<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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, 1996
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 No. 1-09772
PIMCO ADVISORS L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1349805
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
800 NEWPORT CENTER DRIVE, NEWPORT BEACH, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (Zip Code)
Registrant's telephone number, including area code: 714-717-7022
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Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS WHICH REGISTERED
CLASS A UNITS OF LIMITED PARTNER INTEREST NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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(Title of Class)
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. [_]
State the aggregate market value of the voting stock* held by non-
affiliates of the registrant. As of March 24, 1997, the value was
approximately $305,747,190.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
___________
* The securities held by non-affiliates are not voting stock but are 13,588,764
publicly held Class A Units of limited partner interest.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
PIMCO Advisors L.P.(the "Partnership" or "PIMCO Advisors") is one of the
nation's largest publicly traded investment management firms with approximately
$110 billion of assets under management at December 31, 1996. The Partnership
offers a broad range of investment management services and styles to
institutional and retail investors, combining the fixed income-oriented
institutional investment management operations of Pacific Investment Management
Company, the equity-oriented investment management operations of Columbus Circle
Investors and four smaller affiliated domestic and international equity
investment management firms and mutual fund operations. The Partnership provides
investment management services primarily to (i) large institutional clients
through separate accounts, (ii) smaller institutional clients and financial
intermediaries through the institutional share classes of the PIMCO Funds
(described below) and (iii) retail investors through the retail share classes of
the PIMCO Funds, which are sold principally through broker-dealers.
The Partnership's strategy is to pursue growth by marketing the investment
management expertise, performance record and reputation of its six institutional
investment management firms (the "Investment Management Firms"). The Investment
Management Firms are five Delaware partnerships: Pacific Investment Management
Company ("Pacific Investment Management"), Columbus Circle Investors ("CCI"),
Cadence Capital Management ("Cadence"), NFJ Investment Group ("NFJ") and
Parametric Portfolio Associates ("Parametric"); and one United Kingdom limited
partnership, Blairlogie Capital Management ("Blairlogie").
The six Investment Management Firms are structured as separate subsidiaries.
The Partnership believes this decentralized structure enables the Investment
Management Firms to implement their own distinct investment strategies and
philosophies, providing financial and other incentives for the managers of each
of the firms to render superior performance and client service. The Managing
Directors of the Investment Management Firms have a significant profits interest
in their respective Investment Management Firms, as well as substantial economic
interests in the Partnership. These economic interests relate significantly to
Class B Units of limited partner interest ("Class B LP Units"), distributions
on which until December 31, 1997 are subordinated to the annual $1.88 per
unit priority distribution on the Class A Units of limited partner
interest ("Class A LP Units") as described below.
PIMCO Advisors business results from the November 1994 consolidation (the
"Consolidation") of the investment advisory businesses of certain wholly-owned
subsidiaries of Pacific Financial Asset Management Corporation ("PFAMCo"), i.e.,
Pacific Investment Management, Cadence, Parametric, NFJ and Blairlogie, with the
investment advisory and mutual fund distribution businesses, including CCI,
which were formerly conducted under the name of Thomson Advisory Group L.P. and
its affiliate Thomson Investors Services Inc. (now named PIMCO Funds
Distribution Company). PFAMCo also contributed its own administrative and
distribution operations to Pacific Investment Management Company Advisors as
part of the Consolidation. As part of the Consolidation, PIMCO Partners, G.P.,
("PIMCO GP") replaced Thomson Advisory Group Inc. ("TAG Inc.") as the general
partner of the Partnership.
Under current law, the Partnership will cease being 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 limited partner interests cease to be
publicly traded prior to such time. As a corporation, the Partnership would be
subject to tax on its income and its equityholders would be subject to tax on
distributions. In an effort to preserve partnership tax treatment after December
31, 1997 for the holders of PIMCO Advisors partner interests who are affiliates
of the Partnership (the "Nonpublic Unitholders"), the Partnership's Amended and
Restated Partnership Agreement (the "Partnership Agreement") confers on PIMCO
GP, the general partner of the Partnership, broad authority to effect one or
more restructurings (collectively, the "Restructuring") of the Partnership in
connection with, or in anticipation of, such a change in tax status.
It is currently anticipated that on or about November 30, 1997, but no later
than December 31, 1997, the Partnership, PIMCO GP and TAG Inc. will engage in
transactions resulting in the PIMCO Advisors unitholders and the stockholders of
TAG Inc. all indirectly owning equity interests in the Partnership through
the shares of a newly-formed corporate general partner of the Partnership, which
will directly or beneficially own the PIMCO Advisors units in which such persons
formerly
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had an interest. Following the Restructuring, it is expected that the corporate
general partner will be the sole publicly traded entity through which equity
interests in the Partnership will be owned. See "Restructuring" in Item 13.
RECENT DEVELOPMENTS
On February 13, 1997, the Partnership and its affiliate TAG Inc. entered into
an Agreement and Plan of Merger with Oppenheimer Group, Inc. and its subsidiary
Oppenheimer Financial Corp., providing for the acquisition of a 32.5% managing
general partner interest in Oppenheimer Capital (a general partnership), the one
percent general partner interest in Oppenheimer Capital, L.P. and 100% of the
stock of Advantage Advisers, an affiliate of Oppenheimer Group, which manages
eight closed-end funds. The transaction covers only the private interests
Oppenheimer Group holds in Oppenheimer Capital and Oppenheimer Capital, L.P. and
does not include the publicly traded units of Oppenheimer Capital, L.P.
The agreement provides for the acquisition of these assets by TAG Inc. through
a merger with Oppenheimer Group, Inc. in exchange for total consideration of
approximately $233 million in convertible preferred stock to be issued by TAG
Inc. and the assumption of approximately $32 million of debt. At the closing,
TAG Inc. will contribute the one-third general partner interest in Oppenheimer
Capital to the Partnership in exchange for approximately 9.137 million Class A
LP Units ($233 million at the agreed value of $25.50 per unit). PIMCO Advisors
may be obligated in certain circumstances to purchase such convertible preferred
stock for its issue price. The Partnership will hold the interest in Oppenheimer
Capital through a newly-formed investment management subsidiary, and the
operating results of the Partnership will include its proportionate share of the
operating results of Oppenheimer Capital. The transaction is subject to certain
client, lender, Internal Revenue Service and other approvals, and is expected to
take up to six months to complete.
GENERAL
The table below sets forth the assets under management of the Partnership and
its six Investment Management Firms at the dates indicated:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT (in millions)
AT DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993(2) 1992(2)
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pacific Investment Management $ 88,147 $ 76,371 $ 56,883 $ 53,001 $ 41,249
Columbus Circle Investors 14,159 12,670 10,304 9,848 8,070
Cadence Capital Management 3,229 2,393 1,762 1,647 940
Parametric Portfolio Associates 2,001 1,569 1,546 1,385 932
NFJ Investment Group 1,743 1,455 1,072 966 534
Blairlogie Capital Management 673 645 479 97 -
Other(1) 70 79 129 1,194 2,630
-------- -------- -------- -------- --------
Total $110,022 $ 95,182 $ 72,175 $ 68,138 $ 54,355
======== ======== ======== ======== ========
</TABLE>
_______________
(1) Includes assets under management not advised or subadvised by the Investment
Management Firms. For years ended December 31, 1992 and 1993, includes
assets invested in the Cash Accumulation Trust, a money market fund, which
is currently subadvised by Columbus Circle Investors.
(2) Proforma as if the consolidation of PIMCO Advisors had occurred on January
1, 1993. See Item 7 of this Form 10-K.
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The table below sets forth the aggregate assets under management of PIMCO
Advisors and the six Investment Management Firms by investment type:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT (in millions)
AT DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------- -----------
<S> <C> <C> <C>
Institutional Separate Accounts
Fixed Income $ 57,295 $50,264 $38,778
Equity 18,075 16,248 12,461
Institutional Mutual Funds (1)
Fixed Income 19,592 16,732 11,830
Equity 5,077 3,768 2,515
Retail Mutual Funds
Fixed Income 2,541 2,043 1,744
Equity 6,728 5,486 4,055
Retail Money Market 714 641 792
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Total $110,022 $95,182 $72,175
============ ============= ===========
</TABLE>
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(1) Includes assets managed under pooling arrangements.
The Partnership markets its investment management services to institutional
and mutual fund clients through client service representatives at each of the
Investment Management Firms and through distributors including PIMCO Funds
Distribution Company ("PFD"),(formerly known as PIMCO Advisors Distribution
Company), a wholly-owned broker-dealer which distributes and markets shares of
the retail mutual funds of PIMCO Advisors.
The revenues of the Partnership and its six Investment Management Firms
consist principally of management fees based on the value of assets under
management and in some cases the performance of the advisor. The table below
sets forth management fees for the Partnership and its six Investment Management
Firms for the periods indicated:
<TABLE>
<CAPTION>
MANAGEMENT FEES (in thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994(2) 1993(2) 1992(2)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pacific Investment Management $222,274 $180,937 $141,218 $144,487 $106,279
Columbus Circle Investors 63,698 53,078 44,363 39,460 32,151
Cadence Capital Management 17,873 14,555 12,120 9,504 6,103
Parametric Portfolio Associates 3,466 3,753 4,451 4,505 2,932
NFJ Investment Group 7,271 5,916 4,967 3,795 2,007
Blairlogie Capital Management 3,721 2,916 420 23 -
Other (1) 20,038 20,455 23,936 20,592 22,805
-------- -------- -------- -------- --------
Total $338,341 $281,610 $231,475 $222,366 $172,277
======== ======== ======== ======== ========
</TABLE>
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(1) Includes revenues not directly allocable to the investment management
services of the Investment Management Firms, the management fees of the Cash
Accumulation Trust and intercompany eliminations.
(2) Proforma as if the consolidation of PIMCO Advisors had occurred on January
1, 1993. See Item 7 of this Form 10-K.
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A principal component of the Partnership's marketing strategy is the
historical performance of the Investment Management Firms relative to selected
benchmarks over long periods of time. For example, Pacific Investment Management
stresses its record in equaling or exceeding client-selected performance
benchmarks over long periods through a measured risk taking approach that
emphasizes preservation of capital. Over the last 10 years, Pacific Investment
Management's Total Return composite, representing approximately 56% of Pacific
Investment Management's total assets under management at December 31, 1996,
outperformed the Lehman Brothers Aggregate Bond Index by approximately 108 basis
points (9.55% compared to 8.47%) annually on a compound basis after adjusting
for the advisory fees paid to Pacific Investment Management.
PRIMARY MARKETS AND STRATEGY FOR GROWTH
The two primary markets for the investment management services offered by the
Investment Management Firms are the institutional market and the mutual fund
market. Several of the Investment Management Firms also manage private accounts
for high net worth individuals.
INSTITUTIONS. The institutional market for investment management services
includes corporate, government and multi-employer pension plans, charitable
endowments and foundations, and corporations purchasing investment management
services for their own account. Each of the Investment Management Firms serves
the institutional market and conducts its own institutional marketing
activities. In general, the Investment Management Firms' marketing approach
targets Fortune 1,000 companies and other large institutional investors. The
Investment Management Firms seek to develop client relationships through
investment management performance and focused and responsive client service.
Their business strategies also involve increasing assets under management for
non-U.S. clients, expanding the array of fixed income and equity products
offered to clients, seeking to expand market share with medium and smaller
institutional investors by offering pooled investment vehicles such as the PIMCO
Funds (described below), and otherwise seeking to diversify and expand their
businesses by investment strategy, method of delivery and markets.
MUTUAL FUNDS. Like the institutional market for investment management
services, the mutual fund market has expanded rapidly in recent years.
The mutual fund industry is highly competitive and is characterized by a high
degree of fragmentation and a large and rapidly increasing number of product
offerings. Marketing strategies, product development, business development,
sales expertise and servicing are increasingly important. The traditional
channel for the distribution of mutual funds (other than money market funds) is
through brokerage firms that are not affiliated with the funds' sponsor
organization and that are compensated primarily through front-end sales loads
deducted from the purchaser's investment at the time of the sale. Increasingly
other distribution arrangements and channels have become important. These
include "no-load" or "low-load" funds, sold primarily through direct marketing
efforts or captive sales forces affiliated with the sponsor organization;
"private label" and "proprietary" funds managed by and offered primarily
through, or to customers of, a financial organization such as a brokerage firm,
insurance company or bank; and "back-end load" or "level load" funds offered
through brokerage and other third-party channels, but with compensation to the
selling brokers being funded through commission advances from the funds' sponsor
which are recovered through ongoing charges against fund assets assessed under
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), contingent deferred sales charges assessed against shareholders
at the time they redeem their investments, or a combination of such sources.
The Partnership's retail strategy is to build a "brand name" awareness of the
fund group both at the broker-dealer level and the retail investor level,
creating a valuable, long-term franchise. Leveraging off the depth and expertise
of the six Investment Management Firms, the Partnership has developed new funds
to fill gaps in its product line in terms of investment objectives and styles.
INVESTMENT MANAGEMENT FIRMS
PACIFIC INVESTMENT MANAGEMENT COMPANY (PACIFIC INVESTMENT MANAGEMENT)
General. Pacific Investment Management Company had aggregate assets under
management at December 31, 1996 and December 31, 1995 of $88.1 billion and $76.4
billion, respectively, of which 90% and 89.9%, respectively, consisted of fixed
income accounts and 10% and 10.1%, respectively, consisted of equity-related
accounts. Pacific Investment Management's clients principally include large and
medium-sized corporate pension and profit sharing plans, public pension plans,
multi-employer pension plans and foundations and endowment funds. Its client
list includes many of the nation's largest pension funds, foundations and
endowments and other institutional investors.
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Investment Strategy. Pacific Investment Management believes that its strength
in the management of fixed income assets is derived from its investment
philosophy, which stresses a long-term or secular focus, active management, with
measured risk-taking, and the application of strong analytical capabilities
across all fixed income market sectors. Under Pacific Investment Management's
investment philosophy, longer term macro-economic trends are key inputs to
portfolio strategy, and moderate portfolio duration ranges are favored to reduce
volatility relative to client-specified benchmarks. Pacific Investment
Management's investment strategy process begins with a "top-down" approach
utilizing an intensive review of long-term and cyclical trends to anticipate
interest rates, volatility, yield curve shape and credit trends. These forecasts
become the basis for the major portfolio strategies. Pacific Investment
Management then uses a "bottom up" process to select specific portfolio
investments.
In managing fixed income investment advisory accounts, within client and
mutual fund guidelines, Pacific Investment Management uses a broad array of
fixed income investments, including investment grade and below investment grade
securities, as well as derivatives (which use dates back to 1980) in seeking to
manage portfolio risk and exploit market inefficiencies. Pacific Investment
Management's use of derivatives has generally been confined to futures, options
and mainstream mortgage derivatives (such as collateralized mortgage
obligations, or CMOs); however, Pacific Investment Management at times has also
held positions in client portfolios in interest-only and principal-only strips
(IOs and POs) and, occasionally, structured notes and swaps. Although certain of
these derivative securities can have higher degrees of interest rate risk,
illiquidity and counterparty credit risk, Pacific Investment Management
approaches derivatives much as it does other complex fixed income instruments--
as potential investments to be analyzed, monitored and used when appropriate to
enhance a portfolio's return or manage its risk. Pacific Investment
Management has developed and employs, in the case of derivatives as well as
other instruments, various risk controls at the portfolio and individual
instrument levels in an effort to evaluate and monitor interest rate, liquidity
and credit quality risk.
As part of its active management style, Pacific Investment Management uses
internally developed, proprietary computer software programs in managing its
clients' assets rather than using analytical models purchased from outside
sources. Pacific Investment Management believes that its proprietary computer
technology provides it with an important competitive advantage.
Pacific Investment Management has sought to expand its client base beyond the
traditional defined benefit pension market, and has increased its presence in
the defined contribution pension market. Pacific Investment Management's
strategy also involves focusing on financial service aggregators of retail
assets such as unaffiliated sponsors of mutual funds and other registered
investment advisors (including fee-based financial planners) who recommend the
use of "no-load" mutual funds such as the institutional and administrative
classes of PIMCO Funds PIMS Series (defined below under Partnership Mutual
Funds) to their clients, and consultant alliances. In addition, Pacific
Investment Management seeks to increase both institutional and retail assets
under management from non-U.S. investors.
INVESTMENT PRODUCTS. Pacific Investment Management offers a range of
investment services for both fixed income and equity assets:
FIXED INCOME PORTFOLIOS. Pacific Investment Management offers a
variety of strategies for clients with fixed income portfolios, designed to
reflect each particular client's investment objective:
Total Return Portfolios--Pacific Investment Management structures
total return portfolios with the objective of realizing maximum total return,
consistent with the preservation of capital and prudent investment management
across the spectrum of fixed income securities. This strategy generally results
in a portfolio duration of three to six years. The total return strategy is
Pacific Investment Management's flagship investment management service;
portfolios utilizing this strategy represented approximately $54 billion of
Pacific Investment Management's total assets under management at December 31,
1996.
Low Duration Portfolios--Pacific Investment Management has actively
managed low duration accounts since 1979 (overall portfolio duration 1-3
years). The objectives in the low duration portfolios are to preserve principal
through investment in low-volatility instruments, while seeking to achieve
superior risk-adjusted returns.
Other Duration Specific or Sector Specific Portfolios--Pacific
Investment Management also offers clients active management of portfolios based
upon specific duration targets (e.g., long duration portfolios or guaranteed
investment contract ("GIC") products which are designed to outperform GICs) and
sector emphases (e.g., international, high-yield, or mortgages).
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EQUITY RELATED PORTFOLIOS. Pacific Investment Management also manages
an enhanced equity based strategy: StocksPLUS(R), which accounted for $8.8
billion of assets under management at December 31, 1996. StocksPLUS represents a
proprietary technique developed by Pacific Investment Management that combines
the active management of stock index futures (to provide a proxy for equity
market returns) with active management of a short-term fixed income portfolio
using much of the same analytics as is used by Pacific Investment Management in
its fixed income portfolios.
INTERNATIONAL AND OTHER PORTFOLIOS. Pacific Investment Management, as
investment advisor to a series of offshore funds and individual clients,
provides fixed income investment advice to non-U.S. investors. Assets under
management for these offshore funds totaled $476 million and $130 million at
December 31, 1996 and December 31, 1995, respectively. Pacific Investment
Management also serves as subadvisor for a series of term trusts investing in
mortgage related securities that are marketed to Japanese investors. These
trusts had assets of $1.4 billion and $2.1 billion at December 31, 1996 and
December 31, 1995, respectively. Pacific Investment Management also serves as
subadvisor for nine families of U.S. mutual funds sponsored by other mutual fund
complexes. Total assets under management for these nonaffiliated funds at
December 31, 1996 and December 31, 1995 were $3.5 billion and $3.1 billion,
respectively.
Set forth below is a table showing Pacific Investment Management's
assets under management and the number of portfolios at the dates indicated:
<TABLE>
<CAPTION>
ASSETS UNDER MANAGEMENT ($ in millions)(1)
AT DECEMBER 31,
-----------------------------------------------
1996 1995 1994
------------- -------------- --------------
No. Amount No. Amount No. Amount
--- ------- --- ------- --- -------
<S> <C> <C> <C> <C> <C> <C>
Fixed Income Portfolios:
Total Return Portfolios 182 $51,078 162 $45,075 153 $34,681
Low Duration Portfolios 30 5,829 30 5,365 25 4,253
Other Duration Specific or
Sector Specific Portfolios:
Duration/Specific 17 9,514 10 7,719 11 3,506
GIC Alternatives 21 2,918 13 1,968 12 1,634
Mortgages 15 3,545 19 4,514 25 4,649
Global/Non-U.S. 17 3,096 9 1,670 8 1,680
Other 11 3,318 14 2,359 10 1,750
--- ------- --- ------- --- -------
Total 293 79,298 257 68,670 244 52,153
--- ------- --- ------- --- -------
Equity/Related Portfolios:
StocksPLUS 20 8,838 20 7,591 17 4,636
Other 1 11 4 110 4 94
--- ------- --- ------- --- -------
Total 21 8,849 24 7,701 21 4,730
--- ------- --- ------- --- -------
TOTAL ASSETS UNDER MANAGEMENT 314 $88,147 281 $76,371 265 $56,883
=== ======= === ======= === =======
</TABLE>
_______________
(1) Includes the managed assets of PIMCO Funds.
Performance-Based Fees. Pacific Investment Management's fee schedules are
typically computed as a percentage of assets under management. Pacific
Investment Management's StocksPLUS product, which accounted for $8.8 billion of
assets under management at December 31, 1996, generally is subject to a
performance-based fee schedule in which underperformance relative to the S&P 500
index over a particular time period results in no fees being paid by clients and
superior performance results in incentive fees that are not subject to a cap.
The StocksPLUS fee arrangement can materially affect Pacific Investment
Management's total revenues from period to period.
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In addition to the StocksPLUS accounts, several large fixed income accounts
also have performance-based fee arrangements. For these accounts, Pacific
Investment Management must outperform a specified fixed income benchmark over a
particular time period in order to receive a performance-based fee, but
generally is entitled to a base fee determined with reference to the value of
assets under management. Such arrangements can make Pacific Investment
Management's revenues volatile, but also provide an opportunity to earn higher
fees than could be obtained under fee arrangements based solely on a percentage
of assets under management.
Employees. Pacific Investment Management's 13 Managing Directors have an
average of 18 years of industry experience. Of the 13 Managing Directors, three
(William H. Gross, William F. Podlich, III and James F. Muzzy) have been
associated with Pacific Investment Management since its founding and the other
ten have been with Pacific Investment Management for an average of 11 years. At
December 31, 1996, the firm-wide staff of 284 included 48 investment
professionals, of whom 17 are Chartered Financial Analysts. Pacific Investment
Management's portfolio managers, including the fixed income staff (18
professionals) and equity staff (3 professionals), are responsible for research
and trading. Account managers (29 professionals) are primarily responsible for
client relationship management and/or marketing.
COLUMBUS CIRCLE INVESTORS (CCI)
General. Columbus Circle Investors, based in Stamford, Connecticut and
established in 1975, manages discretionary accounts for entities such as
corporate, government and union pension and profit sharing plans, foundations
and educational institutions, as well as accounts for "high net worth"
individuals. In addition, CCI has a private collective investment program for
accredited investors. As of December 31, 1996, assets under management by CCI,
exclusive of the approximately $5.2 billion of assets of the PIMCO MMS Funds
(defined below) and the Cash Accumulation Trust under CCI management, were
approximately $9.0 billion for 149 clients.
CCI's principal equity product consists of its "core" portfolios, which
accounted for approximately $8.0 billion (or 56%) of its assets under management
at December 31, 1996. CCI uses its "positive momentum & positive surprise" style
for these portfolios, which principally consist of "large cap" U.S. equity
securities. CCI also applies its "positive momentum & positive surprise" style
to manage "small cap" portfolios aggregating approximately $2.9 billion (or 20%)
of its assets under management at December 31, 1996; "mid cap" portfolios
aggregating approximately $1.6 billion (or 11%) of its assets under management
at December 31, 1996; and "equity income" portfolios aggregating approximately
$312 million (or 2%) of its assets under management at December 31, 1996. CCI
also manages several relatively small fixed income, balanced and specialized
equity portfolios.
Investment Strategy. CCI's investment strategy has remained essentially
unchanged since 1975. CCI's investment philosophy is based on the premise that
companies producing results which exceed the expectations of investors and Wall
Street equity research analysts will have rising stock prices, while companies
with disappointing results will experience stock price decline. CCI's investment
discipline focuses on the potential for "positive momentum & positive surprise."
CCI monitors numerous factors, including political and economic developments,
secular trends and industry and group dynamics, in addition to company-specific
events, to determine which companies are best-positioned to achieve revenue and
earnings acceleration. In addition to meeting the criteria for potential
"positive momentum & positive surprise," thorough fundamental analysis is
completed prior to making an investment decision. Depending upon market
conditions, CCI seeks to enhance investment performance by writing "covered"
call and stock index options on securities held in equity accounts.
Seven of the equity portfolios within the PIMCO Funds (plus the Tax Exempt
Fund) currently are managed by the same individuals who manage CCI's individual
and institutional private accounts. Accordingly, the CCI investment philosophy
and techniques described above are also applied to such equity and fixed income
funds. CCI's policy is to accept only new accounts of $10 million or more
(except in its accredited investors program). In 1995, CCI formed Columbus
Circle Trust Company, a limited purpose Connecticut trust company, which enables
CCI to provide trust and investment advisory services to smaller accounts.
Employees. Two of CCI's nine Managing Directors, Irwin F. Smith and Donald
A. Chiboucas, have been with CCI since its founding in 1975. Mr. Smith also
served as Chairman and Chief Executive Officer of the Partnership from March
1993 until the Consolidation. At December 31, 1996, CCI had 91 employees,
of whom 35 were investment professionals.
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CADENCE CAPITAL MANAGEMENT (CADENCE)
General. Cadence Capital Management, based in Boston, Massachusetts and
established in 1988, specializes in disciplined, growth-oriented management of
equity securities. At December 31, 1996, Cadence had $3.2 billion of assets
under management, managed separate account portfolios for 61 clients and
subadvised six portfolios within the PIMCO Funds.
Investment Strategy. Cadence is a "growth at a reasonable price" equity
manager. Cadence's philosophy is to participate in the long-term growth of the
equity markets by constructing fully invested portfolios of stocks selling at
reasonable valuations in relation to the fundamental prospects of the underlying
companies. Cadence uses a disciplined, "bottom-up" investment process which
utilizes quantitative screening for favorable fundamental and valuation
attributes, followed by "hands-on" qualitative research to confirm the apparent
business trends. Cadence structures its portfolios to be broadly based,
typically including 80 to 100 issues.
Cadence's investment strategy involves the application of a proprietary
investment management process to different universes of equity securities which
are usually differentiated by market capitalization into four categories: large
cap (the top 1,000 market cap issues), mid cap (market cap of over $500 million
excluding the largest 250 issues), small cap ($50 million to $1 billion) and
micro cap (up to $100 million). Through this strategy, Cadence is able to
differentiate its investment products while remaining focused on a single
investment style.
Employees. Cadence's four Managing Directors include David B. Breed, a founder
of the firm; William Bannick, who joined Cadence in October 1992; Katherine A.
Burdon, who joined Cadence in December 1992 and was promoted to Managing
Director in May 1995; and Eric M. Wetlaufer, who joined Cadence in December 1991
and was also promoted to Managing Director in May 1995. Mr. Breed is the Chief
Executive Officer of Cadence and is responsible for the original development and
ongoing maintenance of the investment process. Mr. Bannick is responsible for
investment management and client service. Ms. Burdon is a portfolio
manager/analyst with client services responsibilities and research
responsibilities in healthcare, telecommunications, and broadcast media. Mr.
Wetlaufer is also a portfolio manager/analyst with client service
responsibilities and research responsibilities in basic materials and capital
goods. Cadence had a total of 26 employees at December 31, 1996, including seven
portfolio managers in addition to Mr. Breed.
OTHER INVESTMENT MANAGEMENT FIRMS
Parametric Portfolio Associates (Parametric). Parametric, based in Seattle,
Washington and established in 1987, specializes in the management of broadly
diversified domestic and international equity strategies for tax-exempt and
taxable clients. The firm offers active and indexed strategies which are
structured to meet client specific risk and return objectives. Active
portfolios seek superior returns relative to an assigned benchmark within a risk
controlled framework, while indexed portfolios are constructed to closely track
an appropriate index. In addition, Parametric manages tax efficient separate
account strategies for a growing clientele of taxable investors.
Parametric uses quantitative techniques in portfolio construction and
management. The active portfolios are designed to maintain economic sector
allocations similar to the benchmark. Security selection is based on a ranking
system which evaluates each stock's exposure to valuation, earnings and
momentum factors. Portfolios are optimized to achieve a diversified group of
securities which have exposure to factors associated with superior return and
risk characteristics.
Parametric manages a wide variety of index funds which extend to both large
and small capitalizations and across value and growth styles. The international
assignments include allocations to developed countries and emerging markets.
At December 31, 1996, Parametric had assets under management of $2 billion,
managed separate accounts for 20 clients, and served as subadvisor for one
portfolio within the PIMCO Funds and seven portfolios for several unaffiliated
families of funds.
NFJ Investment Group (NFJ). NFJ, based in Dallas, Texas and established in
1989, is a disciplined, value-oriented manager of equity securities.
NFJ's specialty is investing in a combination of low P/E stocks with high
dividends selected through a proprietary screening model. NFJ's business
strategy involves targeting the U.S. pension and mutual fund markets with
specific attention to the pension consultants which dominate the pension market.
NFJ believes that its value niche and conservative investment style is
attractive to prospective clients because it naturally complements the styles of
other growth or core equity managers. NFJ has developed a structured process
with a systematic buy/sell discipline based on fundamental research and computer
modeling. NFJ's investment philosophy is based on research showing that
portfolios with a
8
<PAGE>
combination of low P/E stocks and high dividends consistently outperform market
indices. The low P/E bias is based on the belief that "out of favor" stocks are
not normally subjected to significant negative earnings surprises because their
low P/E ratios already incorporate the market's negative expectations. The high
dividend component offers an "income cushion" to protect returns when market
conditions are unfavorable. At December 31, 1996, NFJ had assets under
management of $1.7 billion, managed separate account portfolios for 25 clients
and also served as manager for four portfolios within the PIMCO Funds and four
unaffiliated families of funds.
Blairlogie Capital Management (Blairlogie). Blairlogie, based in Edinburgh,
Scotland and founded in late 1992, specializes in international equity
investments. Blairlogie provides an international investment product that
combines country selection strategies with the systematic application of an
investment process more typically used by U.S. investment firms. Blairlogie
focuses its marketing efforts in the U.S. and seeks to capitalize on increased
demand for international investment products by U.S. pension funds and retail-
oriented U.S. mutual funds. Blairlogie's investment strategy involves the
application of fundamental valuation criteria to country allocations and then to
stock selection in order to enhance client returns over time, while seeking a
relatively low level of overall portfolio risk. Blairlogie's future
business strategy may also include the development of investment management
relationships in the United Kingdom and other parts of Europe. At December 31,
1996, Blairlogie had assets under management of $673 million in the managed
separate account portfolios for three clients and served as manager for three
portfolios within PIMCO Funds and served as subadvisor to one affiliated and
two unaffiliated families of funds.
PARTNERSHIP MUTUAL FUNDS
PIMCO Advisors, together with the Investment Management Firms,
sponsors and manages mutual funds for both institutional and retail
investors.
PIMCO Funds. In January 1997, the Partnership restructured its proprietary
mutual funds into a single fund family called "PIMCO Funds" which is comprised
of two series: (i) PIMCO Funds: Pacific Investment Management Series ("PIMCO
Funds PIMS Series"), 20 funds advised by Pacific Investment Management, and (ii)
PIMCO Funds: Multi-Manager Series ("PIMCO Funds MMS Series"), 21 funds advised
by the Partnership and subadvised by the Investment Management Firms and one
independent subadvisor. The PIMCO Funds PIMS Series are primarily fixed income
funds and the PIMCO Funds MMS Series are primarily equity funds. All PIMCO Funds
are offered in up to five different share classes: institutional and
administrative share classes for institutional investors and, for retail
investors, Class A shares (which are "front end" load), Class B shares (which
are "back-end load"), and Class C shares (which are "level load"). The PIMCO
Funds now feature a "unified fee" structure which has specified advisory and
administrative fees per fund. As a result, the Partnership and Pacific
Investment Management (and not the PIMCO Funds) bear the risk of increases in
service costs (including of third-party service providers such as transfer
agents) and will directly benefit from decreases in those costs.
Marketing and Distribution. PFD, a wholly-owned subsidiary of the Partnership,
is the distributor for the PIMCO Funds. The Partnership uses PFD to distribute
the retail share classes of PIMCO Funds through a large, diversified network of
unaffiliated retail broker-dealers, including many leading full-service broker-
dealers. Since October 1990, PFD has entered into selling agreements with over
700 broker-dealers and banks. The sales and marketing personnel develop and
support sales and marketing strategies between the Partnership and the different
retail broker-dealers. Additionally, the relationships fostered by this group
allow PFD's wholesalers to have access to the branch offices and sales
representatives of the retail broker-dealers. At December 31, 1996, PIMCO Funds
had approximately $24.5 billion of assets under management of which
approximately $18.3 billion were in PIMCO Funds PIMS Series and approximately
$6.2 billion were in PIMCO Funds MMS Series.
REGULATION
Virtually all aspects of the investment management business of the Partnership
are subject to various federal and state laws and regulations. The Partnership
and its Investment Management Firms are registered with the Securities and
Exchange Commission (the "Commission") under the Investment Advisers Act of
1940, as amended (the "Advisers Act"), and are registered under numerous state
securities laws. The Advisers Act imposes numerous obligations on registered
investment advisors including fiduciary, recordkeeping, operational and
disclosure obligations. Blairlogie is also a member of the Investment Management
Regulatory Organization in the United Kingdom. Pacific Investment Management and
Parametric are registered with the Commodity Futures Trading Commission as
Commodity Trading Advisors and are members of the National Futures Association.
Pacific Investment Management and its subsidiary, StocksPLUS Management, Inc.,
are also registered as Commodity Pool Operators.
9
<PAGE>
The Partnership and its 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 many of their clients.
The foregoing laws and regulations generally grant supervisory agencies and
bodies broad administrative powers, including the power to limit or restrict any
of the Investment Management Firms from conducting their business in the event
that they fail to comply with such laws and regulations. Possible sanctions that
may be imposed in the event of such noncompliance include the suspension of
individual employees, limitations on the Investment Management Firm's
business activities for specified periods of time, revocation of the Investment
Management Firm's registration as an investment advisor, and other censures
and fines. Changes in these laws or regulations could have a material adverse
impact on the profitability and mode of operations of the Partnership and its
Investment Management Firms.
The officers, directors and employees of the Partnership and its Investment
Management Firms may from time to time own securities which are also owned by
one or more of their clients. Each firm has internal policies with respect to
personal investment by employees. Each firm requires reports of securities
transactions and restricts certain transactions so as to minimize possible
conflicts of interest.
PFD is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended, and is subject to regulation by the Commission, the National
Association of Securities Dealers, Inc. and other federal and state agencies. As
a registered broker-dealer, it is subject to the Commission's net capital rule
and certain state securities laws designed to enforce minimum standards
regarding the general financial condition and liquidity of a broker-dealer.
Under certain circumstances, these rules limit the ability of PFD's parent to
make withdrawals of capital and receive dividends. The securities industry is
one of the most highly regulated in the United States, and failure to comply
with related laws and regulations can result in the revocation of broker-dealer
licenses, the imposition of censures or fines and the suspension or expulsion
from the securities business of a firm, its officers or employees.
COMPETITION
The investment management business is highly competitive. The Partnership and
its Investment Management Firms compete with a large number of other domestic
and foreign investment management firms, commercial banks, insurance companies,
broker-dealers and other financial services providers. Some of the
financial services companies with which the firms compete have greater
resources, assets under management and administration than the Partnership and
the Investment Management Firms and offer a broader array of investment products
and services.
The Partnership believes that the most important factors affecting its success
are the abilities, performance records and reputations of its investment
managers, and the development of new investment and marketing strategies. The
relative importance of these factors varies depending on the type of investment
management service involved. Client service is also an important competitive
factor. The Partnership's ability to increase and retain client assets could
be adversely affected if client accounts underperform the market or if key
investment managers leave the firms. The ability of the Partnership and the
Investment Management Firms to compete with other investment management firms is
also dependent, in part, on the relative attractiveness of their investment
philosophies and methods under prevailing market conditions. There are
relatively few barriers to entry by new investment management firms in the
institutional managed accounts business, which increases competitive pressure.
Selection of advisors by institutional investors often is subject to a
competitive review process relying heavily upon historical performance. As a
result, new firms such as Blairlogie typically require a three to five year
start-up period during which they experience losses and require subsidies.
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. Many competitors apply substantial resources
to advertising and marketing their mutual funds which may adversely affect the
ability of Partnership-sponsored funds to attract new clients and to retain
assets under management. The ability to attract and retain mutual fund assets in
the load mutual funds which the Partnership offers is dependent to a significant
degree on the ability to attract, retain and motivate retail brokerage
salespersons.
10
<PAGE>
POSSIBLE CONSTRAINTS ON GROWTH AND OPERATIONS
Cash that is used to pay distributions on the Partnership's Class A LP Units,
PIMCO Advisors units of general partner interest ("GP Units") and Class B LP
Units will not be available for other Partnership uses, including investments in
new business opportunities. Distributions on Class B LP Units are currently
subordinated to the first-priority distributions on Class A LP and GP Units. The
Partnership Agreement requires that for each quarter commencing with the quarter
ended December 31, 1994 and ending with the quarter ending December 31, 1997
(the "Interim Period"), distributions will be made first to holders of Class A
LP Units and GP Units until such holders have received $0.47 per unit per
calendar quarter (aggregating to $1.88 per unit per year) since the date of the
Consolidation, second to holders of Class B LP Units until such holders have
received $0.47 per unit per calendar quarter on a cumulative basis within a
calendar year but not carried over from year to year and third to all holders of
units pro rata. Distributions with respect to Class A LP and GP Units will be
made within 45 days of the end of each calendar quarter in the Interim Period
and thereafter within 60 days after the end of the calendar quarter, and with
respect to Class B LP Units will be made within 60 days of the end of the
calendar quarter, in all cases to holders of record on the 30th day after the
end of the quarter.
As a result of these priority distributions on Class A LP Units, and because
members of the Partnership's Operating and Equity Boards (which determine the
amounts to be distributed to Unitholders) have an economic interest in a
substantial number of Class B LP Units, there is a risk that the Partnership may
distribute cash that could otherwise be profitably reinvested in the
Partnership's business. Also, until December 31, 1997, there is a risk that the
Operating and Equity Boards could cause the Partnership in certain circumstances
to defer or forego the possibility of making an acquisition of a business
venture in the best interests of the Partnership through the issuance of
additional Class A LP Units because such an acquisition could result in a
diminution in distributions paid to the holders of the Class B LP Units.
DERIVATIVES
The use of derivatives by investors has received national attention in recent
years because of losses suffered on investments in derivatives. While other
Investment Management Firms have used derivatives, Pacific Investment
Management has used derivatives since 1980 in various ways, principally to
manage portfolio risk and exploit market inefficiencies. Its use of derivatives
has generally been confined to futures, options and mainstream mortgage
derivatives (such as collateralized mortgage obligations); however, Pacific
Investment Management has at times also held positions in client portfolios
in interest-only and principal-only strips (IOs and POs) and, occasionally,
structured notes and swaps.
RELIANCE ON KEY PERSONNEL AND PROFIT-SHARING PAYMENTS
The ability of the Partnership and the Investment Management Firms to attract
and retain clients is dependent to a large extent on their ability to attract
and retain key employees, including skilled portfolio managers. Certain of these
employees are responsible for significant client relationships. In particular,
the Partnership depends, to a significant extent, on the services of William H.
Gross of Pacific Investment Management, Irwin F. Smith and Donald A. Chiboucas
of CCI, and David B. Breed of Cadence. Mr. Gross is one of the best known fixed
income portfolio managers in the United States, and the loss of his services
could have a material adverse effect on the Partnership. In order to help retain
these and other key personnel, each of the six Investment Management Firms has a
policy of reserving a substantial percentage of its adjusted net book income for
profit-sharing payments (45% in the case of Pacific Investment Management and
CCI and in the case of the other Investment Management Firms, 15% of the first
$3 million of such income, 25% of the next $2 million of such income, 40% of the
next $5 million of such income and 45% of such income in excess of $10 million).
These profit-sharing payments significantly reduce the amount of the Investment
Management Firms' profits that is distributed to the Partnership and becomes
available for distribution to unitholders. There can be no assurance that key
personnel will be retained.
FACTORS AFFECTING FEE REVENUES
General Considerations. Investment management agreements between Investment
Management Firms and their clients typically provide for fees based on a
percentage of the assets under management, determined at least quarterly and
valued at current market levels. The percentage of the fee applicable to a
particular classification of assets under management is a function of several
factors. For example, investments or strategies which have a higher degree of
risk and uncertainty command a higher percentage fee. Therefore, significant
fluctuations in securities prices or in the investment patterns of clients that
result in shifts in assets under management can have a material effect on the
Partnership's consolidated revenues and profitability. Such fluctuations in
asset valuations and client investment patterns may be affected by overall
economic
11
<PAGE>
conditions and other factors influencing the capital markets and the
net sales of mutual fund shares generally, including interest rate fluctuations.
Virtually all of the Partnership's revenues are derived from investment
management agreements with clients that are terminable at any time or upon 30 to
60 days' notice, as is the case generally in the investment management industry.
Any termination of agreements representing a significant portion of assets under
management could have an adverse impact on the Partnership's results of
operations.
The investment management business is highly competitive and fees vary among
investment managers. Some of the Investment Management Firms' fees are higher
than those of many investment managers relative to the average size of accounts
under management. Each Investment Management Firm's ability to maintain its fee
structure in the competitive environment is dependent to a large extent on the
ability of its investment managers to provide clients with service and
investment returns that will cause clients to be willing to pay those fees.
There can be no assurance that the Investment Management Firms will be able to
retain their clients or sustain their fee structures in the future.
Reliance on Performance-Based Fees. Approximately 7.0% and 5.9% of the
Partnership's revenues for the year ended December 31, 1996 and December 31,
1995, respectively, were derived from performance-based fees. Most of these
revenues are attributable to Pacific Investment Management's operations. To earn
a performance-based fee with respect to an account, the relevant Investment
Management Firm must generally outperform a specific benchmark over a particular
period. Performance-based fee arrangements make revenues more volatile, but also
provide an opportunity to earn higher fees than could be obtained under fee
arrangements based solely on a percentage of assets under management. Pacific
Investment Management's StocksPLUS product, which accounted for $8.8 billion of
assets under management at December 31, 1996, is subject to a performance-based
fee schedule in which under-performance relative to the S&P 500 over a
particular time period results in no fees being paid by clients, while superior
performance results in incentive fees that are not subject to a cap. In addition
to the StocksPLUS accounts, several large fixed income accounts aggregating
approximately $10.9 billion at December 31, 1996, also have performance-based
fee arrangements. Pacific Investment Management's performance-based fee
arrangements, including the StocksPLUS fee arrangement, can materially affect
Pacific Investment Management's revenues, and thus those of the Partnership,
from period to period. For example, Pacific Investment Management's failure to
exceed certain benchmarks during 1994 resulted in performance-based fees of $9.2
million, compared to $18.6 million for 1995.
ITEM 2. PROPERTIES
The Partnership's principal offices are currently located at 800 Newport
Center Drive, Newport Beach, California where it occupies approximately 10,460
square feet of space under a lease expiring in 2002 and at 2187 Atlantic Street,
Stamford, Connecticut where it and PFD occupy approximately 17,200 square feet
of space under a sub-lease expiring in 2002. Pacific Investment Management's
principal offices are currently located at 840 Newport Center Drive and 5 Civic
Plaza, Newport Beach, California where it occupies approximately 106,000 square
feet of space under leases expiring in 1998. CCI's principal office is currently
located at 1 Station Place, Stamford, Connecticut, where it occupies
approximately 31,000 square feet of space under a lease expiring in 1999. Each
location is a modern office building and the demised space is adequate for the
Partnership's current operations, but more space may be necessary should the
Partnership's business expand.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Partnership Agreement provides for the issuance of three types of units:
Class A LP Units, Class B LP Units, and GP Units. Class A LP Units have a
priority right to distributions over Class B LP Units, as described below.
Except for their subordinated right to distributions and their potential to be
further subordinated to other units issued by PIMCO Advisors, the Class B LP
Units are identical to the Class A LP Units, including with respect to voting
rights (although the Class B LP Units vote as a class with respect to proposed
amendments to Partnership Agreement that affect only Class B LP Units). GP Units
have distribution rights identical to the Class A LP Units, but are held by the
general partner who has unlimited liability for the obligations of the
Partnership and has the right to manage and control the Partnership. Holders of
the Class A LP Units and Class B LP Units do not have the right to vote with
respect to the management and control of the Partnership.
The Class A LP Units are listed on the New York Stock Exchange (the "NYSE")
under the symbol "PA." The GP Units and Class B LP Units are not publicly
traded. The following table sets forth, for the periods indicated, the high and
low trading prices for each Class A LP Unit as reported on the NYSE and the
total cash distributions paid per Class A LP Unit, GP Unit and Class B LP Unit.
<TABLE>
<CAPTION>
Class A LP
Trading Prices and GP Units Class B Units
Class A Units -------------- -------------
----------------- Total Cash Total Cash
High Low Distributions Distributions
---- --- ------------- -------------
<S> <C> <C> <C> <C>
1995
First Quarter $18-1/4 $16-7/8 $0.239 $0.077
Second Quarter 20-5/8 17-3/8 0.470 0.138
Third Quarter 21-1/4 19 0.470 0.199
Fourth Quarter 21-1/4 19-5/8 0.470 0.259
------------- -------------
Total $1.649 $0.673
============= =============
1996
First Quarter $23-5/8 $20-1/2 $0.470 $0.444
Second Quarter 22-1/4 20-1/8 0.470 0.318
Third Quarter 22-7/8 20 0.470 0.447
Fourth Quarter 23-7/8 21-3/4 0.470 0.449
------------- -------------
Total $1.880 $1.658
============= =============
</TABLE>
On March 24, 1997, the closing price of the Partnership's Class A LP Units as
reported on the NYSE was $22.50 per unit. On March 24, 1997, there were
approximately 660 holders of record of the Partnership's Class A LP Units and
approximately 22 holders of record of the Partnership's Class B LP Units.
The Partnership Agreement provides that the general partner shall cause the
Partnership to distribute to unitholders on a quarterly basis cash in an amount
equal to Operating Profit Available for Distribution less any amount the general
partner deems may be required for capital expenditures, reserves or otherwise in
the business of the Partnership. The Partnership Agreement defines Operating
Profit Available for Distribution as the sum of (i) the net income of the
Partnership for such quarter determined in accordance with generally accepted
accounting principles; (ii) certain non-cash charges resulting from the
amortization of goodwill and certain other intangible assets and non-cash
compensation expenses related to options and restricted units and (iii)
losses of any subsidiary which is not a flow-through entity for tax purposes.
