SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10994
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For the quarterly period ended June 30, 1997
PHOENIX DUFF & PHELPS CORPORATION
DELAWARE
95-4191764
(State of Incorporation) (I.R.S. EmployerIdentification No.)
56 Prospect St., Hartford, Connecticut 06115-0480 (860) 403-5000
(Address of principal executive offices) (Registrant's telephone number)
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___
On July 31, 1997, the registrant had 44,090,261 shares of $.01 par value common
stock outstanding.
PHOENIX DUFF & PHELPS CORPORATION AND SUBSIDIARIES
Quarter Ended June 30, 1997
Index
PART I - FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements:
Consolidated Condensed Statements of Financial Condition. 3
June 30, 1997 and December 31, 1996
Consolidated Statements of Income ....................... 4
Three Months Ended June 30, 1997 and
Three Months Ended June 30, 1996
Consolidated Statements of Income ....................... 5
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996
Consolidated Condensed Statements of Cash Flows ......... 6
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996
Notes to the Consolidated Financial Statements........... 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition............ 10
Liquidity and Capital Resources.......................... 13
PART II - OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders...... 14
Item 6. Exhibits and Reports on Form 8-K......................... 15
Signatures..........................................................16
PART I. Financial Information
Item 1. Consolidated Financial Statements
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Condensed Statements of Financial Condition
(In thousands)
(Unaudited)
June 30, December 31,
1997 1996
Assets
Current Assets
Cash and cash equivalents $ 40,021 $22,466
Marketable securities, at market 4,174 4,070
Accounts receivable 25,495 25,668
Prepaid expenses and other current assets 1,890 4,287
--------- --------
Total current assets 71,580 56,491
Deferred commissions 17,749
Furniture, equipment and leasehold improvements, net 8,342 8,377
Goodwill and intangible assets, net 224,243 226,754
Investment in Beutel, Goodman & Company Ltd. 32,016 31,746
Long-term investments and other assets 20,008 24,567
--------- --------
Total assets $ 356,189 $365,684
========= ========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities $ 10,215 $ 13,306
Income taxes payable 5,988
Payables to related parties 2,647 3,874
Broker-dealer payable 7,417 8,487
Current portion of long-term debt 2,500
--------- --------
Total current liabilities 26,267 28,167
Deferred taxes, net 31,147 33,860
Long-term debt, net of current portion 14,000
Lease obligations and other long-term liabilities 6,837 7,884
--------- --------
Total liabilities 64,251 83,911
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Contingent Liabilities
Series A Convertible Exchangeable Preferred Stock 78,822 78,504
--------- -------
Stockholders' Equity
Common stock, $.01 par value, 100,000,000 shares authorized,
44,287,831 and 44,037,416 shares issued, 44,087,831 and
44,037,416 outstanding and 200,000 and zero held in treasury 443 440
Additional paid-in capital 188,532 185,415
Retained earnings 16,236 12,812
Net unrealized gain on securities available for sale 9,916 4,932
Foreign currency translation (461) (330)
Treasury stock (1,550)
---------- --------
Total stockholders' equity 213,116 203,269
--------- --------
Total liabilities and stockholders' equity $ 356,189 $365,684
========= ========
The accompanying notes are an integral part of these statements.
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three months ended June 30,
1997 1996
Revenues
Investment management fees $ 26,839 $ 29,691
Mutual funds - ancillary fees 5,331 5,322
Financial consulting and investment research fees 3,044
Other income and fees 1,005 1,070
--------- --------
Total revenues 33,175 39,127
--------- -------
Operating Expenses
Employment expenses 15,557 15,911
Other operating expenses 8,552 9,989
Depreciation and amortization of
leasehold improvements 606 574
Amortization of goodwill and intangible assets 2,366 2,422
Amortization of deferred commissions 1,134 1,192
--------- -------
Total operating expenses 28,215 30,088
--------- -------
Operating Income 4,960 9,039
--------- -------
Other Income (Expense) - Net 592 710
--------- -------
Gain on Sale 6,907
Interest Income (Expense) - Net
Interest expense (209) (435)
Interest income 330 508
--------- --------
Total interest income (expense) - net 121 73
--------- -------
Income before income taxes 12,580 9,822
Provision for income taxes 5,253 3,230
--------- --------
Net Income 7,327 6,592
Series A preferred stock dividends 1,189 1,173
--------- --------
Income available to common stockholders $ 6,138 $ 5,419
========= ========
Weighted average shares outstanding
Primary 44,364 44,263
Fully diluted 54,342 54,125
Earnings per share
Primary $ .14 $ .12
Fully diluted $ .13 $ .12
The accompanying notes are an integral part of these statements.
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Six months ended June 30,
1997 1996
Revenues
Investment management fees $ 55,683 $ 60,299
Mutual funds - ancillary fees 11,152 10,175
Financial consulting and investment research fees 7,699
Other income and fees 2,226 2,139
--------- --------
Total revenues 69,061 80,312
--------- -------
Operating Expenses
Employment expenses 30,754 32,188
Other operating expenses 17,052 20,013
Depreciation and amortization of
leasehold improvements 1,247 1,084
Amortization of goodwill and intangible assets 4,731 4,830
Amortization of deferred commissions 2,836 2,624
--------- --------
Total operating expenses 56,620 60,739
--------- --------
Operating Income 12,441 19,573
--------- --------
Other Income (Expense) - Net (571) 3,513
--------- --------
Gain on Sale 6,907
Interest Income (Expense) - Net
Interest expense (449) (910)
Interest income 623 981
--------- --------
Total interest income (expense) - net 174 71
--------- --------
Income before income taxes 18,951 23,157
Provision for income taxes 7,865 9,452
--------- --------
Net Income 11,086 13,705
Series A preferred stock dividends 2,374 2,345
--------- --------
Income available to common stockholders $ 8,712 $11,360
========= =======
Weighted average shares outstanding
Primary 44,479 44,258
Fully diluted 54,369 54,122
Earnings per share
Primary $ .20 $ .26
Fully diluted $ .25
The accompanying notes are an integral part of these statements.
Phoenix Duff & Phelps Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited)
(In thousands)
Six months ended June 30,
1997 1996
Cash flows from operating activities:
Net income $ 11,086 $ 13,705
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of leasehold improvements 1,247 1,084
Amortization of goodwill and intangible assets 4,731 4,830
Amortization of deferred commissions 2,836 2,624
Equity earnings of unconsolidated affiliates 354
Payments of deferred commissions (4,279) (6,303)
Gain on sale of deferred commissions (6,907)
Changes in other operating assets and liabilities (1,715) (8,918)
Unrealized (appreciation) depreciation on mutual
fund investments (12) 64
-------- ------
Net cash provided by operating activities 7,341 7,086
--------- ------
Cash flows from investing activities:
Proceeds from the sale of deferred commissions 26,015
Proceeds from long-term investments 11,246 1,120
Duff & Phelps Capital Markets transaction (2,970)
Purchase of partnership interest (2,220)
Other investing activities 443 (486)
Capital expenditures, net (1,211) (2,075)
--------- --------
Net cash provided by (used in) investing activities 34,273 ( 4,411)
---------- ----------
Cash flows from financing activities:
(Repayment) borrowing of long-term debt, net (16,500) 1,600
Dividends paid (7,662) (6,709)
Stock repurchase (1,550)
Proceeds from issuance of stock 1,653 666
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Net cash used in financing activities (24,059) (4,443)
--------- -------
Net increase (decrease) in cash and cash equivalents 17,555 (1,768)
Cash and cash equivalents, beginning of period 22,466 16,306
-------- -------
Cash and cash equivalents, end of period $ 40,021 $14,538
======== ========
The accompanying notes are an integral part of these statements.
Phoenix Duff & Phelps Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The unaudited consolidated financial statements of Phoenix Duff & Phelps
Corporation (PDP or the Company) included herein have been prepared in
accordance with the instructions to Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and notes
included in PDP's Form 10-K for the year ended December 31, 1996.
2. Organization
As described more fully in Notes 1 and 3 to PDP's Annual Report for the year
ended December 31, 1996, PDP was formed on November 1, 1995 when Phoenix
Securities Group Inc. (PSG), merged into Duff & Phelps Corporation (D&P) (the
Merger). The transaction was accounted for as a purchase of D&P by PSG.
3. Dividends and Other Capital Transactions
For the periods ended June 30, 1997 and June 30, 1996, earnings per share
were computed using weighted average shares of common stock and common stock
equivalents outstanding. Common stock equivalents are based on outstanding
stock options under nonqualified stock option plans.
On August 7, 1997, the Company's Board of Directors approved quarterly
dividends of $.06 per common share and $.375 per preferred share, payable
September 10, 1997 to stockholders of record on August 29, 1997.
As of June 30, 1997, the Company, in accordance with the previously
announced stock repurchase program, had purchased 200,000 shares of PDP common
stock at a total cost of $1.6 million.
4. Investment in Beutel, Goodman & Company Ltd.
At June 30, 1997, PDP had a 49% interest in the outstanding common stock of
Beutel, Goodman & Company Ltd. (BG). BG is a Canadian-based investment
counseling firm with approximately $ 9.9 billion in assets under management
at June 30, 1997.
PDP's consolidated condensed statements of financial condition and
consolidated income statements contain the following components related to
the BG investment:
June 30, December 31,
1997 1996
(in thousands)
Statements of Financial Condition:
Acquisition costs of investment in BG's
common stock and debentures $ 30,045 $30,045
Equity in BG net income 6,232 4,021
Dividends received (1,383) (285)
Amortization of BG acquisition costs over
proportional net equity in BG's assets (2,096) (1,476)
Deferred tax on translation adjustments (321) (229)
Currency translation adjustments (461) (330)
-------- -------
Total BG investment $ 32,016 $31,746
-------- -------
June 30, June 30,
1997 1996
(in thousands)
Statements of Income:
Equity in BG net income, net of amortization $ 1,591 $ 1,105
Interest income - BG debentures 298
-------- -------
$ 1,591 $ 1,403
======== =======
The PDP consolidated condensed statements of financial condition contain
currency translation adjustments, related to the investment in BG, as a
component of stockholders' equity. These losses, resulting from the
translation of foreign currency, are deferred and accumulated in
stockholders' equity until the investment in BG is sold or substantially
liquidated.
The following reflects summarized BG financial information for the six months
ended June 30,:
1997 1996
(in thousands)
Total revenues $ 15,400 $ 14,000
Net income $ 2,000 $ 3,300
5. Other Investments
In the first quarter of 1997, D&P CBO Partners, L.P. (D&P CBO) and Windy City
CBO Partners, L.P. (WCCBO) were liquidated. In accordance with the respective
partnership agreements, the remaining assets of the partnerships were sold,
obligations were settled and all remaining cash was distributed to the
partners. PDP received cash proceeds of zero and $11.2 million from the
liquidation of D&P CBO and WCCBO, respectively. As a result of the
liquidation of the partnerships, PDP recognized losses of zero and $1.5
million, respectively, from D&P CBO and WCCBO representing its share of
partnership losses up to the date of liquidation.
6. Capital Markets
On May 14, 1996 the Company announced that it was exiting the fee based
investment research and financial consulting businesses. Substantially all of
the fee based investment research activities were immediately closed and, on
July 1, 1996, the Company completed the sale of certain assets of the
financial consulting and underwriting businesses to several former
executives. These divestitures were contemplated at the time of the Merger.
The financial effects of these divestitures were treated as adjustments to
the purchase price relating to the Merger.
7. Sale of Deferred Commissions
On June 26, 1997, PDP sold its title and interest in the balance of its
deferred commissions to an unrelated third party. PDP recognized a gain of
$6.9 million based on cash proceeds of $26.0 million and a book value of
$19.1 million at the time of the sale. As part of the transaction, the third
party is entitled to receive the distributor fees and contingent deferred
sales charges related to the Company's outstanding "B" share mutual funds.
PDP has a three year commitment, expiring June 26, 2000, from the unrelated
third party to purchase all commissions incurred by the Company upon the sale
of "B" share mutual funds.
8. Merger Related Activity
On June 9, 1997, PDP signed an agreement and plan of merger ("Merger
Agreement) with Pasadena Capital Corporation ("Pasadena"), the parent company
to Roger Engemann & Associates, Inc. The Merger Agreement values Pasadena at
$180 million, subject to adjustment based on the rate of annualized revenues
at the time of closing, and provides for an additional payment for net
tangible assets. The Merger Agreement further provides for an "earn out",
based on growth in revenues over the next five years, of up to an additional
$66 million. Pasadena, which operates in southern California, manages over
$5.5 billion in assets, primarily individual accounts but also including The
Pasadena Funds, a family of six equity mutual funds with approximately $877
million in assets under management.
On June 18, 1997, PDP signed a definitive agreement to acquire a majority
interest in GMG/Seneca Capital Management LLC ("GMG/Seneca"), a San Francisco
based investment advisor. On July 17, 1997, the acquisition was completed.
The preliminary purchase price of $36.2 million was paid in cash and short
term notes. Under the terms of the transaction, GMG/Seneca was renamed Seneca
Capital Management ("Seneca"). The remaining interests will continue to be
held by Seneca senior management. Seneca currently manages over $4 billion in
assets, primarily institutional accounts.
Phoenix Duff & Phelps will finance the acquisitions of Pasadena and
GMG/Seneca in part through existing resources and in part through borrowings
under a new $200 million bank credit facility for which it has received a
commitment. Borrowings under this facility will be unsecured, mature in five
years and bear interest at variable rates. The financing is subject to
execution of a definitive credit agreement.
9. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share".
This statement simplifies the standards for computing earnings per share
("EPS"). Basic EPS will replace primary EPS. Basic EPS will be computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted EPS will be
computed similarly to the present fully diluted EPS. Dual presentation of the
basic and fully diluted EPS will be required on the face of the income
statement. A reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation
will also be required. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15,1997. Restatement of all
prior period EPS data will be required. Had EPS calculations for the
Company been computed for the three and six months ended June 30, 1997
using the SFAS No. 128 methodology, basic EPS would have been $.14 and
$.20 per share, respectively, and diluted EPS would have been $.13 and
$.20 per share, respectively. EPS calculations for the same periods in
1996 using the SFAS No. 128 methodology would not have been materially
different from the reported amounts.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Assets Under Management
At June 30, 1997, Phoenix Duff & Phelps had $34.4 billion of assets under
management, an increase of $1.4 billion from March 31, 1997, and $300 million
from June 30, 1996. Since the revenues of the Company are substantially
earned based upon assets under management this information is important to
an understanding of the business.
(In Millions)
June 30, March 31, December 31, June 30,
1997 1997 1996 1996
Open-end Mutual funds $ 11,969 $ 11,227 $ 11,532 $11,664
Closed-end Mutual funds 3,015 2,878 2,984 2,949
Institutional 12,367 12,020 12,276 12,860
PHL General Account 7,046 6,845 6,857 6,595
-------- --------- --------- -------
$ 34,397 $ 32,970 $ 33,649 $34,068
======== ========= ========= =======
Three Months Ended June 30, 1997 Compared with Three Months Ended June 30,
1996
Investment management fees of $26.8 million for the three months ended June 30,
1997 decreased $2.9 million (10%) as compared to $29.7 million for the same
period in 1996. Management fees earned from institutional accounts decreased
$1.7 million due to the loss of certain institutional accounts. Management fees
earned from open-end and institutional mutual funds decreased $871,000 as a
result of a net reduction in accounts partially offset by positive performance.
Fees earned managing Phoenix Home Life Mutual Insurance Company's (PHL)
sponsored variable products decreased $323,000 as a result of a change in the
fee structure (which also affected fund accounting fees) offset, in part, by an
increase in assets under management. Fees earned managing WRAP accounts
increased $176,000 as a result of increased accounts and positive performance.
Mutual funds - ancillary fees were relatively unchanged at $5.3 million for the
three months ended June 30, 1997 and 1996. Fund accounting fees increased
$761,000 primarily as a result of a change in the fee structures for the retail
mutual funds and PHL sponsored variable products. Net distributor fees decreased
$66,000 due to a decrease in distributor fees of $490,000, primarily due to the
sale of B share deferred commissions and the related distributor fees (which
totaled $614,000 for the month of June 1997), offset, in part, by a decrease in
trailing commissions expense of $424,000. Underwriter fees decreased $274,000 as
a result of the closure of Capital Markets in 1996 and lower mutual funds sales,
offset, in part, by underwriter fees received from certain PHL sponsored
variable products. Shareholder service agent fees decreased as a result of
fewer mutual fund shareholder accounts.
Financial consulting and investment research services were not offered by PDP in
1997 as the operations of Duff & Phelps Capital Markets Co. and the fee-based
investment research and securities businesses were divested and closed,
respectively, in 1996.
Other income and fees decreased $65,000 (6%) to $1.0 million for the three
months ended June 30, 1997 as compared to the same period in 1996, due to
reduced contingent deferred sales charges resulting from the sale of the
Company's deferred commissions.
Employment expenses of $15.6 million decreased $354,000 (2%) for the three
months ended June 30, 1997 as compared to $15.9 million for the same period in
1996. This decrease was due to a $3.5 million reduction in employment expense
resulting from the divestiture of Duff & Phelps Capital Markets Co. In addition,
in the second quarter of 1997, the Company incurred approximately $350,000 in
fees for placement services associated with hiring additional investment
professionals. The remaining increase was primarily the result of annual salary
adjustments, incentives and increases in the workforce. Other operating expenses
decreased $1.4 million (14%) to $8.6 million for the three months ended June 30,
1997 from $10.0 million for the same period in 1996. Operating expenses
decreased primarily as a result of the July 1996 divestiture of Duff & Phelps
Capital Markets Co. In addition, in the second quarter of 1997, the Company
recognized a one-time loss of $638,000 relating to the sublease of certain
office space.
Amortization of deferred commissions decreased $58,000 (5%) for the three months
ended June 30, 1997 compared to the same period in 1996 as a result of the sale
of deferred commissions in June 1997 which eliminated the amortization charge.
This decrease was offset, in part, by an increase in both the sales and
redemptions of B shares prior to the sale of the deferred commissions which
increased amortization. Amortization of goodwill and intangible assets remained
relatively unchanged.
Operating income decreased $4.1 million (45%) to $5.0 million for the second
quarter of 1997, as compared to the same period in 1996, as a result of the
changes discussed above.
Other income (expense) - net of $592,000 for the second quarter of 1997
decreased $118,000 (17%) as compared to $710,000 in the corresponding period in
1996. The Company's share of the equity earnings of its investment in BG of
$819,000 increased $535,000 for the three months ended June 30, 1997 as compared
to $284,000 for the same period in 1996. PDP's share of equity earnings from
WCCBO was $300,000 for the second quarter of 1996 compared to zero in the second
quarter of 1997 due to the liquidation of WCCBO in early 1997. In addition, PDP
recorded $240,000 in losses in the second quarter of 1997 from its investment in
Greystone Financial Group representing its share of equity earnings in the
company. No income or loss was recognized from the Greystone investment in the
second quarter of 1996.
A gain on sale of the Company's deferred commissions assets of $6.9
million was recognized in the second quarter of 1997. The sale, which was
to an unrelated third party, resulted in proceeds of $26.0 million.
Additionally, the purchaser will fund future B share commissions and be
entitled to distributor fees from the Company's outstanding B share mutual
funds as well as any contingent deferred sales charges.
Interest income - net increased $48,000 as a result of a decrease in interest
expense, primarily as a result of a decrease in outstanding debt from $25.1
million at June 30, 1996 to zero at June 30, 1997, offset, in part, by a
decrease in interest incomeas there was no income in 1997 from the BG
debentures which were fully redeemed in December 1996.
The effective tax rate for the second quarter increased from 33% in 1996 to 42%
in 1997. The lower rate in 1996 was the result of a change in Connecticut tax
law, enacted in May of 1996 and recognized by PDP at that time but retroactive
to January 1996, which modified the method of apportioning income for investment
advisors.
As a result of the effects discussed above, net income for the second quarter of
1997 of $7.3 million represents an increase of $735,000 (11%) compared to the
$6.6 million for the second quarter of 1996.
Six Months Ended June 30, 1997 Compared with Six Months Ended June 30, 1996
Investment management fees of $55.7 million for the six months ended June 30,
1997 decreased $4.6 million (8%) as compared to $60.3 million for the same
period in 1996. Management fees from institutional accounts decreased $2.6
million as a result of the loss of certain institutional clients. Fees earned
managing the open-end mutual funds decreased $749,000 as a result of lost
accounts partially offset by positive performance. Management fees for
institutional mutual funds, which were pooled separate accounts for two months
of 1996, decreased $529,000 as a result of lost accounts and lower fees earned
on institutional mutual funds as compared to pooled separate accounts. Fees
earned managing PHL sponsored variable products decreased $580,000 as a result
of a change in the fee structure (which also affected fund accounting fees),
which decreased investment management fees, offset, in part, by an increase in
assets under management. Fees earned from managing WRAP accounts increased
$295,000 as a result of increased accounts and positive performance. Fees earned
from Windy City, which ceased operations in early 1997, decreased $198,000.
Mutual funds - ancillary fees increased $1.0 million (10%) to $11.2 million for
the six months ended June 30, 1997 as compared to $10.2 million for the same
period in 1996. Fund accounting fees increased $1.2 million primarily as a
result of a change in the fee structures for the retail mutual funds and PHL
sponsored variable products. Net distributor fees increased $692,000 from the
prior year. Distributor fees decreased $172,000 primarily due to the sale of B
share deferred commissions and the related distributor fees (which totaled
$614,000 for the month of June 1997) offset, in part, by increased sales of B
share mutual funds. The decrease in distributor fees was offset by a decrease of
$864,000 in trailing commission expense. Underwriter fees decreased $411,000
(30%) as a result of the closure of Capital Markets in 1996 and decreased sales
of mutual funds, offset by underwriter fees received from certain PHL sponsored
variable products. Shareholder service agent fees decreased as a result of fewer
shareholder accounts.
Financial consulting and investment research services were not offered by PDP in
1997 as the operations of Duff & Phelps Capital Markets Co. and the fee-based
investment research and securities businesses were divested and closed,
respectively, in 1996.
Other income and fees increased $87,000 (4%) to $2.2 million for the six months
ended June 30, 1997 as compared to the same period in 1996, primarily as a
result of increased B share redemptions offset by the sale of the Company's
deferred commissions and the associated contingent deferred sales charges.
Employment expenses decreased $1.4 million (4%) to $30.8 million for the six
months ended June 30, 1997 as compared to $32.2 million for the same period in
1996. Employment expense decreased $7.0 million due to the divestiture of Duff &
Phelps Capital Markets Co. This decrease was offset by non-recurring charges
resulting from a senior executive exercising certain rights under his employment
agreement which resulted in an additional $1.6 million of employment expense
being recognized in the first quarter of 1997. In addition, in 1997, the Company
incurred approximately $700,000 in fees for placement services associated with
hiring additional investment professionals. The remaining increase was primarily
the result of annual salary adjustments, incentives and increases in the
workforce.
Other operating expenses decreased $3.0 million (15%) to $17.0 million for the
six months ended June 30, 1997 from $20.0 million for the same period in 1996.
Operating expenses decreased primarily as a result of the July 1996 divestiture
of Duff & Phelps Capital Markets Co. In addition, a one-time loss of $638,000
was recognized in the second quarter of 1997 relating to the sublease of certain
office space.
Amortization of deferred commissions increased $212,000 (8%) for the six months
ended June 30, 1997 compared to the same period in 1996 as a result of an
increase in both the sales and redemptions of B shares offset by the Company's
sale of its deferred commissions asset in June 1997 which eliminated the
amortization charge. Depreciation and amortization of leasehold improvements
increased $163,000 (15%) for the six months ended June 30, 1997 compared to the
same period in 1996 as a result of increased capital expenditures in late 1996.
Amortization of goodwill and intangible assets decreased $100,000 (2%) for the
six months ended June 30, 1997 compared to the same period in 1996.
Operating income decreased $7.1 million (36%) to $12.4 million for the first six
months of 1997, as compared to the same period in 1996, as a result of the
changes discussed above.
