have been cured,
(y) if any other Event of Default has occurred and is continuing notice of which
has been given to the Company by the Required Holders, the holders of any such
Subordinated Indebtedness shall not be entitled to payment of any
22
Schedule B
<PAGE>
principal, premium or interest in respect thereof unless a period of 179 days
has elapsed after the giving of such notice during which time the Notes have not
been accelerated as provided in Section 12.1 and (z) that the holder or holders
of such Subordinated Indebtedness may not accelerate the maturity thereof
without at least fifteen days notice to the Company (notice of which the Company
must agree to promptly provide to the holders of the Notes); provided that
--------
clause (v) shall not apply to Subordinated Indebtedness issued to a seller or
its affiliates in connection with an acquisition permitted by Section 10.11.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"SUBSIDIARY STOCK" means, with respect to any Person, the capital
stock, share capital, partnership interests or other equity interests (or any
options or warrants to purchase, or other securities exchangeable for or
convertible into, any such capital stock, share capital or equity interests) of
or in any Subsidiary of such Person.
"SUBSTANTIAL PART" means, with respect to any Transfer of property of
the Company and its Subsidiaries, any portion of such property if the total
revenues for the most recently ended Rolling Fiscal Period directly attributable
to such property, and all other property sold, leased or otherwise disposed of
by the Company and its Subsidiaries (other than as an Ordinary Course Transfer
or an Intergroup Transfer) during the twelve-month period ending with the date
of such Transfer exceeds 15% of the consolidated revenues of the Company and its
consolidated Subsidiaries during such Rolling Fiscal Period.
23
Schedule B
<PAGE>
"SUPPORT CHARGE" means the expense reported by the Company or any of
its Subsidiaries in connection with a Support Investment.
"SUPPORT INVESTMENT" means any Investment that qualifies as an Exempt
Investment under clause (c) of the definition of "Exempt Investment".
"SUPPORT INVESTMENT INDEBTEDNESS" means any Indebtedness of the
Company or any of its Subsidiaries the proceeds of which are used to purchase
any Support Investment and that is limited in recourse to such Support
Investment.
"TOTAL DEBT" means, for the Company and its Subsidiaries, on a
consolidated basis, all Indebtedness (other than Excluded Indebtedness) of the
Company and its Subsidiaries required to be reported as such on the consolidated
financial statements of the Company in accordance with GAAP.
"TOTAL DEBT LEVERAGE RATIO" means, for any date, the ratio of (a) the
aggregate amount of Total Debt as at such date to (b) Cash Flow for the Rolling
Fiscal Period ending on or immediately prior to such date.
"TRANSFER" means, with respect to any Person, any transaction, or
series of transactions in which such Person sells, conveys, transfers, leases
(as lessor) or otherwise disposes of any of its property with an aggregate Fair
Market Value in excess of $2,000,000, including, without limitation, the
issuance or disposition of Subsidiary Stock.
"12b-1 PLAN" means any distribution plan adopted by a Fund pursuant to
Rule 12b-1 under the Investment Company Act.
"VOTING INTERESTS" means, in the case of a corporation, capital stock
of such corporation that entitles the holder thereof to voting or proxy rights
and, in the case of a partnership, a general partnership interest therein.
24
Schedule B
<PAGE>
EXHIBIT 1
---------
[FORM OF NOTE]
NEW ENGLAND INVESTMENT COMPANIES, L.P.
6.54% SENIOR NOTE DUE JANUARY 9, 2003
No. [_____] [Date]
$[_______] PPN 644095 A*2
FOR VALUE RECEIVED, the undersigned, NEW ENGLAND INVESTMENT COMPANIES,
L.P. (herein called the "Company"), a limited partnership organized and existing
under the laws of the State of Delaware hereby promises to pay to
[___________________________], or registered assigns, the principal sum of
[___________________________] DOLLARS on January 9, 2003, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 6.54% per annum from the date hereof,
payable quarterly on the 9th day of April, July, October and January in each
year, commencing with the April 9, 1996, until the principal hereof shall have
become due and payable, and (b) to the extent permitted by law on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Make-Whole Amount (as defined in the
Note Purchase Agreements referred to below), payable quarterly as aforesaid (or,
at the option of the registered holder hereof, on demand), at a rate per annum
from time to time equal to the greater of (i) 8.54% or (ii) 1% over the rate of
interest publicly announced by Citibank, N.A. from time to time in New York, New
York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America at Citibank, N.A. or at such other place as the Company shall have
designated by written notice to the holder of this Note as provided in the Note
Purchase Agreements referred to below.
1
Exhibit 1
<PAGE>
This Note is one of a series of Senior Notes (herein called the
"Notes") issued pursuant to separate Note Purchase Agreements, dated as of
December 28, 1995 (as from time to time amended, the "Note Purchase
Agreements"), between the Company and the respective Purchasers named therein
and is entitled to the benefits thereof. Each holder of this Note will be
deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
This Note is subject to prepayment, in whole or from time to time in
part, at the times and on the terms specified in the Note Purchase Agreements.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
2
Exhibit 1
<PAGE>
This Note shall be construed and enforced in accordance with the laws
of the State of New York.
NEW ENGLAND INVESTMENT COMPANIES,
L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its General Partner
By_________________________
[Title:]
3
Exhibit 1
<PAGE>
Exhibit 10.20
-------------
Amendment Number 1
to
Investment Management Agreement
Amendment Number 1, effective January 1, 1996, to the Investment Management
Agreement (the "Agreement"), made as of January 1, 1995, among New England
Mutual Life Insurance Company ("NEMLICO"), New England Investment Companies,
L.P. ("NEIC") and Back Bay Advisors, L.P. (the "Manager").
IN CONSIDERATION OF the mutual promises contained herein and in the Agreement,
the parties agree as follows:
(1) Annual Fee Rate:
---------------
a. The annual fee rate paid by NEMLICO to NEIC, as set out in the first
sentence of Section 8(a) and the second sentence of Section 8(b) of the
Agreement, is changed from "0.18%" to "0.166%."
b. The annual fee rate paid by NEIC to Manager, as set in the first
paragraph of Section 9 and in the second sentence of the second
paragraph of Section 9 of the Agreement, is changed from "0.11%" to
"0.135%." This reflects the full fee received by NEIC less a charge for
management services provided by NEIC.
(2) Minimum Fee: The following is substituted in its entirety for Section 8(c)
-----------
of the Agreement:
"c. Minimum Fee. If the fees payable under Section 8(b) above for 1996
-----------
under this Section 8(c), when added to the fees for rendering
investment management services for 1996 (i) paid by NEMLICO to Loomis,
Sayles & Company, L.P. under an Investment Management Agreement dated
March 2, 1994, (ii) paid by NEMLICO to Westpeak Investment Advisors,
L.P. under an Investment Management Agreement dated March 2, 1994,
(iii) paid by NEMLICO to CREA, L.P. under an Investment Management
Agreement (other than that payable under Section 8(c) thereof) made as
of January 1, 1996, and (v) paid by Exeter Reassurance Company, Ltd.
to Loomis, Sayles & Company, L.P. under an Investment Management
Agreement dated December 27, 1994, do not aggregate to the following
minimums for the periods identified:
(i) $3,250,000 for the first quarter of 1996;
(ii) $6,500,000 for the first two quarters of 1996;
(iii) $9,750,000 for the first three quarters of 1996; and
-1-
<PAGE>
(iv) $13,000,000 for all of 1996,
then NEMLICO, as soon as practicable following the end of each such
period, shall make payments to NEIC under this Agreement to increase
total payments to such minimums. NEMLICO and NEIC may establish a
methodology to effect the payment obligations contained in Sections
8(a), 8(b) and 8(c) which may use such assets under management
estimates and payment dates as NEMLICO and NEIC deem convenient."
