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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-19690
BARRA, INC.
(Exact name of registrant as specified in its charter)
California 94-2993326
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1995 University Avenue, Suite 400
Berkeley, California 94704-1058
(Address, including zip code, of principal executive offices)
(510) 548-5442
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of the registrant's Common Stock outstanding as of
June 30, 1996 was 7,840,964.
Exhibit Index is located on page 22.
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INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
Item 1 Financial Statements:
Consolidated Balance Sheets as of June 30,
1996(unaudited) and as of March 31, 1996 3
Unaudited Consolidated Statements of Income for the
Three Months Ended June 30, 1996 and June 30, 1995 4
Unaudited Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1996 and June 30, 1995 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PAGE
PART II OTHER INFORMATION NUMBER
Item 1 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 21
Exhibit Index 22
2
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PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS.
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BARRA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND MARCH 31, 1996
- -------------------------------------------------------------------------------------------------------------------
30-Jun-96 31-Mar-96
-----------------------------------
(Unaudited)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $15,903,894 $21,971,184
Accounts receivable:
Trade (Less allowance for doubtful accounts of $131,483 and $129,237) 9,748,902 8,866,985
Other 552,850 522,112
Related parties 111,938 45,899
Short-term investments 4,393,384 3,511,518
Investment in municipal debt securities - available for sale 6,600,000 --
Prepaid expenses 807,905 598,250
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Total current assets 38,118,873 35,515,948
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NOTES RECEIVABLE 7,335,777 1,658,960
NON-MARKETABLE INVESTMENTS 379,889 7,300,347
FURNITURE AND EQUIPMENT:
Computer equipment 8,764,330 7,490,382
Office equipment 569,379 531,332
Furniture and fixtures 2,186,008 2,126,581
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Total furniture and equipment 11,519,717 10,148,295
Less accumulated depreciation and amortization (6,492,045) (6,060,514)
- -------------------------------------------------------------------------------------------------------------------
5,027,672 4,087,781
DEFERRED TAX ASSETS 1,584,431 1,584,431
COMPUTER SOFTWARE
(Less accumulated amortization of $426,481 and $386,034) 658,225 498,643
INTANGIBLES AND OTHER ASSETS
(Less accumulated amortization of $686,410 and $406,186) 9,207,957 7,295,155
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TOTAL $62,312,824 $57,941,265
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,052,646 $655,428
Due to related party 631,055 567,201
Accrued expenses payable:
Accrued compensation 1,818,482 4,470,949
Accrued corporate income taxes 2,464,865 2,165,098
Other accrued expenses 3,100,139 2,520,641
Unearned revenues 14,458,941 11,883,577
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Total current liabilities 23,526,128 22,262,894
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OTHER LONG-TERM LIABILITIES:
Deferred tax liabilities 1,341,051 1,187,373
Long-term debt 370,079 406,790
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Total other long-term liabilities 1,711,130 1,594,163
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MINORITY INTEREST IN EQUITY OF SUBSIDIARY 461,655 --
SHAREHOLDERS' EQUITY:
Preferred stock, no par; 10,000,000 shares authorized; non issued and outstanding -- --
Common stock, no par; 40,000,000 shares authorized; 7,840,964 shares and
7,819,120 shares issued and outstanding 10,735,468 10,547,904
Retained earnings 25,933,209 23,520,558
Foreign currency translation adjustment (54,766) 15,746
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Total shareholders' equity 36,613,911 34,084,208
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TOTAL $62,312,824 $57,941,265
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</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
3
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BARRA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
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Three Months Ended June 30,
-----------------------------
1996 1995
-----------------------------
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OPERATING REVENUES:
Subscription and related fees $13,895,946 $12,150,501
Electronic brokerage and information 2,134,480 1,284,599
Asset management 1,706,610 579,005
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Total operating revenues 17,737,036 14,014,105
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OPERATING EXPENSES:
Cost of subscription products 2,007,440 1,397,777
Compensation and benefits 8,646,624 7,044,812
Rent expense 810,851 789,025
Other operating expenses 2,744,280 2,174,799
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Total operating expenses 14,209,195 11,406,413
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INTEREST INCOME & OTHER 700,805 432,610
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INCOME BEFORE EQUITY IN NET INCOME AND LOSS OF
INVESTEES, MINORITY INTEREST AND INCOME TAXES 4,228,646 3,040,302
EQUITY IN NET INCOME AND LOSS OF INVESTEES (6,108) (389,843)
MINORITY INTEREST 51,222 (106,686)
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INCOME BEFORE INCOME TAXES 4,273,760 2,543,773
INCOME TAXES (1,861,109) (1,123,990)
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NET INCOME $2,412,651 $1,419,783
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NET INCOME PER SHARE:
PRIMARY $0.27 $0.18
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FULLY-DILUTED $0.27 $0.18
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WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES:
PRIMARY 8,835,614 7,990,124
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FULLY-DILUTED 8,835,633 7,990,124
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</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
4
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BARRA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
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Three Months Ended
June 30,
--------------------------------
1996 1995
--------------------------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,412,651 $1,419,783
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in net income and loss of investees 6,108 389,843
Minority interest (51,222) 106,686
Depreciation and amortization 357,009 365,476
Amortization of computer software and intangibles 243,158 43,704
Dividends received from investee (226,583) (103,960)
Gains on marketable securities (86,000) (100,000)
Other 57,895 21,145
Changes in:
Trade accounts receivable (763,791) 196,116
Other accounts receivable (5,246) (35,992)
Related parties receivables (66,039) (20,393)
Notes receivable (57,359) --
Prepaid expenses (186,136) (11,015)
Prepaid corporate income taxes -- 96,112
Computer software, intangibles and other assets 11,561 41,476
Non-marketable investments -- 43,913
Accounts payable, due to related party and accrued expenses (1,469,708) (1,792,689)
Unearned revenues 2,440,165 745,073
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Net cash provided by operating activities 2,616,463 1,405,278
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,048,776) (408,086)
Other Short-term investments - net (795,866) (1,296,190)
Purchase of Investment in municipal debt securities - available for sale (6,600,000) --
Non-marketable investments:
Investments in affiliates (800,000) (37,217)
Dividends received from investee 226,583 103,960
Consolidation of Bond Express L.P. - cash acquired 146,742 --
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,871,317) (1,637,533)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 201,240 1,655
Common stock repurchased (13,676) (602,575)
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Net cash provided by (used in) financing activities 187,564 (600,920)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (6,067,290) (833,175)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,971,184 16,083,444
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,903,894 $15,250,269
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
OTHER CASH FLOW INFORMATION:
Cash paid during the period for:
Interest expense $2,000 $2,922
Income taxes $1,397,883 $576,509
Non-cash investing transactions during the period for:
Exchange of equity interest in LBIC for debt (Note 4) $7,219,458 --
Consolidation of Bond Express (Note 2):
Note receivable ($2,100,000) --
Net assets acquired $1,139,726 --
Minority Interest $512,877 --
Goodwill $1,473,151 --
</TABLE>
See Accompanying Notes to the Consolidated Financial Statements
5
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BARRA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include BARRA, Inc. (the
"Company" or "BARRA") and its subsidiaries, BARRA International, Ltd., BARRA
International (U.K.), Ltd., Berkeley Advisors Holding Company, BARRA (FSC),
Inc., BARRA (U.S.A.), Inc., and Symphony Asset Management, Inc. ("Symphony").
The financial position and results of operations for Bond Express L.P. have also
been consolidated beginning June 1, 1996 (see Note 2). All significant
intercompany transactions and balances have been eliminated. Certain
reclassifications have been made to prior year financial statements to conform
to current year presentation.
In the opinion of management, the accompanying unaudited consolidated financial
statements include all adjustments (consisting of normal recurring entries)
necessary to present fairly the financial position of BARRA as of June 30, 1996
and the results of its operations and cash flows for the periods presented in
conformity with generally accepted accounting principles. The results of
operations for such interim periods are not necessarily indicative of results of
operations for a full year. The March 31, 1996 consolidated balance sheet
included herein is derived from the audited consolidated financial statements
included in BARRA's Annual Report which was incorporated by reference in its
Form 10-K for the fiscal year ended March 31, 1996, filed with the Securities
and Exchange Commission on June 20, 1996 (the "Form 10-K"), but does not include
all disclosures required by generally accepted accounting principles. It is
suggested that these consolidated financial statements be read in conjunction
with the audited consolidated financial statements and notes thereto
incorporated by reference in the Form 10-K and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Form 10-Q.
2. CHANGE IN REPORTING ENTITY
In August, 1995 the Company committed to make a long-term loan of $2,100,000 to
Bond Express L.P. ("Bond Express"). Bond Express is a distributor, on a
subscription basis, of software and databases of fixed income security offering
information from bond dealers. During the quarter ended June 30, 1996, the
Company fully disbursed its remaining commitment on the loan which activated
the Company's option to convert it's
6
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interest in Bond Express from debt to a 55% controlling equity interest. While
this option has not been exercised, the Company now believes that it has
operational and financial control over Bond Express. Accordingly, beginning
June 1, 1996, the Company has consolidated the financial position and results
of operations of Bond Express. The difference between the Company's investment
(principally its note receivable) and the net assets of Bond Express at June 1,
1996 of approximately $1.5 million has been recorded as goodwill and will be
amortized over a period of 10 years. Bond Express had operating revenues and
expenses for June, 1996 of approximately $90,000 and $205,000, respectively,
which have been combined with BARRA's consolidated results of operations for the
quarter ended June 30, 1996. The minority interest's share (45%) of net assets
and net losses has been shown separately in the consolidated financial
statements.
3. INVESTMENT IN MUNICIPAL DEBT SECURITIES
Commencing in May, 1996, the Company, through an unaffiliated professional
portfolio manager, began investing a portion of its available cash resources in
debt securities issued by various state and county municipalities. Interest on
the securities is tax exempt and adjusts to market rates during designated
interest reset periods which occur at least every month. While the securities
have contractual maturity dates ranging from years 2004 to 2030, each security
grants the investor the option to put the security back to the issuer at par
during exercise periods which coincide with interest reset dates. The Company
has classified such securities as available for sale pursuant to the criteria
established by SFAS 115 "Accounting for Certain Investments in Marketable Equity
and Debt Securities". Accordingly, the securities are reported at their fair
value in the consolidated statement of financial position with any unrealized
net gains or losses reported as a separate component of stockholders' equity.
At June 30, 1996, the Company had $6.6 million in municipal debt securities -
available for sale and no unrealized gains or losses.
4. INVESTMENT IN LIBERTY BROKERAGE INVESTMENT CORPORATION
As previously reported in the Company's Annual Report for the fiscal year ending
March 31, 1996, the Company exchanged its investment in preferred stock of
Liberty Investment Brokerage Corp. (LBIC) for a $7,219,474 convertible secured
7.84% promissory note on April 16, 1996. The principal amount of the note
receivable issued by LBIC was equal to the Company's investment balance on the
date of the exchange. Prior to the exchange, the Company accounted for its
investment in LBIC
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using the cost method. Accordingly, the transaction resulted in a
reclassification of the Company's investment from non-marketable investments to
note receivable in the accompanying consolidated balance sheet during the
quarter ended June 30, 1996. Principal payments on the note receivable are due
in installments of $1,804,869 on March 31, 1997, and September 30, 1997,
respectively, and the remaining balance is due on March 31, 1998.
5. REORGANIZATION OF SYMPHONY ASSET MANAGEMENT
Effective July 1, 1996, the Company's wholly owned subsidiary, Symphony Asset
Management Inc.("SAM"), contributed its assets, liabilities and business to
Symphony Asset Management LLC ("NEWCO"), a newly formed entity, in exchange for
interests in NEWCO pursuant to an Operating Agreement of Symphony Asset
Management LLC (the "Agreement"). The capitalization of NEWCO consists of four
defined Interest Classes (Class 1, Class 2, Class 3 and Class 4). Class 1,
Class 2 and Class 4 interests belong to SAM (which continues to be wholly owned
by the Company) while Class 3 interests belong to a newly formed limited
liability company, Maestro LLC ("Maestro"), whose owners are principals of
NEWCO. The attributes of the interests are as follows:
The Class 1 interest is a preferential (in liquidation) interest equal to
the book value of the net assets contributed by SAM to NEWCO. The initial
amount of the interest is approximately $2.5 million. The Class 1 interest
receives no share of profits or losses of NEWCO except in the event that
allocation of losses to Class 2, Class 3 and Class 4 would result in
negative account balances, but does receive a guaranteed payment computed
at prime plus 1% on the Class 1 capital account balance;
The Class 2 interest receives 98% of NEWCO profits and losses (as defined)
up to a maximum of $4 million in profits at which time the class 2 interest
is to be redeemed for one dollar;
The Class 3 interest was established by a capital contribution from Maestro
and receives 1% of NEWCO profits and losses (as defined) until the Class 2
interest receives the preferential return of $4 million and is redeemed.
After redemption of the Class 2 interest, the Class 3 interest receives 25%
of NEWCO profits and losses (as defined). In the event certain levels of
average quarterly operating income (as defined) are achieved after
redemption of the Class 2
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interest, the Class 3 interest can receive up to 50% of NEWCO profits;
The Class 4 interest receives 1% of NEWCO profits and losses (as defined)
until the Class 2 interest receives a preferential return of $4 million and
is redeemed. After the Class 2 interest is redeemed, the Class 4 interest
receives 75% of the profits and losses of NEWCO with the percentage
declining in direct relation to any increase the Class 3 interest is
entitled to receive (see Class 3 discussion above).
In addition, the Agreement provides for a bonus to be paid to certain employees
of NEWCO equal to 25% of NEWCO profits (as defined). This bonus is only in
effect for the period during which Class 2 interests are receiving 98% of NEWCO
profits.
The Company has previously consolidated SAM and will consolidate the financial
position and results of operations of NEWCO and separately record the Class 3
interest share of net assets and net income as a minority interest.
6. NET INCOME PER SHARE
Net income per share is computed using the primary and fully diluted weighted
average number of common shares outstanding after including the effect on
dilution, if any, of the exercise of common stock options using the treasury
stock method. There was no material difference between the fully diluted and
primary net income per share amounts for the three month periods ended June 30,
1996 or June 30, 1995.
7. SUBSEQUENT EVENT - MERGER WITH ROGERS CASEY &
ASSOCIATES, INC.
On July 24, 1996, the Company completed a merger with Rogers Casey & Associates,
Inc. ("RogersCasey"), an investment consulting and special assets advisory firm.
A total of 481,366 shares of BARRA common stock was exchanged for all of the
common stock of RogersCasey. In addition, RogersCasey option holders have
exchanged all of their RogersCasey options for options to purchase 30,257 shares
of BARRA common stock. The merger is intended to qualify as a pooling of
interest for accounting and financial reporting purposes.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
BARRA, Inc. ("BARRA" or the "Company") unaudited financial statements and
related notes presented in this Form 10-Q. The discussion of results, causes or
trends should not be construed to imply that such results, causes or trends will
necessarily continue in the future. Each statement made in this discussion and
analysis and elsewhere in this report containing any form of the words
"anticipate", "expect," "believe," "future" or "forward" is a forward-looking
statement that may involve a number of risk factors and uncertainties. Among
other factors that could cause actual results to differ materially are the
following: business conditions and other changes in the Company's industry;
competitive factors such as rival products and price pressures both domestically
and internationally; availability of adequate third-party data on reasonable
terms and at reasonable prices; significant delays or excessive costs associated
with product research, development and/or introduction; the loss of a large
single revenue source; the investment performance of the Company's asset
management subsidiary; and fluctuations in U.S. dollar exchange rates for non-
U.S. currencies. Further information and potential risk factors that could
affect the Company's financial results are included in the Company's Form 10-K
for the fiscal year ended March 31, 1996.
