Exhibit 10.5
MODIFICATION AGREEMENT
This Modification Agreement, dated as of June 26 2002, is entered into by and
between UMB Financial Corporation, a Missouri corporation headquartered at 1010
Grand Boulevard, Kansas City, Missouri 64106 ("Buyer"), and Miriam M. Allison,
an individual whose mailing address is 207 E. Buffalo Street, Suite 650,
Milwaukee, Wisconsin 53202 ("Allison").
Recitals
A. Sarah Hammond, Rebekah Allison, Matthew Allison, and Peter Hammond (collec-
tively the "Other Sellers"), Buyer and Allison entered into that certain
Stock Purchase Agreement dated as of April 3, 2001 (the "Purchase
Agreement"), under which Buyer acquired all of the capital stock of
Sunstone Financial Group, Inc. a Wisconsin corporation ("Company").
B. Pursuant to the Purchase Agreement, Buyer agreed to pay to Allison and the
Other Sellers the "Earn-Out Payments" referred to in Section 1.2(c)of the
Purchase Agreement, such Earn-Out Payments being calculated upon the "Gross
Revenues" (as such term is defined in Section 1.2(c) of the Purchase
Agreement) of Company during stated periods of time.
C. Buyer now desires to employ Vincent Ciavardini ("Employee") to manage
certain Company operations, with the intent of procuring significant new
business from one or more Designated Funds or Designated Fund Servicers (as
such terms are defined herein).
D. Buyer has informed Allison that in order to induce Employee to accept
employment with the Company and to undertake such efforts as may be needed
in order to obtain business from Designated Funds and/or Designated Fund
Servicers, Company will incur substantial expenses in the form of capital
investments in software and other expenses and in making certain
compensation and financial arrangements with Employee, and that such
payments and expenses, together with the Earn-Out Payments that would
otherwise be payable to Allison under the existing terms of the Purchase
Agreement with respect to Gross Revenues associated with new business from
Designated Funds and/or Designated Fund Servicers, would create such a high
level of expense that such business would not be economically viable.
E. Buyer has thus concluded that it is not an economically viable course of
action for it to employ Employee and to seek to procure business from
Designated Funds and/or Designated Fund Servicers unless Allison first
agrees to modify Buyer's obligations under the Purchase Agreement so as to
reduce the level of Earn-Out Payments that Allison is eligible to receive
under the Purchase Agreement with respect to Gross Revenues associated with
Designated Funds and/or Designated Fund Servicers, but without affecting
Earn-Out Payments that the Other Sellers are entitled to receive under the
existing terms of the Purchase Agreement.
F. Allison has indicated that she is willing to agree to such modification,
provided that Buyer makes certain commitments as to other aspects of
Company's operations.
G. The parties thus desire to reduce their agreements to writing and modify
and amend certain rights and obligations they have vis-a-vis each other
under the Purchase Agreement.
NOW THEREFORE, in consideration of the premises and the mutual agreements of the
parties, the parties hereby agree as follows:
1. Certain Definitions. When used in this Modification Agreement, the
following terms shall have the meaning specified:
"Absorbed Fund" shall mean a Currently Serviced Fund that later becomes a
Designated Fund as a result of a merger, consolidation, assignment and
assumption, or other corporate transaction, or which later becomes a
Designated Fund solely by reason of appointing as its Investment Advisor an
Investment Advisor that is an Affiliate of an entity listed on Exhibit A
attached to this Agreement and who has no substantial influence over the
selection of the Fund Servicer which will be retained to provide Fund
Services to the Designated Fund from time to time.
"Affiliate" of a party shall mean an entity that controls, is controlled
by, or is under common control with, such party.
"Control" shall mean the power to exercise a controlling influence over the
management or policies of an entity (including (without limitation) with
respect to a Fund or Fund Servicer, the selection or appointment of the
entity(s) that are to provide Fund Services to such Fund or Fund
Servicer), whether direct or indirect and whether by virtue of ownership of
stock or other equity interests, voting power, contract rights or other
means.
