SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Lexington Global Asset Managers, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
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2) Aggregate number of securities to which transaction applies:
4,511,373 shares
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$10.611
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4) Proposed maximum aggregate value of transaction:
$47,870,179
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5) Total fee paid:
$9,575
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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LEXINGTON GLOBAL ASSET MANAGERS, INC.
PARK 80 WEST
PLAZA TWO
SADDLE BROOK, NJ 07663
, 2000
TO OUR STOCKHOLDERS:
You are cordially invited to the special meeting of stockholders of
Lexington Global Asset Managers, Inc. ("Lexington") to be held on ,
2000 at : .m., Eastern time, at Lexington's offices at Park 80 West, Plaza
Two, Saddle Brook, New Jersey 07663.
At the special meeting, stockholders will be asked to consider and vote upon
a proposal to approve the merger and the related agreement and plan of merger
among Lexington, ReliaStar Financial Corp., a Delaware corporation, Pilgrim
Capital Corporation, a Delaware corporation and wholly owned subsidiary of
ReliaStar, and Pilgrim Lexington Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of Pilgrim. Pursuant to the merger agreement, each
outstanding share of Lexington common stock will be converted into the right to
receive $3.306 in cash and 0.231 shares of ReliaStar common stock, subject to
possible adjustments. Alternatively, each Lexington stockholder may elect to
receive all cash or all stock, subject to the limitations set forth in the
attached Proxy Statement/Prospectus.
Details of the foregoing proposal and the special meeting are contained in
the attached Notice of Special Meeting and Proxy Statement/Prospectus. Your
vote on the merger agreement is important to Lexington, so please read this
information carefully.
THE BOARD OF DIRECTORS OF LEXINGTON BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF LEXINGTON AND ITS STOCKHOLDERS AND, ACCORDINGLY, HAS UNANIMOUSLY
APPROVED THE MERGER AND THE MERGER AGREEMENT. THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
All stockholders are invited to attend the special meeting. To ensure your
representation at the special meeting, please complete, sign, date and return
the accompanying proxy in the enclosed postage prepaid envelope. If you are
able to attend the special meeting, you may, if you wish, vote your shares in
person.
Please do not send in your share certificates with your proxy card. Enclosed
in this mailing are separate election and transmittal forms and instructions
for the surrender and exchange of your shares.
Sincerely yours,
LEXINGTON GLOBAL ASSET MANAGERS, INC.
PARK 80 WEST, PLAZA TWO
SADDLE BROOK, NJ 07663
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of
Lexington Global Asset Managers, Inc.:
A special meeting of stockholders of Lexington Global Asset Managers, Inc.,
will be held on , 2000 at a.m., Eastern time, at Park 80 West, Plaza
Two, Saddle Brook, New Jersey 07663 for the following purpose:
To consider and vote upon a proposal to approve and adopt an agreement and
plan of merger dated as of February 28, 2000, among Lexington, ReliaStar
Financial Corp., a Delaware corporation, Pilgrim Capital Corporation, a
Delaware corporation and wholly owned subsidiary of ReliaStar, and Pilgrim
Lexington Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Pilgrim, and the merger contemplated thereby. Pursuant to the
merger agreement, (i) the subsidiary of Pilgrim will be merged with and into
Lexington, with Lexington being the surviving corporation and wholly owned
subsidiary of Pilgrim, and (ii) each share of Lexington common stock
outstanding immediately prior to the consummation of the merger will be
converted into the right to receive $3.306 in cash and 0.231 shares of
ReliaStar common stock, subject to possible adjustments. Alternatively, each
Lexington stockholder may elect to receive all cash or all stock, subject to
certain election and allocation procedures set forth in the attached proxy
statement/prospectus. Stockholders will receive cash in lieu of any
fractional shares.
The Board of Directors has fixed the close of business on , 2000 as
the record date for the determination of the stockholders entitled to notice
of, and to vote at, the special meeting.
The Board of Directors of Lexington unanimously recommends a vote FOR the
proposal to approve the merger agreement and the merger.
Please read carefully the following Proxy Statement/Prospectus, which
describes the matters to be voted upon at the special meeting, and then
complete, sign, date and return the enclosed proxy as promptly as possible.
Should you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
ensure that all of your shares will be voted. If you attend the special meeting
and vote by ballot, your proxy will be revoked automatically and only your vote
at the special meeting will be counted.
By Order of the Board of Directors,
Lisa Curcio
Secretary
Saddle Brook, New Jersey
, 2000
YOUR VOTE IS IMPORTANT
SO THAT YOUR COMMON STOCK WILL BE REPRESENTED AT THE SPECIAL MEETING IN THE
EVENT YOU ARE NOT PERSONALLY PRESENT, PLEASE DATE, SIGN AND RETURN PROMPTLY THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED. EXECUTION OF THE PROXY WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IF YOU ARE PRESENT AT THE MEETING.
SUBJECT TO COMPLETION, DATED MAY 17, 2000.
PROXY STATEMENT/PROSPECTUS
PROXY STATEMENT OF LEXINGTON GLOBAL ASSET MANAGERS, INC.
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
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PROSPECTUS OF RELIASTAR FINANCIAL CORP.
SHARES OF COMMON STOCK
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The board of directors of Lexington Global Asset Managers has approved a
merger with ReliaStar Financial Corp. under a merger agreement dated as of
February 28, 2000. Lexington's board of directors has called a special meeting
of Lexington's stockholders to vote on a proposal to approve the merger
agreement and the merger.
In the merger, ReliaStar will issue to Lexington stockholders $3.306 in cash
and 0.231 shares of ReliaStar common stock for each share of Lexington common
stock held by them, up to a maximum of $10.611 per share, subject to possible
adjustments. Instead of the cash/stock mix, each Lexington shareholder may
elect to receive all cash or all stock, subject to the election and allocation
procedures discussed in this document. On April 30, 2000 ReliaStar agreed to be
acquired by the ING Group for a per-share payment of $54.00 to ReliaStar's
shareholders. The acquisition of ReliaStar is currently expected to close late
in the third quarter of 2000. On , 2000, the closing sale price per
share for ReliaStar common stock was $ . If the average price of ReliaStar
common stock over a five-day period shortly before the completion of the merger
were equal to that price, then the value of the consideration to be received in
exchange for each share of Lexington common stock would be $10.611, assuming no
price adjustment. See pages - for discussion and examples of the possible
adjustments in the merger consideration.
THE BOARD OF DIRECTORS OF LEXINGTON HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF FACTORS YOU
SHOULD CONSIDER IN ANALYZING THE PROPOSAL.
This proxy statement/prospectus is being mailed to Lexington's stockholders
on or about , 2000. This document also constitutes the prospectus of
ReliaStar with respect to the shares of ReliaStar common stock to be issued in
the merger, which are listed on the New York Stock Exchange under the symbol
"RLR."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SHARES OF RELIASTAR COMMON STOCK
TO BE ISSUED IN THE MERGER OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 2000.
This proxy statement/prospectus incorporates important business and financial
information about Lexington and ReliaStar that is not included in or delivered
with the document. This information can be obtained without charge upon written
or oral request as follows:
Lexington Global Asset Managers, Inc. ReliaStar Financial Corp.
Park 80 West, Plaza Two 20 Washington Avenue South
Saddle Brook, New Jersey 07663 Minneapolis, Minnesota 55401
(201) 845-7300
(612) 372-5432
TABLE OF CONTENTS
PAGE
----
Questions and Answers About the Merger................................... 1
Summary.................................................................. 3
The Merger............................................................. 3
The Merger Agreement................................................... 4
Recommendation of the Lexington Board and Reasons for the Merger....... 5
Additional Interests of Lexington's Officers and Directors in the
Merger................................................................ 5
Fairness Opinion with Respect to the Merger............................ 6
The Companies.......................................................... 6
The Lexington Special Meeting.......................................... 6
Comparative Per-Share Market Data...................................... 8
Selected Historical Financial Data..................................... 9
Comparative Unaudited Per-Share Data................................... 12
Share Price and Dividend Data.......................................... 13
Risk Factors............................................................. 14
General Information...................................................... 14
Background of the Merger................................................. 16
Lexington's Reasons for the Merger and Recommendation of the Lexington
Board of Directors...................................................... 18
Lexington's Reasons for the Merger..................................... 18
Recommendation of Lexington's Board of Directors....................... 19
ReliaStar and Pilgrim's Reasons for the Merger........................... 20
Opinion of Lexington's Financial Adviser................................. 21
Comparison with Selected Public Investment Management Companies........ 21
Comparison with Recent Acquisitions of Investment Management
Companies............................................................. 22
The Merger............................................................... 23
Merger Consideration................................................... 23
Effective Time and Effect of the Merger................................ 24
Exchange of Shares..................................................... 24
Employee Benefit Plans, Stock Options, and Restricted Stock............ 25
Conditions to Completion of the Merger................................. 25
Representations and Warranties......................................... 26
Conduct of Business Before the Merger.................................. 26
Amendment and Waiver................................................... 27
Termination............................................................ 27
Expenses and Termination Payments...................................... 27
No Solicitation of Alternative Transactions............................ 28
Interests of Certain Persons in the Merger............................. 28
Federal Income Tax Consequences........................................ 29
Business After the Merger.............................................. 30
Restrictions on Sales of Shares by Affiliates of Lexington and
ReliaStar............................................................. 31
Dissenters' Rights....................................................... 31
Forward-Looking Information.............................................. 32
Business of ReliaStar.................................................... 33
Business of Lexington.................................................... 34
Description of ReliaStar Capital Stock................................... 35
Common Stock........................................................... 35
Preferred Stock........................................................ 35
Dividends.............................................................. 35
i
PAGE
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Voting Rights....................................................... 36
Liquidation......................................................... 37
Share Rights Agreement.............................................. 37
Limitations on Change in Control.................................... 38
Limitation on Liability of Directors and Indemnification............ 38
Transfer Agent...................................................... 39
Comparative Rights of Stockholders of Lexington and ReliaStar......... 39
General............................................................. 39
Voting Rights....................................................... 39
Charter Amendments.................................................. 39
Transactions with Interested Shareholders........................... 40
Consideration of Other Constituencies............................... 40
Where You Can Find More Information................................... 41
Legal Matters......................................................... 42
Experts............................................................... 42
Stockholder Proposals................................................. 42
Independent Auditors.................................................. 42
Exhibit A--Agreement and Plan of Merger............................... A-1
Exhibit B--Opinion of Putnam, Lovell, de Guardiola & Thornton, Inc.... B-1
Exhibit C--Delaware General Corporation Law Section 262............... C-1
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: PLEASE EXPLAIN WHAT I WILL RECEIVE IN THE MERGER.
A: You will receive $3.306 in cash and 0.231 shares of ReliaStar common stock
for each share of Lexington common stock that you hold. Instead of the
cash/stock mix, each Lexington shareholder may elect to receive all cash or
all stock by following the procedures discussed in this document. Your
election may be altered, however, if the elections by all Lexington
stockholders cause the cash/stock mix of the merger consideration to
deviate from the framework established by ReliaStar and Lexington.
Q: ARE THERE ANY POSSIBLE ADJUSTMENTS TO WHAT I WILL RECEIVE IN THE MERGER?
A: Yes, there are two possible adjustments. First, if ReliaStar's average
share price over a five-day pricing period shortly before completion of the
merger is greater than $31.625, then the value of the merger consideration
will be fixed at $10.611 per Lexington share. Because the ING Group has
agreed to acquire ReliaStar for $54.00 per share it is assumed that this
$10.611 fixed value will be applicable to ReliaStar's acquisition of
Lexington. This fixed value is subject to further adjustment based on
Lexington's assets under management, as discussed below.
Second, if Lexington's assets under management three business days before
the completion of the merger differ by more than 10% from Lexington's assets
under management on December 31, 1999, then the merger consideration will be
increased or reduced, as the case may be, based on a formula discussed in
the main body of this document. This adjustment recognizes the fact that the
advisory fees related to assets under management are the primary sources of
Lexington's revenues.
See pages - for discussion and examples of these possible adjustments.
Q: WHAT PERCENTAGE OF RELIASTAR'S STOCK OWNERSHIP WILL FORMER LEXINGTON
STOCKHOLDERS HOLD AFTER THE MERGER?
A: Former Lexington stockholders will hold approximately 2% of ReliaStar's
outstanding common stock.
Q: WHAT KIND OF PREMIUM TO THE PRICE OF LEXINGTON'S STOCK IS IMPLIED BY THE
MERGER CONSIDERATION?
A: The assumed merger consideration of $10.611 per share represents a premium
of approximately 37% over the last closing price of Lexington common stock
before the merger agreement was signed and a premium of 193% over the last
closing price per share before Lexington publicly announced that it was in
merger negotiations.
Q: WHY DID LEXINGTON SEEK A MERGER WITH RELIASTAR?
A: Lexington's board of directors believes that the consideration paid by
ReliaStar in the merger represents the best value reasonably available for
Lexington's stockholders. Lexington recognized that the mutual fund
industry's competitive landscape was changing rapidly, whereby larger fund
families that could develop their own multiple distribution channels had a
distinct competitive advantage in gaining market share. By merging with
ReliaStar, Lexington will gain access to additional resources necessary to
accelerate the growth of its mutual funds, while continuing to expand its
rapidly growing institutional, private client and wrap business.
Q: WHY DID RELIASTAR AND PILGRIM SEEK TO ACQUIRE LEXINGTON?
A: ReliaStar believes that the proposed acquisition will enhance its product
line, add assets under management, and provide economies of scale. Adding
Lexington to Pilgrim's mutual fund operations is intended to support
ReliaStar's increased focus on gathering and managing assets. ReliaStar and
Pilgrim Capital Corporation, the holding company for ReliaStar's mutual
fund operations, expect that the acquisition will add an experienced fund
management team that will expand Pilgrim's portfolio management
capabilities.
1
Q: WHAT DO I NEED TO DO NOW?
A: Just mail your signed proxy card in the enclosed return envelope as soon as
possible, so that your shares may be represented at the meeting of
Lexington's stockholders. Also enclosed is an election form on which you
may indicate how you wish to receive the merger consideration: all cash,
all stock, or a mix of the two. The election form is accompanied by a
transmittal letter for submitting your shares of Lexington to be exchanged
for the merger consideration.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE LATER?
A: Just send in a later-dated, signed proxy card to Lexington's Corporate
Secretary so that it is received before the stockholders' meeting or attend
the meeting in person and vote.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. Please tell your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted by your broker, which will have the effect of a vote against the
merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect that the approval of Lexington's stockholders will be the last
condition to the completion of the merger. The merger should be completed
within five business days after the stockholders' meeting.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO LEXINGTON'S
STOCKHOLDERS?
A: Generally, you will recognize a gain or a loss with respect to the receipt
of cash and/or shares of ReliaStar common stock in exchange for your shares
of Lexington common stock.
Q: DOES RELIASTAR PAY DIVIDENDS?
A: Yes. Subject to board approval, ReliaStar pays regular quarterly dividends
in February, May, August, and November of each year. ReliaStar's current
annualized dividend rate is $.88 per share.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: Lexington stockholders should call Richard M. Hisey at (201) 845-7300 with
any questions about the merger. You may also obtain additional information
about ReliaStar and Lexington from documents each company files with the
Securities and Exchange Commission by following the instructions in the
section "Where You Can Find More Information" beginning on page .
2
SUMMARY
The following is a summary of material information contained in this proxy
statement/prospectus. For more information, you should refer to the information
in the main body of this proxy statement/prospectus along with the exhibits and
the information incorporated by reference. A copy of the merger agreement is
attached as Exhibit A to this proxy statement/prospectus and incorporated by
reference. You should refer to that agreement for a complete statement of the
terms of the merger, because it is the legal document that governs the merger.
THE MERGER
Structure of the Merger. This proxy statement/prospectus relates to the
proposed merger of a subsidiary of Pilgrim with Lexington. Lexington will be
the surviving corporation in the merger and will become a wholly owned
subsidiary of Pilgrim.
Conversion of Shares. At the completion of the merger, each outstanding
share of Lexington common stock, other than shares held by persons who have
properly asserted statutory dissenters' rights under Delaware law, will be
converted into the right to receive $3.306 in cash and 0.231 shares of
ReliaStar common stock, subject to possible adjustments discussed below.
Instead of the cash/stock mix, each Lexington shareholder may elect to receive
all cash or all stock by following the procedures discussed in this document.
Your election may be altered, however, if the elections by all Lexington
stockholders cause the cash/stock mix of the merger consideration to deviate
from the framework established by ReliaStar and Lexington, which provides that
one-third of the merger consideration will be payable in cash and two-thirds
will be payable in stock. ReliaStar will not issue fractional shares of
ReliaStar common stock. Instead, Lexington stockholders entitled to a
fractional share will be entitled to receive an amount in cash equal to the
fraction times ReliaStar's average share price during the five-day pricing
period shortly before the completion of the merger.
Possible Adjustments to Merger Consideration. There are two possible
adjustments to the merger consideration. First, if ReliaStar's average share
price over the five-day pricing period shortly before completion of the merger
is greater than $31.625, then the value of the merger consideration to be paid
will be fixed at $10.611 per Lexington share. Because the ING Group has agreed
to acquire ReliaStar for $54.00 per share, it is assumed that this $10.611
fixed value will be applicable to ReliaStar's acquisition of Lexington.
Conversely, if ReliaStar's average share price over the pricing period is less
than $25.625, then the value of the consideration to be paid per Lexington
share will be fixed at $9.225. Each of these fixed values is subject to further
adjustment based on Lexington's assets under management, as discussed below.
Second, if Lexington's assets under management three business days before
the completion of the merger differ by more than 10% from Lexington's assets
under management on December 31, 1999, then the merger consideration will be
increased or reduced, as the case may be, based on a formula discussed in the
main body of this document. Changes in assets under management related solely
to changes in the market value of the assets under management will be ignored
when calculating any adjustment.
See pages - for discussion and examples of these possible adjustments.
Cash/Stock Election and Surrender of Share Certificates. Enclosed is an
election form on which you may indicate how you wish to receive the merger
consideration: all cash, all stock, or a mix of the two. Your election may be
altered, however, if the elections by all Lexington stockholders cause the
cash/stock mix of the merger consideration to deviate from the framework
established by ReliaStar and Lexington. The election form
3
is accompanied by a transmittal letter for submitting your shares of Lexington
to be exchanged for the merger consideration.
Federal Income Tax Consequences. Lexington stockholders would generally
recognize gain or loss on the receipt of cash and/or shares of ReliaStar common
stock in the merger. Please see "The Merger--Federal Income Tax Consequences"
beginning on page for more detailed information on the tax consequences of
the merger. You are urged to consult with your tax adviser to determine the
specific tax consequences of the merger to you.
Dissenters' Rights in the Merger. Under Delaware law, each holder of shares
of Lexington common stock is entitled to object to the merger and to demand
payment for the holder's shares of Lexington common stock in cash if the holder
complies with strict statutory procedures. Please see "Dissenters' Rights"
beginning on page for a discussion of these procedures. It is a condition to
completion of the merger that holders of not more than 5% of Lexington's
outstanding common stock shall have asserted dissenters' rights.
Comparative Rights of Lexington Stockholders Before and After the Merger.