Since the Consolidation, the amounts withheld for capital expenditures, reserves
or otherwise have not been significant and the Partnership has distributed cash
to unitholders in an amount which represented substantially all of the
Partnership's Operating Profit Available for Distribution.
13
<PAGE>
After December 31, 1997, or earlier upon the occurrence of an Adverse Tax
Event, as defined in the Partnership Agreement, the priority distributions will
cease, distributions thereafter will be made on a pro rata basis among all units
then outstanding and any remaining cumulative shortfalls in the quarterly
priority amounts will not be carried over. If, immediately prior to that time,
the Class B LP Unit distribution were less than the Class A LP Unit
distribution, upon termination of the subordination feature of the Class B LP
Units, distributions to holders of Class A LP Units would decrease. Although not
currently anticipated, a change in current law or the addition of a substantial
new line of business may result in the occurrence of an Adverse Tax Event. If a
Restructuring occurs prior to December 31, 1997, the general partner will make
(i) a final quarterly distribution for the quarter preceding the Restructuring
in the priorities stated above and (ii) a cash distribution in an amount which
the general partner, in its good faith discretion, determines will not be
required for expenses, for capital expenditures, as reserves or otherwise in the
business of the ongoing restructured entity in the priorities stated above. If
an Adverse Tax Event has not occurred prior to the Restructuring, the first-
priority distributions to the holders of Class A LP Units and GP Units will
continue until the earlier of December 31, 1997 or the occurrence of an Adverse
Tax Event.
No assurances can be given as to the Partnership's future earnings levels.
Distributions made by the Partnership will depend on the Partnership's
profitability and the profitability of the Investment Management Firms, which in
turn, will be affected in part by overall economic conditions and other factors
affecting capital markets generally, which are beyond the Partnership's control.
In addition, the general partner may, in determining the amount of
distributions, deduct from Operating Profit Available for Distribution any
amount the general partner deems may be required for capital expenditures,
reserves or otherwise in the business of the Partnership. To the extent the
Partnership retains profits in any year, unitholders may have taxable income
from the Partnership that exceeds their cash distributions.
14
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA OF PIMCO ADVISORS
The following table sets forth summary financial data of PIMCO Advisors for each
of the five years ended December 31, 1996. PIMCO Advisors and subsidiaries was
formed on November 15, 1994, when PFAMCo merged certain of its investment
management businesses and substantially all of its assets (the "PFAMCo Group")
into Thomson Advisory Group L.P. ("TAG") (the "Consolidation"). Under generally
accepted accounting principles, the Consolidation is accounted for as an
acquisition of TAG by PFAMCo Group, even though the legal form was the reverse.
Therefore, the historical financial statements include the operations of PFAMCo
Group, in its corporate form, prior to the Consolidation and the combined
results of PIMCO Advisors, in its partnership form, for the period since the
Consolidation. This information should be read in conjunction with the
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Annual Report on Form 10-K and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of PIMCO Advisors."
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA: 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------
(Amounts in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Total revenues $392,024 $323,014 $180,263 $165,856 $120,155
Operating expenses 261,978 215,271 145,220 131,447 93,011
Amortization of intangibles,
options and restricted units 41,171 42,723 6,202 - -
- ---------------------------------------------------------------------------------
Operating income 88,875 65,020 28,841 34,409 27,144
Other income, net 3,454 3,964 1,083 864 1,115
- ---------------------------------------------------------------------------------
Income before income tax expense 92,329 68,984 29,924 35,273 28,259
Income tax expense 1,201 517 10,669 15,556 11,405
- ---------------------------------------------------------------------------------
Net income $ 91,128 $ 68,467 $ 19,255 $ 19,717 $ 16,854
=================================================================================
Net income allocated to:
General Partner and Class A
Limited Partner units $ 52,916 $ 46,655 $ 4,976
Class B Limited
Partner units 38,212 21,812 1,128
Pre-Consolidation - - 13,151
- ---------------------------------------------------------------------------------
Total $ 91,128 $ 68,467 $ 19,255
=================================================================================
NET INCOME PER UNIT (1):
- ---------------------------------------------------------------------------------
General Partner and Class A
Limited Partner units $ 1.29 $ 1.16 $ 0.12
Class B Limited
Partner units $ 1.05 $ 0.59 $ 0.03
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING (POST-CONSOLIDATION):
- ---------------------------------------------------------------------------------
Units outstanding:
General Partner 800 800 800
Class A Limited
Partner 40,135 40,108 40,018
Class B Limited
Partner 32,961 32,961 32,961
- ---------------------------------------------------------------------------------
Total 73,896 73,869 73,779
Weighted average effect of
unit options 3,119 1,684 984
- ---------------------------------------------------------------------------------
Total 77,015 75,553 74,763
=================================================================================
DIVIDENDS/DISTRIBUTIONS $131,604 $ 89,613 $ 24,384 $22,158 $ 12,950
=================================================================================
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
FINANCIAL CONDITION AT END OF PERIOD: 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total assets (2) $358,500 $369,592 $379,708 $ 70,388 $ 43,189
Total liabilities 62,257 38,035 34,179 44,567 17,686
Total Stockholder's Equity -- -- -- 25,821 25,503
Total Partners' Capital 296,243 331,557 345,529 -- --
OTHER STATISTICS:
- ---------------------------------------------------------------------------------------
Assets under management (in millions) $110,022 $ 95,182 $ 72,175 $ 57,182 $ 43,737
Operating Profit Available
for Distribution (1) 132,314 111,205 12,306 -- --
Cash flows provided by
operating activities 140,446 86,921 25,852 23,620 9,309
Cash flows provided by
(used in) investing activities (2,446) (17,771) 22,401 (436) (1,149)
Cash flows used in
financing activities (131,604) (89,238) (2,549) (14,900) (15,800)
</TABLE>
(1) Computed on earnings following the Consolidation. Operating Profit
Available for Distribution is defined by the Partnership Agreement as the
sum of net income plus non-cash charges from the amortization of intangible
assets, non-cash compensation expenses arising from option and restricted
unit plans, and losses of any subsidiary which is not a flow-through entity
for tax purposes.
(2) Upon completion of the Consolidation, approximately $284.9 million of
intangible assets were created. See Note 3 in the Notes to the Consolidated
Financial Statements.
Note: The information above should be read in connection with Management's
Discussion and Analysis of Financial Condition and Results of Operations
and the Consolidated Financial Statements and related notes appearing
elsewhere in this document.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PIMCO ADVISORS
GENERAL
PIMCO Advisors L.P. ("PIMCO Advisors") and subsidiaries was formed on
November 15, 1994 when Pacific Financial Asset Management Corporation ("PFAMCo")
merged (the "Consolidation") PFAMCo Group into Thomson Advisory Group L.P.
("TAG"). PFAMCo Group comprised the operations of PFAMCo, an indirect wholly-
owned subsidiary of Pacific Mutual Life Insurance Company ("Pacific Mutual"),
and certain of its wholly-owned investment management subsidiaries. The
businesses of PFAMCo Group contributed to PIMCO Advisors were then contributed
to newly-formed subsidiaries of PIMCO Advisors. These businesses, as well as
TAG's former division of Columbus Circle Investors ("CCI"), are as follows:
PACIFIC INVESTMENT MANAGEMENT COMPANY ("Pacific Investment Management"),
and its wholly-owned subsidiary, StocksPLUS Management, Inc.
("StocksPLUS"), managing primarily fixed income, with approximately $88.1
billion in assets under management;
CCI and its wholly-owned subsidiary, Columbus Circle Trust Company
("CCTC"), managing primarily equities, with approximately $14.2 billion in
assets under management;
CADENCE CAPITAL MANAGEMENT ("Cadence"), managing equities, with
approximately $3.2 billion in assets under management;
PARAMETRIC PORTFOLIO ASSOCIATES ("Parametric"), managing equities, with
approximately $2.0 billion in assets under management;
NFJ INVESTMENT GROUP ("NFJ"), managing equities, with approximately $1.7
billion in assets under management; and,
BLAIRLOGIE CAPITAL MANAGEMENT ("Blairlogie), managing equities, with
approximately $675 million in assets under management.
Each subsidiary is a registered investment advisor and collectively they
provide a broad array of investment management and advisory services for clients
using distinctive investment styles.
In addition to the investment management subsidiaries, PIMCO Advisors
operates a wholly-owned distributor, PIMCO Funds Distribution Company ("PFD")
and sponsors the PIMCO Funds Mutual Fund complex which resulted from a January
1997 combination of two mutual fund families: PIMCO Funds (funds for
institutional and 401(k)/defined contribution investors) and PIMCO Advisors
Funds (retail funds and the Cash Accumulation Trust).
Under generally accepted accounting principles, the Consolidation has been
accounted for as an acquisition of TAG by PFAMCo Group, even though the legal
form was the reverse. Therefore, the historical financial statements include the
operations of PFAMCo Group, in its corporate form, prior to the Consolidation
and the combined results of PIMCO Advisors, in its partnership form, for the
period since the Consolidation.
Due to the different bases of presentation and resulting difficulties in
analyzing comparative historical financial information as a result of the
required accounting presentation, management has included below certain pro
forma financial information as if the Consolidation occurred at the beginning of
1993. Pro forma results eliminate the significant comparative differences in the
historical results of operations arising primarily from different taxation of
corporations and partnerships, from the inclusion of TAG's results of operations
in the pro forma results from the beginning of 1993 (rather than only from the
date of Consolidation reflected in the historical financial statements), and
from certain transactions and restructuring effected by the Consolidation,
principally related to the creation and amortization of intangibles and revised
profit sharing arrangements.
17
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following table summarizes the unaudited condensed pro forma results of
operations of PIMCO Advisors as if the Consolidation discussed above had
occurred on January 1, 1993. The pro forma operating results give effect to:
(i) the Consolidation of PFAMCo Group and TAG;
(ii) the amendment of existing options under TAG's 1993 Unit Option
Plan;
(iii) the adoption of the Class B Limited Partnership Unit Option Plan;
(iv) the contribution of PFD to PIMCO Advisors in exchange for
Class A Limited Partner Units; and
(v) certain transactions effected by PFAMCo Group and TAG in connection
with the Consolidation, primarily related to intangible amortization
and profit sharing.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
(Actual) (Actual) (Pro Forma)
---------------------------------------------
<S> <C> <C> <C>
(Amounts in millions, except per unit amounts)
REVENUES
Investment Advisory $338.3 $281.6 $231.5
PFD 53.7 41.4 37.6
------ ------ ------
392.0 323.0 269.1
------ ------ ------
EXPENSES
Compensation and Benefits 173.5 149.1 119.7
Commissions 37.7 28.7 23.1
Marketing and Promotional 11.0 9.1 11.4
Occupancy and Equipment 9.2 8.7 6.7
General and Administrative 17.6 11.4 7.4
Insurance 2.6 2.8 1.8
Professional Fees 5.5 3.2 3.4
Amortization of intangibles,
options and restricted units 41.2 42.7 40.7
Other (income) expense (net) 2.6 (1.2) 0.2
------ ------ ------
300.9 254.5 214.4
------ ------ ------
NET INCOME $ 91.1 $ 68.5 $ 54.7
====== ====== ======
Net Income per General Partner ("GP")
and Class A Limited Partner unit $ 1.29 $ 1.16 $ 1.08
====== ====== ======
Net Income per Class B Limited Partner unit $ 1.05 $ 0.59 $ 0.28
====== ====== ======
Revenues by operating entity were as follows:
Pacific Investment Management $222.3 $180.9 $142.9
CCI 63.7 53.0 45.1
Cadence 17.9 14.6 12.1
Parametric 3.5 3.8 4.5
NFJ 7.3 5.9 5.0
PFD 53.7 41.4 37.6
Other (1) 23.6 23.4 21.9
------ ------ ------
Consolidated PIMCO Advisors $392.0 $323.0 $269.1
====== ====== ======
</TABLE>
(1) Includes PIMCO Advisors Institutional Services (formerly PFAMCo) and
Mutual Funds divisions and Blairlogie.
The pro forma information for 1994, given above, is not intended to reflect the
results that actually would have been obtained if the operations were
consolidated during the period presented.
18
<PAGE>
RESULTS OF OPERATIONS - GENERAL COMMENTARY
PIMCO Advisors derives substantially all its revenues and net income from
advisory fees for investment management services provided through its investment
management subsidiaries to its institutional and individual clients, and
advisory, distribution and servicing fees for services provided to the PIMCO
Funds.
Generally, such fees are determined based upon a percentage of client
assets under management and are billed quarterly to institutional clients,
either in advance or arrears, depending on the agreement with the client, and
monthly in arrears to the PIMCO Funds. Revenues are determined in large part
based upon the level of assets under management, which itself is dependent upon
factors including market conditions, client decisions to add or withdraw assets
from PIMCO Advisors management, and PIMCO Advisors ability to attract new
clients. In addition, PIMCO Advisors has certain accounts which are subject to
performance based fee schedules wherein performance relative to the S&P 500
Index or other benchmarks over a particular time period can result in additional
fees. These fees accrue on a quarterly or annual basis, depending upon the
specific investment advisory contract. Quarterly fees generally are calculated
based upon a rolling twelve-month performance result. Annual fees are
predominantly weighted towards second and fourth quarter billings. As a result,
there is a seasonality to the recognition of such fees. Such performance based
fees can have a significant effect on revenues, but also provide an opportunity
to earn higher fees (as well as lower fees) than could be obtained under fee
arrangements based solely on a percentage of assets under management.
Intangible assets of approximately $284.9 million created by the
Consolidation represent the excess of the purchase price over the fair value of
net tangible assets of TAG deemed acquired by PFAMCo Group. Approximately $80.7
million of the intangible assets represents the value assigned to PIMCO Advisors
master limited partnership ("MLP") structure. Under current tax law, an MLP is
exempt from federal and most state and local income taxes through December 31,
1997. The value attributed to the MLP structure is being amortized through the
period ended December 31, 1997. The remainder is being amortized over its
estimated life of 20 years.
Net income per unit is computed under the two-class method which allocates
net income to Class A and Class B Limited Partner Units in proportion to the
Operating Profit Available for Distribution for each class. Operating Profit
Available for Distribution is defined by PIMCO Advisors partnership agreement
and is computed as the sum of net income plus non-cash charges from the
amortization of intangible assets, non-cash compensation expenses arising from
option and restricted unit plans, and losses of any subsidiary which is not a
flow-through entity for tax purposes. Class A Limited Partner and GP units are
entitled to a priority distribution of $1.88 per unit per year until December
31, 1997. Because of this, the amount of Operating Profit Available for
Distribution allocated to such units is currently greater than the amount
allocated to Class B Limited Partner Units. As a result, the net income
allocated per Class A Limited Partner and GP Units is currently greater than the
net income allocated per Class B Limited Partner Units. Due to the priority
distribution, any dilution to net income per unit from the assumed exercise of
unit options is currently applied entirely to Class B Limited Partner Units.
Actual unit distributions in 1996 were $1.88 for the GP and Class A Limited
Partner Units and $1.658 for the Class B Limited Partner Units. These amounts
reflect Operating Profit Available for Distribution for the fourth quarter of
1995 and the first three quarters of 1996, as such distributions are made in
arrears. Actual unit distributions in 1995 were $1.649 for the GP and Class A
Limited Partner Units and were $0.673 for the Class B Limited Partner Units.
These amounts reflect Operating Profit Available for Distribution for the 46 day
period from the date of Consolidation through December 31, 1994, and Operating
Profit Available for Distribution for the first three quarters of 1995.
RESULTS OF OPERATIONS - PRO FORMA AND ACTUAL FINANCIAL INFORMATION
Year Ended December 31, 1996 Actual Compared to Year Ended December 31, 1995
Actual
PIMCO Advisors consolidated actual 1996 revenues, including those of its
wholly-owned distributor, PFD, were $392.0 million, compared to revenues of
$323.0 million in 1995. Advisory revenues in this comparison increased $56.7
million to $338.3 million in 1996. PFD's revenues increased $12.3 million to
$53.7 million in 1996. Revenue increases resulted from the commitment of new
assets primarily by institutional clients and increases in the market value of
existing assets under management. These increases were further enhanced by an
increase in performance based fees, which amounted to $22.5 million in 1996 as
compared to $19.1 million in 1995. The increase in performance based fees
occurred principally in fixed income portfolio products seeking to outperform
relative benchmarks.
19
<PAGE>
Compensation and benefit expenses in 1996 of $173.5 million were $24.4
million higher than 1995, reflecting additional staffing at virtually all
subsidiaries, and increased profit sharing at the investment management firms
due to improved profitability. The total number of employees increased 5.0%
from 521 as of December 31, 1995 to 547 as of December 31, 1996.
Commission expenses increased by $9.0 million or 31.3% in 1996 as compared
with 1995. Commission expenses are incurred by PFD and are paid
primarily to broker-dealers and their sales people for the sale of PIMCO
Advisors retail-oriented mutual funds. These include "up-front" commissions paid
at the time of sale of the mutual funds, "trail" commissions for the maintenance
of assets in the mutual funds and service fee commissions paid for services
provided to mutual fund shareholders. The level of commission expense will vary
according to the level of assets in the mutual funds (on which trail and service
fee commissions are determined) and on the level of sales of mutual funds (on
which up-front commissions are determined). Trail and service fee commissions
are generally paid quarterly beginning one year after sale of the mutual funds.
Therefore, at any given time, trail and service fee commissions will be paid on
only the mutual fund assets that qualify for such payments. In 1996, trail and
service fee commissions increased to $30.3 million, an increase of $6.1 million
or 25.2%, compared to 1995. This increase is related to an increase in the
underlying qualifying assets. Up-front commissions increased from $4.5 million
in 1995 to $7.4 million in 1996, an increase of $2.9 million or 64.4%. This is a
result of increases in total sales volume and the mix of share classes sold.
Marketing and promotional costs increased $1.9 million or 20.9% in 1996
compared to 1995. This increase occurred at most entities, but primarily at PFD
and Pacific Investment Management. At PFD, increased mutual fund share sales
correlate to the increase. At Pacific Investment Management, increased travel
costs comprise the majority of the increase.
Occupancy and equipment costs increased $.5 million or 5.7% in 1996
compared to 1995. The increase relates to increased depreciation of equipment
and inflationary facilities cost increases at all entities.
General and administrative costs increased $6.2 million or 54.4% in 1996
compared to 1995. Pacific Investment Management converted its institutional fund
family to a fixed administrative fee basis in October 1995 resulting in
increases to this cost category for expenses previously borne directly by the
funds. There is a corresponding increase in revenues related to this
conversion. These incremental costs account for approximately $6.0 million of
the increase.
Insurance costs decreased $.2 million or 7.1% in 1996 compared to 1995.
This decrease relates principally to PIMCO Advisors decreased cost of coverage
for general partner liability insurance coverage. Offsetting this decline,
partially, were slight increases due to increased assets under management, and
related activities at the Investment Management Firms.
Professional fees increased $2.3 million or 71.9% in 1996 compared to 1995.
This increase resulted primarily from the costs associated with the
restructuring of the three mutual fund "families" in December of 1996.
Other (income) expense, net, includes such items as consulting costs,
reimbursement agreements and income taxes, offset by other income, and reflects
a net increase of $3.8 million in 1996 compared to 1995. This increase is
comprised principally of decreased investment income and lower levels of
reimbursement under agreements with Pacific Mutual that became effective in
November 1994.
Amortization of intangibles, options and restricted units decreased $1.5
million principally due to the accelerated vesting in 1995 of outstanding
options and restricted units for certain employees terminating during 1995.
Year Ended December 31, 1995 Actual Compared to Year Ended December 31, 1994 Pro
Forma
PIMCO Advisors consolidated actual 1995 revenues, including those of its
wholly-owned distributor, PFD, were $323.0 million, compared to pro forma
revenues of $269.1 million in 1994. Advisory revenues in this comparison
increased $50.1 million to $281.6 million in 1995. PFD's revenues increased $3.8
million to $41.4 million in 1995. Revenue increases resulted from the commitment
of new assets by institutional clients and increases in the market value of
existing assets under management. These increases were further enhanced by an
increase in performance based fees, which amounted to $19.1 million in 1995 as
compared to $9.2 million in 1994. The increase in performance based fees
occurred principally in a product line that seeks to outperform the S&P 500
Index.
20
<PAGE>
Compensation and benefit expenses in 1995 of $149.1 million were $29.4
million higher than 1994, reflecting additional staffing at virtually all
subsidiaries, and increased profit sharing at the investment management firms
due to improved profitability. The total number of employees increased 12.5%
from 463 as of December 31, 1994 to 521 as of December 31, 1995.
Commission expenses increased by $5.6 million or 24.3% in 1995 as compared
with 1994 pro forma. In 1995, trail and service fee commissions increased to
$24.2 million, an increase of $7.9 million or 48.5%, compared to 1994. This
increase is related to an increase in the underlying qualifying assets. Up-
front commissions decreased from $6.8 million in 1994 to $4.5 million in 1995, a
decrease of $2.3 million or 33.8%. This is a result of decreases in total sales
volume and the mix of share classes sold.
Marketing and promotional costs declined $2.3 million or 20.6% in 1995
compared to 1994. This decrease occurred at most entities, but primarily at PFD
and Pacific Investment Management. At PFD, reduced mutual fund share sales
correlate to the reduction. At Pacific Investment Management, reduced
promotional costs comprise the majority of the reduction.
Occupancy and equipment costs increased $2.0 million or 29.8% in 1995
compared to 1994. The increase correlates strongly to new equipment and
facilities for increased staff, primarily at Pacific Investment Management.
General and administrative costs increased $4.0 million or 55.1% in 1995
compared to 1994. Pacific Investment Management converted its institutional fund
family to a fixed administrative fee basis in October 1995 resulting in
increases to this cost category for expenses previously borne directly by the
funds. There is a corresponding increase in revenues related to this
conversion. These incremental costs account for approximately $2.6 million of
the increase. The remaining increase was incurred at all entities and relates
to higher levels of staffing and activity.
Insurance costs increased $1.0 million or 55.0% in 1995 compared to 1994.
This increase relates principally to PIMCO Advisors increased cost of coverage
for general partner liability. Increases due to increased assets under
management, and related activities also occurred at the Investment Management
Firms.
Professional fees declined $0.2 million or 5.7% in 1995 compared to 1994.
This decline resulted primarily from increased reliance on internal staffing.
Other (income) expense, net, includes such items as consulting costs,
reimbursement agreements and income taxes, offset by other income, and reflects
a net decrease of $1.4 million in 1995 compared to 1994. This decrease is
comprised principally of increased investment income and higher levels of
reimbursement under an agreement with Pacific Mutual that became effective in
November 1994.
Amortization of intangibles, options and restricted units increased $2.0
million principally due to the accelerated vesting of outstanding options and
restricted units for certain employees terminating during 1995.
RESULTS OF OPERATIONS - HISTORICAL FINANCIAL INFORMATION ONLY
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The historical financial statements reflect the results of PFAMCo Group, in
its corporate form for the period January 1, 1994 to November 15, 1994 and PIMCO
Advisors post-Consolidation combined results in its partnership form from
November 16, 1994 to December 31, 1994, and for 1995. This accounting treatment,
known as "reverse acquisition" accounting, is required under generally accepted
accounting principles.
Therefore, many of the comparative differences in the results of operations
between 1995 and 1994 are due to the reorganization of PFAMCo Group into
partnership form, the inclusion of TAG's operations in PFAMCo Group's
operations from November 16, 1994, to December 31, 1994, and in 1995, and from
transactions and restructuring that occurred in the Consolidation. The 1994 and
1995 results also include certain non-cash expenses related to the amortization
of intangible assets created by the Consolidation and from expenses related to
option and restricted unit plans.
21
<PAGE>
PIMCO Advisors 1995 revenues, including PFD, were $323.0 million,
compared to $180.3 million in 1994, up $142.7 million. The increase in revenue
results primarily from the inclusion of TAG in the results of PIMCO Advisors
operations since the Consolidation, and to a lesser extent, from increased
assets under management at the investment management firms.
Compensation and benefits, which includes salaries, employee benefits and
incentive compensation, is the largest expense category. The increase in 1995
of $31.9 million, to $149.1 million, reflects increased staff levels, higher
profit sharing and the inclusion of TAG in the full year of 1995, compared with
only 46 days in 1994.
In addition to the effect of including TAG's operations for a full year
in 1995, as compared to only 46 days in 1994, other expense categories reflect
the following fluctuations:
(i) Restricted units and option plans, which came into existence at the
Consolidation, include approximately $2.0 million of amortization
related to the accelerated vesting of outstanding options; and
(ii) Trail and service fee commissions increased approximately $7.0 million
as a result of an increase in the underlying qualifying assets.
CAPITAL RESOURCES AND LIQUIDITY
PIMCO Advisors and the combined businesses of its predecessor entities have
not historically been capital intensive. Prior to the Consolidation, working
capital requirements have been satisfied out of operating cash flow or short-
term borrowings. PIMCO Advisors makes quarterly profit-sharing payments to key
employees and distributions to its unitholders, and may finance profit sharing
payments using short-term borrowings.
PIMCO Advisors had approximately $52.8 million of cash and cash equivalents
and short term investments at December 31, 1996 compared to approximately $46.5
million at December 31, 1995. The increase was due to the timing of payment of
certain current liabilities offset by the funding of "B" Share commissions to
brokers. "B" Shares involve the payment of commissions to the selling broker by
the distributor at the time of sale of mutual fund shares. Through deferred
sales charges to the investor, or 12-b1 plans with the mutual fund, these
"front-end" commissions are recouped by the distributor over a period of years.
PIMCO Advisors excess liquidity, after distributions to its unitholders, is used
for general corporate purposes including profit-sharing payments and brokers'
commissions on sales of mutual fund shares distributed without a front-end sales
load. To the extent that the level of such commissions increases due to the
introduction of new products and mutual fund pricing structures, an alternate
financing source may be needed. However, PIMCO Advisors has made no decision as
to the source or necessity of such financing.
PIMCO Advisors currently has no long-term debt. In April, 1996, the
Partnership obtained a $25 million four-year revolving line of credit for
working capital purposes. The facility was not utilized during 1996.
It is currently anticipated that the provisions in the tax code permitting
PIMCO Advisors to be a Publicly Traded Partnership ("PTP") will expire on
December 31, 1997. In the event that no extension of PTP status is enacted
during 1997, it is the intention of the partnership to take appropriate steps
("the Restructuring") prior to December 31, 1997 that would enable it to
continue to be taxed as a partnership, while allowing continued public ownership
through the publicly traded shares of a newly incorporated general partner of
PIMCO Advisors taxed as a corporation. Those steps would include, but not be
limited to:
(i) Declaring a special distribution during the fourth quarter of 1997 to
holders of PIMCO Advisors units consisting of Operating Profit
Available for Distribution through the date of the Restructuring, not
previously distributed;
(ii) Establishing a new corporation and admitting such corporation as a
general partner of PIMCO Advisors; and
(iii) Issuing shares of common stock of such corporate general partner
("PIMCO Advisors, Inc.") to public and certain private unitholders of
PIMCO Advisors in exchange for and upon contribution of their Class A
and Class B Limited Partner Units.
22
<PAGE>
Subsequent to the Restructuring, it is expected that the only source of
public ownership of PIMCO Advisors will be through PIMCO Advisors, Inc.
It is not yet clear what impact, if any, the Restructuring will have on the
ability of PIMCO Advisors to raise capital in the future, however, management
believes that this corporate structure for indirect public ownership in PIMCO
Advisors will enable ownership by institutional investors who would otherwise
avoid investing in partnerships directly.
ECONOMIC AND OTHER FACTORS
The general economy including interest rates, inflation and client
responses to economic factors will affect the results of operations of PIMCO
Advisors. A significant portion of assets under management are fixed income
investments, and are sensitive to fluctuations in interest rates. Significant
interest rate shifts could have a material impact on the operations of PIMCO
Advisors. PIMCO Advisors advisory business is generally not capital intensive
and therefore any effect of inflation, other than on interest rates, is not
expected to have a significant impact on its operations or financial condition.
Client responses to the economy, including decisions as to the amount of assets
invested, may also impact the operations of PIMCO Advisors. These fluctuations
may or may not be recoverable in the pricing of services offered by PIMCO
Advisors.
During 1996 and 1995, assets under management for PIMCO Advisors and its
subsidiaries increased $14.8 billion and $23.0 billion, respectively. While net
cash inflows for PIMCO Advisors, as a whole, were significant ($6.7 billion in
1996 and $6.6 billion in 1995), CCI experienced substantial net cash outflows in
both years attributable in large part to underperformance measured against
relevant benchmarks. This trend has continued in 1997.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Index to Financial Statements:
<TABLE>
<CAPTION>
Page(s)
---------
<S> <C>
PIMCO Advisors L.P.
Report of Independent Accountants 25
Independent Auditors' Report 26
Consolidated Statements of Financial 27
Condition - as of December 31, 1996
and 1995
Consolidated Statements of Operations - 29
for each of the years in the three
years ended December 31, 1996
Consolidated Statements of Changes in 30
Owners' Equity - for each of the years
in the three years ended December 31, 1996
Consolidated Statements of Cash Flows - 32
for each of the years in the three
years ended December 31, 1996
Notes to Consolidated Financial 34
Statements
</TABLE>
24
<PAGE>
Report of Independent Accountants
---------------------------------
To the Equity Board and Partners
of PIMCO Advisors L.P.
In our opinion, the accompanying consolidated statement of financial condition
and the related consolidated statements of operations, of changes in owners'
equity and of cash flows present fairly, in all material respects, the financial
position of PIMCO Advisors L.P. and subsidiaries (the "Partnership") at December
31, 1996, and the results of their operations and their cash flows for the year
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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Los Angeles, California
February 14, 1997
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
PIMCO Advisors L.P. and subsidiaries:
We have audited the accompanying consolidated statement of financial condition
of PIMCO Advisors L.P. and subsidiaries (the "Partnership") as of December 31,
1995, and the related consolidated statements of operations, cash flows, and
changes in owners' equity for each of the two years ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial condition of the Partnership as of December 31,
1995, and the results of their operations and their cash flows for each of the
two years ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Costa Mesa, California
February 2, 1996
26
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,311,545 $ 34,915,170
Investment advisory fees receivable:
Private accounts 52,261,212 45,344,158
Proprietary Funds 9,629,075 8,413,302
Distribution and servicing fees receivable 4,382,154 3,594,534
Notes receivable 1,569,950 1,230,168
Receivable from PIMCO Advisors Funds 462,616 337,744
Short term investments 11,520,726 11,531,226
Other current assets 3,924,592 2,282,895
------------ ------------
Total current assets 125,061,870 107,649,197
Investment in StocksPLUS, L.P. 2,629,864 3,384,237
Fixed assets - Net of accumulated depreciation and amortization
of $6,979,756 and $4,415,199 10,561,346 10,743,184
Intangible assets - Net of accumulated amortization
of $76,519,260 and $40,510,128 207,822,687 243,831,819
Other non current assets 12,424,534 3,983,358
------------ ------------
TOTAL ASSETS $358,500,301 $369,591,795
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
27
<PAGE>
PIMCO ADVISORS L. P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Continued)
<TABLE>
<CAPTION>
December 31,
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 13,841,641 $ 8,132,005
Commissions payable 8,435,048 6,450,407
Payable to affiliates - -
Accrued compensation 26,027,732 21,246,685
Other current liabilities 11,537,236 1,457,800
------------- -------------
Total current liabilities 59,841,657 37,286,897
Other non current liabilitites 2,415,883 748,265
------------- -------------
Total liabilities 62,257,540 38,035,162
------------- -------------
PARTNERS' CAPITAL
General Partner (800,000 units issued and
outstanding) 2,986,983 3,456,973
Class A Limited Partners (40,146,155 and
40,121,155 units issued and outstanding) 205,420,612 228,465,440
Class B Limited Partners (32,960,826 units
issued and outstanding) 98,369,570 114,806,204
Unamortized compensation (10,534,404) (15,171,984)
------------- -------------
Total Partners' Capital 296,242,761 331,556,633
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 358,500,301 $ 369,591,795
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment advisory fees:
Private accounts $213,852,081 $192,702,939 $126,913,420
Proprietary Funds 128,855,694 90,772,988 48,822,835
Distribution and servicing fees 48,182,499 38,240,015 4,288,702
Other 1,134,108 1,297,933 238,208
------------ ------------ ------------
Total revenues 392,024,382 323,013,875 180,263,165
------------ ------------ ------------
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Compensation and benefits 173,526,137 149,163,906 117,197,986
Commissions 37,738,954 28,743,396 2,877,497
Restricted Unit and Option Plans 5,162,268 6,713,664 1,162,143
Marketing and promotional 10,981,804 9,066,414 6,594,546
Occupancy and equipment 9,195,606 8,662,499 4,342,777
General and administrative 17,629,876 11,433,726 5,842,962
Insurance 2,621,086 2,799,795 1,118,651
Professional fees 5,472,729 3,164,410 3,899,758
Amortization of intangible assets 36,009,132 36,009,132 5,039,680
Other 4,812,078 2,236,996 3,345,535
------------ ------------ ------------
Total expenses 303,149,670 257,993,938 151,421,535
------------ ------------ ------------
OPERATING INCOME 88,874,712 65,019,937 28,841,630
Equity in income of StocksPLUS, L.P. 271,187 225,670 10,722
Other income, net 3,183,699 3,738,980 1,072,221
------------ ------------ ------------
Income before income tax expense 92,329,598 68,984,587 29,924,573
Income tax expense 1,201,417 517,133 10,669,295
------------ ------------ ------------
NET INCOME $ 91,128,181 $ 68,467,454 $ 19,255,278
============ ============ ============
- --------------------------------------------------------------------------------------------------------------------
NET INCOME ALLOCATED TO:
General Partner $ 1,034,010 $ 912,890 $ 97,522
Class A Limited Partner units 51,881,756 45,742,775 4,878,336
Class B Limited Partner units 38,212,415 21,811,789 1,128,234
Pre-Consolidation 13,151,186
------------ ------------ ------------
Total $ 91,128,181 $ 68,467,454 $ 19,255,278
============ ============ ============
NET INCOME PER UNIT (POST-CONSOLIDATION):
Net income per General Partner and
Class A Limited Partner units $ 1.29 $ 1.16 $ 0.12
============ ============ ============
Net income per Class B Limited Partner unit $ 1.05 $ 0.59 $ 0.03
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK PAID-IN RETAINED CURRENCY GENERAL PARTNER
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION UNITS AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994 1,000 $ 1,000 $ 10,843,146 $ 14,978,001 $ (812) - -
Net income 13,151,186 $ 97,522
PFAMCo Group
capital contributions 7,775,000
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividend, net (6,559,420) (8,625,011)
Conversion to partnership (1,000) (1,000) (12,058,726) (10,304,176) 51,239 800,000 318,182
TAG contributed capital
Goodwill from acquisition 3,447,579
Proceeds from Primary Offering
Amended Option Plan
grants (total award)
Restricted Unit Plan
grants (total award)
Vesting of options
and restricted units
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 - - - - - 800,000 3,863,283
Net income 912,890
Distributions (1,319,200)
Exercise of unit options
Balance of proceeds-Primary offering
Vesting of options
and restricted units
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 - - - - - 800,000 3,456,973
Net income 1,034,010
Distributions (1,504,000)
Restricted Unit Plan grants
Vesting of options
and restricted units
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 - $ - $ - $ - $ - 800,000 $ 2,986,983
======= ======== ============ =========== ======== ======= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(Continued)
30
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY,
(Continued)
<TABLE>
<CAPTION>
CLASS A LIMITED PARTNERS CLASS B LIMITED PARTNERS UNAMORTIZED TOTAL
UNITS AMOUNT UNITS AMOUNT COMPENSATION OWNER'S EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994 -- -- -- -- -- $ 25,821,335
Net income $ 4,878,336 $ 1,128,234 19,255,278
PFAMCo Group
capital contributions 7,775,000
Dividends (9,200,000)
Translation adjustment (50,427)
Deemed dividend, net (15,184,431)
Conversion to partnership 23,775,000 13,088,231 24,575,000 8,906,250 --
TAG contributed capital 14,918,155 9,644,238 8,260,826 1,990,739 11,634,977
Goodwill from acquisition 167,285,821 101,459,864 272,193,264
Proceeds from Primary Offering 1,200,000 19,972,951 19,972,951
Amended Option Plan --
grants (total award) 31,135,761 ($18,987,077) 12,148,684
Restricted Unit Plan
grants (total award) 125,000 2,368,750 125,000 1,691,964 (4,060,714) --
Vesting of options
and restricted units 1,162,143 1,162,143
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 40,018,155 248,374,088 32,960,826 115,177,051 (21,885,648) 345,528,774
Net income 45,742,775 21,811,789 68,467,454
Distributions (66,110,962) (22,182,636) (89,612,798)
Exercise of unit options 103,000 374,920 374,920
Balance of proceeds-Primary offering 84,619 84,619
Vesting of options
and restricted units 6,713,664 6,713,664
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 40,121,155 228,465,440 32,960,826 114,806,204 (15,171,984) 331,556,633
Net income 51,881,756 38,212,415 91,128,181
Distributions (75,451,272) (54,649,049) (131,604,321)
Restricted Unit Plan grants 25,000 524,688 (524,688) --
Vesting of options
and restricted units 5,162,268 5,162,268
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 40,146,155 $205,420,612 32,960,826 $ 98,369,570 ($10,534,404) $ 296,242,761
========== ============ ========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 91,128,181 $ 68,467,454 $ 19,255,278
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 40,916,431 38,972,101 6,339,107
Deferred income taxes 734,836 270,000 804,116
Amortization of compensation plan - - 663,697
Restricted Unit and Option Plans 5,162,268 6,713,664 1,162,143
Unrealized loss (gain) on
investments 53,879 (198,396) (135,376)
Equity in income of StocksPLUS,
L.P. (271,187) (225,670) (10,722)
Change in operating assets and
liabilities:
Change in fees receivable (8,920,447) (28,217,386) 7,919,554
Change in receivable from
PIMCO Advisors Funds (124,872) 865,614 (618,123)
Change in other assets (11,676,643) (3,398,979) (10,838,869)
Change in accounts payable
and accrued expenses 5,709,636 941,302 (660,816)
Change in commissions payable 1,984,641 1,714,200 2,413,750
Change in accrued compensation 4,781,047 7,859,345 8,423,141
Change in other liabilities 11,012,219 (1,003,184) (649,686)
Change in payable to affiliates - (5,841,256) (6,877,311)
Other (43,686) 1,811 (1,337,755)
------------ ----------- -----------
Net cash provided by operating
activities 140,446,303 86,920,620 25,852,128
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments $ (694,498) $ (11,334,021) $ (52,601,192)
Proceeds from sales of investments 783,570 -- 62,247,248
Return of investment in StocksPLUS, L.P. 1,600,000 -- --
Investment in StocksPLUS, L.P. (700,000) (400,000) --
Cash of acquired entities -- -- 14,698,855
Proceeds from sale of fixed assets 644,978 309,575 --
Purchase of fixed assets (3,446,152) (5,982,054) (1,826,800)
Notes receivable advances (633,505) (364,823) (117,232)
------------ ----------- -----------
Net cash (used in) provided by
investing activities (2,445,607) (17,771,323) 22,400,879
------------ ----------- -----------
</TABLE>
32
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from primary offering $ -- $ -- $ 19,972,951
Cash distributions (131,604,321) (89,612,798) --
Unit options exercised -- 374,920 --
Dividends -- -- (22,521,573)
------------- ------------- -------------
Net cash used in financing activities (131,604,321) (89,237,878) (2,548,622)
------------- ------------- -------------
Net increase (decrease)
in cash and cash equivalents 6,396,375 (20,088,581) 45,704,385
Cash and cash equivalents, beginning of year 34,915,170 55,003,751 9,299,366
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 41,311,545 $ 34,915,170 $ 55,003,751
============= ============= =============
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
NON-CASH FINANCING ACTIVITIES
Reduction of payable to affiliates
by capital contribution $ - $ - $ 7,775,000
============= ============= =============
Deemed dividend $ - $ - $ 1,862,858
============= ============= =============
- ----------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 447,724 $ 405,542 $ 15,004,148
============= ============= =============
Interest paid $ - $ 18,750 $ 209,171
============= ============= =============
Fair value of non-cash
assets acquired $ - $ - $ 27,995,376
============= ============= =============
Liabilities assumed $ - $ - $ 24,642,727
============= ============= =============
Non-cash assets excluded
from the Consolidation $ - $ - $ 46,431,262
============= ============= =============
Liabilities transferred excluded
from the Consolidation $ - $ - $ 31,748,537
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
PIMCO ADVISORS L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
PIMCO Advisors L.P. ("PIMCO Advisors") is a registered investment advisor that
provides a broad array of investment management and advisory services to
institutional and retail mutual funds and to separate accounts of institutional
clients. PIMCO Advisors operates in one industry segment, that of investment
management services.
PIMCO Advisors was formed on November 15, 1994, when Pacific Financial Asset
Management Group ("PFAMCo Group") merged (the "Consolidation") certain of its
investment management businesses and substantially all of its assets into
Thomson Advisory Group L.P. ("TAG"). The PFAMCo Group comprised Pacific
Financial Asset Management Corporation ("PFAMCo""), a wholly-owned subsidiary of
Pacific Mutual Life Insurance Company ("Pacific Mutual"), and certain of its
wholly-owned investment management subsidiaries. The businesses of PFAMCo Group
contributed to PIMCO Advisors were then contributed to newly formed subsidiaries
of PIMCO Advisors.
For the period after the Consolidation, the accompanying consolidated
financial statements include the accounts of PIMCO Advisors and its
subsidiaries. The investment advisor subsidiaries included in these consolidated
financial statements are as follows:
. PACIFIC INVESTMENT MANAGEMENT COMPANY ("Pacific Investment Management")
manages a variety of predominantly fixed income portfolios primarily for
institutions and mutual funds;
. COLUMBUS CIRCLE INVESTORS ("CCI") manages primarily equity securities using a
Positive Momentum/Positive Surprise approach, principally for institutions and
mutual funds;
. CADENCE CAPITAL MANAGEMENT ("Cadence") specializes in disciplined, growth-
oriented management of equity securities primarily for institutions and mutual
funds;
. PARAMETRIC PORTFOLIO ASSOCIATES ("Parametric") specializes in highly
quantitative management of domestic and international equity portfolios
primarily for institutions and mutual funds;
. NFJ INVESTMENT GROUP ("NFJ") is a value-oriented manager of equity securities
primarily for institutions and mutual funds; and
. BLAIRLOGIE CAPITAL MANAGEMENT ("Blairlogie") specializes in international
equity securities from its office in Edinburgh, Scotland, primarily for
institutions and mutual funds.
The investment advisor subsidiaries are supported by additional incorporated
subsidiaries:
. PIMCO FUNDS DISTRIBUTION COMPANY (formerly PIMCO Advisors Distribution
Company) ("PFD") serves as the distributor of institutional and retail mutual
funds (the "Proprietary Funds") for which PIMCO Advisors and the investment
advisor subsidiaries provide investment management and administrative
services;
. STOCKSPLUS MANAGEMENT, INC. ("StocksPLUS"), a wholly-owned subsidiary of
Pacific Investment Management, owns approximately 0.125 percent interest in,
and is the general partner of StocksPLUS, L.P. (Note 12); and
. COLUMBUS CIRCLE TRUST COMPANY ("CCTC"), a non bank trust company and wholly-
owned subsidiary of CCI, established in November 1995, which commenced
business in January 1996.
Pacific Investment Management, CCI, Cadence, Parametric, NFJ and Blairlogie
are registered investment advisors. PFD is a registered broker/dealer with the
Securities and Exchange Commission and a member of the National Association of
Securities Dealers, Inc.
Prior to January 17, 1997, institutional mutual funds managed consisted of two
open-end investment management companies. One series included 18 predominantly
fixed income funds. The other series included 12 predominantly equity funds. The
retail mutual funds managed consisted of 17 funds included within two open-end
investment management companies, the PIMCO Advisors Funds ("PAF"), formerly the
Thomson Funds, and the Cash Accumulation Trust ("CAT"). With Trustee and
shareholder
34
<PAGE>
approval, the fund groups were combined into a single mutual fund complex, the
PIMCO Funds, in January 1997, consisting of 41 funds offering retail and
institutional share classes.
The accompanying consolidated financial statements for the period prior to the
Consolidation include the accounts of PFAMCo and its wholly-owned subsidiaries,
reflected on a combined basis.
2. SIGNIFICANT ACCOUNTING POLICIES
a. CASH AND CASH EQUIVALENTS - PIMCO Advisors invests certain cash balances
in money market funds. At December 31, 1996, this investment is
approximately $25,429,000, of which approximately $814,000 is invested in
the National Money Market Fund of CAT, approximately $595,000 is invested
in the PIMCO Advisors Money Market Fund and approximately $24,020,000 is
invested in non affiliate money market funds. At December 31, 1995, this
investment was approximately $20,844,000, of which approximately
$5,738,000 was invested in the National Money Market Fund of CAT,
approximately $4,284,000 was invested in the PIMCO Advisors Money Market
Fund and approximately $10,822,000 was invested in non affiliate money
market funds. Management considers investments in money market funds to
be cash equivalents for purposes of the Consolidated Statements of Cash
Flows. These investments are carried at cost, which approximates market.
b. INVESTMENT ADVISORY FEES - PIMCO Advisors records investment advisory
fees on an accrual basis. Investment advisory fees receivable for private
and separate accounts consist primarily of accounts billed on a quarterly
basis. Private accounts may also generate a fee based on investment
performance, which is recorded as income when earned and not subject to
forfeiture. Investment advisory fees for the Proprietary Funds are
received monthly.
c. SHORT TERM INVESTMENTS - The short term investments, as of December 31,
1996 and 1995, are primarily invested in the PIMCO Funds with a short-
term duration objective. The investments are carried at market value.