"Currently Serviced Fund" means a Fund to which Fund Services are being
provided or made available by Company or Buyer (or any of their respective
Affiliates) or by a Currently Serviced Fund Servicer as of the relevant
date of inquiry.
"Currently Serviced Fund Servicer" shall mean any Fund Servicer that, as of
the relevant time of inquiry, is receiving Fund Services from Buyer or the
Company (or any of their Affiliates) and which in turn provides or makes
those Fund Services available to one or more Funds.
"Designated Fund" shall mean any of the following: (A) a Fund whose
Investment Advisor or Distributor is, or is an Affiliate of, any of the
entities (or any affiliate of any such entity) listed on Exhibit A attached
hereto (each, an "Entity"); (B) a Fund that is a member of a Fund Complex
listed on Exhibit A attached hereto or of which a Designated Fund also is a
member; or (C) a Fund with respect to which any Entity or its Affiliate has
the power or ability to select the provider of Fund Services to such Fund
(or to a Fund Servicer who provides Fund Services to such Fund), or has the
power or ability to control the outsourcing of Fund Services for such Fund.
The fol-
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lowing rules shall govern the status of whether a Fund constitutes a
Designated Fund in the context of the specific circumstances addressed:
. If a Designated Fund should change its name at any time without
otherwise affecting its continuity or structure, it nonetheless
shall remain a Designated Fund.
. If a Designated Fund merges or otherwise consolidates with one or
more other Funds that is/are not Designated Fund(s) or Currently
Serviced Fund(s), then, following such merger or consolidation,
the surviving or resulting Fund shall: (a) be considered a
Designated Fund as a result of such merger or consolidation, if
the total assets of the Designated Fund, immediately prior to the
merger or consolidation, are greater than the total assets of all
other Funds which are a party to the merger or consolidation,
immediately prior to the merger or consolidation; and (b) not be
considered a Designated Fund as a result of such merger or
consolidation, if the total assets of the Designated Fund,
immediately prior to the merger or consolidation, are less than
the total assets of all other Funds that are a party to the
merger or consolidation, immediately prior to the merger or
consolidation.
"Designated Fund Servicer" shall mean any Fund Servicer providing Fund
Services to a Designated Fund, but only with respect to, and to the extent
of, such Fund Services. The following rules shall govern the status of
whether a Fund Servicer constitutes a Designated Fund Servicer in the
context of the specific circumstances addressed:
. If a Designated Fund Servicer should change its name at any time
without otherwise affecting its continuity or structure, it
nonetheless shalt remain a Designated Fund Servicer;
. If a Designated Fund Servicer merges or otherwise consolidates with
one or more other Fund Servicer(s) that is/are not Designated Fund
Servicer(s) or a Currently Serviced Fund Servicer, then, following
such merger or consolidation, the surviving or resulting Fund
Servicer shall: (a) be considered a Designated Fund Servicer as a
result of such merger or consolidation, if the total assets,
immediately prior to the merger or consolidation, of the Designated
Funds to which it provided Fund Services are greater than the total
assets, immediately prior to the merger or consolidation, of all
Funds (other than Designated Funds) to which the other Fund
Servicer party (parties) to the merger or consolidation provided
Fund Services; and (b) not be considered a Designated Fund Servicer
as a result of such merger or consolidation, if the total assets,
immediately prior to the merger or consolidation, of the Designated
Funds to which it provided Fund Services are less than the total
assets, immediately prior to the merger or consolidation, of all
Funds (other than Designated Funds) to which the other Fund
Servicer party(s) to the merger or consolidation provided Fund
Services.
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"Distributor" shall mean the entity that serves as principal
underwriter or distributor for the shares of a Fund.
"Fund" shall mean any mutual fund, whether organized as a stand-alone
registered investment company or whether a series of a registered
investment company authorized to designate and offer its shares or
other units of beneficial ownership interest in multiple series.