A. GENERAL
Certain of the information required by this item has been previously reported
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Form 10-K.
As discussed in Note 2 to the financial statements provided in Part I, the
Company consolidated Bond Express L.P. beginning June 1, 1996. Accordingly, the
following discussion of changes in financial position and results of operations
as of and for the three month period ending June 30, 1996 includes related
amounts from Bond Express for the period beginning June 1, 1996. Where changes
in such amounts are significant and primarily reflective of the consolidation,
separate disclosure of Bond Express amounts has been provided.
As discussed in Note 7 to the financial statements provided in Part I, on July
24, 1996, the Company completed a merger with Rogers Casey & Associates, Inc.,
an investment consulting and special assets advisory firm. The merger is
intended to qualify as a pooling of interest for accounting and financial
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reporting purposes. Because the closing of the transaction occurred subsequent
to June 30, 1996, the results of RogersCasey are not included in the quarterly
financial statements for the June 30, 1996 quarter.
FOREIGN CURRENCY
BARRA, as an international corporation, generates revenues from clients
throughout the world, maintains sales and representative offices world-wide and
holds certain deposits and accounts in foreign currencies. BARRA's revenues are
generated from both United States and foreign currencies. BARRA's subscriptions
in the United Kingdom and the European Community are priced in British pounds
sterling ("pounds") and European Currency Units ("ECUs"), respectively.
Additionally, BARRA's consolidated subsidiary, BARRA International (Japan), Ltd.
("BARRA Japan", formerly N.B. Investment Technology Co., Ltd.), generates
revenues, has expenses and has assets and liabilities in non-U.S. currencies.
All other things being equal, weakening of the U.S. dollar has a positive impact
on profits, and strengthening of the U.S. dollar has a negative impact. The
Company has considered its exposures to foreign currency fluctuations and to
this point has decided not to engage in hedging or managing exposures to foreign
currency fluctuations through contracts for the purchase, sale or swapping of
currencies.
For the current quarter ended June 30, 1996, when compared to the same quarter a
year ago, there was no material impact from foreign currency fluctuations on
BARRA's consolidated statements of income. The U.S. dollar strengthened
significantly against the yen, and less significantly against the pound and the
ECU - all of which had the effect of decreasing the dollar value of net revenues
denominated in these non-U.S. currencies. The Company estimates that the
strengthening of the U.S. dollar accounted for approximately $800,000 in
decreased consolidated operating revenues and approximately $60,000 in decreased
consolidated net income for the quarter ended June 30, 1996 when compared to the
same quarter a year ago.
Because the functional currency of BARRA Japan is the yen, the translation gains
and losses associated with the consolidation of its balance sheets at points in
time are reported as part of shareholders' equity.
Under current operating arrangements in the countries in which BARRA does
business, there are no restrictions upon the flow of funds from its foreign
subsidiary to the parent company. There are currently no known commitments or
requirements for material capital expenditures outside of the United States.
11
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B. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The dollar and percentage increases or decreases set forth below in this
discussion and analysis of BARRA's consolidated financial condition result from
a comparison of BARRA's balance sheet at June 30, 1996 to the balance sheet at
March 31, 1996.
FINANCIAL CONDITION
Total assets increased $4,371,559 or 7.5%.
Total current assets increased $2.6 million or 7.3% primarily due to cash flow
provided from operations of a similar amount. This net increase consisted
primarily of the following: Cash and equivalents decreased $6.1 million
primarily as a result of a decision to invest approximately $6.6 million in
municipal debt securities that are not considered cash and equivalents for
financial reporting purposes. As described in Note 3 to the financial
statements provided in Part I, these securities are reported at fair value and
classified as available-for-sale. Short term investments increased $881,866 or
25% reflecting both higher invested balances and portfolio gains. Trade
receivables increased approximately $881,917 or 9.9% as a result of growth in
the subscription-based fees.
Notes receivable increased $5,676,817 primarily as a result of the Company's
exchange of its investment in preferred stock of LBIC into a note receivable of
approximately $7.2 million (see Note 4 to the financial statements provided in
Part I) offset by the consolidation of Bond Express which resulted in a $1.6
million reduction when compared to the amount outstanding at March 31, 1996.
Non-Marketable investments decreased $6.9 million consisting primarily of the
reclassification of the investment in LBIC discussed above offset by an
additional $300,000 investment in BARRA Analytic Securities.
Intangibles and other assets increased by $1,912,802 or 26.2%. This increase
was almost entirely due to the Company's consolidation of Bond Express in the
current quarter resulting in additional goodwill of approximately $2.1 million,
$0.6 million of which related to a prior transaction recorded on the financial
statements of Bond Express that was unrelated to the consolidation. This
increase was partially offset by the amortization of intangibles during the
quarter totaling approximately $0.3 million.
Total current liabilities increased by $1,263,234 or 5.7% primarily due to
increases in accruals and unearned revenues associated with the general growth
of BARRA's business and the
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timing of advanced payments received on subscription contracts offset by a
decrease in certain compensation accruals which are typically paid out during
the first quarter of each fiscal year. In addition, the consolidation of Bond
Express in the current quarter - as discussed elsewhere in this Form 10-Q -
contributed approximately $293,000 to the increase.
Minority interest in equity of subsidiary represents the 45% interest in the net
assets of Bond Express not owned by the Company.
Shareholders' equity in common stock increased by $187,564 or 1.8%. The
increase was primarily the result of the net issuance of 21,844 shares of its
own common stock during the quarter in connection with exercises of stock
options under the Company's Employee Stock Option Plan.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, short-term investments and investment in municipal
debt securities available-for-sale totaled $26,897,278 at June 30, 1996. In
addition, the Company has a commitment from a bank for an unsecured short-term
line of credit of up to $5 million - of which, no amounts have been, or are
presently anticipated to be, drawn down.
BARRA believes that its cash flow from operations (including prepaid
subscription fees), together with existing cash balances, will be sufficient to
meet its cash requirements for capital expenditures and other cash needs for
ongoing business operations. Other than what has been described herein, the
Company has no present binding understandings, commitments or agreements with
respect to any significant acquisitions.
PRINCIPAL FINANCIAL COMMITMENTS. The Company's principal financial commitments
consist of obligations under operating leases and contracts for the use of
computer and office facilities.
C. RESULTS OF OPERATIONS
References to the dollar and percentage increases or decreases set forth below
in this discussion and analysis of BARRA's results of operations are derived
from comparisons of BARRA's consolidated statements of income for the three
months ended June 30, 1996 and June 30, 1995.
OPERATING REVENUES. Total operating revenues increased $3,722,931 or 26.6%.
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SUBSCRIPTION AND RELATED FEES
SUBSCRIPTION AND RELATED FEES consist of annual subscription fees for BARRA's
software products and revenues from other sources related to the core
institutional analytics business (which include timesharing revenues, seminar
revenues and revenues from consulting projects, other recurring and one-time
fees). Total subscription and related fees revenues increased $1,745,445 or
14.4%.
ANNUAL SUBSCRIPTION FEES FOR BARRA'S SOFTWARE PRODUCTS increased approximately
$1,701,000 or 17%. The growth in annual subscription fees continues to be
generated from a combination of both obtaining new clients through entry into
new markets as well as increasing revenues from existing customers through the
introduction of new products and services and an overall increased emphasis on
marketing and sales. For the U.S. and non-U.S. markets, annual subscription
fees revenue increased approximately 25% and 12%, respectively. For the U.S.
market, revenue growth primarily came from the introduction of the BARRA Aegis
System-TM-. Aegis, which was released in the second quarter of fiscal 1996, is
a suite of equity products providing Windows-based risk management and
optimization capabilities combined with screening and flexible report writing
functionality. Although there are changes in the way the components of packages
of products are priced in connection with Aegis, increases in subscription
revenues continue to come most significantly from net increases in the number of
subscriptions and less significantly from changes in the prices of
subscriptions. For the non-U.S. markets, revenue growth continues to be caused
by increased interest in, and acceptance of, quantitative investment techniques
by the relevant investment communities, particularly in continental Europe and
Asia. With respect to the non-U.S. markets, the U.S. dollar strengthened
significantly against the yen and less significantly against both the pound and
the ECU - all of which had the effect of decreasing the dollar value of these
revenues which are denominated in non-U.S. currencies. Disallowing for the
affect of foreign currency fluctuations, revenue growth for the non-U.S. markets
when comparing the current quarter to the same quarter a year ago would have
been approximately 24%.
REVENUES FROM OTHER SOURCES RELATED TO THE CORE INSTITUTIONAL ANALYTICS BUSINESS
- - which include timesharing revenues, seminar revenues and revenues from
consulting projects, other recurring and one-time fees - represent approximately
11% of total operating revenues for the current fiscal quarter as compared to
14% for the same quarter a year ago. The decline in the relative amounts and
significance of this component of revenue continues to be from the conversion of
clients from
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timesharing to in-house computers for running BARRA's products. In the quarter
ended June 30, 1996, the company recognized approximately $450,000 of revenue
which is the final installment on a consulting project that has been in
existence for almost two years.
ELECTRONIC BROKERAGE AND INFORMATION
ELECTRONIC BROKERAGE AND INFORMATION revenues increased $849,881 or 66.2%. This
component of revenue consists almost entirely of license fees from Portfolio
System for Institutional Trading ("POSIT"), which in itself increased $756,884
or 59.9%. POSIT represented 11% of total operating revenues for the current
fiscal quarter as compared to 9% for the same quarter a year ago. BARRA's
revenues from POSIT derive from commissions generated by the trading volume in
the system. POSIT's trading volumes and related revenues on 752 million shares
traded for the current fiscal quarter marked the second highest quarter in
POSIT's history. Although some of the change in the trading volume from quarter
to quarter is seasonal because of semi-annual rebalancing of portfolios, there
has been an increase in the usage of the system by its major participants which
accounts for the increase this quarter over the same quarter a year ago. In
addition, the consolidation of Bond Express in the current fiscal quarter
contributed approximately $90,000 to the increase.
ASSET MANAGEMENT
ASSET MANAGEMENT revenues increased $1,127,605 or 194.8%. This component of
revenue consists of new business obtained by Symphony Asset Management, Inc.
("Symphony") and existing BARRA sub-advisory relationships which predate
Symphony (and which had decreased to almost nothing by the end of fiscal 1996).
New business obtained by Symphony accounted for 99% of the total asset
management revenues for the current fiscal quarter as compared to only 29% for
the same quarter a year ago.
Symphony's revenues consist primarily of asset management fees which are a fixed
percentage of asset value and performance fees that are based on the performance
over a benchmark for each account. In the current fiscal quarter, performance
fees represented approximately 46% of Symphony's revenues. Performance fees are
recognized only at the measurement date for determining performance of an
account, which typically is at the end of the first year of the contract and at
the end of each subsequent measurement period thereafter. Accordingly, and by
comparison, there were no performance fees recorded in the same quarter a year
ago since initial measurement dates had not been reached.
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As of June 30, 1996, Symphony had approximately $606 million under direct
management in a combination of private accounts, institutional and mutual funds
management arrangements and another $193 million managed under sub-advisory
arrangements. Symphony's future revenues will depend, in some cases to a great
extent, on the performance of the funds it manages. The timing of Symphony's
future revenues will also depend on the timing of dates that trigger performance
fees.
OPERATING EXPENSES. Total operating expenses increased $2,802,782 or 24.6%.
COST OF SUBSCRIPTION PRODUCTS
COST OF SUBSCRIPTION PRODUCTS consists of computer access charges, data and
software acquisition expenses, BARRA's computer leasing expenses, and the cost
of computer hardware that is provided to clients on a pass-through basis in
connection with their conversion from timesharing to in-house computer systems
for running BARRA applications. This component of expense increased $609,663 or
43.6% primarily due to increased data and computer access costs associated with
new and existing BARRA services as well as new costs of data for Symphony's
operations. The Company anticipates that data costs will continue to increase
into the future as BARRA's demands for new and expanded data sources increase in
order to meet product development and enhancement and market needs.
COMPENSATION AND BENEFITS
COMPENSATION AND BENEFITS increased $1,601,812 or 22.7%. Approximately 44% of
this increase comes from growth in the Company's full-time personnel and the
Company's annual salary administration and performance evaluation process which
results in annual reviews and salary adjustments that are effective on July 1 of
each year. The total number of non-U.S. full-time employees grew by 74% and the
number of employees in the U.S. grew by 7%, when comparing the current quarter
to the same quarter a year ago. The growth internationally was partially offset
by decreases associated with the strengthening of the U.S. dollar overseas. The
remainder of this increase - approximately 56% of the total increase - came from
increases in incentive-related expenses associated with new and existing
incentive and bonus plans, the growth in the operations of Symphony, the use of
contractors for special projects and to speed product development, and the
consolidation of Bond Express which added approximately $95,000.
RENT EXPENSE
RENT EXPENSE increased $21,826 or 2.8%. The Company is currently expanding its
New York and Symphony offices and
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expects future rental expenses to increase accordingly beginning in the quarter
ended September 30, 1996.
OTHER OPERATING EXPENSES
OTHER OPERATING EXPENSES increased $569,481 or 26.2%. Other operating expenses
include travel, office, maintenance, depreciation, amortization, marketing,
advertising, outside legal and accounting services and other corporate expenses.
The increase was predominantly the result of increases in travel, computer and
office equipment and insurance related expenses associated with the general
growth of BARRA's business. Increases in travel reflect the costs of supporting
a larger client base, an increased emphasis on sales and marketing, and certain
non-recurring costs associated with BARRA's acquisition of RogersCasey.
Computer and equipment costs increases came from outfitting new employees and
upgrading new equipment. Insurance costs increased as a result of increases in
coverage resulting from the Company's re-evaluation of its current business
coverage needs. Other contributors to the increase included increases in costs
associated with Symphony's operations and the consolidation of Bond Express
which contributed approximately $96,000 during the quarter.
INTEREST INCOME AND OTHER
INTEREST INCOME AND OTHER increased $268,195 or 62.0%. The primary component of
this increase comes from the recognition and receipt of dividends from LBIC
totaling $226,583 in the current quarter. Also contributing to this increase
were increases in funds generated from operations that are available for
investment.
EQUITY IN NET INCOME AND LOSS OF INVESTEES
Net losses from BARRA's joint ventures and other strategic relationships
decreased by $383,735. The decrease was primarily the result of the Company's
establishment of a reserve in the first quarter of the prior fiscal year for
non-recurring losses in connection with its interests in Metaxis S.A. and
Metaxis Placements S.A.
Minority interest represents the 45% share of Bond Express L.P.'s net loss.
NET INCOME
NET INCOME for the current quarter was $2,412,651 or $0.27 per share, compared
to $1,419,783 or $0.18 per share for the same quarter a year ago. This
represents a net income increase of $992,868, or 69.9%, and an earnings per
share increase of $0.09, or 50.0%. Increases in the average market price of
the Company's common stock have caused dilution from outstanding options in the
calculation of earnings per share.
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PART II - OTHER INFORMATION
Each statement made in this Part II containing any form of the words
"anticipate" or "expect" is a forward looking statement that may involve a
number of risk factors and uncertainties. A discussion of those risk factors is
located in the first paragraph of Part I, Item 2.
ITEM 1. LEGAL PROCEEDINGS.
All information required by this item has been previously reported under the
heading "Business-Litigation" in the Form 10-K. There have been no other
material developments in the legal proceedings of BARRA since the date of the
Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of shareholders of BARRA was held on Thursday, July 25, 1996.