Other income (expense) - net of ($571,000) for the first six months of 1997
decreased $4.1 million (116%) as compared to $3.5 million in the same period in
1996. PDP's share of equity earnings from WCCBO was ($1.5) million for the
period from January 1, 1997 until operations were terminated in March, a
decrease of $2.3 million from the $841,000 earned in the first six months of
1996. The Company's share of the Duff & Phelps/Inverness LLC joint venture
income was $1.5 million for the six months ended June 30, 1996 as a result of
the joint venture's recognition of an advisory fee from a significant first
quarter 1996 transaction compared to no equity earnings in 1997. The Company's
share of the equity earnings of its investment in BG of $1.6 million increased
$486,000 for the six months ended June 30, 1997 as compared to $1.1 million for
the same period in 1996. The Company's share of the equity earnings from its
investment in DPIM/Nuveen was $324,000 for the first six months of 1996. On
January 1, 1997, the Company purchased the remaining interest in the joint
venture and consolidated the operations in 1997. In addition, PDP recorded
$480,000 in losses for the six months ended June 30, 1997 from its investment in
Greystone Financial Group representing its share of equity earnings in the
company with no earnings or losses recorded for the same period in 1996.
A gain on the sale of Company's deferred commissions asset of $6.9
million was recognized in the second quarter of 1997. The sale, which was
to an unrelated third party, resulted in proceeds of $26 million. As part
of the transaction, the purchaser will fund future B share commissions
and be entitled to distributor fees from the Company's outstanding
B share mutual funds as well as any contingent deferred sales charges.
Interest income - net increased $103,000 as a result of a decrease in interest
expense, primarily as a result of a decrease in outstanding debt from $25.1
million at June 30, 1996 to zero at June 30, 1997, offset, in part, by a
decrease in interest income resulting from there being no income in 1997
from the BG debentures which were redeemed in December 1996.
The effective tax rate increased to 41.5% from 41% in 1996.
As a result of the effects discussed above, net income for the first six months
of 1997 of $11.1 million represents a decrease of $2.6 million (19%) compared to
the $13.7 million for the first six months of 1996.
Liquidity and Capital Resources
The Company's business is not considered to be capital intensive. Working
capital requirements for the Company have historically been provided by
operating cash flow. It is expected that such cash flows will continue to serve
as the principal source of working capital for the Company for the near future.
As a result of the sale of the deferred commissions on B share mutual funds, the
Company will no longer need to fund such commissions for at least three years
allowing for additional operating capital.
The Company's current capital structure includes 3.2 million shares of Series A
Preferred Stock with a stated value of $25.00 per share and 44.1 million shares
of common stock. Dividends on the preferred stock would total $4.8 million per
annum based on preferred shares outstanding at June 30, 1997. The current
dividend rate on common stock is $.06 per share per quarter. If the dividend
rate remains constant for 1997, the total dividend on common stock would be
approximately $10.6 million based upon shares outstanding at June 30, 1997.
The Company has a bank credit agreement in place providing for a $20 million
three year revolving credit facility. The outstanding obligation under the
credit agreement at June 30, 1997 was zero. Interest rates on such borrowings
averaged 6.35% for the second quarter of 1997. The credit agreement contains
financial and operating covenants including, among other provisions,
requirements that the Company maintain certain financial ratios and
satisfy certain financial tests, restrictions on the ability to incur
indebtedness, and limitations on the amount of the Company's capital
expenditures. At June 30, 1997, the Company was in compliance with all
covenants contained in the credit agreement. The Company believes that
funds from operations and amounts available under the credit
agreement will provide adequate liquidity for the foreseeable future.
Management considers the liquidity of the Company to be adequate to meet present
and anticipated needs.
It is expected that Phoenix Duff & Phelps will finance the acquisitions of
Pasadena and GMG/Seneca in part through existing resources and in part through
borrowings under a new $200 million bank credit facility for which it has
received a commitment. Borrowings under this facility will be unsecured, will
mature in five years and will bear interest at a variable rate. The Company's
majority shareholder, Phoenix Home Life Mutual Insurance Company, will guarantee
the obligation. The financing is subject to execution of a definitive credit
agreement.
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of the registrant was held May 13,
1997 for the election of directors and approval of amendments to the
registrant's 1992 Long-term Stock Incentive Plan to increase the number
of shares of the registrant's common stock available for awards
thereunder from 6.4 million to 9.7 million shares.
(b) The following persons were re-elected Directors of the registrant and
each continued to hold office after the meeting.
John T. Anderson Philip R. McLoughlin
Richard H. Booth James M. Oates
Glen D. Churchill Calvin J. Pedersen
Robert W. Fiondella David R. Pepin
Michael E. Haylon Donna F. Tuttle
Marilyn E. LaMarche Ferdinand Verdonck
Edward P. Lyons David A. Williams
(c) Two matters were voted upon:
The results of the election of directors are as follows:
Candidate: For: Against/Withheld Abstain/Nonvote:
John T. 659,888 0
Anderson 41,735,974
Richard 659,888 0
H. Booth 41,735,974
Glen D. 659,888 0
Churchill 41,735,974
Robert 659,888 0
W. Fiondella 41,735,974
Michael 659,888 0
E. Haylon 41,735,974
Marilyn 659,888 0
E. LaMarche 41,735,974
Edward 659,888 0
P. Lyons 41,735,974
Philip 659,888 0
R. McLoughlin 41,735,974
James 659,888 0
M. Oates 41,735,974
Calvin 661,775 0
J. Pedersen 41,734,087
David 659,888 0
R. Pepin 41,735,974
Donna 659,888 0
F. Tuttle 41,735,974
659,888 0
Ferdinand Verdonck 41,735,974
David 659,888 0
A. Williams 41,735,974
The results of the proposal to increase the number of shares of the
registrant's common stock
available for awards under its 1992 Long-term Stock Incentive Plan
from 6.4 million to 9.7
million shares are as follows:
For: 34,561,432
Against: 4,792,317
Abstain: 3,042,113
On the basis of the vote, the increase was approved.
item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of these reports:
1. Exhibits
10(nn) Second Amended and Restated Operating Agreement between
Seneca Capital Management LLC and the Registrant.
10(oo) Form of Put/Call Agreement
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on July 1, 1997 describing the
agreements to acquire Pasadena Capital Corporation and a majority
interest in GMG/Seneca Capital Management LLC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Phoenix Duff & Phelps Corporation
August 13, 1997 /s/ Philip R.
McLoughlin
Philip R. McLoughlin, Chairman and
Chief Executive Officer
August 13, 1997 /s/ William R.
Moyer
William R. Moyer, Chief Financial Officer
10(nn)
EXHIBIT C-1
SENECA CAPITAL MANAGEMENT LLC
a California limited liability company
SECOND AMENDED AND RESTATED
OPERATING AGREEMENT
Dated July 17, 1997
(iii)
(i)
TABLE OF CONTENTS
Page
ARTICLE I - DEFINED TERMS....................................................2
ARTICLE II - ORGANIZATION AND POWERS........................................12
2.01 Organization....................................................12
2.02 Purposes and Powers.............................................12
2.03 Principal Place of Business.....................................13
2.04 Qualification in Other Jurisdictions............................14
ARTICLE III - SHARES; MEMBERS...............................................14
3.01 Shares..........................................................14
3.02 Issuance of Shares; Admission of Members........................15
3.03 Representations of Members......................................16
3.04 Limitation of Liability of Members..............................16
3.05 Records; Rights to Information; Reports.........................17
3.06 Waiver of Dissenters' Rights....................................18
ARTICLE IV - MANAGEMENT; OFFICERS...........................................18
4.01 Management under Authority of the Members.......................18
4.02 Power of the Members; Voting....................................18
4.03 Special Membership Approval.....................................19
4.04 Membership Approval.............................................20
4.05 Meetings of Members.............................................21
4.06 Action Without a Meeting........................................21
4.07 Delegation of Authority to Officers.............................21
4.08 Coordination of the Officers and PDP............................23
4.09 Removal of Seneca as President; Name of the Company.............23
4.10 Salaries of Officers............................................24
4.11 Management Bonus Pool...........................................24
4.12 Equity Bonus Payments...........................................25
4.13 Acceleration of Vesting of Class A Shares.......................27
4.14 Key Person Insurance............................................28
4.15 Reliance by Third Parties.......................................29
4.16 No Employment...................................................29
ARTICLE V - INDEMNIFICATION.................................................29
5.01 Right to Indemnification........................................29
5.02 Notice; Defense of Claims.......................................29
5.03 Award of Indemnification........................................30
5.04 Successful Defense..............................................31
5.05 Advance Payments................................................31
5.06 Insurance.......................................................31
5.07 Employee Benefit Plan...........................................31
5.08 Heirs and Personal Representatives..............................31
5.09 Non-Exclusivity.................................................31
5.10 Amendment.......................................................32
5.11 Acknowledgment of Indemnification Assumption....................32
ARTICLE VI - CONFLICTS OF INTEREST..........................................32
6.01 Transactions with Interested Persons............................32
6.02 Conflicts.......................................................32
ARTICLE VII - CAPITAL CONTRIBUTIONS; ACCOUNTS ANDALLOCATIONS; DISTRIBUTIONS;
TAX MATTERS.................................................................33
7.01 Capital Contributions...........................................33
7.02 General Capital Accounts........................................33
7.03 Equity Bonus Accounts...........................................35
7.04 General Allocations.............................................36
7.05 Tax Allocations.................................................38
7.06 Distributions...................................................38
7.07 Distributions Upon Dissolution; Establishment of Reserve
Upon Dissolution................................................39
7.08 Tax Withholding.................................................39
7.09 No Deficit Restoration by Members...............................39
7.10 Tax Matters Partner.............................................40
7.11 Aggregate Payments..............................................40
7.12 Special Allocations.............................................41
7.13 Curative Allocations............................................43
7.14 Loss Limitation.................................................43
ARTICLE VIII - TRANSFER OF SHARES BY MEMBERS................................44
8.01 Restrictions on Transfers.......................................44
8.02 Substitute Members..............................................45
8.03 Allocation of Distributions Between Assignor and Assignee.......45
8.04 Additional Requirements.........................................45
ARTICLE IX - WITHDRAWAL AND TERMINATION.....................................46
9.01 Withdrawal. ...................................................46
9.02 Termination of Employment.......................................46
9.03 Repurchase of Shares............................................47
9.04 Acknowledgment of Limitations on Withdrawal and Forfeiture of
Shares 49
ARTICLE X - DISSOLUTION AND LIQUIDATION.....................................49
10.01 No Dissolution..................................................49
10.02 Events Causing Dissolution......................................49
10.03 Notice of Dissolution...........................................50
10.04 Liquidation.....................................................50
10.05 Certificate of Cancellation.....................................50
ARTICLE XI - GENERAL PROVISIONS.............................................50
11.01 Offset..........................................................50
11.02 Notices.........................................................50
11.03 Entire Agreement................................................51
11.04 Limitation of Litigation; Consent to Jurisdiction...............51
11.05 Amendment or Modification.......................................51
11.06 Binding Effect..................................................52
11.07 Governing Law; Severability.....................................52
11.08 Further Assurances..............................................52
11.09 Waiver of Certain Rights........................................52
11.10 Failure to Pursue Remedies......................................52
11.11 Cumulative Remedies.............................................52
11.12 Notice to Members of Provisions of this Agreement...............52
11.13 Interpretation..................................................52
11.14 Counterparts....................................................53
SCHEDULE A - SHARE SCHEDULE.................................................56
SCHEDULE B - OTHER OFFICERS.................................................59
12
Page
SENECA CAPITAL MANAGEMENT LLC
Second Amended and Restated Operating Agreement
This Second Amended and Restated Operating Agreement is made as of July
17, 1997 (the "Effective Date") by and among Seneca Capital Management LLC
(formerly known as GMG/Seneca Capital Management LLC) (the "Company"), the
Phoenix Members, the Management Members and those Persons who become Members of
the Company in accordance with the provisions hereof.
WHEREAS, Seneca and Stapleton have heretofore formed a limited liability
company under the Beverly-Killea Limited Liability Company Act, California
Corporation Code Section 17000, et seq. (as amended from time to time, the
"Act"), by filing Articles of Organization of the Company with the office of the
Secretary of State of the State of California on December 29, 1995;
WHEREAS, Seneca and Stapleton have heretofore entered into a written
Operating Agreement, dated as of March 5, 1996, which agreement was amended and
restated in connection with the admission of certain additional Persons as
members of the Company pursuant to the Amended and Restated Operating Agreement
of GMG/Seneca Capital Management LLC by and among Seneca, Stapleton and the
other Persons set forth as a party thereto (collectively, the "Founding
Members"), effective as of July 1, 1996 (the "Original Agreement");
WHEREAS, the Phoenix Members have agreed to acquire, and the Founding
Members have agreed to sell, a majority of the outstanding membership interests
of the Company held by such Founding Members;
WHEREAS, effective upon such purchase by Phoenix of membership interests
in the Company, certain of the Founding Members shall withdraw as Members and
Seneca shall withdraw as Manager (as defined in the Original Agreement) of the
Company, and the Phoenix Members and the Management Members shall remain and
continue or be added as Members of the Company, to which continuation and
addition such Manager has heretofore consented; and
WHEREAS, the Phoenix Members and the Management Members desire to continue
the Company without dissolution thereof as a limited liability company managed
by the Members in accordance with the Act and to amend and restate the Original
Agreement in its entirety in order to set out fully their respective rights,
obligations and duties regarding the Company and its assets and liabilities.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members and the Company hereby
agree as follows:
DEFINED TERMSD TERMS
Unless the context otherwise requires, the terms defined in this
Article I shall, for the purposes of this Agreement, have the meanings herein
specified (each such meaning to be equally applicable to both the singular and
plural forms of the respective terms so defined).
"Act" shall have the meaning set forth in the preamble hereof.
"Additional Purchase Price Paid" shall mean the Additional Purchase
Price (as defined in Section 2.3(a) of the Purchase Agreement), if any, when and
to the extent paid by PDP, in the amount calculated pursuant to clause (i) of
its definition, without regard to the interest payments in clause (ii) thereof.
"ADV Disclosure Event" shall mean any event directly involving
Seneca as a result of which the Company is required to give an affirmative
response to any matter listed under Item 11 of the Company's Form ADV in effect
from time to time (including any successor item or form thereto).
"Affiliate" shall mean, with respect to a specified Person, (i)
with respect to an individual, the spouse, sibling or linear descendant of a
Person and (ii) with respect to any Person other than an individual, any Person
that directly or indirectly controls, is controlled by or is under common
control with, the specified Person. As used in this definition, the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"Agreement" shall mean this Second Amended and Restated Operating
Agreement, as amended, modified, supplemented or restated from time to time.
"Articles of Organization" shall mean the Articles of Organization
and any and all amendments thereto and restatements thereof filed on behalf of
the Company with the Secretary of State of the State of California pursuant to
the Act.
"Bankruptcy" shall mean, with respect to a Person, that either (i)
an involuntary petition under any bankruptcy or insolvency or other debtor
relief law or under the reorganization provisions of any such law has been filed
with respect to such Person or a receiver of or for the property of such Person
has been appointed without the acquiescence of such Person, which petition or
appointment remains undischarged or unstayed for an aggregate period of thirty
(30) days (whether or not consecutive) or (ii) a voluntary petition under any
bankruptcy or insolvency or other debtor relief law or under the reorganization
provisions of any such law has been filed by such Person, a voluntary assignment
of such Person's property for the benefit of creditors has been made, a written
admission by such Person of its inability to pay its debts as they mature has
been made, a receiver of or for the property of such Person has been appointed
with the acquiescence of such Person or such Person has done any similar act of
like import.
"Book Event" shall mean any of the following events: (i) any
Transfer of Shares, (ii) any reissuance or issuance of Class A Shares, (iii) any
cancellation of any Shares, (iv) any forfeiture of Shares pursuant to Section
9.02 hereof, (v) any repurchase of Shares pursuant to Section 9.03 hereof, (vi)
any admission of a New Member to the Company, (vii) any withdrawal of a Member
from the Company, (viii) any Extraordinary Event or (ix) the last day of any
Fiscal Year of the Company.
"Capital Contribution" shall mean, as to each Member of the
Company, the aggregate amount of cash and the net Fair Market Value of any
property contributed to the capital of the Company pursuant to Section 7.01
hereof by such Member (or any previous holder of the General Capital Account of
such Member).
"Capital Expenditure" means a payment for the purpose of acquiring,
constructing or maintaining fixed assets, real property or equipment that, in
accordance with generally accepted accounting principles, would be added to the
fixed asset account of the Company.
"Cause" shall, with respect to the termination of any Management
Member as an employee of the Company, have the meaning ascribed thereto in such
Management Member's employment agreement with the Company effective as of the
Effective Date, and any amendments thereto, or similar agreement with any
additional Management Member or, in the event that such Management Member does
not have an employment agreement with the Company, "Cause" shall mean, with
respect to the termination of any Management Member as an employee of the
Company:
...... (i) the Management Member has been convicted by a court
of competent jurisdiction of, or has pleaded guilty or nolo contendere to,
any felony or misdemeanor involving an investment or investment-related
business;
...... (ii) the Management Member has committed any act of fraud,
embezzlement, bribery, forgery, counterfeiting, extortion or breach of
fiduciary duty against the Company or any Affiliate;
...... (iii) the Securities and Exchange Commission or other federal
or state regulatory agency or the National Association of Securities Dealers,
Inc. has entered an order denying, suspending or revoking the Management
Member's registration or license, prevented the Management Member from
associating with an investment-related business or otherwise disciplined the
Management Member by restricting her or his activities; or
...... (iv) the Management Member has failed to comply substantially
with written instructions from the President or the Company in accordance with
Section 4.07(b) of this Agreement, which instructions are under the Management
Member's individual control and shall reference the possibility of termination
for "Cause."
"Change in Control of the Phoenix Members" shall mean (i) any
transaction involving the Transfer of assets or interests of a Phoenix Member
that would result in an "assignment" within the meaning of the Investment
Company Act or the Investment Advisers Act of any agreement pursuant to which
the Company provides Investment Management Services or (ii) any tender or
exchange offer, merger, reorganization, consolidation or other business
combination, sale of assets or contested election, or any combination of the
foregoing transactions involving any Phoenix Member in connection with which the
persons who were directors of such Phoenix Member before such transaction cease
to constitute a majority of the Board of Directors of such Phoenix Member (or
successor entity).
"Class A Shares" shall mean, as of any date, the Class A Shares (or
fraction thereof) authorized by the Company pursuant hereto, entitling the
holders thereof to the relative rights, title and interests in the capital,
profits, losses, deductions and credits of the Company at any particular time as
are set forth in this Agreement, and any and all other benefits to which a
holder thereof may be entitled as provided in this Agreement, together with the
obligations of such a holder to comply with all the terms and provisions of this
Agreement. The number of Class A Shares (or fractions thereof) held by each
Member is set forth on the Share Schedule, as amended from time to time in
accordance with the terms hereof and as in effect on such date. The Class A
Shares issued to and held by the Management Members as of the Effective Date
represent certain of the membership interests in the Company held by the
Management Members immediately prior to the adoption of this Agreement, which
membership interests were heretofore referred to pursuant to the Original
Agreement as either Class A-E Member Interests, Class A-P Member Interests or
Class B Member Interests.
"Class B Shares" shall mean, as of any date, the Class B Shares (or
fraction thereof) authorized by the Company pursuant hereto, entitling the
holders thereof to the relative rights, title and interests in the capital,
profits, losses, deductions and credits of the Company at any particular time as
are set forth in this Agreement, and any and all other benefits to which a
holder thereof may be entitled as provided in this Agreement, together with the
obligations of such a holder to comply with all the terms and provisions of this
Agreement. The number of Class B Shares (or fractions thereof) held by each
Member is set forth on the Share Schedule, as amended from time to time in
accordance with the terms hereof and as in effect on such date. The Class B
Shares issued to and held by the Phoenix Members as of the Effective Date
represent all of the membership interests in the Company purchased by such
Members from certain of the Founding Members as of the Effective Date, which
membership interests were heretofore referred to pursuant to the Original
Agreement as either Class A-E Member Interests, Class A-P Member Interests or
Class B Member Interests.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any corresponding federal tax statute enacted after the
date of this Agreement. A reference to a specific section of the Code refers not
only to such specific section but also to any corresponding provision of any
federal tax statute enacted after the date of this Agreement, as such specific
section or corresponding provision is in effect on the date of application of
the provisions of this Agreement containing such reference.
"Company" shall have the meaning set forth in the preamble
hereof.
"Disability" shall, with respect to any Management Member, have the
meaning ascribed thereto in such Management Member's employment agreement with
the Company effective as of the Effective Date, and any amendments thereto, or
similar agreement with any additional Management Member or, in the event that
such Management Member does not have an employment agreement with the Company,
"Disability" shall mean the inability of Management Member by reason of sickness
or accident, substantially to perform all of the material duties and
responsibilities of Management Member's employment, which inability continues
without interruption for at least six (6) months, or which inability continues
for an aggregate period of nine (9) months in any eighteen (18) consecutive
months.
"Distributable Cash" shall have the meaning set forth in Section
7.06(a) hereof.
"Effective Date" shall have the meaning set forth in the
preamble hereof.
"Equity Bonus Account" shall have the meaning set forth in Section
7.03 hereof.
"Equity Bonus Payment" shall mean, with respect to any Member as of
any date, the amount equal to the product of (i) the number of Outstanding
Equity Bonus Shares held by such Member as of such date and (ii) the quotient
obtained by dividing (A) the Total Equity Bonus Payments as of such date by (B)
the aggregate number of Outstanding Equity Bonus Shares held by all Members of
the Company as of such date.
"Equity Bonus Percentage" shall mean, as of any date, an amount
equal to the product of (A) seventeen and thirty five one-hundredths percent
(17.35%), multiplied by (B) a fraction, the numerator of which is the number of
Outstanding Equity Bonus Shares as of such date and the denominator of which is
the number of Outstanding Equity Bonus Shares as of the Effective Date.
"Equity Bonus Shares" shall mean, as of any date, the Equity Bonus
Shares (or fraction thereof) authorized by the Company pursuant hereto, issued
to those Persons entitled to Equity Bonus Payments (as adjusted from time to
time), which Shares are subject to forfeiture in accordance with the terms
hereof. The number of Equity Bonus Shares (or fractions thereof) held by each
Member is set forth on the Share Schedule, as amended from time to time in
accordance with the terms hereof and as in effect on such date.
"Exercise of the Put/Call" shall mean any exercise by PDP of any
call option or any exercise by any Management Member of any put option under and
in accordance with such Management Member's Put/Call Agreement.
"Extraordinary Event" shall mean (i) any sale, exchange or other
disposition of all or substantially all of the assets and business of the
Company to any third party or parties; (ii) the merger or consolidation of the
Company with any other entity or the Transfer of equity interests in the Company
to any third party or parties, where in either case (x) there is a change in the
President of the Company or of the successor in interest to the Company or (y)
those successor equity owners who own in excess of 50% of the Outstanding Class
A Shares and Class B Shares of the Company (on a combined basis) immediately
after such event did not own in excess of 50% of the Outstanding Class A Shares
and Class B Shares of the Company (on a combined basis) immediately prior
thereto; or (iii) the complete or partial liquidation of the Company or the
filing of a Certificate of Dissolution of the Company with the Secretary of
State of the State of California.
"Fair Market Value" shall mean the fair market value as reasonably
determined by Special Membership Approval.
"Fiscal Year" shall mean, unless otherwise changed in accordance
with the terms hereof, (i) any twelve (12) month period commencing on January 1
and ending on December 31 or (ii) any portion of the period described in clause
(i) of this sentence for which the Company is required to allocate profits,
losses and other items of Company income, gain, loss or deduction pursuant to
Sections 7.04, 7.05, 7.12, 7.13 or 7.14 hereof.
"Founding Members" shall have the meaning set forth in the
preamble hereof.
"General Capital Account" shall have the meaning set forth in
Section 7.02 hereof.