Both ReliaStar and Lexington are Delaware corporations. The rights of Lexington
stockholders are currently governed by Lexington's certificate of incorporation
and bylaws. After the completion of the merger, Lexington stockholders who
elect to receive ReliaStar common stock will become stockholders of ReliaStar
and their rights will then be governed by ReliaStar's certificate of
incorporation and bylaws. There are differences between the rights of Lexington
stockholders and the rights of ReliaStar stockholders. These differences
include the additional anti-takeover provisions contained in ReliaStar's
certificate of incorporation, which may have the effect of discouraging or
delaying a change of control of ReliaStar that is not approved by ReliaStar's
board of directors.
THE MERGER AGREEMENT
Completion of the Merger. Subject to the conditions contained in the merger
agreement, ReliaStar and Lexington expect to complete the merger on or about
, 2000.
Conditions to the Merger. The obligations of ReliaStar and Lexington to
complete the merger are subject to a number of conditions, including, among
others, that the merger agreement and the merger shall have been approved by
Lexington's stockholders and that the change of control of Lexington shall have
been approved by the stockholders of the Lexington family of mutual funds and a
number of institutional and private investors for whom Lexington acts as
investment adviser. Neither ReliaStar nor Lexington is aware of any regulatory
approvals that are necessary to consummate the merger that have not been
obtained.
Termination Payments. If the merger agreement is terminated, the companies
have agreed to the following payments:
. If the agreement is terminated because Lexington's stockholders do not
approve the merger or because of a material breach by Lexington, then
(1) Lexington has agreed to reimburse ReliaStar's reasonable out-of-
pocket expenses incurred in connection with the merger, up to
$450,000; and
(2) if, within one year of the termination date, a third party acquires
Lexington or a substantial portion of its stock or assets, then
Lexington has agreed to pay ReliaStar an additional $1.8 million.
. If the agreement is terminated because Lexington's board of directors
withdraws or adversely modifies its recommendation that Lexington
stockholders approve the merger, then
(1) Lexington has agreed to pay ReliaStar $1.125 million; and
4
(2) if, within one year of the termination date, a third party acquires
Lexington or a substantial portion of its stock or assets, then
Lexington has agreed to pay ReliaStar an additional $1 million.
. If the agreement is terminated because of a material breach by
ReliaStar, then ReliaStar has agreed to reimburse Lexington's reasonable
out-of-pocket expenses incurred in connection with the merger, up to
$450,000.
No Solicitation of Other Offers. In the merger agreement, Lexington has
agreed not to solicit or encourage offers for, or provide any confidential
information relating to, any acquisition of Lexington or of a substantial
portion of its assets, other than the merger with ReliaStar. However, Lexington
may supply information to third parties and cooperate or engage in discussions
with third parties relating to an acquisition transaction, but only if the
third-party offer is likely to be superior to ReliaStar's and the Lexington
board of directors is required by its fiduciary duties to take those actions.
Accounting Treatment. The merger will be accounted for under the "purchase"
method of accounting. This means that ReliaStar will record the excess of the
purchase price of Lexington over the fair market value of Lexington's assets as
goodwill.
RECOMMENDATION OF THE LEXINGTON BOARD AND REASONS FOR THE MERGER
The board of directors of Lexington believes that the merger is fair to and
in the best interests of the Lexington stockholders and, accordingly,
unanimously recommends that its stockholders vote in favor of the approval of
the merger agreement and the merger. The board believes that the merger
represents the best value reasonably available for Lexington's stockholders. In
reaching this determination, the Lexington Board considered that the merger
consideration represents a premium of approximately 37% over the last closing
price of Lexington common stock before the merger agreement was signed and a
premium of 193% over the last closing price per share before Lexington publicly
announced that it was in merger negotiations.
ADDITIONAL INTERESTS OF LEXINGTON'S OFFICERS AND DIRECTORS IN THE MERGER
When considering the recommendation of Lexington's board, you should be
aware that certain Lexington directors and officers have interests in the
merger that are different from, or are in addition to, yours. These interests
include:
. Holders of stock options and restricted stock granted under Lexington's
incentive plan, including officers and directors of Lexington, will have
the benefit of accelerated vesting of their options and restricted stock
in connection with the merger.
. Certain officers and a director of Lexington have entered into, or are
currently negotiating, employment agreements with ReliaStar or its
subsidiaries, including Robert M. DeMichele, President and Chief
Executive Officer and a director of Lexington, and Richard M. Hisey,
Executive Vice President and Chief Financial Officer of Lexington. After
the merger, Mr. DeMichele will be President and Chief Executive Officer
of the Pilgrim Institutional Investment Group and Mr. Hisey will be
Senior Executive Vice President of Pilgrim Securities, Inc.
. Stuart S. Richardson, Chairman and a director of Lexington, Mr.
DeMichele and Mr. Hisey will receive certain change-of-control benefits
payable by Lexington.
5
FAIRNESS OPINION WITH RESPECT TO THE MERGER
In deciding to approve the merger, Lexington's board of directors considered
the February 28, 2000 opinion of its financial advisor, Putnam, Lovell, de
Guardiola & Thornton, Inc., that, on that date, the consideration to be paid by
ReliaStar in the merger is fair to the stockholders of Lexington, from a
financial point of view.
A COPY OF THE PUTNAM LOVELL OPINION IS ATTACHED AS EXHIBIT B TO THIS PROXY
STATEMENT/PROSPECTUS. YOU SHOULD READ THE OPINION IN ITS ENTIRETY FOR
INFORMATION ON THE ASSUMPTIONS MADE, AND MATTERS CONSIDERED, BY PUTNAM LOVELL
IN RENDERING ITS OPINION.
THE COMPANIES
ReliaStar. ReliaStar Financial Corp. is a Minneapolis-based holding company
whose subsidiaries offer individuals and institutions life insurance and
annuities, employee benefits products and services, retirement plans, life and
health reinsurance, mutual funds, and bank and trust products. Based on
revenues, ReliaStar is one of the largest publicly held life insurance holding
companies in the United States and at March 31, 2000 had $38.4 billion in
assets under management. On April 30, 2000, the ING Group agreed to acquire
ReliaStar for a payment of $54.00 per share. Pilgrim Capital Corporation is a
wholly owned subsidiary of ReliaStar that manages a family of 28 mutual funds,
eight funds underlying insurance products, and one closed-end fund with $16.7
billion of assets under management as of March 31, 2000. When we refer to
"ReliaStar" in this document, we are referring to ReliaStar Financial Corp. and
its subsidiaries as a whole, including Pilgrim, unless the context requires
otherwise.
ReliaStar's principal executive offices are located at 20 Washington Avenue
South, Minneapolis, Minnesota 55401, and its telephone number is (612) 372-
5432.
Lexington. Lexington Global Asset Managers, Inc. offers, through its
subsidiaries, a variety of asset management and related services to retail
investors, institutions and private clients. Lexington manages portfolios of
equity, balanced, fixed income, mortgage-backed and money market instruments,
which are designed to meet a broad range of investment objectives. At March 31,
2000, total assets under management amounted to approximately $3.6 billion,
with $1.7 billion in mutual funds, $1.2 billion in institutional accounts and
$0.8 billion in private client accounts. When we refer to "Lexington" in this
document, we are referring to Lexington Global Asset Managers, Inc. and its
subsidiaries as a whole, unless the context requires otherwise.
Lexington's executive offices are located at Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663, and its telephone number is (201) 845-7300.
The Combined Company. ReliaStar is a diversified financial services company
that provides a variety of insurance and investment products and services.
ReliaStar and Pilgrim expect that the acquisition will add an experienced fund
management team that will expand Pilgrim's portfolio management capabilities.
THE LEXINGTON SPECIAL MEETING
Date, Time, Place and Purpose of Lexington's Meeting
The special meeting of stockholders of Lexington will be held at a.m.,
local time, on , 2000 at Lexington's executive offices, Park 80 West,
Plaza Two, Saddle Brook, New Jersey 07663. At the meeting, stockholders at the
close of business on the record date of , 2000 will be asked to
approve the merger agreement and the merger. No other business will be
conducted at the meeting.
6
Record Date and Outstanding Shares
Only holders of record of Lexington common stock at the close of business on
the record date are entitled to vote at the meeting. As of that time, there
were shares of Lexington common stock outstanding and entitled to
vote, held of record by approximately stockholders. Each stockholder is
entitled to one vote for each share of Lexington common stock held as of the
record date.
Quorum
The required quorum for the transaction of business at the meeting is a
majority of the shares of Lexington common stock outstanding on the record
date.
Vote Required
The affirmative vote of a majority of the outstanding shares of Lexington
common stock is required to approve the merger agreement and the merger. As of
the date of this proxy statement/prospectus, % of the outstanding shares
entitled to vote are held by Lexington's directors, executive officers and
their affiliates.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for purposes of a quorum, but will be deemed to be votes
against the merger. Broker non-votes will similarly count as votes against the
merger.
Voting of Proxies
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of the Lexington board of directors for use at the meeting. You are
requested to complete, date, and sign the accompanying proxy and promptly
return it in the enclosed envelope or otherwise deliver it to Lexington. All
properly signed proxies received by Lexington before the vote at the meeting
that are not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
merger agreement and the merger.
How to Revoke Your Proxy
You may revoke your proxy at any time before it is exercised at the meeting,
by taking any of the following actions:
. delivering to Lexington's Corporate Secretary, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked,
. signing and delivering a proxy relating to the same shares and bearing a
later date, or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank, or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank, or other nominee confirming your
beneficial ownership of the shares.
7
COMPARATIVE PER-SHARE MARKET DATA
To assist your analysis of the proposed merger, the following table lists
the closing prices per share for ReliaStar common stock and Lexington common
stock on February 28, 2000, which was the last trading day before the public
announcement of the merger, and on , 2000. The table also lists for
those dates the equivalent per-share price for Lexington common stock, which
equals $3.306 plus the product of the closing share price of ReliaStar common
stock on the relevant date multiplied by 0.231 and is capped at $10.611 per
share. Please remember, however, that the merger consideration is subject to
possible adjustment based on Lexington's assets under management before
closing.
LEXINGTON
RELIASTAR LEXINGTON EQUIVALENT
COMMON STOCK COMMON STOCK PER-SHARE
------------ ------------ ----------
February 28, 2000.......................... $28.625 $ 7.750 $ 9.918
, 2000................................ $ $ $10.611
8
SELECTED HISTORICAL FINANCIAL DATA
ReliaStar's selected historical financial data presented below as of and for
the five fiscal years ended December 31, 1999 are derived from the financial
statements of ReliaStar Financial Corp. and its subsidiaries. Data as of and
for the three-month periods ended March 31, 2000 and 1999 have been derived
from unaudited financial statements of ReliaStar. Interim operating results are
not necessarily indicative of the results that may be achieved for the entire
year. The following selected financial data should be read in conjunction with
ReliaStar's Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which
are incorporated by reference in this proxy statement/prospectus.
RELIASTAR FINANCIAL CORP. AND SUBSIDIARIES
(IN MILLIONS, EXCEPT PER-SHARE DATA)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
OPERATING DATA:
Premiums................ $ 301.9 $ 286.1 $ 1,192.8 $ 1,014.1 $ 887.9 $ 836.9 $ 851.5
Net Investment Income... 285.6 277.3 1,115.9 1,116.9 1,006.3 929.6 884.3
Realized Investment
Gains (Losses)......... (0.8) 2.5 (1.3) 17.6 11.7 11.2 4.9
Policy and Contract
Charges................ 103.9 91.2 454.5 427.6 332.9 245.9 218.5
Other Income............ 110.0 61.7 275.4 272.0 238.8 143.4 114.4
--------- --------- --------- --------- --------- --------- ---------
Total Revenues......... 800.6 718.8 3,037.3 2,848.2 2,477.6 2,167.0 2,073.6
Benefits and Expenses... 679.5 613.2 2,634.2 2,447.1 2,122.7 1,866.1 1,816.7
Income Tax Expense...... 43.6 37.9 136.3 143.0 125.7 105.0 89.7
Dividends on Preferred
Securities of
Subsidiaries, Net of
Tax.................... 3.3 3.3 13.2 13.2 10.4 5.0 --
--------- --------- --------- --------- --------- --------- ---------
Income from Continuing
Operations............. 74.1 64.4 253.6 244.9 218.8 190.9 167.2
Income (Loss) from
Discontinued
Operations,
Net of Tax............. -- -- -- (7.2) 3.2 2.1 (3.5)
--------- --------- --------- --------- --------- --------- ---------
Net Income............. $ 74.1 $ 64.4 $ 253.6 $ 237.7 $ 222.0 $ 193.0 $ 163.7
========= ========= ========= ========= ========= ========= =========
Net Income Available
to Common
Shareholders.......... $ 74.1 $ 64.4 $ 253.6 $ 237.7 $ 222.0 $ 187.8 $ 155.4
========= ========= ========= ========= ========= ========= =========
EARNINGS PER COMMON
SHARE:
Basic:
Income from Continuing
Operations............ $ 0.83 $ 0.73 $ 2.89 $ 2.69 $ 2.55 $ 2.51 $ 2.19
Income (Loss) from
Discontinued
Operations............ -- -- -- (0.08) 0.04 0.03 (0.05)
--------- --------- --------- --------- --------- --------- ---------
Net Income........... $ 0.83 $ 0.73 $ 2.89 $ 2.61 $ 2.59 $ 2.54 $ 2.14
========= ========= ========= ========= ========= ========= =========
Diluted:
Income from Continuing
Operations............ $ 0.82 $ 0.71 $ 2.85 $ 2.64 $ 2.51 $ 2.35 $ 2.04
Income (Loss) from
Discontinued
Operations............ -- -- -- (0.08) 0.04 0.02 (0.05)
--------- --------- --------- --------- --------- --------- ---------
Net Income........... $ 0.82 $ 0.71 $ 2.85 $ 2.56 $ 2.55 $ 2.37 $ 1.99
========= ========= ========= ========= ========= ========= =========
DIVIDENDS PAID PER
COMMON SHARE:.......... $ 0.205 $ 0.185 $ 0.800 $ 0.710 $ 0.605 $ 0.545 $ 0.488
BALANCE SHEET DATA (END
OF PERIOD):
Invested Assets......... $14,677.8 $14,790.3 $14,463.2 $14,909.1 $14,420.5 $11,996.3 $11,814.2
Other Assets............ 11,182.8 8,142.3 10,463.7 7,699.6 6,580.3 4,710.7 3,705.0
--------- --------- --------- --------- --------- --------- ---------
Total Assets........... 25,860.6 22,932.6 24,926.9 22,608.7 21,000.8 16,707.0 15,519.2
Notes and Mortgages
Payable................ 829.3 529.5 803.6 509.4 593.5 407.5 422.3
Other Liabilities....... 22,810.8 20,108.9 21,935.0 19,736.8 18,154.4 14,760.9 13,676.8
--------- --------- --------- --------- --------- --------- ---------
Total Liabilities...... 23,640.1 20,638.4 22,738.6 20,246.2 18,747.9 15,168.4 14,099.1
Trust-Originated
Preferred Securities... 242.7 242.4 242.6 242.3 241.9 120.9 --
Shareholders' Equity
Preferred.............. -- -- -- -- -- -- 68.7
Common................. 1,977.8 2,051.8 1,945.7 2,120.2 2,011.0 1,417.7 1,351.4
Book Value Per Common
Share.................. 22.10 23.12 21.89 23.86 22.24 17.71 17.44
Note: Certain March 31, 1999 financial data have been restated to conform to
current period presentation.
9
Lexington's selected historical financial data presented below as of and for
the five fiscal years ended December 31, 1999 are derived from the audited
financial statements of Lexington and its subsidiaries. Financial data as of
and for the three-month periods ended March 31, 2000 and 1999 have been derived
from unaudited financial statements of Lexington and its subsidiaries. Results
of operations for the three months ended March 31, 2000 are not necessarily
indicative of the results to be expected for the full fiscal year. The
following selected financial data should be read in conjunction with
Lexington's Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which
are incorporated by reference in this proxy statement/prospectus.