(3) Term: The second sentence of the first paragraph of Section 11 of the
----
Agreement is amended by striking "November 1, 1995" and substituting
"November 1, 1996."
(4) Assignment: A new second sentence is added in Section 13(b) as follows:
----------
"Effectiveness of a merger of NEMLICO with and into Metropolitan Life
Insurance Company ("MetLife") shall not be deemed an assignment for
purposes of this Agreement and, from and after such effectiveness, MetLife
shall be entitled to the benefits of and be subject to the obligations
contained in the Agreement applicable to NEMLICO prior to the merger."
(5) Effect: This Amendment Number 1, subject to the provisions of Section
------
206C(n) of Massachusetts General Laws, shall be effective as of the date
first above written. In all respects other than those set out above in this
Amendment Number 1, the Agreement shall remain in full force and effect as
originally written.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute and deliver this Amendment Number 1 as of the date first
above written, as a sealed instrument.
NEW ENGLAND MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Frederick K. Zimmermann
________________________________
NEW ENGLAND INVESTMENT
COMPANIES, L.P.
By: NEW ENGLAND INVESTMENT
COMPANIES, INC., its general partner
By: /s/ Edward N. Wadsworth
___________________________
BACK BAY ADVISORS, L.P.
By: BACK BAY ADVISORS, INC.
its general partner
By: /s/ Edgar M. Reed
__________________________
-2-
<PAGE>
Exhibit 10.21
-------------
INVESTMENT MANAGEMENT AGREEMENT
January 1, 1996
Table of Contents
Identification
NEMLICO-New England Mutual Life Insurance Company
Manager-CREA, L.P.
Subsidiaries - L/C Development Corporation
L/C Park Place Corporation
GA Holding Corp.
CRH Co., Inc.
CRB Co., Inc.
Recitals
(a) ISP
(b) Manager's Obligations
1. Employment of Manager
2. Subcontracting
3. Duties of Manager
(a) Operating Plan
(b) Reports
(c) Books and Records
(d) Insurance
(e) Other
4. Authority of Manager
5. General Management Principles
(a) NEMLICO and Legal Requirements
(b) Standard of Care; Indemnification
(c) Certain Brokerage and Custodial Matters
(d) Confidential Relationships
6. Limitations on Manager
(a) Credit Utilization
(b) Sales; Exchanges
7. Other Substantive Terms
(a) Changes in Amount of Managed Assets
(b) Income; Sales Proceeds
8. Fees and Expenses
(a) Fee Rate
(b) Monthly Payment of Estimated Fees and Subsequent Adjustments
(c) Sales Fees
(d) Expenses
<PAGE>
(e) Allocation of Fee Payment Obligations
9. Non-Exclusive Contract
10. Term
11. Designated Representatives
12. Miscellaneous
(a) Prior Agreements Superseded
(b) Assignment
(c) Notices
(d) Consents, Waivers
(e) Conflicting or Invalid Provisions
(f) Governing Law
2
<PAGE>
This Agreement is made as of January 1, 1996 among New England Mutual
Life Insurance Company ("NEMLICO"), CREA, L.P. (the "Manager"), and L/C
Development Corporation, L/C Park Place Corporation, GA Holding Corp., CRH Co.,
Inc. and CRB Co., Inc. (the "Subsidiaries").
Recitals
(a) ISP. NEMLICO has developed, and will modify from time-to-time,
---
its "Investment Strategic Plan," which relates to, in addition to certain
NEMLICO assets, certain assets of the Subsidiaries (each of which has appointed
NEMLICO to act as its agent with respect to all matters contemplated by this
Agreement) and which sets forth certain objectives for yield, capital gains,
maturity, credit quality, asset class diversification and other material
factors. The Investment Strategic Plan will be revised by NEMLICO annually,
and, to the extent necessary to respond to external and internal factors
affecting NEMLICO and the Subsidiaries, on an ongoing basis. NEMLICO desires to
use the investment expertise and experience of Manager to assist with the
formulation and implementation of certain aspects of its Investment Strategic
Plan ("ISP").
(b) Manager's Obligations. Manager has familiarized itself with the
---------------------
ISP, and is prepared and able to discharge its obligations to NEMLICO set forth
in this Agreement.
1. Employment of Manager.
Manager hereby agrees to manage that portion of the assets in
NEMLICO's general account, at the Subsidiaries and otherwise (collectively, the
"Account") identified by NEMLICO to Manager from time to time (such identified
portions being collectively referred to as the "Assets"), in accordance with the
then effective ISP and upon the terms and conditions set forth below.
2. Subcontracting.
Manager may delegate performance of the various duties and services it
is obligated to provide under this Agreement so long as (i) in the case of
investment management services, Manager retains ultimate investment discretion;
and (ii) Manager remains directly and primarily liable, and fully responsible,
to NEMLICO, as appropriate, for the performance of such obligations.
3. Duties of Manager.
(a) Operating Plan. As soon as reasonably practicable following
--------------
receipt of a proposed new or revised ISP in writing, Manager will review and
communicate in writing to NEMLICO Manager's analysis and views of: (i) actions
that should be taken to implement such new or revised ISP, and (ii) the expected
consequences of implementing
3
<PAGE>
such ISP on the future performance and investment characteristics of the Assets.
At the request of NEMLICO, Manager shall meet with NEMLICO representatives to
discuss further such analysis and views.
Upon completion of the foregoing process (which may include the
preparation of several, interim draft ISP's) by means of notifying Manager in
writing that a revised ISP is effective, Manager will prepare, or revise, as
appropriate, for approval by NEMLICO, a written "Operating Plan" with respect to
each effective ISP which sets forth the actions intended to be taken to
implement such new or revised ISP.
The Operating Plan shall also include the following, to the extent
relevant and in detail reasonably required by NEMLICO:
(i) projected income, expenses, capital gains, and cash flow
characteristics of the Assets; and
(ii) a capital budget for the Assets.
Upon approval of the new or revised Operating Plan by NEMLICO, Manager
shall implement the Operating Plan.
(b) Reports. Manager shall prepare for delivery to NEMLICO on a timely
-------
basis, in accordance with specifications reasonably developed by NEMLICO, the
following reports:
(i) a comprehensive report, on an annual basis, relating to Asset
holdings, Asset performance and implementation of the Operating
Plan;
(ii) summary reports, on a quarterly basis, relating to Asset
transactions, Asset holdings and Asset performance;
(iii) a report, on a quarterly basis, showing year-to-date performance
results for the Assets;
(iv) detailed reports, on a quarterly basis, showing projected Asset
holdings, income, capital gains, expenses and cash flow for the
then current year; and
(v) such other reports relating to the Assets as may reasonably be
requested by NEMLICO for presentation to the NEMLICO Board or
Investment Policy Committee or as may otherwise be required for
NEMLICO's or the Subsidiaries' business or regulatory purposes.
4
<PAGE>
(c) Books and Records. Manager shall:
-----------------
(i) maintain and retain separate books and records, and provide data
to NEMLICO and the Subsidiaries from such books and records, with
respect to the Assets in sufficient detail, and in a proper
format, as may be reasonably necessary to satisfy NEMLICO's and
the Subsidiaries' business, accounting and tax needs, as
communicated to Manager from time-to-time;
(ii) allow access to such books and records to NEMLICO and
Subsidiaries representatives and designees, and to regulatory
authority having proper jurisdiction over NEMLICO, during
ordinary business hours; and
(iii) make itself reasonably available to meet with, and make
presentations to, NEMLICO representatives and designees to review
the Assets and matters relating thereto. Such representatives and
designees shall include, without limitation, NEMLICO personnel
(including, without limitation, directors), regulators, and
rating agencies.