Cost approximated market value as of December 31, 1996 and 1995.
d. DEPRECIATION AND AMORTIZATION - Office equipment, furniture and fixtures
are depreciated on a straight line basis over their estimated useful
lives, generally five years. Automobiles are depreciated on a straight-
line basis over their estimated lives, generally three years. Leasehold
improvements are amortized on a straight-line basis over the remaining
terms of the related leases or the useful lives of such improvements,
whichever is shorter.
e. OTHER ASSETS - Effective May 29, 1995, PFD commenced sale of a "B"
class of mutual fund shares. Under this share structure PFD advances
commissions to independent brokers and is entitled to recoup its
marketing costs through an ongoing fee stream from the respective funds
or contingent deferred sales charges collected from the share purchaser.
Such fees are capitalized as deferred sales charges and amortized on a
straight line basis as commission expense over a period of 60 months.
Deferred unamortized marketing costs of approximately $11,100,000 and
$3,600,000 are included in other assets at December 31, 1996 and 1995,
respectively.
f. INCOME TAXES - Subsequent to the Consolidation, PIMCO Advisors and its
subsidiaries are predominantly partnerships and, as a result, are
generally not subject to Federal or state income taxes. PIMCO Advisors is
subject to an unincorporated business tax in a certain jurisdiction in
which it operates. All partners of PIMCO Advisors are responsible for
taxes, if any, on their proportionate share of Pimco Advisors' taxable
income. Certain corporate subsidiaries are subject to Federal and state
income taxes and file separate tax returns and account for income taxes
under Statement of Financial Accounting Standards No. 109 ("FASB 109").
The provision for income taxes is determined using the liability method
which gives recognition to deferred tax assets and liabilities based on
the expected future tax consequences of events that have been recognized
in the financial statements or tax returns. In estimating future tax
consequences, FASB 109 generally requires the consideration of all
expected future events other than enactments of changes in the tax law or
rates.
g. FOREIGN CURRENCY TRANSLATION - The assets and liabilities of Blairlogie,
PFAMCo UK Limited and Blairlogie's predecessor company have been
translated into U.S. dollars at the current rate of exchange existing at
year-end. Revenues and expenses were translated at the average of the
monthly exchange rates then in effect.
35
<PAGE>
h. NET INCOME ALLOCATION - Net income is allocated in accordance with the
Amended and Restated Agreement of Limited Partnership of PIMCO Advisors.
Net income is allocated among unit holders in the same proportions as
cash distributions. PIMCO Advisors cash distribution policy provides for
a first priority distribution to General Partner and Class A Limited
Partner Units ($1.88 per year through December 31, 1997) followed by a
second priority distribution to Class B Limited Partner Units. During the
years ended December 31, 1996 and 1995, the second priority distribution
was less than the first priority distribution.
i. EARNINGS PER UNIT - Earnings per unit are computed based on the weighted
average number of units outstanding, assuming the exercise of dilutive
unit options. Proceeds from the exercise of such unit options are assumed
to be used to repurchase outstanding Limited Partner units under the
treasury stock method. The weighted average number of units used to
compute earnings per unit was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
General Partner and Class A Limited
Partner units 42,501,469 42,127,833 41,802,420
Class B Limited Partner units 34,513,573 33,425,537 32,960,826
</TABLE>
j. OTHER - Certain items have been reclassified to conform with the current
year presentation. All significant intercompany items have been
eliminated in the accompanying consolidated financial statements.
k. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The
financial statements have been prepared in accordance with generally
accepted accounting principles which require management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
3. INTANGIBLE ASSETS
For accounting purposes, the Consolidation between PFAMCo Group and TAG is
treated as a purchase and recapitalization of TAG by PFAMCo Group, or a "reverse
acquisition." Intangible assets of approximately $284.9 million represented the
excess of the purchase price over the fair value of the net tangible assets of
TAG deemed acquired in the Consolidation. A portion of the intangible assets
represents the value assigned to PIMCO Advisor's Master Limited Partnership
("MLP") structure. Under current Internal Revenue code guidelines, an MLP is
exempt from Federal and most state and local income taxes through December 31,
1997. The value attributed to the MLP structure will be amortized over the
period ending December 31, 1997. The remainder will be amortized on a straight-
line basis over its estimated life of twenty years. During the years ended
December 31, 1996, 1995 and 1994, approximately $36,000,000, $36,000,000 and
$5,000,000 of amortization have been charged to expense, respectively.
4. SUPPLEMENTARY FINANCIAL DATA
The following supplementary financial data presents the actual results of
operations for 1996 and 1995 and the unaudited pro forma results of operations
for 1994 as if the Consolidation discussed in Note 1 had occurred on January 1,
1993, except for the period from November 15, 1994 through December 31, 1994
which reflects actual results. The 1994 pro forma operating results give effect
to:
(a) The Consolidation of PFAMCo Group and TAG;
(b) The amendment of existing options under TAG's 1993 Unit Option Plan;
(c) The adoption of the Class B Limited Partnership Unit Option Plan;
(d) The contribution of PFD to PIMCO Advisors in exchange for
Class A Limited Partner Units; and
(e) Certain transactions effected by PFAMCo Group and TAG in connection with
the Consolidation, primarily related to intangible amortization and
profit sharing.
36
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(ACTUAL) (ACTUAL) (PRO FORMA)
(Amounts in thousands, except per unit amounts)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment advisory $ 338,341 $ 281,610 $ 231,475
PFD 53,683 41,404 37,629
--------- --------- ---------
392,024 323,014 269,104
========= ========= =========
- --------------------------------------------------------------------------------
EXPENSES
Investment advisory 207,203 171,272 137,246
PFD 52,522 40,552 36,435
Amortization of intangibles,
options and restricted units 41,171 42,723 40,713
--------- --------- ---------
300,896 254,547 214,394
--------- --------- ---------
Net income $ 91,128 $ 68,467 $ 54,710
========= ========= =========
Net income per General Partner
and Class A Limited Partner unit $ 1.29 $ 1.16 $ 1.08
========= ========= =========
</TABLE>
The pro forma information above is not intended to reflect the results that
actually would have been obtained if the operations were consolidated during the
periods presented.
5. NOTES RECEIVABLE
Pacific Investment Management and PIMCO Advisors have granted loans to
certain employees as part of programs designed to ensure the long-term retention
of those employees. These loans are primarily non-interest bearing and are
generally due within one year of issuance.
6. FIXED ASSETS
The major classifications of fixed assets are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Office equipment, furniture and
fixtures $ 12,827,368 $ 9,548,212
Automobiles 9,069 836,152
Leasehold improvements 4,704,665 4,774,019
------------ ------------
Total fixed assets 17,541,102 15,158,383
Less accumulated depreciation and
amortization 6,979,756 4,415,199
------------ ------------
Fixed assets, net $ 10,561,346 $ 10,743,184
============ ============
</TABLE>
Fixed assets of certain of the subsidiaries were revalued at their estimated
fair market value in connection with the Consolidation.
7. INCOME TAXES
Subsequent to the Consolidation, only certain subsidiaries are subject to
income taxes directly. The total income tax provision for the affected
subsidiaries is as follows:
37
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Current expense:
State $ 163,669 $ 105,724
Federal 295,215 159,440
Deferred expense:
State 197,970 68,378
Federal 544,563 183,591
----------- ----------
$ 1,201,417 $ 517,133
=========== ==========
</TABLE>
Prior to the Consolidation, PFAMCo's operations and those of its domestic
subsidiaries were included in the combined domestic Federal income tax returns
of Pacific Mutual. PFAMCo's operations and its domestic subsidiaries were
included in the combined California franchise tax return of Pacific Financial
Holding Company ("PFHC"), the parent of PFAMCo. Certain subsidiaries filed
separate state income or franchise tax returns. PFAMCo and its domestic
subsidiaries were allocated an expense or a benefit based principally on the
effect of including their operations in the combined provision as if the
companies filed a separate return in accordance with a tax sharing agreement
between PFAMCo and PFHC.
The provision for taxes prior to the Consolidation was as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 15,
1994
- ---------------------------------------------------------------
<S> <C>
Current expense:
State $ 2,140,509
Federal 7,705,429
Deferred expense:
State 156,960
Federal 647,147
------------
$ 10,650,045
============
</TABLE>
After the Consolidation, PIMCO Advisors incurred a tax liability of $19,250
in 1994 principally related to the activities of a corporate subsidiary.
Reconciliations of the statutory Federal income tax rates to the effective
income tax rates prior to the Consolidation are as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 15,
1994
- ----------------------------------------------------------------
<S> <C>
Statutory Federal income tax rate
applied to income before Federal
income taxes 35.0%
State taxes, net of Federal benefit 6.1
Foreign operations 3.1
Other 0.5
------------
Effective income tax rate 44.7%
============
</TABLE>
38
<PAGE>
8. RELATED-PARTY TRANSACTIONS
Pacific Mutual provided certain support services to PFAMCo Group prior to the
Consolidation. Services for certain of PFAMCo Group's employees include
participation in a pension plan maintained by Pacific Mutual (Note 9g). Charges
for support services, including pension plan participation, amounted to
approximately $2,335,000 for the period ended November 15, 1994.
9. BENEFIT PLANS
a. PROFIT SHARING AND INCENTIVE PROGRAMS - PIMCO Advisors and its
subsidiaries have several profit sharing and incentive programs that
compensate participants on the basis of profitability and discretionary
bonuses. Compensation under these programs was approximately $114,139,000
and $94,487,000 for the years ended December 31, 1996 and 1995,
respectively, and was approximately $10,091,000 for the period from the
Consolidation through December 31, 1994. PFAMCo Group had nonqualified
profit sharing plans (the "Profit Sharing Plans") covering certain key
employees and other employees. The Profit Sharing Plans provided for
awards based on the profitability of the respective subsidiary. Such
profitability was primarily based on income before income taxes and
before profit sharing. The awards ranged from 40% to 80% of such amounts
depending on the level of profitability. Profit sharing awards were fully
vested at the date of the Consolidation. Profit sharing expense relating
to the Profit Sharing Plans of approximately $68,387,000 is included in
compensation and benefits in the accompanying Consolidated Statements of
Operations for the period ended November 15, 1994.
b. LONG TERM COMPENSATION - Long term compensation includes amounts payable
to certain officers of a subsidiary in connection with the discretionary
bonuses discussed above. The amounts payable will be paid on specified
dates and are subject to cancellation upon the occurrence of certain
events. In addition, certain key employees of the PFAMCo subsidiaries
participated in Long-Term Incentive Plans that provided compensation
under the Profit Sharing Plans for a specified period of time subsequent
to their termination of employment. These plans were terminated as of the
Consolidation.
c. EXECUTIVE DEFERRED COMPENSATION PLAN - PIMCO Advisors and its
subsidiaries have a nonqualified deferred compensation plan pursuant to
which a portion of the compensation otherwise payable to certain eligible
employees will be mandatorily deferred, and pursuant to which such
eligible employees may elect to defer additional amounts of compensation.
The plan is unfunded and is maintained primarily for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees, within the meaning of Sections 201(2),
301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of
1974, as amended. Amounts deferred under the plan are held in a trust and
invested by the trustee in Class A Limited Partner Units. PIMCO Advisors
will contribute additional funds or Class A Limited Partner Units to the
trust such that the average purchase price of all units acquired at that
date is not greater than 85% of the then current market price for such
units. No expense was incurred in 1996 related to this plan.
d. SAVINGS AND INVESTMENT PLANS - PIMCO Advisors and its subsidiaries have
several defined contribution employee benefit plans covering
substantially all employees. PIMCO Advisors and Pacific Investment
Management are the sponsors of certain defined contribution employee
savings and investment plans. The plans qualify under Section 401(k) of
the Internal Revenue Code and allow eligible employees of PIMCO Advisors
and certain of its subsidiaries, to contribute up to ten percent of their
annual compensation as defined, and subject to a maximum dollar amount
determined from time to time by the Internal Revenue Service. Employees
are generally eligible following the later of attainment of age 21 or the
completion of one year of credited service ("IRS"). For 1996 and 1995,
PIMCO Advisors and certain of its subsidiaries, matched and contributed
an amount equal to the first five or six percent of annual compensation,
subject to IRS Internal Revenue Service limits, contributed by the
employees. In addition, PIMCO Advisors and certain of its subsidiaries,
may elect to make a discretionary contribution to all participants. The
amount expensed by PIMCO Advisors and its subsidiaries related to this
plan during the year ended December 31, 1996, 1995 and 1994 was
approximately $2,017,000, $1,851,000 and $50,000, respectively.
For 1994, PIMCO Advisors and certain of its subsidiaries, matched and
contributed an amount equal to one half of the first six percent of
annual compensation, subject to IRS limits, contributed by the employees.
In addition, PIMCO Advisors and certain of its subsidiaries, elected to
make a discretionary contribution to all participants. Contributions
fully vest to employees after five years of credited service.
Pacific Investment Management has several defined contribution employee
benefit plans covering substantially all of its employees and made
contributions to the plans ranging form five percent to eleven percent of
covered individuals' base compensation. The aggregate expense recorded is
approximately $989,000, $950,000 and none in 1996, 1995 and 1994,
respectively.
39
<PAGE>
e. RESTRICTED UNIT PLAN - PIMCO Advisors adopted a restricted unit plan for
the benefit of certain key employees. A total of 150,000 Class A Limited
Partner Units and 125,000 Class B Limited Partner Units have been awarded
under the plan. The units generally vest over a five-year period;
however, accelerated vesting occurred in 1995 upon the departure of a key
employee. There are no additional units available for grants under the
plan. The expense under this plan was approximately $755,000, $2,010,000
and $101,000 during 1996, 1995 and 1994, respectively.
f. UNIT OPTION PLANS - PIMCO Advisors has two unit-option plans, which are
described below. No compensation cost has been recognized for these fixed
unit option plans because the option price approximated the market price
on the date of grant. Had compensation cost for PIMCO Advisors two unit
option plans been determined based on the fair value rather than market
value at the grant dates, PIMCO Advisors net income and earnings per unit
would have been reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
NET INCOME
As reported $91,128,181 $68,467,454
Pro forma $90,839,243 $68,368,057
NET INCOME PER UNIT
Net income per General Partner and
Class A Limited Partner unit
As reported $1.29 $1.16
Pro forma $1.29 $1.16
Net income per Class B Limited Partner
unit
As reported $1.05 $0.59
Pro forma $1.05 $0.59
</TABLE>
For the above disclosure purposes, the fair value of each option
granted is estimated on the date of grant using the Black-Scholes option-
pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: dividend yield of 7.7% and 3.5%;
expected volatility of 14% and 10%; risk-free interest of 6.30% and 6.80%;
and expected lives of 6 and 7 years.
The unit option plans are administered by the Unit Incentive Committee of
the Equity Board of PIMCO Advisors, which determines the key employees and
the terms of the options to be granted. Under the 1993 Unit Option Plan (as
amended), PIMCO Advisors may grant options to its employees up to 3,090,000
Class A Limited Partner Units. Under the 1994 Unit Option Plan, PIMCO
Advisors may grant options to its employees up to 5,600,000 Class B Limited
Partner Units. There are 270,400 Class B Limited Partner Units options
available for future grants at December 31, 1996. The expense under the
option plans was approximately $4,408,000, $4,704,000 and $1,061,000 during
1996, 1995 and 1994, respectively.
Under both plans, the exercise price for each option reported herein has
been not less than the average trading price of PIMCO Advisor's units for
the 20 trading day period prior to the grant date and each option's maximum
term is 10 years. There was no material difference between the option price
and the market price on the grant date. The outstanding options vest over a
period of not more than five years and vested options are generally
exercisable after January 1, 1998. Following is a summary of the status of
both unit option plans:
40
<PAGE>
<TABLE>
<CAPTION> OPTION PRICE
UNITS RANGE PER UNIT
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, January 1, 1994 - -
Class A Limited Partner units
Granted 2,442,130 $2.425 - $ 4.85
Class B Limited Partner units
Granted 5,297,000 $13.53
---------
Outstanding, December 31, 1994 7,739,130 $2.425 - $13.53
Class A Limited Partner units
Exercised (103,000) $2.425 - $ 4.85
Class B Limited Partner units
Granted 109,000 $12.70 - $14.68
Canceled (174,200) $13.53
---------
Outstanding, December 31, 1995 7,570,930 $2.425 - $14.68
Class B Limited Partner units
Granted 227,000 $17.72 - $18.81
Canceled (29,200) $12.78 - $13.53
---------
Outstanding, December 31, 1996 7,768,730 $2.425 - $18.81
=========
Exercisable:
Class A Limited Partner units 801,110 $2.425
Class B Limited Partner units 200,000 $13.53
---------
Exercisable, December 31, 1996 1,001,110
=========
</TABLE>
G. OTHER BENEFIT PLANS - Certain of PFAMCo Group's eligible employees were
included in a Pacific Mutual sponsored defined benefit pension plan, and
health care and life insurance plans that provide post-retirement
benefits. PFAMCo Group was charged an immaterial amount by Pacific Mutual
for these plans prior to the Consolidation. Subsequent to the
Consolidation, PIMCO Advisors has no expense associated with these plans.
10. COMMITMENTS
A. LEASE AGREEMENTS - PIMCO Advisors and its subsidiaries lease office space
and certain office equipment under noncancelable leases with terms in
excess of one year. Future minimum payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------
<S> <C>
1997 $3,560,785
1998 2,523,057
1999 1,705,000
2000 821,122
2001 759,837
Thereafter 375,054
-----------
Total $9,744,855
-----------
</TABLE>
Rent expense in connection with these agreements was approximately
$3,772,000, $3,641,000 and $2,379,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
B. LETTER OF CREDIT - PIMCO Advisors is contingently liable for a letter of
credit in the amount of $738,548 related to PIMCO Advisors membership in
a captive insurance program.
C. REVOLVING LINE OF CREDIT - PIMCO Advisors has a $25 million, 4 year
revolving credit facility, originated in April of 1996. The facility
permits short term borrowings at a floating rate of interest. The terms
of the agreement include an interest
41
<PAGE>
coverage ratio, a fixed charge coverage ratio and a minimum operating
cash flow ratio. The partnership did not utilize this facility in 1996,
but was in compliance with the required ratios.
11. NET CAPITAL
PFD is subject to the Uniform Net Capital Rule (Rule 15c3-1) under the
Securities and Exchange Act of 1934, which requires the maintenance of minimum
net capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. At December 31, 1996, PFD
had net capital of $3,058,237, which was $2,238,261 in excess of its required
net capital of $819,976. PFD's net capital ratio was 3.73 to 1. At December 31,
1995, PFD had net capital of $1,049,818, which was $515,116 in excess of its
required net capital of $534,702. PFD's net capital ratio was 7.64 to 1. At
December 31, 1994, PFD had $1,156,876 in excess of its required net capital of
$579,935. PFD's net capital ratio was 5.01 to 1 at that time.
12. INVESTMENT IN STOCKSPLUS, L.P.
StocksPLUS accounts for its investment in StocksPLUS, L.P. under the equity
method because StocksPLUS is the general partner in, and exercises significant
influence over the operating and financial policies of StocksPLUS, L.P. (Note
1). The underlying investments of StocksPLUS, L.P. are carried at fair value.
The effect of such accounting does not have a material effect on PIMCO Advisors
consolidated financial statements. StocksPLUS, L.P. has made its investments
with the intent to have its performance exceed that of the S & P 500 Index.
StocksPLUS has mitigated the effects of its pro rata investment in
StocksPLUS, L.P.'s investments through the use of short futures positions. Gains
and losses related to these positions are settled daily. Included in "Short term
investments" in the accompanying Consolidated Statements of Financial Condition
are securities which are used as necessary for deposits made in connection with
the futures positions and are recorded at fair value. The notional amounts of
the contracts do not necessarily represent future cash requirements, as the
contracts are intended to be closed prior to their expiration. As of December
31, 1996 and 1995, the notional amounts of futures contracts approximated
$2,932,000 and $3,401,000, respectively.
42
<PAGE>
Condensed financial information for StocksPLUS, L.P. is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
SUMMARY OF FINANCIAL CONDITION 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments - at fair value $2,306,673,000 $1,893,770,000
Other assets 26,481,000 18,685,000
-------------- --------------
Total assets 2,333,154,000 1,912,455,000
============== ==============
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities $ 136,880,000 $ 219,072,000
StocksPLUS' Partner Capital 2,629,000 3,384,000
Limited Partners' Capital 2,193,645,000 $1,689,999,000
-------------- --------------
Total liabilities and partners' capital $2,333,154,000 $1,912,455,000
============== ==============
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
SUMMARY OF OPERATIONS 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Net trading gains (losses) on futures $292,185,000 $ 326,096,000 $ (30,291,000)
Net gain (loss) in fair value of securities 12,040,000 31,266,000 (21,278,000)
Interest income 126,535,000 92,260,000 58,383,000
Fees and commissions (4,631,000) (3,822,000) (878,000)
------------ -------------- --------------
Net income $426,129,000 $ 445,800,000 $ 5,936,000
============ ============== ==============
</TABLE>
13. SUBSEQUENT EVENT
On February 13, 1997, PIMCO Advisors and its affiliate, Thomson Advisory
Group Inc. ("TAG Inc."), and Oppenheimer Group, Inc. and its subsidiary,
Oppenheimer Financial Corp. signed a definitive agreement for TAG Inc. to
acquire a one-third, managing general partner interest in Oppenheimer Capital (a
general partnership), the 1 percent general partner interest in Oppenheimer
Capital, L.P. and 100% of the stock of Advantage Advisers, an affiliate of
Oppenheimer Group, which manages eight closed-end funds. The transaction covers
only the private interests Oppenheimer Group holds in Oppenheimer Capital and
Oppenheimer Capital, L.P. and does not include the publicly traded units of
Oppenheimer Capital, L.P. The acquisition is subject to certain client, lender,
IRS and other approvals, and is expected to take up to six months to complete.
The agreement provides for the acquisition by TAG Inc. of the above listed
assets through a merger with Oppenheimer Group, Inc. in exchange for total
consideration of approximately $233 million in convertible preferred stock to be
issued by TAG Inc. and the assumption of approximately $32 million of debt.
Subsequently, TAG Inc. will contribute the general partner interest in
Oppenheimer Capital to PIMCO Advisors, in exchange for approximately $233
million of newly issued Class A Limited Partner Units, at $25.50 per unit. PIMCO
Advisors may be obligated in certain circumstances to purchase such convertible
preferred stock for its issue price. PIMCO Advisors will account for this
transaction using the purchase method. After the closing, operating results for
PIMCO Advisors will include its proportionate share of the operating results of
Oppenheimer Capital.
43
<PAGE>
14. CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results for the periods indicated were as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $91,220,000 $98,842,000 $97,099,000 $104,863,000
Expenses 71,468,000 74,827,000 73,131,000 80,269,000
----------- ----------- ----------- ------------
Income before taxes 19,752,000 24,015,000 23,968,000 24,594,000
Income tax expense 389,000 207,000 238,000 367,000
----------- ----------- ----------- ------------
Net income $19,363,000 $23,808,000 $23,730,000 $ 24,227,000
=========== =========== =========== ============
Net income per General
Partner and Class A Limited
Partner unit $ 0.31 $ 0.33 $ 0.32 $ 0.33
=========== =========== =========== ============
Net income per Class B
Limited Partner unit $ 0.19 $ 0.29 $ 0.28 $ 0.29
=========== =========== =========== ============
Market price per Class A
Limited Partner unit
Low $ 20 5/8 $ 20 1/4 $ 20 1/4 $ 19 5/8
High $ 23 1/8 $ 22 $ 22 3/4 $ 23 5/8
<CAPTION>
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $71,118,000 $75,465,000 $83,203,000 $93,228,000
Expenses 57,934,000 61,158,000 65,799,000 69,139,000
----------- ----------- ----------- ------------
Income before taxes 13,184,000 14,307,000 17,404,000 24,089,000
Income tax expense 44,000 198,000 263,000 12,000
----------- ----------- ----------- ------------
Net income $13,140,000 $14,109,000 $17,141,000 $24,077,000
=========== =========== =========== ============
Net income per General
Partner and Class A Limited
Partner unit $ 0.26 $ 0.26 $ 0.29 $ 0.35
=========== =========== =========== ===========
Net income per Class B
Limited Partner unit $ 0.07 $ 0.10 $ 0.14 $ 0.28
=========== =========== =========== ===========
Market price per Class A
Limited Partner unit
Low $ 16 7/8 $ 17 3/8 $ 19 $ 19 5/8
High $ 18 1/4 $ 20 5/8 $ 21 1/4 $ 21 1/4
</TABLE>
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
45
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Partnership carries on its combined businesses (i) directly through the
Partnership with respect to the Partnership's administrative, accounting and
legal functions and its mutual fund business and (ii) through six Investment
Management Firms which carry on the respective businesses of Pacific Investment
Management, CCI, Cadence, Parametric, NFJ and Blairlogie.
PARTNERSHIP
The Partnership is managed by its general partner, PIMCO GP. The general
partner has delegated the management and control of the Partnership to two
management boards, the Operating Board and the Equity Board. Under the terms of
the delegation, governance matters for most day-to-day decisions are allocated
to the Operating Board, which has, in turn, delegated the authority to manage
day-to-day operations and policies of the Partnership to an Operating Committee.
Accordingly, the members of the Operating Committee, together with certain other
officers of the Partnership, fulfill the functions of executive officers of the
Partnership.
The members of the Operating Board are as set forth below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<C> <C> <S>
David B. Breed 49 Chief Executive Officer and Managing
Director of Cadence
Donald A. Chiboucas 52 President and Managing Director of CCI
William D. Cvengros (1) 48 Chief Executive Officer and President of
the Partnership
William H. Gross 52 Managing Director of Pacific Investment
Management
John L. Hague 39 Managing Director of Pacific Investment
Management
Brent R. Harris 37 Managing Director of Pacific Investment
Management
James F. Muzzy 57 Managing Director of Pacific Investment
Management
Daniel S. Pickett 33 Managing Director of CCI
William F. Podlich, III 52 Managing Director of Pacific Investment
Management
Irwin F. Smith(1) 57 Chief Executive Officer and Managing
Director of CCI
William S. Thompson, Jr. 51 Chief Executive Officer and Managing
(Chair)(1) Director of Pacific Investment
Management
Benjamin L. Trosky 37 Managing Director of Pacific Investment
Management
- ------------
</TABLE>
(1) Member of Operating Committee
Until the earlier of December 31, 1997 or the Restructuring, the Operating
Board will be composed of the Chief Executive Officer of Pacific Investment
Management, six other persons designated by the Managing Directors of Pacific
Investment Management, three persons designated by the Managing Directors of
CCI, one person selected by the vote of the Managing Directors of Cadence, NFJ,
Parametric and Blairlogie weighted by the contribution of Cadence, NFJ,
Parametric and Blairlogie to the income of the Partnership, and the Chief
Executive Officer of the Partnership, who serves ex officio. Thereafter, the
Operating Board will consist of at least 11 members designated by the Investment
Management Firms in accordance with their relative contributions to the income
of the Partnership and may include additional members.
The Operating Committee, which is appointed by the Operating Board, is
required to be composed of no fewer than three members, including the Chief
Executive Officer of the Partnership and one member who is a Managing Director
of an Investment Management Firm other than Pacific Investment Management. The
management board of an Investment Management Firm may appeal any decision made
by the Operating Committee which may have a material adverse effect on such
Investment Management Firm to the full Operating Board which, after any such
appeal, will have the sole power and authority (subject to the referral to the
Equity Board in certain circumstances) with respect to the resolution of such
matter.
The authority of the Operating Board and the Operating Committee to take
certain specified actions is subject to the approval of the Equity Board. The
Equity Board has jurisdiction over any decision of the Operating Board with
which three members of the
46
<PAGE>
Operating Board disagree and which is expected to have a material adverse effect
on an Investment Management Firm. In addition, the Equity Board's approval is
required for certain material transactions, including amendment of the
Partnership Agreement or the partnership agreement of an Investment Management
Firm, incurring large amounts of debt or making significant investments, making
certain material changes in the business of the Partnership or of an Investment
Management Firm or material acquisitions or dispositions by the Partnership or
an Investment Management Firm, the authorization of additional units, the
selection of the Chief Executive Officer of the Partnership, the removal of any
Managing Director of an Investment Management Firm (to the extent such approval
is required by the partnership agreement of the Investment Management Firm),
declaring distributions on units, material transactions with affiliates, any
increase in the compensation of a Managing Director of an Investment Management
Firm in excess of consumer price index adjustments, and the adoption of any
policy or any action by one Investment Management Firm that materially burdens
another.
The members of the Equity Board are as set forth below:
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Walter E. Auch, Sr. 75 Management Consultant
William D. Cvengros 48 Chief Executive Officer and President of
the Partnership
Walter B. Gerken (Chair) 74 Former Chairman and Former Director of
Pacific Mutual
William H. Gross 52 Managing Director of Pacific Investment
Management
Donald R. Kurtz 66 Former Managing Director of General Motors
Investment Management Corp.
James F. McIntosh 56 Executive Director of Allen, Matkins,
Leck, Gamble & Mallory LLP.
Donald K. Miller 65 Chairman of Greylock Financial Inc.
William F. Podlich, III 52 Managing Director of Pacific Investment
Management
Glenn S. Schafer 47 President and Director of Pacific Mutual
Irwin F. Smith 57 Chief Executive Officer and Managing
Director of CCI
Thomas C. Sutton 54 Chairman and Chief Executive Officer of
Pacific Mutual
William S. Thompson, Jr. 51 Chief Executive Officer and Managing
Director of Pacific Investment
Management
</TABLE>
Until the earlier of December 31, 1997 or the Restructuring, the members of
the Equity Board will be composed of eight members who are not employed by PIMCO
Advisors (including five members designated by certain unitholders), the Chief
Executive Officer of PIMCO Advisors, the Chairperson of the Operating Board and
two representatives of Pacific Investment Management. Thereafter, the then
serving Equity Board will appoint an Equity Board consisting of 13 members who
shall consist of the Chairperson of the Operating Board, the Chief Executive
Officer of the Partnership and 11 other members, including at least three
independent directors, allocated in a manner reasonably determined by the Equity
Board to represent most effectively the interests of the direct or indirect
beneficial owners of units, including the public unitholders.
Other individuals who serve as executive officers of the Partnership include
Stephen J. Treadway, Executive Vice President; Kenneth M. Poovey, General
Counsel; Robert M. Fitzgerald, Chief Financial Officer, Senior Vice President
and Principal Accounting Officer; Richard M. Weil, Senior Vice President-Legal;
James G. Ward, Senior Vice President & Director of Human Resources; Vinh T.
Nguyen, Vice President, Controller; Mark J. Porterfield, Vice President,
Compliance Officer; and Robert S. Venable, Vice President, Asset Allocation.
In addition, the Partnership has an Audit Committee, a Compensation
Committee, a Constructive Termination Committee and a Unit Incentive Committee
of the Equity Board, each comprised of the three independent members of the
Equity Board.
Set forth below is certain background information with respect to the
persons who are the members of the Operating and Equity Boards or certain
executive officers of the Partnership:
Walter E. Auch, Sr. Mr. Auch has served on the Equity Board as an
independent member and as a member of the Audit Committee, Compensation
Committee, Unit Incentive Committee and the Constructive Termination
Committee since the Consolidation in November 1994. He currently is a
management consultant. Mr. Auch was a Director of TAG Inc. from October
1990 until November 1994. He was previously the Chairman and Chief
Executive Officer of the Chicago Board Options Exchange from 1979 to 1986.
He is also a director of Geotek Industries, Inc., Fort Dearborn Fund,
Shearson VIP Fund, Shearson Advisors Fund, Shearson TRAK Fund, Banyan
Strategic Land Trust, Banyan Strategic Land Fund II, Banyan Mortgage
Investment Fund, Express American Holding Corporation and
Nicholas/Applegate Funds.
47
<PAGE>
David B. Breed. Mr. Breed has served as Chief Executive Officer and a
Managing Director of Cadence since the Consolidation in November 1994. From
February 1988 to July 1993, he was a Managing Director and Director of
Cadence Capital Management Corporation and he was Chief Executive Officer
and Chief Investment Officer thereof until November 1994.
Donald A. Chiboucas. Mr. Chiboucas has served as a member of the Operating
Board of the Partnership and the President and a Managing Director of CCI
since the Consolidation in November 1994. Mr. Chiboucas was Senior
Executive Vice President of TAG Inc. and the Partnership, a member of the
Partnership's Executive Operating Committee and President of the CCI
division from October 1990 until November 1994.
William D. Cvengros. Mr. Cvengros has served as Chief Executive Officer and
President of the Partnership, a member of its Equity and Operating Boards
and Chairman of its Operating Committee since the Consolidation in November
1994. In February 1986, Mr. Cvengros became both Chairman of the Board and
Director of Pacific Investment Management Company (the predecessor to
Pacific Investment Management). He was associated with Pacific Mutual from
July 1972 when he joined Pacific Mutual as an investment analyst until
November 1994. He was promoted to Executive Vice President, Investment
Operations of Pacific Mutual in April 1986, and became a director in
January 1988. Mr. Cvengros became Vice Chairman and Chief Investment
Officer of Pacific Mutual in January 1990. Mr. Cvengros also served as a
director of Pacific Mutual Distributors, Inc., Mutual Service Corporation,
PFAMCo, PFAMCo UK Limited, Blairlogie, Parametric, NFJ, Cadence and
PMRealty Advisors, Inc. He is currently a director of Furon Corporation and
a director of RemedyTemp, Inc.
Robert M. Fitzgerald. Mr. Fitzgerald, 45, is Senior Vice President,
Chief Financial Officer, and Principal Accounting Officer of the
Partnership. He joined the Partnership in February 1995. From April 1994
through January 1995, he served as a consultant to various companies,
including Pacific Investment Management. From October 1991 until April
1994, he served in various senior executive positions, including President,
at Mechanics National Bank. Prior to October 1991, he was a partner with
Price Waterhouse LLP. He is a Certified Public Accountant.
Walter B. Gerken. Mr. Gerken has served as the Chairman of the Equity Board
since the Consolidation in November 1994. Mr. Gerken was formerly on the
Board of Pacific Investment Management Company. Mr. Gerken is the former
Chairman of the Board and CEO of Pacific Mutual, of which he served as
Chairman of the Executive Committee from 1987 until 1995.
William H. Gross. Mr. Gross is a Managing Director of Pacific Investment
Management and a member of the Equity and Operating Boards. Mr. Gross
joined Pacific Investment Management Company (the predecessor to Pacific
Investment Management) in June 1971 and became a Managing Director in
February 1982. He serves as a Director and Vice President of StocksPLUS and
as a Senior Vice President of PIMCO Funds.
John L. Hague. Mr. Hague is a Managing Director of Pacific Investment
Management and a member of the Operating Board. Mr. Hague was a Managing
Director of Pacific Investment Management Company (the predecessor to
Pacific Investment Management) from April 1993 through November 1994. Mr.
Hague joined Pacific Investment Management Company as a Portfolio Manager
in September 1987, and became a Vice President in March 1988, a Principal
in April 1991 and a Managing Director in April 1993.
Brent R. Harris. Mr. Harris is a Managing Director of Pacific Investment
Management and has served on the Operating Board since the Consolidation in
November 1994. Mr. Harris was a Managing Director of Pacific Investment
Management Company (the predecessor to Pacific Investment Management) until
November 1994. He joined Pacific Investment Management Company as an
Account Manager in June 1985, and became a Vice President in February 1987,
a Senior Vice President in February 1990, a Principal in April 1991 and a
Managing Director in April 1993. Mr. Harris serves on the boards of PIMCO
Commercial Mortgage Securities Trust, Inc. and StocksPLUS. He also
serves as a Trustee and Chairman of the PIMCO Funds and the PIMCO
Commercial Mortgage Securities Trust, Inc.
Donald R. Kurtz. Mr. Kurtz has served on the Equity Board as an independent
member and as a member of the Audit Committee, Compensation Committee, Unit
Incentive Committee and the Constructive Termination Committee of the
Partnership since the Consolidation in November 1994. Mr. Kurtz was a
Director of TAG Inc. from May 1992 until November 1994. From December 1994
until October 1995, he was acting Managing Director of Domestic Equity
Investments at General Motors Investment Management Corp. Prior thereto, he
served as Vice President or Director, Internal Asset Management at General
Motors Investment Management Corp. from January 1990 and at General Motors
Corp. from February 1987 until December 1989.
48
<PAGE>
James F. McIntosh. Mr. McIntosh has served on the Equity Board as an
independent member and as a member of the Audit Committee, Compensation
Committee, Unit Incentive Committee and Constructive Termination Committee
of the Partnership since the Consolidation in November 1994. Prior to that
time, he served as a Director of PIMCO Inc. (the predecessor to Pacific
Investment Management), a position he held since June 1983. He is currently
the Executive Director of Allen, Matkins, Leck, Gamble & Mallory LLP, a law
firm, which position he has held from October 1994. From January 1981 to
October 1994, he was Executive Director of Paul, Hastings, Janofsky &
Walker, LLP, a law firm.
Donald K. Miller. Mr. Miller has served as a member of the Equity Board
since the Consolidation in November 1994. Prior thereto, Mr. Miller was
Vice Chairman of the Partnership, Vice Chairman and a Director of TAG Inc.
and a member of the Partnership's Executive Operating Committee. From
October 1990 until March 1993, he was Chairman, Chief Executive Officer and
a Director of TAG Inc. and the Chairman and Chief Executive Officer of the
Partnership and Chairman of its Executive Operating Committee. He was a
Director of PFD from May 1992 until November 1994. Mr. Miller is the
Chairman of Greylock Financial Inc. and currently serves as a Director of
Layne Christensen Company, Huffy Corporation, Fibreboard Corporation and
RPM, Inc. He was a trustee of the PIMCO Advisors Funds and Cash
Accumulation Trust from October 1990 until November 1994.
James F. Muzzy. Mr. Muzzy is a Managing Director of Pacific Investment
Management and has served as a member of the Operating Board since the
Consolidation in November 1994. Mr. Muzzy was a Managing Director of
Pacific Investment Management Company (the predecessor to Pacific
Investment Management) until November 1994. Mr. Muzzy joined Pacific
Investment Management Company in September 1971 and became a Director in
February 1978 and a Managing Director in February 1982. Mr. Muzzy serves as
a director of StocksPLUS.
Daniel S. Pickett. Mr. Pickett is a Managing Director of CCI and a member
of the Operating Board. Mr. Pickett was a Managing Director of CCI since
the Consolidation in November 1994. From June 1988 through November 1994,
he served in various positions with the Columbus Circle Investors division
of the Partnership (the predecessor to CCI) including Senior Vice President
and Director of Research. He served on the Operating Board from November
1994 through February 1996.
William F. Podlich, III. Mr. Podlich is a Managing Director of Pacific
Investment Management and has served as a member of the Equity and
Operating Boards since the Consolidation in November 1994. Mr. Podlich
joined Pacific Investment Management Company (the predecessor to Pacific
Investment Management) as a Director in August 1969 and became a Managing
Director in February 1982. Mr. Podlich serves as a director of
StocksPLUS and of Maxager Technology, Inc.
Kenneth M. Poovey. Mr. Poovey, 65, is General Counsel of the Partnership,
which position he has held since November 1994. He is currently a partner
with the law firm of Latham & Watkins with which he has been affiliated
since 1980.
Glenn S. Schafer. Mr. Schafer has served as a member of the Equity Board
since the Consolidation in November 1994. He currently serves as a
Director and the President of Pacific Mutual. Mr. Schafer was the Executive
Vice President and Chief Financial Officer of Pacific Mutual from April
1991 until January 1995. He also serves as an officer and Director for
numerous subsidiaries of Pacific Mutual.
Irwin F. Smith. Mr. Smith has served as a member of the Operating and
Equity Boards and the Operating Committee of the Partnership and the
Chairman, Chief Executive Officer and Chief Investment Officer of CCI since
the Consolidation in November 1994. Prior thereto, Mr. Smith was Chairman
and Chief Executive Officer of the Partnership, Chairman of its Executive
Operating Committee, Chairman, Chief Executive Officer and Chief Investment
Officer of the CCI division, and Chairman, Chief Executive Officer and a
Director of TAG Inc. From October 1990 until March 1993, he was Vice
Chairman and a Director of TAG Inc. and Vice Chairman of the Partnership
and a member of its Executive Operating Committee.
49
<PAGE>
Thomas C. Sutton. Mr. Sutton has served as a member of the Equity Board
since the Consolidation in November 1994. Mr. Sutton has been the Chairman
and Chief Executive Officer of Pacific Mutual since January 1990 and a
Director of Pacific Mutual since 1987. He has been associated with Pacific
Mutual since June 1965 and became its President in September 1987. He is an
officer and Director for numerous subsidiaries of Pacific Mutual. Mr.
Sutton is also a Director of Edison International, Newhall Land and
Farming Company and the Irvine Company and is currently the Chairman of
the American Council of Life Insurance.
William S. Thompson, Jr. Mr. Thompson is a Managing Director and the Chief
Executive Officer of Pacific Investment Management and has served as
Chairman of the Operating Board and as a member of the Equity Board and the
Operating Committee since the Consolidation in November 1994. Prior
thereto, Mr.Thompson was a Managing Director and the Chief Executive
Officer of Pacific Investment Management Company (the predecessor to
Pacific Investment Management). Mr. Thompson joined Pacific Investment
Management Company in April 1993. From February 1975 until April 1993, he
was with Salomon Brothers Inc., an investment banking firm, serving as a
Managing Director starting in 1981 and he is currently a director of
Spieker Properties, a public company.
Stephen J. Treadway. Mr. Treadway, 49, is an Executive Vice President of
the Partnership and Director, Chairman and President of PFD. He joined the
Partnership in May 1996. Prior thereto, he was associated with Smith
Barney, Inc. for eighteen years and served in various senior positions,
including Executive Vice President.
Benjamin L. Trosky. Mr. Trosky is a Managing Director of Pacific Investment
Management, and a member of the Operating Board. Mr. Trosky joined Pacific
Investment Management Company (the predecessor to Pacific Investment
Management) in October 1990, became a Vice President in April 1991, and was
an Executive Vice President from February 1994 through November 1994. He
served as Executive Vice President of Pacific Investment Management after
the Consolidation, and became a Managing Director in February 1996. Mr.
Trosky currently serves as a Senior Vice President of PIMCO Commercial
Mortgage Securities Trust, Inc.
James G. Ward. Mr. Ward, 42, is Senior Vice President and Director of Human
Resources of the Partnership. Mr. Ward served as Vice President and
Director of Human Resources of the Partnership from April 1995 through
December 1996. Prior to that time, he served as Vice President and Director
of Human Resources for Pacific Investment Management, a position he held
beginning October 1994. From November 1987 through October 1994, he served
as Vice President and Area Manager, Human Resources for Salomon Brothers
Inc.
Richard M. Weil. Mr. Weil, 33, is Senior Vice President-Legal, which
position he assumed in March 1996. Mr. Weil was a Vice President in the
Global Asset Management Group of Bankers Trust Company from December 1994
through February 1996 and was with the law firm of Simpson, Thatcher &
Bartlett from September 1989 through November 1994.
To the Partnership's knowledge, based solely on a review of the copies of
reports furnished to the Partnership and written representations that no other
reports were required, during the two fiscal years ended December 31, 1996 and
1995, there has been compliance with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934, as amended, applicable to its officers,
directors and greater than ten percent beneficial owners, except that the Form 3
for each of Messrs. Treadway and Weil regarding the grant of options to acquire
Class B LP Units of the Partnership in connection with their election as
officers of the Partnership was not timely filed and the Form 3 for Mr. Trosky
regarding his ownership interests in the Partnership in connection with his
election as Managing Director of Pacific Investment Management was not timely
filed.
50
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or allocated with
respect to the three years ended December 31, 1996 for services rendered to the
Partnership (and its affiliates) in all capacities to the Chief Executive
Officer and each of the Partnership's four most highly compensated executive
officers or members of the Operating Committee (the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Compensation Long-term compensation awards
------------------- ---------------------------------
Securities All
Salary Other Annual Restricted Underlying Other
Name and Principal Year (2) Bonus Compensation Unit Awards Options/SARs Compensation
Underlying Position (1) ($) ($) ($) ($) ($) (#) ($)
- ----------------------------- ---- -------- ---------- ------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
William D. Cvengros 1996 $500,000 $ 950,000 $ 9,500(3) - - $ 3,444(4)
Chief Executive Officer 1995 500,000 800,000 4,620 - - -
and President 1994 63,847 62,500 - $3,248,571 400,000 1,915
William S. Thompson, Jr. 1996 $225,000 $5,601,616 - - - $ 23,758(5)
Member of Operating Committee 1995 191,304 4,752,463 $28,696 - - 27,620
1994 24,853 387,349 3,512 - 230,000 390
Irwin F. Smith 1996 $359,100 $5,174,796 - - - $ 20,973(6)
Member of Operating Committee 1995 350,000 4,424,609 - - - 19,399
1994 350,000 3,815,922 - - - 19,393
Stephen J. Treadway 1996 $196,730 $ 250,000 - $ 562,500(7) 100,000 $303,444(8)
Executive Vice President 1995 - - - - - -
1994 - - - - - -
John O. Leasure 1996 $275,000 $ 425,000 - - - $ 12,444(10)
Former Senior 1995 275,000 425,000 - - - 37,107
Vice President (9) 1994 275,000 525,000 - - 80,000 17,082
</TABLE>
_______________
(1) Amounts shown for Messrs. Treadway and Leasure includes amounts paid by
PFD. Amounts shown for Messrs. Thompson and Smith include amounts paid by
Pacific Investment Management and CCI, respectively.
(2) The salary and bonus amounts for Messrs. Cvengros, Smith and Leasure
include amounts deferred in the Partnership's 401(k) Savings and Investment
Plan of $9,500 for 1996. For Mr. Thompson, salary and bonus include amounts
deferred in the PIMCO 401(k) Employee Savings and Investment Plan of
$9,500 for 1996. Mr. Treadway joined the Partnership in May 1996, and his
salary reflects a partial year of service.
(3) Represents a bonus paid in lieu of the employer contribution to the
Partnership's 401(k) Savings and Investment Plan.
(4) Represents the premiums on term life insurance and long-term disability.