LEXINGTON GLOBAL ASSET MANAGERS, INC. AND SUBSIDIARIES
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- -----------
REVENUES:
Investment advisory:
Mutual fund management
fees (including
approximately $98,158,
$91,600, $345,000,
$318,000, $521,000,
$430,000 and $452,000
respectively, from
related parties)...... $ 2,771,358 $ 2,130,851 $ 9,220,626 $10,907,452 $13,458,933 $11,736,786 $10,185,478
Mutual fund
commissions........... 5,675 10,160 24,571 71,600 62,838 215,656 175,434
Other management fees
(including
approximately
$928,668, $847,700,
$3,425,000,
$2,954,000,
$2,695,000, 2,102,000
and 2,443,000,
respectively, from
related parties)...... 2,452,760 2,137,687 8,968,448 7,735,194 6,726,438 7,265,328 9,033,559
Commissions income..... 9,948 36,306 87,144 108,508 151,334 1,734,411 1,692,261
Other Income........... 413,332 138,623 836,380 343,711 495,175 742,092 521,556
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues......... $ 5,653,073 $ 4,453,627 $19,137,169 $19,166,465 $20,894,718 $21,694,273 $21,608,288
----------- ----------- ----------- ----------- ----------- ----------- -----------
Expenses:
Salaries and other
compensation.......... 2,304,433 2,271,344 10,181,344 9,011,246 9,015,128 11,241,242 10,492,925
Selling and
promotional........... 246,763 121,881 903,883 991,096 1,316,577 1,231,927 1,893,083
Administrative and
general............... 2,574,254 1,675,507 7,252,746 7,689,604 6,898,251 6,093,385 6,900,792
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses......... $ 5,125,450 $ 4,068,732 $18,337,973 $17,691,946 $17,229,956 $18,566,554 $19,286,800
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interest.............. 527,623 384,895 799,196 1,474,519 3,664,762 3,127,719 2,321,488
Provision (benefit) for
income taxes:
Current................ 76,294 67,998 550,763 346,539 13,929 1,353,734 1,285,843
Deferred............... 257,328 98,876 (195,552) 377,527 1,193,629 (83,559) (586,027)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total provision........ 333,622 166,874 355,211 724,066 1,207,558 1,270,175 699,816
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before minority
interest.............. 194,001 218,021 443,985 750,453 2,457,204 2,387,425 1,621,672
Minority Interest...... 67,499 32,963 170,335 36,013 60,149 (87,227) 43,015
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income............. $ 126,502 $ 185,058 $ 273,650 $ 714,440 $ 2,397,055 $ 2,474,652 $ 1,578,657
=========== =========== =========== =========== =========== =========== ===========
Earnings per share:
Basic earnings per
share................. $ 0.03 $ 0.04 $ 0.06 $ 0.14 $ 0.45 $ 0.45 $ 0.29
=========== =========== =========== =========== =========== =========== ===========
Diluted earnings per
share................. $ 0.03 $ 0.04 $ 0.06 $ 0.14 $ 0.45 $ 0.45 $ 0.29
=========== =========== =========== =========== =========== =========== ===========
Basic weighted average
shares outstanding.... 4,501,049 4,710,105 4,551,129 4,994,048 5,322,172 5,487,887 5,487,887
=========== =========== =========== =========== =========== =========== ===========
Diluted weighted
average shares and
common stock
equivalent
outstanding........... 4,764,214 4,769,898 4,687,117 5,056,166 5,381,785 5,498,844 5,487,942
=========== =========== =========== =========== =========== =========== ===========
10
LEXINGTON GLOBAL ASSET MANAGERS, INC. AND SUBSIDIARIES
MARCH 31, DECEMBER 31,
----------- ---------------------------------------------------------------
2000 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
ASSETS:
Cash and cash
equivalents:
Cash................... $ 1,192,622 $ 1,262,379 $ 228,347 $ 193,383 $ 1,631,249 $ 575,694
Money market accounts.. 7,598,594 8,616,274 8,209,827 8,511,915 5,898,575 5,039,323
----------- ----------- ----------- ----------- ----------- -----------
8,791,216 9,878,653 8,438,174 8,705,298 7,529,824 5,615,017
----------- ----------- ----------- ----------- ----------- -----------
RECEIVABLES:
Investment advisory and
management fees........ 1,745,807 1,339,294 863,920 1,233,377 1,161,473 1,577,875
Due from funds and
other.................. 839,374 468,413 426,585 596,333 868,649 1,206,619
----------- ----------- ----------- ----------- ----------- -----------
2,584,181 1,807,707 1,290,505 1,829,710 2,030,122 2,784,494
----------- ----------- ----------- ----------- ----------- -----------
Trading securities, at
market value........... 1,580,166 1,061,227 1,337,110 1,524,788 1,205,350 932,282
Prepaid expenses........ 1,199,345 1,411,688 1,859,517 1,608,122 367,159 349,768
Prepaid taxes........... 3,295 5,433 182,066 106,203 11,900 42,365
Fixed assets (net of
accumulated
depreciation and
amortization).......... 876,633 931,576 1,193,515 1,384,772 1,347,324 1,434,802
Intangible assets (net
of accumulated
amortization).......... 158,226 162,276 178,476 194,676 210,875 252,387
Assets associated with
deferred compensation.. 1,065,786 1,013,895 834,309 -- -- --
Deferred tax asset,
net.................... 1,498,911 1,756,238 1,560,686 1,938,213 3,131,842 3,048,283
Other assets............ 10,056 9,562 8,608 141,491 243,120 314,203
----------- ----------- ----------- ----------- ----------- -----------
Total assets........... $17,767,815 $18,038,255 $16,882,966 $17,433,273 $16,077,516 $14,773,601
=========== =========== =========== =========== =========== ===========
LIABILITIES:
Accounts payable and
accrued expenses....... $1,194,438 $ 920,713 $ 769,969 $ 926,177 $ 1,027,123 $ 1,256,982
Accrued compensation.... 360,429 1,485,983 615,055 1,530,100 1,480,337 1,870,820
Accrued employee
benefits............... 2,547,767 2,442,227 2,559,653 1,981,308 1,183,866 1,130,393
Deferred income......... 2,293,950 2,134,972 1,891,360 1,636,702 1,204,257 1,600,046
Deferred compensation... 1,065,786 1,013,895 834,309 -- -- --
Capitalized lease
obligations............ -- -- -- -- -- 157,019
Federal income taxes
payable................ 704,909 794,016 843,434 863,667 1,015,351 979,184
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities...... 8,167,279 8,791,806 7,513,780 6,937,954 5,910,934 6,994,444
----------- ----------- ----------- ----------- ----------- -----------
Minority interest....... 540,655 473,156 428,821 405,058 344,909 432,136
STOCKHOLDERS' EQUITY:
Preferred stock, $.01
par value; 5,000,000
authorized shares; 0
issued and
outstanding............ -- -- -- -- -- --
Common stock, $.01 par
value; 15,000,000
authorized shares;
5,487,887 issued,
4,505,038, 4,494,038,
4,720,208, 5,174,887,
5,487,887, and
5,487,887,
respectively,
outstanding............ 54,879 54,879 54,879 54,879 54,879 54,879
Additional paid-in
capital................ 21,533,392 21,533,392 21,573,392 21,708,142 21,501,517 21,501,517
Accumulated deficit..... (8,233,389) (8,359,891) (8,633,541) (9,345,918) (11,734,723) (14,209,375)
Deferred compensation... (346,494) (506,580) (1,118,758) (1,654,342) -- --
Treasury stock, at
cost................... (3,948,507) (3,948,507) (2,935,607) (672,500) -- --
Total stockholders'
equity................ 9,059,881 8,773,293 8,940,365 10,090,261 9,821,673 7,347,021
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity.. $17,767,815 $18,038,255 $16,882,966 $17,433,273 $16,077,516 $14,773,601
=========== =========== =========== =========== =========== ===========
11
COMPARATIVE UNAUDITED PER-SHARE DATA
The following tables present historical per-share data of ReliaStar and
Lexington and combined per-share data on an unaudited pro-forma basis after
giving effect to the merger. These data should be read in conjunction with the
selected historical financial data and the separate historical financial
statements of ReliaStar and Lexington and notes to those statements included
elsewhere or incorporated by reference in this proxy statement/prospectus. The
pro forma information is not necessarily indicative of the operating results or
financial position that would have occurred if the merger had been consummated
as of the beginning of the periods presented, nor is it necessarily indicative
of future operating results or financial position.
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2000 DECEMBER 31, 1999
--------------------- -----------------
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE:
Basic:
Historical ReliaStar............... $0.83 $2.89
Historical Lexington............... 0.03 0.06
Pro Forma Combined................. 0.82 2.83
Pro Forma Equivalent for One Share
of Lexington Common Stock......... 0.28 0.98
Diluted:
Historical ReliaStar............... $0.82 $2.85
Historical Lexington............... 0.03 0.06
Pro Forma Combined................. 0.81 2.79
Pro Forma Equivalent for One Share
of Lexington Common Stock......... 0.28 0.97
Dividends Paid per Common Share:
Historical ReliaStar............... $0.205 $0.80
Historical Lexington............... -- --
Pro Forma Combined................. 0.205 0.80
Pro Forma Equivalent for One Share
of Lexington Common Stock......... 0.07 0.28
BOOK VALUE PER
SHARE OF COMMON STOCK
MARCH 31, 2000
---------------------
Historical ReliaStar................... $22.10
Historical Lexington................... 2.01
Pro Forma Combined..................... 22.20
Pro Forma Equivalent for One Share of
Lexington Common Stock................ 7.68
12
SHARE PRICE AND DIVIDEND DATA
Shares of ReliaStar common stock are listed and principally traded on the
New York Stock Exchange under the symbol "RLR." Shares of Lexington common
stock are listed and principally traded on the Nasdaq National Market System
under the symbol "LGAM."
The following table shows, for the calendar periods indicated, the reported
high and low sale prices per share on the New York Stock Exchange for ReliaStar
common stock and on the Nasdaq National Market System for Lexington common
stock. The table also shows historical dividend information for ReliaStar.
Lexington has not paid cash dividends on its common stock during the periods
presented.
LEXINGTON
RELIASTAR COMMON
COMMON STOCK STOCK
---------------------- -----------
HIGH LOW DIVIDEND HIGH LOW
------ ------ -------- ----- -----
1998:
First Quarter.............................. $48.75 $39.75 $.155 $9.50 $6.75
Second Quarter............................. 49.94 41.75 .185 8.50 6.75
Third Quarter.............................. 52.44 36.44 .185 7.25 3.31
Fourth Quarter............................. 48.44 29.00 .185 5.25 3.25
1999:
First Quarter.............................. $48.44 $39.56 $.185 $3.88 $2.56
Second Quarter............................. 43.94 34.88 .205 3.75 3.00
Third Quarter.............................. 49.81 32.06 .205 3.88 3.19
Fourth Quarter............................. 49.50 31.69 .205 3.19 2.25
2000:
First Quarter.............................. $39.31 $23.75 $.205 $8.88 $2.25
Second Quarter (through
, 2000).............................. .220
13
RISK FACTORS
If ReliaStar's Pending Merger With ING is Terminated, ReliaStar's Stock Price
Will Likely Fall and the Amount That You Expect to Receive in the Merger Will
Likely Be Reduced
ReliaStar's merger agreement with ING provides for a fixed price of $54 per
ReliaStar share, which represents a premium of 84.5% over ReliaStar's average
trading price for the 60-day period before the public announcement of the
merger agreement. ING's acquisition of ReliaStar is subject to customary
closing conditions, including the approval of ReliaStar's shareholders and the
receipt of required regulatory approvals. If the merger agreement between ING
and ReliaStar were terminated, it is likely that ReliaStar's stock price would
fall, which could result in Lexington stockholders receiving less than the
maximum $10.611 per-share merger consideration that ReliaStar and Lexington
assume will be payable in the merger.
If Lexington's Assets Under Management Decline, the Consideration You Expect
to Receive May Be Reduced
If Lexington's assets under management at the completion of the merger
differ by more than 10% from Lexington's assets under management on December
31, 1999, then the merger consideration will be increased or reduced, as the
case may be, based on a formula discussed in the main body of this document.
Changes in assets under management related solely to changes in the market
value of the assets under management will be ignored when calculating any
adjustment. Although the formula for determining this adjustment is listed in
this proxy statement/prospectus, the amount of any such adjustment will not be
known until after you submit your proxy or vote.
GENERAL INFORMATION
Lexington is delivering this proxy statement/prospectus to you and other
Lexington stockholders in connection with the solicitation of proxies by
Lexington's board of directors for use at the special meeting of stockholders
to be held on , 2000, and at any adjournments or postponements of
that meeting. The special meeting has been called for the purpose of voting
upon a proposal to approve the merger agreement and the merger. This proxy
statement/prospectus also constitutes the prospectus of ReliaStar with respect
to shares of ReliaStar common stock to be issued in the merger.
The merger will be accomplished by a merger of a wholly owned subsidiary of
Pilgrim with Lexington. Lexington will be the surviving corporation in the
merger and will become a wholly owned subsidiary of Pilgrim. After the merger,
ReliaStar's combined mutual fund organization will have a family of mutual
funds representing assets under management of approximately $ billion and
combined annual sales of $ billion.
In the merger, all the outstanding shares of Lexington common stock will be
converted into the right to receive cash and/or shares of ReliaStar common
stock, at the election of each Lexington stockholder. ReliaStar stockholders
will continue to hold their shares of ReliaStar common stock, without any
change.
Date, Time, Place and Purpose of Lexington's Meeting
The special meeting of stockholders of Lexington will be held at a.m.,
local time, on , 2000 at Lexington's executive offices, Park 80
West, Plaza Two, Saddle Brook, New Jersey 07663. At the meeting, stockholders
at the close of business on the record date of , 2000 will be asked
to approve the merger agreement and the merger. No other business will be
conducted at the meeting.
Record Date and Outstanding Shares
Only holders of record of Lexington common stock at the close of business
on the record date are entitled to vote at the meeting. As of that time, there
were shares of Lexington common stock outstanding
14
and entitled to vote, held of record by approximately stockholders. Each
stockholder is entitled to one vote for each share of Lexington common stock
held as of the record date.
Quorum
The required quorum for the transaction of business at the meeting is a
majority of the shares of Lexington common stock outstanding on the record
date.
Vote Required
The affirmative vote of a majority of the outstanding shares of Lexington
common stock is required to approve the merger agreement and the merger. As of
the date of this proxy statement/prospectus, % of the outstanding shares
entitled to vote are held by Lexington's directors, executive officers and
their affiliates.
Abstentions; Broker Non-Votes
Abstentions will be included in determining the number of shares present and
voting at the meeting for purposes of a quorum, but will be deemed to be votes
against the merger. Broker non-votes will similarly count as votes against the
merger.
Expenses of Proxy Solicitation
Lexington will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Lexington and its agents also may solicit proxies by mail,
telephone, facsimile, or in person. Following the original mailing of the
proxies and other soliciting materials, Lexington will request brokers,
custodians, nominees and other record holders of common stock to forward copies
of the proxy and other soliciting materials to persons for whom they hold
shares of common stock and to request authority for the exercise of proxies.
Upon the request of the record holders, Lexington will reimburse them for their
reasonable expenses.
Voting of Proxies
The proxy accompanying this proxy statement/prospectus is solicited on
behalf of Lexington's board of directors for use at the meeting. You are
requested to complete, date, and sign the accompanying proxy and promptly
return it in the enclosed envelope or otherwise deliver it to Lexington. All
properly signed proxies received by Lexington before the vote at the meeting
that are not revoked will be voted at the meeting according to the instructions
indicated on the proxies or, if no direction is indicated, to approve the
merger agreement and the merger.
How to Revoke Your Proxy
You may revoke your proxy at any time before it is exercised at the meeting,
by taking any of the following actions:
. delivering to Lexington's Corporate Secretary, by any means, including
facsimile, a written notice, bearing a date later than the date of the
proxy, stating that the proxy is revoked,
. signing and delivering a proxy relating to the same shares and bearing a
later date, or
. attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
Please note, however, that if your shares are held of record by a broker,
bank, or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank, or other nominee confirming your
beneficial ownership of the shares.
15
BACKGROUND OF THE MERGER
As part of Lexington's strategic alternatives planning process, it
continually reviews industry trends and strategic opportunities in the
investment business to enhance the growth and profitability of its businesses.
Between 1996 and the fall of 1998 Lexington was aware of the contraction in
operating profit margins, as assets were redeemed from higher-fee funds (1%
management fee) such as Worldwide Emerging Markets and the precious metals
equity funds because of unfavorable market conditions for these investment
alternatives. In addition, in 1996, Lexington lost several major Taft-Hartley
institutional clients because of the poor performance of its institutional
value investment style in 1995. The losses had a significant impact on
Lexington's institutional client revenues and profitability.
Earnings per share fell, as Lexington was unable to grow assets fast enough
in other "lower fee" products to offset asset losses in these specialized
funds. This failure to achieve its stated profit targets caused Lexington to
underperform stockholder expectations.
At the November 1998 Lexington board of directors meeting, the board
requested that management be prepared to review Lexington's long-term business
prospects at its next meeting. This review confirmed that Lexington was falling
further behind in comparison with its original expectations. Specifically, the
mutual funds segment of the Lexington business was losing market share, not
only because of the previously cited market conditions, but in absolute terms
as well, despite excellent investment performance compared to comparable funds.
Distribution channels were becoming more competitive. Furthermore, because of
poor profitability in 1998, bonus pools were substantially reduced.
Compensation falling behind the competition heightened the risk of losing
talented investment personnel.
Management was assigned the task of conducting a strategic assessment and
plan for the mutual fund business. That plan was presented at the May 13, 1999
board meeting. The plan identified both opportunities and deficiencies as it
related to Lexington's mutual fund marketing efforts. Management was told to
implement elements of the new plan, but also to initiate contact with potential
strategic partners to either "joint venture" or combine operations with a firm
that could enhance distribution and thereby, increase growth and profitability.
Lexington contacted several organizations to broadly discuss potential ways
in which it could work with them to enhance the sales of mutual fund shares.
However, it became apparent that this approach was not effective as each
organization sought a form of business combination.
At the September 17, 1999 board of directors meeting, Putnam, Lovell, de
Guardiola & Thornton, Inc. was invited to make a presentation on how Lexington
compared with others in the financial service industry. After discussion of
numerous factors regarding its position in the industry, Lexington decided to
engage Putnam Lovell, to assess both opportunities and alternative strategies
that could be beneficial to the Lexington stockholders.
A formal review of Lexington's operations was prepared and distributed to a
number of third parties, including ReliaStar, each of whom signed a
confidentiality agreement.
At the November 18, 1999 Lexington board meeting, Putnam Lovell reviewed the
results of discussions with the companies contacted. As a result of that
meeting, it was decided to have management initiate discussions regarding a
possible business combination with a select group of parties.
During the period from November 18, 1999 through February 4, 2000, due
diligence and management meetings were held with the parties involved.
Management met with Putnam Lovell on February 9, 2000 to discuss the merits of
the proposals submitted by interested parties and to clarify issues pertaining
to these proposals.
16
On February 10, 2000, the Lexington board met to discuss the proposals
received. Senior management of Lexington described each proposal to the board,
and Lexington's legal counsel described the board's legal duties in connection
with its consideration of the proposals. Putnam Lovell presented an analysis of
the merits of the business combinations proposed by the parties from the
perspective of maximizing benefits to the Lexington stockholders. The board of
directors directed that Lexington's management and advisors proceed to
negotiate and finalize a merger agreement with ReliaStar on substantially the
terms set forth in its offer, with particular focus on preserving the tax
benefits of receiving ReliaStar shares in the merger and obtaining reasonable
protection as to fluctuations in the price of those shares.
The meeting of the board of directors adjourned and a meeting was convened
of William R. Miller and Carl H. Tiedemann being those directors present who
were not officers of Lexington or Richardson family members. Messrs. Miller and
Tiedemann first met with management and then met with Lexington's legal counsel
and Putnam Lovell to discuss the proposals received and the search done by
management and Putnam Lovell for companies that might be interested in
Lexington. Messrs. Miller and Tiedemann determined that management should
proceed to negotiate and finalize a merger agreement with ReliaStar.
On February 18, 2000 one of the interested companies (other than ReliaStar)
sent a revised offer to acquire Lexington. The board of directors of Lexington
met on February 22, 2000 and management and Lexington's advisors analyzed the
terms and conditions of the revised proposal. Subject to modification of
certain terms in the revised proposal, the board agreed that management and
Lexington's advisors should proceed to negotiate definitive merger agreements
with both ReliaStar and the other interested company for consideration by the
board of directors.
After extensive negotiation between ReliaStar and Lexington on February 27,
2000, ReliaStar increased the amount of its offer for Lexington contingent upon
Lexington agreeing to certain terms which would make it more difficult for a
third party to enter into a transaction to acquire Lexington once ReliaStar and
Lexington had signed a merger agreement (the "higher ReliaStar offer"). The
higher ReliaStar offer was also contingent upon certain directors and members
of the Richardson family signing voting agreements applicable to stock
representing in excess of 50% of the outstanding of shares. These voting
agreements would obligate those stockholders to vote in favor of a merger with
ReliaStar at the special meeting of stockholders to approve the merger with
ReliaStar. ReliaStar also offered an alternative proposal to acquire Lexington
which would not require a voting agreement and would have fewer restrictions on
Lexington's ability to consider offers from third parties after Lexington had
executed a Merger Agreement with ReliaStar, but at a significantly lower
purchase price for Lexington.
On February 28, 2000, Lexington's board of directors held a special meeting
to formally consider the merger agreements negotiated with each of the two
remaining interested companies and the two alternatives presented by ReliaStar.
The board of directors heard a presentation on the principal terms including,
but not limited to, transaction structure and tax consequences of the
definitive merger agreements negotiated with each of the two interested
parties. Putnam Lovell made a presentation regarding its analysis of the
financial terms as detailed in the definitive merger agreements. Information
was also presented to the board regarding ReliaStar and the performance of its
stock. The board of directors considered the conditions and other contingencies
associated with each of the two proposals and discussed the risk of
nonconsummation of the proposed merger with one party versus the other.
At the meeting of the board of directors on February 28, 2000, Haynes G.
Griffin, William R. Miller and Carl H. Tiedemann, who were directors who were
not officers of Lexington or members of the Richardson family ("non-interested
directors") met separately to consider the merger proposals. The non-interested
directors unanimously determined that the higher ReliaStar offer was the best
offer and that the higher ReliaStar offer had a higher probability of
consummation than the offer from the other potential merger partner and was
with a company substantially larger and more experienced in transactions of
this type. In a separate vote, the non-interested directors determined that the
merger was fair to and in the best interests of Lexington and its stockholders
and recommended it to the board of directors.
17
The board of directors reconvened and in turn determined that the merger
with ReliaStar at the higher ReliaStar offer was fair to and in the best
interests of Lexington and its stockholders and unanimously approved the merger
and the merger agreement. The directors who were officers of Lexington or were
Richardson family members also indicated that they would sign the voting
agreements proposed by ReliaStar to enable all stockholders to obtain the
higher ReliaStar offer.