"Fund Complex" shall mean any two or more Funds that: (a) hold
themselves out to investors as related companies for purposes of
investment and investor services and/or that are marketed or promoted
under a common name; or (b) have a common Investment Advisor or
whose Investment Advisors are Affiliates of each other; or (c) have a
common Distributor or whose Distributors are Affiliates of each other.
"Fund Servicer" shall mean any investment advisor, distributor,
underwriter, fund accountant, transfer agent or other entity providing
Fund Services to a Fund or Fund Servicer, but only with respect to,
and to the extent of, such Fund Services.
"Fund Services" shall mean services as Distributor, Investment
Advisor, call management, fulfillment and marketing services (even
if not provided in a role as Distributor), fund accounting services,
custody services, transfer agent services, fund administrative
services, shareholder services, cash management services and the like
commonly provided to Funds or Fund Servicers by the Company or Buyer
or any of their respective Affiliates.
"Investment Advisor" shall mean the primary investment advisor for a
Fund, as opposed to a subadvisor.
"Measuring Period" shall mean the period commencing on the first day
of Employee's employment with Buyer or any Affiliate of Buyer and
continuing for a period of six months following the date on which
Employee no longer is employed with Buyer or any Affiliate of Buyer.
2. Modification to Earn-Out Calculation. For purposes of calculating
Earn-Out Payments to be paid to Allison by Buyer under the Purchase
Agreement, 60% of the Gross Revenues derived from Fund Services
provided to Designated Funds or Designated Fund Servicers which first
become customers of Company or Buyer (or their Affiliates) during the
Measuring Period shall be excluded from the Gross Revenues upon which
such Earn-Out Payments are computed during the five Earn-Out Periods
identified in Exhibit D to the Purchase Agreement. Notwithstanding
anything herein or in the Agreement to the contrary, to the extent
that a Currently Serviced Fund hereafter becomes an Absorbed Fund
(and thus, a Designated Fund), then the following special rule shall
apply for the calculation of Earn-Out Payments payable to Allison with
respect to Gross Revenues derived from Fund Services provided to such
Absorbed Fund/Designated Fund after the date that it becomes an
Absorbed Fund/Designated Fund (the "Absorption Date"):
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. First, promptly following the Absorption Date, there shall
be calculated a ratio (the "Absorption Ratio"). The numerator
of the Absorption Ratio shall be the actual Gross Revenues
derived from Fund Services provided to the Currently Serviced
Fund during the most recently completed calendar month prior
to the Absorption Date, adjusted to reflect the fee schedule
for Fund Services that will be applicable for Fund Services
provided to the Absorbed Fund/Designated Fund following the
Absorption Date, as though such fee schedule had been in
place and applicable to the Currently Serviced Fund during
such calendar month. The denominator of the Absorption Ratio
shall be a projection of monthly gross revenues to be derived
from Fund Services provided to the Absorbed Fund/Designated
Fund, such projection to be calculated based upon: (i) the
fee schedule for Fund Services in effect for the Absorbed
Fund/Designated Fund following the Absorption Date; (ii) the
total assets of the Absorbed Fund/Designated Fund as of the
Absorption Date; (iii) the total number of shareholder
accounts of the Absorbed Fund/Designated Fund as of the
Absorption Date; and (iv) the combined total number of
transactions and other account activity relevant under the
fee schedule during the most recently completed calendar
month prior to the Absorption Date for the Currently Serviced
Fund and any other Fund(s) involved in the Absorption
Transaction.
. Next, the Gross Revenues actually derived from Fund Services
provided to such Absorbed Fund/Designated Fund after its
Absorption Date shall be adjusted downward to an amount equal
to the sum of the following: (i) the product of such actual
Gross Revenues multiplied by the Absorption Ratio; plus (ii)
forty percent (40%) of the following: such actual Gross
Revenues minus the amount calculated in clause (i) of this
bullet point.