"Good Reason" shall, with respect to the termination of any
Management Member as an employee of the Company, have the meaning ascribed
thereto in such Management Member's employment agreement with the Company
effective as of the Effective Date, and any amendments thereto, or similar
agreement with any additional Management Member or, in the event such Management
Member does not have an employment agreement with the Company, "Good Reason"
shall mean, with respect to the termination of any Management Member as an
employee of the Company:
...... (i) PDP has committed a material breach of any of the
covenants, terms or provisions of such Member's Put/Call Agreement, which breach
has not been remedied within thirty (30) days after delivery to PDP by the
Management Member of written notice of the facts constituting the breach, which
notice shall reference the possibility of termination for "Good Reason";
...... (ii) a reduction in the Management Member's fixed salary or
any failure to pay the Management Member any compensation or benefits
(including, without limitation, Equity Bonus Payments and the Management Bonus
Pool) to which she or he is entitled within thirty (30) days of the due date;
...... (iii) the Company's requiring the Management Member
to be based at any place other than the area within a one hundred mile radius
of San Francisco, CA, except for reasonably required travel for the Company's
business;
...... (iv) the failure by the Company to continue the Management
Member's participation in any material compensation or employee benefit plans
established by the Company from time to time.
"Indemnified Parties" shall mean the Members and each Person
serving as an Officer or employee or Liquidating Trustee of the Company
(including Persons who serve at the Company's request as directors, managers,
members, partners, officers, employees, agents or trustees of another
organization in which the Company has any interest as a shareholder, member,
creditor or otherwise) and their respective successors and assigns, and such
Affiliates of any of the foregoing and such agents of the Company who may, from
time to time, be determined to be included as Indemnified Parties by Membership
Approval.
"Initial Enterprise Value" shall mean as of the date of
calculation, (a) the sum of (i) Thirty Six Million Nine Hundred Forty Six
Thousand Dollars ($36,946,000.00) and (ii) any Additional Purchase Price Paid,
divided by (b) the Phoenix Percentage.
"Investment Advisers Act" shall mean the Investment Advisers Act of
1940, as amended from time to time, together with any successor statute, and the
rules and regulations promulgated thereunder.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended from time to time, together with any successor statute, and the
rules and regulations promulgated thereunder.
"Investment Management Fees" shall mean investment management fees
of the Company, the Partnership and any successor entity or entities, calculated
pursuant to the accrual method of accounting, including but not limited to
standard performance fees and any subadvisory fees, but excluding any incentive
fees received from GMG/Little Partners, L.P., GMG/Little (Bermuda) Partners,
L.P. and South Ferry Building Company, L.P.
"Investment Management Services" shall mean any services which
involve (i) the management for compensation of an investment account or fund (or
portions thereof or a group of investment accounts or funds); (ii) the giving of
advice for compensation, with respect to the investment and/or reinvestment of
assets or funds (or any group of assets or funds); and (iii) any business
related to, or useful in connection with, the foregoing.
"Issuance Items" shall have the meaning set forth in Section
7.12(g) hereof.
"Liability" means any liability, direct or indirect, actual or
contingent, with respect to any indebtedness for borrowed money, or any
mortgage, deed of trust or pledge or other security device securing any such
liability or the refunding, refinancing, increasing, modification of the
principal amount, maturity or interest rate of any of the foregoing.
"Liquidating Trustee" shall have the meaning set forth in
Section 10.03 hereof.
"Little" shall mean Richard D. Little.
"LLC Minimum Gain" shall have the meaning set forth in Section
7.12(a) hereof.
"Losses" shall mean all liabilities, judgments, obligations,
losses, damages, taxes and interest and penalties thereon (other than taxes
based on fees, compensation or commissions received by an Indemnified Party in
connection with the administration of the Company or the Company's property),
claims, actions, suits or other proceedings (whether civil or criminal, pending
or threatened, before any court or administrative or legislative body, in which
an Indemnified Party may be or may have been involved as a party or otherwise or
with which he or she may be or may have been threatened, while in office or
thereafter) and, as the same are accrued, all costs, expenses and disbursements
(including, without limitation, reasonable legal and accounting fees and
expenses) of any kind and nature whatsoever incurred in connection with the
foregoing.
"Management Bonus Pool" shall have the meaning set forth in Section
4.11 hereof.
"Management Fee Measurement Amount" shall mean, for the twelve (12)
month period ending on the last day of calendar month immediately preceding the
date as of which such measurement is made (or if such measurement is made as of
the last business day of a month, then such period ending on the last day of the
calendar month in which such measurement date occurs), the aggregate amount of
all Investment Management Fees for such twelve (12) month period.
"Management Members" shall mean those Persons holding Class A
Shares and Equity Bonus Shares of the Company listed as such on the Share
Schedule, as such Schedule may be amended from time to time upon the admission
as Members of the Company of (i) employees of the Company to whom Shares of the
Company, or rights thereto, have been issued and (ii) subsequent Transferees of
Class A Shares and Equity Bonus Shares in accordance with the terms hereof;
provided, however, such employees or Transferees are not Phoenix Members or
Affiliates of any Phoenix Member.
"Management Percentage" shall mean twenty five and one-tenth
percent (25.1%).
"Member" shall mean each of the Management Members, the Phoenix
Members and any New Member, and includes any Person admitted pursuant to the
provisions of this Agreement when acting in his, her or its capacity as a member
of the Company, and "Members" shall mean two (2) or more of such Persons when
acting in their capacities as members of the Company.
"Member Nonrecourse Debt" shall have the meaning set forth in
Section 7.12(f) hereof.
"Member Nonrecourse Debt Minimum Gain" shall have the meaning set
forth in Section 7.12(b) hereof.
"Membership Approval" shall mean the approval, by vote or written
consent, of Members holding a majority of the Outstanding Class A Shares and
Class B Shares (on a combined basis) held by such Members. Membership Approval
may be effected by vote at a meeting or telephonic conference in accordance with
Section 4.05 hereof or by written consent of the Members in accordance with
Section 4.06 hereof.
"Net Income" and "Net Loss" shall mean, for each Fiscal Year, an
amount equal to the Company's taxable income or loss for such Fiscal Year,
determined in accordance with Section 703(a) of the Code. For this purpose, all
items of income, gain, loss or deduction (other than items of income, gain, loss
or deduction includible in Net Property Gain or Net Property Loss or any
deduction attributable to any Equity Bonus Payment allocated pursuant to Section
7.04(c) hereof) required to be stated separately pursuant to Section 703(a)(1)
of the Code shall be included in taxable income or loss, as adjusted for book
purposes in accordance with the principles of Treasury Regulations Section
1.704-1(b)(2)(iv). Notwithstanding the foregoing, any items that are specially
allocated pursuant to Section 7.12(c) hereof shall not be taken into account in
computing Net Income or Net Loss.
"Net Property Gain" and "Net Property Loss" shall mean, for each
Fiscal Year, an amount equal to the Company's taxable gain or loss for such
Fiscal Year attributable to an Extraordinary Event, determined in accordance
with Section 703(a) of the Code. For this purpose, all items of income, gain,
loss or deduction attributable to an Extraordinary Event (other than any
deduction attributable to any Equity Bonus Payment allocated pursuant to Section
7.04(c) hereof) required to be separately stated pursuant to Section 703(a)(1)
of the Code shall be included in taxable gain or loss, as adjusted for book
purposes in accordance with the principles of Treasury Regulations Section
1.704-1(b)(2)(iv). Notwithstanding the foregoing, any items that are specially
allocated pursuant to Section 7.12(c) hereof shall not be taken into account in
computing Net Property Gain or Net Property Loss.
"New Member" shall mean any Person admitted as a Member of the
Company and named as such in the record books of the Company, who is not a
Member as of the Effective Date.
"Nonrecourse Deductions" shall have the meaning set forth in
Section 7.12(e) hereof.
"Officers" shall have the meaning set forth in Section 4.07
hereof.
"Operating Expenses" means, for any period, the operating expenses
of the Company, determined on an accrual basis in accordance with generally
accepted accounting principles, consistently applied; provided, however,
Operating Expenses shall not include (i) corporate office allocation expense of
PDP, (ii) amortization expense (amortization of intangible assets only) of PDP
or (iii) any severance payments made by the Company to a Management Member
pursuant to such Management Member's employment agreement with the Company,
other than payments of compensation accrued to the date of termination of such
Management Member's employment.
"Original Agreement" shall have the meaning set forth in the
preamble hereof.
"Outstanding" shall mean those Shares (or fraction thereof) that
are issued to a Member, whether or not vested.
"Partnership" shall mean GMG/Seneca Capital Management L.P.
"PDP" shall mean Phoenix Duff & Phelps Corporation, a Delaware
corporation.
"Person" shall mean an individual, corporation, association,
partnership (general or limited), joint venture, trust, unincorporated
organization, limited liability company, any other entity or organization of any
kind or a government or any department, agency, authority, instrumentality or
political subdivision thereof.
"Phoenix Members" shall mean those Persons holding Class B Shares
of the Company listed as such on the Share Schedule, as such Schedule may be
amended from time to time upon the admission as Members of the Company of
subsequent Transferees of Class B Shares in accordance with the terms hereof ;
provided, however, such Transferees are not Management Members or Affiliates of
any Management Member.
"Phoenix Percentage" shall mean seventy four and nine-tenths
percent (74.9%).
"President" shall have the meaning set forth in Section 4.07
hereof.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
June 18, 1997 by and among PDP and the Persons set forth as signatories thereto.
"Put/Call Agreements" shall mean the Put/Call Agreements, each
dated as of the Effective Date, by and between PDP and each of the Management
Members and the Put/Call Agreements entered into by PDP from time to time with
New Members of the Company to whom Class A Shares are Transferred by a
Management Member or reissued or issued by the Company, all in accordance with
this Agreement.
"Regulatory Allocations" shall have the meaning set forth in
Section 7.13 hereof.
"Remaining Net Property Gain" shall have the meaning set forth in
Section 7.04(b) hereof.
"Repurchase" shall have the meaning set forth in Section 9.03
hereof.
"Repurchase Closing Date" shall have the meaning set forth in
Section 9.03(a) hereof.
"Repurchase Price" shall have the meaning set forth in Section
9.03(b) hereof.
"Repurchased Interest" shall have the meaning set forth in
Section 9.03 hereof.
"Repurchased Member" shall have the meaning set forth in Section
9.03 hereof.
"Restated Profits" means, for any period, an amount equal to the
difference between (A) the gross revenues of the Company determined on an
accrual basis in accordance with generally accepted accounting principles
consistently applied, but specifically not including (i) any revenues from any
Extraordinary Event, (ii) any revenues of the Company from Capital Contributions
or the issuance of securities, (iii) any payments received pursuant to any
insurance policies (other than business interruption payments or reimbursements
of amounts previously charged against revenues) or (iv) any revenues that
ultimately inure to the benefit of a third party, and (B) Operating Expenses of
the Company; provided, however, that Restated Profits shall not be reduced by
any Equity Bonus Payments payable pursuant to this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"Retirement Plans" shall have the meaning set forth in Section
4.11 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and successor thereto, together with the rules and
regulations promulgated thereunder from time to time.
"Seneca" shall mean Gail P. Seneca.
"Shares" shall have the meaning set forth in Section 3.01 hereof,
and shall include all Class A Shares, all Class B Shares, all Equity Bonus
Shares and all Shares of any other class issued from time to time by the Company
representing membership interests in the Company.
"Share Schedule" shall have the meaning set forth in Section
3.01 hereof.
"Special Membership Approval" shall mean the approval, by vote or
written consent, of (A) Members holding a majority of the Outstanding Class A
Shares and Class B Shares (on a combined basis) held by such Members, and (B)
Seneca if she is then President of the Company (or, if she is not, the
Management Members holding a majority of the Outstanding Class A Shares held by
the Management Members). Special Membership Approval may be effected by vote at
a meeting or telephonic conference in accordance with Section 4.05 hereof or by
written consent of the Members in accordance with Section 4.06 hereof.
"Stapleton" shall mean Philip C. Stapleton, a Founding Member
who has ceased to be a Member of the Company as of the Effective Date.
"Tax Matters Partner" shall have the meaning set forth in Section
7.10 hereof.
"Total Equity Bonus Payments" shall mean, as of any date, an amount
equal to the product of (A) the Equity Bonus Percentage and (B) the lesser of
(i) the Initial Enterprise Value and (ii) the product of 3.5 and the applicable
Management Fee Measurement Amount.
"Transfer" shall mean any sale, assignment, transfer, exchange,
charge, pledge, gift, hypothecation, conveyance or encumbrance (such meaning to
be equally applicable to verb forms of such term), or any offer to do any of the
foregoing.
"Treasury Regulations" shall mean the income tax regulations,
including temporary regulations, promulgated under the Code, as such regulations
may be amended from time to time (including corresponding provisions of
succeeding regulations).
ORGANIZATION AND POWERS POWERS
II.1.. OrganizationOrganization. The Articles of Organization are
being amended and restated concurrently with the execution of this Agreement to
indicate that the Company shall henceforth be managed by its Members and to
change the name of the Company to Seneca Capital Management LLC. The Company was
formed by the filing of its Articles of Organization with the Secretary of State
of the State of California on December 29, 1995 pursuant to the Act. Subject to
Section 4.03 hereof, the Articles of Organization may be restated or amended by
the President, as an authorized person, from time to time in accordance with the
Act. The Company shall deliver a copy of the Articles of Organization and any
amendment thereto to any Member who so requests.
II.2.. Purposes and PowersPurposes and Powers. The principal
business activity and purposes of the Company shall initially be to provide
Investment Management Services. However, the business and purposes of the
Company shall not be limited to its initial principal business activity, and the
Company shall have authority to engage in any other lawful business, purpose or
activity permitted by the Act. The Company shall possess and may exercise all of
the powers and privileges granted by the Act or which may be exercised by any
Person, together with any powers incidental thereto, so far as such powers or
privileges are necessary, appropriate, proper, advisable, incidental or
convenient to the conduct, promotion or attainment of the business purposes or
activities of the Company, including, without limitation, the following powers:
..................(a) to conduct its business and operations in any state,
territory or possession of the United States or in any foreign country or
jurisdiction;
..................(b) to purchase, receive, take, lease or otherwise acquire,
own, hold, improve, maintain, use or otherwise deal in and with, sell, convey,
lease, exchange, Transfer or otherwise dispose of, mortgage, pledge, encumber or
create a security interest in all or any of its real or personal property, or
any interest therein, wherever situated;
..................(c) to borrow or lend money or obtain or extend credit and
other financial accommodations, to invest and reinvest its funds in any type of
security or obligation of or interest in any public, private or governmental
entity, and to give and receive interests in real and personal property as
security for the payment of funds so borrowed, loaned or invested;
..................(d) to make contracts, including contracts of insurance, incur
liabilities and give guaranties, whether or not such guaranties are in
furtherance of the business and purposes of the Company, including without
limitation, guaranties of obligations of other Persons who are interested in the
Company or in whom the Company has an interest;
..................(e) to merge with, or consolidate into, another California
limited liability company or other business entity (as defined in Section 17001
of the Act) or to convert into a Delaware limited liability company or other
form of business organization so long as such conversion does not violate the
Act;
..................(f) to make donations irrespective of benefit to the
Company for the public welfare or for community, charitable, religious,
educational, scientific, civic or similar purposes;
..................(g) to institute, prosecute, and defend any legal action
or arbitration proceeding involving the Company, and to pay, adjust,
compromise, settle, or refer to arbitration any claim by or against the
Company or any of its assets; and
..................(h) to appoint one or more managers of the Company, to employ
and terminate Officers, employees, agents and other Persons, to organize
committees of the Company, to delegate to such Persons and/or committees such
power and authority, the performance of such duties and the execution of such
instruments in the name of the Company as may be established from time to time,
to fix the compensation and define the duties and obligations of such personnel,
to establish and carry out retirement, incentive and benefit plans for such
personnel, and to indemnify such personnel to the extent permitted by this
Agreement and the Act.
II.3.. Principal Place of BusinessPrincipal Place of Business. The
principal office and place of business of the Company shall initially be 909
Montgomery Street, Suite 500, San Francisco, California 94133. The Company may
change its principal office or place of business at any time and may establish
other offices or places of business in various jurisdictions and appoint agents
for service of process in such jurisdictions, in each case, with Special
Membership Approval.
II.4.. Qualification in Other JurisdictionsQualification in Other
Jurisdictions. The Company shall be qualified or registered under applicable
laws of any jurisdiction in which the Company transacts business, and the
President shall be authorized to execute, deliver and file any certificates and
documents necessary to effect such qualification or registration.
SHARES; MEMBERSARES; MEMBERS
III.1. SharesShares. The membership interests of the Members in the
Company shall be represented by issued and outstanding shares of interest
("Shares"), which are divided into classes, with each class having the rights
and privileges, including voting rights, if any, set forth in this Agreement or
as set from time to time with respect to new classes of Shares authorized in
accordance with Section 4.03(j) hereof. The Company shall maintain a schedule of
all Members, their respective addresses and the Shares (whether vested or
unvested) held by them (the "Share Schedule"), a copy of which as of the
Effective Date is attached hereto as Schedule A. The Company will, upon request
by any Member, advise such Member of the number of Shares that such Member then
holds and which of such Shares are vested and unvested. The Members shall have
no interest in the Company other than the interests conferred by this Agreement
represented by the Shares, which shall be deemed to be personal property giving
only the rights provided in this Agreement. Ownership of a Share (or fraction
thereof) shall not entitle a Member to any title in or to the whole or any part
of the property of the Company or right to call for a partition or division of
the same or for an accounting. Every Member by virtue of having become a Member
shall be held to have expressly assented and agreed to the terms hereof and to
have become a party hereto.
..................(a) Class A Shares. The Company hereby authorizes for
issuance 2,510 Class A Shares. The Company has the power to authorize
additional Class A Shares only with both Special Membership Approval as set
forth in Section 4.03(j) hereof and the unanimous vote of the Management
Members. On the Effective Date, there are 2,510 Outstanding Class A Shares
held by the Management Members in the respective amounts set forth on the
Share Schedule attached hereto as Schedule A, none of which are vested and
2,510 of which are unvested. Unvested Class A Shares shall be subject to
acceleration pursuant to Section 4.13 hereof and to the vesting described on
the Share Schedule attached hereto as Schedule A.
..................(b) Class B Shares. The Company hereby authorizes for
issuance 7,490 Class B Shares, and the Company does not have the power to
authorize or issue any additional Class B Shares. On the Effective Date, all
7,490 Class B Shares are Outstanding and held by the Phoenix Members in the
respective amounts set forth on the Share Schedule. All of the Class B
Shares are fully vested and recorded on the Share Schedule.
..................(c) Equity Bonus Shares. The Company hereby authorizes
for issuance 1,735 Equity Bonus Shares, and the Company does not have the
power to authorize or issue any additional Equity Bonus Shares. On the
Effective Date, there are 1,735 Outstanding Equity Bonus Shares held by the
Management Members in the respective amounts set forth on the Share Schedule
attached hereto as Schedule A, all of which are fully vested (though subject
to forfeiture pursuant to Section 9.02 hereof). Equity Bonus Shares shall
not entitle the holder thereof to any right to vote or receive distributions
under this Agreement except Equity Bonus Payments under Section 4.12 hereof.
III.2. Issuance of Shares; Admission of MembersIssuance of
Shares; Admission of Members.
..................(a) The Company is not authorized to offer and sell, or cause
to be offered and sold any Shares except as provided herein. In the event that
(i) any Member forfeits its rights in and to any Class A Shares or the Company
repurchases any Class A Shares from any Member, each in accordance with the
terms hereof, or (ii) additional Class A Shares are authorized by the Company in
accordance with Section 3.01(a) hereof, it is the intent of the Members that
those Shares be available for reissuance or issuance, respectively, by the
Company. At any time on or prior to December 31, 2001, the Company (acting
through the President) is hereby authorized to reissue (as if such Class A
Shares had never been previously issued) or to issue such Class A Shares
(including fractions thereof) to Persons who are employed by the Company, and in
such case, the Company is authorized to admit any additional Persons as Members
upon such terms as are established by the President (including any required
Capital Contribution). The Company shall provide prior notice of any proposed
reissuance or issuance of Class A Shares to PDP, and PDP may consult with the
President as to such reissuance or issuance; provided, however, that any failure
to provide such notice shall not affect the authority of the Company or the
Officers, on behalf of the Company, to effect any such reissuance or issuance
and admission. Class A Shares reissued or issued from time to time pursuant to
the terms hereof may be vested or unvested, depending on the terms under which
they were reissued or issued as set in the discretion of the President;
provided, however, that the vesting schedule of any such reissued or issued
Class A Shares shall not be extended beyond the dates set forth in the vesting
schedule described on the Share Schedule attached hereto as Schedule A without
Special Membership Approval. Any Class A Shares available for reissuance or
issuance on December 31, 2001 or, if earlier, immediately prior to the
withdrawal of the last Management Member from the Company upon a Transfer or
otherwise that have not been reissued or issued in accordance with the terms
hereof shall automatically be deemed to be reissued or issued, as the case may
be, to the Management Members as of such date in proportion to their Class A
Shares held immediately prior to the close of business on such date, and all
such Class A Shares deemed to be reissued or issued in accordance herewith shall
be fully vested as of such date.
..................(b) The Company may establish eligibility requirements for
admission of a subscriber as a Member and refuse to admit any subscriber that
fails to satisfy such eligibility requirements. The President shall be
responsible for determining whether a person or entity is eligible to be a
Member. Each eligible Person who subscribes for Class A Shares to be reissued or
issued by the Company shall be admitted as a Member of the Company at the time
(i) such Person agrees to be bound by the provisions hereof by executing an
instrument satisfactory to the President whereby such Person becomes a party to
this Agreement as a Member, (ii) the President accepts such instrument on behalf
of the Company and (iii) the subscriber makes the required Capital
Contribution(s), if any. Existing Members shall have no preemptive or similar
right to subscribe to the reissuance or issuance of Class A Shares of the
Company, and the Members acknowledge that their percentage interest in the
profits of the Company allocable to the Class A Shares are subject to adjustment
(downward and upward) in the event of certain issuances, forfeitures or
repurchases of Shares after the Effective Date. Any Class A Shares reissued or
issued by the Company and the Person to whom such Shares are so reissued or
issued shall be subject to all of the terms and conditions of a Put/Call
Agreement to be entered into by such Person with PDP, substantially in the form
of the Put/Call Agreements dated as of the Effective Date.
III.3. Representations of MembersRepresentations of Members. Each
Member (including each New Member admitted after the Effective Date) hereby
represents and warrants to the Company and each other Member, and acknowledges
as follows:
..................(a) Such Member has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of an investment in the Company and making an informed investment
decision with respect thereto.
..................(b) Such Member is able to bear the economic and
financial risk of an investment in the Company for an indefinite period of
time.
..................(c) Such Member is acquiring the Shares for investment
only and not with a view to, or for resale in connection with, any
distribution to the public or public offering thereof.
..................(d) Such Member understands the Shares of the Company have not
been registered under the Securities Act or the securities laws of any
jurisdiction and cannot be disposed of unless they are subsequently registered
and/or qualified under applicable securities laws and the provisions of this
Agreement have been complied with.
..................(e) The execution, delivery and performance of this Agreement
by such Member do not require it to obtain any consent or approval that has not
been obtained and do not contravene or result in a default under any provision
of any existing law or regulation applicable to it, any provision of its
charter, by-laws or other governing documents (if an entity) or any agreement or
instrument to which it is a party or by which it is bound.
III.4. Limitation of Liability of MembersLimitation of Liability of
Members. Except as otherwise provided in the Act, no Member of the Company shall
be obligated personally for any debt, obligation or liability of the Company or
of any other Member, whether arising in contract, tort or otherwise, solely by
reason of being a Member of the Company. No Member shall be liable to the
Company or any other Member for acting in good faith reliance upon the
provisions of this Agreement. No Member shall have any responsibility to restore
any negative balance in its General Capital Account or to contribute to or in
respect of the liabilities or obligations of the Company or return distributions
made by the Company except as required by this Agreement, the Act or other
applicable law; provided, however, that Members are responsible for their
failure to make required Capital Contributions in accordance with Section 7.01
hereof.