Following its deliberations, the board of directors approved an amendment to
the Lexington rights agreement, exempting the transactions contemplated by the
merger agreement from the agreement, and approved, as required by Section 203
of the Delaware General Corporation Law, ReliaStar becoming an interested
stockholder of Lexington by virtue of its execution and delivery of the merger
agreement and the voting agreements executed by various Lexington stockholders.
Due to the announcement on May 1, 2000 that ReliaStar had signed a
definitive merger agreement to be acquired by the ING Group. the board of
directors met again on May 11, 2000. At the meeting the board discussed the
contemplated acquisition of ReliaStar by the ING Group, which involves the
purchase of all outstanding ReliaStar stock for $54 per share. As a result of
the merger between ING Groep and ReliaStar, it was explained to the board that
the merger between Lexington and ReliaStar as then structured would lose its
tax-free aspects. However, the announcement of the merger between the ING Group
and ReliaStar caused the ReliaStar common stock to dramatically increase in
value, thereby maximizing the purchase price to be paid to Lexington
stockholders pursuant to the merger agreement. The board was then asked to
approve a second amendment to the merger agreement that included the removal of
the tax-free reorganization provisions. The second amendment also provided that
in the event the merger agreement between the ING Group and ReliaStar is
terminated, the second amendment will also be terminated and the merger between
Lexington and ReliaStar will once again be structured as a tax-free
reorganization. Following the presentation of the second amendment and
discussions concerning the effects of the merger between the ING Group and
ReliaStar, the board of directors approved the second amendment.
LEXINGTON'S REASONS FOR THE MERGER
AND RECOMMENDATION OF THE LEXINGTON BOARD OF DIRECTORS
LEXINGTON'S REASONS FOR THE MERGER
The board of directors believes that the merger represents the best value
reasonably available for the Lexington stockholders and is fair to and in the
best interests of Lexington and its stockholders. In reaching its
determination, the board consulted with Lexington management, as well as its
financial advisors and legal counsel, and considered a number of factors,
including the following:
. the board of directors' knowledge of the business, operations, financial
condition, operating results, competitive position, strategic
alternatives and prospects of Lexington, the nature of the industry in
which Lexington operates and current industry, economic and market
conditions;
. Lexington's relatively small public stock market float and the fact that
Lexington was selling at a significant discount to its intrinsic and
enterprise value;
. the fact that Putnam Lovell, on behalf of Lexington, had solicited
interest in a possible acquisition of Lexington from third parties that
Lexington and Putnam Lovell believed were likely to have an interest in
a potential transaction and that Lexington had not received offers or
indications of interest from other parties at prices in excess of the
consideration expected to be received in the merger;
. the board of directors' receipt of the opinion of Putnam Lovell that, as
of February 28, 2000, the consideration to be received by the Lexington
stockholders pursuant to the merger agreement was fair to such
stockholders from a financial point of view;
. the board of directors' review of the historical market prices of shares
of Lexington common stock and ReliaStar common stock and that the price
per share implied by the assumed merger consideration represents a
premium of approximately 37% to the closing price of the Lexington
18
common stock on the day before the merger agreement was signed and a
premium of 193% over the last closing price per share before Lexington
publicly announced that it was in merger negotiations;
. the board of directors' determination that given the increased
competition and consolidation in the investment management industry, the
combined investment management businesses of Lexington and ReliaStar
would produce a much stronger market competitor than Lexington on a
stand-alone basis;
. the board of directors' conclusion that, given the size and resources of
ReliaStar and its experience in mergers and acquisitions, the
probability that the merger could be successfully consummated with
ReliaStar was higher than the probability of consummation with other
interested third parties;
. the strategic and financial alternatives available to Lexington,
including remaining an independent company;
. the board of directors' review of presentations by, and discussion of
the terms and conditions of, the merger agreement with management of
Lexington, Lexington's legal advisors and representatives of Putnam
Lovell; and
. certain publicly available information with respect to the financial
condition and results of operations of ReliaStar.
The Lexington board of directors also considered a number of potentially
negative factors in its deliberations concerning the merger, including:
. the risk that the merger might not be consummated;
. the fact that Lexington stockholders will not be able to participate
directly in the future growth of the company on a stand-alone basis;
. the fact that certain employees may be concerned regarding their future
employment;
. the possible effect of the public announcement of the merger on the
investment management contracts with individual, private and wrap
clients, and/or mutual fund shareholders; and
. given the demographic growth trends and positive business climate, the
possibility that Lexington's decision to merge may be premature in
relation to its future value.
In view of the wide variety of material factors considered in connection
with its evaluation of the merger, the board of directors did not find it
practicable to quantify or otherwise attempt to assign relative weights to
specific factors considered in reaching its determination. The board concluded
that the negative factors were significantly outweighed by the potential
benefits of the merger and that the merger is fair to and in the best interests
of Lexington and its stockholders.
RECOMMENDATION OF LEXINGTON'S BOARD OF DIRECTORS
AFTER CAREFULLY EVALUATING THESE FACTORS, BOTH POSITIVE AND NEGATIVE, THE
BOARD OF DIRECTORS OF LEXINGTON HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF LEXINGTON AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
LEXINGTON STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND OF THE
MERGER.
In considering the recommendation of the Lexington board of directors with
respect to the merger, you should be aware that certain directors and officers
of Lexington have certain interests in the merger that are different from, or
are in addition to, the interests of Lexington stockholders generally. Please
see the section entitled "The Merger--Interests of Certain Persons in the
Merger" beginning on page for a discussion of these interests.
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RELIASTAR AND PILGRIM'S REASONS FOR THE MERGER
ReliaStar believes that the proposed acquisition will enhance its product
line, add assets under management, and provide economies of scale. Adding
Lexington to Pilgrim's mutual fund operations is intended to support
ReliaStar's increased focus on gathering and managing assets. ReliaStar and
Pilgrim expect that the acquisition will add an experienced fund management
team that will expand Pilgrim's portfolio management capabilities.
OPINION OF LEXINGTON'S FINANCIAL ADVISER
Lexington retained Putnam Lovell in September 1999 to render financial
advisory and investment banking services to Lexington in connection with
potential business combination transactions.
Putnam Lovell is an investment banking firm focused primarily on the
investment management industry and, as part of its business, is continually
engaged in the valuation of investment management businesses and their
securities in connection with mergers and acquisitions, distributions of
securities and similar activities. Putnam Lovell was selected on the basis of
its experience and expertise. Putnam Lovell acted as financial advisor to
Lexington in connection with, and participated in certain of the negotiations
leading to, the execution of the merger agreement.
On February 28, 2000, Putnam, Lovell, de Guardiola and Thornton, Inc.,
delivered its oral opinion to the Lexington board, which was subsequently
confirmed by its written opinion dated February 28, 2000, that as of that date
and based on and subject to the assumptions made, matters considered and
limitations on the review set forth in the opinion, the merger consideration to
be paid by ReliaStar in the merger was fair, from a financial point of view, to
the stockholders of Lexington. No limitations were imposed by the Lexington
board on Putnam Lovell, with respect to the investigations made or procedures
followed by it in furnishing its opinion. The merger consideration was
determined through negotiations between the management of Lexington and
ReliaStar.
The full text of Putnam Lovell's opinion, which sets forth among other
things, assumptions made, matters considered and limitations on the review
undertaken, is attached as Exhibit B and is incorporated in this
prospectus/proxy statement by reference. Stockholders of Lexington are urged to
read Putnam Lovell's opinion in its entirety. Putnam Lovell's opinion was
prepared at the request and for the use of the Lexington board in its
consideration of the merger and does not constitute a recommendation to
stockholders of Lexington as to how they should vote upon or take any other
action with respect to the merger. Putnam Lovell's opinion is limited to
whether the merger consideration to be paid by ReliaStar in the merger was
fair, from a financial point of view, to the stockholders of Lexington.
Putnam Lovell's opinion does not address:
. the value of any employee agreements or other arrangements entered into
in connection with the merger;
. any tax or other consequences that might result from the merger; or
. the price at which the shares of ReliaStar common stock that are issued
in the merger may be traded in the future.
Putnam Lovell's opinion does not address the relative merits of the merger
and any other business combination or strategy that the Lexington board has
considered or may be considering or the decision of the Lexington board to
proceed with the merger.
20
In connection with the preparation of its opinion, Putnam Lovell, among
other things:
. reviewed certain publicly available historical audited and unaudited
financial statements and other information regarding Lexington and
ReliaStar;
. reviewed pro forma historical financial statements, operating data and
other information regarding Lexington and its subsidiaries prepared by
the management of Lexington;
. reviewed certain internal financial analyses and projections of
Lexington and its subsidiaries prepared by the management of Lexington;
. reviewed certain other information furnished by Lexington for purposes
of Putnam Lovell's analyses, including cost savings and related expenses
expected to result from this transaction;
. compared the results of operations of Lexington with those of certain
public and private companies that Putnam Lovell deemed to be reasonably
comparable to Lexington;
. compared the proposed financial terms of the merger with the financial
terms of certain other recent transactions that Putnam Lovell deemed to
be relevant;
. reviewed a draft dated February 27, 2000 of the merger agreement;
. conducted discussions with members of the management of Lexington and
ReliaStar to discuss the foregoing, as well as other matters Putnam
Lovell believed relevant to its inquiry; and
. performed such other analyses and examinations and considered such other
factors as Putnam Lovell deemed appropriate.
In preparing its opinion, Putnam Lovell assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information supplied or otherwise made available to it from public
sources or by Lexington and ReliaStar and did not independently verify such
information. It neither obtained nor performed any independent valuation or
appraisal of Lexington's assets or liabilities or ReliaStar's investment
management business. It assumed that the financial projections and forecasts of
Lexington provided to it by Lexington were reasonably prepared and reflected
the best currently available estimates and good faith judgments of the senior
management of Lexington as to the future competitive, operating and regulatory
environments and related financial performance of the investment management
business of Lexington, and that such forecasts would be realized in the amounts
and at the times contemplated thereby. Putnam Lovell did not undertake any
independent analysis to verify the reasonableness of the assumptions underlying
those forecasts. Its opinion was necessarily based on economic, market and
other conditions as in effect on, and the information and agreements (or drafts
of agreements) made available to it as of, the date of its opinion.
Set forth below is a brief summary of certain of the significant analyses
performed by Putnam Lovell, and presented to the Lexington board, in connection
with its opinion that the merger consideration to be paid by ReliaStar in the
merger was fair, from a financial point of view, to the stockholders of
Lexington.
COMPARISON WITH SELECTED PUBLIC INVESTMENT MANAGEMENT COMPANIES
Putnam Lovell reviewed and compared certain past and present financial
operating and market statistics of four other publicly traded investment
managers with assets under management ("AUM") ranging from approximately $19
billion to $58 billion. The group included Eaton Vance Corp., Gabelli Asset
Management, Inc., Phoenix Investment Partners, Ltd., and Waddell & Reed
Financial, Inc. These companies were chosen for purposes of this analysis
because they are engaged in businesses substantially similar to those of
Lexington. However, all of the companies in this group are substantially larger
than Lexington in terms of assets under management and have a more diversified
product mix of mutual fund assets. Putnam Lovell included Lexington in the peer
group for comparison purposes. The following table illustrates an enterprise
valuation (defined as the sum of market capitalization, plus short- and long-
term debt, less excess cash and investments) comparison
21
based on AUM, earnings before interest, taxes, depreciation and amortization
("EBITDA"), and net income, and market data as of February 9, 2000 (the day
before Lexington announced that it was exploring a strategic transaction).
Except where otherwise noted, all analyses utilize latest twelve months data
through December 31, 1999 ("LTM").
ENTERPRISE LTM LTM NET
VALUE(1) AUM EBITDA INCOME
--------------- ---- ------ -------
(IN $ MILLIONS)
Eaton Vance Corporation (NYSE: EV)........ $1,453.3 3.6% 18.3x 29.0x
Gabelli Asset Management Inc. (NYSE:
GBL)..................................... $ 355.6 1.9% 6.2x 8.6x
Lexington Global Asset Managers, Inc.
(NYSE: LGAM)............................. $ 17.6 0.5% 9.8x 20.6x
Phoenix Investment Partners, Ltd. (NYSE:
PXP)..................................... $ 582.6 1.0% 6.3x 23.8x
Waddell & Reed Financial, Inc. (NYSE:
WDR)..................................... $1,796.6 4.8% 12.7x 19.5x
PILGRIM/RELIASTAR PROPOSAL.............. $ 47.5 1.3% 26.4X 55.5X
- --------
(1) GAM Enterprise Value based on February 9, 1999 stock price of $3.50 and
shares outstanding of 5.032 million. LTM utilizes management's 1999
forecast as 12/31/99 actual operating data was available.
Source: PLGT Research; LTM data as of 12/31/99. Enterprise Value is defined as
sum of market cap, short- and long-term debt less excess cash and investments.
The terms of the merger implied a going concern value for Lexington of $47.5
million, which represents 1.3% of Lexington's assets under management at
December 31, 1999, 26.4x LTM EBITDA and 55.5x LTM net income. If ReliaStar
stock trades in excess of $31.625 per share, then the implied purchase price
for Lexington would be $50.67 million.
COMPARISON WITH RECENT ACQUISITIONS OF INVESTMENT MANAGEMENT COMPANIES
Putnam Lovell compared the financial performance of Lexington to that of a
group of eight selected investment management companies which were involved in
merger or acquisition transactions since January 1997 and for purposes of this
analysis may be considered similar to Lexington. The transactions included
(acquiror/acquiree): ReliaStar Financial/Pilgrim Capital Corporation; Credit
Suisse Asset Management/Warburg Pincus Asset Management; Pilgrim America
Capital Corporation/Nicholas-Applegate Mutual Fund business; Phoenix Investment
Partners, Ltd./Zweig Funds; AMVESCAP plc/LGT Asset Management; Mellon Bank
Corporation/Founders Asset Management; Phoenix Investment Partners, Ltd./Roger
Engemann & Associates; Lincoln National Corporation/Voyageur Funds. To the
extent data were available, Putnam Lovell compared the acquisition price
multiples paid in each of those transactions with the estimated acquisition
price multiples of the proposed merger with ReliaStar. LTM financial data for
Lexington utilizes Lexington's 1999 estimated financials provided by Lexington
management as December 31, 1999 actual financial data were unavailable.
The following table shows the estimated acquisition multiples of the
transactions reviewed by Putnam Lovell and the acquisition price multiples of
the proposed merger with ReliaStar.
IMPLIED IMPLIED
MULTIPLE: OTHER MULTIPLE:
REVIEWED RELIASTAR
MEASUREMENT TRANSACTIONS PROPOSAL
- ----------- ----------------- ---------
HIGH LOW MEDIAN
---- --- ------
As a percentage of LTM assets under management.... 3.9% 1.6% 3.1% 1.3%
As a multiple of LTM management and administration
fees............................................. 6.2x 2.2x 3.8x 2.6x
As a multiple of LTM EBITDA....................... 11.3x 8.0x 8.8x 26.4x
While this summary describes the material analyses and factors that Putnam
Lovell considered in rendering its opinion to the Lexington board, it is not a
complete description of all analyses and factors considered by Putnam Lovell.
The preparation of a fairness opinion is a complex process that involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of
22
these methods to the particular circumstances. Therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Putnam Lovell did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Accordingly,
Putnam Lovell believes that its analyses must be considered as a whole and that
selecting portions of its analyses and any of the factors considered by it,
without considering all analyses and factors, could create a misleading or
incomplete view of the evaluation process underlying its opinion. Several
analytical methodologies were employed and no one method of analysis should be
regarded as critical to the overall conclusion reached by Putnam Lovell. Each
analytical technique has inherent strengths and weaknesses, and the nature of
the available information may further affect the value of particular
techniques. The conclusion reached by Putnam Lovell is based on all analyses
and factors taken as a whole and also on application of Putnam Lovell's own
experience and judgment. This conclusion may involve significant elements of
subjective judgment and qualitative analysis. Putnam Lovell therefore gives no
opinion as to the value or merit standing alone of any one or more parts of the
analysis it performed.
In performing its analyses, Putnam Lovell made numerous assumptions with
respect to industry performance, general business and other conditions and
matters which are beyond the control of Lexington or Putnam Lovell. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by these analyses. Accordingly,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which these businesses actually may be sold in the
future, and these estimates are inherently subject to uncertainty.
Pursuant to the terms of Putnam Lovell's engagement, Lexington will pay
Putnam Lovell a transaction fee of approximately $950,000 upon consummation of
the merger. Lexington has also agreed to reimburse Putnam Lovell for its out-
of-pocket expenses and to indemnify and hold harmless Putnam Lovell and its
affiliates and any other person, director, employee or agent of Putnam Lovell
or any of its affiliates, or any person controlling Putnam Lovell or its
affiliates, for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by Putnam Lovell as a financial
advisor to Lexington, including, without limitation, any liability arising out
of rendering its fairness opinion. The terms of Putnam Lovell's engagement,
which Lexington and Putnam Lovell believe are customary in transactions of this
nature, were negotiated at arm's length between Lexington and Putnam Lovell.
Putnam Lovell was retained on the basis of its experience and expertise as a
financial advisor in connection with mergers and acquisitions and in securities
valuations generally.
THE MERGER
The following is a summary of the material terms of the merger agreement, a
complete copy of which is attached as Exhibit A to this proxy
statement/prospectus and incorporated by reference. The merger agreement is the
legal document that governs the merger; you are urged to review the agreement
in its entirety.
MERGER CONSIDERATION
General. Upon the completion of the merger, each outstanding share of
Lexington common stock will be converted, without any action on the part of the
stockholder, into the right to receive $3.306 in cash and 0.231 shares of
ReliaStar common stock, subject to the stockholder's election as to the
cash/stock mix he or she desires to receive and the possible adjustments
discussed below. ReliaStar will pay cash in lieu of the issuance of any
fractional shares of ReliaStar common stock in the amount of the fraction times
ReliaStar's average share price during the pricing period before the merger,
rounded to the nearest cent. The "pricing period" refers to the period of five
trading days that ends on the second trading day before completion of the
merger.
Possible Adjustments. There are two possible adjustments to the
consideration that you will receive in the merger. Although the formulas for
determining the adjustments are contained in the merger agreement and
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summarized in this section, the calculation of the adjustments, if any, will be
made using information that will not be fully available until shortly before or
after the special meeting.
First, if ReliaStar's average share price over the pricing period is greater
than $31.625, then the value of the merger consideration will be fixed at
$10.611. Because the ING Group has agreed to acquire Reliastar for a per-share
payment of $54.00, it is assumed that the value of the merger consideration
will be fixed at $10.611 per share. There is no provision in the merger
agreement that would allow Lexington to terminate the agreement if Reliastar
stock price rises above a certain level. Conversely, if ReliaStar's average
share price over the pricing period is less than $25.625, then the value of the
consideration to be paid per Lexington share will be fixed at $9.225.
In addition, after giving effect to the adjustments to the merger
consideration discussed above, if Lexington's assets under management shortly
before the completion of the merger differ by more than 10% from Lexington's
assets under management on December 31, 1999, then the merger consideration
will be increased or reduced, as the case may be, on a percentage basis.