(5) The amount includes a $7,500 matching contribution to the Pacific
Investment Management Employee Savings Plan and a $12,814 employer
contribution by Pacific Investment Management to its Employee Retirement
Plan and the premiums on term life insurance.
(6) Represents the premiums on term life insurance and long-term disability.
Also includes a $9,000 matching contribution to the Partnership's 401(k)
Savings and Investment Plan.
(7) Mr. Treadway was awarded 25,000 Class A LP Units. The Units vest over a
five year period, pay distributions quarterly and had an aggregate value of
$562,500 at December 31, 1996.
(8) Represents amounts deferred under Executive Deferred Compensation Plan (the
"Plan"). An additional amount, which cannot currently be determined, may be
contributed by the Partnership at such time as the amounts deferred are
invested by the trustee of the plan in Class A LP Units to cause the
effective purchase price not to exceed 85% of the current market price for
Class A LP Units on the investment date. The amount also includes the
premiums on term life insurance and long-term disability.
(9) From and after January 1, 1997, Mr. Leasure is acting in a consulting
capacity with the Partnership.
(10) Represents the premiums on term life insurance and long-term disability.
Compensation to key employees who are not executive officers may exceed the
compensation paid to executive officers in any given year.
51
<PAGE>
The following table provides information on option exercises in 1996 by the
Named Executive Officers, and the value of unexercised options held by each
Named Executive Officer at December 31, 1996:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISE IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities In-The-Money Options/
Underlying Unexercised SARs at FY-End ($)
Shares Acquired Value Realized Options/SARs at FY-End (#) Exercisable (E)/Unexercisable
Name on Exercise (#) ($) Exercisable (E)/Unexercisable (U) (U)
- ---- --------------- -------------- --------------------------------- -----------------------------
<S> <C> <C> <C> <C>
William D. Cvengros - - 400,000 (U) $ 2,754,021
William S. Thompson, Jr. - - 230,000 (U) $ 1,583,562
Irwin F. Smith - - 801,110 (E) $16,082,283
228,890 (U) 4,594,967
Stephen J. Treadway - - 100,000 (U) $ 244,505
John O. Leasure - - 185,400 (U) $ 3,496,645
80,000 (U) 550,804
</TABLE>
COMPENSATION OF DIRECTORS
The Partnership pays members of the Equity Board who are not employees of the
Partnership, an Investment Management Firm or Pacific Mutual a $20,000 annual
retainer plus $750 per in-person meeting ($250 per conference call meeting) of
the Equity Board attended and for each meeting of a committee of the Equity
Board. Members who are employees of the Partnership or any Investment Management
Firm or Pacific Mutual are not entitled to any additional compensation from the
Partnership for their services as Board members. Pursuant to the terms of the
Partnership's 1996 Unit Incentive Plan, the non-employee members of the Equity
Board may elect to receive restricted Class B LP Units in lieu of
such retainer, with such restricted units valued at 91% of fair market value on
the date of issuance. In addition, the non-employee members of the Equity Board
received a one-time grant of 1,311 restricted Class B LP Units in December 1996,
issued in January 1997.
COMPENSATION OF GENERAL PARTNER
PIMCO GP does not receive any compensation from the Partnership for services
rendered to the Partnership as General Partner. Rather, PIMCO GP's interest in
profits and losses of the Partnership is based on the number of units it holds.
Upon liquidation, the liquidating distributions to the general partner will be
based on the number of units it holds. The Partnership pays for substantially
all expenses incurred by the PIMCO GP in performing its activities as general
partner, including the cost of directors' and officers' liability insurance.
COMPENSATION PURSUANT TO CONTRACT
William D. Cvengros, Chief Executive Officer and President of the Partnership
and a member of the Operating and Equity Board, is party to an employment
agreement with the Partnership, the term of which was extended through December
31, 1998 by the Operating and Equity Board in January 1997. Under the
agreement, Mr. Cvengros receives an annual base salary of $500,000 and a
guaranteed annual bonus of $500,000. Mr. Cvengros is also eligible to receive a
discretionary bonus in the target range of $200,000 to $500,000 (which amount
may be increased or decreased at the recommendation of the Operating Board and
upon the approval of the Equity Board). The Partnership granted Mr. Cvengros
options to purchase up to 400,000 Class B LP Units under the 1994 Unit Option
Plan. In 1994, Mr. Cvengros was also granted 100,000 restricted Class A LP Units
and 100,000 restricted Class B LP Units which are forfeitable to PIMCO GP upon
certain events of termination. If his contract is terminated without cause prior
to December 31, 1998, he is entitled to accrued and unpaid salary and bonus
payments, severance payments totalling
52
<PAGE>
$500,000 and immediate vesting of all of his options and restricted units.
William S. Thompson, Jr., the Chairperson of the Operating Board and a member
of the Operating Committee, and Equity Board, as well as a Managing Director and
the Chief Executive Officer of Pacific Investment Management, is a party to an
employment agreement with Pacific Investment Management under which he receives
an annual base salary of $225,000, subject to yearly increases based on
inflation. In addition, Mr. Thompson is eligible to participate in the profit
sharing plan adopted by Pacific Investment Management. The Partnership also
granted Mr. Thompson options to purchase up to 230,000 Class B LP Units under
the 1994 Unit Option Plan.
Irwin F. Smith, a member of the Operating Board, Operating Committee and
Equity Board, as well as Chief Executive Officer of CCI, is party to an
employment agreement with CCI through December 31, 1998, under which he receives
an annual base salary of $350,000, which will increase to $400,000 on January 1,
1997. Mr. Smith is also eligible to participate in the profit sharing plan
adopted by CCI. During the term of his employment agreement, Mr. Smith will be
prohibited from diverting or taking away funds with respect to which CCI is
performing investment management services or from competing with the investment
management services offered by the Partnership or any of the Investment
Management Firms. Upon a voluntary termination or a termination for cause, until
January 1, 1999, Mr. Smith will not engage in certain prohibited competition
activities and until December 31, 2000, Mr. Smith will also be prohibited from
soliciting clients or soliciting or working with professional employees of CCI.
Mr. Smith's existing option agreement was amended in certain respects in
connection with the Consolidation.
Kenneth M. Poovey, General Counsel of the Partnership, acts in such capacity
in return for a monthly payment of $40,000 (plus travel and other expenses) to
his law firm, Latham & Watkins. This arrangement will be reviewed quarterly and
adjusted if appropriate. In addition, his firm will also bill the Partnership
for the fees and expenses of other professionals employed by such firm who
render services to the Partnership at the firm's usual rates.
NEW EMPLOYEE PLANS
- ------------------
1996 Unit Incentive Plan
- ------------------------
In December 1996, the Partnership adopted The 1996 Unit Incentive Plan, which
amends and restates the 1994 Class B LP Unit Option Plan. The Plan provides for
the award of options, restricted units, deferred units, unit payments and unit
appreciation rights with respect to up to 10,000,000 Class B LP Units (including
those previously awarded under the 1994 Class B LP Unit Option Plan). The
effectiveness of awards granted under the plan is subject to unitholder
approval, expected to be solicited in 1997.
Executive Deferred Compensation Plan
- ------------------------------------
In December 1996, the Partnership adopted the PIMCO Advisors L.P. Executive
Deferred Compensation Plan. The plan is an unfunded nonqualified deferred
compensation plan pursuant to which a portion of compensation otherwise payable
to certain eligible employees of the Partnership and participating Investment
Management Firms will be subject to mandatory deferral, and pursuant to
which eligible employees may irrevocably elect to defer additional amounts of
compensation. Amounts deferred under the plan are held in trust and invested by
the trustee of the trust in Class A LP Units of the Partnership purchased from
existing holders of Class A LP Units in a "dutch auction" or in open market
purchases. The Partnership will contribute additional funds or Class A LP Units
to the trust such that the average purchase price of Class A LP Units purchased
by the trust is not greater than 85% of the current market price for Class A LP
Units on the investment date. Compensation deferred under the plan must be
deferred for a period no less than five years, and can be forfeited under
certain circumstances. The Executive Deferred Compensation Plan will be
submitted to the Partnership's unitholders for approval in 1997.
53
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial ownership of
the Partnership's GP Units, Class A LP Units and Class B LP Units as of December
31, 1996 by each person who, to the Partnership's knowledge, is the beneficial
owner of more than 5% of a class of units and of all units as a single class,
each person who may be deemed to be a director of the Partnership, the Chief
Executive Officer of the Partnership and the Partnership's four most highly
compensated executive officers and all officers and persons who may be deemed to
be directors of the Partnership as a group. Except as indicated, the address of
each person or entity listed below is 800 Newport Center Drive, Newport Beach,
California 92660.
<TABLE>
<CAPTION>
GP UNITS CLASS A LP UNITS CLASS B LP UNITS
(1) (1) (1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIVE PERCENT HOLDERS (OTHER THAN THOSE
LISTED UNDER OPERATING AND EQUITY BOARD
MEMBERS BELOW)
- -------------------------------------------------------------------------------------------
PIMCO Partners, G.P. ("PIMCO GP")(2) 800,000/ 23,654,713/ 30,135,826/
100% 57.8% 91.4%
- -------------------------------------------------------------------------------------------
Pacific Mutual Life Insurance Company 800,000 27,089,911/ 32,835,826/
("Pacific Mutual")(3) 100% 66.2% 99.6%
- -------------------------------------------------------------------------------------------
Pacific Financial Asset Management 800,000 27,089,911/ 32,835,826/
Corporation ("PFAMCo")(3) 100% 66.2% 99.6%
- ------------------------------------------------------------------------------------------
Pacific Investment Management Company 800,000 24,019,747/ 30,335,826/
("PIMCO Inc.")(3) 100% 58.7% 92.0%
- -------------------------------------------------------------------------------------------
PIMCO Partners, LLC ("PIMCO LLC")(4) 800,000 23,797,193/ 30,135,826
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Thomson Advisory Group Inc. ("TAG Inc.") 0 6,119,391/ 8,260,826/
14.9% 25.1%
- -------------------------------------------------------------------------------------------
David H. Edington(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- ------------------------------------------------------------------------------------------
Dean S. Meiling(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
William C. Powers(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Frank B. Rabinovitch(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
OPERATING AND EQUITY BOARD MEMBERS
- -------------------------------------------------------------------------------------------
Walter E. Auch, Sr. 0 0 0
- -------------------------------------------------------------------------------------------
David B. Breed 0 265,000 285,000
* *
- -------------------------------------------------------------------------------------------
Donald A. Chiboucas(5) 0 366,475/ 826,082/
* 2.5%
- -------------------------------------------------------------------------------------------
William D. Cvengros 0 100,000/ 100,000/
* *
- -------------------------------------------------------------------------------------------
Walter B. Gerken 0 0 0
- -------------------------------------------------------------------------------------------
William H. Gross(6)(7) 800,000 23,899,193/ 30,135,826/
100% 58.4% 91.4%
- -------------------------------------------------------------------------------------------
John L. Hague(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Brent R. Harris(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Donald R. Kurtz 0 4,000/ 0
*
- -------------------------------------------------------------------------------------------
James F. McIntosh 0 1,000/ 0
*
- -------------------------------------------------------------------------------------------
Donald K. Miller(5) 0 32,287/ 82,608/
* *
-------------------------------------------------------------------------------------------
James F. Muzzy(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Daniel S. Pickett 0 0 0
- -------------------------------------------------------------------------------------------
William F. Podlich, III(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Glenn S. Schafer 0 0 0
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Irwin F. Smith(5)(8) 0 1,147,037/ 826,082/
2.5% 2.5%
- -------------------------------------------------------------------------------------------
Thomas C. Sutton 0 0 0
- -------------------------------------------------------------------------------------------
William S. Thompson, Jr.(7)(9) 800,000 23,802,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
Benjamin L. Trosky(7) 800,000 23,797,193/ 30,135,826/
100% 58.1% 91.4%
- -------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS NOT INCLUDED ABOVE
- -------------------------------------------------------------------------------------------
Stephen J. Treadway 0 25,000 0
- -------------------------------------------------------------------------------------------
John O. Leasure 0 0 0
- -------------------------------------------------------------------------------------------
All directors and executive 800,000/ 25,044,827/ 32,255,598/
officers as a group (26 persons) 100% 61.2% 97.9%
- ----------------------------------------------------------------------------------------------
</TABLE>
- -----------------
* Less than 1%
(1) Each of the persons and entities listed disclaims beneficial ownership of
any units except to the extent that it has a pecuniary interest in such
items.
(2) Includes (i) 16,735,322 Class A LP Units and 21,875,000 Class B LP Units
held of record by PIMCO GP; (II) 800,000 CLASS A LP Units which may be
acquired by PIMCO GP pursuant to the Partnership Agreement upon conversion
of the 800,000 GP Units of the Partnership held by PIMCO GP should PIMCO GP
cease to be the general partner of the Partnership; and (iii) 6,119,391
Class A LP Units and 8,260,826 Class B LP Units held of record by TAG Inc.,
all of the common stock (which is non voting) is owned by PIMCO GP.
(3) Includes (i) the 800,000 GP Units, 24,019,747 Class A LP Units and
30,135,826 Class B LP Units which may be deemed to be beneficially owned by
PIMCO GP, which may be deemed to be beneficially owned by Pacific Mutual,
PFAMCo and PIMCO Inc., because PIMCO Inc. is a general partner of PIMCO GP
and is a wholly-owned subsidiary of PFAMCo, which is a wholly-owned
subsidiary of Pacific Mutual; (ii) 728,475 Class A LP Units held of record
by PFAMCo, over which PFAMCo holds sole voting and disposition power; and
(iii) an aggregate of 2,341,689 Class A LP Units issued as follows: Cadence
Capital Management Corp. ("Cadence Inc.") (32,652 Class A LP Units), Cadence
Partners, L.P. ("Cadence LP") (1,275,000 Class A LP Units), NFJ Investment
Group, Inc. ("NFJ Inc.") (18,404 Class A LP Units), NFJ Partners L.P. ("NFJ
LP") (506,211 Class A LP Units), Parametric Portfolio Associates, Inc.
("Parametric Inc.") (18,562 Class A LP Units), and Parametric Partners L.P.
("Parametric LP") (490,860 Class A LP Units) which may be deemed
beneficially owned by PFAMCo because Cadence Inc., NFJ Inc., and Parametric
Inc., are wholly owned subsidiaries of PFAMCo and Cadence Inc., NFJ Inc.,
Parametric Inc., in turn are the general partners of Cadence LP, NFJ LP, and
Parametric LP, respectively. Also includes 2,700,000 Class B LP Units owned
by the foregoing. As general partners, Cadence Inc., NFJ Inc., and
Parametric Inc., have shared investment and disposition powers with respect
to Units held by Cadence LP, NFJ LP, and Parametric LP, respectively.
Address: 700 Newport Center Drive, Newport Beach, California 92660.
(4) Includes (i) 142,480 Class A LP Units held of record by PIMCO LLC; and (ii)
800,000 GP Units, 23,654,713 Class A LP Units and 30,135,826 Class B LP
Units which may be considered to be beneficially owned by PIMCO GP, and
which may be deemed to be beneficially owned by PIMCO LLC, which is a
general partner of PIMCO GP.
(5) Includes Class A LP Units which may be acquired upon exchange of Series A
Preferred Stock of TAG Inc. based on a variable conversion rate (initially,
0.93 Class A LP Units per share of Series A Preferred Stock during 1994).
Includes Class B LP Units that may be acquired in limited circumstances upon
exchange of Series B Preferred Stock of TAG Inc. on a one-for-one basis. The
individual disclaims beneficial ownership of any Class B LP Units.
(6) Includes 83,500 Class A LP Units held in trusts of which the individual is
trustee and as to which he has sole voting and disposition power, 18,000
Class A LP Units held by him and his spouse, of which he has shared voting
and investment power and 500 Class A LP Units held by his spouse of which he
has no voting or investment power.
(7) Includes the following which may be deemed to be beneficially owned by the
individual as a member of PIMCO LLC. (i) 142,480 Class A LP Units held of
record by PIMCO LLC; and (ii) 800,000 GP Units, 23,654,713 Class A LP Units
and 30,135,826 Class B LP Units which may be considered to be beneficially
owned by PIMCO GP, and which may be deemed to be beneficially owned by PIMCO
LLC as a general partner of PIMCO GP.
(8) Includes 801,110 Class A LP Units which may be acquired upon exercise of
options within 60 days.
(9) Includes 5,000 shares held in trusts of which the individual is trustee and
as to which he has sole voting and disposition power.
55
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ANTICIPATED FUTURE RESTRUCTURING OF THE PARTNERSHIP
General. Under current law, the Partnership will cease being 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's limited partner interests cease to be
publicly traded prior to such time. As a corporation, the Partnership would be
subject to tax on its income and its shareholders would be subject to tax on
distributions. In an effort to preserve partnership tax treatment after December
31, 1997 for the holders of PIMCO Advisors partnership interests who are
affiliates of the Partnership ("Nonpublic Unitholders"), the Partnership
Agreement confers on the general partner, PIMCO GP, broad authority to effect
one or more Restructurings of the Partnership in connection with, or in
anticipation of, such a change in tax status.
While the precise form of a Restructuring will depend on the facts and
circumstances at the time a Restructuring is implemented, it is currently
anticipated that on or about November 30, 1997, but no later than December 31,
1997, the Partnership will cause all PIMCO Advisors limited partner interests
held by unitholders who are not affiliates of the Partnership (the "Public
Unitholders"), as well as certain other PIMCO Advisors units held by affiliates
of the Partnership, to be contributed to a newly-formed corporation (the
"Restructuring Corporation") in exchange for a number of shares of the
Restructuring Corporation common stock proportionate to the number of units
contributed. These shares are expected to be listed for trading on a national
securities exchange. In addition, it is expected that TAG Inc. will be merged
with the Restructuring Corporation or a subsidiary of the Restructuring
Corporation, with the stockholders of TAG Inc. (including PIMCO GP) receiving
shares of capital stock of the Restructuring Corporation proportionate to the
number of PIMCO Advisors units held by TAG Inc. In the Restructuring, the
Restructuring Corporation will become a General Partner of the Partnership.
Thereafter, it is anticipated that the Restructuring Corporation will be the
sole publicly traded entity through which equity interests in PIMCO Advisors
will be owned.
If a Restructuring occurs prior to December 31, 1997, the general partner will
make (i) a final quarterly distribution for the quarter preceding the
Restructuring according to the respective priorities in distribution of the
Class A LP Units, GP Units and Class B LP Units and (ii) a distribution in an
amount which the general partner, in its good faith discretion, determines will
not be required for expenses, for capital expenditures, as reserves or otherwise
in the business of the ongoing restructured entity, also according to the
respective priorities in distribution of the Class A LP Units, GP Units and
Class B LP Units. If an Adverse Tax Event (as defined in the Partnership
Agreement) has not occurred prior to the Restructuring, the first-priority
distributions to the holders of Class A LP Units and GP Units will continue
until the earlier of December 31, 1997 or the occurrence of an Adverse Tax
Event.
The Partnership does not expect to change its distribution policy following
the Restructuring, and it is anticipated, at least initially, that the
Restructuring Corporation generally will distribute all cash received by it from
the Partnership other than cash needed for payment of taxes and operational
expenses. Because of federal, state, and other taxes on the Restructuring
Corporation's income, cash available for dividends to the holders of the
Restructuring Corporation's publicly traded securities will be substantially
less than the cash distributed to the Restructuring Corporation by the
Partnership. Assuming that the Restructuring is carried out in the manner
anticipated, under current law the amount of such taxes imposed on the
Restructuring Corporation will be reduced by the Restructuring Corporation's
carrying over the balance of the amortizable Section 197 Intangibles associated
with the publicly traded Class A LP Units immediately prior to the Restructuring
and claiming amortization deductions with respect to such amount.
Restructuring Authority. Because of possible changes in applicable laws or
regulations and other factors, it cannot now be established with certainty what
actions PIMCO GP will take in connection with the Restructuring, if any. Section
XVIII of the Partnership Agreement confers on PIMCO GP broad power and authority
to take all such actions it may deem necessary or appropriate in connection
with, in anticipation of or to effect a Restructuring, without consent of or
other action on the part of any other unitholder and whether or not such actions
or omissions may treat Public Unitholders differently than Nonpublic Unitholders
and result in different and more favorable treatment of the Nonpublic
Unitholders. The Partnership Agreement imposes no obligations on PIMCO GP to
effect any Restructuring and gives PIMCO GP authority to choose the timing
(subject to certain limitations) of a Restructuring.
Limited Duty to Unitholders Related to Restructuring. In order to assure that
it is clear that PIMCO GP may effect the anticipated Restructuring in a form
which will preserve partnership taxation for the Nonpublic Unitholders even
though the Public Unitholders will be subject to corporate level tax, the
Partnership Agreement releases the general partner and its partners, directors,
officers, employees and affiliates from any liability based upon actions taken
or omitted to be taken by the general partner with
56
<PAGE>
respect to any Restructuring, to the extent that such actions or omissions may
treat Public Unitholders differently and less favorably than Nonpublic
Unitholders.
LOSS REIMBURSEMENT AGREEMENTS
As part of the Consolidation, PFAMCo transferred to the Partnership certain
assets and liabilities of PFAMCo (excluding the businesses of the Investment
Management Firms) (the "PFAMCo Operation"). Until December 31, 1996, PFAMCo has
agreed to reimburse the Partnership for losses up to an aggregate of $2 million
incurred by the PFAMCo Operation. Through December 31, 1996, PFAMCo had paid the
Partnership $1,611,120 pursuant to this arrangement.
In addition, from the date of the Consolidation until the end of 1996, if the
Subpartnership conducting the business of Blairlogie (the "Blairlogie
Subpartnership") incurs net losses as a result of ordinary business operations,
PFAMCo has agreed to pay the amount of such net losses to the Partnership. If
the Blairlogie Subpartnership subsequently earns net profits as a result of
ordinary business operations, 50% of these profits will be paid to PFAMCo until
the amount of any loss reimbursement, plus accrued interest, has been repaid.
The Partnership has retained the right to dispose of or liquidate the Blairlogie
Subpartnership without recourse for such advances by PFAMCo after December 31,
1996. As of December 31, 1996 the Partnership is contingently liable to PFAMCO
for approximately $230,000 under this agreement, representing losses incurred
through December 31, 1995 of approximately $380,000, reduced by a reimbursement
to PFAMCo of approximately $150,000 in 1996.
INDEBTEDNESS OF MANAGEMENT
In March, 1996, Pacific Investment Management advanced $505,891 to Benjamin
L. Trosky, one of its managing directors. This advance bears interest at an
annual rate of 5.41% and is due in March, 1997. At December 31, 1996, $252,995
remained outstanding under this advance. In July 1996, the partnership made a
$250,000 relocation loan to Robert M. Fitzgerald, Senior Vice President and
Chief Financial Officer. The loan bears interest at 8%, and $200,000 of the
principal and interest thereon will be forgiven over three years pending
continued employment. At December 31, 1996, the loan had an outstanding
principal balance of $250,000. In January 1995, the partnership made a $100,000
relocation loan to James G. Ward, Senior Vice President, Director Human
Resources. The loan bears interest at 8%, and the principal and interest thereon
will be forgiven over three years pending continued employment. At December 31,
1996, the loan had an outstanding principal balance of $33,000.
OTHER CONFLICTS
Withdrawal and Removal of a General Partner. The general partner has agreed
that it may withdraw as general partner of the Partnership only if such
withdrawal is approved by holders of a majority of the units of limited partner
interest (other than those held by the general partner and its affiliates) and
if counsel renders an opinion that the limited partners do not lose their
limited liability pursuant to Delaware law or the Partnership Agreement (a
"Limited Liability Determination"), and provides certain other opinions relating
to the status of the Partnership as a partnership for federal income tax
purposes (a "Tax Determination") and the continuation of the Partnership's
advisory agreements (an "Assignment Determination"). The general partner may be
removed by a vote of unitholders holding 80% or more of all outstanding units if
a successor general partner is appointed, counsel makes a Limited Liability
Determination, a Tax Determination and an Assignment Determination and such
removal is approved by the successor general partner. However, by virtue of
PIMCO GP's ownership of units, PIMCO GP can veto any such removal. Also,
interests in the general partner may be sold or transferred without any prior
approval or consent of the holders of Class A LP Units.
In the event of withdrawal or removal of a general partner, such general
partner will have the option to require a successor general partner (if any) to
acquire all of the general partner's GP units for a cash payment equal to their
fair value as of the effective date of the general partner's departure. Such
value will be determined by agreement between the general partner and the
successor general partner or, if no agreement is reached, by an independent
investment banking firm or other independent expert selected by the general
partner and the successor general partner (or if no expert can be agreed upon,
by the expert chosen by agreement of each of the experts selected by each such
general partner). If the option is not exercised by the general partner, the GP
Units of the general partner will be converted into an equal number of Class A
LP Units.
57
<PAGE>
TAG Inc., certain affiliates of PIMCO GP and Pacific Mutual and certain
individuals have registration rights as to units that they own or have the
right to acquire.
Indemnification. The Partnership Agreement provides that the Partnership
will indemnify the general partner or any general partner which has withdrawn or
been removed (a "Departing Partner"), any Person (as defined) who is or was an
affiliate of the general partner or any Departing Partner, each shareholder of
the general partner or of the parent company of the general partner, each
shareholder of the Departing Partner or of the parent company of the Departing
Partner, and any member of the Equity Board, Operating Board or Operating
Committee, any officer of the Partnership or any of its Investment Management
Firms or divisions. The Partnership may also enter into indemnification
agreements with certain other Persons.
The Partnership Agreement also provides that neither a general partner nor any
indemnitee will be liable to the Partnership or the unitholders for errors in
judgment or for breach of fiduciary duty (including breach of any duty of care
or any duty of loyalty) unless it is proved by clear and convincing evidence
that the general partner's action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Partnership or was
undertaken with reckless disregard for the best interests of the Partnership.
58
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
---------------------
Financial Statements of the Registrant are listed in "Index to
Financial Statements" on page 24 and are filed as part of this Report.
(2) Financial Statement Schedules.
-----------------------------
There are no Financial Statement Schedules of the Registrant filed as
part of this Report.
(3) Exhibits:
--------
2.1 Amended and Restated Agreement and Plan of Consolidation of PIMCO
Advisors L.P. dated effective as of July 11, 1994.1/
-
2.2 Agreement and Plan of Merger by and among PIMCO Advisors L.P.,
Oppenheimer Group, Inc. and Oppenheimer Financial Corp., dated
February 13, 1997. 13/
--
3.1 Amended and Restated Certificate of Limited Partnership of
Registrant.2/
-
3.2 Amended and Restated Agreement of General Partnership of PIMCO
Partners, G.P. ("PIMCO GP").1/
-
4.1 Amended and Restated Agreement of Limited Partnership of
Registrant dated October 31, 1994.1/
-
4.1(a) First Amendment to Amended and Restated Agreement of Limited
Partnership of Registrant.3/
-
4.2 Specimen Class A LP Unit Certificate.4/
-
4.3 Specimen Class B LP Unit Certificate.4/
-
4.4 9.01% Secured Nonrecourse Note Agreement, dated as of November 14,
1994, by and between PIMCO GP and Thomson Advisory Group Inc.
("TAG Inc.").1/
-
4.5 PIMCO Pledge and Security Agreement, dated as of November 14,
1994, by and between PIMCO GP and Citibank, N.A.1/
-
4.6 TAG Pledge and Security Agreement, dated as of November 14, 1994,
by and among TAG Inc., PIMCO GP and Citibank, N.A.1/
-
4.7 Collateral Agency Agreement, dated as of November 14, 1994, by and
among Purchasers identified therein, PIMCO GP and Citibank, N.A.1/
-
4.8 Registration Rights Agreement, dated as of November 15, 1994, by
and among the Funds, PFAMCo Parties and Individuals, as such terms
are defined therein.1/
-
4.9 Exchange Agreement, dated November 14, 1994, by and among PIMCO
GP, TAG Inc. and the Registrant.1/
-
4.10 Custodial Account Agreement, dated as of November 15, 1994, by and
among PIMCO GP and Citibank, N.A.1/
-
4.11 Form of 9.01% Secured Nonrecourse Note due December 15, 2001.1/
-
4.12 Form of Intercompany Note Secured Nonrecourse Demand Note.1/
-
4.13 PFAMCo Stock Exchange Agreement dated November 15, 1994.1/
-
4.14 Amended and Restated Certificate of Incorporation of TAG Inc.1/
-
10.1 Cvengros Employment Agreement.4/
-
10.2 Smith Employment Agreement.4/
-
10.3 Chiboucas Employment Agreement.4/
-
10.4 Form of Manager Employer Agreement.4/
-
10.5 Profit Sharing Plan for Pacific Investment Management Company.2/
-
10.6 Profit Sharing Plan for Columbus Circle Investors.4/
-
10.7 Form of Profit Sharing Plan for Investment Management Firms.4/
-
10.8 PFAMCo Loss Reimbursement Agreement.4/
-
10.9 Blairlogie Loss Reimbursement and Recapture Agreement.4/
-
10.10(a) Thomson Advisory Group L.P. 1993 Unit Option Plan (as amended
through April 20, 1993).5/
-
59
<PAGE>
10.10(b) Amendment to the Thomson Advisory Group L.P. 1993 Unit Option
Plan.14/
-
10.11 Award of Options dated March 10, 1993 to Irwin F. Smith.6/
-
10.12 Smith Option Amendment Agreement.4/
-
10.13 Form of Class I Option Amendment Agreement.4/
-
10.14 Form of Class II Option Amendment Agreement.4/
-
10.15 Form of PIMCO Advisors L.P. 1994 Class B LP Unit Option Plan.7/
-
10.16 Form of Option Agreement for Item 10.15.7/
-
10.17 PIMCO Advisors L.P. Restricted Unit Plan.4/
-
10.18 (a) Thomson Advisory Group 401(k) Savings and Investment Plan.8/
-
(b) First Amendment to the Thomson Advisory Group 401(k) Savings
and Investment Plan.9/
-
(c) Thomson Advisory Group 401(k) Savings and Investment Plan
Volume Submitter Amendment.9/
-
(d) Consolidation Transaction Amendment.2/
-
(e) Third Amendment to the Thomson Advisory Group 401(k) Savings
and Investment Plan.2/
-
(f) Fourth Amendment to the PIMCO Advisors 401(k) Savings and
Investment Plan.2/
-
10.19 Form of Indemnification Agreement executed by certain officers of
the Registrant and certain directors of Thomson McKinnon Asset
Management Inc. 10/
--
10.20 Form of Indemnification Agreement executed by certain directors
and/or officers of TAG Inc.11/
--
10.21 Form of Amendment No. 1 to Indemnification Agreement.12/
--
10.22 The 1996 Unit Incentive Plan of PIMCO Advisors L.P.
10.23 Credit Agreement dated as of April 12, 1996 between PIMCO Advisors
L.P. as borrower and Citicorp USA, Inc. as initial lender and agent.
15/
--
10.24 PIMCO Advisors L.P. Executive Deferred Compensation Plan
10.25 Employment Agreement: David B. Breed
10.26 Employment Agreement: William H. Gross
10.27 Employment Agreement: John L. Hague
10.28 Employment Agreement: Brent R. Harris
10.29 Employment Agreement: James F. Muzzy
10.30 Employment Agreement: Daniel S. Pickett
10.31 Employment Agreement: William F. Podlich, III
10.32 Employment Agreement: William S. Thompson, Jr.
10.33 Employment Agreement: Benjamin L. Trosky
21 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
99.1 Agreement to Provide Exhibits and Schedules. 13/
--
__________
1/ Filed as an Exhibit to Schedule 13D of PIMCO Partners, G.P. filed November
- - 25, 1994 and incorporated herein by reference.
60
<PAGE>
2/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year
- -
ended December 31, 1994 and incorporated herein by reference.
3/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- -
ended March 31, 1995 and incorporated herein by reference.
4/ Filed as an Exhibit to the Registrant's Report on Form 8-K dated July 11,
- -
1994 and incorporated herein by reference.
5/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- -
ended March 31, 1993 and incorporated herein by reference.
6/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year
- -
ended December 31, 1992 and incorporated herein by reference.
7/ Filed as an Exhibit to Registrant's Registration Statement on Form S-4
- -
(File No. 33-84914) and incorporated herein by reference.
8/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year
- -
ended December 31, 1991 and incorporated herein by reference.
9/ Filed as an Exhibit to Registrant's Report on Form 10-K for the year
- -
ended December 31, 1993 and incorporated herein by reference.
10/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- --
ended June 30, 1990 and incorporated herein by reference.
11/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- --
ended September 30, 1990 and incorporated herein by reference.
12/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the quarter
- --
ended March 31, 1991 and incorporated herein by reference.
13/ Filed as an Exhibit to Registrant's Report on Form 8-K filed February
- --
18, 1997.
14/ Filed as an Exhibit to Registrant's Report on Form 10-K for the
- --
year ended December 31, 1995 and incorporated herein by reference.
15/ Filed as an Exhibit to Registrant's Report on Form 10-Q for the
- --
quarter ended March 31, 1996 and incorporated herein by reference.
(b) Reports on Form 8-K. The Registrant filed the following reports on Form
--------------------
8-K during the fourth quarter of 1996.
None.
61
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PIMCO ADVISORS L.P.
By: /s/ WILLIAM D. CVENGROS
-------------------------------------
William D. Cvengros,
Chief Executive Officer and President
Date: March 28, 1997
62
<PAGE>
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/ William D. Cvengros Chief Executive Officer and March 28, 1997
- ----------------------------- President of Registrant
William D. Cvengros Member of Equity Board and
Operating Board
/s/ Irwin F. Smith Member of Equity Board and March 28, 1997
- ----------------------------- Operating Board
Irwin F. Smith
/s/ William S. Thompson, Jr. Member of Equity Board and March 28, 1997
- ----------------------------- Operating Board
William S. Thompson, Jr.
/s/ Walter E. Auch, Sr. Member of Equity Board March 28, 1997
- -----------------------------
Walter E. Auch, Sr.
/s/ David B. Breed Member of Operating Board March 28, 1997
- -----------------------------
David B. Breed
/s/ Donald A. Chiboucas Member of Operating Board March 28, 1997
- -----------------------------
Donald A. Chiboucas
/s/ Walter B. Gerken Member of Equity Board March 28, 1997
- -----------------------------
Walter B. Gerken
/s/ William H. Gross Member of Equity Board and March 28, 1997
- ----------------------------- Operating Board
William H. Gross
/s/ John L. Hague Member of Operating Board March 28, 1997
- -----------------------------
John L. Hague
/s/ Brent R. Harris Member of Operating Board March 28, 1997
- -----------------------------
Brent R. Harris
/s/ Donald R. Kurtz Member of Equity Board March 28, 1997
- -----------------------------
Donald R. Kurtz
/s/ James F. McIntosh Member of Equity Board March 28, 1997
- -----------------------------
James F. McIntosh
/s/ Donald K. Miller Member of Equity Board March 28, 1997
- -----------------------------
Donald K. Miller
/s/ James F. Muzzy Member of Operating Board March 28, 1997
- -----------------------------
James F. Muzzy
/s/ Daniel S. Pickett Member of Operating Board March 28, 1997
- -----------------------------
Daniel S. Pickett
/s/ William F. Podlich, III Member of Equity Board and March 28, 1997
- ----------------------------- Operating Board
William F. Podlich, III
/s/ Glenn S. Schafer Member of Equity Board March 28, 1997
- -----------------------------
Glenn S. Schafer
/s/ Thomas C. Sutton Member of Equity Board March 28, 1997
- -----------------------------
Thomas C. Sutton
/s/ Benjamin L. Trosky Member of Operating Board March 28, 1997
- -----------------------------
Benjamin L. Trosky
/s/ Robert M. Fitzgerald Senior Vice President-Finance, March 28, 1997
- ----------------------------- Chief Financial Officer
Robert M. Fitzgerald and Principal Accounting
Officer
</TABLE>
63
<PAGE>
PIMCO ADVISORS L.P.
FORM 10-K
EXHIBIT INDEX
1996
<TABLE>
<CAPTION>
NUMBER EXHIBIT PAGE
- ------ ------- ----
<C> <S> <C>
10.22 The 1996 Unit Incentive Plan of PIMCO Advisors L.P.
10.24 PIMCO Advisors L.P. Executive Deferred Compensation Plan
10.25 Employment Agreement: David B. Breed
10.26 Employment Agreement: William H. Gross
10.27 Employment Agreement: John L. Hague
10.28 Employment Agreement: Brent R. Harris
10.29 Employment Agreement: James F. Muzzy
10.30 Employment Agreement: Daniel S. Pickett
10.31 Employment Agreement: William F. Podlich, III
10.32 Employment Agreement: William S. Thompson, Jr.
10.33 Employment Agreement: Benjamin L. Trosky
22 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
</TABLE>
64
<PAGE>
EXHIBIT 10.22
THE 1996 UNIT INCENTIVE PLAN OF PIMCO ADVISORS L.P.
PIMCO Advisors L.P., a Delaware limited partnership (the
"Partnership"), has adopted The 1996 Unit Incentive Plan of PIMCO Advisors L.P.
(the "Plan"), effective December 1, 1996, for the benefit of its eligible
employees, consultants and board members. The Plan, which amends, restates and
supersedes in its entirety the Partnership's Class B LP Unit Option Plan,
consists of two plans, one for the benefit of key Employees (as such term is
defined below) and consultants and one for the benefit of Independent Board
Members (as such term is defined below).
The purposes of this Plan are as follows:
(1) To provide an additional incentive for Independent Board
Members, key Employees and consultants to further the growth, development and
financial success of the Partnership by personally benefiting through the
ownership of Class B Units (as defined below) and/or rights which recognize such
growth, development and financial success.
(2) To enable the Partnership to obtain and retain the services of
Independent Board Members, key Employees and consultants considered essential to
the long range success of the Partnership by offering them an opportunity to own
Class B Units in the Partnership and/or rights which will reflect the growth,
development and financial success of the Partnership.
ARTICLE I
DEFINITIONS
1.1 General. Wherever the following terms are used in this Plan
-------
they shall have the meaning specified below, unless the context clearly
indicates otherwise.
1.2 Award Limit. "Award Limit" shall mean 200,000 Class B LP
-----------
Units.
1.3 Board. "Board" shall mean the Equity Board of the Partnership
-----
or any successor board established by the general partner(s) of the Partnership.
1.4 Class B LP Units. "Class B LP Units" shall mean Class B units
----------------
of limited partner interest in the Partnership, but excluding any warrants,
options or other rights to purchase Class B LP Units.
1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
<PAGE>
1.6 Committee. "Committee" shall mean the Unit Incentive
---------
Committee of the Board, or another committee, or a subcommittee of the Board,
appointed as provided in Section 9.1.
1.7 Corporate Subsidiary. "Corporate Subsidiary" shall mean any
--------------------
corporation in an unbroken chain of corporations if 50 percent or more of the
total combined voting power of all classes of stock of the first corporation is
owned by the Partnership, and each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
1.8 Deferred Units. "Deferred Units" shall mean Class B LP Units
--------------
awarded under Article VII of this Plan.
1.9 Employee. "Employee" shall mean any officer or other employee
--------
(as defined in accordance with Section 3401(c) of the Code) of the Partnership,
or of any corporation that is then a Corporate Subsidiary, or of any
partnership, limited liability company or corporation that is then a Partnership
Subsidiary, whether such employee is so employed at the time this Plan is
adopted or becomes so employed subsequent to the adoption of this Plan.
1.10 Exchange Act. "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended.
1.11 Fair Market Value. "Fair Market Value" of a security as of a
-----------------
given date shall mean
(a) with respect to Class B LP Units, an amount established
by the Committee (or the Board, in the case of Restricted Units
granted to Independent Board Members) acting in good faith; and
(b) with respect to any other successor security which may
be issued pursuant to this Plan, (i) the closing price of such
security on the principal exchange on which it is then trading,
if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or
if such security was not traded on the trading day previous to
such date, then on the next preceding date on which a trade
occurred, or (ii) if such security is not traded on an exchange
but are quoted on the Nasdaq Stock Market or a successor
quotation system, the mean between the closing representative bid
and asked prices for the security on the trading day previous to
such date as reported by the Nasdaq Stock Market or such
successor quotation system, or (iii) if such security is not
publicly-traded on an exchange and is not quoted on the Nasdaq
Stock Market or a successor quotation system, the Fair Market
Value of the security as established by the Committee (or the
Board, in the case of Restricted Units granted to Independent
Board Members) acting in good faith.
2
<PAGE>
1.12 Grantee. "Grantee" shall mean an Employee or consultant
-------
granted a Unit Payment, Unit Appreciation Right or an award of Deferred Units
under this Plan.
1.13 Incentive Unit Option. "Incentive Unit Option" shall mean an
---------------------
Option which conforms to the provisions of Section 422 of the Code concerning
"incentive stock options" and which is designated as an Incentive Unit Option by
the Committee.
1.14 Independent Board Member. "Independent Board Member" shall
------------------------
mean a member of the Board who is not an Employee of the Partnership.
1.15 Member. "Member" shall mean a member of the Board.
------
1.16 Non-Qualified Unit Option. "Non-Qualified Unit Option" shall
-------------------------
mean an Option which is not designated as an Incentive Unit Option by the
Committee.
1.17 Option. "Option" shall mean a Class B Unit option granted
------
under Article III of this Plan. An Option granted under this Plan shall, as
determined by the Committee, be either a Non-Qualified Unit Option or an
Incentive Unit Option; provided, however, that Options granted to consultants
shall be Non-Qualified Unit Options.
1.18 Optionee. "Optionee" shall mean an Employee or consultant
--------
granted an Option under this Plan.
1.19 Partnership. "Partnership" shall mean PIMCO Advisors L.P., a
-----------
Delaware limited partnership.
1.20 Partnership Subsidiary. "Partnership Subsidiary" shall mean
----------------------
any partnership or limited liability company 50% or more of the profits or
capital interest of which is owned, directly or indirectly, by the Partnership
or a Corporate Subsidiary. "Partnership Subsidiary" shall also mean any
corporation that would be a Corporate Subsidiary with respect to a partnership
or limited liability company that is a Partnership Subsidiary if such
partnership or limited liability company were treated as the Partnership.
1.21 Payment. "Payment" shall mean the amount paid and/or applied
-------
by an Optionee pursuant to Section 5.2(d) of this Plan.
1.22 Plan. "Plan" shall mean The 1996 Unit Incentive Plan of PIMCO
----
Advisors L.P.
1.23 QDRO. "QDRO" shall mean a qualified domestic relations order
----
as defined by the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended, or the rules thereunder.
1.24 Restricted Units . "Restricted Units" shall mean Class B LP
-----------------
Units awarded under Article VI of this Plan.
3
<PAGE>
1.25 Restricted Unitholder. "Restricted Unitholder" shall mean an
---------------------
Independent Board Member, Employee or consultant granted an award of Restricted
Units under Article VI of this Plan.
1.26 Restructuring. "Restructuring" shall have the meaning
-------------
ascribed thereto in the Amended and Restated Agreement of Limited Partnership of
the Partnership, as the same may be amended or restated from time to time.
1.27 Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
----------
under the Exchange Act, as such Rule may be amended from time to time.
1.28 Securities Act. "Securities Act" shall mean the Securities
--------------
Act of 1933, as amended.
1.29 Termination of Consultancy. "Termination of Consultancy" shall
--------------------------
mean the time when the engagement of an Optionee, Grantee or Restricted
Unitholder as a consultant to the Partnership, a Corporate Subsidiary or a
Partnership Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement; but excluding terminations where there is a
simultaneous commencement of employment with the Partnership, a Corporate
Subsidiary or a Partnership Subsidiary. The Committee, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Consultancy. Notwithstanding any other provision of this Plan,
the Partnership or any Corporate Subsidiary or Partnership Subsidiary has an
absolute and unrestricted right to terminate a consultant's service at any time
for any reason whatsoever, with or without cause, except to the extent expressly
provided otherwise in writing.
1.30 Termination of Membership. "Termination of Membership" shall
-------------------------
mean the time when a Restricted Unitholder who is an Independent Board Member
ceases to be a Board Member for any reason, including, but not by way of
limitation, a termination by resignation, failure to be elected, removal, death
or retirement; but excluding (i) terminations where there is simultaneously
established an employment relationship between the former Board Member and the
Partnership or any Corporate Subsidiary or Partnership Subsidiary and (ii) at
the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Partnership or a
Corporate Subsidiary or Partnership Subsidiary with the former Board Member.
The Board, in its sole and absolute discretion, shall determine the effect of
all matters and questions relating to Termination of Membership with respect to
Independent Board Members.
1.31 Termination of Employment. "Termination of Employment" shall
-------------------------
mean the time when the employee-employer relationship between the Optionee,
Grantee or Restricted Unitholder and the Partnership or any Corporate Subsidiary
or Partnership Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a
4
<PAGE>
termination by resignation, discharge, death, disability or retirement; but
excluding (i) at the discretion of the Committee, terminations where there is a
simultaneous reemployment or continuing employment of an Optionee, Grantee or
Restricted Unitholder by the Partnership or any Corporate Subsidiary or
Partnership Subsidiary, (ii) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship and
(iii) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Partnership or a
Corporate Subsidiary or Partnership Subsidiary with the former employee. The
Committee, in its absolute discretion, shall determine the effect of all matters
and questions relating to Termination of Employment, including, but not by way
of limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Employment; provided, however, that, with
respect to Incentive Unit Options, a leave of absence, change in status from an
employee to an independent contractor or other change in the employee-employer
relationship shall constitute a Termination of Employment if, and to the extent
that, such leave of absence, change in status or other change interrupts
employment for the purposes of Section 422(a)(2) of the Code and the then
applicable regulations and revenue rulings under said Section. Notwithstanding
any other provision of this Plan, the Partnership or any Corporate Subsidiary or
Partnership Subsidiary has an absolute and unrestricted right to terminate an
Employee's employment at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in writing.
1.32 Units. "Units" shall mean Class B LP Units.
-----
1.33 Unit Appreciation Right. "Unit Appreciation Right" shall mean
-----------------------
a unit appreciation right granted under Article VIII of this Plan.