III.5. Records; Rights to Information; ReportsRecords; Rights to
Information; Reports.
..................(a) The Company shall maintain at its principal place of
business all of the following:
(i) The Share Schedule (identical in form to
Schedule A attached hereto), setting forth a current list of the full name and
last known business or residence address of each Member of the Company set forth
in alphabetical order, together with the Capital Contribution and the share in
profits and losses of each Member;
(ii) Schedules identical in form to Schedule B
attached hereto, setting forth the current list of the Officers of the
Company;
(iii) A copy of the Articles of Organization and all
amendments thereto, together with any powers of attorney pursuant to which the
Articles of Organization or any amendments thereto were executed;
(iv) Copies of the Company's federal, state, and
local income tax or information returns and reports, if any, for the six (6)
most recent taxable years;
(v) A copy of this Agreement, and any amendments
hereto, together with any powers of attorney pursuant to which this Agreement
or any amendments hereto were executed;
(vi) Copies of the financial statements of the
Company, if any, for the six (6) most recent Fiscal Years; and
(vii) The books and records of the Company as they
relate to the internal affairs of the Company for at least the current and past
four (4) Fiscal Years.
..................(b) Upon the request of a Member, for purposes reasonably
related to such Member's interest as a Member of the Company, the Company shall
promptly deliver to such Member, at the expense of the Company, a copy of the
information required to be maintained pursuant to subsections (a)(i), (a)(ii),
(a)(iv) and (a)(v) of this Section 3.05. Each Member has the right upon
reasonable request, for purposes reasonably related to the interest of that
Person as a Member to inspect and copy during normal business hours any of the
records required to be maintained pursuant to Section 3.05(a) above and to
obtain, promptly after becoming available, a copy of the Company's federal,
state and local income tax or information returns for each Fiscal Year.
..................(c) In addition to the information required to be furnished to
the Members pursuant to the Act as set forth above, the Company shall furnish to
each Person who was a Member for any portion of a Fiscal Year audited financial
statements of the Company, including a balance sheet and statements of income,
such Member's General Capital Account and Equity Bonus Account and changes in
financial position for such year and all other information necessary for the
preparation of such Person's federal income tax return.
III.6. Waiver of Dissenters' RightsWaiver of Dissenters' Rights.
Each Member, by executing this Agreement, hereby agrees to waive the application
of Chapter 13 (commencing with Section 17600) of the Act. Each Member hereby
acknowledges and agrees that such Member has waived, pursuant to this Section
3.06, any rights such Member may have as of the Effective Date or thereafter to
dissenters' or appraisal rights under the Act.
MANAGEMENT; OFFICERSFFICERS
IV.1.. Management under Authority of the MembersManagement under
Authority of the Members. The business and affairs of the Company shall be
managed under the authority of the Members subject to and in accordance with the
provisions set forth herein.
IV.2.. Power of the Members; VotingPower of the Members; Voting.
...... (a) Members, in their capacity as such, shall have no right
to amend or terminate this Agreement or to appoint, select, vote for or remove
the Officers or their agents or to exercise voting rights or call a meeting of
the Members, except as specifically provided in this Agreement. No Member shall
have any authority or power to bind or to act for or on behalf of any other
Member or the Company in any respect in his/her capacity as Member, with all
such authority and power being delegated to the Officers of the Company pursuant
to Section 4.07 hereof.
...... (b) Members holding Equity Bonus Shares shall not be
entitled, with respect thereto, to vote on any matter except in certain limited
circumstances in connection with an amendment to this Agreement as set forth in
Section 11.05 hereof.
...... (c) Notwithstanding anything to the contrary in this
Agreement (including the delegation of authority pursuant to Section 4.07
hereof) or in the Act (other than provisions thereof that specifically cannot be
altered by the Members), each Member holding Class A Shares or Class B Shares
shall be entitled, with respect thereto, to vote on or approve or consent to (i)
any matter specifically set forth in Section 4.03 hereof or specifically
requiring Special Membership Approval pursuant to the terms hereof, to the
extent provided thereby; (ii) any matter specifically set forth in Section 4.04
hereof or specifically requiring Membership Approval pursuant to the terms
hereof, to the extent provided thereby; (iii) unless such Member is the
Transferor, the admission of a Transferee of Shares as a Member of the Company,
pursuant to Section 8.02 hereof; and (iv) unless such Member is the withdrawing
Member, the continuation of the business of the Company after the Bankruptcy of
PDP, pursuant to Section 10.02(b) hereof. In connection therewith, such Members
shall have one vote for each Class A Share or Class B Share owned by them of
record according to the books of the Company and a proportionate vote for a
fractional Class A Share or Class B Share.
IV.3.. Special Membership ApprovalSpecial Membership Approval. The
Company, and the President and the other Officers on behalf of the Company,
shall not take any of the following actions without prior Special Membership
Approval until December 31, 2001 and, thereafter, shall not take any of the
following actions without prior Membership Approval:
..................(a) incurrence by the Company of any Liability that, if
combined with existing Liabilities, would result in total Liabilities (not
including leases for real property or liabilities to make any Equity Bonus
Payment or pay any bonus out of the Management Bonus Pool) in excess of
$500,000.00;
..................(b) making of any Capital Expenditure in any Fiscal Year
not included in the final annual budget of the Company for the relevant
Fiscal Year that would cause the aggregate Capital Expenditures for such
Fiscal Year to exceed $300,000.00;
..................(c) entering into any lease for real property;
..................(d) any expenditure or commitment which exceeds the
amount allocated therefor in the final annual budget for the applicable
Fiscal Year;
..................(e) entering the Company into Bankruptcy;
..................(f) any sale of any material portion of the assets or
Shares of the Company;
..................(g) any voluntary liquidation or dissolution of the
Company pursuant to Section 10.02(a) hereof;
..................(h) consummation of any Extraordinary Event;
..................(i) the repurchase of any Shares of the Company except
in connection with (i) the payment of Equity Bonus Payments pursuant to
Section 4.12 hereof or (ii) the repurchase of Shares pursuant to Section 9.03
hereof;
..................(j) the authorization of additional Class A Shares or
the creation of one or more additional classes of Shares after the Effective
Date;
..................(k) any change in the principal place of business,
Fiscal Year or name of the Company (except to the extent provided in Section
4.09(b) hereof);
..................(l) consummation of any transaction between the Company
and any Affiliate of any Management Member or between the Company and any
Person in which a family member of a Management Member has, directly or
indirectly, a significant financial interest;
..................(m) entering into any employment arrangement or consulting
arrangement or other contract or agreement not in the ordinary course of
business (and specifically excluding contracts for Investment Management
Services), which by its terms (other than, in the case of employment
arrangements or consulting arrangements, if such terms are terminable "at will")
extends beyond December 31, 2001;
..................(n) any amendment to the Articles of Organization or
amendment of this Agreement pursuant to Section 11.05 hereof;
..................(o) the appointment of a Liquidating Trustee in
accordance with Section 10.03 hereof; or
..................(p) retention of independent public accountants of the
Company other than Lallman, Feltman, Shelton & Peterson, P.A. in connection
with services rendered during Fiscal Year 1997 and Price Waterhouse LLP or
such other "big six" accounting firm which may hereafter be retained by PDP
to audit its consolidated financial statements for Fiscal Year 1997 and
thereafter.
IV.4.. Membership ApprovalMembership Approval. The Company, and the
President and the other Officers on behalf of the Company, shall not take any of
the following actions without prior Membership Approval:
..................(a) consenting to any Transfer of Shares pursuant to
Section 8.01(a) hereof by Seneca;
..................(b) the amendment or modification of the Company's
employment agreement or noncompetition/nonsolicitation agreement with any
Management Member;
..................(c) setting the maximum percentage of Restated Profits
of the Company in excess of $24,000,000.00 to be allocated to the Management
Bonus Pool for any Fiscal Year beginning after December 31, 1999, pursuant to
Section 4.11 hereof; or
..................(d) making any discretionary determination in accordance
with Section 5.03 hereof with respect to indemnification by the Company of
any Indemnified Party pursuant to Article V hereof.
IV.5.. Meetings of MembersMeetings of Members.
..................(a) Meetings of Members may be called for any proper
purpose at any time by the President of the Company or by Members holding a
sufficient number of Outstanding Class A Shares and Class B Shares (on a
combined basis) to effect Membership Approval. The President or the Members
calling the meeting shall determine the date, time, place and purpose of each
meeting of Members, and written notice thereof shall be given by the
President to each Member not less than ten (10) days nor more than sixty (60)
days prior to the date of the meeting. Notice shall be sent to Members of
record on the date when the meeting is called. The business of each meeting
of Members shall be limited to the purposes described in the notice. A
written waiver of notice, executed before or after a meeting by a Member or
its authorized attorney and delivered to the Company shall be deemed
equivalent to notice of the meeting.
..................(b) Members holding a sufficient number of Outstanding
Class A Shares and Class B Shares (on a combined basis) to effect Membership
Approval shall constitute a quorum for the transaction of any business at a
meeting of Members. Members may attend a meeting in person or by proxy.
Members may also participate in a meeting by means of conference telephone or
similar communications equipment that permits all Members present to hear
each other. If less than a quorum of the Members is present, the meeting may
be adjourned by the chairman to a later date, time and place, and the meeting
may be held as adjourned without
further notice. When an adjourned meeting is reconvened, any business may
be transacted that might have been transacted at the meeting as originally
called.
..................(c) The President shall act as chairman at all meetings
of the Members and, in such capacity, shall determine the order of business
and the procedures to be followed at each meeting of Members.
IV.6.. Action Without a MeetingAction Without a Meeting. Any action
required or permitted to be taken at any meeting of Members may be taken without
a meeting if one or more written consents to such action shall be signed by
Members having at least such number of votes as would be required to approve
such action at a meeting. Such written consents shall be delivered to the
President at the Company's principal place of business and shall be filed in the
records of the Company. The President shall give prompt notice to all Members
who did not consent to any action taken by written consent of Members without a
meeting.
IV.7.. Delegation of Authority to OfficersDelegation of Authority
to Officers.
..................(a) The officers of the Company (the "Officers") shall consist
of a President/Chief Executive Officer/Chief Investment Officer (the
"President") and such other officers, if any, as are contemplated herein or as
the President may determine are necessary, appropriate or desirable. Subject
only to the reservation of rights set forth in Sections 4.03 and 4.04 hereof and
the coordination with PDP set forth in Section 4.08 hereof, the Members hereby
delegate to the President all power, right and authority as is usually exercised
by the President and/or Chief Executive Officer of a corporation, including,
without limitation, the power, right and authority (i) to manage the day-to-day
business and affairs of the Company and for this purpose to employ or retain and
terminate any Officers, employees, consultants, agents, brokers, professionals
(provided that, with respect to the independent public accountants of the
Company, such action has been authorized to the extent required under Section
4.03(p) hereof) or other Persons in any capacity for such compensation and on
such terms as may be necessary or desirable and to delegate to such Persons such
power and authority, the performance of such duties and the execution of such
instruments in the name of the Company as the President deems advisable;
provided, however, that PDP shall have the right to appoint an individual to
serve as the Secretary, General Counsel and Compliance Officer, who shall not be
compensated by the Company without Special Membership Approval or removed by the
President without Membership Approval; (ii) to determine such matters as the
development, maintenance and change of investment management policies and fee
structures, the hiring, promotion, firing and compensation (including bonus
allocation) of staff, management and executive personnel, new product
development, sales and marketing policies and implementation and decisions to
accept, reject, amend, maintain or terminate client relationships; and (iii) to
enter into, execute, deliver, acknowledge, make, modify, supplement or amend any
documents or instruments in the name of the Company authorized by this
Agreement. The President is an agent of the Company for the purpose of the
Company's business. Any action taken by the President in accordance with this
Agreement, and the signature of the President on any agreement, contract,
instrument or other document on behalf of the Company executed in accordance
with this Agreement, shall be sufficient to bind the Company and shall
conclusively evidence the authority of the President and the Company with
respect thereto. Without limiting the generality of any of the foregoing, the
President shall be responsible for determining the salaries of, and bonus
allocations to, the other Officers and employees of the Company (subject to the
terms of any applicable employment agreement with the Company) and to recommend
to PDP the allocation of options to purchase shares of capital stock of PDP to
be granted to Officers, Management Members and employees of the Company. For so
long as Seneca is the President of the Company, the power and authority
delegated to the President in accordance with this Agreement shall not be
limited or restricted, except as specifically provided in this Agreement.
..................(b) As to any matter that is beyond the power and authority
delegated to the President under Section 4.07(a) or elsewhere in this Agreement,
the President and other Officers shall act at the direction of the Members
acting by Membership Approval; provided that such directed action has been
authorized by any and all required consents and approvals pursuant to any
provision of this Agreement specifically requiring Special Membership Approval
or the consent, approval or action of the President.
..................(c) The President of the Company shall initially be Seneca,
who may be removed only pursuant to and in accordance with the terms of Section
4.09 hereof. The other initial Officers of the Company shall be those persons
whose names are initially set forth on Schedule B attached hereto, and an
identical schedule shall be maintained as part of the records of the Company and
amended from time to time to reflect changes in the Officers of the Company.
Subject to paragraph (a) of this Section 4.07, the Officers, other than the
President, may be appointed by the President, and the powers, duties and
responsibilities of such Officers may be changed from time to time in accordance
with such Officers' employment agreements or, if none, in the discretion of the
President. Subject to paragraph (a) of this Section 4.07, any such Officer may
be removed by the President at any time in accordance with such Officer's
employment agreement or, if none, in the discretion of the President. Any
Officer may resign as an Officer at any time, and such resignation shall be
effective, in accordance with the terms and conditions of such Officer's
employment agreement with the Company.
..................(d) Notwithstanding anything to the contrary contained in this
Article IV, either PDP or the President may propose the modification or
termination of the Services Agreement to be entered into as of the LLC Closing
(as defined in the Purchase Agreement) by the Company and Genesis Merchant Group
Securities LLC (or of any of the Company Personnel Services or the Processing
Services as defined in and provided for in said Services Agreement), subject to
the consent of PDP or the President, as the case may be, which consent shall not
be unreasonably withheld.
IV.8.. Coordination of the Officers and PDPCoordination of the
Officers and PDP. The Officers of the Company shall provide PDP with annual
business and financial plans and a preliminary annual budget for the Company by
not later than sixty (60) days prior to the beginning of each Fiscal Year and,
after consultation with PDP, a final annual budget by not later than thirty-one
(31) days after the end of each Fiscal Year. The aggregate expenses set forth in
the final annual budget with respect to any Fiscal Year shall not exceed by more
than 10% the aggregate expenses set forth in the annual budget with respect to
the preceding Fiscal Year without prior Membership Approval. The Officers shall
provide PDP with such financial and other information, with supporting schedules
and data as requested by PDP, as necessary for PDP to prepare and file, on a
timely basis, all periodic reports, registration statements and other filings
required to be filed by PDP pursuant to the federal securities laws, as well as
such other supporting schedules and information as PDP may reasonably request.
The Officers and PDP shall review at least quarterly the performance and
projections of the Company, the progress of its business, key personnel,
potential sources of additional capital for management, new product offerings
and other appropriate matters. It is the intention of the Members of the Company
that there shall be open communication concerning the business of the Company
between PDP and the Officers of the Company, with opportunities for PDP to
provide the President with advice and to offer the President suggestions as to
the annual budget, strategic position and conduct of the business of the
Company. Accordingly, the President, and such other Officers of the Company as
PDP may request, shall meet with PDP at the principal offices of the Company at
such other times as PDP may reasonably request upon reasonable prior notice.
IV.9.. Removal of Seneca as President; Name of the CompanyRemoval of
Seneca as President; Name of the Company.
..................(a) Seneca shall not be subject to removal as President
by the Company, except in accordance with the terms of her employment
agreement with the Company, dated as of the Effective Date, and the
procedures set forth therein.
..................(b) At any time after December 31, 2001, the Company shall, at
the direction of the Members, acting by Membership Approval, promptly take any
and all action necessary to include the word "Phoenix" in its name or the name
of any Affiliate of the Company. After the occurrence of an ADV Disclosure Event
prior to December 31, 2001, notwithstanding Section 4.03(k) hereof, the Company
shall, at the direction of the Members, acting by Membership Approval, promptly
take any and all action necessary to include the word "Phoenix" in its name or
the name of any Affiliate of the Company; provided, however, that in such event,
upon the written request of Seneca, the Company and the Members shall promptly
take any and all action necessary to delete the reference to "Seneca" or any
name similar to Seneca in the name of the Company or any Affiliate of the
Company. Upon the occurrence of any such change of name pursuant to this Section
4.09(b), the Company will promptly file an appropriate amendment to the Articles
of Organization and other documents relating to the Company or any such
Affiliate to reflect such name change.
..................(c) At such time as Seneca is no longer President of the
Company, a new President may be designated at any time prior to December 31,
2001 by Special Membership Approval and at any time thereafter by Membership
Approval.
IV.10. Salaries of OfficersSalaries of Officers. The Members shall
not receive any compensation from the Company for services provided to the
Company in their capacity as Members. Any Officers of the Company shall be
entitled to receive from the Company in any Fiscal Year, such salaries payable
in such periodic installments, if any, as are specified in the employment
agreement between such respective Officer and the Company effective for such
Fiscal Year or, if none, as the President shall approve and determine.
IV.11. Management Bonus PoolManagement Bonus Pool. Each Fiscal Year,
the Company shall establish a management bonus pool for certain key employees of
the Company, as determined by the President (the "Management Bonus Pool"). The
Company may also establish such non-qualified deferred compensation or
retirement plans for employees of the Company as the President deems desirable
(collectively, the "Retirement Plans"); provided, however, that the
contributions by the Company on behalf of all Management Bonus Pool participants
to all such Retirement Plans shall be deemed to be payments out of the
Management Bonus Pool available for the Fiscal Year in respect of which such
contributions are made. The Management Bonus Pool and the contributions of the
Company on behalf of all Management Bonus Pool participants to all Retirement
Plans shall be set for each Fiscal Year by the President in her sole discretion;
provided, however, that (a) for any Fiscal Year beginning prior to December 31,
1999, the Management Bonus Pool shall be an amount of up to forty-two percent
(42%) of the Restated Profits of the Company for such Fiscal Year and (b) for
any Fiscal Year beginning after December 31, 1999, the Management Bonus Pool
shall be up to forty-two percent (42%) of the Restated Profits of the Company
for the first twenty-four million dollars ($24,000,000.00) of Restated Profits
of the Company and such maximum percentage of the Restated Profits of the
Company in excess of twenty-four million dollars ($24,000,000.00) as may be
fixed from time to time by the President with Membership Approval in accordance
with Section 4.04 hereof; it being understood that Equity Bonus Payments do not
constitute part of the Management Bonus Pool.
IV.12. Equity Bonus PaymentsEquity Bonus Payments.
..................(a) Each Management Member holding Equity Bonus Shares is
entitled to receive an Equity Bonus Payment from the Company upon the happening
of certain events, subject to the terms and conditions set forth in this
Agreement and in such Management Member's Put/Call Agreement, including, without
limitation, the provisions of this Agreement with regard to forfeiture of such
Equity Bonus Shares. As of the Effective Date, each Management Member holding
Equity Bonus Shares shall be entitled to receive, upon the happening of such
events and subject to such conditions, an Equity Bonus Payment in an amount
equal to the balance of such Management Member's Equity Bonus Account as set
forth opposite such Management Member's name on Schedule A attached hereto. The
Equity Bonus Shares held by each Management Member supersede and replace in its
entirety any Phantom Interest (as defined in the Original Agreement) held by any
Member in accordance with the Original Agreement and any Phantom Equity Bonus
Agreement entered into between the Company or the Partnership and the respective
Member, in each case, to the extent such Phantom Interest was not forfeited and
surrendered pursuant to the Purchase Agreement.
..................(b) The Total Equity Bonus Payments are subject to adjustment
upon, and at the time (determined in accordance with Section 7.04(d)(1) hereof)
of, any Book Event in accordance with the formula set forth in the definition
thereof contained in Article I of this Agreement. Upon any such adjustment in
the Total Equity Bonus Payments, each Management Member's Equity Bonus Payment
(and Equity Bonus Account pursuant to Section 7.03 hereof) shall also be reduced
or increased, as the case may be, proportionately; provided, however, that the
Total Equity Bonus Payments shall never exceed the product of (i) seventeen and
thirty five one-hundredths percent (17.35%) and (ii) the Initial Enterprise
Value.
..................(c) Upon any Transfer of all or a portion of any Shares held
by any Management Member upon such Management Member's death pursuant to Section
8.01(b) hereof, the Company shall Repurchase all of the Outstanding Shares of
the Company held by such Management Member in accordance with the terms of
Section 9.03 hereof. Pursuant to such Repurchase, the Company shall pay the
Repurchase Price to the Repurchased Member, which Repurchase Price is defined to
include such Repurchased Member's Equity Bonus Payment. Upon payment of the
Repurchase Price, the Equity Bonus Shares held by such Repurchased Member shall
be automatically forfeited and available for reissuance in accordance with the
last two sentences of Section 4.12(f) hereof.
..................(d) Upon any Transfer of all or a portion of any Class A
Shares held by any Management Member upon an Exercise of the Put/Call pursuant
to Section 8.01(c) hereof or, if approved by the President, a Transfer of Class
A Shares in the President's discretion pursuant to Section 8.01(a) (in each
case, other than in connection with a Change in Control of the Phoenix Members
or other Extraordinary Event), the Company shall pay to the Transferor Member,
by wire transfer of immediately available funds no later than thirty (30) days
after such Transfer occurs, an amount equal to the product of (i) such
Transferor Member's Equity Bonus Payment at the time of such Transfer
(determined in accordance with Section 7.04(d)(1) hereof), multiplied by (ii) a
fraction, the numerator of which is the number of Class A Shares Transferred and
the denominator of which is the total number of Class A Shares held by such
Member immediately prior to the time of such Transfer. Upon payment of such
Equity Bonus Payment, the number of Equity Bonus Shares equal to the product of
the total number of Equity Bonus Shares held by such Member immediately prior to
the time of such Transfer and the fraction expressed above shall be
automatically canceled and may not be reissued by the Company.
......IV(ddd) Upon any Change in Control of the Phoenix Members or
other Extraordinary Event, the President, in her sole discretion, shall have the
authority to cause the Company to pay to any Management Member holding Equity
Bonus Shares by wire transfer of immediately available funds no later than sixty
(60) days after such Change in Control of the Phoenix Members or other
Extraordinary Event occurs (but not later than ten (10) days after the
determination of the amount of the Equity Bonus Payment due to such Management
Member), one hundred percent (100%) of the Equity Bonus Payment due to such
Management Member at the time of such Change in Control of the Phoenix Members
or other Extraordinary Event, determined in accordance with Section 7.04(d)(1)
hereof. Upon payment of any Management Member's Equity Bonus Payment pursuant
hereto, such Management Member's Equity Bonus Shares shall be automatically
canceled and may not be reissued by the Company. ..................(a) In the
event of a forfeiture of Equity Bonus Shares by a Management Member upon
termination of employment voluntarily by such Management Member (without Good
Reason) or by the Company for Cause pursuant to Section 9.02(a) hereof, such
Management Member shall forfeit one hundred percent (100%) of his or her Equity
Bonus Shares and, as a result, one hundred percent (100%) of his or her Equity
Bonus Payment. In the event of a forfeiture of Equity Bonus Shares by a
Management Member (other than Seneca or Little) upon such Management Member's
termination of employment as a result of his or her Disability, without Cause by
the Company or with Good Reason by such Management Member pursuant to Section
9.02(c) hereof, such Management Member shall forfeit fifty percent (50%) of his
or her Equity Bonus Shares and, as a result, fifty percent (50%) of his or her
Equity Bonus Payment. Forfeited Equity Bonus Shares shall be available for
reissuance by the Company, and any Equity Bonus Shares so reissued shall
continue to be subject to all of the terms and conditions to which the
originally issued Equity Bonus Shares are subject, including, without
limitation, the risk of forfeiture pursuant to Section 9.02 hereof. Any Equity
Bonus Shares available for reissuance on December 31, 2001 or, if earlier,
immediately prior to the withdrawal of the last Management Member from the
Company upon a Transfer or otherwise that have not been reissued in accordance
with the terms hereof shall automatically be deemed to be reissued to the
Management Members as of such date in proportion to their Class A Shares held
immediately prior to the close of business on such date.