Changes in assets under management related solely to changes in the market
value of the assets under management will be ignored when calculating any
adjustment. The merger consideration will be increased, on a one-for-one
percentage basis, to the nearest one-thousandth of one percent, by the amount
that the assets under management as of the close of business on the third
business day before the closing date are greater than 110% of the base amount
of such assets at the close of business on December 31, 1999. Conversely, the
merger consideration will be reduced, on a one-for-one percentage basis, to the
nearest one-thousandth of one percent, by the amount that the assets under
management as of the close of business on the third business day before the
closing date are less than 90% of the amount of such assets at the close of
business on December 31, 1999.
The following table provides examples of the effect of this formula for a
number of hypothetical assets-under-management values, assuming an unadjusted
merger consideration of $10.611 per share of Lexington common stock.
ASSETS UNDER MANAGEMENT
AS A PERCENTAGE OF THE INCREASE (REDUCTION) TO ADJUSTED MERGER
BASE AMOUNT MERGER CONSIDERATION CONSIDERATION
----------------------- ----------------------- ---------------
120.150% $1.077 $11.688
117.650% 0.812 11.423
112.050% 0.218 10.829
85.350% (0.493) 10.118
78.250% (1.247) 9.364
70.500% (2.069) 8.542
As of , 2000, the assets under management for Lexington's family
of mutual funds and private accounts totaled approximately $ billion, or
% of the base amount on December 31, 1999.
EFFECTIVE TIME AND EFFECT OF THE MERGER
If the merger agreement and the merger are approved by Lexington's
stockholders and all other conditions to the consummation of the merger are
satisfied or waived, the merger will be completed upon the appropriate filing
with the Delaware Secretary of State or at a later date specified in that
filing. The completion of the merger is expected to occur on or about
, 2000.
As of the effective time of the merger, Lexington will become a wholly owned
subsidiary of Pilgrim.
EXCHANGE OF SHARES
Detailed instructions regarding making your election between receiving the
merger consideration in stock, in cash, or in a mix of both are provided on the
enclosed election form. Also enclosed are detailed instructions
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regarding the method of surrendering your certificates representing shares of
Lexington common stock for the merger consideration. After the merger is
completed, each record holder who has surrendered the holder's certificate will
receive the merger consideration.
Each record holder who has not previously surrendered the holder's
certificates previously representing shares of outstanding Lexington common
stock also will be entitled, upon the surrender of the certificates to Norwest
Bank Minnesota, National Association, ReliaStar's stock transfer agent and the
exchange agent for the merger, to receive the merger consideration. Until
surrendered, each certificate previously representing shares of Lexington
common stock will be deemed for all corporate purposes, other than the payment
of dividends, to evidence the cash and/or the ownership of the number of whole
shares of ReliaStar common stock into which those shares of Lexington capital
stock have been converted.
The stockholders of ReliaStar will continue to hold their shares of common
stock of ReliaStar without any change.
EMPLOYEE BENEFIT PLANS, STOCK OPTIONS, AND RESTRICTED STOCK
Lexington employees will receive full credit for their service with
Lexington for purposes of determining eligibility and levels of benefits in
ReliaStar's employee benefit plans and arrangements, subject to the eligibility
and other participation requirements set forth in those plans and arrangements.
ReliaStar will assume all unexercised stock options to purchase shares of
Lexington common stock. Once assumed, those options will be exercisable upon
substantially the same terms as under the Lexington plan and related agreements
under which they were granted, except that (a) each such option will be fully
exercisable and (b) each such option will be exercisable for the number of
whole shares of ReliaStar common stock equal to the number of shares of
Lexington common stock subject to the option immediately before the completion
of the merger multiplied by the quotient of (1) the dollar value of the per-
share merger consideration over (2) ReliaStar's average share price for the
pricing period before closing (this quotient is called the "option ratio"). The
exercise price of the option will be correspondingly adjusted by dividing the
option exercise price immediately before completion of the merger by the option
ratio and rounding up to the nearest cent. As soon as practicable after the
effective time of the merger, ReliaStar has agreed to file and use its best
efforts to obtain and maintain effectiveness of a registration statement with
respect to the shares issuable upon exercise of these assumed options.
As of , 2000, the total number of shares of Lexington common stock
subject to outstanding options was , at exercise prices that ranged
from $ to $ per share.
All restrictions on shares of Lexington restricted stock lapsed when the
merger was approved by Lexington's board of directors.
CONDITIONS TO COMPLETION OF THE MERGER
Under the merger agreement, ReliaStar has no obligation to complete the
merger if any condition to its obligation to complete the merger is not
satisfied on or before the closing date of the merger, and Lexington has no
obligation to complete the merger if any condition to its obligation to
complete the merger is not satisfied on or before the closing date of the
merger. These conditions may be waived or modified either mutually by the
parties or, with respect to certain conditions, by the party that is, or whose
stockholders are, entitled to the benefits of the condition. Neither ReliaStar
nor Lexington has any present intention to waive or modify any condition that
it deems material.
The material obligations of each of ReliaStar and Lexington to complete the
merger are as follows:
. the approval of the merger agreement and the merger by Lexington's
stockholders;
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. the approval of new advisory and sub-advisory agreements by stockholders
of the Lexington family of mutual funds, except as provided in the
merger agreement;
. the consent to the change of control of Lexington by certain
institutional and private investors for whom Lexington acts as
investment adviser;
. the receipt of all governmental permits, consents, and approvals
reasonably necessary for the consummation of the merger;
. the absence of court order, governmental proceeding, legislation, or
regulation making the consummation of the merger illegal; and
. the listing on the New York Stock Exchange of the shares of ReliaStar
common stock to be issued in the merger.
Additional material conditions to ReliaStar's obligation to complete the
merger include the following:
. the material accuracy, as of the date of the merger agreement and the
closing date of the merger, of the representations and warranties of
Lexington, and the material performance of all of the terms of the
merger agreement to be performed by Lexington before the completion of
the merger;
. that there shall have been no material adverse change in Lexington's
overall business, financial condition, and results of operations, except
those caused by general economic factors;
. that the assets under management of the Lexington family of mutual funds
and private accounts shall be at least 55% of the amount of such assets
on December 31, 1999; and
. that holders of no more than 5% of the total outstanding shares of
Lexington common stock shall have asserted statutory dissenters' rights
of appraisal.
Additional material conditions to Lexington's obligation to complete the
merger include the following:
. the material accuracy, as of the date of the merger agreement and the
closing date of the merger, of the representations and warranties of
ReliaStar, and the material performance of all of the terms of the
merger agreement to be performed by ReliaStar before the completion of
the merger; and
. that there shall have been no material adverse change in ReliaStar's
overall business, financial condition, and results of operations, except
those caused by general economic factors.
You should review Article VIII of the merger agreement for a full statement
of the conditions to the obligations of the parties to complete the merger.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, ReliaStar and Lexington have made various
representations and warranties relating to, among other things, their and their
affiliates' businesses and financial condition, the accuracy of their various
filings with the Securities and Exchange Commission, the satisfaction of legal
requirements for the merger, and the absence of material litigation. You should
review Articles III, IV, and V of the merger agreement for a full statement of
the representations and warranties of the parties. The representations and
warranties expire upon completion of the merger.
CONDUCT OF BUSINESS BEFORE THE MERGER
The merger agreement provides that, before the completion of the merger,
Lexington will conduct its business, and the business of the Lexington family
of mutual funds, only in the ordinary course of business and consistent with
prior practice. The agreement also generally provides for restrictions with
respect to Lexington on, among other things, the amendment of any stock option
agreement, entering into or amending material contracts and other commitments,
transferring or granting certain rights in its intellectual property, declaring
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dividends or other distributions, amending its charter or bylaws, acquiring or
disposing of any business, incurring certain indebtedness, and modifying any
employee benefit plan.
AMENDMENT AND WAIVER
The merger agreement may be amended at any time by written agreement of
ReliaStar and Lexington. After the merger agreement has been approved by the
stockholders of Lexington, however, it may be amended only as permitted by
Delaware law. Any provision of the merger agreement may be waived at any time
by the party that is, or whose stockholders are, entitled to the benefits of
the provision.
TERMINATION
The merger agreement may be terminated before the effective time of the
merger, whether before or after approval by Lexington's stockholders. The
conditions under which the merger agreement may be terminated include the
following:
. termination by mutual agreement of ReliaStar and Lexington;
. termination by either ReliaStar or Lexington if the merger is not
completed on or before December 31, 2000;
. termination by either ReliaStar or Lexington if any of its conditions to
complete the merger become impossible to fulfill for reasons outside of
its control;
. termination by either ReliaStar or Lexington if Lexington's stockholders
do not approve the merger agreement and the merger at the special
meeting;
. termination by ReliaStar if Lexington's board of directors withdraws or
adversely modifies its recommendation that stockholders vote for the
merger agreement and the merger; and
. termination by either ReliaStar or Lexington upon a material breach by
the other that is not cured in a timely manner.
EXPENSES AND TERMINATION PAYMENTS
In general, ReliaStar and Lexington will each bear their own expenses
incurred in connection with the merger agreement. If the merger agreement is
terminated, however, the parties have agreed to the following payments:
. If the agreement is terminated because Lexington's stockholders do not
approve the merger or because of a material breach by Lexington, then
(1) Lexington has agreed to reimburse ReliaStar's reasonable out-of-
pocket expenses incurred in connection with the merger, up to
$450,000; and
(2) if, within one year of the termination date, a third party
acquires Lexington or a substantial portion of its stock or
assets, then Lexington has agreed to pay ReliaStar an additional
$1.8 million.
. If the agreement is terminated because Lexington's board of directors
withdraws or adversely modifies its recommendation that Lexington
stockholders approve the merger, then
(1) Lexington has agreed to pay ReliaStar $1.125 million; and
(2) if, within one year of the termination date, a third party acquires
Lexington or a substantial portion of its stock or assets, then
Lexington has agreed to pay ReliaStar an additional $1 million.
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. If the agreement is terminated because of a material breach by
ReliaStar, then ReliaStar has agreed to reimburse Lexington's reasonable
out-of-pocket expenses incurred in connection with the merger, up to
$450,000.
NO SOLICITATION OF ALTERNATIVE TRANSACTIONS
In the merger agreement, Lexington has agreed not to initiate, solicit,
negotiate, or encourage proposals or offers, or provide any confidential
information relating to any acquisition of all or any substantial portion of
the business or properties of Lexington, other than the merger with ReliaStar.
However, Lexington may supply information to third parties and cooperate or
assist or engage in discussions or negotiations with third parties relating to
such an acquisition transaction, or modify or withdraw its recommendation of
the merger, but only if the Lexington board of directors:
. determines in good faith that those actions are necessary for it to
comply with its fiduciary duties to Lexington's stockholders under
Delaware law;
. receives an executed confidentiality agreement from the third party; and
. determines in good faith that the offer may be more favorable to
Lexington's stockholders than the merger with ReliaStar.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of Lexington's board of directors, you
should be aware that the directors and officers of Lexington have interests in
the merger that are different from, or are in addition to, those of Lexington
stockholders generally. These include:
Employment and Severance. In 1995, Lexington entered into employment
contracts with Mr. Stuart S. Richardson, Mr. DeMichele and Mr. Hisey. Under the
terms of each of these agreements, if the executive's employment is terminated
by the employer without cause or the executive resigns because the scope of the
executive's position has been reduced as a result of a change in control of
Lexington, the executive will be entitled to a payment of 2.99 times his annual
average cash compensation over the five years before the change in control.
On an ongoing basis, ReliaStar and Pilgrim have informed Lexington that:
. Mr. Richardson will have no continued role with ReliaStar, Pilgrim, or
Lexington after the completion of the merger.
. Mr. DeMichele entered into an employment contract with Pilgrim on
February 28, 2000, which will take effect after the close of the merger.
However, Mr. DeMichele will not continue as President and Chief
Executive Officer of a publicly traded company, and with respect to
Lexington's mutual fund organization that encompasses over 45% of the
revenue of the company, Mr. DeMichele will no longer have any
responsibilities for that operational unit on an outgoing basis with
ReliaStar or Pilgrim. Consequently, the reduction in the scope of his
responsibilities would entitle Mr. DeMichele to terminate his employment
with Lexington and receive the payment pursuant to his employment
agreement as described above.
. With regard to Mr. Hisey, ReliaStar and Pilgrim are engaged in
discussions with him about a continued role with the combined company,
following the completion of the merger. However, Mr. Hisey will not
continue as the Chief Financial Officer of a publicly traded company.
Consequently, the reduction in the scope of responsibilities offered to
Mr. Hisey would entitle him to terminate his employment and receive the
payments pursuant to his employment agreement as described above.
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In view of the terms of his 1995 employment contract and the fact that he
will have no continued role with ReliaStar, Pilgrim, or Lexington, Lexington
has agreed to pay Mr. Richardson $799,107 in connection with the merger.
Recognizing the terms of the other two executives' 1995 employment contracts,
yet reflecting ReliaStar and Pilgrim's desire for Messrs. DeMichele and Hisey
to continue with the combined company, ReliaStar and Lexington agreed that
Messrs. DeMichele and Hisey will receive from Lexington the following cash
payments in connection with the merger:
. Mr. DeMichele, President and Chief Executive Officer--$1,701,041
. Mr. Hisey, Executive Vice President--$1,075,312.
Accelerated Stock Option Vesting. Similar to all other options to purchase
Lexington common stock and restricted-stock awards, all unvested stock options
and restricted stock held by Lexington's officers and directors will be subject
to accelerated vesting, resulting in a financial gain for Lexington's officers
and directors based upon the terms of the merger agreement.
Indemnification. Lexington directors have customary rights to continued
indemnification against certain liabilities.
The Lexington board of directors was informed of the interests described in
this section before approving the merger agreement and the merger.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of the merger to holders of Lexington common stock, and to
ReliaStar, Pilgrim, Pilgrim Lexington Acquisition Corp., and Lexington. The
discussion is based on the current provisions of the Internal Revenue Code of
1986, existing and proposed Treasury Regulations, interpretive rulings of the
Internal Revenue Service, and court decisions, all of which are subject to
change at any time, possibly with retroactive effect. Any such change could
affect the continuing validity of this summary.
Holders of Lexington common stock should be aware that this discussion does
not deal with all federal income tax considerations that may be relevant to all
stockholders in light of their particular circumstances or to stockholders who
are subject to special treatment under the Internal Revenue Code; thus, for
example, the discussion may not be applicable to insurance companies, tax-
exempt organizations, financial institutions, nonresident alien individuals, or
foreign entities. Other holders with special considerations include those who
are subject to the alternative minimum tax provisions of the Internal Revenue
Code, who do not hold their shares of Lexington common stock as a capital
asset, who acquired their shares in connection with stock option plans or in
other compensatory transactions, or who hold shares in a hedging transaction or
as part of a straddle or conversion transaction. In addition, except to the
extent reference is made to the proposed acquisition of ReliaStar by the ING
Group, the following discussion does not address the tax consequences of the
merger under foreign, state, or local tax laws or the tax consequences of
transactions effectuated before or after, or concurrently with, the merger,
including any transactions in which shares of Lexington common stock are
acquired or shares of ReliaStar common stock are sold, exchanged, or otherwise
disposed of. Nor does this discussion address the tax consequences to the
holders of Lexington stock options assumed by ReliaStar in the merger.
Neither ReliaStar nor Lexington will request a ruling from the Internal
Revenue Service in connection with the merger.
ACCORDINGLY, HOLDERS OF LEXINGTON COMMON STOCK OR STOCK OPTIONS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
The exchange of Lexington common stock for a combination of ReliaStar common
stock and cash in the merger will be a taxable transaction for United States
federal income tax purposes. Consequently, subject to the
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limitations and qualifications referred to in this section, the merger will
generally result in the following federal income tax consequences to the
holders of Lexington common stock who hold that stock as a capital asset and to
ReliaStar, Pilgrim, Pilgrim Lexington Acquisition Corp., and Lexington:
1. A holder of Lexington common stock who exchanges his or her common stock
for a combination of ReliaStar common stock and cash in the merger will
generally recognize capital gain or loss in an amount equal to the
excess of (A) the sum of the amount of cash plus the fair market value
of the ReliaStar common stock received by the holder as of the effective
time of the merger over (B) the holder's tax basis in his or her
Lexington common stock.
2. Such capital gain or loss will generally be long-term capital gain or
loss if the holder has held his or her Lexington common stock for more
than one year.
3. The tax basis of the shares of ReliaStar common stock received by a
holder of Lexington common stock in the merger will equal the fair
market value of those shares of ReliaStar common stock as of the
effective time of the merger.
4. The holding period for the ReliaStar common stock received in the merger
will generally begin on the day after the effective time of the merger.
5. A holder of Lexington common stock who exercises dissenters' rights and
receives a cash payment for his or her stock generally will recognize
capital gain or loss measured by the difference between the holder's tax
basis in the stock and the amount of cash received.
6. Certain noncorporate holders of Lexington common stock may be subject to
backup withholding at a 31% rate on cash payments received in exchange
for Lexington common stock, or received upon the exercise of dissenters'
rights by such holders. Backup withholding generally will not apply,
however, to a holder who furnishes a correct taxpayer identification
number and certifies under penalties of perjury that such number is
correct and that he or she is not subject to backup withholding on the
substitute Form W-9 included in the enclosed letter of transmittal, or
is otherwise exempt from backup withholding.
7. Gain or loss will generally not be recognized by ReliaStar, Pilgrim,
Pilgrim Lexington Acquisition Corp., or Lexington as a result of the
merger.
As discussed elsewhere in this proxy statement/prospectus, on April 30,
2000, ReliaStar agreed to be acquired by the ING Group for a per-share payment
of $54 to ReliaStar shareholders. A holder of Lexington common stock who
receives shares of ReliaStar common stock in the ReliaStar-Lexington
transaction and who then exchanges that ReliaStar common stock for cash in the
ING Group transaction will generally recognize capital gain to the extent that
the cash received exceeds the tax basis of the ReliaStar common stock exchanged
therefor. Such capital gain will be short term capital gain if the holder has a
holding period in his or her shares of ReliaStar common stock of one year or
less at the effective time of the ING Group transaction in which such shares
are exchanged.
THE PRECEDING DISCUSSION IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. HOLDERS OF LEXINGTON COMMON STOCK
ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER TO THEM, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS, AND THE
EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
BUSINESS AFTER THE MERGER
After completion of the merger, Lexington's investment management operations
will be consolidated with Pilgrim's operations in New York City.
ReliaStar's combined mutual fund organization will have a family of
mutual funds representing assets under management of approximately $ billion
and combined annual sales of $ billion. Pilgrim will also manage $ billion
of private and institutional accounts acquired from Lexington.
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ReliaStar will incorporate Lexington funds into ReliaStar equity-based
products, including variable life insurance, variable annuities, and 401(k)
plans, in addition to selling the funds as stand-alone products through
ReliaStar's broker/dealer, in the worksite, and through its bank marketing
operation. Lexington plans to distribute ReliaStar's fixed and variable
annuities and 401(k) plans through its distribution channels.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF LEXINGTON AND RELIASTAR
The shares of ReliaStar common stock to be issued in the merger will be
registered under the Securities Act of 1933. The shares will be freely
transferable under the Securities Act, except for shares of ReliaStar common
stock issued to any person who is an "affiliate" of either ReliaStar or
Lexington. Persons who may be deemed to be affiliates include individuals or
entities that control, are controlled by, or are under common control of either
ReliaStar or Lexington and may include some of the companies' officers and
directors, as well as the companies' principal stockholders. Affiliates may not
sell their shares of ReliaStar common stock acquired in the merger except
pursuant to the following:
. an effective registration statement under the Securities Act covering
the resale of those shares,
. an exemption under paragraph (d) of Rule 145 under the Securities Act,
or
. any other applicable exemption under the Securities Act.