(d) Insurance. Manager shall maintain insurance policies with coverages
---------
and deductibles which are reasonable in light of Manager's duties under this
Agreement.
(e) Other. Manager shall review and comment upon any other matter
-----
relating to the Assets and provide other investment services which may include,
without limitation, economic analysis as it may affect investments, the
structure and characteristics of new kinds of investments, and assistance in the
allocation of investments by investment type, which NEMLICO shall reasonably
request. In addition, by mutual agreement evidenced in writing, NEMLICO may
itself carry out certain duties of Manager set out in subsections (b) and (c)
above.
4. Authority of Manager.
To carry out its duties under this Agreement, Manager shall have the
authority to do the following, subject to the provisions of Sections 5 and 6 of
this Agreement:
(a) to invest and reinvest Assets;
(b) to purchase and sell Assets;
(c) to arrange for the delivery of and payment for any Assets bought and
sold;
(d) to use and obtain the assistance and services of such brokers,
dealers, investment bankers, underwriters and other firms, enterprises and
services (collectively, "Brokers") as Manager shall designate or select. Manager
may, to the extent not prohibited by law, select Brokers to effect transactions
for the Account in recognition of
5
<PAGE>
the value of brokerage, research and other services provided by Brokers to
Manager and its affiliates, and cause the Account to pay compensation to a
Broker providing such services in excess of the compensation that another Broker
would have charged for effecting the transaction;
(e) with the prior written consent of NEMLICO, to retain outside counsel
of a stature satisfactory to NEMLICO, and to supervise such counsel in
connection with transactions, regulatory matters, litigation and legislation
relating to the Assets being managed. Manager shall keep NEMLICO reasonably
informed as to matters referred to outside counsel, and shall consult with
NEMLICO as to such representation with respect to developments deemed of
significance to NEMLICO or otherwise as requested by NEMLICO;
(f) to appoint, supervise and manage property managers for each
individual asset requiring such management;
(g) to act on behalf of NEMLICO and the Subsidiaries with respect to
joint ventures or partnerships included in the Assets and generally supervise
and manage all such joint venture and partnership situations;
(h) in accordance with applicable procedures and policies, to execute on
behalf of NEMLICO and the Subsidiaries all documents, instruments or other
agreements of any type relating to the activities related to the Assets which
Manager is authorized hereunder to do;
(i) to supervise the acquisition and maintenance of appropriate
insurance coverage for the Assets; and
(j) to supervise the timely payment of all taxes and assessments levied
against the Assets and, if appropriate, initiate protest actions for abatements,
requests for re-appraisals and the like; and
(k) to service the Assets, including, without limitation, waiving,
modifying or consenting to changes in the terms of an Asset, the obligor
thereunder, or the security therefor; executing instruments of cancellation, and
partial or full release of documents evidencing an Asset; implementing the terms
of and exercising available remedies pursuant to agreements relating to Assets;
and taking any action necessary or advisable to protect the Assets.
5. General Management Principles.
(a) NEMLICO and Legal Requirements. Manager shall perform its duties,
------------------------------
and exercise its authority, hereunder in strict compliance with (1) any
applicable votes of the Board of Directors of NEMLICO or the Subsidiaries or
the Investment Policy Committee of NEMLICO which are communicated in writing
to Manager; and (2) relevant
6
<PAGE>
provisions of Massachusetts and other states' laws governing investments by
insurance companies. NEMLICO shall utilize best efforts to keep Manager
apprised of such laws.
(b) Standard of Care; Indemnification. In the conduct of its obligations
---------------------------------
hereunder, Manager shall exercise the same degree of care and attention as a
prudent person would use in managing the investment of others for compensation
and as is customarily exercised by others acting in capacities similar to that
of the Manager; provided, however, that Manager shall not be liable to NEMLICO
or the Subsidiaries or any person claiming by, through or under NEMLICO or the
Subsidiaries for any error of judgment or any act or failure to act made in good
faith and without willful misfeasance, gross negligence or reckless disregard of
Manager's obligations and duties hereunder. This Agreement does not in any way
waive NEMLICO's or the Subsidiaries' rights under the Investment Advisers Act of
1940 or other applicable federal and state laws and regulations.
NEMLICO and the Subsidiaries, on a joint and several basis, hereby agree
to indemnify Manager for any loss, damages and expenses (including legal fees)
that Manager may incur as a result of any claim asserted or threatened against
Manager by any person for any actual or alleged error of judgment or any actual
or alleged act or failure to act made by Manager in connection with its
performance under this Agreement, provided that the same was made in good faith
and without willful misfeasance, gross negligence or reckless disregard of any
of Manager's obligations and duties hereunder.
(c) Certain Brokerage and Custodial Matters. All Assets shall be held
---------------------------------------
with such brokers or other custodians ("custodians") as may be designated by
NEMLICO. Manager shall not be responsible for any loss incurred by reason of
any act or omission of any such broker or custodian (whether in effecting a
transaction or with respect to the custody of Assets), but Manager will make
reasonable efforts to require that such brokers and custodians perform their
obligations with respect to the Account.
(d) Confidential Relationship. All information and advice relating to
-------------------------
the Account furnished hereunder by any party to any other party or to the
Subsidiaries, including their respective agents and employees, shall be treated
as confidential and shall not be disclosed to others except as contemplated by
this Agreement or as required by law, and except that such disclosure may be
made to other clients of Manager as reasonably required with respect to
investments in which such clients participate together with NEMLICO or the
Subsidiaries.
6. Limitations on Manager.
Notwithstanding anything in this Agreement to the contrary, including,
without limitation, Sections 2 and 3, Manager shall not have any authority to do
any of the following acts on behalf of NEMLICO or the Subsidiaries without the
express, prior, written approval of NEMLICO (which approval may be given in
connection with NEMLICO's approval of an Operating Plan):
7
<PAGE>
(a) Credit Utilization. The utilization, directly or indirectly, of
------------------
NEMLICO's or the Subsidiaries' credit, including, without limitation, recourse
borrowings, guaranties, keep-well agreements, solvency agreements, stand-by
commitments or agreements, master leases, completion guaranties and letters of
credit reimbursement agreements; and
(b) Certain Sales and Exchanges. Unless the same is fully consistent with
---------------------------
the then approved Operating Plan, no sale, exchange or transfer of any Asset may
be made if it involves (i) an in-kind transfer of assets; or (ii) ongoing
financial obligations or contingent liabilities of NEMLICO or the Subsidiaries,
other than normal and customary obligations incident to the sale, exchange or
transfer.
7. Other Substantive Terms.
(a) Changes in amount of Managed Assets. NEMLICO may, upon giving at
-----------------------------------
least 30 days notice to Manager, increase or decrease the amount of Assets to be
managed by Manager pursuant to the Agreement. In the case of a decrease,
Manager will promptly provide a written plan to NEMLICO for its approval,
outlining how the decrease can best be accomplished, in light of the then
applicable ISP and Operating Plan. Upon approval by NEMLICO, Manager shall then
exercise its authority under Section 4 of this Agreement to accomplish the
decrease in accordance with such plan.
(b) Income; Sales Proceeds. Without limiting the generality of
----------------------
subsection (a), any and all income, principal payments, sales proceeds and other
cash realized with respect to Assets being managed by Manager shall be subject
to allocation by NEMLICO. If NEMLICO directs that any such cash be managed by
itself or another manager, Manager shall fully cooperate with NEMLICO to
accomplish the transfer in the manner directed by NEMLICO.