..................(b) Upon the termination of employment with the Company of
Seneca or Little, which termination is the result of such Management Member's
Disability or which termination is without Cause by the Company or with Good
Reason by such Management Member, the Company shall pay to such Management
Member holding Equity Bonus Shares by wire transfer of immediately available
funds no later than sixty (60) days after such termination of employment (but
not later than ten (10) days after the determination of the amount of the Equity
Bonus Payment due to such Management Member), one hundred percent (100%) of the
Equity Bonus Payment due to such Management Member at the time of such
termination of employment (determined in accordance with Section 7.04(d)(1)
hereof). Upon payment of any Management Member's Equity Bonus Payment pursuant
hereto, such Management Member's Equity Bonus Shares shall be automatically
canceled and may not be reissued by the Company.
..................(c) The Company and the Members hereby acknowledge and agree
that PDP shall promptly make an additional Capital Contribution to the Company
in the amount of the Equity Bonus Payment due to a Management Member in
connection with any Transfer of Shares pursuant to Sections 8.01(a) or (c), in
order to permit the Company to make such payment in accordance with the payment
terms set forth herein, and upon payment thereof, the Company's obligation to
pay such Equity Bonus Payment upon such Transfer of Shares shall be satisfied.
Any additional Capital Contribution made by PDP pursuant to this Agreement or
the Put/Call Agreements as a result or in connection with the payment of any
Equity Bonus Payment by the Company shall increase PDP's General Capital Account
allocable to the Class B Shares pursuant to the adjustment set forth in Section
7.02(a)(ii) hereof.
I.2... Acceleration of Vesting of Class A SharesAcceleration of
Vesting of Class A Shares. Notwithstanding anything to the contrary contained in
this Agreement, any employment agreement or other agreement between the Company
or the Partnership and any Management Member,
..................(a) upon notice to the Phoenix Members and any applicable
Management Member, the President, in her sole discretion, shall have the
authority to accelerate the vesting (which acceleration shall be effective
immediately upon such notice or such later date as may be specified therein) of
any and all unvested Class A Shares that are:
(i) held by any Management Member upon a
determination (in the sole discretion of the President) that the existing
vesting schedule for such Class A Shares poses a hardship to or for such
Management Member;
(ii) held by any or all Management Members in the
event of termination of Seneca's employment by the Company without Cause or by
Seneca with Good Reason, and in such event, the decision of the President to
accelerate such vesting shall be deemed to have occurred immediately prior to
the effective date of such termination; or
(iii) held by any or all Management Members upon a
Change in Control of the Phoenix Members or other Extraordinary Event;
..................(b) all unvested Class A Shares shall vest immediately
upon the death or Disability of Seneca if Seneca is the President of the
Company immediately prior thereto;
..................(c) all unvested Class A Shares held by any Management
Member shall vest immediately upon the death of such Management Member;
..................(d) fifty percent (50%) of all unvested Class A Shares held by
any Management Member (other than Seneca or Little) shall vest immediately upon
the Disability of such Management Member or termination of such Management
Member's employment without Cause by the Company or with Good Reason by the
Management Member;
..................(e) in the case of Seneca and Little only, one hundred percent
(100%) of all unvested Class A Shares held by such Management Member shall vest
immediately upon the Disability of such Management Member or termination of such
Management Member's employment without Cause by the Company or with Good Reason
by such Management Member; and
..................(f) in the case of Harold Nathan only, one hundred percent
(100%) of all unvested Class A Shares held by such Management Member shall vest
immediately upon the retirement of such Management Member at any time from and
after the age of fifty three and one half (53 1/2).
I.3... Key Person InsuranceKey Person Insurance. The Company shall
maintain key person insurance on the life of each Management Member while such
Management Member remains an Officer or employee of the Company, in a coverage
amount equal to (a) the Repurchase Price for all Outstanding Shares held by such
Management Member upon such Management Member's death as provided in Section
9.03 hereof or (b) the maximum coverage amount obtainable from acceptably-rated
insurers, whichever is the lesser, and with such policy or policies to be owned
by and all proceeds thereunder payable to the Company. The maximum coverage
amount shall be increased at any time or from time to time by the Company, to
the extent additional coverage is available, to an amount necessary to satisfy
the objectives of this Section 4.14. All proceeds from such insurance policy
shall be utilized first to fund any Repurchase by the Company of the Shares held
by such Management Member's estate following his or her death in accordance with
Section 9.03 hereof, and next to provide additional working capital permitting
the Company to continue its operations and search actively for a successor to
such Management Member during the three (3) months following the death of such
Management Member.
I.4... Reliance by Third PartiesReliance by Third Parties. Any
person dealing with the Company, the Officers or any Member may rely upon a
certificate signed by the Secretary of the Company as to (i) the identity of the
Officers or Members; (ii) any factual matters relevant to the affairs of the
Company; (iii) the persons who are authorized to execute and deliver any
document on behalf of the Company; or (iv) any action taken or omitted by the
Company, the Officers or any Member.
I.5... No EmploymentNo Employment. This Agreement does not, and is
not intended to, confer upon any Management Member any rights with respect to
continuance of employment by the Company, and nothing herein should be construed
to have created any employment agreement with any Management Member.
INDEMNIFICATIONICATION
II.1.. Right to IndemnificationRight to Indemnification. Except as
limited by law and subject to the provisions of this Article, the Company shall
indemnify each Indemnified Party from and against any and all Losses asserted
against, imposed on or incurred by such Person at any time as a result of such
Person's capacity as a Member, Officer, employee or Liquidating Trustee (or
Affiliate or agent if designated as an Indemnified Party), including, without
limitation, in connection with the actions or inactions of such Person
hereunder; provided, however, that no such indemnification shall be provided for
any Indemnified Party regarding any matter as to which it shall be finally
determined that such Indemnified Party did not act in good faith and in the
reasonable belief that its action was in the best interests of the Company, or
with respect to a criminal matter, that it had reasonable cause to believe that
its conduct was unlawful, and in the discretion of the Members, acting by
Membership Approval, the Company shall not be obligated to indemnify an
Indemnified Party if the Losses were the result of such Indemnified Party's
gross negligence, willful malfeasance or fraud in the conduct of his, her or its
office or actions not taken in good faith by such Indemnified Party. Except as
limited by law, such indemnification may be provided by the Company with respect
to Losses in connection with which it is claimed that such Indemnified Party
received an improper personal benefit by reason of its position, regardless of
whether the claim arises out of the Indemnified Party's service in such
capacity, except for matters as to which it is finally determined that an
improper personal benefit was received by such Indemnified Party. The
indemnification contained in this Article V shall survive termination of this
Agreement.
II.2.. Notice; Defense of ClaimsNotice; Defense of Claims.
..................(a) Promptly after receipt by an Indemnified Party of notice
of any Losses to which the indemnification obligations set forth in Section 5.01
would apply, the Indemnified Party shall give notice thereof in writing to the
Company, but the omission to so notify the Company promptly will not relieve the
Company from any liability except to the extent that the Company shall have been
prejudiced as a result of the failure or delay in giving such notice. Such
notice shall state in reasonable detail the information then available regarding
the amount and nature of such Losses.
..................(b) If within twenty (20) days after receiving such notice the
Company gives written notice to the Indemnified Party stating that it intends to
defend against such Losses at its own cost and expense, then counsel for the
defense shall be selected by the Company (subject to the consent of the
Indemnified Party, which consent shall not be unreasonably withheld), and the
Indemnified Party shall not be required to make any payment with respect to such
Losses as long as the Company is conducting a good faith and diligent defense at
its own expense; provided, however, that the assumption of defense of any such
matters by the Company shall relate solely to the Losses that are subject or
potentially subject to indemnification. The Company shall have the right, with
the consent of the Indemnified Party, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled, so long as its obligation to indemnify
the Indemnified Party therefor will be fully satisfied; provided, however, that
in the event any such third party has agreed with Company on the settlement of
any such matter by the payment of a specified amount of monetary damages and the
Indemnified Party objects to such specified amount, then the Indemnified Party
must thereupon assume the defense of such matter, at the Indemnified Party's
expense and risk (including, without limitation, the cost and expense incurred
by the Company in continuing the defense of such matter), and the Company's
obligations to indemnify the Indemnified Party with respect only to such matter
shall be limited solely to the payment by the Company of such specified amount
of monetary damages. The Company shall keep the Indemnified Party apprised of
the status of the Losses, shall furnish the Indemnified Party with all documents
and information that the Indemnified Party shall reasonably request and shall
consult with the Indemnified Party prior to acting on major matters, including
settlement discussions. Notwithstanding anything herein stated to the contrary,
the Indemnified Party shall at all times have the right to participate fully in
such defense at its own expense, directly or through counsel; provided, however,
if the named parties to any action or proceeding include both the Company and
the Indemnified Party and representation of both parties by the same counsel
would be inappropriate under applicable standards of professional conduct, the
expense of separate counsel for the Indemnified Party shall be paid by the
Company. If no such notice of intent to dispute and defend is given by the
Company, or if such diligent good faith defense is not being or ceases to be
conducted, the Indemnified Party shall, at the expense of the Company, undertake
the defense of (with counsel selected by the Indemnified Party), and shall have
the right to compromise or settle (exercising reasonable business judgment) such
Losses with the consent of the Company, which consent shall not be unreasonably
withheld. If such Losses are such that by their nature they cannot be defended
solely by the Company, then the Indemnified Party shall make available all
information and assistance that the Company may reasonably request and shall
cooperate with the Company in such defense.
II.3.. Award of IndemnificationAward of Indemnification. Any
discretionary determination required to be made hereunder by the Company in
connection with its indemnification obligations shall be made in each instance
by the Members, acting by Membership Approval. The Company shall be obliged to
pay indemnification applied for by any Indemnified Party unless there is an
adverse determination (as provided above) within forty-five (45) days after the
application. If indemnification is denied, the applicant may seek an independent
determination of its right to indemnification by a court, and in such event, the
Company shall have the burden of proving that the applicant was ineligible for
indemnification under this Article.
II.4.. Successful DefenseSuccessful Defense. Notwithstanding any
contrary provisions of this Article, if any Indemnified Party has been wholly
successful on the merits in the defense of any action, suit or proceeding in
which it was involved by reason of its position with the Company or as a result
of serving in such capacity (including termination of investigative or other
proceedings without a finding of fault on the part of such Indemnified Party),
such Indemnified Party shall be indemnified by the Company against all Losses
incurred by such Indemnified Party in connection therewith.
II.5.. Advance PaymentsAdvance Payments. Except as limited by law,
Losses incurred by an Indemnified Party in defending any action, suit or
proceeding, including a proceeding by or in the right of the Company, shall be
paid by the Company to such Indemnified Party in advance of final disposition of
the proceeding upon receipt of its written undertaking to repay such amount if
such Indemnified Party is determined pursuant to this Article or adjudicated to
be ineligible for indemnification, which undertaking shall be an unlimited
general obligation but need not be secured and may be accepted without regard to
the financial ability of such Indemnified Party to make repayment; provided,
however, that no such advance payment of Losses shall be made if it is
determined pursuant to this Article V on the basis of the circumstances known at
the time (without further investigation) that such Indemnified Party is
ineligible for indemnification.
II.6.. InsuranceInsurance. The Company shall have power to purchase
and maintain insurance on behalf of any Indemnified Party against any liability
or cost incurred by such Person in any such capacity or arising out of its
status as such, whether or not the Company would have power to indemnify against
such liability or cost.
II.7.. Employee Benefit PlanEmployee Benefit Plan. If the Company
sponsors or undertakes any responsibility as a fiduciary with respect to an
employee benefit plan, then for purposes of this Article (i) "Indemnified
Parties" shall be deemed to include the Officer or employee of the Company who
serves at its/his/her request in any capacity with respect to said plan, (ii)
the Officer or employee shall not be deemed to have failed to act in good faith
or in the reasonable belief that its action was in the best interests of the
Company if such Officer or employee acted in good faith and in the reasonable
belief that its action was in the best interests of the participants or
beneficiaries of said plan and (iii) "Losses" shall be deemed to include any
taxes or penalties imposed upon such Indemnified Party with respect to said plan
under applicable law.
II.8.. Heirs and Personal RepresentativesHeirs and Personal
Representatives. The indemnification provided by this Article shall inure to the
benefit of the heirs and personal representatives, in their capacity as such, of
the Indemnified Parties.
II.9.. Non-ExclusivityNon-Exclusivity. The provisions of this
Article shall not be construed to limit the power of the Company to indemnify
its Members, Officers, employees or agents to the fullest extent permitted by
law or to enter into specific agreements, commitments or arrangements for
indemnification permitted by law. The absence of any express provision for
indemnification herein shall not limit any right of indemnification existing
independently of this Article.
II.10. AmendmentAmendment. The provisions of this Article may be
amended or repealed in accordance with Section 11.05; provided, however, no
amendment or repeal of such provisions that adversely affects the rights of the
Members under this Article with respect to its acts or omissions at any time
prior to such amendment or repeal, shall apply to any Member without its prior
consent.
II.11. Acknowledgment of Indemnification AssumptionAcknowledgment of
Indemnification Assumption. Each of the Members and the Company hereby
acknowledge that the Company has assumed all indemnification obligations of the
Partnership under and pursuant to Section 9.6 of the Amended and Restated
Agreement of Limited Partnership of the Partnership dated effective as of
December 31, 1995, for acts or omissions with respect to any and all matters up
through July 1, 1996, and for all acts or omissions after such date relating to
certain sub-advisor agreements pursuant to which the Partnership serves as
sub-advisor to Citizens Investment Trust in connection with the following mutual
funds: the Working Assets Money Market Portfolio, the Citizens Income Portfolio,
the Citizens Emerging Growth Portfolio, the E Fund and the California Tax-Free
Income Portfolio.
CONFLICTS OF INTERESTS OF INTEREST
III.1. Transactions with Interested PersonsTransactions with
Interested Persons. Unless entered into in bad faith or in violation of this
Agreement, no contract or transaction between the Company and one or more of its
Members or other Indemnified Parties, or between the Company and any other
Person in which one or more of its Members or other Indemnified Parties has a
financial interest or is a director, manager or officer, shall be voidable
solely for this reason if such contract or transaction is fair and reasonable to
the Company; and no Member or other Indemnified Party interested in such
contract or transaction, because of such interest, shall be liable to the
Company or to any other Person or organization for any loss or expense incurred
by reason of such contract or transaction or shall be accountable for any gain
or profit realized from such contract or transaction.
III.2. ConflictsConflicts. Unless otherwise expressly provided
herein, (i) whenever a conflict of interest exists or arises between the
Company, its Members and/or the other Indemnified Parties or (ii) whenever this
Agreement or any other agreement contemplated herein provides that any such
Person shall act in a manner that is, or provides terms that are, fair and
reasonable to the Company or any Member, such Person shall resolve such conflict
of interest, taking such action or providing such terms, considering in each
case the relative interest of each party (including its own interest) to such
conflict, agreement, transaction or situation and the benefits and burdens
relating to such interests, any customary or acceptable industry practices, and
any applicable generally acceptable accounting practices or principles. In the
absence of bad faith by the Member or other Indemnified Party, as the case may
be, the resolution, action or term so made, taken or provided by such Person
shall not constitute a breach of this Agreement or any other agreement
contemplated herein or of any duty or obligation of such Person at law or in
equity or otherwise.
IV - CAPITAL CONTRIBUTIONS;
ACCOUNTS AND CAPITAL CONTRIBUTIONS; ACCOUNTS AND
- ------------ ----------------------- ------------
...... ALLOCATIONS; DISTRIBUTIONS; TAX MATTERS
----------------------------------------------
IV.1.. Capital ContributionsCapital Contributions.
..................(a) Prior to the effectiveness of this Agreement, the
Members have made the Capital Contributions to the Company in the amounts set
forth on the Share Schedule attached hereto as Schedule A with respect to the
Class A Shares and the Class B Shares held by the Members. No Capital
Contributions were made by the Members in connection with the issuance of the
Equity Bonus Shares pursuant hereto. Except (i) as may be agreed to in
connection with the issuance of additional Shares or (ii) as may be required
under applicable law or this Agreement, the Members shall not be required to
make any further Capital Contributions to the Company. No Member shall make
any Capital Contribution to the Company without prior Special Membership
Approval, except as otherwise provided in Section 7.02(d) and Section
4.12(h). The Share Schedule shall be amended by the Company to reflect any
Capital Contribution made after the Effective Date of this Agreement.
..................(b) No Member shall have the right to withdraw any part
of its (or its predecessors-in-interest) Capital Contributions until the
dissolution and winding up of the Company pursuant to Article X hereof, the
forfeiture of Shares pursuant to Section 9.02 hereof or the repurchase of
Shares pursuant to Section 9.03 hereof upon the death of a Management Member,
except as distributions pursuant to this Article VII may represent returns of
capital, in whole or in part. No Member shall be entitled to receive any
interest on any Capital Contribution made by it (or its
predecessors-in-interest) to the Company. No Member shall have any personal
liability for the repayment of any Capital Contribution of any other Member.
IV.2.. General Capital AccountsGeneral Capital Accounts. There shall
be established for each Member holding Class A Shares or Class B Shares a
capital account (with respect to any such Member, a "General Capital Account").
As of the Effective Date, the initial balance of the General Capital Accounts of
the Members shall be determined as follows: (i) in the case of the Phoenix
Members, the aggregate balance of their General Capital Accounts with respect to
the Class B Shares shall equal the product of the Phoenix Percentage and the
Initial Enterprise Value as of the Effective Date, allocated among the Phoenix
Members as indicated on the Share Schedule attached hereto as Schedule A, and
(ii) in the case of the Management Members, the aggregate balance of their
General Capital Accounts with respect to the Class A Shares shall equal the
difference between (A) the product of the Management Percentage and the Initial
Enterprise Value as of the Effective Date and (B) the Total Equity Bonus
Payments as of the Effective Date, allocated among the Management Members as
indicated on the Share Schedule attached hereto as Schedule A. In the case of
each New Member, the General Capital Account of such New Member shall initially
be equal to the Capital Contribution of such Member (in the event of an issuance
by the Company) or the General Capital Account of the Transferor with respect to
the Shares Transferred (in the event of a Transfer of Shares) as set forth on
the Share Schedule, as amended pursuant to Section 7.01(a). Except as provided
otherwise in this Article VII, General Capital Accounts shall be maintained in
accordance with the requirements of Treasury Regulations Section
1.704-1(b)(2)(iv).
..................(a) Adjustments. The General Capital Account of each
Member shall be adjusted in the following manner:
(i) On the Effective Date, each General Capital
Account with respect to the Class B Shares shall be increased by such Phoenix
Member's pro rata share of the Total Equity Bonus Payments as of the Effective
Date.
(ii) Each General Capital Account shall be
increased by such Member's allocable share of Net Income and Net Property Gain,
if any, of the Company in accordance with Section 7.04 (as well as any Capital
Contributions made by such Member after the Effective Date) and shall be
decreased by such Member's allocable share of Net Loss, Net Property Loss and
any deduction made pursuant to Section 7.04(c) hereof, if any, of the Company
and by the amount of all distributions made to such Member.
(iii) Immediately preceding the effective date of
any Book Event (determined in accordance with Section 7.04(d)(1) hereof), the
book value of the Company property shall be adjusted (upward or downward, as
applicable) to its fair market value at that time, which shall be deemed to be
equal to the product of three and one half (3.5) and the Management Fee
Measurement Amount at the time of such Book Event, determined in accordance with
Section 7.04(d)(1) hereof). Each General Capital Account of a Member shall also
be adjusted (upward or downward, as applicable) in the manner and to the extent
it would be adjusted if the Company property were sold as of such Book Event for
its fair market value (determined in accordance with the foregoing sentence) and
the net gain or net loss, as applicable, resulting from such deemed sale of
assets were "Net Property Gain" or "Net Property Loss," as applicable, and
allocated pursuant to Section 7.04(b) of this Agreement.
(iv) The amount of any distribution of assets other
than cash shall be deemed to be the Fair Market Value of such assets (net of any
liabilities encumbering such property that the distributee Member is considered
to assume or take subject to).
..................(b) Forfeiture. In the event of a forfeiture of
unvested Class A Shares by a Management Member upon certain terminations of
employment of such Management Member pursuant to Section 9.02 hereof, such
Management Member shall be deemed to have forfeited that portion of its net
General Capital Account with respect to the Class A Shares (after the return
of Capital Contributions) equal to the product of (i) the balance of such
Management Member's General Capital Account with respect to the Class A
Shares at the time of such forfeiture (determined in accordance with Section
7.04(d)(1) hereof) and (ii) a fraction, the numerator of which is the number
of unvested Class A Shares held by such Management Member that are being
forfeited in accordance with the terms of this Agreement and the denominator
of which is the total number of Class A Shares held by such Management Member
immediately prior to the time of such forfeiture. An amount equal to the
forfeited portion of any Management Member's General Capital Account with
respect to the Class A Shares shall be allocated to the General Capital
Accounts with respect to the Class A Shares of the remaining Management
Members in proportion to their holdings of Class A Shares.
..................(c) Transfer of Shares. Upon a Transfer of Class A Shares or
Class B Shares by any Member in accordance with the terms and conditions set
forth in this Agreement (other than a Transfer pursuant to Section 8.01(d)
hereof), the Transferee of such Shares shall succeed to that portion of the
Transferor's General Capital Account with respect to such Shares that is equal
to the product of (i) such Transferor's General Capital Account with respect to
the Class A Shares or Class B Shares, as applicable, at the time of such
Transfer (determined in accordance with Section 7.04(d)(1) hereof) and (ii) a
fraction, the numerator of which is the number of Class A Shares or Class B
Shares, as applicable, Transferred by such Member and the denominator of which
is the total number of Class A Shares or Class B Shares, respectively, held by
such Member immediately prior to the time of such Transfer. In the event such
Transferee was a Member prior to such Transfer, the portion of the Transferor's
General Capital Account to which the Transferee succeeded pursuant hereto shall
be added to the General Capital Account of the Transferee with respect to the
class of Shares Transferred. In the event such Transferee was not a Member prior
to such Transfer, there shall be established for such Transferee a General
Capital Account which, as of the effective date of such Transfer, shall
initially be equal to the portion of the Transferor's General Capital Account to
which the Transferee succeeded pursuant hereto.
..................(d) Adjustments with respect to Additional Purchase
Price Paid. Upon any payment by PDP of the Additional Purchase Price Paid,
the General Capital Accounts of the Members shall be increased as follows:
(i) the General Capital Accounts with respect to the Class B Shares shall be
increased proportionately among the Class B Shares held by the Members in an
aggregate amount equal to the sum of (x) the Additional Purchase Price Paid
and (y) the Total Equity Bonus Payments after payment of the Additional
Purchase Price Paid, minus the Total Equity Bonus Payments as of the
Effective Date, and (ii) the General Capital Accounts with respect to the
Class A Shares shall be increased proportionately among the General Capital
Accounts of the Management Members as of the Effective Date in an aggregate
amount equal to the product of (x) the Additional Purchase Price Paid,
divided by the Phoenix Percentage and (y) seven and three quarters percent
(7.75%).
IV.3.. Equity Bonus AccountsEquity Bonus Accounts. There shall be
established for each Member holding Equity Bonus Shares an account for
bookkeeping purposes only (with respect to any such Member, an "Equity Bonus
Account"). The value of the Equity Bonus Account of any Member holding Equity
Bonus Shares shall be equal to such Member's Equity Bonus Payment, as adjusted
from time to time in accordance with Section 4.12 hereof, and shall be decreased
proportionately by the amount of any Equity Bonus Payment paid by the Company or
forfeited by such Member. The value of the Equity Bonus Accounts of the Members
as of the Effective Date is set forth on the Share Schedule attached hereto as
Schedule A. All Equity Bonus Payments shall be treated for all purposes as
deferred compensation (subject to forfeiture as contemplated in Section 9.02
hereof) and not as distributions of capital or profits of the Company. No Person
shall be a "Member" of the Company by virtue of (or in any way with respect to)
the ownership of Equity Bonus Shares or any interest in an Equity Bonus Account.