The meeting was held to consider and vote upon (i) electing directors to serve
for the ensuing year and until their successors are duly elected and qualified,
(ii) ratifying the adoption of the BARRA 1996 Employee Stock Purchase Plan and
(iii) ratifying the selection of Deloitte and Touche LLP as independent auditors
of BARRA for the fiscal year ended March 31, 1997. The votes cast with respect
to each director are summarized as follows, A. George Battle, for 7,101,568,
withheld 2,100; M. Blair Hull, for 7,101,568, withheld 2,100; Norman J. Laboe,
for 7,101,168, withheld 2,500; Ronald J. Lanstein, for 7,101,568, withheld
2,100; Andrew Rudd, for 7,101,568, withheld 2,100.
The votes cast to ratify the adoption of the BARRA 1996 Employee Stock Purchase
Plan are summarized as follows, for 5,608,571, against 13,601, abstain 2,300,
broker non-vote 1,479,196. The votes cast to ratify the selection of Deloitte &
Touche LLP as independent auditors are summarized as follows, for 7,096,777,
against 2,601, abstain 4,290.
ITEM 5. OTHER INFORMATION.
On July 25, 1996, the Company's board of directors authorized the making of an
additional loan of up to $300,000 to Bond Express, L.P. ("Bond Express"). The
Company currently has an option to convert its pre-existing loan of $2.1 million
into a controlling equity interest in Bond Express and it is expected that the
additional loan will also be convertible into equity under certain
circumstances.
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In connection with the start-up of the brokerage business of BARRA Analytics
Securities ("BAS"), the Company's 50/50 partnership with a wholly-owned
subsidiary of Liberty Brokerage Investment Corp.("LBIC"), LBIC has agreed to
clear BAS's trades and guaranty BAS's obligations to third parties. On July 1,
1996 the Company entered into an agreement indemnifying LBIC for fifty percent
of claims against LBIC arising out of LBIC's guaranty of the performance of BAS
with respect to BAS' brokering of U.S. Treasury and corporate securities.
At its July 25, 1996 special meeting, for the purpose of having shares of common
stock available for issuance on the exercise of stock options and on purchases
made under the new Employee Stock Purchase Plan, the Board of Directors of BARRA
authorized BARRA's officers to use up to $2,000,000 to purchase additional
shares of BARRA Common Stock on the NASDAQ National Market.
At its July 25, 1996 annual meeting, the Board of Directors of BARRA amended the
Corporation's Bylaws to increase from 5 to 6 the fixed number of its members.
The Board of Directors then elected John F. Casey to serve until the
shareholders meeting on July 31, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are required by Item 601 of Regulation S-K:
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
3.1 Bylaws of BARRA, Inc. Dated 23
July 25, 1996, as amended.
10.1 Indemnity Agreement 42
between BARRA, Inc. and
Liberty Brokerage
Investment Corp.
10.2 Operating Agreement for 46
Symphony Asset Management LLC
(b) Reports on Form 8-K:
Amendment No. 1 to Current Report on Form 8-K/A (amending the
Company's Current Report on Form 8-K, dated April 25, 1996, which
disclosed the execution of the merger agreement between Rogers
Casey & Associates, Inc.
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("RogersCasey") and the Company ("Agreement") was filed by the Company on July
3, 1996, with the Securities and Exchange Commission ("Commission"), including
materials distributed by the Company to stockholders of RogersCasey ("Amendment
No. 1").
Amendment No. 2 and Final Amendment to Current Report on Form 8-K/A (amending
the Company's Current Report on Form 8-K, dated April 25, 1996, as amended by
Amendment No. 1 described above) was filed by the Company on August 8, 1996,
with the Commission, including additional materials in connection with and
describing the terms of the consummation of the transactions contemplated in the
Agreement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, BARRA has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
BARRA, Inc.
(Registrant)
Date: August 14, 1996 Andrew Rudd
-------------------------
Andrew Rudd, Chairman of
the Board of Directors and
Chief Executive Officer
Date: August 14, 1996 JAMES D. KIRSNER
-------------------------
James D. Kirsner, Chief
Financial Officer
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EXHIBIT INDEX
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
3.1 Bylaws of BARRA, Inc. Dated 23
July 25, 1996, as amended.
10.1 Indemnity Agreement 42
between BARRA, Inc. and
Liberty Brokerage
Investment Corp.
10.2 Operating Agreement for 46
Symphony Asset Management LLC
22
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EXHIBIT 3.1
23
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----------------
BYLAWS
OF
BARRA, INC.
-----------------
24
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TABLE OF CONTENTS
PAGE
----
ARTICLE I OFFICES........................................................1
Section 1.1 Principal Office...........................1
Section 1.2 Other Offices..............................1
ARTICLE II SHAREHOLDERS...................................................1
Section 2.1 Place of Meetings..........................1
Section 2.1A Chairman and Secretary of Shareholders
Meetings...................................1
Section 2.1B Regulation and Conduct of Shareholder
Meetings...................................1
Section 2.2 Annual Meeting.............................2
Section 2.3 Special Meetings...........................2
Section 2.4 Notice of Meetings.........................2
Section 2.5 Waiver of Notice or Consent by Absent
Shareholders...............................3
Section 2.6 Quorum.....................................3
Section 2.7 Voting.....................................3
Section 2.8 Action Without Meeting.....................4
Section 2.9 Record Date................................5
ARTICLE III DIRECTORS......................................................6
Section 3.1 Powers.....................................6
Section 3.2 Number and Qualification of Directors......6
Section 3.3 Nomination, Election and Term of Office....6
Section 3.4 Vacancies..................................7
Section 3.5 Resignation................................7
Section 3.6 Removal....................................8
Section 3.7 Place of Meetings..........................8
Section 3.8 Regular Meetings...........................8
Section 3.9 Special Meetings; Notice..................8
Section 3.10 Waiver of Notice...........................8
Section 3.11 Participation by Telephone.................9
Section 3.12 Quorum and Action at Meeting...............9
Section 3.13 Action Without Meeting.....................9
Section 3.14 Committees.................................9
Section 3.15 Meetings and Action of Committees..........9
Section 3.16 Compensation and Expenses of Directors....10
ARTICLE IV OFFICERS......................................................10
Section 4.1 Officers..................................10
Section 4.2 Removal and Resignation...................10
Section 4.3 Chairman of the Board.....................10
Section 4.3A Chief Executive Officer...................10
Section 4.4 President.................................11
Section 4.4A Chief Operating Officer...................11
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Section 4.5 Vice-Presidents...........................11
Section 4.6 Secretary.................................11
Section 4.7 Chief Financial Officer...................12
Section 4.8 Salaries..................................12
ARTICLE V MISCELLANEOUS.................................................12
Section 5.1 Records and Inspection Rights.............12
Section 5.2 Annual Report to Shareholders.............12
Section 5.3 Annual Statement of General Information...12
Section 5.4 Checks, Drafts, Evidences of Indebtedness.13
Section 5.5 Execution of Corporate Contracts and
Instruments...............13
Section 5.6 Certificates for Shares...................13
Section 5.7 Lost, Stolen or Destroyed Certificates....13
Section 5.8 Corporate Seal............................14
Section 5.9 Indemnification of Corporate Agents.......14
ARTICLE VI AMENDMENTS....................................................14
Section 6.1 Amendment by Shareholders.................14
Section 6.2 Amendment by Directors....................14
26
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BYLAWS
OF
BARRA, INC.
ARTICLE I -OFFICES
Section 1.1 PRINCIPAL OFFICE. The Board of Directors shall fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. If the principal executive office is
located outside this State, the Board of Directors shall fix and designate a
principal business office in the State of California.
Section 1.2 OTHER OFFICES. The Board of Directors may at any time
establish branch or subordinate offices at any place or places where the
corporation is qualified to do business.
ARTICLE II - SHAREHOLDERS
Section 2.1 PLACE OF MEETINGS. Meetings of shareholders shall be held
at any place designated by the Board of Directors. In the absence of
designation, shareholders' meetings shall be held at the principal executive
office of the corporation.
Section 2.1A CHAIRMAN AND SECRETARY OF SHAREHOLDER MEETINGS. The
chairman of the board shall preside at each meeting of the shareholders. In the
absence or disability of the chairman of the board, the meeting shall be chaired
by an officer of the corporation in the following order: president, executive
vice president, senior vice president and vice president. In the absence of all
such officers, a person chosen by the vote of a majority in interest of the
shareholders present in person or represented by proxy and entitled to vote
thereat shall act as chairman. The secretary or in his/her absence an assistant
secretary or in the absence of the secretary and all assistant secretaries a
person whom the chairman of the meeting shall appoint shall act as secretary of
the meeting and keep a record of the proceedings thereof.
Section 2.1B REGULATION AND CONDUCT OF SHAREHOLDER MEETINGS. The Board
of Directors of the corporation shall be entitled to make such rules or
regulations for the conduct of meetings of the shareholders as it shall deem
necessary, appropriate or convenient. Subject to such rules and regulations of
the Board of
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Directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations and procedures and to do all such
acts as in the judgment of such chairman, are necessary, appropriate or
convenient for the proper conduct of the meeting, including, without limitation,
establishing an agenda or order of business for the meeting, rules and
procedures for maintaining order at the meeting and for the safety of those
present, limitations on participation in such meeting to shareholders of record
of the corporation and their duly authorized and constituted proxies, and such
other persons as the chairman shall permit, restrictions on entry into the
meeting after the time fixed for commencement thereof, limitations on the time
allotted to questions or comments by participants and regulation of the opening
and closing of the polls for balloting on matters which are to be voted on by
ballot, unless, and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of the shareholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
Section 2.2 ANNUAL MEETING. The annual meeting of shareholders shall be
held on the last Thursday of July in each year at the hour of 2:00 p.m.;
PROVIDED, HOWEVER, that if this day falls on a legal holiday, then the meeting
shall be held at the same time and place on the next succeeding business day.
At the annual meeting directors shall be elected and any other proper business
may be transacted.
Section 2.3 SPECIAL MEETINGS. Special meetings of the shareholders may
be called for any purpose at any time by the president, the Board of Directors
or the chairman of the board, or by one or more shareholders holding not less
than ten percent (10%) of the shares entitled to vote at that meeting. If a
special meeting is called by any person or persons other than the Board of
Directors, a written request to notice the meeting, specifying the time of the
meeting and the general nature of the business to be transacted, shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the corporation. The officer receiving the request
shall cause notice to be given promptly to the shareholders entitled to vote, in
accordance with the provisions of Section 2.4, that a meeting will be held at
the time requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after receipt of the request,
the person or persons requesting the meeting may give the notice.
Section 2.4 NOTICE OF MEETINGS. Notice of meetings of the shareholders
of the corporation shall be given in writing to each shareholder entitled to
vote, either personally or by first-class mail or other means of written
communication, addressed to the shareholder at the shareholder's address
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. Such notice shall be sent not less than
ten (10) nor more than sixty (60) days before the meeting. Said notice shall
state the place, date and hour of the meeting and (a) in the case of special
meetings, the general nature of the business
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to be transacted, and no other business may be transacted, or (b) in the case of
annual meetings, those matters which the Board of Directors, at the time of the
mailing of the notice, intends to present for action by the shareholders, and
(c) in the case of any meeting at which directors are to be elected, the names
of the nominees intended at the time of the mailing of the notice to be
presented by the board for election. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
Section 2.5 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of shareholders, however called and noticed, shall
be as valid as though done at a meeting duly held after regular call and notice,
if a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote at the meeting, not
present in person or by proxy, signs a written waiver of notice or a consent to
the holding of the meeting or an approval of the minutes thereof. All such
waivers, consents and approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 2.6 QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote shall constitute a quorum at a
meeting of the shareholders for the transaction of business. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action taken (other
than adjournment) is approved by at least a majority of the shares required to
constitute a quorum. Any shareholders' meeting, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of the
shares represented in person or by proxy at that meeting, and in the absence of
a quorum no other business may be transacted at such meeting, except as provided
above. When any shareholders' meeting is adjourned for forty-five (45) days or
more or, if after the adjournment, a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each shareholder
entitled to vote at the adjourned meeting in accordance with the provisions of
Section 2.4.
Section 2.7 VOTING.
(a) PROCEDURES. The shareholders entitled to vote at any
meeting of shareholders shall be determined in accordance with the provisions of
Section 2.9. The shareholders' vote may be by voice vote or by ballot;
provided, however, that any election for directors must be by ballot if demanded
by any shareholder at the meeting and before the voting has begun. Except as
provided in Section 2.6 or in this Section 2.7, the affirmative vote of the
majority of the shares represented and voting at a duly held meeting at
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<PAGE>
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required Quorum) shall be the act of the shareholders.
(b) CUMULATIVE VOTING. Shareholders entitled to vote at any
election of directors shall have the right to cumulate their votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which their shares are normally entitled,
or to distribute their votes on the same principle among as many candidates as
they shall think fit; PROVIDED, HOWEVER, that such candidates' names shall have
been placed in nomination prior to the voting and that at least one shareholder
shall have given notice at the meeting prior to the voting of that shareholder's
intention to vote cumulatively. If there are more candidates for than vacancies
on the board, the vacancies shall be filled by the candidates receiving the
highest number of affirmative votes.
(c) PROXIES. Every person entitled to vote shall have the right
to do so either in person or by written proxy signed by such person and filed
with the secretary of the corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy, (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney-in-fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it prior to the vote pursuant to that proxy by a
writing delivered to the corporation stating that the proxy is revoked, or by a
subsequent proxy executed by, or attendance at the meeting and voting in person
by, the person executing the proxy; or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; PROVIDED, HOWEVER, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy
unless otherwise provided in the proxy.
Section 2.8 ACTION WITHOUT MEETING. Except as otherwise provided in
this Section 2.8, any action which may be taken at any meeting of shareholders
may be taken without a meeting and prior notice, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of the
outstanding shares having no less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. All such consents shall be
filed with the secretary of the corporation and shall be maintained in the
corporate records. Any shareholder giving a written consent may revoke the
consent by a writing received by the secretary of the corporation before written
consents of the number of shares required to authorize the proposed action have
been filed with the secretary.
30
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(a) Unless consents of all shareholders entitled to vote have
been solicited in writing, prompt notice, in accordance with the provisions of
Section 2.4 of actions taken without a meeting by less than unanimous written
consent, shall be given to those shareholders entitled to vote who have not
consented in writing. Notice of any shareholder approval obtained without a
meeting by less than unanimous written consent with respect to any matter
falling within California General Corporation Law Section 310 (approval of
contracts or transactions with an interested director), Section 317
(indemnification of agents of the corporation), Section 1201 (reorganization) or
Section 2007 (plan of distribution on dissolution other than in accordance with
the rights of outstanding preferred shares) shall be given at least ten (10)
days before the consummation of the action authorized by such approval.
(b) Directors may not be elected by written consent except by
unanimous written consent of all shares entitled to vote at their election;
PROVIDED, HOWEVER, that when filling a vacancy not filled by the directors,
except for a vacancy created by removal, a director may be elected by written
consent of a majority of the outstanding shares entitled to vote.
Section 2.9 RECORD DATE.
(a) ESTABLISHED BY THE BOARD OF DIRECTORS. In order that the
corporation may determine the shareholders entitled to notice of, or to vote at,
any meeting or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action.
(b) ESTABLISHED BY OPERATION OF LAW. If no record date is
fixed:
(i) the record date for determining shareholders entitled
to notice of, or to vote at, a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if the notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held;
(ii) the record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given; and
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(iii) the record date for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
(c) EFFECT OF DETERMINATION OF RECORD DATE. Shareholders of
record at the close of business on the record date are entitled to notice and to
vote, or to receive the dividend, distribution or allotment of rights, or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date, except as
otherwise provided by agreement or in the California General Corporation Law.