8. Fees and Expenses.
(a) Fee Rate. For the services provided by Manager hereunder, NEMLICO
--------
and the Subsidiaries shall pay Manager a fee at the annual rate of 0.32% of the
average gross quarterly fair market value of the Assets managed by Manager. The
average gross quarterly fair market value of the assets managed by Manager,
which shall be determined (i) in the case of mortgages made by NEMLICO or any of
the Subsidiaries to borrowers unaffiliated with NEMLICO and not managed by
Manager or an affiliate of Manager based upon the outstanding balance of the
loan from time to time and (ii) in the case of NEMLICO equity interests securing
mortgage loans in such manner as to preclude any "double billing" of fees by
Manager, shall be the arithmetical average of the gross fair market value of (1)
the Assets managed by Manager on the last day of a calendar quarter and (2) the
Assets managed by Manager on the last day of the immediately preceding calendar
quarter, all such gross fair market values to be determined by Manager (or its
appointee) in a manner acceptable to NEMLICO. In the event of any material
increase in the duties of Manager required under the Agreement by NEMLICO and
the Subsidiaries
8
<PAGE>
from those so required under the Investment Managment Agreement, made as of
January 1, 1995 (the "Prior Agreement"), by and among NEMLICO, Copley Real
Estate Advisors, Inc., New England Investment Companies, L.P. and the
Subsidiaries, the parties hereto agree to consider in good faith making an
appropriate increase in the fee rate set out above.
(b) Monthly Payment of Estimated Fees and Subsequent Adjustments.
------------------------------------------------------------
NEMLICO and the Subsidiaries shall pay Manager the fees owing under this
Agreement in monthly installments, each payable in advance before the first day
of each calendar month, except that the payment for January shall be made as
early as practicable in January each year. Each such monthly payment shall be in
an amount which is 1/12 of 0.32% of the gross fair market value, as of the end
of the most recent calendar quarter, of the Assets managed hereunder. Each such
monthly payment shall be adjusted to reflect the difference between amounts
previously paid pursuant to the immediately preceding sentence, and amounts
payable pursuant to subsection 8(a) above.
(c) Sales Fees. NEMLICO and the Subsidiaries shall pay Manager a one-time
----------
fee promptly following the closing of the sale of an Asset pursuant to the
Operating Plan to an Unaffiliated Buyer. Such fee shall be calculated as the
following percentages of an Asset's net sales price (which shall be the gross
sales price less expenses associated with the sale): (i) for sales closing in
1996, 0.30%, and (ii) for sales closing in 1997 and thereafter, 0.20%. Such fee
shall be payable notwithstanding the termination of this Agreement or the
exclusion of the Asset (subject to the sale) pursuant to Section 7 (a) prior to
the closing. In addition, the fee rate applicable for sales closing in the
immediately preceding year (using, in addition to the fee rates set out above, a
fee rate of 0.50% for sales closing in 1995) shall be applicable with respect to
sales closing in a year so long as (i) in such immediately preceding year, prior
to receipt by Manager of a termination notice or the action by NEMLICO pursuant
to Section 7 (a) with respect to such Asset, a buyer has executed a binding
letter of intent or a binding purchase and sale agreement and the terms of such
sale are consistent with the then-effective Operating Plan, and (ii) the Manager
has proceeded diligently to close the sale pursuant to such terms or as
otherwise modified with the approval of NEMLICO. As used in this Section 8 (c),
"Unaffiliated Buyer" shall mean a buyer which at the time of the sale is not
managed or advised by Manager or an entity controlled by personal employed by
Manager or intended at the time of sale to be advised by Manager after the sale.
(d) Expenses. NEMLICO shall bear all costs approved by it and specified
--------
in, and incurred by Manager in connection with carrying out, the Operating Plan,
which approval may be given orally. NEMLICO shall also bear all reasonable
costs incurred by Manager in providing reports to NEMLICO as contemplated in
Section 3(b)(v) above and in taking other actions relating to the Assets, in
both instances at the written request of NEMLICO. Manager shall bear all other
costs associated with the general provision of services under this Agreement,
such as the salaries and other costs of Manager's personnel, operating costs for
Manager's business and offices and entertainment and
9
<PAGE>
travel costs of Manager's personnel.
(e) Allocation of Fee Payment Obligations. NEMLICO agrees in the first
-------------------------------------
instance to pay all amounts owed under this Agreement pursuant to Sections 8(a),
8(b), 8(c) and 8(d). However, it is understood that the obligation for such
payments among NEMLICO and the Subsidiaries under Sections 8(a), 8(b) and 8(d)
is to be shared proportional to the amount of Assets managed for each, except
that if amounts paid under Section 8(d) are properly allocable to a particular
Asset, the obligation will be allocated proportional to ownership of the
particular Asset. In addition, amounts paid under Section 8(c) will be
allocated proportional to ownership of the Asset sold.
9. Non-Exclusive Contract.
Manager acts as adviser to other clients and may give advice, and take
action, with respect to any of those which may differ from the advice given, or
the timing or nature of action taken, with respect to the Account. Manager
shall have no obligation to purchase or sell for the Account, or to recommend
for purchase or sale by the Account, any asset that Manager or its principals,
affiliates or employees may purchase or sell for themselves or for any other
clients.
10. Term.
This Agreement shall be effective as of January 1, 1996, subject to the
provisions of Section 206C(n) of Chapter 175 of Massachusetts General Laws, and
shall continue (i) until an Event of Default (as defined below) occurs, or (ii)
until NEMLICO or Manager, by notice to all other parties, and with or without
cause and without penalty, terminates this Agreement. Such notice, which may be
given at any time on or after November 1, 1996, shall be effective on the date
specified by the notifying party, which date shall be not less than 60 days
after the date of the notice.
Upon termination, Manager shall promptly turn over to NEMLICO or whomever
else NEMLICO designates all cash, books, records, materials, supplies,
contracts, documents, and such other papers and records pertaining to the Assets
previously managed by Manager that Manager shall then have in its possession;
assign to NEMLICO, the Subsidiaries or a proper designee any contracts
pertaining to such Assets; render a final accounting with respect to such
Assets; and use their best efforts to cooperate with NEMLICO and the
Subsidiaries to assist with the orderly transition of management of such Assets
to NEMLICO, the Subsidiaries or their designee.
An "Event of Default" shall exist if:
(i) NEMLICO notifies Manager of a material breach by Manager of any
provision of this Agreement, which notice shall specify in detail
the nature of the breach, and the actions NEMLICO believes are
necessary to cure the breach; and
10
<PAGE>
(ii) the notified party fails to use reasonable efforts to cure said
breach, and complete said cure within a reasonable time.
11. Designated Representatives.
NEMLICO has designated NEMLICO's Chief Investment Officer as the person
responsible for all matters relating to this Agreement. Manager has designated
its President as the person responsible for all matters relating to this
Agreement. The persons occupying the positions noted may each designate one
other person who may also represent such entity with respect to all matters
relating to this Agreement.
12. Miscellaneous.
(a) Prior Agreements Superseded. Except as provided below, this
---------------------------
Agreement constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements (including the Prior
Agreement, which shall expire upon the effectiveness of this Agreement) with
respect thereto, provided that the provisions of Section 5 (b) of the Prior
Agreement captioned "Standard of Care; Indemnification" shall survive such
expiration. No alteration, modification or amendment hereof shall be binding on
any party unless made by a writing signed by all parties hereto. Effectiveness
of a merger of NEMLICO with and into Metropolitan Life Insurance Company
("MetLife") shall not be deemed an assignment for purposes of this Agreement
and, from and after such effectiveness, MetLife shall be entitled to the
benefits of and be subject to the obligations contained in the Agreement
applicable to NEMLICO prior to the merger.
(b) Assignment. No party may assign its rights and duties under this
----------
Agreement without the express consent of the other parties hereof, except as
provided in Section 2 hereof.