IV.4.. General AllocationsGeneral Allocations. For purposes of this
Article VII except to the extent otherwise provided herein, all allocations in
proportion to the Shares of a Member shall be determined upon the occurrence of
any Book Event on the basis of the Shares held at the time of such Book Event
(determined in accordance with Section 7.04(d)(1) hereof).
..................(a) Net Income and Net Loss shall be allocated to the
General Capital Accounts of the Members as follows: (i) an amount equal to
the Management Percentage of such Net Income and Net Loss shall be allocated
to the Members in proportion to their Class A Shares and (ii) an amount equal
to the Phoenix Percentage of each such Net Income and Net Loss shall be
allocated to the Members in proportion to their Class B Shares.
..................(b) With respect to Net Property Loss and Net Property
Gain:
(i) Net Property Loss shall be allocated to the
Members as follows:
...... (A) first, in the event that Net Property Gain has previously
been allocated to the Members pursuant to Section 7.04(b)(ii)(B) with respect to
any Fiscal Year, then Net Property Loss for such Fiscal Year in an amount equal
to the difference, if any, between (X) the aggregate amount of such previously
allocated Net Property Gain and (Y) the aggregate amount of Net Property Loss
previously allocated pursuant to this Section 7.04(b)(i)(A) for all prior Fiscal
Years shall be allocated among the General Capital Accounts in the same ratio as
all prior Net Property Gain in the aggregate for all Fiscal Years was originally
allocated pursuant to Section 7.04(b)(ii)(B) hereof; and
...... (B) second, an amount equal to the difference, if any,
between the aggregate Net Property Loss to be allocated pursuant to this Section
7.04(b) and the Net Property Loss allocated pursuant to Section 7.04(b)(i)(A)
shall be allocated to the General Capital Accounts of the Members in proportion
to their General Capital Accounts.
(ii) Net Property Gain shall be allocated to the
Members as follows:
(A) first, Net Property Gain in an amount
equal to the excess, if any, of (x) the aggregate amount of Net Property Loss
previously allocated to the General Capital Accounts of the Members pursuant to
Section 7.04(b)(i)(B) over (y) the aggregate amount of Net Property Gain
allocated to the Members pursuant to this Section 7.04(b)(ii)(A), for all prior
Fiscal Years (such excess, the "Unrecovered Net Property Loss") shall be
allocated among the General Capital Accounts in the same ratio as such
Unrecovered Net Property Loss was originally allocated pursuant to Section
7.04(b)(i)(B) hereof; and
(B) second, an amount equal to the
Management Percentage of the difference, if any, between the aggregate Net
Property Gain to be allocated pursuant to this Section 7.04(b) and the
Unrecovered Net Property Loss (the "Remaining Net Property Gain") shall be
allocated to the Members holding Class A Shares in proportion to their Class A
Shares, and an amount equal to the Phoenix Percentage of the Remaining Net
Property Gain shall be allocated to the General Capital Accounts of the Members
holding Class B Shares in proportion to their Class B Shares.
..................(c) All items of Company deduction arising in connection with
any Equity Bonus Payment (other than payment of the Repurchase Price by the
Company upon the death of any Management Member pursuant to Section 9.03 hereof)
shall be allocated in their entirety solely to the General Capital Accounts with
respect to the Class B Shares of the Phoenix Members in proportion to their
Class B Shares.
..................(d) In the event that during any calendar month (or any Fiscal
Year) there is a Book Event (other than pursuant to clause (ix) of the
definition thereof), the following shall apply: (1) such event shall be deemed
to have occurred as of the end of the last day of the calendar month immediately
preceding such event (or if such event occurs as of the last business day of a
month, then such event shall be deemed to occur as of the end of the last day of
the calendar month in which such event occurs); (2) the books of account of the
Company shall be closed effective as of the close of business on (or most
immediately preceding) the effective date of any such event as set forth in
clause (1) and such Fiscal Year shall thereupon be divided into two or more
portions; (3) each item of income, gain, loss and deduction shall be determined
(on a closing of the books basis) for the portion of such Fiscal Year ending
with the date on which the books of account of the Company are so closed; and
(4) each such item for such portion of such Fiscal Year shall be allocated
pursuant to the provisions of this Article VII to those persons who were Members
during such portion of such Fiscal Year based on their respective Shares as of
the end of each such period.
IV.5.. Tax Allocations.Tax Allocations. For federal, state and local
income tax purposes, each item of income, gain, loss, deduction and credit of
the Company shall be allocated among the Members as nearly as possible in the
same manner as the corresponding item of income, gain, loss or expense is
allocated pursuant to Section 7.04 hereof. In accordance with Section 704(c) of
the Code and the Treasury Regulations thereunder, income, gain, loss and
deduction with respect to any property contributed to the capital of 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 such property to the
Company for federal income tax purposes and its initial fair market value. In
the event the fair market value of any asset of the Company is adjusted pursuant
to Section 7.02(a)(iii) hereof, subsequent allocations of income, gain, loss and
deductions with respect to such asset shall take account of any variation
between the adjusted basis of such asset for federal income tax purposes and its
fair market value in the same manner as under Section 704(c) of the Code and the
Treasury Regulations thereunder. Any elections or other decisions relating to
such allocations shall be made by the Tax Matters Partner in any manner that
reasonably reflects the purpose and intention of this Agreement. Allocations
pursuant to this Section 7.05 are solely for purposes of federal, state and
local taxes and shall not affect, or in any way be taken into account in
computing, any Member's General Capital Account or share of profits, losses,
other items, or distributions pursuant to any provisions of this Agreement.
IV.6.. Distributions.Distributions.
..................(a) Subject to Section 7.07 hereof, the Company shall (i)
within ninety (90) days after the close of each Fiscal Year (unless the Company
otherwise determines in good faith) make distributions of not less than
eighty-five percent (85%) of the cash available therefor (after payment of all
expenses of the Company including without limitation any Equity Bonus Payments,
payment of principal and interest on any indebtedness of the Company, payments
in connection with withdrawals from the Company and the establishment of such
reserves as may be necessary or appropriate) ("Distributable Cash") to the
Members, (ii) at such times and in such amounts as the Company may reasonably
and in good faith determine, make distributions of any additional Distributable
Cash to the Members and (iii) at such times and in such amounts as the Company
may reasonably and in good faith determine, make distributions of any remaining
cash available for distribution to the Members, in each case, as follows: (x) an
amount equal to the Management Percentage of such Distributable Cash or
remaining cash, as the case may be, shall be distributed to the Members holding
Class A Shares in proportion to their Class A Shares and (y) an amount equal to
the Phoenix Percentage of such Distributable Cash or remaining cash, as the case
may be, shall be distributed to the Members holding Class B Shares in proportion
to their Class B Shares.
..................(b) Subject to Section 7.07 hereof, upon the occurrence of an
Extraordinary Event, the Company shall (i) as soon as practicable after receipt
thereof, make distributions of not less than eighty-five percent (85%) of the
Distributable Cash available, (ii) at such times and in such amounts as the
Company may reasonably and in good faith determine, make distributions of any
additional Distributable Cash to the Members and (iii) at such times and in such
amounts as the Company may reasonably and in good faith determine, make
distributions of any remaining cash available for distribution to the Members,
in each case, in proportion to their General Capital Accounts.
..................(c) In the event that Members cease to be Members or New
Members are admitted, at any time other than at the beginning of a Fiscal Year,
the Company shall, in good faith, make appropriate adjustments to the
distributions provided in paragraphs (a) and (b) to reflect the varying
interests of the Members during the Fiscal Year.
..................(d) Notwithstanding any other provision of this Agreement,
neither the Company, nor any other Person on behalf of the Company, shall make a
distribution to any Member on account of its Shares if such distribution would
violate the Act or other applicable law.
IV.7.. Distributions Upon Dissolution; Establishment of Reserve Upon
DissolutionDistributions Upon Dissolution; Establishment of Reserve Upon
Dissolution. Upon the dissolution of the Company, after payment (or the making
of reasonable provision for the payment) of all liabilities of the Company owing
to creditors and any guaranteed payments (including without limitation any
Equity Bonus Payments), the Liquidating Trustee shall set up such reserves as
he, she or it deems reasonably necessary for any contingent, conditional or
unmatured liabilities or other obligations of the Company, including any
guaranteed payments. Such reserves may be paid over by the Liquidating Trustee
to a bank (or other third party), to be held in escrow for the purpose of paying
any such contingent, conditional or unmatured liabilities or other obligations.
At the expiration of such period(s) as the Liquidating Trustee may deem
advisable, such reserves, if any (and any other assets available for
distribution), or a portion thereof, shall be distributed to the Members in the
manner contemplated in Section 7.06(b) hereof. If any assets of the Company are
to be distributed in kind in connection with such liquidation, such assets shall
be distributed on the basis of their Fair Market Value net of any liabilities
encumbering such assets and, to the greatest extent possible, shall be
distributed pro rata in accordance with the total amounts to be distributed to
each Member. Immediately prior to the effectiveness of any such
distribution-in-kind, each item of gain and loss that would have been recognized
by the Company had the property being distributed been sold at Fair Market Value
shall be determined and allocated to those persons who were Members immediately
prior to the effectiveness of such distribution in accordance with Section
7.06(b) hereof.
IV.8.. Tax WithholdingTax Withholding. The Company may withhold
taxes from distributions to any Member to the extent required by applicable law.
For purposes of this Agreement, any amount of taxes required to be withheld by
the Company with respect to any Member's interest in the Company shall be deemed
to be a distribution or payment to such Member and shall reduce the amount
otherwise distributable to such Member pursuant to this Agreement. The Company
may at any time request that a Member submit appropriate certifications of its
tax status so as to avoid otherwise applicable withholding requirements.
IV.9.. No Deficit Restoration by MembersNo Deficit Restoration by
Members. No Member shall be required to contribute capital to the Company to
restore a deficit balance in its General Capital Account upon liquidation or
otherwise, except for an excess distribution to the extent such excess
distribution was the result of a clerical or other similar error.
IV.10. Tax Matters PartnerTax Matters Partner.
..................(a) PDP shall serve as the initial "Tax Matters Partner"
of the Company for purposes of Section 6231(a)(7) of the Code and
corresponding provisions of any applicable state tax law. PDP may at any
time hereafter, upon five (5) days prior written notice to the other Members,
designate a new Tax Matters Partner, which may be an Affiliate of PDP;
provided, however, that only a Member may be designated as the Tax Matters
Partner of the Company. Each Member hereby consents to PDP's designation of
any such Member as Tax Matters Partner. The Tax Matters Partner shall have
all the powers and duties assigned thereto under Sections 6221-6232 of the
Code and the Treasury Regulations thereunder, provided that the Tax Matters
Partner shall not take or initiate any action or proceeding in any court,
extend
any statute of limitations, or take any other action contemplated by
Sections 6222 through 6232 of the Code that would legally bind any other Member
of the Company or make any material election, report or filing without notice to
the Members. The Members agree to perform all acts necessary under Section 6231
of the Code and the Treasury Regulations thereunder to designate PDP (or any
other Member designated by PDP) as Tax Matters Partner. With respect to federal,
state and local tax matters, the Tax Matters Partner shall have the authority to
act, elect, report and exercise its discretion with respect to Company tax
matters only with notice to each Member. Any action taken by the Tax Matters
Partner pursuant hereto or in accordance with its power to make allocations,
elections and other tax decisions under Sections 7.05, 7.12, 7.13 or 7.14 hereof
shall be made as a fiduciary for the interest of all Members notwithstanding any
other provision contained herein.
..................(b) The Tax Matters Partner shall, at the expense of the
Company, cause to be prepared and filed all tax returns (including amended
returns) required to be filed by the Company and such preparation and filing
shall be made as a fiduciary for the interest of all Members notwithstanding any
other provision contained herein.
..................(c) The Tax Matters Partner shall promptly furnish the
Secretary of the Treasury, or his delegate, the name and address of each
Member and any other required information in a manner that entitles such
Member to notice with respect to administrative
proceedings involving the Company under Section 6223(a) of the Code and
shall provide similar information to any foreign or state tax authority if and
to the extent required or permitted so as to provide similar benefits to the
Members under any provision of foreign or state law or with respect to the
administrative practice of any such tax authority.
IV.11. Aggregate PaymentsAggregate Payments. Notwithstanding
anything contained in this Agreement or in the Put/Call Agreements to the
contrary, it is acknowledged and agreed by all Members (including New Members)
that in no event shall PDP be required to pay in the aggregate with respect to
its purchase of all the Class A Shares pursuant to the Put/Call Agreements and
the payment of all Equity Bonus Payments, whether directly or indirectly to the
Management Members or indirectly through one or more Capital Contributions to
the Company under Section 4.12(h) hereof, an amount in excess of the sum of the
products, as of each date upon which a put option or call option is exercised
thereunder, of (i) the Fair Market Value of the Company (as defined in the
Put/Call Agreements) determined for purposes of such exercise and (ii) the
Management Percentage and (iii) a fraction, the numerator of which is the total
number of Class A Shares being put or called, as applicable, on such date and
the denominator of which is the sum of the number of Class A Shares held by all
of the Management Members on the Effective Date and the number of additional
Class A Shares authorized by the Company for issuance after the Effective Date.
PDP hereby acknowledges and agrees that the aggregate of all Holder's Put/Call
Prices (as defined in the Put/Call Agreements) with respect to all Class A
Shares plus the aggregate payment by PDP of all Equity Bonus Payments, whether
directly or indirectly to the Management Members or indirectly through one or
more Capital Contributions to the Company under Section 4.12(h) hereof, shall
equal the sum of the products set forth in the preceding sentence. In the event
that the Holders' Put/Call Prices (as defined in the Put/Call Agreements) under
the Put/Call Agreements would give rise to a final payment by PDP such that such
final payment, together with all prior payments by PDP of the Holders' Put/Call
Price under the Put/Call Agreements and all payments by PDP, directly or
indirectly, of Equity Bonus Payments would in the aggregate exceed the payment
contemplated by this Section 7.11, an equitable adjustment shall be made to
payments under the Put/Call Agreements to reduce all such payments (including
prior payments) to the amount determined under this Section 7.11; provided,
however, that such adjustment shall require prior Special Membership Approval
(which shall not be unreasonably withheld); provided, further, however, that in
the event such adjustment does not receive Special Membership Approval prior to
the date payment would otherwise be due under the Put/Call Agreements, the
amount of such adjustment shall be submitted to "Neutral Accountants" as
contemplated by the procedures set forth in Section 4 of the Put/Call
Agreements, with the resulting determination being binding upon all parties; and
upon determination of the aggregate adjustment amount by the Neutral
Accountants, PDP may deposit, in an interest-bearing segregated account (in a
bank in San Francisco, California having a combined capital and surplus of at
least $50 million) for the benefit of all Management Members holding Class A
Shares, an amount equal to the unpaid portion of the aggregate payments
contemplated by this Section 7.11, whereupon PDP shall be deemed to have
acquired all the remaining Class A Shares held by all of the Management Members.
The allocation of such equitable adjustment and such deposit among the
Management Members shall be determined promptly (and in any event within thirty
(30) days) by a vote of two-thirds (in interest) of such Management Members and,
if not so determined within such period, then promptly in accordance with the
procedures for employing "Neutral Accountants" as set forth in Section 4 of the
Put/Call Agreements, with the resulting resolution being binding upon all
parties.
IV.12. Special AllocationsSpecial Allocations. The following
special allocations shall be made in the following order:
..................(a) LLC Minimum Gain Chargeback. Notwithstanding any
other provision of this Article VII, in the event there is a net decrease in
LLC Minimum Gain during any Fiscal Year, the Members shall be allocated items
of income and gain in accordance with Treasury Regulations Section
1.704-2(f). For purposes of this Article VII, the term "LLC Minimum Gain"
shall have the same meaning as that for partnership minimum gain set forth in
Treasury Regulations Section 1.704-2(b)(2), and any Member's share of LLC
Minimum Gain shall be determined in accordance with Treasury Regulations
Section 1.704-2(g)(1). This Section 7.12(a) is intended to comply with the
minimum gain chargeback requirement of Treasury Regulations Section
1.704-2(f) and shall be interpreted and applied in a manner consistent
therewith.
..................(b) Member Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2(i)(4), notwithstanding any
other provision of this Article
VII, if there is a net decrease in Member Nonrecourse Debt Minimum Gain
attributable to a Member Nonrecourse Debt during any Fiscal Year, each Member
who has a share of the Member Nonrecourse Debt Minimum Gain attributable to such
Member Nonrecourse Debt, determined in accordance with Treasury Regulations
Section 1.704-2(i)(5), shall be specially allocated items of Company income and
gain for such Fiscal Year (and, if necessary, subsequent Fiscal Years) in an
amount equal to such Member's share of the net decrease in Member Nonrecourse
Debt Minimum Gain attributable to such Member Nonrecourse Debt determined in
accordance with Treasury Regulations Section 1.704-2(i)(4). Allocations pursuant
to the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be so
allocated shall be determined in accordance with Treasury Regulations Sections
1.704-2(i)(4) and 1.704-2(j)(2). The term "Member Nonrecourse Debt Minimum Gain"
means an amount, with respect to each Member Nonrecourse Debt, equal to the LLC
Minimum Gain that would result if such Member Nonrecourse Debt were treated as a
nonrecourse liability, determined in accordance with Treasury Regulations
Section 1.704-2(i)(3). This Section 7.12(b) is intended to comply with the
minimum gain chargeback requirement in Treasury Regulations Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
..................(c) Qualified Income Offset. Any Member who
unexpectedly receives an adjustment, allocation or distribution described in
Treasury Regulations Section l.704-l(b)(2)(ii)(d)(4), (5) or (6) shall be
allocated items of income and gain in an amount and manner sufficient to
eliminate, to the extent required by the Treasury Regulations, the deficit
General Capital Account balance as quickly as possible. This Section 7.12(c)
is intended to comply with the alternate test for economic effect set forth
in Treasury Regulations Section l.704-l(b)(2)(ii)(d) and shall be interpreted
and applied in a manner consistent therewith.
..................(d) Gross Income Allocation. In the event any Member
has a deficit General Capital Account at the end of any year which is in
excess of the sum of (i) the amount such Member is obligated to restore
pursuant to any provision of this Agreement and (ii) the amount such Member
is deemed to be obligated to restore pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such
Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 7.12(d) shall be made only if and to the extent that
such Member would have a deficit General Capital Account in excess of such
sum after all other allocations provided for in Sections 7.04 and 7.12 have
been tentatively made as if Section 7.12(c) and this Section 7.12(d) were not
in this Agreement.
..................(e) Nonrecourse Deductions. Nonrecourse Deductions
shall be allocated among the Members in the same way that Net Property Loss
is allocated under Section 7.04(b). For purposes of this Section 7.12(e),
the term "Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(1).
..................(f) Member Nonrecourse Deductions. Notwithstanding any
other provisions of this Article 7, to the extent required by Treasury
Regulations Section 1.704-2(i), any items of income, gain, deduction and loss
of the Company that are attributable to a nonrecourse debt of the Company
that constitutes Member Nonrecourse Debt (including chargebacks of Member
Nonrecourse Debt Minimum Gain) shall be allocated in accordance with the
provisions of Treasury Regulations Section 1.704-2(i). For purposes of this
Article VII, the term "Member Nonrecourse Debt" shall have the meaning for
partner nonrecourse debt set forth in Treasury Regulations Section
1.704-2(b)(4).
..................(g) Allocations Relating to Taxable Issuance of Shares.
Any income, gain, loss, or deduction realized as a direct or indirect result
of the issuance of Shares by the Company to a Member (the "Issuance Items")
shall be allocated among the Members so that, to the extent possible, the net
amount of such Issuance Items, together with all other allocations under this
Agreement to each Member, shall be equal to the net amount that would have
been allocated to each such Member if the Issuance Items had not been
realized.
IV.13. Curative AllocationsCurative Allocations. The allocations set
forth in Sections 7.12(a), 7.12(b), 7.12(c), 7.12(d), 7.12(e), 7.12(f) and 7.14
hereof (the "Regulatory Allocations") are intended to comply with the
requirements of Treasury Regulations Sections 1.704-1(b) and 1.704-2.
Notwithstanding any other provisions of this Article VII (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into account
in allocating other items of income, gain, deduction and loss among the Members
so that, to the extent possible, the net amount of such allocations of other
items and the Regulatory Allocations to each Member shall be equal to the net
amount that would have been allocated to each such Member if the Regulatory
Allocations had not occurred. This Section 7.13 shall be interpreted and applied
in such a manner and to such extent as is reasonably necessary to eliminate, as
quickly as possible, permanent economic distortions that would otherwise occur
as a consequence of the Regulatory Allocations in the absence of this Section
7.13.
IV.14. Loss LimitationLoss Limitation. Any Net Loss, Net Property
Loss and deductions attributable to Equity Bonus Payments that are allocated
pursuant to Section 7.04 hereof shall not exceed the maximum amount of such
losses and deductions that can be allocated without causing or increasing a
deficit balance in any Member's General Capital Account (in excess of such
Member's obligation to restore a deficit in its General Capital Account,
including any deemed obligation pursuant to the penultimate sentences of
Treasury Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)). In the event
that some but not all of the Members would have deficit balances in their
General Capital Accounts as a consequence of allocations pursuant to Section
7.04 hereof in excess of the amount, if any, permitted under the preceding
sentence, the limitation set forth in this Section 7.14 shall be applied on a
Member by Member basis, and any losses or deductions not allocable to any Member
as a result of this limitation shall be allocated to the other Members in
proportion to the positive balances of such Members' General Capital Accounts so
as to allocate the maximum amount of such losses and deductions to each Member
under Treasury Regulations Section 1.704-1(b)(2)(ii)(d). In making the foregoing
determination, a Member's General Capital Account shall be reduced by the
amounts described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5),
or (6).
TRANSFER OF SHARES BY MEMBERSMEMBERS
V.1... Restrictions on Transfers.Restrictions on Transfers. No
Shares of the Company may be Transferred, nor may any Member offer to Transfer,
and no Transfer by a Member shall be binding upon the Company or any Member
unless it is expressly permitted by this Article VIII and the Company receives
an executed copy of the documents effecting such Transfer, which shall be in
form and substance reasonably satisfactory to the President. The assignee of
Shares in the Company may become a substitute Member only upon the terms and
conditions set forth in Section 8.02 hereof. If a Transferee of Shares does not
become (and until any such Transferee becomes) a substitute Member, in
accordance with the provisions of Section 8.02 hereof, such Person shall not be
entitled to exercise or receive any of the rights, powers or benefits of a
Member other than the right to receive distributions which the assigning Member
has Transferred to such Person. No Shares of the Company may be Transferred
except:
..................(a) with the prior written consent of the Company, which
consent may be granted or withheld in the President's sole discretion (unless
the Transferor is a Phoenix Member, in which case, the President's consent
shall not be unreasonably withheld);
..................(b) upon the death of a Management Member, his or her
Class A Shares may be Transferred by will or the laws of descent and
distribution (subject, in all cases, to the provisions of Section 9.03
hereof);
..................(c) a Management Member may Transfer all or any portion
of his or her Class A Shares pursuant to an Exercise of the Put/Call;
..................(d) a Management Member may Transfer all or any portion
of his or her Equity Bonus Shares to the Company upon an Equity Bonus Payment
to such Management Member; and
..................(e) a Management Member may Transfer any or all of his
or her Shares to the Company upon forfeiture thereof pursuant to Section 9.02
hereof;
provided, however, that in the case of (a) or (b) above, the Transferee
enters into an agreement with the Company agreeing to be bound by the provisions
hereof to the same extent they would be if the Transferred Shares were held by
such Management Member. Upon any Transfer of Shares, the Company shall make the
appropriate revisions to the Share Schedule.