ARTICLE III - DIRECTORS
Section 3.1 POWERS. Subject to the provisions of the California General
Corporation Law and to any limitations in the Articles of Incorporation or these
Bylaws requiring shareholder authorization or approval of a particular action,
the business and affairs of the corporation shall be managed, and all corporate
powers shall be exercised, by or under the direction of the Board of Directors.
The Board of Directors may delegate the management of day-to-day operation of
the business of the corporation to a management company or other person;
PROVIDED, HOWEVER, that the business and affairs of the corporation shall be
managed, and all corporate powers shall be exercised, under the ultimate
direction of the Board of Directors.
Section 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of directors of this corporation shall be not less than four (4) persons
and not more than seven (7), until changed by an amendment to the Articles of
Incorporation, or by an amendment to this Section 3.2, adopted by approval of a
majority of the outstanding shares entitled to vote. The exact number of
directors shall be fixed at six (6), until changed, within the limits specified
above, by the amendment to this Section 3.2 adopted by the Board of Directors or
a majority of the outstanding shares entitled to vote; PROVIDED, HOWEVER, that
an amendment to the articles or this Section 3.2 reducing either the fixed
number or the minimum number of directors to a number less than five (5) cannot
be adopted if the votes cast against its adoption at a meeting or the shares not
consenting in the case of an action by written consent are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote. The directors need not be shareholders of this corporation.
Section 3.3 NOMINATION, ELECTION AND TERM OF OFFICE.
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(a) NOMINATIONS. Nominations for the election of directors may
be made by the Board of Directors or by any shareholder entitled to vote for the
election of directors. Any shareholder entitled to vote for the election of
directors at a meeting may nominate persons for election as directors only if
written notice of such shareholder's intent is given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
corporation not later than (i) with respect to an election to be held at an
annual meeting of the shareholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of the shareholders
for the election of directors, the close of business on the seventh day
following the date on which notice of such meeting was first given to
shareholders. Each such notice shall set forth: (A) the name and address of
the shareholder who intends to make the nomination and of the person or persons
to be nominated, (B) a representation that such shareholder is a holder of
record of stock of the corporation, entitled to vote at such meeting, and
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice, (C) a description of all arrangements or
understandings between such shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such shareholder, (D) such other information
regarding each nominee proposed by such shareholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors, and (E) the consent of each nominee
to serve as a director of the corporation, if elected. The chairman of a
shareholders' meeting may refuse to acknowledge the nomination of any person not
made in compliance with the foregoing procedure.
(b) ELECTION AND TERM OF OFFICE. Pursuant to the provisions of
Section 2.7, the directors shall be elected at the annual meeting of the
shareholders and shall hold office until the next annual meeting. Subject to
the provisions of Sections 3.5 and 3.6, each director shall hold office until
the expiration of the term for which elected and until a successor has been
elected and qualified.
Section 3.4 VACANCIES. Except for a vacancy created by the removal of a
director, vacancies in the Board of Directors may be filled by a majority of the
remaining directors, whether or not less than a quorum, or by a sole remaining
director, and each director so elected shall hold office until the next annual
meeting of the shareholders and until a successor has been elected. The
shareholders shall elect a director or directors to fill any vacancy created by
removal, and the shareholders may elect a director or directors at any time to
fill a vacancy not filled by the directors. Any shareholder election of
directors by written consent shall be pursuant to the provisions of Section 2.8.
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Section 3.5 RESIGNATION. Any director may resign effective upon giving
written notice to the chairman of the board, the president, the secretary or the
Board of Directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 3.6 REMOVAL. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by order of court, or
who has been convicted of a felony. Any or all of the directors may be removed
without cause by an affirmative vote of a majority of the outstanding shares
entitled to vote at an election of directors; PROVIDED, HOWEVER, that unless the
entire board is removed, no individual director may be removed when the votes
cast against removal, or not consenting in writing to such removal, would be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of the director's most recent election were
then being elected.
Section 3.7 PLACE OF MEETINGS. Meetings of the Board of Directors may
be held at any place which has been designated in the notice of the meeting, or,
if not stated in the notice or there is no notice, designated in the Bylaws or
by resolution of the Board of Directors. In the absence of designation,
meetings shall be held at the principal executive office of the corporation.
Section 3.8 REGULAR MEETINGS. Immediately following, and at the same
place as, each annual meeting of shareholders, the Board of Directors shall hold
without call or notice other than this bylaw a regular meeting for the purposes
of organization, election of officers and the transaction of other business.
Other regular meetings of the Board of Directors shall be held without notice at
such time as from time to time may be fixed by the Board of Directors.
Section 3.9 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors may be called at any time by the chairman of the board or the
president or any vice president or the secretary or any two directors. Notice
of the time and place of all special meetings shall be given to each director by
any of the following means:
(a) By personal delivery, or by telephone or telegraph at least
48 hours prior to the time of the meeting; or
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(b) By first-class mail, postage prepaid, at least four days
prior to the time of the meeting.
Section 3.10 WAIVER OF NOTICE. The transactions of any meeting of the
Board of Directors, however called and noticed and wherever held, are as valid
as though had at a meeting duly held after regular call and notice, if a quorum
is present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed waived by any director who
attends the meeting without protesting before or at its commencement the lack of
notice.
Section 3.11 PARTICIPATION BY TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, as long as all members participating in such
meeting can hear one another. Participation in a meeting pursuant hereto
constitutes presence in person at such meeting.
Section 3.12 QUORUM AND ACTION AT MEETING. A majority of the authorized
number of directors shall constitute a quorum for the transaction of business.
Subject to the provisions of California General Corporation Law, every act or
decision done or made by a majority of the directors present at a meeting duly
held at which a quorum is present is the act of the Board of Directors. A
meeting at which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
the required quorum for that meeting.
Section 3.13 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors may be taken without a meeting, if all
members of the board individually or collectively consent in writing to the
action. Such written consent or consents shall be filed with the minutes of the
board. Actions by written consent shall have the same force and effect as a
unanimous vote of the directors.
Section 3.14 COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of directors, designate one or
more committees, each consisting of two or more directors and each of which, to
the extent provided in the resolution and as limited by the California General
Corporation Law, shall have all the authority of the Board of Directors.
Further, the board may designate one or more directors as alternate members of
any committee, who may replace any absent member at any meeting of the
committee. Each committee shall serve at the pleasure of the board.
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Section 3.15 MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, with such changes in the context of
these Bylaws as are necessary to substitute the committee and its members for
the Board of Directors and its members, except that the time for regular
meetings of committees may be determined either by resolution of the Board of
Directors or by resolution of the committee. Special meetings of committees may
also be called by resolution of the Board of Directors. Notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. Minutes shall be kept
of each meeting of any committee and shall be filed with the corporate records.
The Board of Directors may adopt such other rules for the governance of any
committee as are not inconsistent with the provisions of these Bylaws.
Section 3.16 COMPENSATION AND EXPENSES OF DIRECTORS. Directors and
members of committees shall not receive compensation for their services or
reimbursement for their expenses except in amounts fixed or determined by
resolution of the Board of Directors. This Section 3.16 shall not be construed
to preclude any director from serving the corporation in any other capacity as
an officer, agent, employee or otherwise, and receiving compensation for those
services.
ARTICLE IV - OFFICERS
Section 4.1 OFFICERS. The officers of the corporation shall be a chief
executive officer or a president, a chief financial officer or a treasurer, and
a secretary, all of whom shall be chosen by and serve at the pleasure of the
Board of Directors. The corporation may also have, at the discretion of the
Board of Directors, a chairman of the board, a chief operating officer, one or
more vice presidents and such other officers as may be deemed expedient for the
proper conduct of the business of the corporation, each of whom shall have such
authority and shall perform such duties as the Board of Directors may from time
to time determine. One person may hold two or more offices.
Section 4.2 REMOVAL AND RESIGNATION. Subject to the rights, if any, of
an officer under any contract of employment, any officer may be removed at any
time, with or without cause, by the Board of Directors. Any officer may resign
at any time by giving written notice to the corporation without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party. Any resignation shall take effect at the date of the receipt of the
notice or at any later time specified in the notice, and unless otherwise
specified in the notice, the acceptance of the resignation shall not be
necessary to make it effective.
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Section 4.3 CHAIRMAN OF THE BOARD. The Board of Directors may elect a
chairman, who shall preside, if present, at all board meetings and, pursuant to
the provisions of Section 2.1A of Article II of these Bylaws, all shareholder
meetings and shall exercise and perform such other powers and duties as may be
assigned from time to time by the Board of Directors.
Section 4.3A CHIEF EXECUTIVE OFFICER. The corporation's chief executive
officer, subject to the control of the Board of Directors, shall have the
general supervision, direction, and control over the corporation's business and
its officers. In addition to the general powers and duties of the chief
executive officer, such officer shall have all such other powers and duties as
prescribed by the Board of Directors and the Bylaws. In the event that the
corporation does not elect a president, the chief executive officer shall
exercise the powers and duties of the president enumerated in Section 4.4 of the
Bylaws.
Section 4.4 PRESIDENT. Except to the extent that these Bylaws or the
Board of Directors assign specific powers and duties to the chairman of the
board or the chief executive officer, the president shall be the corporation's
acting manager and, subject to the control of the Board of Directors, shall be
responsible for the quotidian supervision, direction, and control of the
corporation's business. In the absence or disability of the chairman of the
board and chief executive officer, the chairman of the board and chief executive
officer's duties and responsibilities shall be carried out by the president. In
addition to the general powers and duties of the president, such officer shall
have all such other powers and duties as prescribed by the Board of Directors
and the Bylaws.
Section 4.4A CHIEF OPERATING OFFICER. Subject to the control of the
Board of Directors, the chairman of the board, the chief executive officer and
the president, the chief operating officer shall be the corporation's acting
operations manager and shall be responsible for the quotidian operation of the
corporation's business. In addition to the general powers and duties of the
chief operating officer, such officer shall have all such other powers and
duties as prescribed by the Board of Directors and the Bylaws.
Section 4.5 VICE-PRESIDENTS. In the absence or disability of the
president, the vice-presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranged, a vice-president designated by the Board
of Directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice-presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, the chairman of the board or the president.
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Section 4.6 SECRETARY. The secretary shall keep a book of minutes of
all meetings and actions of directors, committees of directors and shareholders.
The minutes of each meeting shall state the time and place that it was held and
such other information as shall be necessary to determine the actions taken
thereat and whether the meeting was held in accordance with the law and these
Bylaws. The secretary shall keep at the corporation's principal executive
office, or at the office of its transfer agent or registrar, a share register
showing the names and addresses of all shareholders and the number and class of
shares held by each. The secretary shall give notice of all meetings of
shareholders, directors and committees required to be given by these Bylaws.
The secretary shall keep the seal of the corporation in safe custody and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors, the chairman of the board or the president.
Section 4.7 CHIEF FINANCIAL OFFICER. The chief financial officer shall
have the custody of all moneys and securities of the corporation and shall keep
regular books of account. The chief financial officer shall disburse the funds
of the corporation in payment of the just demands against the corporation or as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors from time to time as
may be required by the Board of Directors, an account of all transactions as
chief financial officer and of the financial condition of the corporation. The
chief financial officer shall perform all duties incident to the office or which
are properly required by the Board of Directors, the chairman of the board or
the president.
Section 4.8 SALARIES. The salaries of the officers may be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that the officer is also a director
of the corporation.
ARTICLE V -MISCELLANEOUS
Section 5.1 RECORDS AND INSPECTION RIGHTS. The corporation shall keep
such records (including shareholders' lists, accounting books, minutes of
meetings and other records) as are required by the California General
Corporation Law, and these records shall be open to inspection by the directors
and shareholders of the corporation to the extent permitted by the California
General Corporation Law.
Section 5.2 ANNUAL REPORT TO SHAREHOLDERS. Pursuant to Section 1501 of
the California General Corporation Law, the annual report to shareholders
referred to in that section is expressly waived and dispensed with.
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Section 5.3 ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation,
during the applicable filing period in each year, shall file with the Secretary
of State of the State of California, on the prescribed form, a statement setting
forth: the names and complete business or residence addresses of all incumbent
directors; the number of vacancies on the board, if any; the names and complete
business or residence addresses of the president, secretary and chief financial
officer; the street address of its principal executive office or principal
business office in this state; and the general type of business constituting the
principal business activity of the corporation; together with a designation of
the agent of the corporation for the purpose of service of process. All of the
requirements of this Section 5.3 shall be carried out in compliance with Section
1502 of the California General Corporation Law.
Section 5.4 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks,
drafts or other orders for payment of money, notes or other evidences of
indebtedness, issued in the name of, or payable to, the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the Board of Directors.
Section 5.5 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. Subject
to restrictions on corporate loans and guarantees to directors, officers,
employees or shareholders as provided by Section 315 of the California General
Corporation Law, the Board of Directors may authorize any officer or officers or
agent or agents, or appoint an attorney or attorneys-in-fact, to enter into any
contract or execute any instrument in the name of, and on behalf of, the
corporation, and this authority may be general or confined to specific
instances; and unless so authorized or appointed, or unless afterwards ratified
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
Section 5.6 CERTIFICATES FOR SHARES. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman of the board or the president or a vice-president
and by the chief financial officer or the secretary or an assistant secretary,
certifying the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
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Section 5.7 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may
issue a new share certificate or a new certificate for any other security in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the corporation may require the owner of the lost,
stolen or destroyed certificate or the owner's legal representative to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.8 CORPORATE SEAL. The corporation may have a corporate seal
in such form as shall be prescribed and adopted by the Board of Directors.
Section 5.9 INDEMNIFICATION OF CORPORATE AGENTS. The corporation shall
indemnify each of its agents against expenses, judgments, fines, settlements and
other amounts, actually and reasonably incurred by such person by reason of such
person's having been made or having been threatened to be made a party to a
proceeding to the fullest extent permissible by the provisions of Section 317 of
the California General Corporation Law, and the corporation shall advance the
expenses reasonably expected to be incurred by such agent in defending any such
proceeding upon receipt of the undertaking required by subdivision (f) of such
Section. The terms "agent", "proceeding" and "expenses" used in this Section
5.9 shall have the same meaning as such terms in said Section 317. The
corporation may purchase and maintain insurance on behalf of any agent of the
corporation against any liability asserted against, or incurred by, the agent in
such capacity or arising out of the agent's status as such, whether or not the
corporation would have the power to indemnify the agent against that liability
under the provisions of Section 317 of the California General Corporation Law.
ARTICLE VI -AMENDMENTS
Section 6.1 AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these Bylaws may be amended or repealed by the affirmative vote of a majority of
the outstanding shares entitled to vote, or by written assent of shareholders
entitled to vote such shares, except as otherwise provided by law or by the
Articles of Incorporation.
Section 6.2 AMENDMENT BY DIRECTORS. Subject to the right of
shareholders as provided in Section 6.1, bylaws other than a bylaw or amendment
thereof changing the maximum or minimum number of authorized directors or
changing from a variable to a fixed number of directors or vice versa may be
adopted, amended or repealed by the Board of Directors.
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CERTIFICATE OF SECRETARY
I, the undersigned, certify that I am the presently elected and acting
Assistant Secretary of BARRA, Inc., a California corporation (the
"Corporation"), and that the above bylaws, consisting of fifteen (15) pages
including this page, are the Bylaws of the Corporation, as amended and adopted
by resolution of the Board of Directors of the Corporation on July 25, 1996.