(c) Notices. All notices required or permitted by this Agreement shall
-------
be in writing and shall be deemed given (i) when delivered to a party in hand at
the notice addresses set forth below or (ii) 72 hours after mailing by
registered or certified mail, with postage prepaid, return receipt requested and
addressed to the notice addresses set forth below:
NEMLICO and the Subsidiaries:
NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY
501 Boylston Street
Boston Massachusetts 02117
ATTENTION: Chief Investment Officer
11
<PAGE>
Manager:
CREA, L.P.
399 Boylston Street
Boston, Massachusetts 02116
ATTENTION: President
Any party may change its notice address at any time by notice to the other
parties.
(d) Consents, Waivers. No consent or waiver, express or implied, by any
-----------------
party to or of any breach or default in the performance by any other party of
its obligations hereunder shall be deemed or construed to be a consent or waiver
to or of any other breach or default in the performance by such other party.
Failure on the part of any party to complain of any act of failure to act of any
other party or to declare any other party in default, irrespective of how long
such failure continues, shall not constitute a waiver by such party of its
rights hereunder.
(e) Conflicting or Invalid Provisions. To the extent that this Agreement
---------------------------------
may be in apparent conflict with any applicable law or regulation, this
Agreement shall be construed in a manner consistent with such law or regulation.
The invalidity or illegality of any provision of this Agreement shall not be
deemed to affect the validity or legality of any other provision of this
Agreement.
(f) Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written, as a sealed instrument.
NEW ENGLAND MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Frederick K. Zimmermann
________________________________
CREA, L.P.
By: Copley Real Estate Advisors, Inc.
its general partner
By: /s/ Pamela J. Herbst
___________________________
12
<PAGE>
L/C DEVELOPMENT CORPORATION
By: /s/ Peter P. Twining
____________________________
L/C PARK PLACE CORPORATION
By: /s/ Peter P. Twining
____________________________
GA HOLDING CORP
By: /s/ Peter P. Twining
____________________________
CRH CO., INC.
By: /s/ Peter P. Twining
____________________________
CRB CO., INC.
By: /s/ Peter P. Twining
_____________________________
13
<PAGE>
Exhibit 10.27
-------------
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of
September 29, 1995 by and among New England Investment Companies, L.P., a
Delaware limited partnership ("NEIC") and Harris Associates L.P. ("HALP").
Capitalized terms used herein and not defined herein shall have the meanings set
forth in the Partnership Admission Agreement (as defined in Section 1.1(e)
hereof).
1. Registration Rights.
1.1. Definitions.
(a) The term "Exclusive Rights" means any rights of a Subsequent
Rightholder to cause NEIC to effect (or use its best efforts to
effect) the registration of Securities held by such Subsequent
Rightholder, which rights, by the terms of the agreement between
NEIC and such Subsequent Rightholder establishing such rights,
include the right to exclude any Holder from any participation in
such offering;
(b) The terms "Form S-3," "Form S-4" and "Form S-8" mean such
respective forms under the Securities Act of 1933, as amended
(the "1933 Act") as in effect on the date hereof or any successor
registration forms to Form S-3, Form S-4 and Form S-8,
respectively, under the 1933 Act subsequently adopted by the
Securities and Exchange Commission (the "SEC");
(c) The term "Holder" means each of HALP and to the extent such
transferee has executed a joinder to this Agreement substantially
in the form of Annex 1.1(c) hereto, (i) any Partner to whom HALP
may transfer Registrable Securities, or (ii) any transferee of
any Partner who has acquired at least 25% (or such lower
percentage as NEIC may in its sole discretion consent to with
respect to any given transfer) of the number of Registrable
Securities (A) allocable to such Partner as of the
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Closing Date (but after giving effect to any repurchases pursuant
to Sections 1.2(a)(ii) and 1.2(a)(iii) of the Partnership
Admission Agreement) for transfers prior to the Adjustment Date
and (B) allocable to such Partner as of the Adjustment Date,
including the number allocable as of the Closing Date and as of
the 1996 Payment Date (after giving effect to any repurchases
pursuant to Sections 1.2(a)(ii), 1.2(a)(iii) and 1.2(b)(ii) of
the Partnership Admission Agreement), for transfers following the
Adjustment Date;
(d) The term "Initiating Holder(s)" means any Holder (or group of two
or more Holders) holding in the aggregate and requesting
registration of at least that number of Registrable Securities
the aggregate net offering price (after deduction of underwriting
discounts and commissions) of which is expected to be at least $5
million;
(e) The term "Partnership Admission Agreement" means the Partnership
Admission Agreement dated June 22, 1995 by and among NEIC, HALP
and HAI.
(f) The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act,
and the automatic effectiveness or the declaration or ordering of
effectiveness of such registration statement or document;
(g) The term "1993 Registration Rights Agreement" means the
Registration Rights Agreement dated as of September 15, 1993 by
and among NEIC, Reich & Tang, Inc. ("RTI") and New England Mutual
Life Insurance Company ("TNE"), as in effect from time to time;
and
(h) The term "Registrable Securities" means (i) (A) any limited
partnership interest or other equity security of NEIC
("Securities") owned on the date hereof or hereafter acquired by
HALP (or any Holder) pursuant to Section 1.2(b) of the
Partnership Admission Agreement and (B) any Security issued as
(or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of, such Securities; provided, however, that any of
such Securities (x) that have been previously sold to the public
pursuant to a registered public offering or pursuant to an
exemption from the registration requirements of the 1933 Act; (y)
that are eligible for sale pursuant to Rule 144(k) under the 1933
Act; and (z) that are the subject of either a Repurchase Notice
or a 1996 Repurchase Notice shall cease to be Registrable
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Securities and (ii) Registrable Securities as defined in the 1993
Registration Rights Agreement; and provided, further, however,
-------- ------- -------
that NEIC in its sole discretion may elect to include any
Securities as Registrable Securities that would otherwise cease
to be Registrable Securities under clause (y) of this Section
1.2(h);
(i) The number of units of "Registrable Securities then outstanding"
shall be determined by adding the number of Securities
outstanding which are, and the number of Securities issuable
pursuant to then exercisable or convertible securities which upon
issuance would be, Registrable Securities;
(j) The term "Subsequent Rightholder" means any person or entity to
which NEIC shall have granted, after the date of this Agreement,
rights to cause NEIC to effect (or use its best efforts to
effect) the registration of any Securities, but shall not include
any Holder;
(k) The term "TNE Co." means TNE or any entity controlled by,
controlling or under common control with TNE.
1.2. NEIC Registration. If NEIC proposes to register (including for this
purpose a registration effected by NEIC for holders of Securities
other than the Holders) any Securities under the 1933 Act in
connection with the public offering of such Securities solely for cash
(other than (i) a registration on Form S-8 relating solely to the sale
of Securities to participants in a NEIC compensation, incentive or
bonus plan, or (ii) a registration on Form S-4 or any successor form),
NEIC shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of any Holder given within
20 days after mailing of such notice by NEIC, NEIC shall use its best
efforts to cause a registration statement covering all of the
Registrable Securities that each such Holder has requested to be
registered to become effective under the 1933 Act, provided, however,
that the number of Registrable Securities of each Holder to be
included in such registration shall be subject to the provisions of
Sections 1.6, 1.10 and 1.11 hereof, and provided further, that the
Holders shall have no right under this Section 1.2 to participate in
any registration effected at the request of any Subsequent Rightholder
if such Subsequent Rightholder has Exclusive Rights with respect to
such registration. Except as otherwise provided in Section 1.11 of
this Agreement, Subsequent Rightholders shall be entitled to
participate in any offering pursuant to this Section 1.2, to the
extent provided in any agreement between such Subsequent Rightholders
and NEIC. NEIC shall be under no obligation to complete any proposed
registration or offering of Securities described in this Section 1.2
and shall incur no liability to any Holder for its failure to do so.