1.34 Unitholders. "Unitholders" shall mean holders of Class B
-----------
Units.
1.35 Unit Payment. "Unit Payment" shall mean (i) a payment in the
------------
form of Class B LP Units, or (ii) an option or other right to purchase Class B
LP Units, as part of a deferred compensation arrangement, made in lieu of all or
any portion of the compensation, including, but not by way of limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or consultant in cash, awarded under Article VII of this Plan.
5
<PAGE>
ARTICLE II
UNITS SUBJECT TO PLAN
2.1 Units Subject to Plan.
---------------------
(a) The securities subject to Options, awards of Restricted Units,
awards of Deferred Units, Unit Payments or Unit Appreciation Rights shall be
Class B LP Units. The aggregate number of Class B LP Units which may be issued
upon exercise of such Options or rights or upon any such awards under the Plan,
including those issued upon exercise of awards previously made under the Class B
Unit Option Plan which this Plan amends and restates, shall not exceed
10,000,000. The Class B Units issuable upon exercise of such Options or rights
or upon any such awards may be either previously authorized but unissued Class B
Units or treasury Units.
(b) The maximum number of Class B LP Units which may be subject to
Options, rights or other awards granted under the Plan to any individual in any
calendar year shall not exceed the Award Limit. To the extent required by
Section 162(m) of the Code, Class B Units subject to Options which are cancelled
continue to be counted against the Award Limit and if, after grant of an Option,
the price of Class B Units subject to such Option is reduced, the transaction is
treated as a cancellation of the Option and a grant of a new Option and both the
Option deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit. Furthermore, to the extent required by Section 162(m)
of the Code, if, after grant of a Unit Appreciation Right, the base amount on
which unit appreciation is calculated is reduced to reflect a reduction in the
Fair Market Value of Units, the transaction is treated as a cancellation of the
Unit Appreciation Right and a grant of a new Unit Appreciation Right and both
the Unit Appreciation Right deemed to be canceled and the Unit Appreciation
Right deemed to be granted are counted against the Award Limit.
2.2 Add-Back of Options and Other Rights. If any Option, or other
------------------------------------
right to acquire Class B Units under any other award under this Plan, expires or
is cancelled without having been fully exercised, or is exercised in whole or in
part for cash as permitted by this Plan, the number of Class B Units subject to
such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Class B Units which are delivered by the Optionee or Grantee or withheld
by the Partnership upon the exercise of any Option or other award under this
Plan in payment of the exercise price thereof may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. If any Restricted
Units are forfeited by the Grantee or repurchased by the Partnership pursuant to
Section 6.8 hereof, such Class B Units may again be optioned, granted or awarded
hereunder, subject to the limitations of Section 2.1.
6
<PAGE>
ARTICLE III
GRANTING OF OPTIONS
3.1 Eligibility. Any Employee or consultant selected by the
-----------
Committee pursuant to Section 3.4(a)(i) shall be eligible to be granted an
Option; provided, however, that notwithstanding anything in Section 3.4(a)(i) to
the contrary, no Option may be granted by the Committee except and unless the
recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.
3.2 Disqualification for Unit Ownership. No person may be granted
-----------------------------------
an Incentive Unit Option under this Plan if such person, at the time the
Incentive Unit Option is granted, owns securities possessing more than ten
percent (10%) of the total combined voting power of all classes of securities of
the Partnership or securities of any then existing Corporate Subsidiary or
Partnership Subsidiary unless such Incentive Unit Option conforms to the
applicable provisions of Section 422 of the Code.
3.3 Qualification of Incentive Unit Options. No Incentive Unit
---------------------------------------
Option shall be granted unless such Option, when granted, qualifies as an
"incentive stock option" under Section 422 of the Code. No Incentive Unit
Option shall be granted to any person who is not an Employee.
3.4 Granting of Options
--------------------
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of this Plan:
(i) Determine which Employees are key Employees and select from
among the key Employees or consultants (including Employees or consultants
who have previously received Options or other awards under this Plan) such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of Class
B Units to be subject to such Options granted to the selected key Employees
or consultants;
(iii) Determine whether such Options are to be Incentive Unit
Options or Non-Qualified Unit Options and whether such Options are to
qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with this Plan; provided, however, that the terms and conditions
of Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall include, but not be
limited to, such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
7
<PAGE>
(b) Upon the selection of a key Employee or consultant to be
granted an Option, the Committee shall instruct the Secretary of the Partnership
to issue the Option and may impose such conditions on the grant of the Option as
it deems appropriate. Without limiting the generality of the preceding
sentence, the Committee may, in its discretion and on such terms as it deems
appropriate, require as a condition on the grant of an Option to an Employee or
consultant that the Employee or consultant surrender for cancellation some or
all of the unexercised Options, awards of Restricted Units or Deferred Units,
Unit Appreciation Rights, Unit Payments or other rights which have been
previously granted to him under this Plan or otherwise. An Option, the grant of
which is conditioned upon such surrender, may have an option price lower (or
higher) than the exercise price of such surrendered Option or other award, may
cover the same (or a lesser or greater) number of Class B Units as such
surrendered Option or other award, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of Class B Units, the price, the exercise period or
any other term or condition of such surrendered Option or other award.
(c) Any Incentive Unit Option granted under this Plan may be
modified by the Committee to disqualify such Option from treatment as an
"incentive stock option" under Section 422 of the Code.
ARTICLE IV
TERMS OF OPTIONS
4.1 Option Agreement. Each Option shall be evidenced by a written
----------------
Unit Option Agreement, which shall be executed by the Optionee and an authorized
officer of the Partnership and which shall contain such terms and conditions as
the Committee shall determine, consistent with this Plan. Unit Option
Agreements evidencing Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
Section 162(m) of the Code. Unit Option Agreements evidencing Incentive Unit
Options shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code.
4.2 Option Price. The price per Class B Unit of Class B Units
------------
subject to each Option shall be set by the Committee; provided, however, that
(i) in the case of Incentive Unit Options and Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code,
such price shall not be less than 100% of the Fair Market Value of the
underlying Class B LP Unit on the date the Option is granted; (ii) in the case
of Incentive Unit Options granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of securities of the Partnership or of any Corporate
Subsidiary or Partnership Subsidiary, such price shall not be less than 110% of
the Fair Market Value of the underlying Class B LP Unit on the date the Option
is granted.
8
<PAGE>
4.3 Option Term. The term of an Option shall be set by the
-----------
Committee in its discretion; provided, however, that, in the case of Incentive
Unit Options, the term shall not be more than ten (10) years from the date the
Incentive Unit Option is granted, or five (5) years from such date if the
Incentive Unit Option is granted to an individual then owning (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of securities of the Partnership or of any Corporate
Subsidiary or Partnership Subsidiary. Except as limited by requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Unit Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment or Termination of
Consultancy of the Optionee, or amend any other term or condition of such Option
relating to such a termination.
4.4 Option Vesting
---------------
(a) The period during which the right to exercise an Option in whole
or in part vests in the Optionee shall be set by the Committee and the Committee
may determine that an Option may not be exercised in whole or in part for a
specified period after it is granted; provided, however, that, unless the
Committee otherwise provides in the terms of the Option, no Option shall be
exercisable by any Optionee who is then subject to Section 16 of the Exchange
Act within the period ending six months and one day after the date the Option is
granted; and provided further that unless otherwise determined by the Committee
at the time of grant of an Option, Options shall become fully vested on the date
which is thirty (30) days prior to the effective date of any transaction
described in Section 4.4(b)(iii)(A) or (B) unless in connection with any such
transaction, arrangements have been made for the continuation of such Options or
the substantial economic equivalent thereof. At any time after grant of an
Option, the Committee may, in its sole and absolute discretion and subject to
whatever terms and conditions it selects, accelerate the period during which an
Option vests.
(b) Except as otherwise determined by the Committee in connection
with an award, Options granted under the Plan shall be exercisable only (i)
following January 1, 1998 in accordance with the terms hereof, (ii) during the
30-day period prior to and including the effective date of the dissolution or
liquidation of the Partnership, or (iii) unless arrangements have been made for
the continuation of such Options or the economic equivalent thereof, during the
30-day period prior to and including the effective date of (A) the sale of all
or substantially all the assets of the Partnership or (B) the merger or
consolidation of the Partnership with another entity in which the Partnership
(or any successor entity in which the Unitholders of the Partnership hold at
least fifty percent (50%) of the total common equity outstanding immediately
following the transaction) is not the surviving entity, in each case in a
transaction effectively constituting a sale of the Partnership or its business
to a third party or parties (and accordingly not in connection with a
Restructuring). The Partnership shall give written notice to any Optionee that
Options held hereunder have become exercisable under the circumstances described
in clause (ii) or (iii) of this paragraph at least thirty (30) days prior to the
effective date of the relevant transaction. Except as otherwise determined by
the Committee in connection with the grant of Options, in any of the
circumstances set forth in clauses (i), (ii) or (iii) hereof, Options held by
the relevant Optionee shall be exercisable only to the extent vested as of the
date of
9
<PAGE>
exercise, and Options (including vested Options and any unvested Options) held
upon the first to occur of (x) the expiration of any period set forth in clause
(ii) or (iii) of this paragraph, or (y) the date which is the end of the
Partnership's tenth full fiscal year after the date of grant of the relevant
Options, shall expire and terminate.
(c) No portion of an Option which is unexercisable at Termination of
Employment or Termination of Consultancy, as applicable, shall thereafter become
exercisable, except as may be otherwise provided by the Committee either in the
Unit Option Agreement or by action of the Committee following the grant of the
Option.
(d) To the extent that the aggregate Fair Market Value of Class B
Units with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive unit option plans of the Partnership and any
Corporate Subsidiary or Partnership Subsidiary) exceeds $100,000, such Options
shall be treated as Non-Qualified Unit Options to the extent required by Section
422 of the Code. The rule set forth in the preceding sentence shall be applied
by taking Options into account in the order in which they were granted. For
purposes of this Section 4.4(d), the Fair Market Value of Class B Units shall be
determined as of the time the Option with respect to such Class B Units is
granted.
4.5 Consideration. In consideration of the granting of an Option,
-------------
the Optionee shall agree, in the written Unit Option Agreement, to remain in the
employ of, or to consult for, the Partnership or any Corporate Subsidiary or
Partnership Subsidiary for a period of at least one year (or such shorter period
as may be fixed in the Unit Option Agreement or by action of the Committee
following the grant of the Option) after the Option is granted. Nothing in this
Plan or in any Unit Option Agreement hereunder shall confer upon any Optionee
any right to continue in the employ of, or as a consultant for, the Partnership
or any Corporate Subsidiary or Partnership Subsidiary, or shall interfere with
or restrict in any way the rights of the Partnership and any Corporate
Subsidiary or Partnership Subsidiary, which are hereby expressly reserved, to
discharge any Optionee at any time for any reason whatsoever, with or without
good cause.
ARTICLE V
EXERCISE OF OPTIONS
5.1 Partial Exercise. An exercisable Option may be exercised in
----------------
whole or in part. However, an Option shall not be exercisable with respect to
fractional Class B Units and the Committee may require that, by the terms of the
Option, a partial exercise be made with respect to a minimum number of Class B
Units.
5.2 Manner of Exercise. All or a portion of an exercisable Option
------------------
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Partnership or his office:
10
<PAGE>
(a) A written notice complying with the applicable rules established
by the Committee or the Board stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion;
(b) Such representations and documents as the Committee or the
Board, in its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any other
federal or state securities laws or regulations. The Committee or Board may, in
its absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation, placing
legends on Unit certificates and issuing stop-transfer notices to agents and
registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 10.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Partnership for the
Class B Units with respect to which the Option, or portion thereof, is
exercised. However, the Committee may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion thereof, is
exercised; (ii) allow payment, in whole or in part, through the delivery of
Class B Units owned by the Optionee, duly endorsed for transfer to the
Partnership with a Fair Market Value on the date of delivery equal to the
aggregate exercise price of the Option or exercised portion thereof; (iii)
subject to the timing requirements of Section 5.3, allow payment, in whole or in
part, through the surrender of Class B Units then issuable upon exercise of the
Option having a Fair Market Value on the date of Option exercise equal to the
aggregate exercise price of the Option or exercised portion thereof; (iv) allow
payment, in whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (v) allow payment, in whole or in
part, through the delivery of a full recourse promissory note bearing interest
(at no less than such rate as shall then preclude the imputation of interest
under the Code) and payable upon such terms as may be prescribed by the
Committee, or (vi) allow payment through any combination of the consideration
provided in the foregoing subparagraphs (ii), (iii), (iv) and (v). In the case
of a promissory note, the Committee may also prescribe the form of such note and
the security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Partnership when
or where such loan or other extension of credit is prohibited by law.
5.3 Certain Timing Requirements. At the discretion of the
---------------------------
Committee, Class B Units issuable to the Optionee upon exercise of the Option
may be used to satisfy the Option exercise price or the tax withholding
consequences of such exercise, in the case of persons subject to Section 16 of
the Exchange Act, only (i) during the period beginning on the third business day
following the date of release of the quarterly or annual summary statement of
sales and earnings of the Partnership and ending on the twelfth business day
following such date or (ii) pursuant to an irrevocable written election by the
Optionee to use Class B Units issuable to the Optionee upon exercise of the
Option to pay all or part of the Option price or the
11
<PAGE>
withholding taxes made at least six months prior to the payment of such Option
price or withholding taxes.
5.4 Conditions to Issuance of Unit Certificates. The Partnership
-------------------------------------------
shall not be required to issue or deliver any certificate or certificates for
Class B Units purchased upon the exercise of any Option or portion thereof prior
to fulfillment of all of the following conditions:
(a) The completion of any registration or other qualification of
such Class B Units under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other governmental
regulatory body which the Committee or Board shall, in its absolute discretion,
deem necessary or advisable;
(b) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Committee or Board shall, in its
absolute discretion, determine to be necessary or advisable;
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Committee or Board may establish from time to time
for reasons of administrative convenience; and
(d) The receipt by the Partnership of full payment for such Class B
Units, including payment of any applicable withholding tax.
5.5 Rights as Unitholders. The holders of Options shall not be,
---------------------
nor have any of the rights or privileges of, Unitholders in respect of any Class
B Units purchasable upon the exercise of any part of an Option unless and until
certificates representing such Class B Units have been issued by the Partnership
to such holders.
5.6 Ownership and Transfer Restrictions. The Committee, in its
-----------------------------------
absolute discretion, may impose such restrictions on the ownership and
transferability of Class B Units purchasable upon the exercise of an Option as
it deems appropriate. Any such restriction shall be set forth in the respective
Unit Option Agreement and may be referred to on the certificates evidencing such
units. The Committee may require the Employee to give the Partnership prompt
notice of any disposition of Class B Units acquired by exercise of an Incentive
Unit Option within (i) two years from the date of granting such Option to such
Employee or (ii) one year after the transfer of such units to such Employee.
The Committee may direct that the certificates evidencing Class B Units acquired
by exercise of an Option refer to such requirement to give prompt notice of
disposition.
5.7 Treatment of Issuance of Units Upon Exercise. In connection
--------------------------------------------
with the issuance of any Class B Units upon the exercise of Options hereunder,
the Optionee shall be deemed to have (i) received a cash bonus from the
Partnership equal to the Unit Price (as defined in the Partnership Agreement) on
the date of issuance multiplied by the number of Class B Units issued (without
regard to any withholding that would apply to such bonus if actually paid), less
the Payment paid to the Partnership upon exercise of such Options pursuant to
Section
12
<PAGE>
5.2(d), and (ii) contributed cash in the amount of such cash bonus plus the
Payment to the Partnership as a Contribution in exchange for a Capital Account
(as such terms are defined in the Partnership Agreement) equal, on a per Unit
basis, to the relevant Unit Price on the date of issuance.
ARTICLE VI
AWARD OF RESTRICTED UNITS
6.1 Eligibility. Any Employee or consultant selected by the
-----------
Committee pursuant to Section 6.2(a)(i) shall be eligible to be granted
Restricted Units. Each Independent Board Member shall be eligible to be granted
Restricted Units at the times and in the manner set forth in Section 6.3.
6.2 Award of Restricted Unit s to Eligible Employees and Consultants
----------------------------------------------------------------
(a) The Committee shall from time to time, in its absolute
discretion:
(i) Select from among the key Employees or consultants
(including Employees or consultants who have previously received other
awards under this Plan) such of them as in its opinion should be awarded
Restricted Units; and
(ii) Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Units, consistent with this
Plan.
(b) The Committee shall establish the purchase price, if any, and
form of payment for Restricted Units. In all cases, legal consideration shall be
required for each issuance of Restricted Units.
(c) Upon the selection of a key Employee or consultant to be awarded
Restricted Units, the Committee shall instruct the Secretary of the Partnership
to issue such Restricted Units and may impose such conditions on the issuance of
such Restricted Units as it deems appropriate.
(d) Notwithstanding anything herein to the contrary, no Restricted
Unit may be granted by the Committee under this Section 6.2 except and unless
the recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.
6.3 Award of Restricted Unit s to Independent Board Members. During
-------------------------------------------------------
the term of the Plan, each person who is an Independent Board Member shall be
eligible to make an election to receive all or any portion (but with a minimum
of 20%, if any such election is made) of his annual retainer fee in the form of
Restricted Units. Such an election must be in writing, must be delivered to the
Secretary of the Partnership and shall apply to retainer fees payable from and
after the date that the election is made. Unless otherwise permitted by the
13
<PAGE>
Board, such elections shall be made no more than once with respect to
compensation payable in any calendar year. The number of Restricted Units to be
issued pursuant to such an election shall be determined by dividing the portion
of the Independent Board Member's retainer fee that is to be paid in Restricted
Units by ninety-one percent of the Fair Market Value of a Class B LP Unit on the
date that the Restricted Units are issued. Restricted Units shall be issued on
the date that the retainer fee would otherwise be paid. All restrictions on
such units shall lapse at the expiration of the Independent Board Member's term;
provided however, that in no event may Restricted Units be sold, assigned or
otherwise transferred until at least six months have elapsed from (but
excluding) the date on which the Restricted Units were issued. Unless otherwise
permitted by the Board, an election with respect to compensation payable in a
given calendar year shall be irrevocable. Upon effectiveness of this Plan, each
Independent Board Member shall be granted _______ Restricted Units, with all
restrictions on such units to lapse (subject to Section 10.5) six months from
(but excluding) the date of grant.
6.4 Restricted Unit Agreement. Restricted Units shall be issued
-------------------------
only pursuant to a written Restricted Unit Agreement, which shall be executed by
the selected key Employee or consultant and an authorized officer of the
Partnership and which shall contain such terms and conditions as the Committee
(or the Board, in the case of Restricted Units granted to Independent Board
Members) shall determine, consistent with this Plan.
6.5 Consideration. As consideration for the issuance of Restricted
-------------
Units, in addition to payment of any purchase price, the Restricted Unitholder
shall agree, in the written Restricted Unit Agreement, to remain in the employ
of or to consult for the Partnership or any Corporate Subsidiary or Partnership
Subsidiary for a period of at least one year after the Restricted Units are
issued (or such shorter period as may be fixed in the Restricted Unit Agreement
or by action of the Committee following grant of Restricted Units), or, in the
case of Independent Board Members, to serve as an Independent Board Member until
the expiration of their term. Nothing in this Plan or in any Restricted Unit
Agreement hereunder shall confer on any Restricted Unitholder any right to
continue in the employ of, or as a consultant for, the Partnership or any
Corporate Subsidiary or Partnership Subsidiary, or to serve as an Independent
Board Member, or shall interfere with or restrict in any way the rights of the
Partnership and any Corporate Subsidiary or Partnership Subsidiary, which are
hereby expressly reserved, to discharge or remove any Restricted Unitholder at
any time for any reason whatsoever, with or without good cause.
6.6 Rights as Unitholders. Upon delivery of the Restricted Units
---------------------
to the escrow holder pursuant to Section 6.9, the Restricted Unitholder shall
have, unless otherwise provided by the Committee (or the Board, in the case of
Restricted Units granted to Independent Board Members), all the rights of a
holder of Class B LP Units with respect to such Class B Units, subject to the
restrictions in his Restricted Unit Agreement, including the right to receive
distributions paid or made with respect to the Class B Units; provided, however,
that in the discretion of the Committee (or the Board, in the case of Restricted
Units granted to Independent Board Members), any extraordinary distributions
with respect to Class B Units shall be subject to the restrictions set forth in
Section 6.7.
14
<PAGE>
6.7 Restriction. All Restricted Units issued under this Plan
-----------
(including any Units received by holders thereof with respect to Restricted
Units as a result of unit distributions, unit splits or any other form of
recapitalization) shall, pursuant to the terms of each individual Restricted
Unit Agreement, be subject to such restrictions as the Committee (or the Board,
in the case of Restricted Units granted to Independent Board Members) shall
provide, which restrictions may include, without limitation, restrictions
concerning voting rights and transferability and restrictions based on duration
of employment with the Partnership, Partnership performance and individual
performance; provided, however, that no Restricted Units granted to a person
subject to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months have elapsed from (but excluding) the date
on which the Restricted Units were issued, and provided, further, that by action
taken after Restricted Units are issued, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Restricted Unit Agreement.
Restricted Units may not be sold or encumbered until all restrictions are
terminated or expire. Unless provided otherwise by the Committee (or the Board,
in the case of Restricted Units granted to Independent Board Members), if no
consideration was paid by the Restricted Unitholder upon issuance, a Restricted
Unitholder's rights in unvested Restricted Units shall lapse upon Termination of
Employment or, if applicable, upon Termination of Consultancy or Termination of
Membership with the Partnership.
6.8 Repurchase of Restricted Units. The Committee (or the Board,
------------------------------
in the case of Restricted Units granted to Independent Board Members) shall
provide in the terms of each individual Restricted Unit Agreement that the
Partnership shall have the right to repurchase from the Restricted Unitholder
the Restricted Units then subject to restrictions under the Restricted Unit
Agreement immediately upon a Termination of Employment or, if applicable, upon a
Termination of Consultancy or Termination of Membership between the Restricted
Unitholder and the Partnership, at a cash price per Restricted Unit equal to the
price per Class B Unit paid by the Restricted Unitholder for such Restricted
Units; provided, however, that provision may be made that no such right of
repurchase shall exist in the event of a Termination of Employment, Termination
of Consultancy or Termination of Membership without cause, or following a change
in control of the Partnership or because of the Restricted Unitholder's
retirement, death, disability or otherwise.
6.9 Escrow. The Secretary of the Partnership, or such other escrow
------
holder as the Committee (or the Board, in the case of Restricted Units granted
to Independent Board Members) may appoint, shall retain physical custody of each
certificate representing Restricted Units until all of the restrictions imposed
under the Restricted Unit Agreement with respect to the Class B Units evidenced
by such certificate expire or shall have been removed.
6.10 Legend. In order to enforce the restrictions imposed upon
------
Restricted Units hereunder, the Committee (or the Board, in the case of
Restricted Units granted to Independent Board Members) shall cause a legend or
legends to be placed on certificates representing all Restricted Units that are
still subject to restrictions under Restricted Unit
15
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Agreements, which legend or legends shall make appropriate reference to the
conditions imposed thereby.
ARTICLE VII
UNIT PAYMENTS AND DEFERRED UNITS
7.1 Unit Payments. Any key Employee or consultant selected by the
-------------
Committee may receive Unit Payments in the manner determined from time to time
by the Committee. The number of Class B LP Units shall be determined by the
Committee and may be based upon the Fair Market Value, book value, net profits
or other measure of the value of Units or other specific performance criteria
determined appropriate by the Committee, determined on the date such Unit
Payment is made or on any date thereafter. Notwithstanding anything herein to
the contrary, no Unit Payment may be granted by the Committee except and unless
the recipient thereof shall have been recommended by the Operating Board of the
Partnership or the Operating Committee thereof.
7.2 Deferred Units. Any key Employee or consultant selected by the
--------------
Committee may be granted an award of Deferred Units in the manner determined
from time to time by the Committee. The number of Deferred Units shall be
determined by the Committee and may be linked to the market value, book value,
net profits or other measure of the value of Class B LP Units or other specific
performance criteria determined to be appropriate by the Committee, in each case
on a specified date or dates or over any period or periods determined by the
Committee. Class B Units underlying a Deferred Unit award will not be issued
until the Deferred Unit award has vested, pursuant to a vesting schedule or
performance criteria set by the Committee; provided however, that no Deferred
Units granted to a person subject to Section 16 of the Exchange Act shall vest
until at least six months have elapsed from (but excluding) the date on which
the Deferred Units were issued. Unless otherwise provided by the Committee, a
Grantee of Deferred Units shall have no rights as a Unitholder with respect to
such Deferred Units until such time as the award has vested and the Class B
Units underlying the award have been issued. Notwithstanding anything herein to
the contrary, no Deferred Units may be granted by the Committee except and
unless the recipient thereof shall have been recommended by the Operating Board
of the Partnership or the Operating Committee thereof.
7.3 Deferred Unit Agreement, Unit Payment Agreement. Each award of
-----------------------------------------------
Deferred Units and/or Unit Payments shall be evidenced by a written agreement,
which shall be executed by the Grantee and an authorized officer of the
Partnership and which shall contain such terms and conditions as the Committee
shall determine, consistent with this Plan.
7.4 Term. The term of an award of Deferred Units and/or Unit
----
Payments shall be set by the Committee in its discretion.
7.5 Exercise or Payment Upon Termination of Employment. An award
--------------------------------------------------
of Deferred Units and/or Unit Payments is exercisable or payable only while the
Grantee is an Employee or consultant; provided, however, that the Committee may
determine that the award
16
<PAGE>
of Deferred Units and/or Unit Payments may be exercised or paid subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a change in control of the Partnership, or because of the Grantee's
retirement, death, disability or otherwise.
7.6 Consideration. In consideration of the granting of an award of
-------------
Deferred Units and/or Unit Payments, the Grantee shall agree, in a written
agreement, to remain in the employ of, or to consult for, the Partnership or any
Corporate Subsidiary or Partnership Subsidiary for a period of at least one year
after such award of Deferred Units and/or Unit Payments is granted (or such
shorter period as may be fixed in such agreement or by action of the Committee
following such grant). Nothing in this Plan or in any agreement hereunder shall
confer on any Grantee any right to continue in the employ of, or as a consultant
for, the Partnership or any Corporate Subsidiary or Partnership Subsidiary, or
shall interfere with or restrict in any way the rights of the Partnership and
any Corporate Subsidiary or Partnership Subsidiary, which are hereby expressly
reserved, to discharge any Grantee at any time for any reason whatsoever, with
or without good cause.
17
<PAGE>
ARTICLE VIII
UNIT APPRECIATION RIGHTS
8.1 Grant of Unit Appreciation Rights. A Unit Appreciation Right
---------------------------------
may be granted to any key Employee or consultant selected by the Committee. A
Unit Appreciation Right may be granted (i) in connection and simultaneously with
the grant of an Option, (ii) with respect to a previously granted Option or
(iii) independent of an Option. A Unit Appreciation Right shall be subject to
such terms and conditions not inconsistent with this Plan as the Committee shall
impose and shall be evidenced by a written Unit Appreciation Right Agreement,
which shall be executed by the Grantee and an authorized officer of the
Partnership. The Committee, in its discretion, may determine whether a Unit
Appreciation Right is to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code and Unit Appreciation Right Agreements
evidencing Unit Appreciation Rights intended to so qualify shall contain such
terms and conditions as may be necessary to meet the applicable provisions of
section 162(m) of the Code. Without limiting the generality of the foregoing,
the Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition of the grant of a Unit Appreciation Right to an Employee
or consultant that the Employee or consultant surrender for cancellation some or
all of any unexercised Options or awards of Restricted Units, Deferred Units,
Unit Appreciation Rights, Unit Payments or other rights which have been
previously granted to the Employee or consultant under this Plan or otherwise.
A Unit Appreciation Right, the grant of which is conditioned upon such
surrender, may have an exercise price lower (or higher) than the exercise price
of the surrendered Option or other award, may cover the same (or a lesser or
greater) number of Class B Units as such surrendered Option or other award, may
contain such other terms as the Committee deems appropriate, and shall be
exercisable in accordance with its terms, without regard to the number of Class
B Units, the price, the exercise period or any other term or condition of such
surrendered Option or other award. Notwithstanding anything herein to the
contrary, no Unit Appreciation Rights may be granted by the Committee except and
unless the recipient thereof shall have been recommended by the Operating Board
of the Partnership or the Operating Committee thereof.
8.2 Coupled Unit Appreciation Rights
---------------------------------
(a) A Coupled Unit Appreciation Right ("CUAR") shall be related to a
particular Option and shall be exercisable only when and to the extent the
related Option is exercisable.
(b) A CUAR may be granted to the Grantee for no more than the number
of Class B Units subject to the simultaneously or previously granted Option to
which it is coupled.
(c) A CUAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to this Plan) to surrender to the Partnership
unexercised a portion of the Option to which the CUAR relates (to the extent
then exercisable pursuant to its terms) and to
18
<PAGE>
receive from the Partnership in exchange therefor an amount determined by
multiplying the difference obtained by subtracting the Option exercise price
from the Fair Market Value of a Class B LP Unit on the date of exercise of the
CUAR by the number of Class B LP Units with respect to which the CUAR shall have
been exercised, subject to any limitations the Committee may impose.
8.3 Independent Unit Appreciation Rights
-------------------------------------
(a) An Independent Unit Appreciation Right ("IUAR") shall be unrelated
to any Option and shall have a term set by the Committee. An IUAR shall be
exercisable in such installments as the Committee may determine; provided,
however, that unless the Committee otherwise provides in the terms of the IUAR,
no IUAR granted to a person subject to Section 16 of the Exchange Act shall be
exercisable until at least six months have elapsed from (but excluding) the date
on which the IUAR was granted. An IUAR shall cover such number of Class B Units
as the Committee may determine. The exercise price per Class B Unit of Class B
Units subject to each IUAR shall be set by the Committee. An IUAR is
exercisable only while the Grantee is an Employee or consultant; provided,
however, that the Committee may determine that the IUAR may be exercised
subsequent to Termination of Employment or Termination of Consultancy without
cause, or following a change in control of the Partnership, or because of the
Grantee's retirement, death, disability or otherwise.
(b) An IUAR shall entitle the Grantee (or other person entitled to
exercise the IUAR pursuant to this Plan) to exercise all or a specified portion
of the IUAR (to the extent then exercisable pursuant to its terms) and to
receive from the Partnership an amount determined by multiplying the difference
obtained by subtracting the exercise price per Class B Unit of the IUAR from the
Fair Market Value of a Class B LP Unit on the date of exercise of the IUAR by
the number of Class B LP Units with respect to which the IUAR shall have been
exercised, subject to any limitations the Committee may impose.
8.4 Payment and Limitations on Exercise
------------------------------------
(a) Payment of the amount determined under Section 8.2(c) and 8.3(b)
above shall be in cash or in Class B Units (based on the Fair Market Value of
such Class B Units as of the date the Unit Appreciation Right is exercised) or a
combination thereof, as determined by the Committee. To the extent such payment
is effected in Class B Units, it shall be made subject to satisfaction of all
provisions of Section 5.4 hereinabove pertaining to Options.
(b) Grantees of Unit Appreciation Rights who are subject to Section 16
of the Exchange Act may, in the discretion of the Board or Committee, be
required to comply with any timing or other restrictions under Rule 16b-3
applicable to the settlement or exercise of a Unit Appreciation Right.
8.5 Consideration. In consideration of the granting of a Unit
-------------
Appreciation Right, the Grantee shall agree, in the written Unit Appreciation
Right Agreement, to remain in the employ of, or to consult for, the Partnership
or any Corporate Subsidiary or Partnership
19
<PAGE>
Subsidiary for a period of at least one year after the Unit Appreciation Right
is granted (or such shorter period as may be fixed in the Unit Appreciation
Right Agreement or by action of the Committee following grant of the Unit
Appreciation Right). Nothing in this Plan or in any Unit Appreciation Right
Agreement hereunder shall confer on any Grantee any right to continue in the
employ of, or as a consultant for, the Partnership or any Corporate Subsidiary
or Partnership Subsidiary, or shall interfere with or restrict in any way the
rights of the Partnership and any Corporate Subsidiary or Partnership
Subsidiary, which are hereby expressly reserved, to discharge any Grantee at any
time for any reason whatsoever, with or without good cause.
ARTICLE IX
ADMINISTRATION
9.1 Unit Incentive Committee. The Unit Incentive Committee (or a
------------------------
subcommittee of the Board assuming the functions of the Committee under this
Plan) shall consist of two or more Independent Board Members appointed by and
holding office at the pleasure of the Board, each of whom is a "disinterested
person" as defined by Rule 16b-3 and, if such person were a director of a
corporation, would otherwise meet the requirements for an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
may be filled by the Board.
9.2 Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of this Plan in accordance with
its provisions. The Committee shall have the power to interpret this Plan and
the agreements pursuant to which Options or awards of Restricted Units, Deferred
Units, Unit Appreciation Rights or Unit Payments are granted or awarded, and to
adopt such rules for the administration, interpretation, and application of this
Plan as are consistent therewith and to interpret, amend or revoke any such
rules. Notwithstanding the foregoing, the full Board, acting by a majority of
its members in office, shall conduct the general administration of the Plan with
respect to Restricted Units granted to Independent Board Members. Any such
grant or award under this Plan need not be the same with respect to each
Optionee, Grantee or Restricted Unitholder. Any such interpretations and rules
with respect to Incentive Unit Options shall be consistent with the provisions
of Section 422 of the Code. In its absolute discretion, the Board may at any
time and from time to time exercise any and all rights and duties of the
Committee under this Plan except with respect to matters which under Rule 16b-3
or Section 162(m) of the Code, or any regulations or rules issued thereunder,
are required to be determined in the sole discretion of the Committee.
9.3 Majority Rule; Unanimous Written Consent. The Committee shall
----------------------------------------
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
20
<PAGE>
9.4 Compensation; Professional Assistance; Good Faith Actions.
---------------------------------------------------------
Members of the Committee shall receive such compensation for their services as
members as may be determined by the Board. All expenses and liabilities which
members of the Committee incur in connection with the administration of this
Plan shall be borne by the Partnership. The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers or
other persons. The Committee, the Partnership and the Partnership's officers
and Board Members shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all interpretations and
determinations made by the Committee or the Board in good faith shall be final
and binding upon all Optionees, Grantees, Restricted Unitholders, the
Partnership and all other interested persons. No members of the Committee or
Board shall be personally liable for any action, determination or interpretation
made in good faith with respect to this Plan, Options, awards of Restricted
Units, Deferred Units, Unit Appreciation Rights or Unit Payments, and all
members of the Committee and the Board shall be fully protected by the
Partnership in respect of any such action, determination or interpretation.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Not Transferable. Options, Restricted Unit awards, Deferred
----------------
Unit awards, Unit Appreciation Rights or Unit Payments under this Plan may not
be sold, pledged, assigned or transferred in any manner other than by will or
the laws of descent and distribution or pursuant to a QDRO, unless and until
such rights or awards have been exercised, or the units underlying such rights
or awards have been issued, and all restrictions applicable to such units have
lapsed. No Option, Restricted Unit award, Deferred Unit award, Unit
Appreciation Right, Unit Payment or interest or right therein shall be liable
for the debts, contracts or engagements of the Optionee, Grantee or Restricted
Unitholder or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
During the lifetime of the Optionee or Grantee, only he may exercise
an Option or other right or award (or any portion thereof) granted to him under
the Plan, unless it has been disposed of pursuant to a QDRO. After the death of
the Optionee or Grantee, any exercisable portion of an Option or other right or
award may, prior to the time when such portion becomes unexercisable under the
Plan or the applicable Unit Option Agreement or other agreement, be exercised by
his personal representative or by any person empowered to do so under the
deceased Optionee's or Grantee's will or under the then applicable laws of
descent and distribution.
10.2 Amendment, Suspension or Termination of this Plan . This Plan
--------------------------------------------------
may be wholly or partially amended or otherwise modified, suspended or
terminated at any time or from
21
<PAGE>
time to time by the Committee or the Board. However, without approval of the
Partnership's Unitholders given within twelve months before or after the action
by the Committee, no action of the Committee may, except as provided in Section
10.3, increase the limits imposed in Section 2.1 on the maximum number of Class
B Units which may be issued under this Plan or modify the Award Limit, and no
action of the Committee may be taken that would otherwise require Unitholder
approval as a matter of applicable law, regulation or rule. No amendment,
suspension or termination of this Plan shall, without the consent of the holder
of Options, Restricted Unit awards, Deferred Unit awards, Unit Appreciation
Rights or Unit Payments, alter or impair any rights or obligations under any
Options, Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights
or Unit Payments theretofore granted or awarded, unless the award itself
otherwise expressly so provides. No Options, Restricted Units, Deferred Units,
Unit Appreciation Rights or Unit Payments may be granted or awarded during any
period of suspension or after termination of this Plan, and in no event may any
Incentive Unit Option be granted under this Plan after the first to occur of the
following events:
(a) The expiration of ten years from the date the Plan is adopted by
the Board; or
(b) The expiration of ten years from the date the Plan is approved
by the Partnership's Unitholders under Section 10.5.
10.3 Changes in Units or Assets of the Partnership ; Acquisition or
--------------------------------------------------------------
Liquidation of the Partnership and Other Corporate Events.
- ---------------------------------------------------------
(a) Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event that the Committee determines that any unit distribution
(whether in the form of cash, units, other securities or other property),
recapitalization, reclassification, unit split, reverse unit split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of the assets of the Partnership, or
exchange of units or other securities of the Partnership, any issuance of
warrants or other rights to purchase units or other securities of the
Partnership, or any other similar transaction or event, in the Committee's sole
discretion (or in the case of Restricted Units granted to Independent Board
Members, the Board's sole discretion), affects the Units such that an adjustment
is determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan or with respect to an Option, Restricted Unit award, Unit
Appreciation Right, Deferred Unit award or Unit Payment, then the Committee (or
the Board, in the case of Restricted Units granted to Independent Board Members)
shall, in such manner as it may deem equitable, adjust any or all of:
(i) the number and kind of units (or other securities or
property) with respect to which Options, Unit Appreciation Rights or Unit
Payments may be granted under the Plan, or which may be granted as
Restricted Units or Deferred Units (including, but not limited to,
adjustments of the limitations in Section 2.1 or the
22
<PAGE>
maximum number and kind of Class B Units which may be issued and
adjustments of the Award Limit),
(ii) the number and kind of units (or other securities or
property) subject to outstanding Options, Unit Appreciation Rights or Unit
Payments, and in the number and kind of outstanding Restricted Units or
Deferred Units, and
(iii) the grant or exercise price with respect to any Option,
Unit Appreciation Right or Unit Payment.
(b) Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event of any transaction or other event described in Section
10.3(a) which results in Class B Units being exchanged for or converted into
cash, securities (including securities of another partnership or a corporation)
or other property, the Committee will have the right to terminate this Plan as
of the date of the event or transaction, in which case all Options, rights and
other awards granted under this Plan shall become the right to receive such
cash, securities or other property, net of any applicable exercise price.
(c) Subject to Section 10.3(e) but notwithstanding any other term of
this Plan, in the event of any transaction or other event described in Section
10.3(a) or any unusual or nonrecurring transactions or events affecting the
Partnership, any affiliate of the Partnership, or the financial statements of
the Partnership or any affiliate, or of changes in applicable laws, regulations
or accounting principles, the Committee (or the Board, in the case of Restricted
Units granted to Independent Board Members) in its discretion is hereby
authorized to take any one or more of the following actions whenever the
Committee (or the Board, in the case of Restricted Units granted to Independent
Board Members) determines that such action is appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to any Option, right or other
award under this Plan, to facilitate such transactions or events or to give
effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may provide,
either automatically or upon the Optionee's request, for (x) the purchase
of any such Option, Unit Appreciation Right or Unit Payment, or any
Restricted Units or Deferred Units for an amount of cash equal to the
amount that could have been attained upon the exercise of such Option,
right or award, (y) realization of the Optionee's rights had such Option,
right or award been currently exercisable or payable or (z) the replacement
of such Option, right or award with other rights or property selected by
the Committee (or the Board, in the case of Restricted Units granted to
Independent Board Members);
(ii) In its sole and absolute discretion, the Committee (or the
Board, in the case of Restricted Units granted to Independent Board
Members) may provide, either by the terms of such Option, Unit Appreciation
Right, Unit Payment, award of
23
<PAGE>
Restricted Units or Deferred Units or by action taken prior to the
occurrence of such transaction or event that it cannot be exercised after
such event;
(iii) In its sole and absolute discretion, and on such terms
and conditions as it deems appropriate, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may provide,
either by the terms of such Option, Unit Appreciation Right, Unit Payment,
Restricted Unit or Deferred Unit or by action taken prior to the occurrence
of such transaction or event, that for a specified period of time prior to
such transaction or event, such Option, right or award shall be exercisable
as to all units covered thereby, notwithstanding anything to the contrary
in (i) Section 4.4 or (ii) the provisions of such Option, Unit Appreciation
Right or Unit Payment, or Restricted Unit or Deferred Unit.
(iv) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may provide,
either by the terms of such Option, Unit Appreciation Right, Unit Payment,
award of Restricted Units or Deferred Units or by action taken prior to the
occurrence of such transaction or event, that upon such event, such Option,
right or award shall be assumed by the successor partnership or
corporation, or a parent or subsidiary thereof, or shall be substituted for
by options, rights or awards covering securities of the successor, or a
parent or subsidiary thereof, with appropriate adjustments as to the number
and kind of securities and prices; and
(v) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may make
adjustments in the number and kind of units (or other securities or
property) subject to outstanding Options, Unit Appreciation Rights or Unit
Payments, and in the number and kind of outstanding Restricted Units or
Deferred Units and/or in the terms and conditions of (including the grant
or exercise price), and the criteria included in, outstanding Options,
rights and awards and Options, rights and awards which may be granted in
the future.
(vi) In its sole and absolute discretion, and on such terms and
conditions as it deems appropriate, the Committee (or the Board in the case
of Restricted Units granted to Independent Board Members) may provide
either by the terms of a Restricted Unit award or Deferred Unit award or by
action taken prior to the occurrence of such transaction or event that, for
a specified period of time prior to such event, the restrictions imposed
under a Restricted Unit Agreement or a Deferred Unit Agreement upon some or
all Restricted Units or Deferred Units may be terminated, and, in the case
of Restricted Units, that some or all of such Restricted Units may cease to
be subject to repurchase under Section 6.8 after such event.
(vii) None of the foregoing discretionary terms of this Section
10.3(c) shall be permitted with respect to Restricted Units granted under
Section 6.3 to
24
<PAGE>
Independent Board Members to the extent that such discretion would be
inconsistent with the requirements of Rule 16b-3.
(d) Subject to Section 10.3(e) and 10.9, the Committee (or the Board
in the case of Restricted Units granted to Independent Board Members) may, in
its discretion, include such further provisions and limitations in any Option,
Unit Appreciation Right, Unit Payment or Restricted Unit or Deferred Unit
agreement or certificate, as it may deem equitable and in the best interests of
the Partnership.
(e) With respect to Incentive Unit Options and Options and Unit
Appreciation Rights intended to qualify as performance-based compensation under
Section 162(m), no adjustment or action described in this Section 10.3 or in any
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause the Plan to violate Section 422(b)(1) of the
Code or would cause such Option or Unit Appreciation Right to fail to so qualify
under Section 162(m), as the case may be, or any successor provisions thereto.
Furthermore, no such adjustment or action shall be authorized to the extent such
adjustment or action would violate Section 16 or the exemptive conditions of
Rule 16b-3. The number of Class B Units subject to any Option, right or award
shall always be rounded to the next whole number.
10.4 Restructuring. In the event of a Restructuring or similar
-------------
transaction, the Committee (or the Board, in the case of Restricted Units
granted to Independent Board Members) shall make such adjustments as it deems
appropriate and equitable in the number and kind of units (or other securities
or property) subject to outstanding Options, Unit Appreciation Rights or Unit
Payments, and in the number and kind of outstanding Restricted Units or Deferred
Units and/or in the terms and conditions of (including the grant or exercise
price), and the criteria included in, outstanding Options, rights and awards and
Options, rights and awards which may be granted in the future; and, in
particular, shall have the right to cause any outstanding awards under this Plan
to be assumed by, and converted into awards for the securities of, any corporate
or other successor issuer to the publicly-traded securities of the Partnership.
10.5 Approval of Plan by Unitholders. This Plan will be submitted
-------------------------------
for the approval of the Partnership's Unitholders within twelve months after the
date of the Board's initial adoption of the Plan. Options, Unit Appreciation
Rights or Unit Payments may be granted and Restricted Units or Deferred Units
may be awarded prior to such Unitholder approval, provided that such Options,
Unit Appreciation Rights or Unit Payments shall not be exercisable and such
Restricted Units or Deferred Units shall not vest prior to the time when this
Plan is approved by the Unitholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options, Unit
Appreciation Rights or Unit Payments previously granted and all Restricted Units
or Deferred Units previously awarded under this Plan shall thereupon be
cancelled and become null and void.
10.6 Tax Withholding. The Partnership shall be entitled to require
---------------
payment in cash or deduction from other compensation payable to each Optionee,
Grantee or Restricted
25
<PAGE>
Unitholder of any sums required by federal, state or local tax law to be
withheld with respect to the issuance, vesting or exercise of any Option,
Restricted Unit, Deferred Unit, Unit Appreciation Right or Unit Payment. Subject
to the timing requirements of Section 5.3, the Committee (or the Board, in the
case of Restricted Units granted to Independent Board Members) may in its
discretion and in satisfaction of the foregoing requirement allow such Optionee,
Grantee or Restricted Unitholder to elect to have the Partnership withhold Class
B Units otherwise issuable under such Option or other award (or allow the return
of Class B Units) having a Fair Market Value equal to the sums required to be
withheld.
10.7 Loans. The Committee may, in its discretion, extend one or
-----
more loans to key Employees in connection with the exercise or receipt of an
Option, Unit Appreciation Right or Unit Payment granted under this Plan, or the
issuance of Restricted Units or Deferred Units awarded under this Plan. The
terms and conditions of any such loan shall be set by the Committee.