DISSENTERS' RIGHTS
You have the right to have your Lexington common stock appraised by the
Delaware Court of Chancery and to receive the appraised value of your Lexington
common stock instead of the cash and/or ReliaStar common stock you would
receive in the merger. You must comply with Section 262 of the Delaware General
Corporation Law in order to have this right. THE STATUTORY RIGHT OF APPRAISAL
GRANTED BY SECTION 262 REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES SET FORTH
IN THAT STATUTE. FAILURE TO FOLLOW ANY OF THOSE PROCEDURES MAY RESULT IN A
TERMINATION OR WAIVER OF THE APPRAISAL RIGHTS. The full text of Section 262 is
attached to this proxy statement/prospectus as Exhibit C.
You should note that ReliaStar's obligation to complete the merger is
conditioned on holders of not more than 5% of Lexington's outstanding shares
exercising these dissenters' rights.
A holder of Lexington common stock electing to exercise appraisal rights
under Section 262 must strictly comply with the requirements of that statute,
including the following:
. delivery of a written demand for appraisal to Lexington before the vote
on the approval of the merger agreement and the merger;
. holding the shares until after the completion of the merger;
. not voting in favor of the merger;
. not exchanging the holder's shares; and
. filing a petition with the Delaware Court of Chancery.
Lexington stockholders who wish to seek appraisal of their shares should
initiate all necessary action with respect to their appraisal rights within the
time periods and in the manner prescribed in Section 262. The written demand
called for by Section 262 should be delivered to Lexington Global Asset
Managers, Inc., Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663,
Attention: Richard M. Hisey.
Lexington stockholders considering seeking appraisal should be aware that
the fair value of their shares of Lexington common stock determined under
Section 262 could be more, the same, or less than the value of the
consideration to be received under the merger agreement.
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IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER OF LEXINGTON WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD
CONSULT HIS OR HER LEGAL ADVISER.
FORWARD-LOOKING INFORMATION
This proxy statement/prospectus contains forward-looking information,
including information provided in "Risk Factors" and "Comparative Unaudited Per
Share Data." The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking information to encourage companies to provide
prospective information about themselves without fear of litigation so long as
such information is identified as forward-looking and is accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the information.
Forward-looking information is indicated by the use of such words as
"anticipates," "expects," "believes," "should," "could," "intends,"
"estimates," and "may," or other comparable language. ReliaStar and Lexington
identify the following important factors that could cause ReliaStar's and
Lexington's actual results to differ materially from any results that might be
projected by ReliaStar or Lexington in forward-looking information. All of
these factors are difficult to predict, and many are beyond the control of the
companies. Accordingly, although ReliaStar and Lexington believe that the
assumptions underlying the forward-looking information are reasonable, there
can be no assurance that those assumptions will approximate actual experience.
The important factors include the following:
. the consummation of the ING Group's pending acquisition of ReliaStar on
the terms agreed to by ReliaStar and the ING Group;
. general economic conditions, including prevailing interest rates and the
performance of the stock market, which may affect the companies' ability
to sell their products;
. the market value of the companies' investments;
. the lapse rate and profitability of the insurance policies issued by
ReliaStar;
. mortality and morbidity factors in ReliaStar's insurance business
(including the effect of ReliaStar's reinsurance and retrocession risk-
management programs);
. the companies', and the combined company's, ability to achieve
anticipated cost savings and efficiencies;
. changes in federal tax laws, which could adversely affect the tax
advantages of certain of the companies' products;
. legislative or regulatory changes affecting financial institutions,
including those affecting bank sales of insurance products and
regulation of the sale, underwriting, and pricing of insurance products;
. industry consolidation and competition;
. the integration of the combined company's sales and distribution
channels in a timely manner; and
. retention of key employees.
You should also consider other risks and uncertainties discussed in
documents filed by ReliaStar and Lexington with the Securities and Exchange
Commission that are incorporated by reference into this proxy
statement/prospectus. Neither ReliaStar nor Lexington has any obligation to
update forward-looking information.
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BUSINESS OF RELIASTAR
ReliaStar is a Minneapolis-based holding company whose subsidiaries offer
individuals and institutions life insurance and annuities, employee benefits
products and services, retirement plans, life and health reinsurance, mutual
funds, and bank and trust products. Based on revenues, ReliaStar is one of the
largest publicly held life insurance holding companies in the United States and
at March 31, 2000 had $38.4 billion in assets under management.
ReliaStar's strategy is to offer, principally through education-based
marketing, a wide variety of products and services designed to address
customers' need for financial security. In the first quarter of 2000, ReliaStar
combined its Personal Financial Services and Tax-Sheltered and Fixed Annuities
business segments into one segment, now referred to as "ReliaStar Life and
Annuities." In addition to this combination, given the increase in ReliaStar's
mutual fund business after the completion of the acquisition of Pilgrim in the
fourth quarter of 1999, ReliaStar began in the first quarter of 2000 reporting
its mutual fund operations as a new business segment. ReliaStar's other two
business segments are Worksite Financial Services and Reinsurance.
ReliaStar Life and Annuities (RLA). RLA serves customers who prefer to
purchase insurance and investment products from a personal financial adviser.
This segment principally targets middle- and upper-income families, including
niches with military personnel and small-business owners. Through ReliaStar's
subsidiary, Northern Life Insurance Company, RLA also focuses on the retirement
security needs of K-12 public and private school teachers through the sale of
tax-sheltered 403(b) fixed and variable annuities. In addition to tax-qualified
annuities, RLA provides a wide variety of other products, including term life,
universal life, second-to-die universal life, variable universal life, as well
as non-qualified fixed and variable annuities. RLA's products are sold through
a nationwide network of independent agents and other financial professionals.
Washington Square Securities, Inc., one of ReliaStar's broker-dealer
subsidiaries, provides services to many of these distributors. RLA has plans to
supplement existing distribution channels through several Internet-based
strategies, which will also provide access to educational materials and
financial-planning tools. The first of these initiatives
"ihatefinancialplanning.com" commenced operations in April 2000.
Worksite Financial Services. This segment targets the sale of employee-
benefits and financial-service products to medium-to-large corporate employers
and affinity groups. In the future, this segment intends to expand its market
to smaller employers. Building on these relationships, Worksite Financial
Services also focuses on the sale of individual and payroll-deduction insurance
products to employees of our corporate clients. Principal products include
individual life insurance, non-medical group insurance products and 401(k)
retirement plans.
Reinsurance. The Reinsurance segment provides specialized life and health
reinsurance, including group and special-risk reinsurance products, in the
United States and internationally. Target customers of the Reinsurance segment
are medium and large life insurance and selected non-life insurance companies
such as worker's compensation insurers and managed care and healthcare provider
organizations. This segment also offers specialty group insurance products on a
direct basis and value-added services, like catastrophic medical case
management. The Reinsurance segment's international offices are located in
Amsterdam, Copenhagen, London, Mexico City, and Toronto.
Mutual Funds. Through Pilgrim and its subsidiaries, ReliaStar is active in
the management of 28 equity and fixed-income mutual funds, eight funds
underlying insurance products, and one closed-end fund with $16.7 billion of
aggregate assets under management as of March 31, 2000. Through a dedicated
sales force, Pilgrim sells its mutual funds through unaffiliated broker-dealers
throughout the United States. ReliaStar has also incorporated Pilgrim's mutual
funds into ReliaStar's equity based products, including variable life
insurance, variable annuities and 401(k) plans. Pilgrim funds are also sold as
stand-alone products through ReliaStar's broker-dealers, in the worksite, and
through ReliaStar's bank marketing operations
Supplementing these four business segments are other business units
including Washington Square Securities, Inc., a broker/dealer; PrimeVest
Financial Services, Inc, the Financial Northeastern Companies, and Split Rock
Financial Services, Inc. broker/dealers that target the sale of financial
product and services through or to unaffiliated banks; ReliaStar Bank, a
federal savings bank, which offers a variety of consumer credit and
33
deposit products, and ReliaStar National Trust Company, a federally chartered
bank, which offers personal trust services on a nationwide basis.
Recent Developments. On April 30, 2000, the ING Group agreed to acquire
ReliaStar for a per-share payment to ReliaStar shareholders of $54.00. The ING
Group's acquisition of ReliaStar is subject to customary closing conditions,
including necessary regulatory approvals and approval by ReliaStar's
shareholders. The acquisition is expected to close late in the third quarter of
2000. For more information on the pending acquisition, please see ReliaStar's
Current Report on Form 8-K filed with the Securities and Exchange Commission on
May 5, 2000.
BUSINESS OF LEXINGTON
Lexington Global Asset Managers, Inc. was incorporated in Delaware in
September 1995 as a holding company that offers, through its subsidiaries, a
variety of asset management and related services to retail investors,
institutions and private clients.
Lexington manages portfolios of equity, balanced, fixed income, mortgage-
backed and money market investments, which are designed to meet a broad range
of investment objectives.
At March 31, 2000, total assets under management amounted to approximately
$3.6 billion, with $1.7 billion in mutual funds, $1.2 billion in institutional
accounts and $0.8 billion in private client accounts. The Company's client base
consists of approximately 126,000 mutual fund shareholder accounts,
approximately 20 institutional accounts, and approximately 780 private client
accounts.
Lexington's business strategy is targeted at three large market segments:
Mutual Funds. Lexington, through its subsidiaries, markets, promotes, and
distributes the Lexington family of 17 mutual funds providing a variety of
investment choices for the retail investor, financial planner and intermediary,
and the defined benefit and defined contribution marketplace, including the
rapidly growing 401(k) market.
Institutional Market. The institutional market for investment management
services includes corporate, government and multi-employee (Taft-Hartley)
pension plans, charitable endowments and foundations, insurance company general
accounts and defined contribution and 401(k) plans. Lexington has secured both
domestic and international assignments, utilizing investments in domestic and
foreign equity securities, precious metal equities, fixed income and its family
of mutual funds.
Private Clients. Lexington offers equity, fixed income and balanced fund
alternatives, tailored to the individual investment objectives of its private
clients.
In each of these areas, management's overall objective is to execute
specific business strategies to profitably maximize assets under management and
provide clients with investment performance that meets their objectives.
Lexington derives its revenues primarily from fees for its investment
advisory services provided to retail investors, institutions and private
clients.
Lexington is a financial service holding company which conducts its business
primarily through three subsidiaries:
. Lexington Management Corporation, a wholly owned subsidiary, is a
registered investment advisor investing assets on behalf of mutual fund
shareholders and institutional, private client and wrap fee client
accounts.
. Market Systems Research Advisors, a 65%-owned subsidiary, is a
registered investment advisor, investing assets on behalf of mutual fund
shareholders and institutional, private client and wrap fee client
accounts.
. Lexington Funds Distributors Inc., a wholly owned subsidiary, is a
limited purpose broker-dealer whose primary function is to distribute
Lexington's family of mutual funds.
34
DESCRIPTION OF RELIASTAR CAPITAL STOCK
The following is a summary of the material provisions of ReliaStar's
certificate of incorporation, bylaws, and share rights agreement. Copies of
these documents are incorporated by reference as exhibits to the registration
statement of which this proxy statement/prospectus is a part. You should refer
to those documents for further information.
ReliaStar's certificate of incorporation authorizes the issuance of 200
million shares of common stock, of which approximately 89.5 million shares were
issued and outstanding as of April 30, 2000, and seven million shares of
preferred stock, none of which are outstanding.
COMMON STOCK
The shares of ReliaStar common stock offered in connection with the merger
will be fully paid and nonassessable. Subject to any prior rights of any
preferred stock then outstanding, holders of ReliaStar common stock are
entitled to receive proportionately those dividends that may be declared by
ReliaStar's board of directors.
PREFERRED STOCK
ReliaStar's board of directors may issue from time to time preferred stock
in one or more series. The board is authorized to determine the designation of
and number of shares in each series and to fix the rights of the series. Shares
of preferred stock may be issued that have one or more of the following
characteristics:
. disproportionately high voting rights;
. class-voting rights;
. convertibility into shares of ReliaStar common stock; and
. seniority to ReliaStar common stock for payment of dividends and upon
liquidation.
Although the issuance of preferred stock may have an adverse effect on the
rights of holders of common stock, the consent of holders of common stock is
not required for any such issuance.
DIVIDENDS
Under Delaware Law, and subject to restrictions discussed below, dividends
may be declared or paid out of surplus of ReliaStar or, if there is no surplus,
out of net profits for the fiscal year in which the dividend is declared, for
the preceding fiscal year, or both.
ReliaStar's certificate of incorporation provides that, so long as there are
outstanding any shares of ReliaStar's preferred stock entitled to cumulative
dividends, no dividends, other than stock dividends, may be paid or declared,
nor may any distribution be made, on shares of ReliaStar common stock. Nor may
any shares of ReliaStar common stock be purchased, redeemed, or otherwise
acquired for value by ReliaStar if ReliaStar is in default with respect to any
dividend payable on, or obligation to redeem or to maintain a purchase,
retirement, or sinking fund with respect to, shares of ReliaStar preferred
stock. There are currently no shares of ReliaStar preferred stock outstanding.
ReliaStar is primarily a holding company owning, directly or indirectly, the
capital stock of ReliaStar Life Insurance Company and its other subsidiaries.
There are legal limitations on the extent to which ReliaStar Life Insurance
Company and ReliaStar's other insurance company subsidiaries may pay dividends
or otherwise supply funds to ReliaStar.
The payment of future dividends by ReliaStar will be largely dependent upon
the ability of ReliaStar Life Insurance Company to pay dividends to ReliaStar.
Under Minnesota's insurance laws, any such payments must
35
be in an amount deemed prudent by ReliaStar Life Insurance Company's board of
directors, and, unless otherwise approved by the Commissioner of the Minnesota
Department of Commerce, must be paid solely from the adjusted earned surplus of
ReliaStar Life Insurance Company. "Adjusted earned surplus" means the earned
surplus, as determined in accordance with statutory accounting principles, less
25% of the amount of earned surplus that is attributable to unrealized capital
gains. Moreover, without approval of the Commissioner, ReliaStar Life Insurance
Company may not pay in any calendar year any dividend that, when combined with
other dividends paid within the preceding calendar year, exceeds the greater
of:
. 10% of ReliaStar Life Insurance Company's statutory surplus at the prior
year end; or
. 100% of ReliaStar Life Insurance Company's statutory net gain from
operations, not including realized capital gains, for the prior calendar
year.
The payment of future dividends by ReliaStar may be affected by the
foregoing limitations, any additional restrictions resulting from statutory or
regulatory changes, and by such other factors as ReliaStar's board or directors
deems relevant.
VOTING RIGHTS
ReliaStar's certificate of incorporation provides that, except as otherwise
provided by law or the certificate of incorporation itself, holders of shares
of ReliaStar common stock are entitled to one vote per share. Holders of shares
of ReliaStar common stock do not have any cumulative voting rights.
Except as otherwise provided by law or by the resolutions providing for
issuance of the shares, holders of shares of ReliaStar preferred stock have no
voting rights.
ReliaStar's certificate of incorporation requires the affirmative vote of
75% of ReliaStar's outstanding capital stock entitled to vote, voting as a
single class to take the following actions:
. to approve "business combinations" involving an "interested
shareholder," unless the transaction is approved by a majority of
ReliaStar's "continuing directors," as each of those terms is defined in
the certificate of incorporation;
. to remove directors, with or without cause;
. to amend ReliaStar's certificate of incorporation to modify a number of
protective provisions; and
. for the stockholders of ReliaStar to amend its bylaws.
As used in ReliaStar's certificate of incorporation, the following terms
have the following meanings:
. the term "business combination" includes the following transactions:
(1) mergers, consolidations, and share exchanges;
(2) sales, leases, mortgages, or other dispositions of 10% or more of
ReliaStar's assets;
(3) acquisitions of 10% or more of the assets of another entity;
(4) certain transfers of ReliaStar's securities;
(5) the dissolution, liquidation, or winding-up of ReliaStar; and
(6) any transaction that would have the effect of increasing the
interested shareholder's ownership stake;
. the term "interested shareholder" includes, subject to certain
exceptions, the following:
(1) any person or entity that is the beneficial owner of 20% or more of
ReliaStar's outstanding voting stock;
36
(2) any affiliate or associate of ReliaStar that at any time in the
prior two years was the beneficial owner of 20% or more of
ReliaStar's outstanding voting stock;
(3) any person or entity that acquired shares that were held by an
interested shareholder within the prior two years; and
. "continuing directors" include members of ReliaStar's board of directors
(1) who were members of the ReliaStar board before there was an
interested shareholder; or
(2) whose nomination or election was supported by a majority of the
continuing directors.
These provisions of ReliaStar's certificate of incorporation could have the
effect of discouraging or delaying a change in control of ReliaStar that is not
approved by ReliaStar's board of directors.
LIQUIDATION
Subject to preferential rights of shares of ReliaStar preferred stock, if
any, upon a liquidation of ReliaStar holders of ReliaStar common stock are
entitled to share proportionately in the assets remaining after discharge of
all obligations and liabilities of ReliaStar.
SHARE RIGHTS AGREEMENT
ReliaStar is party to an Amended and Restated Share Rights Agreement dated
as of February 11, 1999. Under the rights agreement, each share of ReliaStar
common stock has attached one preferred-share-purchase right. Each right
entitles the registered holder to purchase from ReliaStar one-twentieth of a
share of Series A Junior Participating Preferred Stock of ReliaStar for $100,
subject to adjustment to prevent dilution.
Initially, the rights attach to all certificates representing ReliaStar
common stock and no separate rights certificates are distributed. The rights
will separate from the common stock and a distribution date for the rights will
occur, however, upon the earlier of the following events:
. the close of business on the fifteenth day following a public
announcement that a person or group of affiliated or associated persons
has become an "acquiring person," defined as the beneficial owner of 20%
or more of ReliaStar's outstanding common stock; or
. the close of business on the fifteenth day following the commencement or
public announcement of a tender offer or exchange offer, if the
consummation of the offer would result in a person or group becoming the
beneficial owner of 20% or more of ReliaStar's outstanding common stock.
Until a distribution date occurs:
. the rights will be evidenced only by ReliaStar common stock certificates
and will be transferred only with the common stock;
. newly issued common stock will contain a notation incorporating the
rights agreement by reference; and
. the transfer of any common stock certificate will also transfer the
rights associated with that certificate.
As promptly as practicable following a distribution date, separate
certificates evidencing the rights will be mailed to record holders of
ReliaStar common stock as of the close of business on the distribution date.
The rights are not exercisable until the distribution date. The rights will
expire on September 8, 2004, unless extended or earlier redeemed or exchanged
by ReliaStar.
37
If any person or group becomes an acquiring person, then each holder of a
right, other than rights beneficially owned by the acquiring person, will
thereafter have the right to receive upon exercise a number of shares of
ReliaStar common stock having a market value of two times the exercise price of
the right.
If, after the distribution date or within 15 days before that date,
ReliaStar is acquired or 50% or more of ReliaStar's assets or earning power is
sold, then each holder of a right, other than rights beneficially owned by the
acquiring person, will have the right to receive a number of common shares of
the acquiring company having a market value of two times the exercise price of
the right. The foregoing does not apply, however, to a transaction for at least
the same per-share consideration with a person who acquired ReliaStar common
stock through a tender offer or exchange offer for all outstanding shares
approved by ReliaStar's board of directors.