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1.3. Obligations of NEIC. Whenever required under this Section 1 to use its
best efforts to effect the registration of any Registrable Securities,
NEIC shall, as expeditiously as reasonably possible: Prepare and file
with the SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of any Holder of
the Registrable Securities registered thereunder, keep such
registration statement effective for up to 180 days or until the
Holders have informed NEIC in writing that the distribution of their
Securities has been completed; and shall:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement, and use its best efforts to
cause each such amendment and supplement to become effective, as
may be necessary to comply with the provisions of the 1933 Act
with respect to the disposition of all securities covered by such
registration statement.
(b) Furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the 1933 Act, and such other documents
as they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(c) Use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that NEIC shall not
be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of
process in any such jurisdiction.
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall
also enter into and perform its obligations under such an
agreement, including furnishing any opinion of counsel or
entering into a lock-up agreement restricting the sale of such
Holder's Registrable Securities for some period reasonably
requested by the managing underwriter. Each Holder shall also
enter into such a lockup agreement reasonably requested by the
managing underwriter.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating
thereto covered by
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such registration statement is required to be delivered under the
1933 Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing and promptly file such
amendments and supplements as may be required pursuant to
subparagraph (a) of this Section 1.3 on account of such event and
use its best efforts to cause each such amendment and supplement
to become effective.
(f) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date
that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant
to this Section 1, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion,
dated such date, of the counsel representing NEIC for the
purposes of such registration, in form and substance as is
customarily given by company counsel to the underwriters in an
underwritten public offering, addressed to the underwriters, if
any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated such date, from the
independent certified public accountant of NEIC, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(g) Apply for listing and use its best efforts to list the
Registrable Securities being registered on any national
securities exchange on which a class of NEIC's equity securities
is listed or, if NEIC does not have at such time a class of
equity securities listed on a national securities exchange, apply
for qualification and use its best efforts to qualify the
Registrable Securities being registered for inclusion on the
automated quotation system of the National Association of
Securities Dealers, Inc.
1.4. Furnish Information. It shall be a condition precedent to the
obligations of NEIC to take any action pursuant to this Section 1 in
respect of the Registrable Securities of any selling Holder that such
selling Holder shall furnish to NEIC such information regarding
itself, the Registrable Securities held by it, and the intended method
of disposition of such securities as shall be required to effect the
registration of its Registrable Securities.
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1.5. Expenses of Registration. NEIC shall bear and pay all expenses
incurred in connection with any offering of Registrable Securities
with respect to any registration pursuant to Sections 1.2 and 1.8,
including, without limitation, all registration, filing and
qualification fees, printing and accounting fees, fees and
disbursements of counsel for NEIC and the reasonable fees and
disbursements of one counsel for the selling holders of such
Registrable Securities. Underwriting discounts and commissions
relating to Registrable Securities will be borne and paid ratably by
the holders of such Registrable Securities.
1.6. Underwriting Requirements. In connection with any offering involving
an underwriting of securities being issued by NEIC, NEIC shall not be
required under Section 1.2 to include any of the Holders' securities
in such underwriting unless they accept the terms of the underwriting
as agreed upon between NEIC and the underwriters selected by it, and
then only in such quantity, if any, as will not, in the opinion of the
underwriters, jeopardize the success of the offering by NEIC. If the
managing underwriter for the offering shall advise NEIC in writing
that the total amount of securities, including Registrable Securities,
requested by holders of Securities to be included in such offering
exceeds the amount of Securities that can be successfully offered,
then NEIC shall be required to include in the offering only that
number of such Securities, including Registrable Securities, which the
managing underwriter believes will not jeopardize the success of the
offering (the Securities so included to include first all Securities
to be sold for the account of NEIC and then any remaining availability
to be apportioned among participating holders of Securities as
follows: the number of Securities held by holders that may be included
in the underwriting, if any, shall, subject to the provisions of
Sections 1.10 and 1.11 hereof, be apportioned pro rata among the
selling holders in accordance with the number of Securities held by
such holders).
1.7. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, NEIC will indemnify and hold
harmless each Holder, the officers, directors, partners, agents
and employees of each Holder, any underwriter (as defined in the
1933 Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act")
(collectively, the "NEIC Indemnitees"), against any losses,
claims, damages or liabilities (joint or several) to which they
may become subject under the 1933 Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
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<PAGE>
based upon any of the following statements, omissions or
violations (each a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or (iii)
any violation or alleged violation by NEIC of the 1933 Act, the
1934 Act, any state securities law or any rule or regulation
promulgated under the 1933 Act, the 1934 Act or any state
securities law. NEIC will reimburse each NEIC Indemnitee for any
legal or other expenses reasonably incurred by such NEIC
Indemnitee in connection with investigating or defending any such
loss, claim, damage, liability or action. The indemnity agreement
contained in this subsection 1.7(a) shall not apply to amounts
paid in settlement of any loss, claim, damage, liability or action
if such settlement is effected without the consent of NEIC (which
consent shall not be unreasonably withheld), nor shall NEIC be
liable to a Holder, any officer, director, partner, agent or
employee of such Holder, any underwriter for such Holder or any
person who controls such Holder or underwriter, in any such case
for any such loss, claim, damage, liability or action (i) to the
extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration
by or on behalf of such Holder, any underwriter for such Holder or
any person who controls such Holder or underwriter or (ii) in case
of a sale directly by a Holder of Registrable Securities
(including a sale of such Registrable Securities through any
underwriter retained by such Holder to engage in a distribution
solely on behalf of such Holder), such untrue statement or alleged
untrue statement or omission or alleged omission was contained in
a preliminary prospectus and corrected in a final or amended
prospectus, and such Holder failed to deliver a copy of the final
or amended prospectus at or prior to the confirmation of the sale
of the Registrable Securities to the person asserting any such
loss, claim, damage or liability in any case where such delivery
is required by the 1933 Act.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless NEIC, its general partner, each of the directors
of the general partner, each of the officers of NEIC or of the
general partner who have signed the registration statement, each
person, if any, who controls NEIC or its general partner within
the meaning of the 1933 Act or the 1934 Act, each agent and any
underwriter for NEIC, and any
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<PAGE>
other Holder selling Securities in such registration statement or
any of its directors, officers, partners, agents or employees or
any person who controls such Holder or underwriter (collectively,
the "Holder Indemnitees"), against any losses, claims, damages or
liabilities (joint or several) to which any Holder Indemnitee may
become subject, under the 1933 Act, the 1934 Act or other federal
or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by or on behalf of
such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by any Holder Indemnitee in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the liability
of any Holder hereunder shall be limited to the amount of proceeds
received by such Holder in the offering giving rise to the
Violation; and provided further, that the indemnity agreement
contained in this Section 1.7(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld) nor, in the
case of a sale directly by NEIC of its securities (including a
sale of such Securities through any underwriter retained by NEIC
to engage in a distribution solely on behalf of NEIC), shall the
Holder be liable to any Holder Indemnitee in any case in which
such untrue statement or alleged untrue statement or omission or
alleged omission was contained in an preliminary prospectus and
corrected in a final or amended prospectus, and NEIC failed to
deliver a copy of the final or amended prospectus at or prior to
the confirmation of the sale of the Securities to the person
asserting any such loss, claim, damage or liability in any case
where such delivery is required by the 1933 Act.
(c) Promptly after receipt by a NEIC Indemnitee or a Holder Indemnitee
of notice of the commencement of any action (including any
governmental action), such Indemnitee will, if a claim in respect
thereof is to be made against any indemnifying party under this
Section 1.7, deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party
so desires, jointly with any other indemnifying party similarly
noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
Indemnitee shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying
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<PAGE>
party, if representation of such Indemnitee by the counsel
retained by the indemnifying party would be inappropriate due to
actual or potential differing interests, as reasonably determined
by either party, between such Indemnitee and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the Indemnitee under
this Section 1.7 to the extent of such prejudice, but the omission
so to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any Indemnitee
otherwise than under this Section 1.7.