10.8 Forfeiture Provisions. Pursuant to its general authority to
---------------------
determine the terms and conditions applicable to awards under the Plan, the
Committee (or the Board, in the case of Restricted Units granted to Independent
Board Members) shall have the right (to the extent consistent with the
requirements of Rule 16b-3) to provide, in the terms of Options or other awards
made under the Plan, or to require the recipient to agree by separate written
instrument, that (i) any proceeds, gains or other economic benefit actually or
constructively received by the recipient upon any receipt or exercise of the
award, or upon the receipt or resale of any Class B Units underlying such award,
must be paid to the Partnership, and (ii) the award shall terminate and any
unexercised portion of such award (whether or not vested) shall be forfeited, if
(a) a Termination of Employment, Termination of Consultancy or Termination of
Membership occurs prior to a specified date, or within a specified time period
following receipt or exercise of the award, or (b) the recipient at any time, or
during a specified time period, engages in any activity in competition with the
Partnership, or which is inimical, contrary or harmful to the interests of the
Partnership, as further defined by the Committee (or the Board, as applicable).
10.9 Limitations Applicable to Section 16 Persons and Performance-
-------------------------------------------------------------
Based Compensation. Notwithstanding any other provision of this Plan, this
- ------------------
Plan, and any Option, Unit Appreciation Right or Unit Payment granted, or
Restricted Units or Deferred Units awarded, to any individual who is then
subject to Section 16 of the Exchange Act, shall be subject to any additional
limitations set forth in any applicable exemptive rule under Section 16 of the
Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that
are requirements for the application of such exemptive rule. To the extent
permitted by applicable law, the Plan, Options, Unit Appreciation Rights, Unit
Payments, Restricted Units and Deferred Units granted or awarded hereunder shall
be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any Option or Unit Appreciation Right intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall be subject
to any additional limitations set forth in Section 162(m) of the Code (including
any amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for
26
<PAGE>
qualification as performance-based compensation as described in Section
162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the extent
necessary to conform to such requirements.
10.10 Effect of Plan Upon Options and Compensation Plans. The
--------------------------------------------------
adoption of this Plan shall amend, restate and supersede in its entirety the
Partnership's Class B LP Unit Option Plan, but shall not affect any other
compensation or incentive plans in effect for the Partnership or any Corporate
Subsidiary or Partnership Subsidiary. Nothing in this Plan shall be construed
to limit the right of the Partnership (i) to establish any other forms of
incentives or compensation for Employees, Independent Board Members or
consultants of the Partnership or any Corporate Subsidiary or Partnership
Subsidiary or (ii) to grant or assume options or other rights otherwise than
under this Plan in connection with any lawful partnership action including, but
not by way of limitation, the grant or assumption of options in connection with
the acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock, units or assets of any corporation, partnership, firm or
association.
10.11 Compliance with Laws. This Plan, the granting and vesting of
--------------------
Options, Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights
or Unit Payments under this Plan and the issuance and delivery of Units and the
payment of money under this Plan or under Options, Unit Appreciation Rights or
Unit Payments granted or Restricted Units or Deferred Units awarded hereunder
are subject to compliance with all applicable federal and state laws, rules and
regulations (including, but not limited to, state and federal securities laws
and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Partnership, be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Partnership, provide such
assurances and representations to the Partnership as the Partnership may deem
necessary or desirable to assure compliance with all applicable legal
requirements. To the extent permitted by applicable law, the Plan, Options,
Restricted Unit awards, Deferred Unit awards, Unit Appreciation Rights or Unit
Payments granted or awarded hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
10.12 Titles. Titles are provided herein for convenience only and
------
are not to serve as a basis for interpretation or construction of this Plan.
10.13 Governing Law. This Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.
27
<PAGE>
* * *
I hereby certify that the foregoing Plan was duly adopted by the
Equity Board of PIMCO Advisors L.P. effective December 1, 1996.
Executed on this ____ day of _______________, 199__.
------------------------------------------
By: William D. Cvengros
Chief Executive Officer
28
<PAGE>
EXHIBIT 10.24
PIMCO ADVISORS L.P.
EXECUTIVE DEFERRED COMPENSATION PLAN
PIMCO Advisors L.P., a Delaware limited partnership, by resolution of
its Equity Board, adopted The PIMCO Advisors L.P. Executive Deferred
Compensation Plan (the "Plan"), effective as of December 1, 1996, for the
benefit of its employees who are Eligible Participants (as defined herein) in
the Plan. Each of the other Entities (as defined herein) has adopted the Plan
effective as of December 1, 1996 for the benefit of its employees who are
Eligible Participants in the Plan.
The Plan is a nonqualified deferred compensation plan pursuant to which
a portion of the Compensation (as defined herein) otherwise payable to certain
eligible employees will be mandatorily deferred, and pursuant to which such
eligible employees may elect to defer additional amounts of Compensation. The
Plan is unfunded and is maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the
Employee Retirement Income Security Act of 1974, as amended.
ARTICLE I
DEFINITIONS
Section 1.1 - General
- ----------- -------
Whenever the following terms are used in the Plan with the first letter
capitalized, they shall have the meanings specified below unless the context
clearly indicates to the contrary.
Section 1.2 - Additional Contribution
- ----------- -----------------------
"Additional Contribution" shall have the meaning set forth in Section
6.2.
Section 1.3 - Base Compensation
- ----------- -----------------
"Base Compensation" of an Employee, determined on any date, shall mean
the annual rate of such Employee's salary paid by such person's Employer and
shall exclude such Employee's bonuses, commissions, incentive compensation and
other similar amounts, and shall include Base Compensation deferred under
Article III.
<PAGE>
Section 1.4 - Beneficiary
- ----------- -----------
"Beneficiary" shall mean a person or trust properly designated by a
Participant in the manner provided in Section 8.2 and, where appropriate, his
Spouse or heirs at law, as provided in such Section.
Section 1.5 - Benefit
- ----------- -------
"Benefit" shall mean a distribution to be made at the times and over the
applicable periods specified in Article VIII.
Section 1.6 - Bonus Compensation
- ----------- ------------------
"Bonus Compensation" of an Employee shall mean any bonus or profit
sharing payment that the Employer elects to pay to the Employee, as well as any
periodic commission compensation that the Employer elects to pay to the
Employee, and shall include Bonus Compensation deferred under Article III.
Section 1.7 - Change of Control
- ----------- -----------------
"Change of Control" shall mean the merger or consolidation of the
Partnership into another partnership, corporation or other entity, the
acquisition by another partnership, corporation or person (excluding the
Restructuring Corporation or any employee benefit plan of the Partnership or any
trustee or other fiduciary holding securities under an employee benefit plan of
the Partnership) of all or substantially all of the Partnership's assets or 51%
or more of the Partnership's then outstanding units, or the liquidation or
dissolution of the Partnership.
Section 1.7 - Class A Units
- ----------- -------------
"Class A Units" shall mean Class A units of limited partner interest in
the Partnership.
Section 1.8 - Code
- ----------- ----
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
Section 1.9 - Committee
- ----------- ---------
"Committee" shall mean the committee established pursuant to Section
9.2. The Committee shall have all duties and responsibilities under Article IX.
2
<PAGE>
Section 1.10 - Compensation
- ------------ ------------
"Compensation" of a Participant for any Plan Year shall mean the sum of
his Base Compensation and Bonus Compensation, including amounts deferred under
Article III.
Section 1.11 - Deferral Account
- ------------ ----------------
The "Deferral Account" of a Participant shall mean his individual
account and all subaccounts therein, if any, in the Plan established in
accordance with Section 5.1.
Section 1.12 - Deferred Compensation
- ------------ ---------------------
"Deferred Compensation" shall mean Compensation deferred by a
Participant pursuant to Article III while employed by an Entity.
Section 1.13 - Eligible Participant
- ------------ --------------------
"Eligible Participant" shall mean any Employee who is eligible to
participate in the Plan during a Plan Year, as provided in Article II.
Section 1.14 - Employee
- ------------ --------
"Employee" shall mean any person who renders services to an Entity in
the status of an employee as that term is defined in Code Section 3121(d).
Section 1.15 - Employer
- ------------ --------
"Employer" of a Participant, determined on any date, shall mean the
Entity of which the Participant is an Employee.
Section 1.16 - Equity Holdings
- ------------ ---------------
"Equity Holdings" of a Participant, determined on any date, shall mean
the aggregate Fair Market Value of all units of limited or general partnership
interest in the Partnership held directly by a Participant or in which the
Participant has a pecuniary interest (to the extent of such interest) and which
were acquired in connection with the Participant's employment with the Employer
or a predecessor thereto or an affiliate thereof, as well as the dollar amount
by which any options for any such units are in-the-money as of such
determination date. After a Restructuring, "Equity Holdings" shall include, in
addition to the foregoing, all holdings of any successor security, as determined
by the Committee.
Section 1.17 - Entities; Entity
- ------------ ----------------
(a) "Entities" shall mean the Partnership and any Investment Management
Firm or other corporation, partnership or limited liability company which
subsequently adopts the
3
<PAGE>
Plan as a whole or as to any one or more divisions, in accordance with Section
10.4(b), and any successor entity or company which continues the Plan under
Section 10.4(a).
(b) "Entity" shall mean one of the Entities.
Section 1.18 - Equity Board
- ------------ ------------
"Equity Board" shall mean the Equity Board of the Partnership or any
successor board established by the Partnership.
Section 1.19 - ERISA
- ------------ -----
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
Section 1.20 - Fair Market Value
- ------------ -----------------
The "Fair Market Value" of Class A Units shall mean the average of the
closing prices for the Class A Units for the five trading days immediately
preceding the date on which the determination is made as reported on the New
York Stock Exchange (the "NYSE") or, if such security is not listed or admitted
for trading on the NYSE, on the principal national security exchange on which
such security is listed or admitted for trading or, if not listed or admitted
for trading on any national securities exchange, on the Nasdaq National Market
or, if such security is not quoted on such National Market, the average of the
closing bid and asked prices on such days in the over-the-counter market as
reported by Nasdaq or, if bid and asked prices for such security on such day
shall not have been reported through Nasdaq, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Committee or if not
publicly traded, the fair value of the security determined reasonably and in
good faith by the Committee. After a Restructuring, "Fair Market Value" shall
mean such price for any successor exchange-traded or Nasdaq-quoted security, as
determined by the Committee.
Section 1.21 - Installment Starting Date
- ------------ -------------------------
"Installment Starting Date" shall mean the first day of the first period
for which an installment of a Benefit is payable to a Participant pursuant to
Section 8.1(a)(ii).
4
<PAGE>
Section 1.22 - Investment Date
- ------------ ---------------
"Investment Date" shall have the meaning set forth in Section 6.2.
Section 1.23 - Investment Fund
- ------------ ---------------
An "Investment Fund" shall mean a mutual fund or similar investment
selected by the Trustee and consisting of short-term investment grade interest-
bearing securities.
Section 1.24 - Investment Management Firm
- ------------ --------------------------
"Investment Management Firm" shall mean each of the following
subsidiaries of the Partnership: Pacific Investment Management Company, a
Delaware general partnership, Columbus Circle Investors, a Delaware general
partnership, NFJ Investment Group, a Delaware general partnership, Parametric
Portfolio Associates, a Delaware general partnership, Cadence Capital
Management, a Delaware general partnership, and Blairlogie Capital Management, a
United Kingdom limited partnership.
Section 1.25 - Investment Management Services
- ------------ ------------------------------
"Investment Management Services" shall mean any services which involve:
(i) the management, for a fee or other remuneration, of an investment account or
fund (or portions thereof or a group of investment accounts or funds), or (ii)
the giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds); provided, however, that Investment Management Services shall not include
the giving of general investment advice that is not related to an identifiable
investment account or fund (or group of investment accounts or funds) for which
the advisor receives no remuneration.
Section 1.26 - Managing Director
- ------------ -----------------
"Managing Director" shall mean a person who, at the time of reference,
is actively employed by an Investment Management Firm in the capacity of, and
holds the title of, Managing Director.
Section 1.27 - Operating Board
- ------------ ---------------
"Operating Board" shall mean the Operating Board of the Partnership or
any successor board established by the Partnership.
Section 1.28 - Participant
- ------------ -----------
"Participant" shall mean an Employee who is an Eligible Participant
during the Plan Year in question, or who was an Eligible Participant during a
prior Plan Year.
Section 1.29 - Partnership
- ------------ -----------
5
<PAGE>
"Partnership" shall mean PIMCO Advisors L.P., a Delaware limited
partnership, and all of its operating divisions.
Section 1.30 - Partnership Agreement
- ------------ ---------------------
"Partnership Agreement" shall mean the Amended and Restated Agreement of
Limited Partnership of the Partnership, as the same may be amended or restated
from time to time.
Section 1.31 - Payday
- ------------ ------
"Payday" shall mean the regular and recurring established day for
payment of Base Compensation to Employees.
Section 1.32 - Plan
- ------------ ----
"Plan" shall mean The PIMCO Advisors L.P. Executive Deferred
Compensation Plan.
Section 1.33 - Plan Year
- ------------ ---------
"Plan Year" shall mean the calendar year, and any partial year in which
the Plan is adopted.
Section 1.34 - Prohibited Competitive Activity
- ------------ -------------------------------
"Prohibited Competitive Activity" shall have the meaning ascribed
thereto in Section 7.5 hereto.
Section 1.35 - Prohibited Investment Management Services
- ------------ -----------------------------------------
"Prohibited Investment Management Services" shall mean any Investment
Management Services which compete with the Investment Management Services of any
Investment Management Firm or any subsidiary of an Investment Management Firm.
Section 1.36 - Rabbi Trust
- ------------ -----------
"Rabbi Trust" shall mean that certain trust dated as of December 1, 1996
established by the Partnership and the other Employers for purposes of funding
payments made pursuant to the Plan, investing such payments pursuant to Article
VI and distributing Benefits to Participants and Beneficiaries pursuant to
Article VIII.
Section 1.37 - Restructuring and Restructuring Corporation
- ------------ -------------------------------------------
"Restructuring" and "Restructuring Corporation" shall have the meanings
ascribed thereto in the Partnership Agreement.
6
<PAGE>
Section 1.38 - Restructuring Corporation
- ------------ -------------------------
"Restructuring Corporation" shall have the meaning ascribed thereto in
the Partnership Agreement.
Section 1.39 - Rules of the Plan
- ------------ -----------------
"Rules of the Plan" shall mean rules adopted by the Committee pursuant
to Section 9.1(a)(ii), as the same may be amended or revoked from time to time.
Section 1.40 - Spouse
- ------------ ------
"Spouse" of a Participant shall mean the Spouse to whom he was married
on the earlier of his Installment Starting Date or the Date of his Death;
provided, however, that, to the extent required by a qualified domestic
relations order issued in accordance with Code Section 414(p), a former Spouse
shall be treated as a Spouse.
Section 1.41 - Subsidiary Managed Funds
- ------------ ------------------------
"Subsidiary Managed Funds" means, as of any date, those funds or
investments with respect to which any Investment Management Firm or any
subsidiary of an Investment Management Firm is performing any Investment
Management Services.
Section 1.42 - Termination of Employment
- ------------ -------------------------
(a) "Termination of Employment" of a Participant shall mean the
Participant's resignation from or discharge by an Entity, or his disability,
death or retirement, but shall not include his transfer among the Entities. The
Committee shall have sole discretion to determine whether a Participant shall
have "retired" for purposes of this Plan.
(b) A leave of absence or sick leave authorized by an Entity in
accordance with established policies or a vacation period shall not constitute a
Termination of Employment; provided, however, that failure to return to work
upon expiration of any leave of absence, sick leave or vacation shall be
considered a resignation on such date as is determined by the employment rules
and policies of the Entity.
Section 1.43 - Trustee
- ------------ -------
"Trustee" shall mean the trustee under the Rabbi Trust.
Section 1.44 - Vested
- ------------ ------
"Vested," when used with reference to a Participant's Deferral Account
(and the subaccounts therein), shall mean nonforfeitable, except as provided in
the Plan.
7
<PAGE>
ARTICLE II
ELIGIBILITY
Section 2.1 - Requirements for Participation
- ----------- ------------------------------
(a) Any Employee whose Compensation is greater than $250,000 (or such
other dollar amount as is established by the Committee with respect to the Plan
Year in question) shall become an Eligible Participant as of the first day of
such Plan Year, and shall remain an Eligible Participant until the last day of
such Plan Year; provided, however, that:
(i) with respect to an Employee whose Compensation (determined as
provided in (b) below) for a Plan Year is less than $1,000,000:
(A) participation in the Plan is required if the Employee's Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value less than his or her Compensation;
(B) participation in the Plan is optional if the Employee's Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value equal to or greater than his or her
Compensation but less than twice his or her Compensation; and
(C) An Employee may not participate in the Plan if his or her Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value equal to or greater than twice his or her
Compensation;
(ii) with respect to Employees whose Compensation (determined as
provided in (b) below) for a Plan Year is greater than or equal to $1,000,000:
(A) participation in the Plan is required if the Employee's Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value less than twice his or her Compensation;
(B) participation in the Plan is optional if the Employee's Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value equal to or greater than twice his or her
Compensation but less than four times his or her Compensation;
and
(C) An Employee may not participate in the Plan if his or her Equity
Holdings determined as of the first day of the Plan Year have a
Fair Market Value equal to or greater than four times his or her
Compensation.
(b) For purposes of determining eligibility for participation under this
Section 2.1, Compensation shall be determined by adding the Employee's rate of
Base Compensation
8
<PAGE>
in effect at December 1 of the year prior to the Plan Year for which the
determination is being made to the total Bonus Compensation paid or payable for
such previous year, except with respect to employees hired during the Plan Year,
for whom eligibility shall be determined by the Committee based on such
Participant's Base Compensation and expected Bonus Compensation.
(c) New employees who meet the foregoing criteria shall become Eligible
Participants as of the first day of employment, and shall remain so until the
last day of such Plan Year.
(d) The Committee shall have final authority with respect to any
determination regarding Participation in the Plan.
Section 2.2 - Mandatory Deferral
- ----------- ------------------
Each Eligible Participant shall have a minimum amount of his
Compensation deferred to his Deferral Account pursuant to Sections 3.1, 3.2 and
3.3.
Section 2.3 - Elective Deferral
- ----------- -----------------
In addition to Compensation mandatorily deferred pursuant to Sections
3.1, 3.2 and 3.3, each Eligible Participant may elect, in accordance with the
Rules of the Plan, to defer Compensation to his Deferral Account pursuant to
Section 3.4.
Section 2.4 - Deferral Procedure
- ----------- ------------------
(a) No later than two weeks after the Plan is adopted, the Committee
shall provide each Employee who is an Eligible Participant for the Plan Year in
which the Plan is adopted with a Compensation deferral form on which the
Eligible Participant will provide the information set forth in Section 2.5,
including any election by the Eligible Participant to defer Compensation paid on
account of services rendered in such Plan Year pursuant to Section 3.4. Each
Eligible Participant shall complete and sign the Compensation deferral form and
return it to the Committee no later than four weeks following the date that the
Plan is adopted.
(b) In the third quarter of each Plan Year following the adoption of
the Plan, the Committee shall provide each Employee who will or may be an
Eligible Participant for the ensuing Plan Year a Compensation deferral form on
which such Eligible Participant will provide the information set forth in
Section 2.5, including any election by the Participant to defer Compensation
paid for such Plan Year pursuant to Section 3.4. Each Eligible Participant
shall complete and sign the Compensation deferral form and return it to the
Committee no later than the last day of such quarter.
9
<PAGE>
Section 2.5 - Content of Deferral Form
- ----------- ------------------------
Each Eligible Participant shall set forth on his Compensation deferral
form:
(a) his consent that he, his successors in interest and assigns and
all persons claiming under him shall be bound, to the extent authorized by
law, by the statements contained therein and by the provisions of the Plan
as they now exist, and as they may be amended from time to time;
(b) if applicable, the amount of his Compensation that he elects to
defer pursuant to Section 3.4 and, in such case, his authorization to his
Employer to reduce his Compensation in accordance with such election;
(c) the number of years (not to be less than five, as provided in
Section 7.2) that Compensation deferred pursuant to Article 3 is to be held
by the Trustee;
(d) the form of distribution upon Termination of Employment elected
in accordance with Section 8.1;
(e) indicate whether interest and distributions in respect of such
Eligible Participant's Deferral Account shall be reinvested by the Trustee
in Class A Units; and
(f) such other information as may be required for the administration
of the Plan.
Such Compensation deferral form shall be in the form specified by the Committee
from time to time.
10
<PAGE>
ARTICLE III
PARTICIPANT DEFERRALS
Section 3.1 - Mandatory Deferral of Compensation
- ----------- ----------------------------------
(a) The Committee shall determine the amount to be deferred for each
Plan Year in advance of the commencement of such year. Initially, each Eligible
Participant shall have the following amounts of his Compensation deferred to his
Deferral Account for any Plan Year in which he is an Eligible Participant:
(i) no less than 10% of compensation in excess of $250,000 up to $500,000;
(ii) no less than 30% of compensation in excess of $500,000 up to
$1,000,000; and
(iii) no less than 30% of all compensation in excess of $1,000,000.
(b) Any Entity adopting this Plan may specify percentages in excess of
those set forth above; provided however, that deferral of amounts of
Compensation in excess of $1,000,000 may not exceed 50%, and in no event may
more than 40% of Compensation be deferred in the aggregate. No amounts shall be
deferred unless the amount deferred exceeds $1,000.
Section 3.2 - Mandatory Deferrals
- ----------- -------------------
(a) Except as provided in (b) and (c) below, the amount of Compensation
to be deferred by an Eligible Participant shall be determined at the time of
each payment of Bonus Compensation, and shall be withheld from the Eligible
Participant's Bonus Compensation paycheck, as follows. At the time of the first
payment or installment of Bonus Compensation for a Plan Year, the total amount
of the Bonus Compensation for such Plan Year for an Eligible Participant shall
be added to such Eligible Participant's Base Compensation in effect for that
Plan Year. The deferral schedule in effect for that Plan Year shall be applied
to such amount to produce the total amount to be deferred. That amount shall be
deferred from the Eligible Participant's Bonus Compensation payment, unless such
total Bonus Compensation is to be paid in more than one installment, in which
case an equal portion of the total amount to be deferred shall be deferred from
each such payment of the Bonus Compensation. In the event that the Eligible
Participant's Bonus Compensation is paid in more than one installment, the
amount to be deferred shall not be recalculated or adjusted in the event of any
increase in Base Compensation later in that Plan Year.
(b) For Eligible Participants whose Bonus Compensation consists of
commission payments, the amount to be deferred from each payment of Bonus
Compensation shall be determined by (i) applying the deferral schedule in effect
for that Plan Year to the sum of the total Base Compensation for such Plan Year
and the actual aggregate amount of commissions paid to that date in that Plan
Year and (ii) subtracting any amounts deferred from previous commission payments
made in that Plan Year.
11
<PAGE>
(c) For other Eligible Participants whose total Bonus Compensation
cannot be determined at the time of the first payment thereof, amounts shall be
deferred from each installment of Bonus Compensation based on (i) applying the
deferral schedule in effect for that Plan Year to the sum of the total Base
Compensation for such Plan Year and the aggregate amount of Bonus Compensation
paid to that date on account of service in such Plan Year and (ii) subtracting
any amounts deferred from previous payments of Bonus Compensation paid on
account of service in that Plan Year.
Examples of typical deferral payments based on the initial deferral
percentages are attached to this plan as Schedule 1.
Section 3.3 - Mandatory Deferrals for the Plan Year in Which the Plan is Adopted
- ----------- ------------------------------------------------------------------
If an Employee is an Eligible Participant for the Plan Year in which the
Plan is adopted, then the amount of Compensation to be deferred pursuant to
Section 3.2 shall be reduced by multiplying the amount to be deferred by a
fraction, the numerator of which is the number of days from, and including, the
date of adoption of the Plan to, and including, December 31 of the year in which
the Plan is adopted, and the denominator of which is 365.
Section 3.4 - Elective Deferral of Compensation
- ----------- ---------------------------------
(a) Each Eligible Participant may, pursuant to Sections 2.4 and 2.5 and
in accordance with the Rules of the Plan, make an irrevocable election to defer
Compensation in excess of the amount of Compensation that is mandatorily
deferred pursuant to Sections 3.1, 3.2 and 3.3 (subject to any maximum amount
that may be established by the Committee in its discretion). In the event that
an Eligible Participant makes such an election, the amount of Compensation
transferred by the Employer to the Trustee shall be increased accordingly.
(b) Any election to defer Compensation pursuant to this Section 3.4
shall be made on the form described in Section 2.4, shall be irrevocable and
shall be effective for the following Plan Year (or, with respect to the Plan
Year in which the Plan is adopted, shall be effective for the portion of the
Plan Year following the month in which the election is made) and shall remain in
effect until the last day of such Plan Year, except as provided in Section 3.5.
The Committee may in its discretion impose limits on the amount of Compensation
that may be deferred under this Section 3.4. Unless otherwise provided by the
Committee, no Eligible Participant may defer in a given Plan Year to the extent
that the amount deferred exceeds such Eligible Participant's total Compensation
less $150,000.
Section 3.5 - Discontinuance of Deferral
- ----------- --------------------------
An Eligible Participant may request a reduction or discontinuance of the
elective portion of his Compensation deferral on a form specified by the
Committee in accordance with the Rules of the Plan. The reduction or
discontinuance shall apply only to the portion of such Eligible Participant's
Compensation that has not yet been earned.
12
<PAGE>
ARTICLE IV
DEFERRAL CREDITS; OBLIGATIONS OF ENTITIES
Section 4.1 - Deferral Credits
- ----------- ----------------
For each date that an Eligible Participant's Compensation is deferred
during a Plan Year, such Eligible Participant's Deferral Account shall be
credited with an amount equal to 100% of all Compensation deferred to his
Deferral Account pursuant to Sections 3.2, 3.3 and 3.4. Each such Deferral
Account also shall be credited with its pro rata share of any Additional
Contributions made pursuant to Section 6.2.
Section 4.2 - Obligations of the Entities
- ----------- ---------------------------
(a) Each Entity shall be obligated under Articles VIII and IX with
respect to the portion of a Participant's Deferral Account attributable to
Deferred Compensation and any amounts credited or debited to such portion of the
Participant's Deferral Account under Article VI, and shall not be obligated with
respect to any remaining portion of the Participant's Deferral Account. In the
event that more than one Entity is obligated under Articles VIII and IX with
respect to a Participant's Deferral Account, the Participant's Deferral Account
shall include subaccounts, which shall be credited or debited with the amounts
attributable to the obligations of each such Entity.
(b) Each Entity shall, on the date on which Compensation for an Eligible
Participant for which such Entity shall be responsible under (a) above is to be
deferred, pay or cause to be paid to the Trustee an amount equal to such
Compensation to be deferred. In addition, on each date that under Section 6.2
Additional Contributions are to be made, each Entity shall transfer or cause to
be transferred such portion of the Additional Contribution as shall be
attributable to the Eligible Participants for which such Entity shall be
responsible.
13
<PAGE>
ARTICLE V
DEFERRAL ACCOUNT
Section 5.1 - Deferral Account
- ----------- ----------------
The Trustee shall establish and maintain for each Participant a Deferral
Account to which shall be credited the amounts allocated thereto under Section
4.1, debited the distributions under Article VIII and credited or debited the
amounts determined under Article VI.
Section 5.2 - Assignments, etc. Prohibited
- ----------- ----------------------------
No part of the Deferral Account of a Participant shall be liable for the
debts, contracts or engagements of such Participant, his Beneficiary or
Beneficiaries or successors in interest, or be taken in execution by levy,
attachment or garnishment or by any other legal or equitable proceeding, nor
shall any such person have any rights to alienate, anticipate, commute, pledge,
incumber or assign any Benefits or payments hereunder in any manner whatsoever
except to designate a Beneficiary or Beneficiaries as provided in Section 8.2.
ARTICLE VI
INVESTMENT OF FUNDS
Section 6.1 - Initial Investment of Funds
- ----------- ---------------------------
Following receipt of the same from the Entities, the Trustee shall
invest amounts credited to a Participant's Deferral Account in an Investment
Fund, pending the Trustee's investment of such amounts in Class A Units pursuant
to Section 6.2. Amounts deferred in any Plan Year and credited to a
Participant's Deferral Account will be held in a subaccount for that Participant
for that Plan Year, having deferral period, reinvestment and other
characteristics as elected by the Participant for that Plan Year as provided in
Section 2.5.
Section 6.2 - Investment in Class A Units
- ----------- ---------------------------
(a) From time to time (each an "Investment Date"), in the discretion of
the Committee, the Trustee shall invest in Class A Units the amounts transferred
to the Trustee under Section 4.2(b), as well as any amounts held by the Trustee
for investment in Class A Units pursuant to an election by Participant to have
distributions reinvested, which theretofore had not been so invested. Such
investment shall occur, first, by means of a "Dutch auction" held by the Trustee
for holders of unregistered Class A Units, with a stated maximum purchase price
per unit equal to 90% of the Fair Market Value of the Class A Units, as
determined on the Investment Date. The Committee shall, in its discretion,
adopt such rules and procedures as it may deem appropriate with respect to such
actions. To the extent that after such auction any funds remain in the Trust
uninvested in Class A Units, the Trustee shall purchase Class A Units in the
public market.
14
<PAGE>
(b) In the event that the Fair Market Value of the Class A Units so
acquired by the Trustee under (a) above is less than 118% of aggregate amount of
the deferred Compensation being invested on such Investment Date, the
Partnership shall contribute or cause to be contributed to the Trustee cash or
Class A Units (an "Additional Contribution") in an amount sufficient, once any
cash has been invested in Class A Units, to cause:
the aggregate Fair Market Value (determined as of the Investment
Date) of the sum of the Class A Units acquired by the Trustee under
(a) and the Class A Units acquired by the Trustee as a result of the
Additional Contribution
to equal 118 % of
the aggregate amount of the deferred Compensation invested under (a)
above.
(c) Each Eligible Participant's Deferral Account (or the subaccounts
therein) shall thereafter be credited with that portion of the Class A Units
acquired by the Trustee under (a) and (b) above which bears the same proportion
to the total number of Class A Units so acquired as the amount of Compensation
credited to the Eligible Participant's Deferral Account for that Plan Year bears
to the total amount of Compensation credited to all Eligible Participants'
Deferral Accounts for that Plan Year.
Section 6.3 - No Rights as Unitholders
- ----------- ------------------------
The rights of a Participant to Class A Units or any other assets
credited to his Deferral Account shall be no greater than the right of an
unsecured general creditor of the Employer, as provided in Section 10.3.
Section 6.3 - Quarterly Distributions
- ----------- -----------------------
Unless otherwise elected by the Participant with respect to Compensation
deferred in a particular Plan Year, all amounts earned on funds credited to a
Participant's Deferral Account pending purchase of Class A Units and all cash
distributions made on Class A Units credited to such Deferral Account (or the
subaccounts therein) shall be credited to the appropriate subaccount of such
Participant's Deferral Account, and paid by the Trustee to the Participant or
his or her Beneficiary quarterly, within thirty days after the distribution is
paid on the Class A Units.
15
<PAGE>
ARTICLE VII
VESTING OF ACCOUNTS; MINIMUM DEFERRAL
PERIODS; FORFEITURE
Section 7.1 - Vesting of Accounts
- ----------- -------------------
Except as provided in Sections 7.3 and 7.4, a Participant's interest in
his Deferral Account shall become Vested, with respect to deferrals made on
account of a particular Plan Year, immediately upon deferral, except for any
portion attributable to Additional Contributions under Section 6.2(b), which
shall vest on the first day of the sixth year following the Plan Year on account
of which the deferral was made or, if earlier, upon the occurrence of a Change
of Control or the death or retirement of a Participant. In the event of a
Termination of Employment for any reason in advance of such date, all amounts
not Vested in such Participant's Deferral Account (or any subaccount therein)
shall be forfeited and any contributions or Class A Units therein returned by
the Trustee to the Partnership.
Section 7.2 - Minimum Deferral Period
- ----------- -----------------------
(a) Except as provided in Article VIII, Compensation deferred pursuant
to Article III on account of services rendered in a Plan Year by an Eligible
Participant who is a Managing Director shall be deferred for a minimum period of
five years following such Plan Year, and Compensation deferred pursuant to
Article III on account of services rendered in a Plan Year by any other Eligible
Participant shall be deferred for a minimum period of five years following such
Plan Year.
(b) An Eligible Participant may elect in the Compensation deferral form
described in Sections 2.4 and 2.5 to defer Compensation for any whole number of
years extending beyond the applicable minimum period set forth in Section
7.2(a), or may specify that such Compensation is to be deferred until the
Participant's death or retirement. In addition, but only upon a showing of an
Unforeseen Emergency to the Committee's satisfaction, a Participant may request
(i) a reduction of such deferral period or, if such reduction is not sufficient,
(ii) a withdrawal from such Participant's deferral account on a form specified
by the Partnership. For purposes of this Plan, an "Unforeseen Emergency" shall
be defined as a severe financial hardship to the Participant resulting from a
sudden and unexpected illness or accident of the Participant or of a dependent
of the Participant, the loss of the Participant's property due to casualty, or
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. Reduction of the deferral
period or deferral account withdrawals may only be granted by the Committee in
cases to the extent that the Participant's hardship may not be relieved (i)
through reimbursement or compensation by insurance or otherwise, (ii) by
liquidation of the Participant's assets, to the extent that liquidation of such
assets would not itself cause severe financial hardship, or (iii) by cessation
of deferrals under the Plan. Examples of what are not considered to be
Unforeseen Emergencies include the need to send a Participant's child to college
or the desire to purchase a home. Reductions in deferral periods or account
withdrawals may only be made to the extent reasonably necessary to satisfy the
emergency need.
16
<PAGE>
Section 7.3 - Forfeiture Upon Certain Events
- ----------- ------------------------------
Upon a Participant's Termination of Employment, all Compensation, Class
A Units or other investments credited to the Participant's Deferral Account
hereunder shall continue to be held by the Trustee until the expiration of the
deferral periods prescribed by this Article VII; provided, however, that all
Compensation, Class A Units or other investments credited to such Participant's
Deferral Account hereunder (other than such amounts attributable to elective
deferrals pursuant to Section 3.4) shall be forfeited, and shall be transferred
and paid by the Trustee to the Participant's Employer, in the event that the
Committee determines that such forfeiture is merited because such Participant
has engaged in gross misconduct, including fraud, theft, serious violations of
federal or state securities laws or regulations, or willful and persistent
violation of the Partnership's or any Employer's policies established for the
purpose of compliance with federal or state securities laws.
Section 7.4 - Forfeiture Upon Competition
- ----------- ---------------------------
If so specified by an Entity adopting this Plan, in the event that a
Managing Director of such an Entity engages in any Prohibited Competition
Activity subsequent to his Termination of Employment, all Compensation, Class A
Units or other investments credited to such Managing Director's Deferral Account
hereunder, to the extent attributable to Compensation in excess of $1,000,000
and other than amounts attributable to elective deferrals pursuant to Section
3.4, shall thereafter be forfeited, and shall be transferred and paid by the
Trustee to the Managing Director's Employer.
Section 7.5 - Prohibited Competition Activity
- ----------- -------------------------------
(a) "Prohibited Competition Activity" means any of the following
activities:
(i) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity (other than an Investment Management Firm or any
subsidiary of an Investment Management Firm), (A) diverting or taking away any
Subsidiary Managed Funds, or (B) soliciting any person or entity for the purpose
of diverting or taking away any such Subsidiary Managed Funds.
(ii) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity (other than an Investment Management Firm or any
subsidiary of an Investment Management Firm), performing any Prohibited
Investment Management Services. In the event that a Managing Director desires
to perform Investment Management Services which he believes will not constitute
Prohibited Investment Management Services, the Managing Director may, prior to
his commencing the performance of such Investment Management Services, request
the Partnership to make a determination as to whether the proposed Investment
Management Services constitute Prohibited Investment Management Services. Any
such request shall be made in writing and shall contain all information
concerning the proposed Investment Management Services which the Managing
Director reasonably believes to be material to the determination to be made. In
addition, the
17
<PAGE>
Managing Director shall submit such other information as may be reasonably
requested by the Partnership.
(iii) Directly or indirectly, soliciting or encouraging any employee
of the Partnership or any affiliate to leave such employment or directly or
indirectly employing or causing to be employed any such employee.
(b) For purposes of this Section 7.5, the Managing Director shall be
deemed to be indirectly engaged in an activity described in Section 7.5(a)(i) or
7.5(a)(ii) if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Managing
Director.
(c) No activity shall be considered to constitute Prohibited Competition
Activity if the involvement of the Managing Director in such activity has been
approved, prior to the time that the Managing Director becomes involved in such
activity, by a majority vote of the Qualified Members of the Operating Board and
a majority vote of the Qualified Members of the Equity Board. The determination
by a majority vote of the Qualified Members of the Operating Board and a
majority vote of the Qualified Members of the Equity Board to grant or withhold
approval for the Managing Director to be involved in any activity that would
otherwise constitute Prohibited Competition Activity shall be final and shall be
binding on the parties. For such purposes, "Qualified Members" mean those
members of the Operating Board or the Equity Board, as the case may be, other
than the Managing Director or any other member who will be involved in the
proposed activity for which the approval is being sought.
(d) In the event that the Operating Board, by a majority vote of its
Qualified Members, determines that a Managing Director has engaged in any
activity (the "Disputed Activity") which constitutes the performance of
Prohibited Competition Activity, then the Partnership may provide written notice
(the "Disputed Activity Notice") to the Managing Director of its determination
that such Disputed Activity constitutes the performance of Prohibited
Competition Activity. Such Disputed Activity Notice shall explain, in
reasonable detail, the nature of the Disputed Activity and the reasons why the
Operating Board believes such Disputed Activity constitutes the performance of
Prohibited Competition Activity. During the thirty-day period immediately
following the effective date of the Disputed Activity Notice, the Managing
Director shall be entitled to take such remedial action as may be necessary to
cure and eliminate, in all material respects, the performance of the asserted
Prohibited Competition Activity, and any such cure or elimination effected
within such thirty-day period shall cause the Disputed Activity which was the
subject of the Disputed Activity Notice to be deemed not to have constituted the
performance of Prohibited Competition Activity.
18
<PAGE>
ARTICLE VIII
PAYMENT OF BENEFITS; DESIGNATION
OF BENEFICIARIES
Section 8.1 - Payment of Benefits
- ----------- -------------------
(a) At the expiration of the deferral period applicable to Compensation
of a Participant that is deferred for a particular Plan Year (as determined in
accordance with Article VII), the Trustee shall, subject to Section 10.5,
transfer to the Participant the number of Class A Units credited to the
appropriate subaccount of his or her Deferral Account pursuant to Section 6.2,
less any amounts required to be withheld by law, in one of the following
methods, as elected by the Participant prior to such Plan Year for which the
deferral was made:
(i) the transfer of such Class A Units in one lump sum, or
(ii) the transfer of such Class A Units in any fixed number of
annual or more frequent installments (not exceeding 20 years or four
installments per year) as is designated by such Participant, the number of
Class A Units included in each such installment to be determined by dividing
the then current number of Class A Units to be transferred by the remaining
number of installments to be paid;
provided, however, that if the Participant fails to make such an election prior
to such Plan Year, the applicable subaccount of his or her Deferral Account
shall be distributed as provided in paragraph (i).
(b) If a Participant elects to receive Class A Units in one lump sum as
provided in paragraph (i) of Section 8.1(a), then the Participant shall receive
the Class A Units to be transferred not later than the date which is thirty days
after the end of the expiration of the applicable deferral period. If a
Participant elects to receive Class A Units in installments as provided in
paragraph (ii) of Section 8.1(a), then the Participant shall receive each
installment of the Class A Units to be transferred not later than thirty days
after the end of each installment period.
Section 8.2 - Designation of Beneficiaries; Substitute Rights of Spouse or Heirs
- ----------- ------------------------------------------------------------------
at Law
- ------
(a) Each Participant shall have the right to designate, revoke and
redesignate one or more Beneficiaries hereunder and to direct payment of the
Benefits provided herein to his Beneficiaries who survive him and comply with
the Rules of the Plan.
(b) Designation, revocation or redesignation must be made in writing on
a form provided by the Committee (or its delegate) and becomes effective upon
delivery to the Committee (or its delegate).
19
<PAGE>
(c) If a Participant who has designated a Beneficiary or Beneficiaries
dies, and the Beneficiary or Beneficiaries does not survive the Participant (or
does not survive to the date of any distribution under Section 8.1) or fails to
comply with the Rules of the Plan, the amount otherwise payable to such
Beneficiary or Beneficiaries shall be paid in the manner provided under Section
8.1 to his surviving spouse, if any, and otherwise to his heirs at law, as
determined under the law of the state in which he resided on the day he died
governing succession to personal property.
Section 8.3 - Benefits Upon Death of a Participant
- ----------- ------------------------------------
(a) Upon the death of a Participant, and subject to Section 10.5, any
Class A Units and/or Compensation credited to the Participant's Deferral
Account, less any amounts required to be withheld by law, shall be distributed
by the Trustee in one lump sum to such Participant's Beneficiary or
Beneficiaries, notwithstanding the deferral periods set forth in Article VII.
(b) Such payment shall be made not later than sixty days after the end
of the calendar quarter in which the Participant's death occurs.
ARTICLE IX
ADMINISTRATIVE PROVISIONS
Section 9.1 - Duties and Powers of the Committee
- ----------- ----------------------------------
(a) The Committee shall administer the Plan in accordance with the Plan
and ERISA and shall have full discretionary power and authority:
(i) to engage actuaries, attorneys, accountants, appraisers,
brokers, consultants, administrators, physicians or other firms or persons
and (with its officers, directors and employees) to rely upon the reports,
advice, opinions or valuations of any such persons except as required by
law;
(ii) to adopt Rules of the Plan that are not inconsistent with the
Plan or applicable law and to amend or revoke any such rules;
(iii) to determine the deferral amounts under Section 3.1;
(iv) to construe the Plan and the Rules of the Plan;
(v) to determine questions of eligibility and forfeiture;
(vi) to determine entitlement to a Benefit and to distributions to
Participants, Beneficiaries, and all other persons;
20
<PAGE>
(vii) to make findings of fact as necessary to make any
determinations and decisions in the exercise of such discretionary power and
authority;
(viii) to appoint claims and review officials to conduct claims
procedures as provided in Section 9.11; and
(ix) to delegate any duty, power or responsibility to the Trustee,
to any firm or person engaged under paragraph (i) or to any other person or
persons.
(b) Every finding, decision, and determination made by the Committee (or
its delegate) shall, to the full extent permitted by law, be final and binding
upon all parties, except to the extent found by a court of competent
jurisdiction to constitute an abuse of discretion.
Section 9.2 - Committee
- ----------- ---------
(a) Unless otherwise provided by the Equity Board, the Committee shall
be composed of the members of the Partnership's Unit Incentive Committee.
(b) The Committee shall have such powers, duties and responsibilities as
are delegated to it by the Equity Board. The Equity Board may amend, modify or
terminate the delegation of powers, duties and responsibilities to the Committee
from time to time. Any power, duty or responsibility no longer delegated to the
Committee shall become a power, duty or responsibility of the Equity Board, and
may be delegated by the Equity Board to such person or persons as the Equity
Board determines appropriate. Committee members shall not receive payment for
their services as such.
(c) Appointment of Committee members shall be effective upon filing of
written acceptance of appointment with the Equity Board. A Committee member may
resign at any time by delivery of written notice to the Equity Board.
(d) Vacancies in the Committee shall be filled in accordance with
subsection (a).
(e) The Committee shall act by a majority of its members in office,
either by meeting or by a written instrument executed by a majority of the
Committee members. The Committee may, by a written instrument executed by all
of the Committee members then in office, authorize one of its members to execute
any instrument required to be executed by the Committee.
(f) The Chairperson of the Committee shall appoint a Secretary to keep
the minutes of its meetings.
21
<PAGE>
(g) The Committee may delegate authority over day-to-day operations of
the Plan to an administrative committee composed of officers of the Partnership.
Section 9.3 - Limitations upon Powers of the Committee
- ----------- ----------------------------------------
The Plan shall be uniformly and consistently interpreted and applied
with regard to all Participants in similar circumstances. The Plan shall be
administered, interpreted and applied fairly and equitably and in accordance
with the specified purposes of the Plan.
Section 9.4 - Compensation and Indemnification of Committee; Expenses of
- ----------- ----------------------------------------------------------
Administration
- --------------
(a) The Partnership shall pay or reimburse the Chief Executive Officer
of the Partnership (and his delegates), each other Committee member and each
Employee functioning under Section 9.1(a)(viii) for all expenses (including
reasonable attorneys' fees) properly incurred by them in the administration of
the Plan.
(b) The Partnership shall indemnify and hold each such Employee and
Committee member harmless from all claims, liabilities and costs (including
reasonable attorneys' fees) arising out of the good faith performance of his
functions hereunder.
(c) The Entities may obtain and provide for any Employee and Committee
member, at the expense of the Entities, liability insurance against liabilities
imposed on him by law.
(d) Legal fees incurred in the preparation and amendment of documents
shall be paid by the Partnership.
(e) Except as provided in subsection (a), fees and expenses of persons
rendering services to the Plan shall not be paid or reimbursed by the Entities,
except as agreed upon by the Entities.
Section 9.5 - Effect of Committee Action
- ----------- --------------------------
Except as provided in Section 9.3, all actions taken and all
determinations made by the Committee (or its delegate) in good faith shall be
final and binding upon all Participants, their Beneficiaries and any other
person.
Section 9.6 - Recordkeeping
- ----------- -------------
(a) The Trustee shall maintain suitable records of each Participant's
Deferral Accounts (and the subaccounts therein), and the Committee shall
maintain suitable records of its deliberations and decisions.
(b) The Committee shall appoint a secretary, and at its discretion, an
assistant secretary, to keep the record of proceedings, to transmit its
decisions, instructions, consents or directions to any interested party, to
execute and file, on behalf of the Committee, such
22
<PAGE>
documents, reports or other matters as may be necessary or appropriate under
ERISA and to perform ministerial acts.