At any time before the close of business on the twentieth day after a public
announcement that a person or group of affiliated or associated persons has
become an acquiring person, ReliaStar's board of directors may redeem the
rights in whole at a price of $.005 per right.
Until a right is exercised, the holder of the right, as such, has no rights
as a stockholder of ReliaStar, including the right to vote or to receive
dividends.
LIMITATIONS ON CHANGE IN CONTROL
ReliaStar's certificate of incorporation and bylaws provide that ReliaStar's
board of directors will be divided into three classes serving staggered terms,
with one class of directors to be elected for a three-year term at each annual
meeting of stockholders. As a result, at least two meetings of ReliaStar
stockholders will generally be required to effect a change in control of
ReliaStar's board of directors. ReliaStar's bylaws provide that advance notice
of nominations for the election of directors to be made at, and business to be
brought before, an annual meeting of stockholders by a stockholder must be
received by ReliaStar's Corporate Secretary at least 60 days in advance of the
meeting. ReliaStar's certificate of incorporation and bylaws also provide that
stockholder action may be taken only at annual or special meetings of
stockholders, and may not be taken by stockholder consent, and that
stockholders are not permitted to call, or to require ReliaStar's board of
directors to call, special meetings of stockholders.
ReliaStar's certificate of incorporation provides that, when considering a
merger, consolidation, sale of assets, business combination, or other similar
transaction, ReliaStar's directors and officers may, in considering the best
interests of ReliaStar and its stockholders, consider the interests of
employees, customers, and suppliers of ReliaStar and its subsidiaries and the
interests of the communities in which ReliaStar and its subsidiaries are
located or do business.
ReliaStar has entered into agreements with a number of its executive
employees for financial arrangements that ReliaStar will provide upon
termination of employment under certain circumstances following a change in
control of ReliaStar. In addition, a number of retirement and other employee
benefit arrangements provide for accelerated vesting of benefits and allocation
to participants of surplus retirement plan benefits upon a change in control of
ReliaStar.
The foregoing provisions and agreements could have the effect of
discouraging or delaying an attempt to gain control of ReliaStar or to change
its management.
LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION
ReliaStar's certificate of incorporation and bylaws limit the liability of
directors for monetary damages to ReliaStar and its stockholders for breach of
fiduciary duty of care to ReliaStar and authorize the indemnification of
directors, officers, and employees to the fullest extent permitted by Delaware
law. ReliaStar maintains a directors' and officers' liability insurance policy.
38
TRANSFER AGENT
The Transfer Agent for ReliaStar common stock is Norwest Bank Minnesota,
National Association.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF LEXINGTON AND RELIASTAR
As a result of the merger, you will no longer be a stockholder of Lexington.
Instead, if you elect to receive ReliaStar common stock in the merger, you will
become a stockholder of ReliaStar, and your rights will be governed by
ReliaStar's certificate of incorporation and bylaws. Your rights under
ReliaStar's certificate of incorporation and bylaws will differ from your
existing rights as stockholders of Lexington under Lexington's certificate of
incorporation and bylaws. We describe the material differences in this section.
You might regard as important other differences that we do not include here.
You should refer to the documents we mention in this section if you want more
information.
GENERAL
Both ReliaStar and Lexington were incorporated in Delaware and thus are
governed by the provisions of the Delaware General Corporation Law. Although
Delaware law provides a general system of rules governing a corporation and its
directors, officers, and stockholders, a number of the default rules may be
changed in a corporation's certificate of incorporation or bylaws.
VOTING RIGHTS
As discussed above under "Description of ReliaStar Capital Stock--Voting
Rights," ReliaStar's certificate of incorporation requires the affirmative vote
of 75% of ReliaStar's outstanding capital stock entitled to vote, voting as a
single class, to take a number of actions. Lexington's certificate of
incorporation has no similar super-majority voting requirements and instead
requires a simple majority vote to take any such actions, except that a vote of
two-thirds of the voting power of all outstanding securities of Lexington is
required for stockholders to amend, adopt or repeal the bylaws and certain
articles of the certificate of incorporation.
CHARTER AMENDMENTS
The provisions of the ReliaStar certificate of incorporation that may be
amended only by a 75% super-majority vote are the following:
. the amount of authorized capital stock and the authority of the board of
directors, without a vote of stockholders, to issue shares of stock and
to fix the terms of any series of preferred stock;
. classification of the board of directors;
. removal of the directors by stockholders, with or without cause, only by
super-majority vote;
. the limitation on personal monetary liability of directors for breach of
the fiduciary duty of care;
. the authority of the board of directors to adopt or amend ReliaStar's
bylaws;
. the requirement that at least 75% of the outstanding shares of voting
stock approve any stockholder-proposed amendment to ReliaStar's bylaws;
. the authority the board of directors to consider the interests of other
constituencies when considering a merger, sale of assets, business
combination, or similar transaction;
. the authority of the board to determine matters with respect to
stockholder inspections of books and records;
. the prohibition on stockholders from taking action by written consent;
39
. the "fair price" provisions discussed below; and
. the requirement of a super-majority vote to amend any of the foregoing.
The requirement of a super-majority stockholder vote is designed to prevent
a stockholder who controls a majority of the voting power of ReliaStar from
avoiding the requirements of those provisions by simply amending or replacing
them. The requirement also makes it more difficult for a stockholder to
circumvent other provisions contained in ReliaStar's certificate of
incorporation, such as the classification of the board of directors, by
adopting bylaws restricting the power of the board or directors or the ability
of ReliaStar to operate its business in the interests of all of its
stockholders. These provisions, however, will also make it more difficult for
stockholders to amend ReliaStar's certificate of incorporation or bylaws even
if a majority of the stockholders deem the amendment to be in their best
interests. Lexington's certificate of incorporation contains no super-majority
voting requirements, except that a vote of two-thirds of the voting power of
all outstanding securities of Lexington is required for stockholders to amend,
adopt or repeal the bylaws and certain articles of the certificate of
incorporation.
TRANSACTIONS WITH INTERESTED SHAREHOLDERS
The "fair price" provision in ReliaStar's certificate of incorporation
requires the approval of "business combinations" involving "interested
shareholders" by a vote of the holders of at least 75% of ReliaStar's
outstanding capital stock entitled to vote, unless either the transaction is
approved by a majority of ReliaStar's "continuing directors" or the transaction
meets specified fair price and procedural requirements. Lexington's certificate
of incorporation contains no counterpart to this provision.
The purpose of this provision is to prevent an interested shareholder from
taking advantage of its position as a substantial, if not controlling,
stockholder and from engaging in "self-dealing" transactions with ReliaStar
that may not be fair to other stockholders and to give greater assurance to the
holders of ReliaStar capital stock that they will receive fair and equitable
treatment in any business combination involving the interested shareholder.
This is accomplished by requiring business combinations to meet specified fair
price and procedural requirements or to be approved either by a majority of the
continuing directors or 75% of the outstanding shares entitled to vote on the
matter, voting as a single class.
This provision, however, makes more difficult and may discourage a takeover
of ReliaStar or the acquisition of control of ReliaStar and thus the removal of
incumbent management. In addition, to the extent that these provisions
discourage a takeover that would result in a change of ReliaStar management,
those changes may be less likely to occur.
CONSIDERATION OF OTHER CONSTITUENCIES
ReliaStar's certificate of incorporation provides that, when considering a
merger, consolidation, sale of assets, business combination, or similar
transaction, ReliaStar's directors and officers may, in considering the best
interests of ReliaStar and its stockholders, consider the interests of the
employees, customers, and suppliers of ReliaStar and its subsidiaries and the
communities in which ReliaStar and its subsidiaries are located or do business.
This provision will not make a business combination or other transaction
regarded by ReliaStar's board or directors as being in the interests of
ReliaStar and its stockholders more difficult to accomplish, but it would
permit the board of directors to determine that a transaction is not in the
best interests of ReliaStar or its stockholders--and thus oppose it--on the
basis of various factors deemed relevant. In some cases, this opposition might
have the effect of maintaining the position of incumbent management.
Neither Lexington's certificate of incorporation nor its bylaws contains a
similar provision regarding the consideration of other constituencies by the
Lexington board of directors in making a decision whether to proceed with a
business combination or other transaction.
40
WHERE YOU CAN FIND MORE INFORMATION
Both ReliaStar and Lexington file periodic reports, proxy statements, and
other information with the Securities and Exchange Commission. These SEC
filings are available to the public over the Internet at the SEC's web site
(www.sec.gov). You may also read and copy any document that either company
files with the SEC at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference room.
Both ReliaStar and Lexington "incorporate by reference" into this proxy
statement/prospectus the information in documents they file with the SEC, which
means that they can disclose important business and financial information about
themselves to you by referring you to those documents. The information
incorporated by reference is an important part of this proxy
statement/prospectus, and information that they file subsequently with the SEC
will automatically update this proxy statement/prospectus. The companies
incorporate by reference the documents listed below and any filings they make
with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 after the filing of this proxy statement/prospectus and
before the meeting of Lexington's stockholders.
FOR RELIASTAR:
. Annual Report on Form 10-K for the fiscal year ended December 31, 1999,
including information incorporated by reference into that report from
ReliaStar's 1999 Annual Report to Shareholders and portions of its
definitive proxy statement for ReliaStar's 2000 Annual Meeting of
Shareholders;
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
. Current Reports on Form 8-K filed February 2, February 8, April 28, and
May 2, 2000; and
. the description of ReliaStar's common stock and related rights to
purchase preferred stock contained in ReliaStar's Form 8-K/A dated May
20, 1993 to its Current Report on Form 8-K dated January 17, 1989 and
its Registration Statement on Form 8-A/A dated February 26, 1999, as
amended on Form 8-A/A on May 3, 2000.
You may request a copy of these filings, other than an exhibit to a filing
unless the exhibit is specifically incorporated by reference into the filing,
at no cost by contacting ReliaStar orally or in writing at:
Corporate Secretary
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, Minnesota 55401
(612) 372-5432
FOR LEXINGTON:
. Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
. Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
. Current Reports on Form 8-K filed February 11, 2000 and March 2, 2000.
You may request a copy of these filings, other than an exhibit to a filing
unless the exhibit is specifically incorporated by reference into the filing,
at no cost by contacting Lexington orally or in writing at:
Lexington Global Asset Managers
Park 80 West
Plaza Two
Saddle Brook, New Jersey 07663
(201) 845-7300
Attention: Richard M. Hisey
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST COPIES OF RELIASTAR'S
OR LEXINGTON'S SEC FILINGS NO LATER THAN , 2000.
41
You should rely only on the information delivered with, or stated or
incorporated by reference in, this proxy statement/prospectus. Neither
ReliaStar nor Lexington has authorized anyone else to provide you with
different information. You should not assume that the information in this proxy
statement/prospectus is accurate as of any date other than the date on the
front of this document.
LEGAL MATTERS
The validity of the shares of ReliaStar common stock to be issued in the
merger will be passed upon for ReliaStar by Faegre & Benson LLP, Minneapolis,
Minnesota. Tax consequences of the merger will be passed upon for Lexington by
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of ReliaStar and the related
consolidated financial statement schedules incorporated in this proxy
statement/prospectus by reference from ReliaStar's Annual Report on Form 10-K
for the year ended December 31, 1999 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports, which are incorporated
herein by reference and have been so incorporated in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Lexington and related financial
statement schedules as of December 31, 1999 and 1998 and for each of the three
years in the three-year period ended December 31, 1999, incorporated in this
proxy statement/prospectus by reference to Lexington's Annual Report on
Form 10-K for the year ended December 31, 1999, have been audited by KPMG LLP,
independent auditors, as stated in their reports, which are incorporated herein
by reference and have been so incorporated in reliance upon the reports of that
firm given upon their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
If the merger is not completed, Lexington would hold its 2000 Annual Meeting
of Stockholders during the month of November 2000. Any stockholder proposal
that is intended to be presented at that meeting and included in Lexington's
proxy materials relating to that meeting must be received by Lexington at its
executive offices by , 2000.
INDEPENDENT AUDITORS
Representatives of KPMG LLP, Lexington's independent auditors, are expected
to be present at the special meeting and will have the opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions.
42
EXHIBIT A
EXECUTION COPY
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RELIASTAR FINANCIAL CORP.,
PILGRIM HOLDINGS CORPORATION
AND
LEXINGTON GLOBAL ASSET MANAGERS, INC.
- --------------------------------------------------------------------------------
DATED AS OF FEBRUARY 28, 2000
A-1
TABLE OF CONTENTS
PAGE
----
ARTICLE I............................................................... A-6
1.1 Effective Time of the Merger................................... A-6
1.2 Closing........................................................ A-6
1.3 Effects of the Merger.......................................... A-7
1.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation.................................................... A-7
1.5 Directors and Officers of the Surviving Corporation............ A-7
ARTICLE II.............................................................. A-7
2.1 Effect on Capital Stock........................................ A-7
2.2 Exchange of Certificates....................................... A-13
ARTICLE III............................................................. A-14
3.1 General........................................................ A-14
3.2 Representations and Warranties................................. A-15
ARTICLE IV.............................................................. A-23
4.1 General........................................................ A-23
4.2 Representations and Warranties................................. A-23
ARTICLE V............................................................... A-27
5.1 General........................................................ A-27
5.2 Representations and Warranties................................. A-27
ARTICLE VI.............................................................. A-30
6.1 Requisite Approvals Concerning the Lexington Funds............. A-30
6.2 Termination of Existing Advisory, Sub-Advisory, and
Distribution Arrangements...................................... A-31
6.3 Information Regarding the Lexington Funds...................... A-31
6.4 Access to Information Regarding the Lexington Funds............ A-31
6.5 The Registrants' Registration Statements....................... A-31
6.6 Operations of the Lexington Funds.............................. A-32
6.7 Undertakings Related to Section 15(f) of the 1940 Act.......... A-32
6.8 Continued Qualification........................................ A-32
ARTICLE VII............................................................. A-32
7.1 Business Operations of Lexington............................... A-32
7.2 Cooperation.................................................... A-34
7.3 Access to Information.......................................... A-34
7.4 No Solicitation................................................ A-34
7.5 Proxy Statement; Board Recommendation.......................... A-35
7.6 Stockholders' Meetings of Lexington and the Lexington Funds;
Consents for Private Accounts.................................. A-36
7.7 Legal Conditions to Merger..................................... A-36
7.8 Stock Plans and Options........................................ A-36
7.9 Consents....................................................... A-37
7.10 Tax-Free Reorganization........................................ A-37
7.11 NYSE Listing................................................... A-37
7.12 Payment of Transaction Expenses................................ A-37
7.13 Additional Agreements; Reasonable Efforts...................... A-38
7.14 Confidentiality Agreement...................................... A-38
7.15 Amendment to Rights Agreement.................................. A-38
ARTICLE VIII............................................................ A-38
8.1 Conditions to the Parties' Obligation to Effect the Merger..... A-38
8.1 Additional Conditions to the Obligations of Buyer and Merger
Sub............................................................ A-39
8.2 Additional Conditions to the Obligation of Lexington........... A-40
A-2
PAGE
----
ARTICLE IX................................................................ A-40
9.1 Employee Matters................................................ A-40
9.2 Indemnification................................................. A-41
9.3 Directors and Officers Liability Insurance...................... A-41
9.4 Tax-Free Reorganization Covenants............................... A-41
ARTICLE X................................................................. A-42
10.1 Generally....................................................... A-42
10.2 Procedure and Effect of Termination............................. A-43
10.3 Expenses; Termination Fee....................................... A-43
ARTICLE XI................................................................ A-44
11.1 Termination of Representations and Warranties................... A-44
11.2 Amendment and Modification...................................... A-44
11.3 Waiver of Compliance; Consents.................................. A-44
11.4 Press Releases and Public Announcements......................... A-44
11.5 Notices......................................................... A-44
11.6 Assignment...................................................... A-45
11.7 Interpretation.................................................. A-45
11.8 Governing Law................................................... A-45
11.9 Counterparts.................................................... A-45
11.10 Headings; Internal References................................... A-46
11.11 Entire Agreement................................................ A-46
11.12 Severability.................................................... A-46
11.13 Equitable Remedies.............................................. A-46
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INDEX OF DEFINED TERMS
TERM LOCATION
- ---- ----------------
1940 Act....................................................... Recitals
Acquisition Proposal........................................... (S) 7.4(a)(1)
Adjustment Percentage.......................................... (S) 2.1(c)(3)
Advisers Act................................................... (S) 3.2(a)(2)
Affiliate...................................................... (S) 11.7(c)
Agreement...................................................... Preamble
Applicable Law................................................. (S) 4.2(f)
Assigned Net Assets............................................ (S) 2.1(c)(2)
Base Net Assets................................................ (S) 2.1 (c)(1)
Benefit Plan................................................... (S) 3.2(o)(1)
Board.......................................................... (S) 6.1
Business Day................................................... (S) 11.7(d)
Buyer.......................................................... Preamble
Buyer's Average Share Price.................................... (S) 2.1(b)
Buyer Common Stock............................................. Recitals
Buyer Disclosure Schedule...................................... (S) 5.1
Buyer SEC Reports.............................................. (S) 5.2(f)(1)
Cash Consideration............................................. (S) 2.1(a)
Certificate of Merger.......................................... (S) 1.1
Certificates................................................... (S) 2.1(d)
Closing........................................................ (S) 1.2
Closing Date................................................... (S) 1.2
Code........................................................... Recitals
Delaware Law................................................... (S) 1.1
Dissenting Shares.............................................. (S) 2.1(k)(1)
Effective Time................................................. (S) 1.1
Election Statement............................................. (S) 2.1(i)(1)
Environmental Law.............................................. (S) 3.2(p)(1)(A)
ERISA.......................................................... (S) 3.2(o)(1)
ERISA Affiliates............................................... (S) 3.2(o)(9)
Exchange Act................................................... (S) 3.2(d)(2)
Exchange Agent................................................. (S) 2.2(a)
Exchange Fund.................................................. (S) 2.2(a)
Fund Shares.................................................... (S) 4.2(c)
Fund Stockholders.............................................. (S) 4.2(n)
Fund Tax Returns............................................... (S) 4.2(k)
GAAP........................................................... (S) 3.2(e)(2)
Governmental Authority......................................... (S) 3.2(d)(2)
Hazardous Substance............................................ (S) 3.2(p)(1)(B)
HSR Act........................................................ (S) 3.2(d)(2)
Including...................................................... (S) 11.7(a)
Lexington...................................................... Preamble
Lexington Common Stock......................................... Recitals
Lexington Consolidated Group................................... (S) 3.2(h)(4)
Lexington Disclosure Schedule.................................. (S) 3.1
Lexington Distributor.......................................... (S) 3.2(a)(3)
Lexington Employee Plan(s)..................................... (S) 3.2(o)(1)
Lexington Fund Family.......................................... (S) 4.2(b)
Lexington Funds................................................ Recitals
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TERM LOCATION
- ---- -------------
Lexington Incentive Plans......................................... (S) 2.1(d)
Lexington Options................................................. (S) 2.1(d)
Lexington Restricted Stock........................................ (S) 2.1(e)
Lexington Rights Agreement........................................ (S) 7.15
Lexington SEC Reports............................................. (S) 3.2(e)(1)
Management Agreements............................................. (S) 3.2(u)
Material Adverse Effect........................................... (S) 3.1
Material Contracts................................................ (S) 3.2(j)
Merger............................................................ Recitals
Merger Consideration.............................................. (S) 2.1(a)
Merger Sub........................................................ Preamble
MSR............................................................... (S) 3.2(a)(2)
Multiemployer Plan................................................ (S) 3.2(o)(4)
NASD.............................................................. (S) 3.2(d)(2)
NYSE.............................................................. (S) 2.1(b)
Option Ratio...................................................... (S) 7.8(d)
Original Schedule................................................. (S) 2.1(c)(1)
Pension Plan...................................................... (S) 3.2(o)(1)
Person............................................................ (S) 11.7(b)
Private Accounts.................................................. (S) 3.2(u)
Prohibited Transaction............................................ (S) 3.2(o)(6)
Proprietary Rights................................................ (S) 3.2(k)
Proxy Statement/Prospectus........................................ (S) 5.2(e)
Registrant........................................................ (S) 4.2(b)
Registration Statement............................................ (S) 5.2(e)
Reorganization.................................................... (S) 7.10
Reports........................................................... (S) 4.2(j)
Revised Schedule.................................................. (S) 2.1(c)(2)
SEC............................................................... (S) 3.2(d)(2)
Securities Act.................................................... (S) 3.2(e)(1)
Share Consideration............................................... (S) 2.1(a)
Specified Cash Percentage......................................... (S) 2.1(j)(4)
Specified Stock Percentage........................................ (S) 2.1(j)(5)
Subsidiary........................................................ (S) 11.7(g)
Superior Proposal................................................. (S) 7.4(d)
Surviving Corporation............................................. (S) 1.3(a)
Tax Returns....................................................... (S) 3.2(h)(1)
Taxes............................................................. (S) 3.2(h)(1)
TDLPL............................................................. (S) 3.2(a)(1)
Third Party....................................................... (S) 10.3(e)
To the knowledge of a party....................................... (S) 11.7(f)
Total Consideration............................................... (S) 2.1(j)(4)
Voting Agreement.................................................. (S) 3.2(v)
Welfare Plan...................................................... (S) 3.2(o)(1)
INDEX OF EXHIBITS
Exhibit A--Form of Voting Agreement
Exhibit B-1--Employment Agreement--Portfolio Managers
Exhibit B-2--Employment Agreement--Hisey
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of February
28, 2000, is made among ReliaStar Financial Corp., a Delaware corporation
("Buyer"), Pilgrim Holdings Corporation, a Delaware corporation and a wholly
owned subsidiary of Buyer ("Merger Sub"), and Lexington Global Asset Managers,
Inc., a Delaware corporation ("Lexington").