Dated: August 6, 1996 -----------------------------
Executed: Berkeley, California Cynthia Schaffer,
Assistant Secretary
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Exhibit 10.1
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INDEMNITY AGREEMENT
INDEMNITY AGREEMENT, dated July 1, 1996, between BARRA, Inc., a California
corporation (the "Indemnifying Party") and LIBERTY BROKERAGE INVESTMENT CORP., a
Delaware corporation (the "Indemnified Party").
WITNESSETH:
WHEREAS, the Indemnified Party is the parent company of Liberty BAS
Participation Corp., a Delaware corporation ("Liberty BAS"), which is a general
partner of BARRA Analytic Securities ("BAS");
WHEREAS, the Indemnifying Party is the parent company of BARRA
International (U.K.) Ltd., a Delaware corporation, which is a general partner of
BAS;
WHEREAS, the Indemnified Party has guaranteed BAS's performance and
obligations with respect to the brokering of U.S. Treasury and corporate
Securities (the "Guaranties").
NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Indemnifying Party and the Indemnified Party agree as follows:
1. The Indemnifying Party will indemnify the Indemnified Party for fifty
(50) percent of any and all claims, demands, causes of action,
proceedings, losses, damages, expenses, liabilities, penalties,
deficiencies, judgments or costs, including without limitation
reasonable attorney's fees, court costs and amounts paid in settlement
(collectively, "Claims"), at any time asserted or threatened against
or incurred by the Indemnified Party by reason of the fact that the
Indemnified Party has guaranteed BAS's performance and obligations
with respect to the brokering of U.S. Treasury and corporate
securities. The provisions of this section shall not be deemed
exclusive of any other right which the Indemnified Party may have to
indemnification under any other section hereof or that it or Liberty
BAS may be entitled to under the Partnership and Joint Venture
Agreement of BAS.
2. The Indemnifying Party also agrees that (i) the Indemnified Party
shall be entitled to indemnification to the full extent permitted by
the General Corporation Law of the State of Delaware as in effect from
time to time; and (ii) the Indemnified Party shall be entitled to
payment by Indemnifying Party in
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advance of fifty (50) percent of the expenses (including reasonable
attorneys' fees) incurred by the Indemnified Party in defending any
actual of threatened arbitration, action, suit, or proceeding
(collectively, "Claims"). The Indemnifying Party shall have the right
to approve the attorneys chosen by the Indemnified Party to represent
the Indemnified Party with respect to any Claims. The Indemnifying
Party's approval of such attorneys shall not be unreasonably withheld.
3. The Indemnified Party agrees that the Indemnifying Party's obligations
under this Agreement shall be equal to the amount that the Indemnified
Party has received from Liberty BAS.
4. The indemnities contained in this Agreement are conditioned upon the
Indemnified Party giving prompt written notice to the Indemnifying
Party of any Claim against the Indemnified Party which might give rise
to a claim for indemnification hereunder, stating the nature and basis
of such Claim and the amount thereof. The Indemnified Party shall
have full responsibility and authority with respect to the disposition
of any such claim, provided, that the Indemnified Party may not settle
or compromise any claim without the prior written consent of the
Indemnifying Party. The Indemnifying Party, at its own expense, may
participate in any defense of any claim.
5. This Agreement shall not be limited in any manner by the existence of
any liability insurance that the Indemnifying Party may purchase and
maintain with respect to the Indemnified Party.
6. This Agreement may be amended, modified and supplemented only by
written agreement signed by each of the partied hereto. This
Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. All
notices, requests, demands and other communications required or
permitted hereunder shall be in writing and either delivered by hand
or mail (certified mail, return receipt requested), or by facsimile or
telecopy transmission, followed by copy delivered by hand or by mail,
to the parties at the following addresses:
(I) If to the Indemnified Party, to:
Liberty Brokerage Investment Corp.
77 Water Street
New York, New York 10005
Attention: Chief Financial Officer
(II) If to the Indemnifying Party, to:
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BARRA, Inc.
1995 University Avenue, Suite 400
Berkeley, CA 94704
or, in any case, to such person or address as to which any party
shall notify the other parties in the manner provided herein.
7. Whenever possible, each provision shall be interpreted in such
manner as to be effective and valid under applicable law, but in
case any one or more of the provisions contained herein shall,
for any reason, be held to be invalid, illegal, or unenforceable
in any respect such invalidity, illegality or unenforceability
shall not effect any other provision of the Agreement, and this
Agreement shall be deemed valid and enforceable to the full
extent possible.
8. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed the day and year first above written.
BARRA, Inc.
BY: /s/ James D. Kirsner
-----------------------------------
James D. Kirsner
Chief Financial Officer
LIBERTY BROKERAGE INVESTMENT CORP.
BY: /s/ Steven Warshavsky
------------------------------------
Steven Warshavsky
Chief Financial Officer
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Exhibit 10.2
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OPERATING AGREEMENT OF
SYMPHONY ASSET MANAGEMENT LLC
This Operating Agreement (this "Agreement") is entered into this _________
day of ___________________ , 1996 by and between Symphony Asset Management,
Inc., a California Corporation ("SAM"), and Maestro, LLC, a California limited
liability company ("Maestro").
W I T N E S S E T H:
The parties have agreed to organize a limited liability company in
accordance with the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINED TERMS
The following capitalized terms shall have the respective meanings
specified in this Article 1. Capitalized terms not defined in this Agreement
shall have the meanings specified in the Act.
"ACT" means the California Limited Liability Company Act, as amended from
time to time.
"AFFILIATE" means, (a) Person directly or indirectly controlling,
controlled by, or under common control with another Person; (b) a Person owning
or controlling 10% or more of the outstanding voting securities or beneficial
interests of another Person; (c) an officer, director, partner, or member of the
immediate family of an officer, director or partner, of another Person; and/or
(d) any affiliate of any such Person.
"AGREEMENT" means this Operating Agreement, as amended from time to time
including each exhibit hereto.
"CAPITAL ACCOUNT" means the account to be maintained by the Company for
each Member as set forth in EXHIBIT B and as adjusted in accordance with the
following provisions:
(i) a Member's Capital Account shall be credited with the amount of money
and the fair market value of any property contributed to the Company (net of
liabilities secured by such property that the Company either assumes or to which
such property is subject) the amount of any Company unsecured liabilities
assumed by the Member, and the Member's distributive share of Profit and any
item in the nature of income or gain specially allocated to the Member pursuant
to the provisions of SECTION 4.2 (other than SECTION 4.2.2); and
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(ii) a Member's Capital Account shall be debited with the amount of money
and the fair market value of any Company property distributed to the Member (net
of liabilities secured by such distributed property that the Member either
assumes or to which such property is subject), the amount of any unsecured
liabilities of the Member assumed by the Company, and the Member's distributive
share of Loss and any item in the nature of expenses or losses specially
allocated to the Member pursuant to the provisions of SECTION 4.2 (other than
SECTION 4.2.2).
If any Interest is transferred pursuant to the terms of this Agreement, the
transferee shall succeed to the Capital Account of the transferor to the extent
the Capital Account is attributable to the transferred Interest. When the book
value of Company property is adjusted pursuant to Regulation Section 1.704-
1(b)(2)(iv)(f), the Capital Account of each Member shall be adjusted to reflect
the aggregate adjustment in the same manner as if the Company had recognized
gain or loss equal to the amount of such aggregate adjustment. It is intended
that the Capital Accounts of all Members shall be maintained in compliance with
the provisions of Regulation Section 1.704-1(b), and all provisions of this
Agreement relating to the maintenance of Capital Accounts shall be interpreted
and applied in a manner consistent with that Regulation.
"CASH FLOW" means all cash derived from operations of the Company
(including interest received on reserves), without reduction for any non-cash
charges, but less cash used to pay current operating expenses and to pay or
establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the Company.
"CHIEF EXECUTIVE OFFICER" means the Person designated as such in Article 5.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding revenue law.
"COMPANY" means the limited liability company formed in accordance with
this Agreement.
"CONTRIBUTION" means any money, property, or services rendered, or a
promissory note or other binding obligation to contribute money or property, or
to render services as permitted in this title, which a Member contributes to a
Limited Liability Company as capital in that Member's capacity as a Member
pursuant to an agreement between the Members, including an agreement as to
value.
"ECONOMIC INTEREST" means a person's right to share in the income, gains,
losses, deductions, credit, or similar items of, and to receive distributions
from, the Company, but does not include any other rights of a Member including,
without limitation, the right to Vote or to participate in management, or any
right to information concerning the business and affairs of the Company. There
may be more than one class of Economic Interests.
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"MEMBERSHIP INTEREST" means a Member's rights in the Company, collectively,
including the Member's Economic Interest, any right to vote or participate in
management, and any right to information concerning the business and affairs of
the Company.
"NEGATIVE CAPITAL ACCOUNT" means a Capital Account with a balance of less
than zero.
"PERSON" means and includes an individual, corporation, partnership,
association, limited liability company, trust, estate, or other entity.
"PRIME RATE" means the rate that Bank of America publishes as its prime or
reference rate for loans made to credit-worthy borrowers, computed on the basis
of a year of 365 days and actual days elapsed, compounded annually.
"PROFIT" and "LOSS" means, for each fiscal year of the Company (or other
period for which Profit or Loss must be computed), the Company's income or loss
determined in accordance with generally accepted accounting principles for
financial reporting purposes, taking into account unrealized gains and losses in
connection with investing the Company's funds in its own investment strategies,
with such adjustments as shall be required under the provisions of this
Agreement.
"REGULATION" means the Federal income tax regulations, including any
temporary regulations, from time to time promulgated under the Code.
"SECRETARY OF STATE" means the Secretary of State of the State of
California.
"TRANSFER" means, when used as a noun, any sale, hypothecation, pledge,
assignment, attachment, or other transfer, and, when used as a verb, to sell
hypothecate, pledge, assign, or otherwise transfer.
"VOLUNTARY WITHDRAWAL" means a Member's disassociation from the Company by
means other than a Transfer or an Involuntary Withdrawal.
ARTICLE 2
FORMATION AND NAME; OFFICE; PURPOSE; TERM
2.1 ORGANIZATION. The parties hereby organize a limited liability company
pursuant to the Act and the provisions of this Agreement. The Company shall
cause Articles of Organization to be prepared, executed, and filed with the
Secretary of State as required by law.
2.2 NAME OF THE COMPANY. The name of the Company is SYMPHONY ASSET
MANAGEMENT, LLC.
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2.3 PURPOSE. The Company is organized to receive and continue the money
management business and operations of SAM and to do any and all things
necessary, convenient, or incidental to that purpose.
2.4 TERM. The Company shall continue in existence until March 31, 2025,
unless sooner dissolved as provided by this Agreement or the Act.
2.5 PRINCIPAL PLACE OF BUSINESS. The Company's principal place of
business shall be located at 555 California Street, Suite 2975, San Francisco,
California 94104 or at any other place within the State of California that the
Members select. The Company shall maintain at its principal place of business
the records required by Section 17058 of the California Corporations Code.
2.6 RESIDENT AGENT. The name and address of the Company's resident agent
in the State of California is Neil L. Rudolph, 555 California Street, Suite
2975, San Francisco, California 94104.
2.7 MEMBERS. The name and mailing address of each Member is set forth on
EXHIBIT A.
ARTICLE 3
MEMBERS; CAPITAL; CAPITAL ACCOUNTS
3.1 INITIAL CONTRIBUTIONS. Upon the execution of this Agreement, the
Members shall contribute to the Company the cash and other assets set forth on
EXHIBIT B and receive the Economic Interests specified therein.
3.2 NO ADDITIONAL CONTRIBUTIONS. No Member shall be required to
contribute any additional capital to the Company, and no Member shall have
personal liability for any obligation of the Company except as expressly
provided by law.
3.3 NO INTEREST ON CONTRIBUTIONS. Except as otherwise provided in this
Agreement, Members shall not be paid interest with respect to their
Contributions.
3.4 RETURN OF CONTRIBUTIONS. Except as otherwise provided in this
Agreement, no Member shall have the right to receive the return of any
Contribution or withdraw from the Company, except upon the dissolution of the
Company.
3.5 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained for
each class of Economic Interest.
3.6 LOANS AND OTHER BUSINESS TRANSACTIONS. Any Member may, at any time,
make or cause a loan to be made to the Company in any amount and on those terms
upon which the Company and the Member agree. Members may also transact other
business with the Company and, in doing so, they shall have the same rights and
be subject to the same obligations arising out of any such business transaction
as would be enjoyed by and imposed upon any Person, not a Member, engaged
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in a similar business transaction with the Company. Unless otherwise agreed, if
any Member makes a loan to the Company, the Company shall pay interest on such
loan at the Prime Rate plus 2%. Any loan made by a Member to the Company shall
be made subject to a "satisfactory subordination agreement" as defined in
Section 260.237.1 of the California Commissioner of Corporation's regulations
relating to registered investment advisers.
3.7 LIMITED LIABILITY. Except as required under the Act or as expressly
set forth in this Agreement, the debts, obligations and liabilities of the
Company, whether arising in tort or otherwise, shall be solely the debts,
obligations and liabilities of the Company, and no Member shall be personally
liable for any debt, obligation or liability of the Company solely by reason of
being a Member of the Company.
ARTICLE 4
PROFIT, LOSS, AND DISTRIBUTIONS
4.1 ALLOCATIONS OF PROFIT OR LOSS AND DISTRIBUTIONS OF CASH. The Profits
and Losses of the Company and all items of income, gain, loss, credit or
deduction shall be allocated for book purposes and for tax purposes to the
Members in the manner set forth in EXHIBIT B and EXHIBIT C to this Agreement.
Cash shall be distributed to the Members consistent with the allocation of
Profits and Losses as set forth in EXHIBIT B and EXHIBIT C.
4.2 SPECIAL ALLOCATIONS.
4.2.1 SECTION 704 ALLOCATIONS. Any special allocations necessary to
comply with the requirements set forth in IRC Section 704 and the corresponding
Regulations, including without limitation the qualified income offset and
minimum gain chargeback provisions contained therein, shall be made.
4.2.2 CONTRIBUTED PROPERTY AND BOOK-UPS. In accordance with IRC
Section 704(c) and the Regulations thereunder, including Regulation Section
1.704-l(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of the property to the Company for federal
income tax purposes and its fair market value at the date of Contribution (or
deemed Contribution). When the adjusted book value of any Company asset is
adjusted under Regulation Section 1.704-1(b)(2)(iv)(f), subsequent allocations
of income, gain, loss, and deduction with respect to the asset shall take into
account any variation between the adjusted basis of the asset for federal income
tax purposes and its adjusted book value in the manner required under IRC
Section 704(c) and the Regulations thereunder.
4.2.3 IRC SECTION 754 ADJUSTMENT. To the extent an adjustment to the
tax basis of any Company asset pursuant to IRC Section 734(b) or IRC Section
743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of the adjustment
to the Capital Accounts shall be treated as an item of gain (if the
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adjustment increases the basis of the asset) or loss (if the adjustment
decreases basis), and the gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to that Section of the Regulations.
4.2.4 GUARANTEED PAYMENTS. To the extent any compensation paid to
any Member by the Company, including any fees payable to any Member pursuant to
SECTION 5.4 hereof, is determined by the Internal Revenue Service not to be a
guaranteed payment under IRC Section 707(c) or is not paid to the Member other
than in the Person's capacity as a partner (Member) within the meaning of IRC
Section 707(a), the Member shall be specially allocated gross income of the
Company in an amount equal to the amount of that compensation, and the Member's
Capital Account shall be adjusted to reflect the payment of that compensation.