(d) The obligations of NEIC and the Holders under this Section 1.7
shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1.
1.8. Form S-3 Registration.
(a) In case NEIC shall receive from any Initiating Holder(s) a
written request that NEIC effect a registration on Form S-3 (or
on any successor form to Form S-3 regardless of its designation)
and any related qualification or compliance with respect to all
or a part of the Registrable Securities owned by such Initiating
Holder(s), NEIC will:
(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to the other
Holders; and
(ii) use its best efforts to effect, as soon as practicable, such
registration, qualification or compliance as may be so
requested and as would permit or facilitate the sale and
distribution of all such Initiating Holder(s)' Registrable
Securities as are specified in such request, together with
all of the Registrable Securities of the other Holders
joining in such request as are specified in a written
request given within 20 days after receipt of such written
notice from NEIC, subject to the provisions of Section 1.9
hereof; provided, however, that NEIC shall not be obligated
to effect any such registration, qualification or
compliance, pursuant to this Section 1.8 if: (1) Form S-3
(or any successor form to Form S-3 regardless of its
designation), is not available for such offering by the
Holders; (2) the aggregate net offering price (after
deduction of underwriting discounts and commissions) of the
Registrable Securities specified in such request is less
than $5,000,000; (3) NEIC has already effected one
registration on
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Form S-3 within the previous six-month period (exclusive of
registrations effected pursuant to Section 1.2 hereof); or
(4) NEIC shall furnish to the Holders a certificate signed
by the President of the general partner of NEIC stating that
in the good faith judgment of the board of directors of such
general partner of NEIC, it would not be in the best
interests of NEIC and its security for such Form S-3
registration to be effected at such time, in which event
NEIC shall have the right to defer the filing of the Form S-
3 registration for a period of not more than 120 days after
receipt of the request of the Initiating Holder(s) under
this Section 1.8.
(b) In connection with any offering pursuant to paragraph (a) of this
Section 1.8, NEIC shall not be required to include any of the
Holders' Securities in such underwriting unless the participating
Holder or Holders enter into an underwriting agreement in
customary form with an underwriter selected for such underwriting
by the Initiating Holder(s) or, in the event the other Holder(s)
join in such request, an underwriter selected by mutual agreement
of the Holders, provided, however, that in the event the Holders
are unable to agree on the selection of an underwriter, each
Holder shall select one underwriter for such underwriting and
provided further, that in the event the Holders are unable to
agree on which underwriter selected by them shall serve as the
managing underwriter, the board of directors of the general
partner of NEIC shall make such determination. The Holder or
Holders making or joining in a request under paragraph (a) of this
Section 1.8 shall consult with the board of directors of the
general partner of NEIC before selecting such underwriter or
underwriters, but approval of such board of directors is not
required for the selection of an underwriter. Except as otherwise
provided in Section 1.11 of this Agreement, Subsequent
Rightholders shall be entitled to participate in any offering
pursuant to this Section 1.8, to the extent provided in any
agreement between such Subsequent Rightholders and NEIC. If the
managing underwriter for the offering shall advise NEIC and the
participating holders of Securities in writing that the total
amount of Securities, including Registrable Securities, requested
by holders of Securities to be included in such offering exceeds
the amount of Securities that can be successfully offered, then
NEIC shall be required to include in the offering only that number
of such Securities, including Registrable Securities, which the
managing underwriter believes will not jeopardize the success of
the offering (the Securities so included to be apportioned as
follows: the number of Securities held by holders that may be
included in the underwriting shall, subject to the provisions of
Sections 1.10 and 1.11 hereof, be
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apportioned pro rata among the selling holders in accordance with
the number of Securities held by such holders).
1.9. Registrations under the 1993 Registration Rights Agreement. The
Holders shall have the right to participate on a pro rata basis in
registrations effected pursuant to Sections 1.2 and 1.8 of the 1993
Registration Rights Agreement, on such terms and subject to the
limitations contained therein.
1.10. Special Participation Rights of RTI. Until such time as the aggregate
offering price of all Registrable Securities that are Registrable
Securities within the meaning of Section 1.1(h)(ii) sold pursuant to a
registered public offering shall equal $90 million, RTI shall have the
right, in each registered offering provided for in this Section 1 or
in Section 1 of the 1993 Registration Rights Agreement in which TNE
Co. is a seller, to sell no fewer Registrable Securities than TNE Co.
is selling.
1.11. Limitations on Registration Rights. Each of the Holders acknowledges
that so long as the 1993 Registration Rights Agreement remains in
effect and RTI holds 3,600,000 or more limited partnership units of
NEIC (or such lesser or greater number of limited partnership units or
other Securities as is determined by equitable adjustment to reflect
any split (by distribution or otherwise), reverse split, combination,
conversion or other similar adjustment in the number of outstanding
Securities of NEIC that may occur after the date hereof):
(a) RTI shall have the right to participate in any public offering of
Securities for which NEIC shall effect a registration at the
request of any Holder or Subsequent Rightholder; and if the
managing underwriter of such offering advises the participating
holders of Securities in writing that marketing factors require a
limitation of the number of Securities to be underwritten, then
the number of Securities that may be included in the registration
shall be apportioned pro rata among the participating holders in
accordance with the number of Securities held by the participating
holder (unless otherwise agreed by all the participating holders);
and
(b) Except with RTI's consent, RTI's participation in any offering
pursuant to Section 1.2 or 1.8 of this Agreement shall in no event
be reduced in order to make possible the participation (or
increased participation) in such offering of any Holder or any
Subsequent Rightholder.
1.12. Limitations on Subsequent Registration Rights. Each Holder shall
have the right to participate in any public offering of Securities
for which NEIC shall effect a registration at the request of any
Subsequent Rightholder (other than registrations effected as the
result of a Subsequent Rightholder's exercise of
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Exclusive Rights); and if the managing underwriter of such
offering advises the participating holders of Securities in
writing that marketing factors require a limitation of the number
of Securities to be underwritten, then, subject to Sections 1.10
and 1.11, the number of Securities that may be included in the
registration shall be appropriated pro rata among the
participating holders in accordance with the number of Securities
held by the participating holder (unless otherwise agreed by all
the participating holders).
2. Representations and Warranties. Each Holder represents and warrants as
follows:
2.1. Authority. Such Holder has full right, power and authority to execute,
deliver and perform this Agreement and to perform such Holder's
obligations hereunder. This Agreement has been duly executed and
delivered by such Holder and constitutes a valid and legally binding
obligation of such Holder, 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.
2.2. No Violation. Neither the execution and delivery by such Holder of
this Agreement nor consummation of the transactions contemplated
herein, nor compliance with the terms, conditions and provisions
hereof will conflict with or violate any provision of law or the
statutes of incorporation, certificate of incorporation or articles of
organization and bylaws of such party, 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 such Holder is a party or by which
such Holder is bound or to which such Holder is subject, or constitute
a default thereunder.
3. Miscellaneous.
3.1. No Legend. No Security to be sold or otherwise transferred by any
Holder hereunder shall bear any legend restricting the transferability
of such Security (other than as may be required by the NEIC's Amended
and Restated Agreement of Limited Partnership (the "Partnership
Agreement")), nor shall NEIC cause or permit any transfer agent or
registrar appointed by NEIC with respect to such Security to refuse or
fail to effect a transfer or registration with respect to such
Security (other than as may be required by the Partnership Agreement),
provided that such Holder provides to NEIC a certificate in connection
with such transfer or registration to the effect that such transfer or
registration is not in violation of any applicable securities or other
law.