By way of illustration of the foregoing, assume the following facts:
. Adjusted revenues derived from Fund Services provided to a
Currently Serviced Fund during the most recently completed
calendar month prior to its Absorption Date are $25,000;
. Revenues projected to be derived from the Absorbed Fund/
Designated Fund for the first month following its Absorption
Date are $100,000: and
. Actual revenues derived from the Absorbed Fund/Designated
Fund during the first year following the Absorption Date are
$1.5 million.
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Then the Absorption Ratio is one-fourth ($25,000/$100,000), and the
portion of the actual Gross Revenues that would be used to calculate
the amount of the Earn-Out Payment owing to Allison with respect to the
Absorbed Fund for the initial one-year period following the Absorption
Date would be $825,000, calculated as follows:
$1,500,000 x 1/4 = $375,000
($1,500,000 - $375,000) x 40% = 450,000
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Total = $825,080
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3. UMB Commitment. UMB hereby agrees that if: (a) Company hereafter enters
into a binding contract or letter of intent or other commitment deemed
satisfactory by UMB for the provision of Fund Services to one or two
Fund Complexes to whom Company does not presently provide Fund
Services, or enters into a binding contract or letter of intent or
other commitment deemed satisfactory by UMB for the provision of
transfer agency services to one or two Fund Complexes to whom Company
currently provides other Fund Services but not transfer agency
services, and (b) the provision of such new or additional Fund Services
under such binding contract or letter of intent is reasonably projected
to generate at least two million dollars ($2,000,000) in Gross Revenues
to Company (excluding client reimbursements) during the twelve-month
period following conversion, then Buyer promptly (in connection with
the conversion(s) or other startup of the provision of Fund Services to
such Fund Complex(es)) shall purchase or license or otherwise acquire
the right to use or the use of, a new stock transfer agency software
system and other resources appropriate in order for Company to provide
competitive transfer agency services and products to such Fund
Complex(es) as well as to Company's other clients, it being understood
that such system may be purchased, leased, outsourced, accessed by
remote usage, or otherwise obtained; provided however that no such
action shall be required if Buyer determines, and Allison agrees (such
agreement not to be unreasonably withheld), that the acquisition of
such system and resources would constitute an unreasonable economic
investment on the part of Company or Buyer.
4. Fees. Buyer agrees to pay the sum of $20,000 to Allison to reimburse
her for legal and consultant expenses reasonably incurred by her in
negotiating and preparing this Modification Agreement.
5. Effect on Purchase Agreement. This Modification Agreement is intended
to amend the Purchase Agreement as necessary to reflect the calculation
of Earn-Out Payments payable by Buyer to Allison as provided for
herein, and to incorporate the Buyer's covenants set forth in Paragraph
3 hereof. Except as so explicitly modified, the terms and conditions of
the Purchase Agreement shall continue in full force and effect in
accordance therewith, unmodified by this Modification Agreement.
Without limiting the generality of the foregoing, nothing in this
Modification Agreement is intended to affect in any respect any right
or obligation of any of the Other Sellers. As a matter of confirmation
and clarification and without limiting the generality of the preceding
sentence, the formula and basis for calculation of Earn-Out Payments
payable by the Buyer to the Other Sellers under the terms of the
Purchase Agreement remain in full force and effect, unaffected by the
provisions of this Modification Agreement.
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6. Capitalized Terms. Except as explicitly defined otherwise herein, all
capitalized terms shall have the meanings ascribed to them in the Purchase
Agreement.
IN WITNESS WHEREOF, this Modification Agreement has been duly executed and
delivered as of the date first above written.
UMB Financial Corporation "BUYER"
By: /s/ Daniel C. Stevens /s/ Miriam M. Allison
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Miriam M. Allison "ALLISON"
Name: Daniel C. Stevens
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Title: EVP + CFO
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EXHIBIT A
OMITTED