4.2.5 UNREALIZED RECEIVABLES. If a Member's Economic Interest is
reduced (provided the reduction does not result in a complete termination of the
Member's Interest), the Member's share of the Company's "unrealized receivables"
and "substantially appreciated inventory" (within the meaning of IRC Section
751) shall not be reduced, so that, notwithstanding any other provision of this
Agreement to the contrary, that portion of the Profit otherwise allocable upon a
liquidation or dissolution of the Company which is taxable as ordinary income
(recaptured) for federal income tax purposes shall, to the extent possible
without increasing the total gain to the Company or to any Member, be specially
allocated among the Members in proportion to the deductions (or basis reductions
treated as deductions) giving rise to such recapture.
4.2.6 WITHHOLDING. All amounts required to be withheld pursuant to
IRC Section 1446 or any other provision of federal, state, or local tax law
shall be treated as amounts actually distributed to the affected Members for all
purposes under this Agreement.
4.2.7 INCOME TAX PROVISIONS. The Members are aware of the income tax
consequences of this Article 4 and agree to be bound by these provisions in
reporting their shares of Profit, Losses, and other items for federal and state
income tax purposes.
4.3 GENERAL.
4.3.1 Except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the Members.
4.3.2 If any assets of the Company are distributed in kind to the
Members, those assets shall be valued on the basis of their fair market value,
and any Member entitled to any interest in those assets shall receive that
interest as a tenant-in-common with all other Members so entitled. Unless the
Members otherwise agree, the fair market value of the assets shall be determined
by an independent appraiser who shall be selected by the Members. The Profit or
Loss for each unsold asset shall be determined as if the asset had been sold at
its fair market value.
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ARTICLE 5
MANAGEMENT: RIGHTS, POWERS, AND DUTIES
5.1 MANAGEMENT.
5.1.1 MANAGEMENT BY MEMBERS. The management of the Company shall be
by its Members. The Members may in their discretion delegate to the Company's
officers those portions of the Members' authority that is not specifically
reserved to the Members herein.
5.1.2 CHIEF EXECUTIVE OFFICER; OTHER OFFICERS. The Company shall
have a Chief Executive Officer and a Chief Financial Officer and such other
officers as the Members may determine. Jeffrey Skelton is hereby designated to
serve as the initial Chief Executive Officer and Neil L. Rudolph is hereby
designated to serve as the initial Chief Financial Officer.
5.1.3 GENERAL POWERS. Unless and until restricted by the Members,
the Chief Executive Officer shall have full discretion, power, and authority,
subject in all cases to the other provisions of this Agreement and the
requirements of applicable law, to manage, control, administer, and operate the
business and affairs of the Company for the purposes herein stated, and to make
all necessary decisions affecting such business and affairs in the ordinary
course.
5.1.4 EXTRAORDINARY TRANSACTIONS. Notwithstanding anything to the
contrary in this Agreement, without the approval of the Members neither the
Chief Executive Officer nor any other officer shall have the power and authority
to take any of the actions requiring the unanimous consent of the Members as set
forth in SECTION 5.2.2.
5.1.5 LIMITATION ON AUTHORITY OF MEMBERS.
5.1.5.1 No Member is an agent of the Company solely by virtue of
being a Member, and no Member has authority to act for the Company solely by
virtue of being a Member.
5.1.5.2 This SECTION 5.1 supersedes any authority granted to the
Members pursuant to Section 17157 of the Act. Any Member who takes any action
or binds the Company in violation of this SECTION 5.1 shall be solely
responsible for any loss and expense incurred by the Company as a result of the
unauthorized action and shall indemnify and hold the Company harmless with
respect to the loss or expense.
5.1.6 REMOVAL OF CHIEF EXECUTIVE OFFICER. The Members, at any time
and from time to time and for any reason, may remove the Chief Executive Officer
then acting and elect a new Chief Executive Officer. The Members, at any time
and from time to time and for any reason, may remove the Chief Financial Officer
then acting and elect a new Chief Financial Officer.
5.2 MEETINGS OF AND VOTING BY MEMBERS.
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5.2.1 A meeting of the Members may be called at any time by the Chief
Executive Officer or by any Member. Meetings of Members shall be held at the
Company's principal place of business or at any other place within 35 miles of
the Company's principal place of business designated by the Member calling the
meeting. Notice of any meeting shall be given at the time and in the manner
required by law. Notwithstanding the foregoing provisions, each Member who is
entitled to notice may waive notice, either before or after the meeting, by
executing a waiver of such notice, or by appearing at and participating, in
person or by proxy in the meeting. The presence in person or by proxy of all
Members shall be required to constitute a quorum. Each Member shall have one
vote without regard to its Economic Interests in the Company. A Member which is
a corporation or a limited liability company under the Act shall be represented
at any such meeting for purposes of this Agreement by its chief executive
officer or a person designated in writing by its chief executive officer. In
lieu of holding a meeting, the Members may take action by unanimous written
consent specifying the action to be taken.
5.2.2 The following matters shall require the unanimous consent of
the Members:
(a) A decision to continue the business of the Company after
dissolution of the Company;
(b) Approval of the transfer or change of a Membership Interest
or the admission of a new or additional Member;
(c) An amendment to the Articles of Organization or this
Agreement;
(d) Any change in (i) the fiscal year, (ii) any material
accounting policies or procedures of the Company, other than as a result of
changes in generally accepted accounting principles, or (iii) a change in the
independent accountants of the Company to a firm other than the firm of
independent accountants which then audits the financial statements of SAM's
parent corporation;
(e) The liquidation, winding up or dissolution of the Company,
or merger or consolidation of the Company into or with any other entity;
(f) The purchase or other acquisition by the Company of all or
substantially all of stock or other interest in, or the assets of, any Person
(or of any division thereof);
(g) The making of any investment (including the formation of any
subsidiary) by the Company in any other Person (other than short-term
investments for cash on deposit with banks or other financial institutions in
certificates of deposit, money market instruments and similar investments);
(h) The incurrence or existence of any indebtedness for borrowed
money (including guaranties and similar obligations in respect of the
indebtedness of others) of the Company;
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(i) The incurrence of or, upon being notified thereof, suffering
to exist, any encumbrance upon any of the property, revenues or assets, whether
now owned or hereafter acquired, of the Company, except for (i) purchase money
security interests for equipment and furnishings used in the business of the
Company and not in excess of an aggregate of $50,000, (ii) liens for taxes not
yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established, (iii) any
statutory lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent, or (iv) any other
encumbrance that may arise without the agreement of the Company that is being
contested in good faith by appropriate proceedings for which adequate reserves
have been established;
(j) The sale or other conveyance, or grant by the Company of any
options, warrants or other rights or ownership rights with respect to, all or
any substantial part of the Company's assets (including accounts receivable) to
any Person;
(k) The payment of any amount, performance of any obligation or
agreement to pay any amount or perform any obligation, in settlement or
compromise of any suits or claims of liability against the Company, or the
institution of any suit or claim against any Person;
(l) Approving or amending the Company's annual operating and
capital budgets;
(m) Except as provided in SECTION 5.4.3, the termination of the
employment by the Company of any person who is an Affiliate of a Member;
(n) Any other action for which, pursuant to the terms of this
Agreement, approval or other act of the Members shall be required;
(o) The hiring by the Company of any person as an employee or
consultant at a rate in excess of $75,000 per annum or for a term in excess of 1
year;
(p) The making of any loan of the Company's money or other
assets if the amount of such transaction exceeds $5,000;
(q) Invest and reinvest Company reserves in any investment other
than short-term instruments or money market funds;
(r) Causing the Company to exercise any Right of First Refusal
under Article 6;
(s) The determination of Cash Flow and the timing and amount of
distributions to Members;
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(t) Approval of any transfer of an interest in Maestro or any
change in the Articles of Organization or operating agreement of Maestro; and
(u) Any other action that is material to the Company.
5.3 VOTING ON CERTAIN MATTERS. Anything herein to the contrary
notwithstanding, in the case of any vote with respect to the exercise of the
Right of First Refusal under the provisions of SECTION 5.2(r) or any action
permitted or required of the Company in Article 6 (including SECTIONS 6.1.3.1,
6.1.3.8 and 6.1.3.9), Maestro shall vote its entire interest as directed by SAM.
5.4 PERSONAL SERVICE.
5.4.1 No Member shall perform services for the Company solely by
virtue of being a Member, provided, however, that the Company may employ an
Affiliate of a Member upon approval of the Members other than the Member of
which such person is an Affiliate. Without limiting the generality of the
foregoing, a Member may provide goods or services to the Company and be paid a
fair value for such goods or services if such provision of goods or services
and such compensation is approved by the Members other than the Member being
compensated.
5.4.2 Except as provided in EXHIBIT C, or except as may be
unanimously approved by the Members, no Member and no person owning 5% or more
of the equity interests of any Member shall be entitled to compensation for
services performed for the Company. However, the Company may reimburse any such
person for expenses reasonably incurred, and advances reasonably made, in
furtherance of the business of the Company upon substantiation of the amount and
purpose thereof.
5.4.3 An Affiliate of a Member who performs services for the Company
and who is receiving compensation from the Company with respect thereto can be
terminated either with the approval of both Members or by the other Member for
cause. In this respect "for cause" means (i) materially breaches or neglects
the duties which he is required to perform; (ii) commits any act of dishonesty,
fraud, misrepresentation, or act of moral turpitude; (iii) is guilty of gross
negligence or gross misconduct in connection with his services; (iv) fails to
obey the lawful and specific directions of the Members; (v) acts in any way that
has a direct, substantial, and adverse effect on the Company's reputation; (vi)
through any act or omission becomes disqualified to act as a principal of a
registered investment adviser under Federal or state law; (vii) a violation of
any of the provisions of SECTION 5.5.3 or SECTION 6.4.1 of this Agreement; or
(viii) through physical or mental illness or injury or otherwise is unwilling or
unable to perform his duties for the Company for an extended period of time.
5.5 DUTIES OF PARTIES.
5.5.1 The Chief Executive Officer shall devote his full business time
and attention to the business and affairs of the Company, except that he may
serve as a member of the board of directors of other organizations.
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5.5.2 Nothing in this Agreement shall be deemed to restrict in any
way the rights of any Member, or of any Affiliate of any Member, to conduct any
other business or activity whatsoever, and no Member shall be accountable to the
Company or to any other Member with respect to that business or activity even if
the business or activity competes with the Company's business. The organization
of the Company shall be without prejudice to the Members' respective rights (or
the rights of their respective Affiliates) to maintain, expand, or diversify
such other interests and activities and to receive and enjoy profits or
compensation therefrom. Each Member waives any rights the Member might
otherwise have to share or participate in such other interests or activities of
any other Member or the Member's Affiliates.
5.5.3 Notwithstanding the provisions of SECTION 5.5.2, no Affiliate
of Maestro who is employed by the Company may, during the period of such
employment (a) engage in any business in any way similar to or competitive with
the business of the Company, (b) make any investment in any entity, joint
venture or association engaged in any business in any way similar to or
competitive with the business of the Company (except for an investment in any
entity related to the Company or an investment in up to 1% of the common stock
of a corporation or other entity that is then publicly traded), or (c)
participate in the establishment, creation or formation of any entity, joint
venture or association engaged in any business in any way similar to or
competitive with the business of the Company.
ARTICLE 6
TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS
6.1 TRANSFERS. Except as provided herein, no Member may Transfer all, or
any portion of, or any interest or rights in, the Membership Interest owned by
the Member. Each Member hereby acknowledges the reasonableness of this
prohibition in view of the purposes of the Company and the relationship of the
Members. The attempted Transfer of any portion or all of a Membership Interest
in violation of the prohibition contained in this SECTION 6.1 shall be deemed
invalid, null and void, and of no force or effect, except any Transfer mandated
by operation of law and then only to the extent necessary to give effect to such
Transfer by operation of law.
6.1.1 LIMITED TERM PROHIBITION. Until the later of March 31, 2006 or
the date upon which each Member is entitled to 50% of the Profits and Losses of
the Company as set forth in EXHIBIT C (the "Prohibition Term"), no Member may
Transfer all, or any portion of or any interest or rights in, the Membership
Interest owned by that Member without the consent of the other Member. In the
event that there is a change in control (as hereinafter defined) of BARRA, Inc.
("BARRA"), the owner of all of the issued and outstanding shares of SAM prior to
March 31, 2006, the Prohibition Term shall expire on the date upon which each
Member is entitled to 50% of the Profits and Losses of the Company. For
purposes of this SECTION 6.1.1, a change in control of BARRA shall be deemed to
occur if:
6.1.1.1 Any one person, or more than one person, acting as a
group acquires, or has acquired during the twelve-month period ending on the
date of the most recent acquisition,
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ownership of stock of BARRA possessing 50% or more of the total voting power of
the stock of BARRA; or
6.1.1.2 A majority of the members of BARRA's board of directors
is replaced during any 12-month period by directors whose appointment or
election is not endorsed by a majority of the members of BARRA's board of
directors prior to the appointment or election; or
6.1.1.3 A sale, assignment, transfer or merger of all or
essentially all of BARRA's business or assets (other than hypothecations in the
ordinary course) occurs, except where BARRA is the surviving or controlling
entity.
6.1.2 RIGHT OF TRANSFER AFTER EXPIRATION OF THE PROHIBITION TERM.
6.1.2.1 After the expiration of the Prohibition Term, no
interest in the Company may be transferred without the consent of all of the
Members except as set forth in SECTIONS 6.1.2.2 or 6.1.2.3 below.
6.1.2.2 If after the expiration of the Prohibition Term, a Member
(the "Offeree Member") receives a bona fide written cash offer to purchase 100%
of the Company from any other Person (the "Offeror") which the Offeree Member
desires to accept, then the remaining Member (the "Remaining Member") shall have
the right and option to: (a) accept Offeror's offer to purchase the Company; (b)
purchase (or cause the Company to purchase) 100% of the Offeree Member's
Membership Interest in the Company (the "Offeree's Interest") at a price ratably
the same as that offered by the Offeror ( a "Right of First Refusal"); or (c)
refuse to sell any of its Membership Interest in the Company (the "Remaining
Member's Interest") to the Offeror, consent to the Transfer of the Offeree's
Interest to the Offeror, and remain an owner of the Company with the Offeror.
6.1.2.3 If after the expiration of the Prohibition Term, an
Offeree Member receives from any Offeror a bona fide written cash offer to
purchase less than 100% of the Company by purchasing a portion of an Offeree's
Interest in the Company which the Offeree Member desires to accept, then the
Remaining Member shall have: (a) a Right of First Refusal with respect to that
portion of the Offeree's Interest that the Offeror seeks to purchase at the same
price offered by the Offeror; (b) the right to permit the transfer subject to
such terms and conditions as the Remaining Member may require; or (c) the right
and option to prohibit the proposed Transfer of any portion of the Offeree's
Interest.
6.1.2.4 Before any Transfer of any Membership Interest in the
Company, the Offeree Member shall first deliver a written notice to the
Remaining Member which shall set forth the terms and conditions of the Offeror's
offer (the "Transfer Notice"). The Transfer Notice must specify: (a) the name
and address of the Offeror; (b) the price to be paid for the entire Company, or
for that portion of the Offeree's Interest that the Offeror seeks to purchase;
(c) the salient terms of any proposed employment agreements involving any of the
Affiliates of the Offeree Member, including information regarding any proposed
employee incentives; and (d) all other terms and conditions of the proposed
Transfer.