(c) The Committee shall not be required to maintain any records or
accounts which duplicate any records or accounts maintained by the Entities.
Section 9.7 - Statement to Participants
- ----------- -------------------------
Within sixty days after the last day of each calendar quarter of the
Plan Year, the Trustee shall furnish to each Participant a statement setting
forth the value of his Deferral Account and such other information as the
Committee shall instruct the Trustee to furnish.
Section 9.8 - Inspection of Records
- ----------- ---------------------
Copies of the Plan and the records of a Participant's Deferral Account
(and the subaccounts therein) shall be open to inspection by him or his duly
authorized representatives at the office of the Partnership at any reasonable
business hour.
Section 9.9 - Identification of Fiduciaries
- ----------- -----------------------------
(a) The Committee shall be the named fiduciary of the Plan and, as
permitted or required by law, shall have exclusive authority and discretion to
operate and administer the Plan.
(b) The named fiduciary, the Trustee, the Equity Board, the Entities,
and every person who exercises any discretionary authority or discretionary
control respecting the Plan or who has any discretionary authority or
discretionary responsibility in the administration of the Plan, including any
person designated by the named fiduciary to carry out fiduciary responsibilities
under the Plan, shall be a fiduciary and as such shall be subject to provisions
of ERISA and other applicable laws governing fiduciaries.
Section 9.10 - Procedure for Allocation of Administrative Responsibilities
- ------------ -----------------------------------------------------------
(a) Administrative responsibilities under the Plan shall be allocated as
follows:
(i) the sole duties, responsibilities and powers allocated to the
Equity Board, any Entity, the Trustee, the Committee and any other person
shall be those expressly provided in the relevant Sections of the Plan, and
(ii) all administrative responsibilities not allocated to the Equity
Board, the Entities, or the Trustee are allocated to the Committee, subject
to delegation.
(b) Administrative responsibilities under the Plan may be reallocated
among fiduciaries by amending the Plan in the manner prescribed in Section 10.9,
followed by the fiduciaries' acceptance of, or operation under, such amended
Plan.
23
<PAGE>
Section 9.11 - Claims Procedure
- ------------ ----------------
(a) Other than claims relating to whether a Managing Director has
engaged in Prohibited Competition Activity (which claims shall be governed by
Section 7.5), a claim by a Participant, Beneficiary or any other person shall be
presented to the claims official appointed by the Committee (or its delegate) in
writing within the maximum time permitted by law or under the regulations of the
Secretary of Labor or his delegate pertaining to claims procedures.
(b) The claims official shall, within a reasonable time, consider the
claim and shall issue his determination thereon in writing.
(c) If the claim is granted, the appropriate distribution or payment
shall be made by the Entities.
(d) If the claim is wholly or partially denied, the claims official
shall, within 90 days (or such longer period as may be reasonably necessary),
provide the claimant with written notice of such denial, setting forth, in a
manner calculated to be understood by the claimant:
(i) the specific reason or reasons for such denial;
(ii) specific reference to pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(iv) an explanation of the Plan's claims review procedure.
(e) The Committee (or its delegate) shall provide each claimant with a
reasonable opportunity to appeal the claim official's denial of a claim to a
review official (appointed by the Committee (or its delegate) in writing) for a
full and fair review. The claimant or his duly authorized representative
(i) may request a review upon written application to the review
official (which shall be filed with it),
(ii) may review pertinent documents, and
(iii) may submit issues and comments in writing.
(f) The review official may establish such time limits within which a
claimant may request review of a denied claim as are reasonable in relation to
the nature of the
24
<PAGE>
Benefit which is the subject of the claim and to other
attendant circumstances but which, in no event, shall be less than sixty days
after receipt by the claimant of written notice of denial of his claim.
(g) The decision by the review official upon review of a claim shall be
made not later than sixty days after his receipt of the request for review,
unless special circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible, but no later than
120 days after receipt of such request for review.
(h) The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific references to the pertinent Plan
provisions on which the decision is based.
(i) In considering claims under this claims procedure, the claims
official and the review official shall have fiduciary and discretionary
authority to make findings of fact and to construe the terms of the Plan and, to
the full extent permitted by law, the determination of the claims official (if
no review is properly requested) or the decision of the review official (on
review, if review has been properly requested) shall be final and binding on all
parties unless held by a court of competent jurisdiction to constitute an abuse
of discretion.
Section 9.12 - Conflicting Claims
- ------------ ------------------
If the Committee is confronted with conflicting claims concerning a
Participant's Deferral Account, the Committee may interplead the claimants in an
action at law, or in an arbitration conducted in accordance with the rules of
the American Arbitration Association, as the Committee shall elect in its sole
discretion, and in either case, the attorneys' fees, expenses and costs
reasonably incurred by the Committee in such proceeding shall be paid from the
Participant's Deferral Account.
Section 9.13 - Service of Process
- ------------ ------------------
The Secretary of the Partnership is hereby designated as agent of the
Plan for the service of legal process.
25
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 - Termination of the Plan
- ------------ -----------------------
(a) While the Plan is intended as a permanent program, the Equity Board
shall have the right at any time to declare the Plan terminated completely as to
the Entities or as to any Entity or any division, facility or other operational
unit thereof; provided, however, that no amendment shall decrease the amount of
interest any Participant or any other person entitled to payment under the Plan
has in the Participant's Deferral Account.
(b) Discharge or layoff of Employees of an Entity or any unit thereof
without such a declaration shall not result in a termination of the Plan.
(c) In the event of any termination, the Committee shall continue to
maintain Participants' Deferral Accounts and payment of such Deferral Accounts
shall be made in accordance with Article VIII or as otherwise provided by the
Equity Board.
Section 10.2 - Limitation on Rights of Employees
- ------------ ---------------------------------
The Plan is strictly a voluntary undertaking on the part of the Entities
and shall not constitute a contract between an Entity and any Employee with
respect to, or consideration for, or an inducement or condition of, the
employment of an Employee. Nothing contained in the Plan shall give any
Employee the right to be retained in the service of an Entity or to interfere
with or restrict the rights of the Entities, which are hereby expressly
reserved, to discharge or retire any Employee, except as provided by law, at any
time without notice and with or without cause. Inclusion under the Plan will
not give any Employee any right or claim to any Benefit hereunder except to the
extent such right has specifically become fixed under the terms of the Plan.
The doctrine of substantial performance shall have no application to Employees,
Participants, Beneficiaries or any other persons entitled to payments under the
Plan. Each condition and provision, including numerical items, has been
carefully considered and constitutes the minimum limit on performance which will
give rise to the applicable right.
Section 10.3 - Unfunded Obligations of the Entities
- ------------ ------------------------------------
The obligations of the Entities under the Plan shall be unfunded and
unsecured, and nothing contained herein shall be construed as providing for
assets to be segregated from the assets of the Entities for the benefit of any
Participant or any other person or persons to whom Benefits are to be paid
pursuant to the terms of the Plan. The interest of any Participant or any other
person hereunder shall be limited to the right to receive the Benefits as set
forth herein. To the extent that a Participant or any other person acquires a
right to receive Benefits under the Plan, such rights shall be no greater than
the right of an unsecured general creditor of the Entities. The Plan is
intended to be "unfunded" for purposes of the Code and Title I of ERISA.
26
<PAGE>
Section 10.4 - Consolidation or Merger; Adoption of Plan by Other Entities
- ------------ -----------------------------------------------------------
(a) In the event of the consolidation or merger of an Entity with or
into any other corporation, partnership or other entity, or the sale by an
Entity of all or substantially all of its assets, the resulting successor may
continue the Plan by adopting it in a resolution of its board of directors or
agreement of its partners. If within 90 days from the effective date of such
consolidation, merger or sale of assets, such new corporation does not adopt the
Plan, the Plan shall be terminated in accordance with Section 10.1 as to the
Entity.
(b) Any Entity may, with the approval of the Equity Board, adopt the
Plan as a whole entity effective as of the first day of any Plan Year by
resolution of its own board of directors or agreement of its partners. Such
Entity shall give written notice of such adoption to the Committee by its duly
authorized officers.
Section 10.5 - Restructuring
- ------------ -------------
From and after a Restructuring of the Partnership (as described in the
Partnership Agreement), subject to the limits set forth below, the Trustee shall
be authorized to take such actions as the Committee may find to be appropriate
and equitable to cause the Class A Units held in all Participants' Deferral
Accounts to be exchanged or otherwise substituted for such securities as may be
received by other holders of publicly-traded Class A Units in exchange for such
units in connection with the Restructuring, including, without limitation,
transferring to the Restructuring Corporation the Class A Units held by the
Trust in exchange for shares of common stock of the Restructuring Corporation;
provided, however, that unless required to be earlier exchanged to maintain the
Partnership's status as a partnership for federal income tax purposes, the
Trustee shall retain the Class A Units held in the Trust following the
Restructuring and not exchange the same for any successor security except upon
distribution of Class A Units to Participants or their beneficiaries who are not
eligible to be "Non-public Partners" under the Partnership Agreement. If and to
the extent Class A Units are exchanged for a successor security after the
Restructuring, as applicable all references in this Plan to "Class A Units"
shall be deemed to refer to such successor security.
Section 10.6 - Registration of Class A Units
- ------------ -----------------------------
As soon as practicable following the adoption of the Plan, the
Partnership (or, after the Restructuring, the Restructuring Corporation or other
successor issuer of publicly-traded securities) shall file with the Securities
Exchange Commission a registration statement on the applicable form registering
the Class A Units purchased pursuant to Section 6.2 (or, after the
Restructuring, any securities exchanged or exchangeable for Class A Units
pursuant to Section 10.5).
Section 10.7 - Errors and Misstatements
- ------------ ------------------------
In the event of any misstatement or omission of fact by a Participant to
the Committee or any clerical error resulting in payment of Benefits in an
incorrect amount, the Committee shall promptly cause the amount of future
payments to be corrected upon
27
<PAGE>
discovery of the facts and the Entities shall pay the Participant or any other
person entitled to payment under the Plan any underpayment in cash in a lump sum
or to recoup any overpayment from future payments to the Participant or any
other person entitled to payment under the Plan in such amounts as the Committee
shall direct or to proceed against the Participant or any other person entitled
to payment under the Plan for recovery of any such overpayment.
Section 10.8 - Payment on Behalf of Minor, etc.
- ------------ --------------------------------
In the event any amount becomes payable under the Plan to a minor or a
person who, in the sole judgment of the Committee is considered by reason of
physical or mental condition to be unable to give a valid receipt therefor, the
Committee may direct that such payment be made to any person found by the
Committee in its sole judgment, to have assumed the care of such minor or other
person. Any payment made pursuant to such determination shall constitute a full
release and discharge of the Entities, the Equity Board, the Committee, the
Trustee and their officers, directors and Employees.
Section 10.9 - Amendment of Plan
- ------------ -----------------
As limited by any applicable law, the Plan may be wholly or partially
amended by the Equity Board from time to time including retroactive amendments
necessary to conform to the provisions and requirements of ERISA or the Code or
regulations pursuant thereto; provided, however, that no amendment shall
decrease the amount of interest any Participant or any other person entitled to
payment under the Plan has in the Participant's Deferral Account.
Section 10.10 - Governing Law
- ------------- -------------
This Plan shall be construed, administered and governed in all respects
under and by applicable federal laws and, where state law is applicable, the
laws of the State of California.
Section 10.11 - Pronouns and Plurality
- ------------- ----------------------
The masculine pronoun shall include the feminine pronoun, and the
singular the plural where the context so indicates.
Section 10.12 - Titles
- ------------- ------
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
28
<PAGE>
Section 10.13 - References
- ------------- ----------
Unless the context clearly indicates to the contrary, a reference to a
statute, regulation or document shall be construed as referring to any
subsequently enacted, adopted or executed statute, regulation or document.
Executed at Newport Beach, California.
PIMCO Advisors, L.P.
By:
---------------------------------------------
Title:
------------------------------------------
29
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
between
Cadence Capital Management,
a Delaware general partnership,
and
David B. Breed
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16, 1994, by and between Cadence Capital Management, a Delaware general
partnership ("Employer"), and David B. Breed ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general partnership
("PIMCO GP"), Pacific Financial Asset Management Company, a California
corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain individuals
associated with the respective businesses of TAG LP, Pacific Investment
Management Company, a California corporation ("PIMCO Inc."), and PFAMCO are
parties to that certain Amended and Restated Agreement and Plan of Consolidation
for PIMCO Advisors L.P. effective as of 3uly 11, 1994 (the "Consolidation
Agreement"), providing for the consolidation of the investment management and
advisory business of TAG LP with the investment management and advisory
businesses of PFAMCO and PIMCO Inc. in the manner described therein (the
"Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor Adjustment
has increased over its level as of the Effective Date. If the Consumer Price
Index shall no longer be published, another index generally recognized as
authoritative and furnishing the most clearly similar price information
available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
----------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such person
or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means Cadence Capital Management Inc., or any additional
----------------
or successor Managing Partner of Employer as of the effective date that such
party shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., Cadence Capital
--------
Management Inc., and any additional or successor Partners as of the effective
date that such party shall become a Partner of the Employer in accordance with
the terms of the Partnership Agreement. The term "Partner" may be used herein to
refer individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Cadence Capital Management dated as of November 15,
1994, as the same may be amended, supplemented or restated from time to time in
accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory
3
<PAGE>
Group L.P.) effective as of November 15, 1994, as the same may be amended,
supplemented or restated from time to time in accordance with its terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
4
<PAGE>
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base salary of not less
than ($335,000) with such minimum amount increased each year following the
Effective Date during the term of this Agreement by the CPI Adjustment
Percentage. Such compensation shall be prorated for a partial year based on the
period worked for Employer during such year, and shall be payable in accordance
with Employer's customary employee payroll practices, including but not limited
to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Cadence Capital Management Non-Qualified Profit Sharing Plan (and any successor
plan adopted by Employer during Employee's term of employment hereunder) (the
"Profit Sharing Plan"), a copy of which is attached hereto as Exhibit A, subject
---------
to all of the terms and provisions of the Profit Sharing Plan document as the
same may be amended from time to time as provided therein. Employee's initial
percentage under the Profit Sharing Plan shall be 80%. As provided in the Profit
Sharing Plan and the Partnership Agreement, Employee's interest may be increased
or
5
<PAGE>
decreased from time to time and Employee's interest in the Profit Sharing Plan
may be affected by actions such as the awarding of interests to new or current
employees including Managing Directors, or the loss of interests of other
participants. Employee's rights under the Profit Sharing Plan shall be governed
by the Profit Sharing Plan document as the same may be amended from time to time
as provided therein and herein, and nothing herein shall be construed to confer
any additional rights on Employee under such Plan. Except as expressly provided
above with respect to Employee's initial interest in the Profit Sharing Plan,
Employee shall have no right under this Agreement or under the Profit Sharing
Plan to any percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer or the Supervisory Partner which are open to participation by employees
holding employment positions comparable to Employee's position; provided,
however, that such participation by Employee shall in all cases be subject to
the terms and provisions of each such employee plan or program and also to
applicable federal, state or other governmental laws and regulations.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and upon such termination for any reason, shall no longer be a
Managing Director. Upon any termination prior to the Scheduled Termination Date
the rights of the parties shall be as follows:
6
<PAGE>
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4(a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
7
<PAGE>
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of
-----------------------------------------------
the Involuntary Termination of Employee's employment by Employer, then (i)
Employer shall continue to pay Employee his base salary as was in effect as of
the Employment Termination Date subject to the CPI adjustment for the longer of
one year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records,
8
<PAGE>
client lists, agreements, and any other incident of any business developed by
Employer or earned or carried on by Employer and all trade names, service marks
and logos under which Employer and its Affiliates do business, including without
limitation the "Cadence Capital Management" trade names and service marks and
any combinations or variations thereof and all related logos, are and shall be
the exclusive property of Employer or such Affiliate, as applicable, for its
or their sole use, and (where applicable) shall be payable directly to Employer
or such Affiliate. Employee acknowledges that, in the course of performing
services hereunder and otherwise, including for Employer's predecessor, Employee
has had and will from time to time have access to confidential records, data,
client and contract lists, trade secrets, formulae, computer programs and
software, manuals and documentation, algorithms, and similar and other
confidential information owned or used in the course of business by Employer or
its Affiliates. Employee agrees always to keep secret and not ever (during the
term of this Agreement or thereafter) publish, divulge, furnish, use or make
accessible to anyone (otherwise than in the regular business of Employer or any
Affiliate thereof or otherwise at the Employer's request and with the consent of
the Management Board (which consent shall require a Super-Majority Board Vote))
any knowledge or information of a confidential or proprietary nature with
respect to any trade secrets, proprietary plans, clients, client requirements,
service providers, business operations or techniques of Employer or any of its
Affiliates. Upon termination of Employee's services to Employer for any reason,
all data, memoranda, client lists, notes, programs and other papers, items and
tangible media, and reproductions thereof relating to the foregoing matters in
Employee's possession or control, shall be returned to Employer and remain in
its possession (except where the return of such items shall be unreasonable or
impractical in relation to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer (for
this purpose, a "client of Employer" is any person or entity for whom
Employer is performing Investment Management Services at the Employment
Termination Date or for whom Employer performed Investment Management
Services at any time during the six months immediately preceding the
Employment Termination Date and any person or entity with whom Employer was
actively attempting to develop an investment advisory relationship during
such period); provided, however, that this paragraph (1) shall not
9
<PAGE>
prohibit Employee from providing investment advisory or investment
management or other services to any person or entity that is not a client
of Employer, and (2) shall not prohibit Employee from working as part of an
enterprise having clients of Employer as its clients as long as Employee
can demonstrate by clear and convincing evidence that he has no direct or
indirect involvement with the management of such clients' accounts or the
provision of advice or other services with respect thereto and that he has
refrained from contacting such clients directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any such
Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship therewith,
hire any such professional employee, or work in any enterprise involving
investment advisory services with any professional employee or former
professional employee of Employer who was employed by Employer at any time
during the six months immediately preceding the Employment Termination
Date.
Notwithstanding the provisions of this Section 6(c), Employee may make passive
investments in a competitive enterprise the shares of which are publicly traded
provided his holding therein, together with any holdings of his Affiliates, do
not exceed 1% of the outstanding shares or comparable interests in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any
10
<PAGE>
such change amends a provision which requires a Super-Majority Board Vote, such
an amendment may only be adopted by with the approval of a Super-Majority Board
Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Cadence Capital Management
Exchange Place
Boston, Massachusetts 02109
To Employee at: The current residential mailing address and
residential telecopy number for Employee as
reflected in Employer's employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement. If for any reason such
closing shall not occur, this Agreement and all of its terms and conditions
shall be null and void and of no effect whatsoever
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
11
<PAGE>
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1998; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the Commonwealth of Massachusetts
applicable to Agreements made and to be performed only within the Commonwealth
of Massachusetts without regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and
12
<PAGE>
approved by Super-Majority Board Vote. Notwithstanding the foregoing, Employer
shall be entitled, without any approval or acceptance by Employee, to exercise
the discretionary powers and authority granted under: Section 3 hereof with
respect to Employee's compensation, provided that such compensation shall not be
less than the amount stated therein; and Section 5 hereof with respect to the
termination of Employee's employment with Employer; and provided further,
that, subject to the provisions of Section 7 hereof, Employer shall be entitled,
with Super-Majority Board Vote, without any approval or acceptance by Employee,
to amend, supplement, restate, modify or terminate the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right
13
<PAGE>
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual damages. In
case any of the provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
EXHIBIT A
---------
1994 Cadence Capital Management
NON-QUALIFIED PROFIT SHARING PLAN
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
CADENCE CAPITAL MANAGEMENT,
a Delaware general partnership
By: /s/ David B Breed
------------------------------------
Name:__________________________________
Title: CEO
---------------------------------
"EMPLOYEE"
/s/ David B. Breed
---------------------------------------
David B. Breed
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
William H. Gross
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16 1994, by and between Pacific Investment Management Company, a Delaware
- --
general partnership ("Employer"), and William H. Gross ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general partnership
("PIMCO GP"), Pacific Financial Asset Management Company, a California
corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain individuals
associated with the respective businesses of TAG LP, Pacific Investment
Management Company, a California corporation ("PIMCO Inc."), and PFAMCO are
parties to that certain Amended and Restated Agreement and Plan of Consolidation
for PIMCO Advisors L.P. effective as of July 11, 1994 (the "Consolidation
Agreement"), providing for the consolidation of the investment management and
advisory business of TAG LP with the investment management and advisory
businesses of PFAMCO and PIMCO Inc. in the manner described therein (the
"Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. Definitions.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentages" - means the percentage (if any) by which the
--------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and finishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with resect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "controls" means the possession, direct dr indirect, of the
power to (a) vote 50% of more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such person
or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partners" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November __, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
------------------
partnership and the Supervisory. Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory
3
<PAGE>
Group L.P.) effective as of November __, 1994, as the same may be amended,
supplemented or restated from time to time in accordance with its terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Service
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period Beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Scheduled-Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory. Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
4
<PAGE>
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. Employment of Employee.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering service contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering service to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. Compensation.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary employee payroll practice,
including but not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of
services under this Agreement, Employee shall be entitled to participate in the
1994 Pacific Investment Management Company Non-Qualified Profit Sharing Plan
(and any succor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plans"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As
5
<PAGE>
provided in the Profit Sharing Plan and the Partnership Agreement, Employee's
interest in the Profit Sharing Plan may be increased or decreased from time to
time and Employee's interest in the Profit Sharing Plan may be affected by
actions such as the awarding of interests to new or current employees including
Managing Directors, or the loss of interests of other participants. Employee's
rights under the Profit Sharing Plan shall be governed by the Profit Sharing
Plan document as the same may be amended from time to time as provided therein
and herein, and nothing herein shall be construed to confer any additional
rights on Employee under such Plan. Except as expressly provided above with
respect to Employee's initial interest in the Profit Sharing Plan, Employee
shall have no right under this Agreement or under the Profit Sharing Plan to any
percentage interest in the Profit Sharing Plan.
4. Benefit Arrangements.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan")
or the Supervisory. Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such benefits
shall be on terms no less favorable than under Employee's prior employment
agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. Termination of Employment Prior to the Scheduled Termination Date.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VI of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and
6
<PAGE>
upon such termination for any reason, shall no longer be a Managing Director.
Upon any termination prior to the Scheduled Termination Date the rights of the
parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4(a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Causes" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
7
<PAGE>
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. Confidential Information: Prohibited Activities.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
8
<PAGE>
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without Limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a Super-Majority Board Vote)) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee, 5 services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory. Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employers" is any person or entity
for whom Employer is performing Investment Management Services at the
Employment Termination
9
<PAGE>
Date or for whom Employer performed Investment Management Services at
any time during the six months immediately preceding the Employment
Termination Date and any person or entity with whom Employer was
actively attempting to develop an investment advisory relationship
during such period); provided, however, that this paragraph (1) shall
not prohibit Employee from providing investment advisory or investment
management or other services to any person or entity that is not a
client of Employer, and (2) shall not prohibit Employee from working
as part of an enterprise having clients of Employer as its clients as
long as Employee can demonstrate by clear and convincing evidence that
he has no direct or indirect involvement with the management of such
clients' accounts or the provision of advice or other services with
respect thereto and that he has refrained from contacting such clients
directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. Additional Covenants Regarding Management of Employer.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee
agree that none of the following actions will be taken by Employer (or the
partners thereof) unless such action shall first have been approved as provided
below:
10
<PAGE>
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. Notices.
-------
All notices, requests or other communications hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery. Service (collectively
"overnight couriers"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
To Employee at: The current residential mailing address and
residential telecopy number for Employee as
reflected in Employer's employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. Effective Date/Term of Agreement.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
11
<PAGE>
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1997; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. Governing Law.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. Entire Agreement.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12
<PAGE>
12. Modifications and Amendments.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. Successors and Assigns.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. Assignment.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. Third Party Rights.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. Non-Waiver of Rights.
--------------------
The failure or delay of either eased in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. Specified Performance: Severability.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual
13
<PAGE>
damages. In case any of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
18. Pronouns and Plurals.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. Counterparts.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT
COMPANY,
a Delaware general partnership
By: /s/ William S. Thompson
------------------------
Name: William S. Thompson
---------------------
Title: CEO
--------------------
"EMPLOYEE"
/s/ William H. Gross
--------------------------
William H. Gross
15
<PAGE>
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
John L. Hague
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16 1994, by and between Pacific Investment Management Company, a Delaware
general partnership ("Employer"), and John L. Hague ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general
partnership ("PIMCO GP"), Pacific Financial Asset Management Company, a
California corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain
individuals associated with the respective businesses of TAG LP, Pacific
Investment Management Company, a California corporation ("PIMCO Inc."), and
PFAMCO are parties to that certain Amended and Restated Agreement and Plan of
Consolidation for PIMCO Advisors L.P. effective as of July 11, 1994 (the
"Consolidation Agreement"), providing for the consolidation of the investment
management and advisory business of TAG LP with the investment management and
advisory businesses of PFAMCO and PIMCO Inc. in the manner described therein
(the "Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such person
or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the tide of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successors Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November __, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory. Partner of the Employer.
3
<PAGE>
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory Group L.P.) effective as of November __, 1994, as the same may
be amended, supplemented or restated from time to time in accordance with its
terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Schedule Termination Date" - shall have the meaning set forth in Section
-------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
4
<PAGE>
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary employee payroll practices,
including but not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
5
<PAGE>
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As provided in the Profit Sharing Plan and the Partnership
Agreement, Employee's interest in the Profit Sharing Plan may be increased or
decreased from time to time and Employee's interest in the Profit Sharing Plan
may be affected by actions such as the awarding of interests to new or current
employees including Managing Directors, or the loss of interests of other
participants. Employee's rights under the Profit Sharing Plan shall be governed
by the Profit Sharing Plan document as the same may be amended from time to time
as provided therein and herein, and nothing herein shall be construed to confer
any additional rights on Employee under such Plan. Except as expressly provided
above with respect to Employee's initial interest in the Profit Sharing Plan,
Employee shall have no right under this Agreement or under the Profit Sharing
Plan to any percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such
benefits shall be on terms no less favorable than under Employee's prior
employment agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
6
<PAGE>
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and upon such termination for any reason, shall no longer be a
Managing Director. Upon any termination prior to the Scheduled Termination Date
the rights of the parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4 (a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
7
<PAGE>
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to TERMINATE his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer falls, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified In this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and
8
<PAGE>
compromise of any claims arising out of any termination of Employee's employment
pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a Super-Majority Board Vote)) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
9
<PAGE>
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employer" is any person or entity for
whom Employer is performing Investment Management Services at the
Employment Termination Date or for whom Employer performed Investment
Management Services at any time during the six months immediately
preceding the Employment Termination Date and any person or entity
with whom Employer was actively attempting to develop an investment
advisory relationship during such period); provided, however, that
this paragraph (1) shall not prohibit Employee from providing
investment advisory or investment management or other services to any
person or entity that is not a client of Employer, and (2) shall not
prohibit Employee from working as part of an enterprise having clients
of Employer as its clients as long as Employee can demonstrate by
clear and convincing evidence that he has no direct or indirect
involvement with the management of such clients' accounts or the
provision of advice or other services with respect thereto and that he
has refrained from contacting such clients directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded
10
<PAGE>
provided his holding therein, together with any holdings of his Affiliates, do
not exceed 1% of the outstanding shares or comparable interests in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
11
<PAGE>
To Employee at: The current residential mailing address and residential
telecopy number for Employee as reflected in Employer's
employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1996; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
12
<PAGE>
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
13
<PAGE>
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5,6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE; SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual damages. In
case any of the provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT
COMPANY,
a Delaware general partnership
By: /s/ William S. Thompson
------------------------------------
Name: William S. Thompson
----------------------------------
Title: CEO
---------------------------------
"EMPLOYEE"
/s/ John L. Hague
---------------------------------------
John L. Hague
15
<PAGE>
EXHIBIT A
--------
1994
NON-QUALIFIED PROFIT SHARING PLAN
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
Brent R. Harris
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16 1994, by and between Pacific Investment Management Company, a Delaware
general partnership ("Employer"), and Brent R. Harris ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general partnership
("PIMCO GP"), Pacific Financial Asset Management Company, a California
corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain individuals
associated with the respective businesses of TAG LP, Pacific Investment
Management Company, a California corporation ("PIMCO Inc."), and PFAMCO are
parties to that certain Amended and Restated Agreement and Plan of Consolidation
for PIMCO Advisors L.P. effective as of July 11, 1994 (the "Consolidation
Agreement"), providing for the consolidation of the investment management and
advisory business of TAG LP with the investment management and advisory
businesses of PFAMCO and PIMCO Inc. in the manner described therein (the
"Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such person
or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November __, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
3
<PAGE>
"PIMCO Advisors L.P." - means PIMCO Advisors L.P. , a Delaware limited
------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory Group L.P.) effective as of November __, 1994, as the same may
be amended, supplemented or restated from time to time in accordance with its
terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
4
<PAGE>
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in
5
<PAGE>
accordance with Employer's customary employee payroll practices, including but
not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As provided in the Profit Sharing Plan and the Partnership
Agreement, Employee's interest in the Profit Sharing Plan may be increased or
decreased from time to time and Employee's interest in the Profit Sharing Plan
may be affected by actions such as the awarding of interests to new or current
employees including Managing Directors, or the loss of interests of other
participants. Employee's rights under the Profit Sharing Plan shall be governed
by the Profit Sharing Plan document as the same may be amended from time to time
as provided therein and herein, and nothing herein shall be construed to confer
any additional rights on Employee under such Plan. Except as expressly provided
above with respect to Employee's initial interest in the Profit Sharing Plan,
Employee shall have no right under this Agreement or under the Profit Sharing
Plan to any percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such benefits
shall be on terms no less favorable than under Employee's prior employment
agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
6
<PAGE>
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and upon such termination for any reason, shall no longer be a
Managing Director. Upon any termination prior to the Scheduled Termination Date
the rights of the parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4(a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the
7
<PAGE>
Profit Sharing Plan shall terminate as provided therein, and (C) Employee's
obligations under Section 6(a) and Section 6(c) hereof shall continue unaffected
by the termination of Employee's employment in accordance with the terms thereof
and, as a material consideration for its agreements hereunder and other
arrangements in connection with the Consolidation, Employer shall have the right
to enforce such obligations to the full extent set forth therein. Employee
agrees to give Employer at least six months prior written notice of any
Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
8
<PAGE>
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a
9
<PAGE>
Super-Majority Board Vote)) any knowledge or information of a confidential or
proprietary nature with respect to any trade secrets, proprietary plans,
clients, client requirements, service providers, business operations or
techniques of Employer or any of its Affiliates. Upon termination of Employee's
services to Employer for any reason, all data, memoranda, client lists, notes,
programs and other papers, items and tangible media, and reproductions thereof
relating to the foregoing matters in Employee's possession or control, shall be
returned to Employer and remain in its possession (except where the return of
such items shall be unreasonable or impractical in relation to the importance or
confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employer" is any person or entity for
whom Employer is performing Investment Management Services at the
Employment Termination Date or for whom Employer performed Investment
Management Services at any time during the six months immediately
preceding the Employment Termination Date and any person or entity
with whom Employer was actively attempting to develop an investment
advisory relationship during such period); provided, however, that
this paragraph (1) shall not prohibit Employee from providing
investment advisory or investment management or other services to any
person or entity that is not a client of Employer, and (2) shall not
prohibit Employee from working as part of an enterprise having clients
of Employer as its clients as long as Employee can demonstrate by
clear and convincing evidence that he has no direct or indirect
involvement with the management of such clients' accounts or the
provision of advice or other services with respect thereto and that he
has refrained from contacting such clients directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
10
<PAGE>
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise
11
<PAGE>
expressly provided herein, shall be delivered (a) by hand during normal business
hours, (b) by Federal Express, United Parcel Service or other reputable
overnight commercial delivery service (collectively "overnight courier"), (c) by
registered or certified mail (return receipt requested) or (d) by telecopy,
addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
To Employee at: The current residential mailing address and residential
telecopy number for Employee as reflected in Employer's
employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1997; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless
12
<PAGE>
either Employer or Employee gives notice (the "Notice of Non-Extension") to the
other party that the Scheduled Termination Date shall not be so postponed; and
provided further, that the Scheduled Termination Date automatically shall be
postponed pursuant to the preceding clause for successive two-year periods until
a Notice of Non-Extension is given by at least one of the parties. Any Notice of
Non-Extension must be given in writing at least six months prior to the
Scheduled Termination Date to which the Notice of Non-Extension applies. Upon
any such non-renewal by either party, Employee shall be subject to Section 6 to
the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13
<PAGE>
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual damages. In
case any of the provisions contained in this Agreement shall for any reason be
held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
14
<PAGE>
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT
MANAGEMENT COMPANY,
a Delaware general partnership
By: /s/ William S. Thompson
--------------------------------
Name: William S. Thompson
------------------------------
Title: CEO
-----------------------------
"EMPLOYEE"
/s/ Brent R. Harris
-----------------------------------
Brent R. Harris
<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
James F. Muzzy
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16, 1994, by and between Pacific Investment Management Company, a Delaware
general partnership ("Employer"), and James F. Muzzy ("Employee").
RECITALS
--------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general
partnership ("PIMCO GP"), Pacific Financial Asset Management Company, a
California corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain
individuals associated with the respective businesses of TAG LP, Pacific
Investment Management Company, a California corporation ("PIMCO Inc."), and
PFAMCO are parties to that certain Amended and Restated Agreement and Plan of
Consolidation for PIMCO Advisors L.P. effective as of July 11, 1994 (the
"Consolidation Agreement"), providing for the consolidation of the investment
management and advisory business of TAG LP with the investment management and
advisory businesses of PFAMCO and PIMCO Inc. in the manner described therein
(the "Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such
person or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November__, 1994, as the same may be amended, supplemented or restated from time
to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory
3
<PAGE>
Group L.P.) effective as of November ___, 1994, as the same may be amended,
supplemented or restated from time to time in accordance with its terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
4
<PAGE>
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary employee payroll practices,
including but not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As
5
<PAGE>
provided in the Profit Sharing Plan and the Partnership Agreement, Employee's
interest in the Profit Sharing Plan may be increased or decreased from time to
time and Employee's interest in the Profit Sharing Plan may be affected by
actions such as the awarding of interests to new or current employees including
Managing Directors, or the loss of interests of other participants. Employee's
rights under the Profit Sharing Plan shall be governed by the Profit Sharing
Plan document as the same may be amended from time to time as provided therein
and herein, and nothing herein shall be construed to confer any additional
rights on Employee under such Plan. Except as expressly provided above with
respect to Employee's initial interest in the Profit Sharing Plan, Employee
shall have no right under this Agreement or under the Profit Sharing Plan to any
percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such
benefits shall be on terms no less favorable than under Employee's prior
employment agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and
6
<PAGE>
upon such termination for any reason, shall no longer be a Managing Director.
Upon any termination prior to the Scheduled Termination Date the rights of the
parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4 (a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
7
<PAGE>
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
8
<PAGE>
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a Super-Majority Board Vote)) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employer" is any person or entity for
whom Employer is performing Investment Management Services at the
Employment Termination
9
<PAGE>
Date or for whom Employer performed Investment Management Services at
any time during the six months immediately preceding the Employment
Termination Date and any person or entity with whom Employer was
actively attempting to develop an investment advisory relationship
during such period); provided, however, that this paragraph (1) shall
not prohibit Employee from providing investment advisory or investment
management or other services to any person or entity that is not a
client of Employer, and (2) shall not prohibit Employee from working
as part of an enterprise having clients of Employer as its clients as
long as Employee can demonstrate by clear and convincing evidence that
he has no direct or indirect involvement with the management of such
clients' accounts or the provision of advice or other services with
respect thereto and that he has refrained from contacting such clients
directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
10
<PAGE>
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
To Employee at: The current residential mailing address and residential
telecopy number for Employee as reflected in Employer's
employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein , advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
11
<PAGE>
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1996; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12
<PAGE>
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual
13
<PAGE>
damages. In case any of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT
COMPANY,
a Delaware general partnership
By: /s/William S. Thompson
----------------------------
Name: /s/William S. Thompson
--------------------------
Title: CEO
-------------------------
"EMPLOYEE"
/s/ James F. Muzzy
-------------------------------
James F. Muzzy
15
<PAGE>
EXHIBIT A
---------
1994
NON-QUALIFIED PROFIT SHARING PLAN
<PAGE>
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
between
Columbus Circle Investors,
a Delaware general partnership,
and
Daniel S. Pickett
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "AGREEMENT") is entered into as of November
16 1994, by and between Columbus Circle Investors, a Delaware general
partnership ("Employer"), and Daniel S. Pickett ("Employee").
RECITALS
--------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general
partnership ("PIMCO GP"), Pacific Financial Asset Management Company, a
California corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain
individuals associated with the respective businesses of TAG LP, Pacific
Investment Management Company, a California corporation ("PIMCO Inc."), and
PFAMCO are parties to that certain Amended and Restated Agreement and Plan of
Consolidation for PIMCO Advisors L.P. effective as of July 11 , 1994 (the
"Consolidation Agreement"), providing for the consolidation of the investment
management and advisory business of TAG LP with the investment management and
advisory businesses of PFAMCO and PIMCO Inc. in the manner described therein
(the "Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such
person or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration
2
<PAGE>
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer
For Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means Columbus Circle Investors Management Inc., or any
----------------
additional or successor Managing Partner of Employer as of the effective date
that such party shall become a Managing Partner of Employer following approval
by a Super-Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., Columbus Circle
--------
Investors Management Inc., and any additional or successor Partners as of the
effective date that such party shall become a Partner of the Employer in
accordance with the terms of the Partnership Agreement. The term "Partner" may
be used herein to refer individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Columbus Circle Investors dated as of November __,
1994, as the same may be amended, supplemented or restated from time to time in
accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory Group L.P.) effective as of November __, 1994, as the same may
be amended, supplemented or restated from time to time in accordance with its
terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking
3
<PAGE>
away any Employer Managed Funds, or (ii) soliciting any person or entity for the
purpose of diverting or taking away any such Employer Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before
the Employment Termination Date, the date which is nine months after the
Employment Termination Date; (ii) in the case of a termination For Cause, the
later of (X) the date which is six months after the Employment Termination Date
or (Y) the then Schedule Termination Date; and (iii) in the case of a
termination on the then Scheduled Termination Date by reason of its non-
extension pursuant to Section 9(c) hereof, the date which is six months after
the Employment Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
4
<PAGE>
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base salary of not less
than ($200,000). Such compensation shall be prorated for a partial year based on
the period worked for Employer during such year, and shall be payable in
accordance with Employer's customary employee payroll practices, including but
not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Columbus Circle Investors Non-Qualified Profit Sharing Plan (and any successor
plan adopted by Employer during Employee's term of employment hereunder) (the
"Profit Sharing Plan"), a copy of which is attached hereto as Exhibit A, subject
---------
to all of the terms and provisions of the Profit Sharing Plan document as the
same may be amended from time to time as provided therein. Employee's initial
"Points" under the Profit Sharing Plan shall be 9.00 or 9% of the total Points
initially outstanding under the Profit Sharing Plan as of the Effective Date. As
provided in the Profit Sharing Plan, Employee's Points may be increased or
decreased from time to time and Employee's interest in the Profit Sharing Plan
may be affected by actions such as the awarding of Points or Profit Points (as
such term is defined in the Profit Sharing Plan) to new or current employees
including Managing Directors, or the loss of Points held by other participants,
in any case, effective as of July 1 or January 1 of any year commencing July 1,
1995, in accordance with the terms of the Partnership Agreement and the Profit
5
<PAGE>
Sharing Plan, provided that Employee's Points may not be reduced in any calendar
year (while employed by Employer), except as a result of the awarding of Points
to Managing Directors appointed after the date hereof at the time of such
appointment, such that Employee's interest in the Profit Sharing Plan as
represented by his Points as of the last day of the preceding calendar year
shall be reduced by more than 15% in such calendar year. Employee's rights under
the Profit Sharing Plan shall be governed by the Profit Sharing Plan document as
the same may be amended from time to time as provided therein and herein, and
nothing herein shall be construed to confer any additional rights on Employee
under such Plan. Except as expressly provided above with respect to Employee's
initial Points and the limitation on reductions of Points in any calendar year,
Employee shall have no right under this Agreement or under the Profit Sharing
Plan to any specified number of Points or percentage interest in the Profit
Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer or the Supervisory Partner which are open to participation by employees
holding employment positions comparable to Employee's position; provided,
however, that such participation by Employee shall in all cases be subject to
the terms and provisions of each such employee plan or program and also to
applicable federal, state or other governmental laws and regulations.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and
6
<PAGE>
upon such termination for any reason, shall no longer be a Managing Director.
Upon any termination prior to the Scheduled Termination Date the rights of the
parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4 (a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a); provided that Employer shall not be required to
continue such payments and benefits from and after the date on which Employee
engages in any activity described in Section 6(c) hereof (if applicable). In
addition, upon any such termination, Employer shall pay Employee or his estate,
(i) any base salary pursuant to Section 3(a) hereof which is earned but unpaid
as of the date of termination, (ii) any compensation owed to Employee pursuant
to the Profit Sharing Plan pursuant to Section 3(b)) hereof as provided therein
and (iii) any reimbursement amounts owed to Employee and any other amounts owed
to Employee under any benefit plan (including amounts under any disability plan)
in respect of service through the date of termination. As used herein, the term
permanent incapacity means the inability of Employee, by reason of injury,
illness or other similar cause to perform a major part of his duties and
responsibilities in connection with the conduct of the business and affairs of
Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, ('3)all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
7
<PAGE>
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of
-----------------------------------------------
the Involuntary Termination of Employee's employment by Employer, then (i)
Employer shall continue to pay Employee his base salary as was in effect as of
the Employment Termination Date for the longer of one year from the Employment
Termination Date or through the then Scheduled Termination Date and during such
period shall continue in effect Employee's benefits in accordance with Section
4(a), (ii) Employee shall be entitled to participate in the Profit Sharing Plan
to the extent and only to the extent provided therein and (iii) all obligations
of Employee under this Agreement other than Section 6(a) hereof shall terminate;
provided, however, that in the event that Employee engages in any of the
activities described in Section 6(c) hereof following any such termination, then
Employer's obligations under clause (i) above shall terminate. After any
material default by Employer in the performance of any of its obligations
hereunder, Employee shall have the right to terminate his employment hereunder
for a period of three months thereafter, and such a termination shall be deemed
an Involuntary Termination by Employer. Notwithstanding the foregoing, Employer
shall not be deemed to have committed a material default hereunder unless and
until (x) Employee gives written notice to Employer of Employee's belief that
Employer has committed such a default, and (Y) Employer fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cure such default. Payment of the amount specified in this Section
5(c) is agreed by the parties hereto to be in full satisfaction and compromise
of any claims arising out of any termination of Employee's employment pursuant
to this Section 5(c).
6 CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
------------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
8
<PAGE>
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "CCI/Columbus Circle Investors" trade names and service marks and
any combinations or variations thereof and all related logos, are and shall be
the exclusive property of Employer or such Affiliate, as applicable, for its or
their sole use, and (where applicable) shall be payable directly to Employer or
such Affiliate. Employee acknowledges that, in the course of performing services
hereunder and otherwise, including for Employer's predecessor, Employee has had
and will from time to time have access to confidential records, data, client and
contract lists, trade secrets, formulae, computer programs and software, manuals
and documentation, algorithms, and similar and other confidential information
owned or used in the course of business by Employer or its Affiliates. Employee
agrees always to keep secret and not ever (during the term of this Agreement or
thereafter) publish, divulge, furnish, use or make accessible to anyone
(otherwise than in the regular business of Employer or any Affiliate thereof or
otherwise at the Employer's request and with the consent of the Management Board
(which consent shall require a Super-Majority Board Vote)) any knowledge or
information of a confidential or proprietary nature with respect to any trade
secrets, proprietary plans, clients, client requirements, service providers,
business operations or techniques of Employer or any of its Affiliates (other
than "Momentum Surprise" investment theory and application). Upon termination of
Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer (for this
purpose, a "client of Employer" is any person or entity for whom Employer is
performing Investment Management Services at the Employment Termination Date or
for whom
9
<PAGE>
Employer performed Investment Management Services at any time during the
six months immediately preceding the Employment Termination Date and any
person or entity with whom Employer was actively attempting to develop an
investment advisory relationship during such period); provided, however,
that this paragraph (1) shall not prohibit Employee from providing
investment advisory or investment management or other services to any
person or entity that is not a client of Employer, and (2) shall not
prohibit Employee from working as part of an enterprise having clients of
Employer as its clients as long as Employee can demonstrate by clear and
convincing evidence that he has no direct or indirect involvement with the
management of such clients' accounts or the provision of advice or other
services with respect thereto and that he has refrained from contacting
such clients directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any such
Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship therewith,
hire any such professional employee, or work in any enterprise involving
investment advisory services with any professional employee or former
professional employee of Employer who was employed by Employer at any time
during the six months immediately preceding the Employment Termination
Date.
Notwithstanding the provisions of this Section 6(c), Employee may make passive
investments in a competitive enterprise the shares of which are publicly traded
provided his holding therein, together with any holdings of his Affiliates, do
not exceed 1% of the outstanding shares or comparable interests in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
10
<PAGE>
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Columbus Circle Investors
One Station Place
Stamford, Connecticut 06902
To Employee at: The current residential mailing address and
residential telecopy number for Employee as
reflected in Employer's employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement. If for any reason such
closing shall not occur, this Agreement and all of its terms and conditions
shall be null and void and of no effect whatsoever.