No Shares of a Member in the Company may be pledged, hypothecated,
optioned or encumbered, nor may any offer to do any of the foregoing be made.
V.2... Substitute MembersSubstitute Members. No Transferee of Shares
shall become a Member except in accordance with this Section 8.02. The Company
may admit as a substitute Member (with respect to all or a portion of the Shares
held by a Person), any Person that acquires a Share by Transfer from any Member
pursuant to Section 8.01 hereof, but only with the consent of the
non-Transferring Members holding at least a majority of the Outstanding Class A
Shares and Class B Shares (on a combined basis) held by such Members; provided,
however, that the Company may admit a Transferee as a substitute Member without
the foregoing consent of the Members if tax counsel to the Company opines that
the Company will continue to be treated as a partnership for federal and state
income tax purposes without any such consent upon such admission. The admission
of an assignee as a substitute Member shall, in all events, be conditioned upon
the execution of an instrument satisfactory to the President whereby such
assignee becomes a party to this Agreement as a Member. Upon the admission of a
substitute Member, the Company shall make the appropriate revisions to the Share
Schedule.
V.3... Allocation of Distributions Between Assignor and
AssigneeAllocation of Distributions Between Assignor and Assignee. Upon the
Transfer of Shares pursuant to Section 8.01(a) or 8.01(b), distributions
pursuant to Article VII shall be made to the Person owning such Shares at the
date of distribution, unless the assignor and assignee otherwise agree and so
direct the Company in a written statement signed by both the assignor and
assignee. Upon the Transfer of Shares pursuant to Section 8.01(c), the
Management Member's allocable but as yet undistributed share (based on total
Class A Shares so Transferred) of Company profits and losses with respect to the
Fiscal Year during which the Transfer occurred through the effective date of
such Transfer shall be distributed to such Management Member no later than
ninety (90) days after the end of the Fiscal Year during which such Transfer
occurred. In connection with a Transfer by a Member of Shares, the assignee
shall succeed to a pro-rata (based on the percentage of such Person's Shares
Transferred) portion of the assignor's General Capital Account with respect to
such Shares in accordance with Section 7.02(c) hereof, unless the assignor and
assignee otherwise agree and so direct the Company in a written statement signed
by both the assignor and assignee and consented to by the President.
V.4... Additional RequirementsAdditional Requirements. As additional
conditions to the validity of any Transfer of Shares pursuant to this Article
VIII, such Transfer shall not: (i) violate the registration provisions of the
Securities Act or the securities laws of any applicable jurisdiction, (ii) cause
the Company to become subject to regulation as an "investment company" under the
Investment Company Act, and the rules and regulations of the SEC thereunder,
(iii) result in the termination of any contract to which the Company is a party
and which individually or in the aggregate are material (it being understood and
agreed that any contract pursuant to which the Company provides Investment
Management Services is material), or (iv) result in the treatment of the Company
as an association taxable as a corporation or as a "publicly traded partnership"
for federal income tax purposes. The Company may require reasonable evidence as
to the foregoing, including, without limitation, a favorable opinion of counsel,
which expense shall be borne by the parties to such transaction. To the fullest
extent permitted by law, any Transfer that violates the conditions of this
Section 8.04 shall be null and void.
WITHDRAWAL AND TERMINATIONINATION
VI.1.. Withdrawal. Withdrawal. No Member shall have any right to
resign or withdraw as a Member of the Company (except upon Transfer of Shares
pursuant to Sections 8.01(b), (c), (d) or (e) hereof) without the consent of the
Company, and no Member shall have any right to receive any repayment of its
Capital Contribution except as provided in Section 7.01(b) hereof upon certain
distributions, Section 9.03 hereof upon death of a Management Member and Article
X hereof upon liquidation and distribution of the Company. If a permitted
withdrawal would leave the Company with less than two (2) Members, an additional
Member shall be admitted before the withdrawal is effective, so that there shall
always be at least two (2) Members of the Company. Except to the extent
expressly provided in this Agreement, no Member shall have any right to have its
interest in the Company appraised or paid out upon the resignation or withdrawal
of such Member or any other circumstances.
VI.2.. Termination of EmploymentTermination of Employment.
..................(a) Upon the termination of employment with the Company of any
Management Member, which termination is either voluntary by such Management
Member (other than termination for Good Reason or termination of Harold Nathan
by retirement as contemplated in Section 9.02(d)) or for Cause by the Company,
such Management Member (or such Management Member's permitted Transferee
pursuant to Section 8.01 hereof, in the discretion of the President) shall be
deemed to have automatically forfeited any and all rights in and to (i) any
unvested Class A Shares then held by such Management Member (including the
portion of such Member's General Capital Account with respect to such Shares
determined in accordance with Section 7.02(b) hereof); and (ii) any Equity Bonus
Shares then held by such Member and, as a result, all of such Member's Equity
Bonus Payment as set forth in Section 4.12(f) (and including all of such
Member's Equity Bonus Account), all without any payment therefor (provided that
such Management Member shall receive, no later than ninety (90) days after the
end of the Fiscal Year during which such Management Member's termination of
employment occurred, his or her allocable but as yet undistributed share (based
on total Class A Shares held prior to termination) of Company profits and losses
with respect to the Fiscal Year during which the termination occurred through
the effective date of termination of employment and an amount equal to the sum
of all previously made (but unreturned) Capital Contributions with respect to
such Shares), and without the requirement of any notice from the Company. Any
forfeited Class A Shares or Equity Bonus Shares shall be available to the
Company for reissuance in accordance with Sections 3.02(a) and 4.12(f) hereof,
respectively.
..................(b) Upon the termination of employment with the Company of any
Management Member, which termination is the result of such Management Member's
death, all unvested Class A Shares held by the Management Member shall
automatically have its vesting schedule accelerated and shall be deemed to have
immediately vested prior to the date of such termination, and the estate or
legal representative of such Management Member (or the Transferee of such
Management Member pursuant to Section 8.01(b) hereof) shall continue to be a
Member of the Company with all the rights and obligations of a Member holding
such Shares as set forth herein, including, without limitation, in Section 9.03
hereof. Upon payment by the Company to such Repurchased Member of any Repurchase
Price under Section 9.03 hereof, all Shares held by such Management Member shall
be deemed to have been forfeited. Any forfeited Class A Shares or Equity Bonus
Shares shall be available to the Company for reissuance in accordance with
Sections 3.02(a) and 4.12(c) hereof, respectively.
..................(c) Upon the termination of employment with the Company of any
Management Member (other than Seneca or Little), which termination is the result
of such Management Member's Disability or which termination is without Cause by
the Company or with Good Reason by such Management Member, such Management
Member (or such Management Member's permitted Transferee pursuant to Section
8.01 hereof, in the discretion of the President) shall be deemed to have
automatically forfeited any and all rights in and to (i) fifty percent (50%) of
all unvested Class A Shares then held by such Management Member (including the
portion of such Management Member's General Capital Account with respect to such
Shares determined in accordance with Section 7.02(b) hereof); and (ii) fifty
percent (50%) of all Equity Bonus Shares then held by such Management Member
and, as a result, half of such Management Member's Equity Bonus Payment as set
forth in Section 4.12(f) (and including fifty percent (50%) of such Management
Member's Equity Bonus Account), all without any payment therefor (provided that
such Management Member shall receive, no later than ninety (90) days after the
end of the Fiscal Year during which such Management Member's termination of
employment occurred, its allocable but as yet undistributed share (based on
total Class A Shares held prior to termination) of Company profits and losses
with respect to the Fiscal Year during which the termination occurred through
the effective date of termination of employment and an amount equal to the sum
of all previously made (but unreturned) Capital Contributions with respect to
such Shares) and without the requirement of any notice from the Company. Any
forfeited Class A Shares or Equity Bonus Shares shall be available to the
Company for reissuance in accordance with Sections 3.02(a) and 4.12(f) hereof,
respectively. The remaining fifty percent (50%) of unvested Class A Shares held
by such Management Member shall automatically have its vesting schedule
accelerated and shall be deemed to have immediately vested prior to the date of
such termination. With respect to all vested Shares (including those Shares for
which vesting is accelerated pursuant hereto), such Management Member shall
continue to be a Member of the Company with all the rights and obligations of a
Member holding such Shares as set forth herein.
..................(d) Upon termination of employment with the Company of Harold
Nathan by retirement at any time from and after the age of fifty three and one
half (53 1/2) all unvested Class A Shares held by such Management Member shall
automatically have their vesting schedule accelerated and shall be deemed to
have vested immediately prior to the date of such termination.
VI.3.. Repurchase of SharesRepurchase of Shares. In the event of the
death of any Management Member (together with such Management Member's estate,
legal representative or Transferee pursuant to Section 8.01(b) hereof, the
"Repurchased Member"), the Company shall purchase for cash all of the
Outstanding Shares of the Company held by the Repurchased Member (the
"Repurchased Interest") pursuant to the terms hereof (the "Repurchase").
..................(a) The closing of the Repurchase shall take place on a date
set by the Company, which shall be as soon as reasonably practicable after the
later of (A) one hundred eighty (180) days after the death of such Repurchased
Member or (B) ninety (90) days after the Company has received the proceeds of
all key-man life insurance policies maintained by the Company on the life of
such Repurchased Member (the "Repurchase Closing Date"). The Company shall
provide notice of the Repurchase Closing Date at least ten (10) days prior
thereto.
..................(b) The purchase price for the Repurchase (the "Repurchase
Price") shall be equal to the greater of (i) the sum of (A) the Repurchased
Member's aggregate General Capital Account balance with respect to the
Repurchased Interest as of such death, as adjusted from time to time pursuant to
the terms hereof (calculated as of such date by disregarding solely for these
purposes for all Fiscal Years (i) any adjustments or special allocations to
General Capital Accounts made pursuant to Sections 7.12, 7.13 and 7.14 hereof;
(ii) any distributions made by the Company pursuant to Section 7.06, and (iii)
all items of Company income, gain, loss, deduction or credit, but taking into
account for all Fiscal Years (i) the Net Property Gain or Net Property Loss, as
applicable, resulting from the deemed sale of assets upon each Book Event as
calculated pursuant to Section 7.02(a)(iii) hereof, with such Net Property Gain
or Net Property Loss allocated pursuant to Section 7.04(b) hereof (and, in
calculating such Net Property Gain or Net Property Loss, the book value of the
Company property shall be deemed to be the book value thereof immediately
following the preceding Book Event or, if there is no such preceding Book Event,
the book value thereof as of the Effective Date, so that the Net Property Gain
or Net Property Loss, as applicable, is solely attributable to changes in the
fair market value of Company property (as defined in Section 7.02(a)(iii)
hereof) over the period such Net Property Gain or Net Property Loss is
calculated), (ii) the adjustments to General Capital Accounts pursuant to
Section 7.02(a)(i) and 7.02(d) and (iii) any reallocation of General Capital
Account balances resulting from a transfer or forfeiture of Class A Shares),
plus (B) the Equity Bonus Payment with respect to such Repurchased Member and
(ii) if such Management Member was a Management Member as of the Effective Date,
the product of the Management Percentage and the Initial Enterprise Value and a
fraction, the numerator of which is the difference between (x) the number of
Outstanding Class A Shares held by such Management Member as of the Effective
Date minus (y) the number of Class A Shares forfeited or otherwise Transferred
by such Management Member prior to the date of such Management Member's death
and the denominator of which is the total number of Outstanding Class A Shares
of the Company held by the Management Members as of the Effective Date (which
product includes by its definition the Equity Bonus Payment with respect to such
Repurchased Member).
..................(c) The rights and obligations of the Company hereunder are in
addition to and shall not affect any other rights or obligations which the
Company or other Persons may otherwise have to repurchase or purchase Shares
(including, without limitation, pursuant to any agreement entered into by a
Management Member which provides for the vesting of Shares or such Management
Member's Put/Call Agreement).
..................(d) On the Repurchase Closing Date, the Company shall pay to
the Repurchased Member the Repurchase Price for the Shares repurchased in the
manner set forth in this Section 9.03, and upon such payment, the Repurchased
Member shall cease to hold any Shares, and such Repurchased Member shall be
deemed to have withdrawn from the Company and shall cease to be a Member of the
Company and shall no longer have any rights hereunder (provided that such
Management Member shall receive, no later than ninety (90) days after the end of
the Fiscal Year during which such Management Member's termination of employment
occurred, its allocable but as yet undistributed share (based on total Class A
Shares held prior to termination) of Company profits and losses with respect to
the Fiscal Year during which the termination occurred through the effective date
of termination of employment. On the Repurchase Closing Date, the Repurchased
Member and the Company shall execute an agreement reasonably acceptable to the
President, in which the Repurchased Member represents and warrants to the
Company that it has sole record and beneficial title to the Repurchased
Interest, free and clear of any liens, encumbrances or restrictions other than
those imposed by this Agreement. Payment of the Repurchase Price shall be made
on the Repurchase Closing Date by wire transfer of immediately available funds
to an account designated by the Repurchased Member at least three (3) business
days prior to the Repurchase Closing Date.
VI.4.. Acknowledgment of Limitations on Withdrawal and Forfeiture of
SharesAcknowledgment of Limitations on Withdrawal and Forfeiture of Shares. IN
CONSIDERATION OF THE COMPANY'S ISSUANCE OF SHARES TO EACH MEMBER, EACH MEMBER
AGREES THAT (A) HE OR SHE DOES NOT HAVE ANY RIGHTS TO RESIGN OR WITHDRAW AS A
MEMBER OF THE COMPANY EXCEPT AS SPECIFICALLY PROVIDED HEREIN AND (B) HIS OR HER
RIGHTS WITH RESPECT TO CERTAIN SHARES HELD BY HIM OR HER, RESPECTIVELY, ARE
SUBJECT TO FORFEITURE UNDER CERTAIN CIRCUMSTANCES AS PROVIDED HEREIN. EACH
MEMBER ACKNOWLEDGES THAT SUCH PROVISIONS REGARDING WITHDRAWAL OF SUCH MEMBER AND
FORFEITURE OF SUCH MEMBER'S SHARES ARE EACH REASONABLE UNDER THE CIRCUMSTANCES
EXISTING AS OF THE EFFECTIVE DATE.
VII - DISSOLUTION AND
LIQUIDATION DISSOLUTION AND LIQUIDATION
VII.1. No DissolutionNo Dissolution. Except as set forth in Section
10.02 below, the Company shall not be dissolved and its affairs shall not be
wound up by the admission of additional Members or the death, withdrawal,
resignation, expulsion, Bankruptcy or dissolution of any Member, and the Company
shall continue to exist in perpetuity.
VII.2. Events Causing DissolutionEvents Causing Dissolution. The
Company shall be dissolved and its affairs wound up upon the occurrence of
any of the following events:
..................(a) Special Membership Approval thereof until
December 31, 2001 and, thereafter, Membership Approval thereof;
..................(b) Bankruptcy of PDP, unless the Company is continued
by the consent of not less than a majority in interest (defined as a majority
of the profit, interests and capital interests in the Company) of the
remaining Members, given within ninety (90) days following such event; or
..................(c) the entry of a decree of judicial dissolution under
Section 17351 of the Act.
Notwithstanding the foregoing, the Company shall not be dissolved
upon the event specified in Section 10.02(b) hereof if tax counsel to the
Company opines that the Company will be treated as a partnership for federal and
state income tax purposes without a dissolution of the Company upon such event.
VII.3. Notice of DissolutionNotice of Dissolution. Upon the
dissolution of the Company, PDP or the other Person or Persons (the "Liquidating
Trustee") named by PDP and approved by Special Membership Approval to carry out
the winding up of the Company, shall promptly notify the Members of such
dissolution. The Liquidating Trustee shall be empowered to give and receive
notices, reports and payments in connection with the dissolution and termination
of the Company, and to hold and exercise such other powers as are necessary to
permit all parties to deal exclusively with the Liquidating Trustee in
connection with the dissolution and termination of the Company.
VII.4. LiquidationLiquidation. Upon dissolution of the Company, the
Liquidating Trustee shall proceed diligently to liquidate the Company and wind
up its affairs and to make final distributions as provided in Section 7.07
hereof and in the Act. The costs of dissolution and liquidation shall be borne
as an expense of the Company. Until final distribution, the Liquidating Trustee
shall continue to operate the Company properties with all of the power and
authority of the President of the Company. As promptly as possible after
dissolution and again after final liquidation, the Liquidating Trustee shall
cause an accounting to be made by a firm of independent public accountants of
the Company's assets, liabilities and operations.
VII.5. Certificate of CancellationCertificate of Cancellation. On
completion of the distribution of Company assets as provided herein, the Company
shall be terminated, and the Liquidating Trustee (or such other Person or
Persons as the Act may require or permit) shall file a Certificate of
Dissolution with the Secretary of State of the State of California under the
Act, cancel any other filings made pursuant to Sections 2.01 and 2.04, and take
such other actions as may be necessary to terminate the existence of the
Company.
GENERAL PROVISIONSAL PROVISIONS
VIII.1 OffsetOffset. Whenever the Company is to pay any sum to any
Member, any amounts that Member owes to the Company may be deducted from that
sum before payment.
VIII.2 NoticesNotices. Except as expressly set forth to the contrary
in this Agreement, all notices, requests or consents provided for or permitted
to be given under this Agreement must be in writing and shall be given either by
registered or certified mail, addressed to the recipient, with return receipt
requested, or by delivering the writing to the recipient in person, by courier,
or by facsimile transmission; and a notice, request, or consent given under this
Agreement is effective upon receipt or three (3) days after the date mailed,
whichever is sooner. All notices, requests and consents to be given to a Member
must be sent to or delivered at the addresses given for that Member on Schedule
A, or such other address as that Member may specify by written notice to the
other Members and the Company. Any notice, request or consent to be given to the
Company must be sent to or delivered at the address of the principal office of
Company specified in accordance with Section 2.03 hereof to the attention of the
President and to PDP at the address set forth on Schedule A attached hereto.
Whenever any notice is required to be given by law, the Certificate or this
Agreement, a written waiver thereof, signed by the Person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
VIII.3 Entire AgreementEntire Agreement. This Agreement, the
Purchase Agreement, the Put/Call Agreements and all other agreements referred to
herein or therein, dated as of the date of the Purchase Agreement or as of the
Effective Date, constitute the entire agreement of the Members relating to the
Company and supersede all prior contracts or agreements with respect to the
Company, whether oral or written. This Agreement supersedes and replaces all
Phantom Profits Bonus Agreements entered into by and between any Member and
either the Company or the Partnership prior to the date hereof, and all
provisions of such agreements shall be null and void and shall cease to have any
effect whatsoever.
VIII.4 Limitation of Litigation; Consent to JurisdictionLimitation
of Litigation; Consent to Jurisdiction. No Member shall be entitled to initiate
or participate in a class action suit on behalf of all or any part of the
Members against the Company or any other Member, and no Member shall be entitled
to initiate or participate in a derivative suit on behalf of the Company against
any Member, unless, in each case, such action or suit has received prior Special
Membership Approval, or unless otherwise required by law. A Member who initiates
a class action or derivative suit in violation of this Agreement shall be liable
to the Company and any Members who are defendant parties to the action or suit
for all damages and expenses which they incur as a result, including without
limitation reasonable fees and expenses of legal counsel and expert witnesses
and court costs. The parties to this Agreement hereby consent to the
non-exclusive jurisdiction of the courts of the State of California in
connection with any matter or dispute arising under this Agreement or between
them regarding the affairs of the Company.
VIII.5 Amendment or ModificationAmendment or Modification. This
Agreement may be amended or modified from time to time only by a written
instrument signed by those Members required to evidence Special Membership
Approval thereof; provided, however, that (a) an amendment or modification
changing adversely the rights of a Member with respect to distributions,
allocations or voting (on a basis that is disproportionate to any adverse
changes effected with respect to the rights of other Members holding Shares of
the same class) shall be effective only with that Member's consent (unless such
change is expressly provided by this Agreement), (b) an amendment or a
modification increasing any liability of a Member to the Company or the other
Members, or adversely affecting the limitation of the liability of a Member with
respect to the Company, shall be effective only with that Member's consent, and
(c) an amendment or modification reducing the required percentage of Shares for
any consent or vote in this Agreement shall be effective only with the consent
or vote of Members having the percentage of Shares theretofore required. Copies
of each amendment of this Agreement shall be delivered to each Member no later
than the effective date of such amendment. Nothing contained in this Agreement
shall permit the amendment of this Agreement to impair the exemption from
personal liability of the Members, Officers, employees and agents of the Company
or to permit assessments upon the Members.
VIII.6 Binding EffectBinding Effect. Subject to the restrictions on
Transfers set forth in this Agreement, this Agreement is binding on and inures
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
VIII.7 Governing Law; SeverabilityGoverning Law; Severability. This
Agreement is governed by and shall be construed in accordance with the laws of
the State of California, exclusive of its conflict-of-laws principles. In the
event of a direct conflict between the provisions of this Agreement and any
provision of the Articles of Organization, or any mandatory provision of the
Act, the applicable provision of the Articles of Organization or the Act shall
control. If any provision of this Agreement or the application thereof to any
Person or circumstance is held invalid or unenforceable to any extent, the
remainder of this Agreement and the application of that provision shall be
enforced to the fullest extent permitted by law.
VIII.8 Further AssurancesFurther Assurances. In connection with this
Agreement and the transactions contemplated hereby, each Member shall execute
and deliver any additional documents and instruments and perform any additional
acts that may be necessary or appropriate to effectuate and perform the
provisions of this Agreement and those transactions, as requested by the
Company.
VIII.9 Waiver of Certain RightsWaiver of Certain Rights. Each Member
irrevocably waives any right it may have to maintain any action for dissolution
of the Company or for partition of the property of the Company.
VIII.10 Failure to Pursue RemediesFailure to Pursue Remedies. The
failure of any party to seek redress for violation of, or to insist upon the
strict performance of, any provision of this Agreement shall not prevent a
subsequent act, which would have originally constituted a violation, from having
the effect of any original violation.
VIII.11 Cumulative RemediesCumulative Remedies. The rights and
remedies provided by this Agreement are cumulative and the use of any one right
or remedy by any party shall not preclude or waive its right to use any or all
other remedies. Said rights and remedies are given in addition to any other
right the parties may have by law, statute, ordinance or otherwise.
VIII.12 Notice to Members of Provisions of this AgreementNotice to
Members of Provisions of this Agreement. By executing this Agreement, each
Member acknowledges that such Member has actual notice of (a) all of the
provisions of this Agreement, including, without limitation, the restrictions on
the Transfer of Shares set forth in Article VIII, the provisions with respect to
withdrawal and forfeiture set forth in Article IX and the limitations on
participation of Members in the management of the Company set forth in Article
IV, and (b) all of the provisions of the Articles of Organization. Each Member
hereby agrees that this Agreement constitutes adequate notice of all such
provisions, and each Member hereby waives any requirement that any further
notice thereunder be given.
VIII.13 InterpretationInterpretation. For the purposes of this
Agreement, terms not defined in this Agreement shall be defined as provided in
the Act; and all nouns, pronouns and verbs used in this Agreement shall be
construed as masculine, feminine, neuter, singular, or plural, whichever shall
be applicable. Titles or captions of Articles and Sections contained in this
Agreement are inserted as a matter of convenience and for reference, and in no
way define, limit, extend or describe the scope of this Agreement or the intent
of any provision hereof.
VIII.14 CounterpartsCounterparts. This Agreement may be executed in
any number of counterparts with the same effect as if all signing parties had
signed the same document, and all counterparts shall be construed together and
shall constitute the same instrument.
[Remainder of page intentionally
left blank]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date set forth above.