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6.1.2.5 Within 30 days after receiving the Transfer Notice, the
Remaining Member shall advise the Offeree Member of its exercise of any of its
rights under SECTIONS 6.1.2.2, or 6.1.2.3 above by delivering to the Offeree
Member a written notice of election (the "Notice of Election").
6.1.2.6 The purchase price for the Company, or for the Offeree's
Interest to be transferred, as the case may be, shall be the price specified in
the Transfer Notice. If the Remaining Member exercises its Right of First
Refusal, the purchase price shall be paid in cash in an amount equal to at least
20% of the total purchase price on the closing date and with the remaining
balance to be paid in 4 equal annual installments on the anniversary of the
closing date. No interest shall accrue on the unpaid balance. The unpaid
balance shall be made subject to a "satisfactory subordination agreement" as
defined in Section 260.237.1 of the California Commissioner of Corporation's
regulations relating to registered investment advisers.
6.1.2.7 Upon exercise of the Right of First Refusal, the closing
for the purchase of the Offeree's Interest shall take place at the principal
offices of the Company or at such other place as shall be mutually agreed upon.
6.1.2.8 If the Remaining Member elects to exercise its Right of
First Refusal and fails to consummate the purchase of the Offeree's Interest
within 30 days of the date of delivery of the Notice of Election, then the
Offeree Member may Transfer all or a portion of the Offeree's Interest to the
Offeror at any time within 60 days from the date of delivery of the Notice of
Election on the terms specified in the Transfer Notice. No change in any the
terms of Transfer shall be permitted without giving a new Transfer Notice in
compliance with the requirements of SECTION 6.1.2.5. Any Transfer of all or a
portion of the Offeree's Interest after the end of this 60 day period, or
without strict compliance with the terms, provisions, and conditions of this
SECTION 6.1.2 and the other terms, provisions, and conditions of this Agreement,
shall be null and void and of no force or effect.
6.1.2.9 Any Membership Interest transferred pursuant to the
terms of this SECTION 6.1.2 shall remain subject to all the provisions of this
SECTION 6.1.2 and the entire Agreement.
6.1.2.10 If there is any disposition of a Membership Interest in
violation of this SECTION 6.1.2, neither the Member nor any successor shall have
the right to vote or participate in the management of the business, property and
affairs of the Company or to exercise any rights of a Member. Such successor
shall be entitled to become only a holder of an Economic Interest and thereafter
shall only receive the share of the Company's Profits, Losses and distributions
to which the transferor of such Economic Interest would otherwise have been
entitled, which shall be effective as of midnight of the last day of the quarter
in which the disposition is made.
6.1.2.11 On and contemporaneously with any transfer (whether
arising out of an attempted charge on that Member's Economic Interest by
operation of law, judicial process, a foreclosure by a creditor of the Member or
otherwise) of a Member's Economic Interest that does
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not at the same time transfer the other rights associated with the Membership
Interest transferred by the Member (including, without limitation, the rights of
that Member to vote or participate in the management of the business, property
and affairs of the Company), the Company shall purchase from that Member, or
successor, and that Member or successor shall sell to the Company, for a
purchase price of $100, all remaining rights and interests retained by that
Member or successor that immediately before the Transfer were associated with
the transferred Economic Interest.
6.1.2.12 Each Member acknowledges and agrees that the right of
the Company to purchase such remaining rights and interests from a Member who
transfers a Membership Interest in violation of SECTION 6.1.2 at the price set
forth in Section 6.1.2.11 is reasonable under the circumstances existing as of
the date hereof and represents a bona fide, good faith attempt to determine the
fair market value of the interests retained by the transferring Member.
6.1.3 RIGHTS UPON TRANSFER OF INTERESTS IN MAESTRO.
6.1.3.1 No Person who is not an individual shall acquire an
interest in Maestro without the prior written consent of the Company, which
consent may be withheld in the Company's sole discretion. No Person who is an
individual shall acquire an interest in Maestro without the prior written
consent of the Company, which consent shall not be unreasonably withheld. No
change shall be made in the Articles of Organization or operating agreement of
Maestro without the prior written consent of the Company, which consent shall
not be unreasonably withheld.
6.1.3.2 The interests in Maestro held by a Maestro Principal (as
defined in EXHIBIT C) may not be transferred in whole or in part to any third
party (which, for purposes of this SECTION 6.1.3 shall include Maestro or
another Maestro Principal), except in accordance with the provisions of this
SECTION 6.1.3. In the event that a Maestro Principal proposed to transfer all
or any portion of his interest in Maestro to any third party, then the Company
shall have a Right of First Refusal to purchase that interest in Maestro at the
lesser of (i) the offered price, or (ii) the formula price set forth in SECTION
6.1.3.13 below (the "Formula Price").
6.1.3.3 Before any Transfer of any interest in Maestro, the
proposed Transferor shall first deliver a written notice to the Company which
shall set forth the terms and conditions of the offer to acquire the interest in
Maestro (the "Maestro Transfer Notice"). The Maestro Transfer Notice must
specify: (a) the name and address of the Offeror; (b) the price to be paid for
the interest in Maestro sought by the Offeror; and (c) all other terms and
conditions of the proposed Transfer.
6.1.3.4 Within 30 days after receiving the Maestro Transfer
Notice, the Company may exercise its rights under SECTION 6.1.3.2 above by
delivering to the selling member of Maestro a written notice of election (the
"Maestro Notice of Election").
6.1.3.5 The purchase price shall be paid in cash in an amount
equal to 20% of the total purchase price on the closing date and with the
remaining balance to be paid in 4 equal annual installments on the anniversary
of the closing date. Anything herein to the contrary
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notwithstanding, no installment of the purchase price other than the payment
made on the closing date shall exceed the lesser of (i) 20% of the original
purchase price calculation, and (ii) 20% of what would have been the purchase
price had the determination date for the calculation of the purchase price been
30 days prior to the date such installment is due. For example, if the purchase
price as originally determined is $1,000,000, based upon Average Annual Revenues
of Maestro at that time of $4,444,444, then $200,000 shall be paid on the
original closing date. If on the first anniversary of the original
determination date Average Annual Revenues (using Maestro's total operating
revenues for the 8 calendar quarters that had been completed immediately
preceding the first anniversary date and dividing by 2) had declined to
$4,000,000, then the installment due as of the first anniversary date will be
$180,000. If on the second anniversary of the original determination date
Average Annual Revenues had increased to $6,000,000, then the installment due as
of the second anniversary date will be $200,000. (No adjustment shall be made
to that portion of the purchase price attributable to the book value of the
Company allocable to the Class 3 Interests.) Interest on each of the deferred
payments shall accrue at the Prime Rate plus 2%, based upon the adjusted
principal amount of the installment then due, and shall be paid with such
installment. The entire unpaid balance shall be made subject to a "satisfactory
subordination agreement" as defined in Section 260.237.1 of the California
Commissioner of Corporation's regulations relating to registered investment
advisers.
6.1.3.6 Upon exercise of the Right of First Refusal with respect
to an interest in Maestro, the closing for the purchase of the interest in
Maestro shall take place at the principal offices of the Company or at such
other place as shall be mutually agreed upon.
6.1.3.7 If the Company elects to exercise its Right of First
Refusal and fails to consummate the purchase of the selling member's interest in
Maestro within 60 days of the date of delivery of the Maestro Notice of
Election, then the selling member of Maestro may Transfer his interest in
Maestro to the Non-Maestro Offeror at any time within 90 days from the date of
delivery of the Maestro Notice of Election on the terms specified in the Maestro
Transfer Notice. No change in any the terms of Transfer shall be permitted
without giving a new Maestro Transfer Notice in compliance with the requirements
of SECTION 6.1.3.3 above. Any Transfer of an interest in Maestro to a Non-
Maestro Offeror after the end of this 90 day period or without strict compliance
with the terms, provisions, and conditions of this SECTION 6.1.3 and the other
terms, provisions, and conditions of this Agreement, shall be null and void and
of no force or effect.
6.1.3.8 In the event that the Company elects to exercise its
Right of First Refusal with respect to an interest in Maestro and in the event
that SAM so elects, Maestro shall if requested by SAM vote to authorize the
Company to repurchase from SAM for substantially the same consideration as paid
for the interest in Maestro a sufficient number of shares of the Company from
SAM in order for each Member to remain the owner of a 50% Economic Interest in
the Company.
6.1.3.9 In the event that the Company elects to exercise its
Right of First Refusal with respect to an interest in Maestro, the Company shall
exchange that interest with Maestro for an economic equivalent reduction in the
economic interest of Maestro in the Company
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or, with the consent of Maestro, sell that interest to a third party who will
become a Member in Maestro and have the rights and obligations of a Member under
the terms of the Maestro operating agreement or sell that interest to one or
more of the remaining Maestro Principals, or a combination of the foregoing.
6.1.3.10 Upon the dissolution of Maestro for any reason, SAM
shall have the right to purchase all of Maestro's interest in the Company for
Maestro's then capital account balance if the dissolution occurs on or prior to
June 30, 1997 and at the Formula Price if the dissolution occurs on or after
July 1, 1997.
6.1.3.11 Each of the Maestro Principals covenants that on the
Transfer by a Maestro Principal of his or her entire interest in Maestro, to
Maestro, another Maestro Principal or a third party (including the Company or
SAM), for a valuable consideration, the Transferor Maestro Principal will not,
directly or indirectly, through an Affiliate or otherwise, for a period of two
years (a) induce any other employee of the Company to cease performing services
for the Company and work for a entity engaged in any business in any way similar
to or competitive with the business of the Company, or (b) use or disclose in
any manner any Confidential Information (as defined in SECTION 6.4.2).
6.1.3.12 Each of the Maestro Principals agrees to obtain a
Spousal Consent in the form attached hereto as EXHIBIT D.
6.1.3.13 For purposes of this SECTION 6.1.3, the "Formula Price"
is a valuation of Maestro based on the sum of (i) the book value of the Company
allocable to the Class 3 Interests (as defined in EXHIBIT B), and (ii) the
Revenue Formula Multiple. The "Revenue Formula Multiple" means the amount
determined by multiplying Maestro's Average Annual Revenues by
If the determination date is Multiple
---------------------------- --------
Before July 1, 1997 zero
Between July 1, 1997 and June 30, 1998 0.5
Between July 1, 1998 and June 30, 1999 1.0
Between July 1, 1999 and June 30, 2000 1.5
Between July 1, 2000 and June 30, 2001 2.0
Between July 1, 2001 and June 30, 2002 2.5
On or after July 1, 2002 2.75
Maestro's Average Annual Revenues shall be determined by using its total
operating revenues for the 8 calendar quarters that had been completed
immediately preceding the applicable determination date and dividing by 2. All
dollar sums or other amounts which are required for the calculation of the
entire valuation of Maestro shall be taken from the books and records of Maestro
maintained in accordance with generally accepted accounting principals and shall
be final absent manifest error. Notwithstanding the foregoing, the "Formula
Price" in the case of the death or disability of a Maestro Principal is a
valuation of Maestro based on the sum of (i) the book value of the Company
allocable
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to the Class 3 Interests (as defined in EXHIBIT B), and (ii) the amount
determined by multiplying Maestro's Average Annual Revenues by 2.75.
6.1.3.14 In the event that a departed Maestro Principal engages,
directly or indirectly, in a business similar to or competitive with the
business of the Company within two years from the date his interest in Maestro
is purchased under the provisions of this Section, each of the payments due the
departed Maestro Principal under Section 6.1.3.5 hereof other than the initial
payment shall be reduced by 50%. In the event that a departing Maestro
Principal in concert with any other departed Maestro Principal engages, directly
or indirectly, in a business similar to or competitive with the business of the
Company within two years from the date his interest in Maestro is purchased
under the provisions of this Section, each of the payments due the departed
Maestro Principal under SECTION 6.1.3.5 hereof shall be reduced by 90%. No
payment made to a departed Maestro Principal prior to the date such competitive
activities commenced shall be affected by the reductions required by this
SECTION 6.1.3.14 or be recoverable by the Company except in the case where two
or more Maestro Principals depart together for the purpose of engaging in a
business similar to or competitive with the business of the Company.
6.1.3.15 If, during the one-year period immediately following the
Closing of a purchase of an interest in Maestro by the Company under the
provisions of this SECTION 6.1.3, there is a transfer by the Company or the
holders of the Membership Interests in the Company of 90% or more of the
Member's Economic Interests in the Company in exchange for cash consideration
(whether payable at the closing of the transfer or evidenced by a promissory
note or notes), the Company shall pay the departed Maestro Principal (or the
departed Maestro Principal's representative) whose interest were so purchased
(the "Additional Purchase Price"), in addition to the purchase price paid or
payable to the departed Maestro Principal under this SECTION 6.1.3, an amount
sufficient to provide such departed Maestro Principal the same purchase price
that such departed Maestro Principal would have received had his or her interest
been purchased on the date of such event. The amount of the Additional Purchase
Price shall be determined by the Company in good faith, and shall be subject to
adjustments deemed by the Company to be fair under the circumstances, including
adjustments to account for the time value of money and for transaction costs and
shall be subject to such conditions as the acquiring person or entity imposes on
the other Maestro Principals. In addition, the amount of the Additional
Purchase Price shall be subject to any adjustments previously imposed under
SECTION 6.1.3.14.
6.2 WITHDRAWAL OF A MEMBER.
6.2.1 No Member shall have the right or power to Voluntarily Withdraw
from the Company.
6.2.2 "INVOLUNTARY WITHDRAWAL" means, with respect to any Member, the
occurrence of any of the following events:
(i) the Member makes an assignment for the benefit of creditors;
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(ii) the Member is bankrupt;
(iii) the Member files a petition seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any state law;
(iv) the Member seeks, consents to, or acquiesces in the
appointment of a trustee for, receiver for, or liquidation of the Member or of
all or any substantial part of the Member's properties;
(v) if the Member is a partnership or limited liability company,
the dissolution and commencement of winding up of the partnership or limited
liability company;
(vi) if the Member is a corporation, the dissolution of the
corporation or the revocation of its charter;
(vii) if the Member files an action seeking a decree of judicial
dissolution pursuant to Section 17351 of the Act.
6.3 OPTIONAL BUY-OUT IN EVENT OF INVOLUNTARY WITHDRAWAL.
6.3.1 If the Members elect to continue the Company after an
Involuntary Withdrawal, the withdrawn Member or the successor in interest to
such Member (the "Withdrawn Member") shall be deemed to offer for sale to the
Company (the "Withdrawal Offer") all of the Membership Interest of the Withdrawn
Member (the "Withdrawal Interest").
6.3.2 The Withdrawal Offer shall be and remain irrevocable for a
period of 60 days (the "Withdrawal Offer Period"). At any time during the
Withdrawal Offer Period, the Company may accept the Withdrawal Offer by
notifying the Withdrawn Member of its acceptance (the "Withdrawal Notice"). The
Withdrawn Member shall not be deemed a Member for the purpose of the Vote on
whether the Company shall accept the Withdrawal Offer.
6.3.3 If the Company accepts the Withdrawal Offer, the Withdrawal
Notice shall fix a closing date (the "Withdrawal Closing Date") for the purchase
which shall be not earlier than 10 or later than 90 days after the expiration of
the Withdrawal Period.
6.3.4 If the Company accepts the Withdrawal Offer, the Company shall
purchase the Withdrawal Interest for an amount equal to the Withdrawal Price (as
hereinafter defined) multiplied by the percentage share of the Withdrawn Member.