11
<PAGE>
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be June 30, 1996; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date, i.e.,
June 30 (thus extending the term of this Agreement), to a date which is exactly
two years after the Scheduled Termination Date then in effect (and after such a
change, such date shall thereafter be the then "Scheduled Termination Date")
unless either Employer or Employee gives notice (the "Notice of Non-Extension")
to the other party that the Scheduled Termination Date shall not be so
postponed; and provided further, that the Scheduled Termination Date
automatically shall be postponed pursuant to the preceding clause for successive
two-year periods until a Notice of Non-Extension is given by at least one of the
parties. Any Notice of Non-Extension must be given in writing at least six
months prior to the Scheduled Termination Date to which the Notice of Non-
Extension applies. Upon any such non-renewal by either party, Employee shall be
subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of Connecticut applicable to
Agreements made and to be performed only within the State of Connecticut without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12
<PAGE>
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek
13
<PAGE>
both temporary and permanent injunctive relief without the necessity of proving
actual damages. In case any of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
any such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal or unenforceable provision had been limited or modified
(consistent with its general intent) to the extent necessary to make it valid,
legal and enforceable, or if it shall not be possible to so limit or modify such
invalid, illegal or unenforceable provision or part of a provision, this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision or part of a provision had never been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
COLUMBUS CIRCLE INVESTORS,
a Delaware general partnership
By: /s/ Irvin F. Smith
----------------------------
Name: /s/ Irvin F. Smith
--------------------------
Title:_________________________
"EMPLOYEE"
/s/ DANIEL S. PICKETT
_______________________________
Daniel S. Pickett
15
<PAGE>
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
William F. Podlich, III
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16, 1994, by and between Pacific Investment Management Company, a Delaware
general partnership ("Employer"), and William F. Podlich, III ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general partnership
("PIMCO GP"), Pacific Financial Asset Management Company, a California
corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain individuals
associated with the respective businesses of TAG LP, Pacific Investment
Management Company, a California corporation ("PIMCO Inc."), and PFAMCO are
parties to that certain Amended and Restated Agreement and Plan of Consolidation
for PIMCO Advisors L.P. effective as of July 11, 1994 (the "Consolidation
Agreement"), providing for the consolidation of the investment management and
advisory business of TAG LP with the investment management and advisory
businesses of PFAMCO and PIMCO Inc. in the manner described therein (the
"Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most cleanly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such person
or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November __, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory
3
<PAGE>
Group L.P.) effective as of November __, 1994, as the same may be amended,
supplemented or restated from time to time in accordance with its terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is si months after the Employment
Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
4
<PAGE>
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary employee payroll practices,
including but not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As
5
<PAGE>
provided in the Profit Sharing Plan and the Partnership Agreement, Employee's
interest in the Profit Sharing Plan may be increased or decreased from time to
time and Employee's interest in the Profit Sharing Plan may be affected by
actions such as the awarding of interests to new or current employees including
Managing Directors, or the loss of interests of other participants. Employee's
rights under the Profit Sharing Plan shall be governed by the Profit Sharing
Plan document as the same may be amended from time to time as provided therein
and herein, and nothing herein shall be construed to confer any additional
rights on Employee under such Plan. Except as expressly provided above with
respect to Employee's initial interest in the Profit Sharing Plan, Employee
shall have no right under this Agreement or under the Profit Sharing Plan to any
percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such benefits
shall be on terms no less favorable than under Employee's prior employment
agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and
6
<PAGE>
upon such termination for any reason, shall no longer be a Managing Director.
Upon any termination prior to the Scheduled Termination Date the rights of the
parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4(a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
7
<PAGE>
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
8
<PAGE>
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a Super-Majority Board Vote)) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employer" is any person or entity for
whom Employer is performing Investment Management Services at the
Employment Termination
9
<PAGE>
Date or for whom Employer performed Investment Management Services at
any time during the six months immediately preceding the Employment
Termination Date and any person or entity with whom Employer was
actively attempting to develop an investment advisory relationship
during such period); provided, however, that this paragraph (1) shall
not prohibit Employee from providing investment advisory or investment
management or other services to any person or entity that is not a
client of Employer, and (2) shall not prohibit Employee from working
as part of an enterprise having clients of Employer as its clients as
long as Employee can demonstrate by clean and convincing evidence that
he has no direct or indirect involvement with the management of such
clients' accounts or the provision of advice or other services with
respect thereto and that he has refrained from contacting such clients
directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
10
<PAGE>
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
To Employee at: The current residential mailing address and residential
telecopy number for Employee as reflected in Employer's
employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
11
<PAGE>
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1994; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly one month after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive one-month periods until a Notice of Non-
Extension is given by at least one of the parties. Any Notice of Non-Extension
must be given in writing at least one month prior to the Scheduled Termination
Date to which the Notice of Non-Extension applies. Upon any such non-renewal by
either party, Employee shall be subject to Section 6 to the extent provided
therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12
<PAGE>
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5,6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual
13
<PAGE>
damages. In case any of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT COMPANY,
a Delaware general partnership
By: /s/ William S. Thompson
-------------------------------------
Name: William S. Thompson
-----------------------------------
Title: CEO
----------------------------------
"EMPLOYEE"
/s/ William F. Podlich,
----------------------------------------
William F. Podlich, III
15
<PAGE>
EXHIBIT A
1994
NON-QUALIFIED PROFIT SHARING PLAN
<PAGE>
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
William S. Thompson
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of November
16 1994, by and between Pacific Investment Management Company, a Delaware
- --
general partnership ("Employer"), and William S. Thompson ("Employee").
R E C I T A L S
---------------
WHEREAS, Thomson Advisory Group L.P., a Delaware limited partnership ("TAG
LP"), Thomson Advisory Group Inc., a Delaware corporation ("TAG Inc."),
stockholders of TAG Inc., PIMCO Partners, G.P., a California general
partnership ("PIMCO GP"), Pacific Financial Asset Management Company, a
California corporation ("PFAMCO"), certain subsidiaries of PFAMCO and certain
individuals associated with the respective businesses of TAG LP, Pacific
Investment Management Company, a California corporation ("PIMCO Inc."), and
PFAMCO are parties to that certain Amended and Restated Agreement and Plan of
Consolidation for PIMCO Advisors L.P. effective as of July 11, 1994 (the
"Consolidation Agreement"), providing for the consolidation of the investment
management and advisory business of TAG LP with the investment management and
advisory businesses of PFAMCO and PIMCO Inc. in the manner described therein
(the "Consolidation").
WHEREAS, Employer has acquired its business in connection with and pursuant
to the Consolidation.
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(1)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer from and after the Consolidation, subject to the
consummation thereof, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
<PAGE>
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
---------
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" shall have the meaning set forth in Section
---------------------------
9(b).
"Employer Managed Funds" - means as of any date of reference, those funds
----------------------
or investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint venture
-------------------
or other business organization in which the Employer owns stock, partnership
interests or other equity securities and which is controlled by the Employer.
For such purposes "control" means the possession, direct or indirect, of the
power to (a) vote 50% or more of the outstanding voting securities of such
person or entity, or (b) otherwise direct the management policies of such
person or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
2
<PAGE>
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
"Managing Director" means a person who, at the time of reference, is
-----------------
employed by the Employer in the capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a Super-
Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as it
---------------
may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November __, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended and
------------------------------------
Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory
3
<PAGE>
Group L.P.) effective as of November __, 1994, as the same may be amended,
supplemented or restated from time to time in accordance with its terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date; (ii) in the case of a termination For Cause, the later of (X)
the date which is six months after the Employment Termination Date or (Y) the
then Schedule Termination Date; and (iii) in the case of a termination on the
then Scheduled Termination Date by reason of its non-extension pursuant to
Section 9(c) hereof, the date which is six months after the Employment
Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
4
<PAGE>
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree upon from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with Employer and which is reasonable and
proper under general rules of business conduct. Employee shall not, during the
term of this Agreement, directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether for compensation or otherwise, to an extent that such services interfere
with or detract from the quality of Employee's performance of his duties and
obligations on behalf of Employer. Notwithstanding the foregoing, Employee shall
not be deemed to be rendering services contrary to the provisions of the
preceding sentence unless and until (a) Employer gives written notice to
Employee of Employer's belief that Employee is rendering services to an extent
prohibited by the provisions of the preceding sentence (such notice shall
specify the reasons for such belief), and (b) Employee fails, within 30 days
after the effective date of such notice (determined as provided in Section 8
hereof), to cease rendering such services as are prohibited by the provisions of
the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $187,300 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary employee payroll practices,
including but not limited to all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As
5
<PAGE>
provided in the Profit Sharing Plan and the Partnership Agreement, Employee's
interest in the Profit Sharing Plan may be increased or decreased from time to
time and Employee's interest in the Profit Sharing Plan may be affected by
actions such as the awarding of interests to new or current employees including
Managing Directors, or the loss of interests of other participants. Employee's
rights under the Profit Sharing Plan shall be governed by the Profit Sharing
Plan document as the same may be amended from time to time as provided therein
and herein, and nothing herein shall be construed to confer any additional
rights on Employee under such Plan. Except as expressly provided above with
respect to Employee's initial interest in the Profit Sharing Plan, Employee
shall have no right under this Agreement or under the Profit Sharing Plan to any
percentage interest in the Profit Sharing Plan.
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations; provided further such benefits
shall be on terms no less favorable than under Employee's prior employment
agreement with PIMCO Inc. in effect as of the date hereof.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create
or be deemed to create any obligation, express or implied, on the part of
Employer or any affiliate of Employer with respect to the continuation of any
benefit or other plan or arrangement maintained at or prior to the date hereof
or the creation and maintenance of any particular benefit or other plan or
arrangement at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination Date as provided below; provided, however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and
6
<PAGE>
upon such termination for any reason, shall no longer be a Managing Director.
Upon any termination prior to the Scheduled Termination Date the rights of the
parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate) his base salary
pursuant to Section 3(a) hereof and shall provide Employee (or his estate or
beneficiaries) with all the benefits contemplated by Section 4(a) hereof for a
period of one year from the date of termination of Employee's employment
pursuant to this Section 5(a). In addition, upon any such termination, Employer
shall pay Employee or his estate, (i) any base salary pursuant to Section 3(a)
hereof which is earned but unpaid as of the date of termination, (ii) any
compensation owed to Employee pursuant to the Profit Sharing Plan pursuant to
Section 3(b) hereof as provided therein and (iii) any reimbursement amounts owed
to Employee and any other amounts owed to Employee under any benefit plan
(including amounts under any disability plan) in respect of service through the
date of termination. As used herein, the term permanent incapacity means the
inability of Employee, by reason of injury, illness or other similar cause to
perform a major part of his duties and responsibilities in connection with the
conduct of the business and affairs of Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event of
-----------------------------------------------
(i) a termination of Employee's employment by reason of a Voluntary Termination
or (ii) in the event of Employee's termination by Employer For Cause, then (A)
all obligations of Employer under any Section of this Agreement shall terminate
as of the date of such termination, (B) all obligations of Employer and its
Affiliates under the Profit Sharing Plan shall terminate as provided therein,
and (C) Employee's obligations under Section 6(a) and Section 6(c) hereof shall
continue unaffected by the termination of Employee's employment in accordance
with the terms thereof and, as a material consideration for its agreements
hereunder and other arrangements in connection with the Consolidation, Employer
shall have the right to enforce such obligations to the full extent set forth
therein. Employee agrees to give Employer at least six months prior written
notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known would
materially and adversely affect Employer's business; and the term
"Termination Offense" shall mean any felony criminal offense which
involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or misappropriation
of property, theft, or any other crime involving dishonesty;
7
<PAGE>
(ii) Employee has persistently and willfully neglected his
duties as provided herein after Employer has given Employee written
notice specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such a termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
-----------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
8
<PAGE>
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business, including without
limitation the "Pacific Investment Management Company" trade names and service
marks and any combinations or variations thereof and all related logos, are and
shall be the exclusive property of Employer or such Affiliate, as applicable,
for its or their sole use, and (where applicable) shall be payable directly to
Employer or such Affiliate. Employee acknowledges that, in the course of
performing services hereunder and otherwise, including for Employer's
predecessor, Employee has had and will from time to time have access to
confidential records, data, client and contract lists, trade secrets, formulae,
computer programs and software, manuals and documentation, algorithms, and
similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board (which consent shall
require a Super-Majority Board Vote)) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance or confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c), Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any
other services to any person or entity that is a client of Employer
(for this purpose, a "client of Employer" is any person or entity for
whom Employer is performing Investment Management Services at the
Employment Termination
9
<PAGE>
Date or for whom Employer performed Investment Management Services at
any time during the six months immediately preceding the Employment
Termination Date and any person or entity with whom Employer was
actively attempting to develop an investment advisory relationship
during such period); provided, however, that this paragraph (1) shall
not prohibit Employee from providing investment advisory or investment
management or other services to any person or entity that is not a
client of Employer, and (2) shall not prohibit Employee from working
as part of an enterprise having clients of Employer as its clients as
long as Employee can demonstrate by clear and convincing evidence that
he has no direct or indirect involvement with the management of such
clients' accounts or the provision of advice or other services with
respect thereto and that he has refrained from contacting such clients
directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away any
such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer who
was employed by Employer at any time during the six months immediately
preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
-----------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee agree
that none of the following actions will be taken by Employer (or the partners
thereof) unless such action shall first have been approved as provided below:
10
<PAGE>
(a) The amendment or modification of the provisions of Article VII of
the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
telecopy) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by telecopy, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
NewportBeach, CA 92660
To Employee at: The current residential mailing address and
residential telecopy number for Employee as
reflected in Employer's employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by telecopy. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms and
provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
11
<PAGE>
(b) The term of Employee's employment under this Agreement shall end
on the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination
Date" initially shall be December 31, 1997; provided, however, that such
initial Scheduled Termination Date automatically shall be changed on such
initial Scheduled Termination Date or any subsequent Scheduled Termination Date
to a date which is exactly two years after the Scheduled Termination Date then
in effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior or
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
12
<PAGE>
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that, subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors, and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE: SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may have, the parties hereto shall be entitled to enforce the
specific performance of this Agreement by and to seek both temporary and
permanent injunctive relief without the necessity of proving actual
13
<PAGE>
damages. In case any of the provisions contained in this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, any such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had been limited or modified (consistent with
its general intent) to the extent necessary to make it valid, legal and
enforceable, or if it shall not be possible to so limit or modify such invalid,
illegal or unenforceable provision or part of a provision, this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or part of a
provision had never been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT
COMPANY,
a Delaware general partnership
By: /s/ D. Edington
-----------------------------------
Name: D. EDINGTON
---------------------------------
Title: MANAGING DIRECTOR
--------------------------------
"EMPLOYEE"
/s/ William S. Thompson
--------------------------------------
William S. Thompson
15
<PAGE>
EXHIBIT A
---------
1994
NON-QUALIFIED PROFIT SHARING PLAN
<PAGE>
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
between
Pacific Investment Management Company,
a Delaware general partnership,
and
BENJAMIN L. TROSKY
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into as of the 1st
day of April, 1996, by and between Pacific Investment Management Company, a
Delaware general partnership ("Employer") and Benjamin L. Trosky ("Employee").
RECITALS
--------
WHEREAS, Employer has proposed to appoint Employee as one of its Managing
Directors and to grant Employee an interest in its Profit Sharing Plan (as
defined in Section 3(b)).
WHEREAS, Employer and Employee desire to assure that Employee will perform
services for Employer, with such employment to be governed by the terms and
provisions of this Agreement commencing as of the effective date of this
Agreement as specified in Section 9 hereof (the "Effective Date").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS.
-----------
The following definitions shall be applicable to the terms set forth below
as used in this Agreement:
"Affiliate" - means, with respect to any person or entity (herein the
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote 50% or more of the outstanding voting securities of such person or entity,
or (b) otherwise direct the management policies of such person or entity, by
contract or otherwise. An Affiliate of a Partner shall also include any person
or entity that is an officer, director or trustee (or the equivalent) or
constituent partner of such Partner, any person or entity that is an officer,
director or trustee (or the equivalent) or direct or indirect partner of any
constituent partner of any Partner, but shall exclude any public limited partner
of the Supervisory Partner unless such partner beneficially owns 5% or more of
the Supervisory Partner's outstanding units.
2
<PAGE>
"CPI Adjustment Percentage" - means the percentage (if any) by which the
-------------------------
level of the Consumer Price Index for All-Urban Consumers as reported in the
Bureau of Labor Statistics of the United States Department of Labor for the
month of November of the year immediately prior to the date on which the
adjustment is to be calculated, has increased over its level for the month of
November 1993. If the Consumer Price Index shall no longer be published, another
index generally recognized as authoritative and furnishing the most clearly
similar price information available shall be substituted.
"Employment Termination Date" - shall have the meaning set forth in
---------------------------
Section 9(b).
"Employer Managed Funds" - means as of any date reference, those funds or
----------------------
investments with respect to which the Employer or any Employer Subsidiary is
performing any Investment Management Services.
"Employer Subsidiary" - means, any corporation, partnership, joint
-------------------
venture or other business organization in which the Employer owns stock,
partnership interests or other equity securities and which is controlled by the
Employer. For such purposes "control" means the possession, direct or indirect,
of the power to (a) vote 50% or more of the outstanding voting securities of
such person or entity, or (b) otherwise direct the management policies of such
person or entity, by contract or otherwise.
"Equity Board" - means the Equity Board of PIMCO Advisors L.P. as it may
------------
from time to time be constituted under the PIMCO Advisors Partnership Agreement.
"For Cause" - shall have the meaning set forth in Section 5(b) hereof.
---------
"Investment Management Services" - means any services which involve (a) the
------------------------------
management, for a fee or other remuneration, of an investment account or fund
(or portions thereof or a group of investment accounts or funds), or (b) the
giving of advice, for a fee or other remuneration, with respect to the
investment of specific assets or funds (or any specific group of assets or
funds). Notwithstanding the foregoing, it is intended that Investment Management
Services shall not include the giving of general investment advice that is not
related to an identifiable investment account or fund (or group of investment
accounts or funds) for which the advisor receives no remuneration.
"Involuntary Termination" - means Employer's termination of Employee's
-----------------------
employment (but excluding a termination of Employee's employment by Employer For
Cause).
"Majority Board Vote" - shall have the meaning set forth in the Partnership
-------------------
Agreement.
"Management Board" - means the Management Board of Employer, composed
----------------
exclusively of all of the Managing Directors of Employer.
3
<PAGE>
"Managing Director" - means a person who, at the time of reference, is
-----------------
employed by the Employer in a capacity as, and holds the title of, Managing
Director (including Employee at all times that Employee is employed as a
Managing Director under the terms of this Agreement).
"Managing Partner" - means PIMCO Management, Inc., or any additional or
----------------
successor Managing Partner of Employer as of the effective date that such party
shall become a Managing Partner of Employer following approval by a
Super-Majority Board Vote.
"Operating Board" - means the Operating Board of PIMCO Advisors L.P. as
---------------
it may from time to time be constituted under the PIMCO Advisors Partnership
Agreement.
"Partners" - means, collectively, PIMCO Advisors L.P., PIMCO Management,
--------
Inc., and any additional or successor Partners as of the effective date that
such party shall become a Partner of the Employer in accordance with the terms
of the Partnership Agreement. The term "Partner" may be used herein to refer
individually to any of such Partners.
"Partnership Agreement" - means that certain Amended and Restated General
---------------------
Partnership Agreement of Pacific Investment Management Company dated as of
November 14, 1994, as the same may be amended, supplemented or restated from
time to time in accordance with its terms.
"PIMCO Advisors L.P." - means PIMCO Advisors L.P., a Delaware limited
-------------------
partnership and the Supervisory Partner of the Employer.
"PIMCO Advisors Partnership Agreement" - means that certain Amended
------------------------------------
and Restated Agreement of Limited Partnership of PIMCO Advisors L.P. (formerly
Thomson Advisory Group L.P.) effective as of November 14, 1994, as the same may
be amended, supplemented or restated from time to time in accordance with its
terms.
"Prohibited Competition Activity" - means any of the following activities:
-------------------------------
(a) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
(i) diverting or taking away any Employer Managed Funds, or (ii) soliciting any
person or entity for the purpose of diverting or taking away any such Employer
Managed Funds; and
(b) Directly or indirectly, for or on behalf of any person, firm,
corporation or other entity other than the Employer or any Employer Subsidiary,
performing any Prohibited Investment Management Services.
4
<PAGE>
For purposes of this definition of Prohibited Competition Activity, the Employee
shall be deemed to be indirectly engaged in any activity described in clause (a)
or (b) above if such activity is carried out or effected by or through another
party that is acting at the direction of, or in conjunction with, the Employee.
"Prohibited Investment Management Services" - means any Investment
-----------------------------------------
Management Services which compete with the Investment Management Services
provided by Employer, PIMCO Advisors L.P. or any Affiliates thereof.
"Restricted Period" - means the period beginning on the Employment
-----------------
Termination Date and ending on: (i) in the case of a Voluntary Termination, the
latest to occur of (W) the then Scheduled Termination Date or (X) the date which
is six months after the Employment Termination Date or (Y) the date which is
nine months after the date of the notice of Voluntary Termination given pursuant
to Section 5(b) or (Z) if no notice of Voluntary Termination is given before the
Employment Termination Date, the date which is nine months after the Employment
Termination Date or (Y) the then Scheduled Termination Date; and (iii) in the
case of a termination on the then Scheduled Termination Date by reason of its
non-extension pursuant to Section 9(c) hereof, the date which is six months
after the Employment Termination Date.
"Scheduled Termination Date" - shall have the meaning set forth in Section
--------------------------
9(c).
"Super-Majority Board Vote" - shall have the meaning set forth in the
-------------------------
Partnership Agreement.
"Supervisory Partner" - means PIMCO Advisors L.P. or any additional or
-------------------
successor Supervisory Partner as of the effective date that such party shall
become a Supervisory Partner of the Employer in accordance with the provisions
of the Partnership Agreement.
"Voluntary Termination" - means a termination of employment by reason of
---------------------
Employee's voluntary resignation or any other voluntary termination of
employment by Employee.
2. EMPLOYMENT OF EMPLOYEE.
----------------------
Subject to the terms and provisions of this Agreement, Employer Agrees to
employ Employee as a Managing Director of Employer and Employee agrees to be
employed in such capacity, with such employment to commence effective as of the
Effective Date. Employee agrees to serve Employer faithfully and to the best of
his ability in such capacities, or in such other capacity as Employee and
Employer shall agree from time to time. Employee shall devote such time and
attention to the business of Employer during the term of this Agreement as
Employer in its discretion shall deem appropriate and commensurate with
Employee's duties and responsibilities with
5
<PAGE>
Employer and which is reasonable and proper under general rules of business
conduct. Employee shall not, during the term of this Agreement, directly or
indirectly render any services of a business, commercial or professional nature
to any other person or organization, whether for compensation or otherwise, to
an extent that such services interfere with or detract from the quality of
Employee's performance of his duties and obligations on behalf of Employer.
Notwithstanding the foregoing, Employee shall not be deemed to be rendering
services contrary to the provisions of the preceding sentence unless and until
(a) Employer gives written notice to Employee of Employer's belief that Employee
is rendering services to an extent prohibited by the provisions of the preceding
sentence (such notice shall specify the reasons for such belief), and (b)
Employee fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cease rendering such services
as are prohibited by the provisions of the preceding sentence.
3. COMPENSATION.
------------
(a) As compensation for Employee's performance of his services under
this Agreement, Employer shall pay Employee an annual base cash salary of not
less than $225,000 with such minimum amount increased on January 1st of each
calendar year following the Effective Date during the term of this Agreement by
the CPI Adjustment Percentage. Such compensation shall be prorated for a partial
year based on the period worked for Employer during such year, and shall be
payable in accordance with Employer's customary payroll practices, including,
but not limited to, all customary withholding practices.
(b) As additional compensation for Employee's performance of services
under this Agreement, Employee shall be entitled to participate in the 1994
Pacific Investment Management Company Non-Qualified Profit Sharing Plan (and any
successor plan adopted by Employer during Employee's term of employment
hereunder) (the "Profit Sharing Plan"), a copy of which is attached hereto as
Exhibit A, subject to all of the terms and provisions of the Profit Sharing Plan
- ---------
document as the same may be amended from time to time as provided therein.
Employee's initial percentage under the Profit Sharing Plan shall be determined
by the Compensation Committee (as such term is defined in the Partnership
Agreement). As provided in the Profit Sharing Plan and the Partnership
Agreement, Employee's interest in the Profit Sharing Plan may be increased or
decreased from time to time and Employee's interest in the Profit Sharing Plan
may be affected by actions such as the awarding of interests to new or current
employees including Managing Directors, or the loss of interests of other
participants. Employee's rights under the Profit Sharing Plan shall be governed
by the Profit Sharing Plan document as the same may be amended from time to time
as provided herein and herein, and nothing herein shall be construed to confer
any additional rights on Employee under such Plan. Except as expressly provided
above with respect to Employee's initial interest in the Profit Sharing Plan,
Employee shall have no right under this Agreement or under the Profit Sharing
Plan to any percentage interest in the Profit Sharing Plan.
6
<PAGE>
4. BENEFIT ARRANGEMENTS.
--------------------
(a) Employee shall be entitled to participate in all health, welfare,
insurance, pension and other similar employee benefit plans and programs of
Employer (including, without limitation, the Employer's "Perquisite Plan") or
the Supervisory Partner which are open to participation by employees holding
employment positions comparable to Employee's position; provided, however, that
such participation by Employee shall in all cases be subject to the terms and
provisions of each such employee plan or program and also to applicable federal,
state or other governmental laws and regulations.
(b) Employer shall promptly reimburse Employee for all reasonable
business expenses incurred by Employee during the term of this Agreement in
accordance with practices as in effect from time to time.
(c) During the term of this Agreement, Employee shall receive paid
vacations in accordance with Employer's practices as in effect from time to
time.
(d) Compliance with the foregoing subsections shall in no way create or
be deemed to create any obligation, express or implied, on the part of Employer
or any affiliate of Employer with respect to the continuation of any benefit or
other plan or arrangement maintained at or prior to the date hereof or the
creation and maintenance of any particular benefit or other plan or arrangement
at any time after the date hereof.
5. TERMINATION OF EMPLOYMENT PRIOR TO THE SCHEDULED TERMINATION DATE.
-----------------------------------------------------------------
The parties hereby expressly agree that Employee's employment by Employer
may terminate or be terminated by either party at any time prior to the
Scheduled Termination date as provided below; provided however, that any such
termination of Employee's employment by Employer shall be in accordance with the
terms of Article VII of the Partnership Agreement in effect as of the date such
Partnership Agreement was first executed. Except as otherwise expressly set
forth herein, Employee shall not be entitled to any severance pay, relocation
benefits or other severance benefits upon termination of his employment with
Employer, and upon such termination for any reason, shall no longer be a
Managing Director. Upon any termination prior to the Scheduled Termination Date
the rights of the parties shall be as follows:
(a) Death and Permanent Incapacity. Upon the death of Employee or the
------------------------------
permanent incapacity of Employee continuing for a period of more than 180 days,
Employee's employment by Employer hereunder shall terminate. Upon any such
termination, Employer shall pay Employee (or his estate or beneficiaries) with
all the benefits contemplated by Section 4(a) hereof for a period of one year
from the date
7
<PAGE>
of termination of Employee's employment pursuant to this Section 5(a). In
addition, upon any such termination, Employer shall pay Employee or his estate,
(i) any base salary pursuant to Section 3(a) hereof which is earned but unpaid
as of the date of termination, (ii) any compensation owed to Employee pursuant
to the Profit Sharing Plan pursuant to Section 3(b) hereof as provided therein
and (iii) any reimbursement amounts owed to Employee and any other amounts owed
to Employee under any benefit plan (including amounts under any disability plan)
in respect of service through the date of termination. As used herein, the term
permanent incapacity means the inability of Employee, by reason of injury,
illness of other similar cause to perform a major part of his duties and
responsibilities in connection with the conduct of the business and affairs of
Employer and its Affiliates.
(b) Voluntary Termination and Termination For Cause. In the event
-----------------------------------------------
of (i) a termination of Employee's employment by reason of a Voluntary
Termination or (ii) in the event of Employee's termination by Employer for
Cause, then (A) all obligations of Employer under any Section of this Agreement
shall terminate as of the date of such termination, (B) all obligations of
Employer and its Affiliates under the Profit Sharing Plan shall terminate as
provided therein, and (C) Employee's obligations under Section 6(a) and Section
6(c) hereof shall continue unaffected by the termination of Employee's
employment in accordance with the terms thereof and, as a material consideration
for its agreements hereunder and other arrangements in connection with the
Consolidation, Employer shall have the right to enforce such obligations to the
full extent set forth therein. Employee agrees to give Employer at least six
months prior written notice of any Voluntary Termination hereunder.
As used herein, the term "For Cause" shall mean any of the following:
(i) Employee has engaged in actions which both constitute a
Termination Offense, and are of a nature which if publicly known
would materially and adversely affect Employer's business; and the
term "Termination Offense" shall mean any felony criminal offense
which involves a violation of federal or state securities laws or
regulations, embezzlement, fraud, wrongful taking or
misappropriation of property, theft, or any other crime involving
dishonesty;
(ii) Employee has persistently and willfully neglected his duties as
provided herein after Employer has given Employee written notice
specifying such conduct by Employee and giving Employee a
reasonable period of time (not less than 45 days), to conform his
conduct to such duties; or
(iii) Employee has engaged in Prohibited Competition Activity.
Any determination as to whether Employee has been terminated For Cause for
purposes of this Agreement shall be made without reference to the determination
8
<PAGE>
required to be made under the Partnership Agreement and the related definition
of "For Cause" in that Agreement.
(c) Involuntary Termination and Default by Employer. In the event of the
-----------------------------------------------
Involuntary Termination of Employee's employment by Employer, then (i) Employer
shall continue to pay Employee his base salary as was in effect as of the
Employment Termination Date subject to the CPI adjustment for the longer of one
year from the Employment Termination Date or through the then Scheduled
Termination Date and during such period shall continue in effect Employee's
benefits in accordance with Section 4(a), (ii) Employee shall be entitled to
participate in the Profit Sharing Plan to the extent and only to the extent
provided therein and (iii) all obligations of Employee under this Agreement
other than Section 6(a) hereof shall terminate; provided, however, that in the
event that Employee engages in any of the activities described in Section 6(c)
hereof following any such termination, then Employer's obligations under clause
(i) above shall terminate. After any material default by Employer in the
performance of any of its obligations hereunder, Employee shall have the right
to terminate his employment hereunder for a period of three months thereafter,
and such termination shall be deemed an Involuntary Termination by Employer.
Notwithstanding the foregoing, Employer shall not be deemed to have committed a
material default hereunder unless and until (x) Employee gives written notice to
Employer of Employee's belief that Employer has committed such a default, and
(y) Employer fails, within 30 days after the effective date of such notice
(determined as provided in Section 8 hereof), to cure such default. Payment of
the amount specified in this Section 5(c) is agreed by the parties hereto to be
in full satisfaction and compromise of any claims arising out of any termination
of Employee's employment pursuant to this Section 5(c).
6. CONFIDENTIAL INFORMATION: PROHIBITED ACTIVITIES.
------------------------------------------------
(a) Employee hereby represents that as of the date of this Agreement
he is not performing any consulting or other duties for, and is not a party to
any similar agreement with, any business or venture competing with the Employer
or any of its Affiliates. By execution of this Agreement, Employee hereby
covenants that during the term of his employment with Employer he will not
engage in any Prohibited Competition Activity. Without limitation of any other
provision of this Agreement, the restrictions set forth in this Section 6(a)
shall in no event be applicable to or restrict Employee following termination of
his employment for any reason.
(b) Employee agrees and acknowledges that any and all presently
existing investment advisory business of Employer and its Affiliates and all
business developed by Employer and its Affiliates or any other employee of
Employer and its Affiliates, including without limitation all investment
advisory contracts, fees, commissions, compensation records, client lists,
agreements, and any other incident of any business developed by Employer or
earned or carried on by Employer and all trade names, service marks and logos
under which Employer and its Affiliates do business,
9
<PAGE>
including without limitation the "Pacific Investment Management Company" trade
names and service marks and any combinations of variations thereof and all
related logos, are and shall be the exclusive property of Employer or such
Affiliate, as applicable, for its or their sole use, and (where applicable)
shall be payable directly to Employer or such Affiliate. Employee acknowledges
that, in the course of performing services hereunder and otherwise, including
for Employer's predecessor, Employee has had and will from time to time have
access to confidential records, data, client and contract lists, trade secrets,
formulae, computer programs and software, manuals and documentation, algorithms,
and similar and other confidential information owned or used in the course of
business by Employer or its Affiliates. Employee agrees always to keep secret
and not ever (during the term of this Agreement or thereafter) publish, divulge,
furnish, use or make accessible to anyone (otherwise than in the regular
business of Employer or any Affiliate thereof or otherwise at the Employer's
request and with the consent of the Management Board [which consent shall
require a Super-Majority Board Vote]) any knowledge or information of a
confidential or proprietary nature with respect to any trade secrets,
proprietary plans, clients, client requirements, service providers, business
operations or techniques of Employer or any of its Affiliates. Upon termination
of Employee's services to Employer for any reason, all data, memoranda, client
lists, notes, programs and other papers, items and tangible media, and
reproductions thereof relating to the foregoing matters in Employee's possession
or control, shall be returned to Employer and remain in its possession (except
where the return of such items shall be unreasonable or impractical in relation
to the importance of confidentiality of such items).
(c) In further reflection of Employer's important interests in its
proprietary information and trade and employee relationships as contemplated by
Section 6(b), Employee agrees that, following the Employment Termination Date,
unless Employee's termination of employment occurred by reason of death or
permanent incapacity as provided in Section 5(a) or Involuntary Termination as
provided in Section 5(c) Employee will not, during the Restricted Period,
without the consent of the Management Board (which consent shall require a
Super-Majority Board Vote) and the consent of the Supervisory Partner, directly
or indirectly, whether as owner, part-owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, on
behalf of himself or any firm, corporation or other business organization other
than Employer or any Affiliate of Employer:
(A) provide investment advisory, investment management or any other
services to any person or entity that is a client of Employer (for this
purpose, a "client of Employer" is any person or entity for whom
Employer is performing Investment Management Services at the Employment
Termination Date or for whom Employer performed Investment Management
Services at any time during the six months immediately preceding the
Employment Termination Date and any person or entity with whom Employer
was actively attempting to develop an investment advisory relationship
during such period); provided,
10
<PAGE>
however, that this paragraph (1) shall not prohibit Employee from
providing investment advisory or investment management or other
services to any person or entity that is not a client of Employer,
and (2) shall not prohibit Employee from working as part of an
enterprise having clients of Employer as its clients as long as
Employee can demonstrate by clear and convincing evidence that he
has no direct or indirect involvement with the management of such
clients' accounts or the provision of advice or other services with
respect thereto and that he has refrained from contacting such
clients directly or indirectly;
(B) divert or take away any Employer Managed Funds or solicit
any person or entity for the purpose of diverting or taking away
any such Employer Managed Funds; or
(C) solicit or induce any professional employee or former
professional employee of Employer to terminate his relationship
therewith, hire any such professional employee, or work in any
enterprise involving investment advisory services with any
professional employee or former professional employee of Employer
who was employed by Employer at any time during the six months
immediately preceding the Employment Termination Date.
Notwithstanding the provisions of this Section 6(c), Employee may make
passive investments in a competitive enterprise the shares of which are publicly
traded provided his holding therein, together with any holdings of his
Affiliates, do not exceed 1% of the outstanding shares or comparable interests
in such entity.
(d) Employer shall not have the right to enforce the provisions of
Section 6(c) following any termination of employment prior to the Scheduled
Termination Date by reason of death or permanent incapacity as provided in
Section 5(a) or Involuntary Termination as provided in Section 5(c), its sole
right being to terminate further payments as described in such Sections in the
event Employee elects to engage in any activity described in such Sections while
otherwise entitled to receive such payments.
7. ADDITIONAL COVENANTS REGARDING MANAGEMENT OF EMPLOYER.
------------------------------------------------------
Employer and Employee understand and agree that it is important to the
employment relationship of the Managing Directors with Employer that the
Managing Directors as a group have certain rights under the Partnership
Agreement and the Profit Sharing Plan. Accordingly, Employer and Employee
agree that none of the following actions will be taken by Employer (or the
partners thereof) unless such action shall first have been approved as
provided below:
11
<PAGE>
(a) The amendment or modification of the provisions of Article VII
of the Partnership Agreement (relating to the management of Employer) or any
successor provisions thereto must first be approved by a Majority Board Vote
(provided that to the extent that any such change amends a provision which
requires a Super-Majority Board Vote, such an amendment may only be adopted by
with the approval of a Super-Majority Board Vote); or
(b) The amendment, modification or termination of the Profit Sharing
Plan must first be approved by a Super-Majority Board Vote.
8. NOTICES.
-------
All notices, requests or other communications (hereinafter collectively
referred to as "Notices") required or permitted to be given hereunder or which
are given with respect to this Agreement shall be in writing (including
facsimile) and, unless otherwise expressly provided herein, shall be delivered
(a) by hand during normal business hours, (b) by Federal Express, United Parcel
Service or other reputable overnight commercial delivery service (collectively
"overnight courier"), (c) by registered or certified mail (return receipt
requested) or (d) by facsimile, addressed as follows:
To Employer at: Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, CA 92660
To Employee at: The current residential mailing address and residential
facsimile number for Employee as reflected in Employer's
employee records
Any such notice shall be effective for purposes of determining compliance
with the time requirements herein (unless otherwise specifically provided
herein) (a) at the time of personal delivery, if delivered by hand, (b) at the
time accepted for overnight delivery by the overnight courier, if delivered by
overnight courier, (c) at the time of deposit in the United States mail, postage
fully prepaid, if delivered by registered or certified mail, or (d) at the time
of confirmation of receipt, if delivered by facsimile. Either party may change
its address for purposes of Notices hereunder pursuant to a Notice, given as
provided herein, advising the other party of such change.
9. EFFECTIVE DATE/TERM OF AGREEMENT.
--------------------------------
(a) Employee and Employer agree that the employment relationship
between Employee and Employer shall be governed in all respects by the terms
and provisions of this Agreement effective as of the date of the closing of the
transactions contemplated by the Consolidation Agreement ("Effective Date"). If
for any reason such closing shall not occur, this Agreement and all of its terms
and conditions shall be null and void and of no effect whatsoever.
12
<PAGE>
(b) The term of Employee's employment under this Agreement shall end on
the earlier of the following dates (the "Employment Termination Date"):
(i) The Scheduled Termination Date; or
(ii) The effective date of Employee's termination of employment
with Employer as provided in Section 5 hereof, if earlier.
(c) As used in this Agreement, the initial "Scheduled Termination Date"
initially shall be December 31, 1998; provided, however, that such initial
Scheduled Termination Date automatically shall be changed on such initial
Scheduled Termination Date or any subsequent Scheduled Termination Date to a
date which is exactly two years after the Scheduled Termination Date then in
effect (and after such a change, such date shall thereafter be the then
"Scheduled Termination Date") unless either Employer or Employee gives notice
(the "Notice of Non-Extension") to the other party that the Scheduled
Termination Date shall not be so postponed; and provided further, that the
Scheduled Termination Date automatically shall be postponed pursuant to the
preceding clause for successive two-year periods until a Notice of Non-Extension
is given by at least one of the parties. Any Notice of Non-Extension must be
given in writing at least six months prior to the Scheduled Termination Date to
which the Notice of Non-Extension applies. Upon any such non-renewal by either
party, Employee shall be subject to Section 6 to the extent provided therein.
(d) Notwithstanding that Employee's employment by Employer under this
Agreement shall terminate on the Employment Termination Date, such termination
shall not have the effect of terminating those obligations of any party which,
pursuant to the terms of this Agreement, are contemplated as remaining in effect
to a date, or throughout a period which ends, after the Employment Termination
Date.
10. GOVERNING LAW.
-------------
This Agreement shall be governed by, interpreted under, and construed and
enforced in accordance with the laws of the State of California applicable to
Agreements made and to be performed only within the State of California without
regard to its rules concerning conflict of laws.
11. ENTIRE AGREEMENT.
----------------
The terms of this Agreement are intended by the parties as a final
expression of their agreement with respect to such terms as are included in this
Agreement and may not be contradicted by evidence of any prior to
contemporaneous agreement. This Agreement supersedes all prior understandings
and agreements between the parties relating to the subject matter hereof.
13
<PAGE>
12. MODIFICATIONS AND AMENDMENTS.
----------------------------
This Agreement may not be modified, amended, changed or supplemented, nor
may any obligations hereunder be waived, except by written instrument signed by
both parties and approved by Super-Majority Board Vote. Notwithstanding the
foregoing, Employer shall be entitled, without any approval or acceptance by
Employee, to exercise the discretionary powers and authority granted under:
Section 3 hereof with respect to Employee's compensation, provided that such
compensation shall not be less than the amount stated therein; and Section 5
hereof with respect to the termination of Employee's employment with Employer;
and provided further, that subject to the provisions of Section 7 hereof,
Employer shall be entitled, with Super-Majority Board Vote, without any approval
or acceptance by Employee, to amend, supplement, restate, modify or terminate
the Profit Sharing Plan.
13. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement and the provisions hereof shall be binding upon each of the
parties, their successors and assigns.
14. ASSIGNMENT.
----------
This Agreement and the rights, duties and obligations hereunder may not be
assigned (which term shall mean only the actual assignment of this Agreement) by
either party without the prior written consent of the other party.
15. THIRD PARTY RIGHTS.
------------------
The parties do not intend to confer any benefit hereunder on any person,
firm or corporation other than the parties hereto and, in the case of Employee's
death, Employee's estate, heirs or beneficiaries; provided, however, that with
respect to Sections 5, 6 and 7 hereof, PIMCO Advisors L.P. is an intended third-
party beneficiary.
16. NON-WAIVER OF RIGHTS.
--------------------
The failure or delay of either party in the exercise of any right given to
such party hereunder shall not constitute a waiver of rights unless the time
specified herein for exercise of such rights has expired, nor shall any single
or partial exercise of any right preclude other or further exercise thereof or
of any other right.
17. SPECIFIED PERFORMANCE; SEVERABILITY.
-----------------------------------
It is specifically understood and agreed that any breach of the provisions
of this Agreement will result in irreparable injury, that the remedy at law
alone will be an inadequate remedy for such breach and that, in addition to any
other remedy they may
14
<PAGE>
have, the parties hereto shall be entitled to enforce the specific performance
of this Agreement by and to seek both temporary and permanent injunctive relief
without the necessity of proving actual damages. In case any of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, any such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had been limited or modified (consistent with its general intent) to
the extent necessary to make it valid, legal and enforceable, or if it shall not
be possible to so limit or modify such invalid, illegal or unenforceable
provision or part of a provision, this Agreement shall be construed as if such
invalid, illegal or unenforceable provision or part of a provision had never
been contained in this Agreement.
18. PRONOUNS AND PLURALS.
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
19. COUNTERPARTS.
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as provided hereinabove.
"EMPLOYER"
PACIFIC INVESTMENT MANAGEMENT COMPANY,
a Delaware general partnership
By /s/ WILLIAM S. THOMPSON
-----------------------------------
Name WILLIAM S. THOMPSON
-----------------------------------
Title Managing Director & CEO
-----------------------------------
"EMPLOYEE"
/s/ BENJAMIN L. TROSKY
----------------------------------------
Benjamin L. Trosky
15
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF THE REGISTRANT
Columbus Circle Investors, a Delaware general partnership
Columbus Circle Investors Management Inc., a Delaware corporation
Cadence Capital Management, a Delaware general partnership
Cadence Capital Management Inc., a Delaware corporation
NFJ Investment Group, a Delaware general partnership
NFJ Management Inc., a Delaware corporation
Parametric Portfolio Associates, a Delaware general partnership
Parametric Management Inc., a Delaware corporation
Pacific Investment Management Company, a Delaware general partnership
PIMCO Management Inc., a Delaware corporation
StocksPLUS Management Inc., a Delaware corporation
Blairlogie Capital Management U.K., L.P., a United Kingdom limited partnership
Blairlogie Holding Limited, U.K. Liability Company
Columbus Circle Trust Company, a Connecticut corporation
PIMCO Funds Distribution Company, a Delaware corporation
<PAGE>
EXHIBIT 23.1
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-71016 on Form S-8 of our report dated February 14, 1997, appearing in this
Annual Report on Form 10-K of PIMCO Advisors L.P. and subsidiaries for the year
ended December 31, 1996.
PRICE WATERHOUSE LLP
Los Angeles, California
March 26, 1997
<PAGE>
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-71016 on Form S-8 of our report dated February 2, 1996, appearing in this
Annual Report on Form 10-K of PIMCO Advisors L.P. and subsidiaries for the year
ended December 31, 1995.
DELOITTE & TOUCHE LLP
Costa Mesa, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PIMCO
ADVISORS L.P. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 41,311
<SECURITIES> 11,521
<RECEIVABLES> 68,305
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,062
<PP&E> 10,561 <F1>
<DEPRECIATION> 6,980
<TOTAL-ASSETS> 358,500
<CURRENT-LIABILITIES> 59,842
<BONDS> 0
0
0
<COMMON> 306,777 <F2>
<OTHER-SE> (10,534) <F3>
<TOTAL-LIABILITY-AND-EQUITY> 358,500
<SALES> 0 <F4>
<TOTAL-REVENUES> 392,024 <F5>
<CGS> 0 <F4>
<TOTAL-COSTS> 267,141 <F6>
<OTHER-EXPENSES> 36,009 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 92,329
<INCOME-TAX> 1,201
<INCOME-CONTINUING> 91,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,128
<EPS-PRIMARY> 1.29 <F8>
<EPS-DILUTED> 1.05 <F9>
<FN>
<F1> Net of accumulated depreciation and amortization.
<F2> Entity is a partnership. Amount shown represents Partners' Capital.
<F3> Amount shown comprises Unamortized Compensation.
<F4> The partnership is in the service business and has no sales or cost of
goods sold of tangible products.
<F5> Amount shown comprises revenues from services.
<F6> Amount shown comprises costs of services.
<F7> Amount shown is from amortization of intangible assets.
<F8> Amount shown is for the Partnership's General Partner and Class A
Limited Partner Units.
<F9> Amount is for the Partnership's Class B Limited Partner Units.
</FN>
</TABLE>