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3.2. Notices. All notices, requests, consents and demands shall be in
writing and shall be personally delivered, mailed, postage prepaid,
telecopied or telegraphed, to the addresses set forth on Exhibit A
hereto. All such notice, requests, consents, demands and other
communications shall, when mailed (registered or certified mail,
return receipt requested, postage prepaid), personally delivered, or
telegraphed, be effective four days after deposit in the mails, when
personally delivered, or when delivered to the telegraph company,
respectively, addressed as aforesaid, unless otherwise provided herein
and, when telecopied, shall be effective upon actual receipt. Copies
of all notice and other communications shall be sent to the parties
indicated on Exhibit A hereto at their respective addresses set forth
therein.
3.3. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the matters contemplated herein. This
Agreement supersedes any and all prior understandings or agreements as
to the subject matter of this Agreement.
3.4. Amendments, Waivers and Consents. Any provision in this Agreement to
the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision
herein set forth may be omitted or waived, if NEIC shall obtain
consent thereto in writing from the Holders of two-thirds of the
Registrable Securities as defined in Section 1.1(h)(i) hereof then
outstanding.
3.5. Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the respective
parties hereto, provided, however, that the rights to cause NEIC to
register Registrable Securities pursuant to Section 1 hereof, together
with the corresponding obligations may not be assigned by any Holder
except in connection with a transfer permitted by Section 1.1(c)
hereof to another Holder, and provided further, that NEIC shall not
have the right to assign its obligations hereunder or any interest
herein without obtaining the prior written consent of the Holders in
accordance with Section 2.4.
3.6. Subsequent Changes. Reference is made to Section 12.4 of the Agreement
of Limited Partnership of NEIC. To the extent not contrary to the
provisions of said Section 12.4, if any or all of the Registrable
Securities are converted into or exchanged for securities of another
entity in connection with a Restructuring referred to in said Section
12.4, each of the parties hereto agrees to use its best efforts to
obtain the agreement of such entity to confer upon the Holders
registration rights with respect to the securities of such entity to
be held by them that are substantially similar to the registration
rights provided herein with respect to Registrable Securities. Except
as otherwise set forth in this Section
-13-
<PAGE>
3.6, the registration rights described in this Agreement shall cease
to exist on the day prior to the date on which NEIC shall cease to be
grandfathered from the application of (S) 7704 of the Internal Revenue
Code.
3.7. General. The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular
includes the plural, the plural includes the singular, and the
masculine gender includes the neuter, masculine and feminine genders.
This Agreement shall be governed by and construed under the internal
laws of The Commonwealth of Massachusetts.
3.8. Severability. If any provisions of this Agreement shall be found by
any court of competent jurisdiction to be invalid or unenforceable,
the parties hereby waive such provision to the extent that it is found
to be invalid or unenforceable. Such provision shall, to the maximum
extent allowable by law, be modified by such court so that it becomes
enforceable, and, as modified, shall be enforced as any other
provision hereof, all other provisions hereof continuing in full force
and effect.
3.9. Counterparts. This Agreement may be executed in counterparts, all of
which together shall constitute one and the same instrument.
3.10. Specific Performance. NEIC recognizes that the rights of the Holders
under this Agreement are unique, and, accordingly, the Holders shall,
in addition to such other remedies as may be available to them at law
or in equity, have the right to enforce their rights hereunder by
actions for injunctive relief and specific performance to the extent
permitted by law. This Agreement is not intended to limit or abridge
any rights of the Holders which may exist apart from this Agreement.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
NEW ENGLAND INVESTMENT COMPANIES,
L.P.
By NEW ENGLAND INVESTMENT
COMPANIES, INC., its general partner
By /s/ Peter S. Voss
------------------------------------
Title: Chairman and Chief Executive
Officer
HARRIS ASSOCIATES L.P.
By HARRIS ASSOCIATES, INC.,
its general partner
By /s/ Victor Morgenstern
-------------------------------------
Title: President
-15-
<PAGE>
EXHIBIT A
ADDRESSES
New England Investment Companies, L.P.
c/o New England Investment Companies, Inc.
399 Boylston Street
Boston, MA 02117
Attention: Edward N. Wadsworth, Esq.
General Counsel
with a copy to:
Christopher A. Klem, Esq.
Ropes & Gray
One International Place
Boston, MA 02110
Harris Associates L.P.
Two North La Salle Street
Suite 500
Chicago, Illinois 60602-3790
Attention: Victor A. Morgenstern
with a copy to:
Herbert S. Wander, Esq.
Katten, Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
-16-
<PAGE>
Annex 1.1(c)
------------
JOINDER AGREEMENT
Reference is hereby made to the Registration Rights Agreement dated as of
_______, 1995 (the "Registration Rights Agreement") by and between New England
Investment Companies, L.P. and Harris Associates L.P. The undersigned hereby
(i) represents that it has examined the Registration Rights Agreement and that
it is a Holder as defined therein and (ii) agrees to be bound by the terms of
the Registration Rights Agreement as if an original Holder thereunder.
IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement to be
duly executed as of the date set forth below.
---------------------------
Date:
Name and Address:
- ---------------------
- ---------------------
- ---------------------
- ---------------------
-17-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
State of
Incorporation
or
Subsidiary Organization
---------- ------------
<C> <S> <C>
1. Back Bay Advisors, Inc. Massachusetts
2. Back Bay Advisors, L.P. Delaware
3. Graystone Partners, Inc. Delaware
4. Graystone Partners, L.P. Delaware
5. Harris Associates, Inc. Delaware
6. Harris Associates, L.P. Delaware
7. Loomis, Sayles & Company, Inc. Massachusetts
8. Loomis, Sayles & Company, L.P. Delaware
9. MC Management, Inc. Massachusetts
10. MC Management, L.P. Delaware
11. Marlborough Capital Advisors, Inc. Massachusetts
12. Marlborough Capital Advisors, L.P. Delaware
13. NEF Corporation Massachusetts
14. New England Funds, L.P. Delaware
15. New England Funds Management, L.P. Delaware
16. Westpeak Investment Advisors, Inc. Massachusetts
17. Westpeak Investment Advisors, L.P. Delaware
18. Copley Investment Group, Inc. (includes 23 real Massachusetts
estate investment subsidiaries, all of
which operate in the United States)
19. New England Investment Associates, Inc. Delaware
20. Reich & Tang Distributors, L.P. Delaware
21. Reich & Tang Services, L.P. Delaware
22. Reich & Tang Asset Management, Inc. Massachusetts
23. Reich & Tang Asset Management, L.P. Delaware
24. NEIC Holdings, Inc. Massachusetts
</TABLE>
<PAGE>
Exhibit 23
----------
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-77904) of
New England Investment Companies, L.P. of our report dated January 31, 1996
appearing on page 40 of this Annual Report on Form 10-K.
/s/ Price Waterhouse LLP
Boston, Massachusetts
March 25, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from December 31,
1995 Financial Statements and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 34,385
<SECURITIES> 0
<RECEIVABLES> 54,403
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,485
<PP&E> 17,167
<DEPRECIATION> 0
<TOTAL-ASSETS> 520,873
<CURRENT-LIABILITIES> 72,265
<BONDS> 80,919
<COMMON> 0
0
0
<OTHER-SE> 309,023
<TOTAL-LIABILITY-AND-EQUITY> 520,873
<SALES> 0
<TOTAL-REVENUES> 280,258
<CGS> 0
<TOTAL-COSTS> 220,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,301
<INCOME-PRETAX> 54,305
<INCOME-TAX> 1,555
<INCOME-CONTINUING> 52,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,750
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
</TABLE>