The "Withdrawal Price" is a valuation of the entire Company based on the sum of
(i) the book value of the Company allocable to the Class 3 and Class 4
Interests, and (ii) the Income Multiple. The "Income Multiple" means the amount
determined by multiplying (i) the Company's average annual operating income by
1. The Company's average annual operating income shall be determined by using
its total operating income for the 8 calendar quarters that had been completed
immediately preceding the first day of the Withdrawal
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Offer Period and dividing by two. The Company's operating income shall be
determined using its total operating revenues and subtracting total operating
expenses for the 8 calendar quarters that had been completed immediately
preceding the first day of the Withdrawal Offer Period. All dollar sums or
other amounts with respect to the Company which are required for the calculation
of the entire valuation of the Company shall be taken from the books and records
of the Company maintained in accordance with generally accepted accounting
principals for reporting the results of operations to the Company's shareholders
and shall be final absent manifest error.
6.3.5 If the Company fails to accept the Withdrawal Offer, then upon
the expiration of the Withdrawal Offer Period the Members shall proceed to
dissolve the Company and distribute its assets.
6.4 NON-COMPETITION AND CONFIDENTIALITY.
6.4.1 Each Member hereby covenants with the Company and each other
Member that on the Transfer of the Member's Membership Interest, whether
voluntary, involuntary, by operation of law, or by reason of any provision of
this Agreement, the Member (specifically including the exercise by the Remaining
Member of its Right of First Refusal) will not, directly or indirectly, through
an Affiliate or otherwise, for a period of two years (a) induce any other
employee of the Company to cease performing services for the Company and work
for a entity engaged in any business in any way similar to or competitive with
the business of the Company, or (b) use or disclose in any manner any
Confidential Information (as defined in SECTION 6.4.2). Without limiting the
generality of the foregoing, each of the Maestro Principals (as defined in
EXHIBIT C) covenants that on the Transfer by Maestro of its Membership Interest
in the Company for a valuable consideration, the Maestro Principals will not,
directly or indirectly, for a period of two years (a) induce any other employee
of the Company to cease performing services for the Company and work for an
entity engaged in any business in any way similar to or competitive with the
business of the Company, or (b) use or disclose in any manner any Confidential
Information (as defined in SECTION 6.4.2).
6.4.2 "Confidential Information" means the Company's investment
strategies and other trade secrets, "know-how," customer lists, pricing
policies, operational methods, computer programs, and other business
information.
6.4.3 Each Member hereby stipulates that a breach of the provisions
of this SECTION 6.4.3 will result in irreparable damage and injury to the
Company for which no money damages could adequately compensate it. If the Member
breaches the provisions of this Agreement, in addition to all other remedies to
which the Company may be entitled, and notwithstanding the provisions of SECTION
9.3 (Settlement of Disputes), the Company shall be entitled to an injunction to
enforce the provisions of this Agreement, to be issued by any court of competent
jurisdiction, to enjoin and restrain the Member and each and every Person
concerned or acting in concert with the Member from the continuance of such
breach. Each Member expressly waives any claim or defense that an adequate
remedy at law might exist for any such breach.
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6.4.4 BARRA agrees that without the consent of the Company, which
consent shall not be unreasonably withheld, it will not prior to July 1, 1997,
directly or indirectly, through an Affiliate or otherwise engage in any business
in any way similar to or competitive with the business of the Company. BARRA's
acquisition and operation of the money management division/subsidiary of Rogers
Casey & Associates, Inc., if acquired as a part of its acquisition of the other
assets and businesses of Rogers Casey & Associates, Inc., shall not require the
consent of the Company.
6.4.5 The scope and effect of the covenants contained in SECTION
6.1.3.11 and this SECTION 6.4 shall be as broad as permitted under the
provisions of applicable law in California and elsewhere. If the provisions
contained therein or herein shall be deemed to exceed the time or geographic
limits or any other limitation imposed by applicable law in any jurisdiction,
then such provision shall be deemed reformed in such jurisdiction to the maximum
extent permitted by applicable law.
ARTICLE 7
DISSOLUTION, LIQUIDATION, AND TERMINATION OF THE COMPANY
7.1 EVENTS OF DISSOLUTION. The Company shall be dissolved upon the
happening of the first to occur of an event specified in Section 17350 of the
Act or any of the following events:
7.1.1 on the date fixed for its termination in SECTION 2.4;
7.1.2 unless waived by SAM, on the date that the last of Jeffrey
Skelton, Neil L. Rudolph, Mike Henman and Praveen Gottipalli cease to be
employed by the Company on a substantially full-time basis.
7.2 PROCEDURE FOR WINDING UP AND DISSOLUTION. If the Company is
dissolved, the Members shall wind up its affairs. On winding up of the Company,
the assets of the Company shall be distributed, first to creditors of the
Company, including Members who are creditors, in satisfaction of the liabilities
of the Company, and then, to the Members, provided, however, that SAM shall have
the right to purchase from the Company at fair market value any intangible asset
contributed by SAM to the Company at the time of its organization.
7.3 FILING OF CERTIFICATE OF CANCELLATION. Upon completion of the affairs
of the Company, the Members shall promptly file the Certificate of Cancellation
of Articles of Organization with the Secretary of State.
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ARTICLE 8
BOOKS, RECORDS, ACCOUNTING, AND TAX ELECTIONS
8.1 BANK ACCOUNTS. All funds of the Company shall be deposited in a bank
account or accounts opened in the Company's name. The Company shall determine
the financial institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein.
8.2 BOOKS AND RECORDS.
8.2.1 The Company shall keep or cause to be kept complete and
accurate books, records, and financial statements of the Company and supporting
documentation of transactions with respect to the conduct of the Company's
business. Unless otherwise agreed, the books, records, and financial statements
of the Company shall be maintained on the accrual basis of accounting in
accordance with generally accepted accounting principles. Such books, records,
financial statements, and documents shall include, but not be limited to, the
following:
(1) a current list of the full name and last known business or
residence address of each Member, in alphabetical order, with the contribution
and the share in Profits and Losses of each Member specified in such list;
(2) the Articles of Organization, including all amendments; and any
powers of attorney under which the Articles of Organization or amendments were
executed;
(3) federal, state, and local income tax or information returns and
reports, if any, for the 6 most recent taxable years;
(4) this Agreement and any amendments thereto; and any powers of
attorney under which this Agreement or amendments were executed;
(5) financial statements for the 6 most recent years;
(6) internal books and records for the current and past 4 fiscal
years; and
(7) a true copy of relevant records indicating the amount, cost, and
value of all property which the Company owns, claims, possesses, or controls.
8.2.2 Such books, records, and financial statements of the Company
and supporting documentation shall be kept, maintained, and available at the
Company's principal place of business within the State of California.
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8.3 RIGHT TO INSPECT BOOKS AND RECORDS; RECEIVE INFORMATION.
8.3.1 Upon the reasonable request of a Member for a purpose
reasonably related to the interest of that Member of the Company, the Company
shall promptly deliver to the requesting Member at the expense of the Company a
copy of this Agreement, as well as the information required to be maintained by
the Company under subparagraphs (1), and (3) of SECTION 8.2.1.
8.3.2 Each Member has the right upon reasonable request, and for
purposes reasonably related to the interest of that Member, to do the following:
(1) to inspect and copy during normal business hours any of the
records required to be maintained by the Company under SECTION 8.2.1 of this
Agreement; and
(2) to obtain from the Company promptly after becoming
available, a copy of the Company's federal, state, and local income tax or
information returns for each year.
8.3.3 The Company shall send or shall cause to be sent to each Member
within 90 days after the end of each fiscal year of the Company: (i) such
information as is necessary to complete federal and state income tax or
information returns, and (ii) a copy of the Company's federal, state, and local
income tax or information returns for the fiscal year.
8.3.4 A copy of the Company's annual financial statements shall be
given to each Member within 90 days after the end of each fiscal year of the
Company. The annual financial statements shall include: (i) a balance sheet
and income statement, and a statement of changes in the financial position of
the Company as of the close of the fiscal year, and (ii) a statement showing the
Capital Account of each Member as of the close of the fiscal year and the
distributions, if any, made to each Member during the fiscal year. In addition,
the Company will promptly deliver to each Member as soon as available and in any
event within 30 days after the end of each of the first 3 quarters of each
fiscal year, balance sheets of the Company and statements of income of the
Company, certified by its Chief Financial Officer and as soon as available and
in any event within 45 days after the end of each fiscal year of the Company
unaudited financial statements of the Company certified by its Chief Financial
Officer.
8.3.5 Unless otherwise expressly provided in this Agreement, the
inspecting or requesting Member shall reimburse the Company for all reasonable
costs and expenses incurred by the Company in connection with such inspection
and copying of the Company's books and records and the production and delivery
of any other books or records.
8.4 ANNUAL ACCOUNTING PERIOD. The annual accounting period of the Company
shall be its taxable year. The Company's taxable year shall be the period
beginning on April 1 and ending on the following March 31, subject to the
requirements and limitations of the Code and the Regulations.
8.5 TAX MATTERS PARTNER. SAM shall act as Tax Matters Partner of the
Company pursuant to IRC Section 6231(a)(7). The Tax Matters Partner is hereby
authorized to do the following:
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(a) Keep the Members informed of administrative and judicial proceedings
for the adjustment of Company items (as defined in IRC Section 6231(a)(3)) at
the Company level, as required under IRC Section 6223(g) and the implementing
Regulations;
(b) Enter into settlement agreements under IRC Section 6224(c)(3) and
applicable Regulations with the Internal Revenue Service or the Secretary of the
Treasury (the "Secretary") with respect to any tax audit or judicial review, in
which agreement the Tax Matters Partner may expressly state that such agreement
shall bind the other Members, except that such settlement agreement shall not
bind any Member who (within the time prescribed under the Code and Regulations)
files a statement with the Secretary providing that the Tax Matters Partner
shall not have the authority to enter into a settlement agreement on behalf of
such Member;
(c) On receipt of a notice of a final Company administrative adjustment,
to file a petition for readjustment of the Company items with the Tax Court, the
District Court of the United States for the district in which the Company's
principal place of business is located, or the United States Court of Federal
Claims, all as contemplated under IRC Section 6226(a) and applicable
Regulations;
(d) File requests for administrative adjustment of Company items on
Company tax returns under IRC Section 6227(b) and applicable Regulations; and,
to the extent such requests are not allowed in full, file a petition for
adjustment with the Tax Court, the District Court of the United States for the
district in which the Company's principal place of business is located, or the
United States Court of Federal Claims, all as contemplated under IRC Section
6228(a); and
(e) To take any other action on behalf of the Members or the Company in
connection with any administrative or judicial tax proceeding to the extent
permitted by law or regulation, including retaining tax advisers (at the expense
of the Company) to whom the Tax Matters Partner may delegate such rights and
duties as deemed necessary and appropriate.
8.6 TAX ELECTIONS. SAM shall have the authority to make all Company
elections permitted under the Code and Regulations, including, without
limitation, elections of methods of depreciation and elections under IRC Section
754. Except as otherwise provided herein, the decision to make or not make an
election shall be at SAM's sole and absolute discretion.
8.7 TITLE TO COMPANY PROPERTY. All real and personal property acquired by
the Company shall be acquired and held by the Company in the Company's name.
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ARTICLE 9
GENERAL PROVISIONS
9.1 ASSURANCES. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts as
the Chief Executive Officer deems appropriate to comply with the requirements of
law for the formation and operation of the Company and to comply with any laws,
rules, and regulations relating to the acquisition, operation, or holding of the
property of the Company.
9.2 NOTIFICATIONS. Any notice, demand, consent, election, offer,
approval, request, or other communication (collectively a "notice") required or
permitted under this Agreement must be in writing and either delivered
personally or sent by express courier. Any notice to be given hereunder by the
Company shall be given by the Chief Executive Officer. A notice must be
addressed to a Member at the Member's last known address on the records of the
Company. A notice to the Company must be addressed to the Company's principal
office. A notice delivered by express courier will be deemed delivered one
business day after it is delivered to the courier service for overnight
delivery. Any party may designate, by notice to all of the others, substitute
addresses or addressees for notices; and, thereafter, notices are to be directed
to those substitute addresses or addressees.
9.3 SETTLEMENT OF DISPUTES. The Members shall make a good-faith effort to
settle any dispute or claim arising out of this Agreement. If the Members fail
to resolve any dispute or claim of whatever nature arising out of or pertaining
to this Agreement, including but not limited to the issue of arbitrability, such
dispute or claim shall be resolved by final and binding arbitration administered
by Judicial Arbitration & Mediation Services, Inc. (JAMS) in accordance with
their Rules of Practice and Procedure then in effect and judgment upon the award
may be entered in any court having jurisdiction thereof. Each party shall be
responsible for its own costs and expense of the arbitration. The costs and
fees of the arbitrator shall be borne equally by the parties. The arbitrator
shall have the power to grant temporary, preliminary or permanent injunctive
relief, or any extraordinary remedy, where necessary and appropriate. The
arbitrator shall have any and all of the powers that may be exercised by an
arbitrator under state or federal law except the arbitrator shall not have the
power to award any sum or sums by way of punitive or exemplary damages.
9.4 COMPLETE AGREEMENT. This Agreement constitutes the complete and
exclusive statement of the agreement among the Members. It supersedes all prior
written and oral statements, including any prior representation, statement,
condition, or warranty. Except as expressly provided otherwise herein, this
Agreement may not be amended without the written consent of all of the Members.
9.5 APPLICABLE LAW. All questions concerning the construction, validity,
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law of
conflicts, of the State of California.
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9.6 ARTICLE AND SECTION TITLES. The headings herein are inserted as a
matter of convenience only and do not define, limit, or describe the scope of
this Agreement or the intent of the provisions hereof.
9.7 BINDING PROVISIONS. This Agreement is binding upon, and to the
limited extent specifically provided herein, inures to the benefit of, the
parties hereto and their respective heirs, executors, administrators, personal
and legal representatives, successors, and assigns.
9.8 TERMS. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular, and plural, as the identity of the Person
may in the context require.
9.9 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall be
considered separable; and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
9.10 ESTOPPEL CERTIFICATE. Each Member shall, within 10 days after
written request by the Chief Executive Officer, deliver to the requesting Person
a certificate stating, to the Member's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is no
default hereunder by the requesting Person, or if there is a default, the nature
and extent thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first written above.
Symphony Asset Management, Inc. Maestro, LLC
By:__________________________ By:________________________
(Signature) (Signature)
Name:_______________________ Name:_____________________
(Print or Type) (Print or Type)
Title:________________________ Title:______________________
As to SECTION 5.5.3 and Article 6 only: As to Section 6.4.4 only:
______________________________ BARRA, Inc.
Jeffrey Skelton
______________________________ By:________________________
Neil L. Rudolph
______________________________ Name:_____________________
Mike Henman
______________________________ Title:______________________
Praveen Gottipalli
72
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED) AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 15,903,894
<SECURITIES> 6,600,000
<RECEIVABLES> 10,545,173
<ALLOWANCES> 131,483
<INVENTORY> 0
<CURRENT-ASSETS> 38,118,873
<PP&E> 11,519,717
<DEPRECIATION> 6,492,045
<TOTAL-ASSETS> 62,312,824
<CURRENT-LIABILITIES> 23,526,128
<BONDS> 0
0
0
<COMMON> 10,735,468
<OTHER-SE> 25,878,443
<TOTAL-LIABILITY-AND-EQUITY> 62,312,824
<SALES> 17,737,036
<TOTAL-REVENUES> 17,737,036
<CGS> 2,007,440
<TOTAL-COSTS> 2,007,440
<OTHER-EXPENSES> 12,201,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,273,760
<INCOME-TAX> 1,861,109
<INCOME-CONTINUING> 2,412,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,412,651
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