COMPANY: SENECA CAPITAL MANAGEMENT LLC
By: /s/ Gail P. Seneca
Name: Gail P. Seneca
Title:President/Chief Executive Officer/Chief Investment Officer
PHOENIX MEMBERS:PHOENIX DUFF & PHELPS CORPORATION
By:
Name:
Title:
MANAGEMENT MEMBERS:
/s/ Gail P. Seneca
Gail P. Seneca
/s/ Richard D. Little
Richard D. Little
/s/ Ron K. Jacks
Ron K. Jacks
/s/ Charles Dicke
Charles Dicke
/s/ Laura Pantaleo
Laura Pantaleo
/s/ Janice Diamond
Janice Diamond
/s/ Sandta Westoff
Sandra Westhoff
/s/ Belinda Melton
Belinda Melton
/s/ Harold Nathan
Harold Nathan
SENECA CAPITAL MANAGEMENT LLC
SCHEDULE A
SHARE SCHEDULE
[OMITTED]
SENECA CAPITAL MANAGEMENT LLC
SCHEDULE B
OTHER OFFICERS
_________, 1997
Richard D. Little, Director of Equities
Ron K. Jacks, Equity Portfolio Manager
Charles Dicke, Fixed Income Portfolio Manager
Laura Pantaleo, Equity Analyst
Janice Diamond, Fixed Income Analyst
Sandra Westhoff, Chief Operating Officer
Belinda Melton, Managing Director
Harold Nathan, Senior Portfolio Manager
Thomas N. Steenburg, Esq., Secretary, General Counsel and
Compliance Officer
EXHIBIT 10(oo) EXHIBIT B
FORM OF
PUT/CALL AGREEMENT
This PUT/CALL AGREEMENT (this "Agreement") is made as of ______________,
1997 by and between PHOENIX DUFF & PHELPS CORPORATION, a Delaware corporation
(the "Buyer"), and _________________ (the "Holder") and is acknowledged and
agreed to by Seneca Capital Management LLC, a California limited liability
company (formerly known as GMG/Seneca Capital Management LLC) (the "Company").
W I T N E S S E T H:
WHEREAS, the Buyer and certain persons, [including the Holder] (the
"Sellers"), have entered into a purchase agreement dated as of June __, 1997
(the "Purchase Agreement"), pursuant to which the Buyer is purchasing from the
Sellers in the aggregate 74.9% of the outstanding membership interests of the
Company, and 74.9% of the outstanding partnership interests of GMG/Seneca
Capital Management L.P., a California limited partnership (the "Partnership");
WHEREAS, effective upon such purchase by the Buyer of membership interests
in the Company, certain of the Sellers have withdrawn as Members of the Company,
and the Buyer, the Holder and the other Management Members have continued the
Company as a limited liability company pursuant to the Second Amended and
Restated Operating Agreement by and between the Company, the Phoenix Members,
the Management Members and those Persons who become Members of the Company in
accordance with the provisions thereof, dated as of the Effective Date (the
"Operating Agreement"); and
WHEREAS, the Management Members have agreed to transfer their remaining
interests in the Partnership to the Company pursuant to the Support Agreement
dated as of the date of the Purchase Agreement; and
WHEREAS, the Buyer is entering into this Agreement with the Holder and is
entering into substantially similar put/call agreements (each, a "Put/Call
Agreement") with the other Management Members (collectively with the Holder, the
"Holders"), as contemplated by the Purchase Agreement and the Operating
Agreement, in order to set forth certain rights, obligations and options
relating to the Shares in the Company held by each Holder.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound thereby, the
parties hereto hereby agree as follows.
I.1 Definitions. All capitalized terms used but not otherwise
defined in this Agreement shall have the meanings ascribed to such terms in the
Operating Agreement.
"Accelerated Call Event" means the termination of employment of the
Holder either by the Company with Cause or by the Holder without Good Reason
{(other than upon the retirement of such Holder at any time from and after the
age of fifty three and one half (53 1/2))}. {bracketed item is ONLY included in
Nathan's Put/Call Agreement}
"Accelerated Put Event" means [(a) the death or Disability of
Seneca, (b) the termination of Seneca's employment by the Company without Cause
or by Seneca with Good Reason,] [ bracketed items are not included in Seneca's
Put/Call Agreement] (c) the consummation of any Change in Control of the Phoenix
Members or any other Extraordinary Event, (d) the Disability (as defined in the
Employment Agreement of the Holder dated as of the date hereof) of the Holder or
(e) the termination of employment of such Holder by such Holder with Good Reason
or by the Company without Cause.
"Call Notice" means the written notice given pursuant to Section 3
of this Agreement by the Buyer to the Holder of the Buyer's exercise of its
option to purchase all or a portion of the Holder's Class A Shares.
"Contract Year" means (a) the Fiscal Years of the Company ending on
December 31, 1999, 2000 and 2001, respectively, or (b) upon the occurrence of an
Accelerated Call Event or an Accelerated Put Event, the twelve (12) month period
ending on the last day of the month immediately preceding such event (or if such
event occurs as of the last business day of a month, then such event shall be
deemed to occur as of the end of the last day of the calendar month in which
such event occurs).
"Fair Market Value of the Company" means the product of (a) the
Management Fee Measurement Amount with respect to the most recently completed
Contract Year, multiplied by (b) three and one half (3.5).
"Holder's Put/Call Percentage" means, as of any date, the product
of (a) an amount equal to (i) the total number of Class A Shares being put or
called, as applicable, from the Holder, divided by (ii) the total number of
Class A Shares held by the Holder as of such date immediately prior to such put
or call, multiplied by (b) one hundred percent (100%).
"Holder's Put/Call Price" means an amount equal to (a) the product
of (i) the Holder's Put/Call Percentage multiplied by (ii) the balance of the
Holder's General Capital Account as of the last day of the applicable Contract
Year (calculated as of such date by disregarding solely for these purposes for
all Fiscal Years (i) any adjustments or special allocations to General Capital
Accounts made pursuant to Sections 7.12, 7.13 and 7.14 of the Operating
Agreement; (ii) any distributions made by the Company pursuant to Section 7.06,
and (iii) all items of Company income, gain, loss, deduction or credit, but
taking into account for all Fiscal Years (i) the net gain or net loss, as
applicable, resulting from the deemed sale of assets upon each Book Event as
calculated pursuant to Section 7.02(a)(iii) of the Operating Agreement, with
such net gain or net loss allocated as "Net Property Gain" or "Net Property
Loss" pursuant to Section 7.04(b) thereof (and, in calculating such net gain or
net loss, the book value of the Company property immediately prior to such
calculation shall be deemed to be the book value thereof immediately following
the preceding Book Event or, if there is no such preceding Book Event, the book
value thereof as of the Effective Date, so that the net gain or net loss, as
applicable, is solely attributable to changes in the fair market value of
Company property (as defined in Section 7.02(a)(iii) of the Operating Agreement)
over the period such net gain or net loss is calculated), (ii) the adjustments
to General Capital Accounts pursuant to Section 7.02(a)(i) and 7.02(d) and (iii)
any reallocation of General Capital Account balances resulting from a transfer
or forfeiture of Class A Shares), and minus (b) the product of (x) one-third of
all amounts paid or payable by all Sellers (as defined in the Purchase
Agreement) (excluding for these purposes payments with respect to
representations and covenants made severally under Article 4 and Sections 5.3,
5.7, 5.22, 7.5, 8.1(b) and 8.4 of the Purchase Agreement) in the aggregate
pursuant to Article 11 of the Purchase Agreement multiplied by (y) a fraction,
the numerator of which is the number of Class A Shares being put or called, as
applicable, which were authorized and issued as of the Effective Date, and the
denominator of which is the total number of Class A Shares held by all
Management Members as of the Effective Date.
"Put/Call Limit" means (i) with respect to the Put/Call Period
relating to the Contract Year ended December 31, 1999, the Holder may not
require the Buyer to purchase, and the Buyer may not purchase, more than twenty
five percent (25%) of the total (vested and unvested) Class A Shares held by the
original Holder as of the Effective Date, and (ii) with respect to the Put/Call
Period relating to the Contract Year ended December 31, 2000, the Holder may not
require the Buyer to purchase, and the Buyer may not purchase, more than an
additional twenty-five percent (25%) of the total (vested and unvested) Class A
Shares held by the original Holder as of the Effective Date.
"Put/Call Period" means the period of sixty (60) days commencing on
the date the Holder's Put/Call Price for the applicable Contract Year is finally
determined in accordance with Section 4 of this Agreement and ending on the
sixtieth (60th) day thereafter; provided, however, that the Put/Call Period with
respect to any Accelerated Put Event under clause (a) or (b) of the definition
thereof shall end on the date that is the later of (a) the end of such sixty
(60) day period or (b) the date that is fifteen (15) days following notice to
the Holder from the Company of the appointment of a replacement for Seneca as
President of the Company.
"Put Notice" means the written notice given pursuant to Section 4
of this Agreement by the Holder to the Buyer of the Holder's exercise of its
option to require the Buyer to purchase all or a portion of the Holder's
remaining Class A Shares.
"Related Equity Bonus Payment" means the product of (a) the Total
Equity Bonus Payments paid or payable to the Holder multiplied by (b) the
Holder's Put/Call Percentage.
I.2 Put Option.
(a) At any time during any Put/Call Period (but not more
frequently than once in any Put/Call Period), the Holder shall have the
irrevocable right and option, by giving the Buyer a Put Notice, to require the
Buyer to purchase all or a portion of the Holder's vested Class A Shares,
subject to the Put/Call Limit (if applicable), for an amount equal to the
Holder's Put/Call Price. Notwithstanding the foregoing, in the event of an
Accelerated Put Event specified in clause [(a), (b) or (c)] [(a) and (b) are not
included in Seneca's Put/Call Agreement] of the definition thereof, the rights
of the Holder hereunder may only be exercised upon either (i) the written
determination by Seneca if she is then the President of the Company or (ii) if
Seneca is not then President of the Company, the affirmative vote or written
consent of Management Members holding not less than fifty percent (50%) of the
then outstanding Class A Shares held by Management Members (excluding, in the
event of the death of Seneca as specified in clause (a) of the definition of an
Accelerated Put Event, Class A Shares held by Seneca or her Transferees upon
death), which written determination, vote or consent sets forth the information
required in a Put Notice described below (a "Management Vote"), and in the event
of a Management Vote permitting the exercise of the Holder's put rights
hereunder, the Holder shall be deemed to have exercised such rights without any
further action or notice on the part of such Holder).
(b) On the date of sale designated in the Put Notice, the
Holder shall sell, assign, convey, transfer and deliver to the Buyer the Class A
Shares being sold, free and clear of all liens, restrictions and encumbrances
(other than those set forth in the Operating Agreement) against payment therefor
by wire transfer to an account in a bank located in the United States designated
by the Holder for such purposes.
(c) The Put Notice (which shall be irrevocable) shall (i)
state the number of Class A Shares and/or fraction thereof being sold in the
aggregate and per Management Member in the event of a put pursuant to a
Management Vote, (ii) designate the date of sale, which date shall be not less
than ten (10) days nor more than twenty (20) days from the effective date of
such Put Notice (provided that such date of sale shall be extended to the extent
necessary to comply promptly with The Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act")), and (iii) state the applicable
Holder's Put/Call Price or, in the event of a put pursuant to a Management Vote,
for each Management Member as determined in accordance with his or her
respective Put/Call Agreement. With respect to an exercise of the Put pursuant
to a Management Vote, delivery to the Buyer by any Management Member of the
applicable written determination, vote or written consent shall constitute a Put
Notice on behalf of the Holder and each of the other Management Members.
I.3 Call Option.
(a) At any time during any Put/Call Period (but not more
frequently than once in any Put/Call Period), the Buyer shall have the
irrevocable right and option, by giving a Call Notice to the Holder, to purchase
all or a portion of the Holder's vested Class A Shares for an amount equal to
the Holder's Put/Call Price for such Put/Call Period.
(b) On the date of purchase designated in the Call Notice, the
Holder shall Transfer and deliver to the Buyer the vested Class A Shares being
purchased, free and clear of all liens, restrictions and encumbrances (other
than those set forth in the Operating Agreement) against payment therefor by
wire transfer to an account in a bank located in the United States designated by
the Holder for such purpose.
(c) The Call Notice (which shall be irrevocable) shall (i)
state the number of Class A Shares and/or fraction thereof being purchased (in
the aggregate and per Management Member in the event of a call other than a call
resulting from an Accelerated Call Event), (ii) designate the date of purchase,
which date shall be not less than ten (10) days nor more than twenty (20) days
from the effective date of such Call Notice (provided that such date of purchase
shall be extended to the extent necessary to comply promptly with the HSR Act),
and (iii) state the applicable Holder's Put/Call Price.
I.4 Determination of Fair Market Value and Holder's Put/Call Price.
Within sixty (60) days after the end of each Contract Year, the Company shall
prepare and deliver to the Buyer and the Holder a statement of the Fair Market
Value of the Company for such Contract Year and the related Holder's Put/Call
Price and any unpaid Related Equity Bonus Payment. Buyer and the Holder shall
have a period of fifteen (15) days after delivery of such statement to present
in writing to the other party any objections the objecting party may have to the
statement of the Fair Market Value of the Company for such Contract Year and the
related Holder's Put/Call Price, which objections shall be set forth in
reasonable detail. If no objections are raised within such fifteen (15) day
period by the Buyer or by any Holder, the calculations of the Fair Market Value
of the Company for such Contract Year and the related Holder's Put/Call Price
shall be deemed accepted and approved by the parties hereto and shall be final,
binding and conclusive upon the parties and be deemed finally determined on such
fifteenth (15th) day (or such earlier date as may be agreed to in writing by the
Buyer and the Holder). If either party shall object in any respect as to the
calculation of the Fair Market Value of the Company for such Contract Year
and/or the related Holder's Put/Call Price, the parties shall use their best
efforts promptly to resolve the matter or matters in disagreement. If the Buyer
and the majority in interest of the objecting Holders under the Put/Call
Agreements resolve the matter or matters in disagreement, the parties shall, in
writing, either confirm or revise the Company's calculations of the Fair Market
Value of the Company for such Contract Year and the related Holder's Put/Call
Price and such calculations shall be final, binding and conclusive upon the
Buyer and all Management Members, whether or not objecting Holders, and shall be
deemed finally determined on the date of such written confirmation or revision.
If the Buyer and the majority in interest of the objecting Holders under the
Put/Call Agreements are unable to resolve the matter or matters in disagreement
within ten (10) days following receipt of written notice from the last objecting
party of such party's objections, then the items in dispute shall be submitted
to a mutually agreed upon "big six" accounting firm (the "Neutral Accountants")
for resolution. Each party shall furnish or cause to be furnished to the Neutral
Accountants such workpapers and other documents and information relating to the
disputed issues as the Neutral Accountants may request and are available to that
party (or its independent public accountants), and each party shall be afforded
the opportunity to present to the Neutral Accountants any material relating to
the determination and to discuss the determination with the Neutral Accountants.
The Neutral Accountants shall be directed to furnish written notice to the
parties of their resolution of any disputed issues referred to them as soon as
practicable but in no event later than twenty (20) days following the referral
of such disputed issues to the Neutral Accountants. The determination by the
Neutral Accountants, as set forth in such notice, shall be final, binding and
conclusive upon the Buyer and all Management Members, whether or not objecting
Holders, on the date of such notice. The fees of the Neutral Accountants, if
required hereunder, shall be borne by whichever of the Buyer and the objecting
Holders whose position as presented to the Neutral Accountants is furthest from
the final determination.
I.5 Equity Bonus Shares. Immediately upon the payment of the
Holder's Put/Call Price as contemplated by this Agreement, to permit the Company
to make any previously unpaid Related Equity Bonus Payment, the Buyer shall make
a capital contribution to the Company in the amount of such unpaid Related
Equity Bonus Payment. The Company shall for these purposes be a third party
beneficiary entitled to enforce this Agreement.
I.6 Representations and Warranties of the Holder. The Holder hereby
represents and warrants to the Buyer as follows:
(a) The Holder has the legal right, power, authority and
capacity to execute and deliver this Agreement, to consummate the transactions
contemplated hereby and to perform the Holder's obligations hereunder.
(b) This Agreement has been duly executed and delivered by the
Holder and is a legal, valid and binding obligation of the Holder enforceable
against the Holder in accordance with its terms, except as limited by the effect
of bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting creditors' rights generally and court decisions with respect
thereto.
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) to the
Holder's knowledge, conflict with or violate any provision of law, domestic or
foreign, applicable to or binding upon the Holder, (ii) to the Holder's
knowledge, violate any provision of any regulation, order, writ, injunction or
decree of any court or Governmental Entity (as defined in the Purchase
Agreement) applicable to or binding upon the Holder or (iii) violate, conflict
with, result in a breach of, constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination, cancellation or acceleration of, any lease, license, contract,
agreement, commitment or instrument to which the Holder is a party.
(d) The Holder has as of the date of this Agreement, and at
the date of any Transfer of Class A Shares to the Buyer pursuant hereto will
have, good, valid and marketable title to the Class A Shares, free and clear of
all liens, restrictions and encumbrances (other than those set forth in the
Operating Agreement), and the right, power and capacity to Transfer and deliver
the same as contemplated by this Agreement, free and clear of all such liens,
restrictions and encumbrances, subject to the terms of the Operating Agreement
(including, without limitation, provisions therein restricting the Transfer of
Class A Shares).
I.7 Covenant of the Holder. The Holder hereby acknowledges and
agrees that the Holder's Put/Call Price pursuant to this Agreement may be
equitably reduced as and to the extent contemplated by Section 7.11 of the
Operating Agreement.
I.8 Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Holder and the Company as follows:
(a) The Buyer has full corporate power and authority to
execute and deliver this Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder.
(b) This Agreement has been duly and validly authorized by all
necessary corporate action of the Buyer, has been duly executed and delivered by
the Buyer and is a legal, valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms, except as limited by the effect
of bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting creditors' rights generally and court decisions with respect
thereto.
(c) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) conflict with
or violate any provision of law, domestic or foreign, applicable to or binding
upon the Buyer, (ii) violate any provision of any regulation, order, writ,
injunction or decree of any court or Governmental Entity (as defined in the
Purchase Agreement) applicable to or binding upon the Buyer or (iii) violate,
conflict with, result in a breach of, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under, or
result in the termination, cancellation or acceleration of, any lease, license,
contract, agreement, commitment or instrument to which the Buyer is a party.
I.9 Notices. Except as expressly set forth to the contrary in this
Agreement, all notices, requests, instructions or consents provided for or
permitted to be given under this Agreement must be in writing and shall be given
either by registered or certified mail, addressed to the recipient, with return
receipt requested, or by delivering the writing to the recipient in person, by
courier, or by facsimile transmission; and a notice, request, instruction or
consent given under this Agreement is effective upon receipt or three (3) days
after the date mailed, whichever is sooner. Whenever any notice is required to
be given by law or this Agreement, a written waiver thereof signed by the Person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to the giving of such notice. All notices, requests,
instructions and consents to be given to the Holder or the Buyer must be sent or
delivered at the address given for that party as specified below or, with
respect to the Holder, such other address as the Holder may specify by written
notice to the Buyer and the Company or, with respect to the Buyer, such other
address as the Buyer may specify by written notice to the Holder and the
Company:
If to the Buyer:Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, Connecticut 06115-0480
Attention: Chief Executive Officer
Telephone: (860) 453-5365
Facsimile: (860) 403-5455
With copies to:
Phoenix Duff & Phelps Corporation
56 Prospect Street
Hartford, Connecticut 06115-0480
Attention: Thomas N. Steenburg, Esq.
Vice President and General Counsel
Telephone: (860) 403-5261
Facsimile: (860) 403-7600
and
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attention: David L. Finkelman, Esq.
Telephone: (212) 806-5400
Facsimile: (212) 806-6006
If to the Holder:___________________________
===========================
Attention:
Telephone:
Facsimile:
With a copy to:
Seneca Capital Management LLC
909 Montgomery, Suite 500
San Francisco, CA 94133
Attention: Gail P. Seneca
Telephone: (415) 677-1550
Facsimile: (415) 677-1629
and
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, Massachusetts 02109-2881
Attention: Richard E. Floor, P.C.
Telephone: (617) 570-1260
Facsimile: (617) 570-8150
I.10 Survival of Representations and Warranties. All
representations, warranties and agreements in this Agreement shall survive
execution and delivery hereof and any Transfer of Class A Shares pursuant hereto
until the later of (i) expiration of the final Put/Call Period in year 2002 and
(ii) the date that is the second anniversary of the purchase by the Buyer of all
Class A Shares held by the Holder pursuant hereto.
I.11 Equitable Relief. The Buyer and the Holder each acknowledge and
agree that the other would be irreparably damaged in the event any of the
provisions of this Agreement were not performed by it in accordance with the
specific terms or were otherwise breached and that monetary damages will be an
inadequate remedy of such non-performance or breach. Accordingly, in addition to
any other remedy that the damaged party may have, the damaged party shall be
entitled to enforce the specific performance of the provisions of this Agreement
and to seek both permanent and temporary relief in the event of any
non-performance of breach hereof.
I.12 Counterparts. This Agreement may be executed in any number of
counterparts (including executed counterparts delivered and exchanged by
facsimile transmission) with the same effect as if all signing parties had
originally executed the same document, and all counterparts shall be construed
together and shall constitute the same instrument.
I.13 Entire Agreement. This Agreement, the Purchase Agreement, the
Operating Agreement and the other agreements referred to herein or therein,
dated as of the Effective Date, constitute the entire agreement of the parties
hereto with respect to the transactions contemplated hereby and thereby and
supersede any and all other oral or written agreements heretofore.
I.14 Amendments. This Agreement may be amended or modified from time
to time only (a) by a written instrument signed by the Buyer and the Holder or
(b) by agreement of the Buyer and all Holders by Management Vote, provided that
all Put/Call Agreements are amended in the same manner; provided, however, that
any such amendment or modification that contradicts the provisions or intent of
the Operating Agreement shall be null and void and of no effect whatsoever.
I.15 Governing Law. This Agreement is governed by and shall be
construed in accordance with the laws of the State of California, exclusive of
its conflict-of-laws principles.
I.16 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is held invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of that provision shall be enforced to the fullest extent permitted by law.
I.17 Assignment. Except upon a Transfer of Class A Shares by the
Holder as permitted by and in accordance with the terms of the Operating
Agreement, this Agreement may not be assigned in whole or in part by the Holder,
without the prior written consent of the Buyer. Upon any Transfer of Class A
Shares by the Holder in accordance with the terms of the Operating Agreement,
the Transferee shall take the Shares subject to this Agreement and a
proportionate share of the rights and obligations under this Agreement shall be
deemed to be transferred to the Transferee, effective upon such Transfer.
Promptly upon request, each of the parties hereto (including without limitation
any Transferee) agrees to enter into such further agreements or take such
further actions as may be reasonably necessary or appropriate to reflect such
Transfer and the rights and obligations of the parties thereafter or resulting
therefrom. No assignment by the Buyer of this Agreement shall relieve the Buyer
of any of its obligations under this Agreement, and the Buyer may not assign
this Agreement (except by operation of law as a result of a merger or
consolidation transaction) without the written consent of the Holder.
I.18 Binding Effect. Subject to the restrictions on assignment set
forth herein, this Agreement is binding on and inures to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns, and the term "Holder" shall include any such heir,
representative, successor or assign.
I.19 Interpretation. For purposes of this Agreement, all nouns,
pronouns and verbs used in this Agreement shall be construed as masculine,
feminine, neuter, singular or plural, whichever shall be applicable. Titles or
captions of Sections contained in this Agreement are inserted as a matter of
convenience and for reference, and in no way define, limit, extend or describe
the scope of this Agreement or the intent of any provision hereof.
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IN WITNESS WHEREOF, the Buyer and the Holder have executed this
Agreement, and the Company has acknowledged and agreed to the provisions of this
Agreement, on and as of the date first above written.
BUYER: PHOENIX DUFF & PHELPS CORPORATION
By:
Name:
Title:
HOLDER: [HOLDER]
Acknowledged and Agreed:
SENECA CAPITAL MANAGEMENT LLC
By:
Gail P. Seneca, President
The following individuals were party to an execute Put/Call Agreement
of the Form described above:
Richard D. Little
Ron K. Jacks
Charles Dicke
Laura Pantaleo
Janice Diamond
Sandra Westhoff
Belinda Melton
Harold Nathan