RECITALS
Lexington (or one or more of its subsidiaries) acts as investment adviser
and/or principal underwriter for 16 open-end investment companies and as
sponsor for one registered unit investment trust (collectively, the "Lexington
Funds") registered under the Investment Company Act of 1940, as amended (the
"1940 Act").
Lexington (or one or more of its subsidiaries) is investment adviser for
various private accounts.
The Boards of Directors of Buyer, Merger Sub, and Lexington deem it
advisable and in the best interests of each corporation and its respective
stockholders that Merger Sub and Lexington combine in order to advance the
long-term business interests of Buyer, Merger Sub, Lexington, the Lexington
Funds and the Lexington investment advisory or subadvisory clients.
The strategic combination of Merger Sub and Lexington shall be effected by
the terms of this Agreement through a transaction in which Lexington will merge
with and into Merger Sub (the "Merger").
In the Merger each share of Lexington's common stock, $.0l par value per
share ("Lexington Common Stock"), issued and outstanding at the Effective Time
(as defined in Section 1.1), shall be converted into cash and/or a fraction of
a share of common stock, $.01 par value per share, of Buyer ("Buyer Common
Stock").
For federal income tax purposes, it is intended that the Merger qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
AGREEMENT
Now, therefore, intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the terms of this Agreement, a
Certificate of Merger (the "Certificate of Merger") shall be duly executed by
Merger Sub and Lexington and delivered to the office of the Delaware Secretary
of State for filing, as provided in Section 251 of the Delaware General
Corporation Law (the "Delaware Law"), as soon as practicable on the Closing
Date (as defined in Section 1.2). The Merger shall become effective at the time
at which the Certificate of Merger shall have been filed with the Delaware
Secretary of State or at such time thereafter as is provided in the Certificate
of Merger (the "Effective Time").
1.2 Closing. Closing of the Merger (the "Closing") will take place at 11:00
a.m., New York time, on a date to be specified by Buyer and Lexington, which
shall be no later than the fifth business day after satisfaction or waiver (to
the extent waivable under Article VIII) of all conditions to the consummation
of the Merger set forth in Article VIII of this Agreement (other than those
conditions that by their nature are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions), at the offices of Ballard
Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, unless another date
or place is agreed to by
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Buyer and Lexington. The date on which the Closing occurs is referred to as
the "Closing Date." All actions taken at the Closing shall be deemed to have
been taken simultaneously at the Effective Time.
1.3 Effects of the Merger.
(a) At the Effective Time, in accordance with this Agreement and the
Delaware Law, (1) Lexington shall be merged with and into Merger Sub, (2)
the separate corporate existence of Lexington shall cease, and (3) Merger
Sub shall be the surviving corporation and shall continue to be governed by
the Delaware Law (Merger Sub is sometimes referred to in this Agreement as
the "Surviving Corporation").
(b) The Merger shall have the other effects set forth in Sections 259
and 261 of the Delaware Law.
1.4 Certificate of Incorporation and Bylaws of the Surviving Corporation.
(a) The Certificate of Incorporation of Merger Sub as in effect
immediately before the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and of the Delaware Law.
(b) The Bylaws of Merger Sub in effect immediately before the Effective
Time shall be the Bylaws of the Surviving Corporation, until duly amended
in accordance with their terms, the Certificate of Incorporation of the
Surviving Corporation, and the Delaware Law.
1.5 Directors and Officers of the Surviving Corporation.
(a) The directors of Merger Sub holding office at the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation, to serve until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation, or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
(b) In addition to such other officers as the Board of Directors of the
Surviving Corporation may appoint from time to time, the officers of Merger
Sub holding office at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation, to serve
until their successors have been duly appointed and qualified or until
their earlier death, resignation, or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Effect on Capital Stock. Subject to the other provisions of this
Article II, at the Effective Time, by virtue of the Merger and without any
action on the part of Buyer, Lexington, Merger Sub, or the holder of any
shares of the following securities:
(a) Merger Consideration. Subject to adjustment as provided in Sections
2.1(b), 2.1(c) and 2.1(l) and the election and allocation provisions of
Sections 2.1(i) and 2.1(j), each issued and outstanding share of Lexington
Common Stock (other than shares of Lexington Common Stock held of record by
Buyer, Merger Sub, or Lexington or any other direct or indirect subsidiary
of Buyer or Lexington immediately before the Effective Time and other than
shares of Lexington Common Stock as to which dissenters' rights of
appraisal have been exercised as contemplated by Section 2.1(k)) shall be
automatically converted into and become the right to receive (i) 0.231 of a
share of Buyer Common Stock, (the "Share Consideration"), and (ii) cash in
the amount of $3.306 (the "Cash Consideration" and, together with the Share
Consideration, the "Merger Consideration"). At the Effective Time, each
share of Lexington Common Stock held of record by Buyer, Merger Sub, or
Lexington or any direct or indirect subsidiary of Buyer or Lexington shall
be canceled and cease to exist, and no payment shall be made with respect
to those shares.
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(b) Adjustment of Merger Consideration Based on Buyer's Average Share
Price. The Share Consideration shall not be adjusted as a result of changes
in the market value of Buyer Common Stock unless the average per share
closing price of Buyer Common Stock on the New York Stock Exchange (the
"NYSE") for the five trading days immediately preceding the date that is
one business day before the Closing Date ("Buyer's Average Share Price") is
more than $31.625 or less than $25.625. If Buyer's Average Share Price is
more than $31.625, then the Share Consideration shall be reduced to a
fraction of a share of Buyer Common Stock (expressed as a decimal, rounded
to the nearest thousandth), the numerator of which shall be the Share
Consideration set forth in Section 2.1(a)(i) multiplied by $31.625 and the
denominator of which shall be Buyer's Average Share Price. If Buyer's
Average Share Price is less than $25.652, then the Share Consideration
shall be increased to a fraction of a share of Buyer Common Stock
(expressed as a decimal, rounded to the nearest thousandth), the numerator
of which shall be the Share Consideration set forth in Section 2.1(a)(i)
multiplied by $25.625 and the denominator of which shall be Buyer's Average
Share Price; provided, however, that, in lieu of the foregoing adjustment,
Buyer may determine, by written notice to Lexington on or before the
Closing Date, to increase the Cash Consideration by an amount not to exceed
the product of the Share Consideration multiplied by the difference between
$25.625 and Buyer's Average Share Price and to increase the Share
Consideration by a decimal amount (rounded to the nearest thousandth) equal
to the quotient obtained by dividing (A) the difference between (1) the
product of the Share Consideration multiplied by the difference between
$25.625 and the Buyer's Average Share Price minus (2) the amount of the
increase in the Cash Consideration made pursuant to Buyer's determination
by (B) Buyer's Average Share Price.
(c) Adjustment to Merger Consideration Based on Assets Under Management.
If any adjustment is required by the provisions of the following
subsections, the Merger Consideration payable by Buyer at the Closing
determined after giving effect to any adjustment required by Section
2.1(b), will be reduced or increased by a percentage calculated in the
following manner:
(1) Attached hereto as Schedule 2.1(c) is a list prepared by
Lexington of the Lexington Funds and investment advisory or subadvisory
clients of Lexington as of December 31, 1999, showing for each and as
of that date, the client's or fund's name and assets under management
(the "Original Schedule"). The total assets under management listed on
the Original Schedule shall be referred to as the "Base Net Assets."
(2) At the Closing, Lexington will deliver to Buyer a revised
Schedule 2.1(c) (the "Revised Schedule") as of the close of business on
the third business day before the Closing, prepared as follows:
(A) all clients that have terminated their investment advisory or
subadvisory relationship with Lexington or that have notified
Lexington in writing of their intention to terminate that
relationship since the date of the Original Schedule shall be
deleted from the Revised Schedule;
(B) clients that have engaged Lexington since the date of the
Original Schedule shall be added to the Revised Schedule with their
assets under management by Lexington included in the Revised
Schedule at the value of those assets on the date Lexington's
management commenced;
(C) for clients (other than Lexington Funds) that have withdrawn
assets from management by Lexington since the date of the Original
Schedule, assets under management for each such client shall be
reduced by the same percentage as is calculated by dividing (A) the
value of the assets withdrawn as of the date of withdrawal, by (B)
the aggregate value of assets managed by Lexington for such client
immediately prior to the withdrawal;
(D) for clients (other than Lexington Funds and assets managed by
Lexington or its subsidiaries for the Richardson family or any trust
for the benefit of the Richardson family) that have added to assets
under management since the date of the Original Schedule, assets
under management shall be increased by the same percentage as is
calculated by dividing (A) the value of the assets added as of the
date of the addition of the assets, by (B) the aggregate value of
A-8
assets managed by Lexington for such client immediately prior to the
date Lexington's management commenced;
(E) assets under management for each of the Lexington Funds shall
be increased or decreased, as appropriate, by the total of the
aggregate net sales or redemptions for such Lexington Funds between
December 31, 1999 and the third business day before the Closing; and
(F) the Revised Schedule shall not reflect fluctuations in the
market value of assets under management since the date of the
Original Schedule.
Pro forma net assets under management shown on the Revised Schedule are
referred to as "Assigned Net Assets."
(3) Assigned Net Assets shall then be divided by Base Net Assets,
calculated as a percentage, and the resulting percentage shall be
determined to the nearest one-hundredth of one percent (the "Adjustment
Percentage").
(4) Any adjustment to the Merger Consideration shall adjust the
Share Consideration and Cash Consideration by the same percentage,
determined as follows:
(A) If the Adjustment Percentage is 90% or more but less than or
equal to 110%, there shall be no adjustment in the Merger
Consideration.
(B) If the Adjustment Percentage is less than 90%, then the
Merger Consideration payable at the Closing, determined after giving
effect to any adjustment required by Section 2.1(b), shall be
reduced by one percent for each one percent decrease in Adjustment
Percentage in accordance with the following table, with
interpolation as necessary between percentages rounded to the
nearest one-thousandth of one percent:
PERCENT BY WHICH MERGER
ADJUSTMENT PERCENTAGE CONSIDERATION SHALL BE REDUCED
--------------------- ------------------------------
90.................................... 0%
89.................................... 1
88.................................... 2
87.................................... 3
86.................................... 4
85.................................... 5
84.................................... 6
83.................................... 7
82.................................... 8
81.................................... 9
80.................................... 10
and so forth
(C) If the Adjustment Percentage is greater than 110%, then the
Merger Consideration payable at the Closing, determined after giving
effect to any adjustment required by Section 2.1(b), shall be
increased by one percent for each one percent increase in Adjustment
Percentage in accordance with the following table, with
interpolation as necessary between percentages rounded to the
nearest one-thousandth of one percent:
A-9
PERCENT BY WHICH MERGER
ADJUSTMENT PERCENTAGE CONSIDERATION SHALL BE INCREASED
--------------------- --------------------------------
110%................................. 0%
111.................................. 1
112.................................. 2
113.................................. 3
114.................................. 4
115.................................. 5
116.................................. 6
117.................................. 7
118.................................. 8
119.................................. 9
120.................................. 10
and so forth
(d) Lexington Stock. All shares of Lexington Common Stock, when
converted pursuant to Section 2.1(a), shall no longer be outstanding and
shall automatically be canceled and shall cease to exist, and holders of
certificates that immediately before the Effective Time represented shares
of Lexington Common Stock (the "Certificates") shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration in consideration therefor upon the surrender of the
Certificates in accordance with Section 2.2, without interest.
(e) Lexington Incentive Plans. At the Effective Time, all outstanding
options (the "Lexington Options") to purchase Lexington Common Stock
granted under the Lexington 1995 Long Term Incentive Plan (the "Lexington
Incentive Plan") and all outstanding Lexington Restricted Stock granted
under the Lexington Incentive Plan (the "Lexington Restricted Stock") will
become options to purchase Buyer Common Stock or Buyer Restricted Stock,
respectively, in accordance with Section 7.8.
(f) Capital Stock of Merger Sub. Each issued and outstanding share of
the capital stock of Merger Sub shall remain outstanding as one share of
capital stock of the Surviving Corporation and shall not be converted into
any other securities or cash in the Merger. The certificates for such
shares shall not be surrendered or in any way modified by reason of the
Merger. No stock of Merger Sub will be issued in the Merger.
(g) Fractional Shares. No scrip or fractional shares of Buyer Common
Stock shall be issued in the Merger. Each fractional share of Buyer Common
Stock that a holder of Lexington Common Stock would otherwise be entitled
to receive (after aggregating all shares of Buyer Common Stock to be
received by that holder) shall be automatically converted into the right to
receive, at the Effective Time from Buyer, an amount in cash in lieu of the
fractional share of Buyer Common Stock equal to the product of the fraction
multiplied by Buyer's Average Share Price (rounded up or down to the
nearest $.01). Buyer will make available to the Exchange Agent (as defined
in Section 2.2) the cash necessary for the purpose of paying for fractional
shares.
(h) Buyer Stock. All shares of Buyer Common Stock into which the shares
of Lexington Common Stock are converted shall be validly issued, fully paid
and nonassessable and will have Buyer Rights attached thereto in accordance
with the Buyer Rights Agreement (as such terms are defined in Section
5.2(b)).
(i) Election Procedures. Each record holder (as of the record date
determined by Lexington) of shares of Lexington Common Stock shall have the
right to elect in writing to have all of his shares of Lexington Common
Stock converted into cash or Buyer Common Stock, as the case may be,
subject to Section 2.1(j), in accordance with the following procedures:
(1) At least thirty days prior to the Closing Date, a letter of
transmittal and election statement (an "Election Statement") providing
for the right to elect to receive cash or Buyer Common Stock
A-10
and for the tender to the Exchange Agent of the Certificates
representing Lexington Common Stock shall be mailed to all record
holders of Lexington Common Stock at their respective addresses shown
in Lexington's stock transfer records.
(2) Any record holder of Lexington Common Stock may specify, in an
Election Statement meeting the requirements of this Section 2.1(i),
that, as to all shares of Lexington Common Stock covered by such
Election Statement:
(A) all such shares shall be converted into Cash Consideration
and Share Consideration in the proportions set forth in Section
2.1(a); provided, however, that such election shall be subject to a
determination by Buyer in certain events under Section 2.1(b) to
convert to cash a portion of the Merger Consideration that would
otherwise be Buyer Common Stock; or
(B) the Cash Consideration payable for all such shares be
converted to shares of Buyer Common Stock, in which case such holder
shall receive no cash and shall receive additional shares of Buyer
Common Stock equal to .50 multiplied by the Share Consideration for
each issued and outstanding share of Lexington Common Stock held;
provided, however, that such election shall be subject to a
determination by Buyer in certain events under Section 2.1(b) to
convert to cash a portion of the Merger Consideration that would
otherwise be Buyer Common Stock; or
(C) the Share Consideration payable for all such shares be
converted into cash, in which case such holder shall receive no
Share Consideration and shall receive additional cash equal to the
Share Consideration multiplied by Buyer's Average Share Price.
(3) Notwithstanding anything to the contrary set forth above:
(A) Any record holder of Lexington Common Stock who is holding
such shares for a beneficial owner or as a nominee for one or more
beneficial owners may submit an Election Statement on behalf of any
such beneficial owner. Any beneficial owner of Lexington Common
Stock on whose behalf a record owner of Lexington Common Stock has
submitted an Election Statement in accordance with this Section
2.1(i) will be considered a separate holder of Lexington Common
Stock for purposes of this Agreement.
(B) Any holder of Lexington Common Stock who may be considered,
by reason of the ownership attribution rules contained in Section
318 of the Internal Revenue Code of 1986, as amended, to own
constructively shares of Lexington Common Stock in addition to those
actually owned by such holder may submit an Election Statement
jointly with one or more of such persons whose shares of Lexington
Common Stock such holder may be considered to own constructively,
and any such joint Election Statement shall for purposes of this
Section 2.1(i) be considered to be a single Election Statement.
(4) An Election Statement will be effective only if a properly
completed and signed copy thereof, accompanied by Certificates for the
shares of Lexington Common Stock which such Election Statement covers,
shall have been actually received by the Exchange Agent no later than
one business day before the day of the meeting of the Lexington
stockholders to vote upon this agreement (such day being referred to
herein as the "Election Deadline"). Delivery shall be effected, and
risk of loss and title to the Certificate shall pass, only upon proper
delivery of an Election Statement which meets the requirements of this
Section 2.1(i) is hereinafter referred to as an "Effective Election
Statement."
(5) Any record holder of Lexington Common Stock who has submitted an
Effective Election Statement may at any time until the Election
Deadline amend such Election Statement if the Exchange Agent actually
receives, no later than the Election Deadline, a later dated, properly
completed and signed amended Effective Election Statement.
(6) Any record holder of Lexington Common Stock may at any time
prior to the Election Deadline revoke his Election Statement and
withdraw certificates for shares of Lexington Common
A-11
Stock deposited therewith by written notice actually received by the
Exchange Agent no later than the Election Deadline. Any Election
Statement relating to shares of Lexington Common Stock which are or
become Dissenting Shares (as defined in Section 2.1(k) hereof) shall be
deemed automatically revoked. Any notice of withdrawal shall be
effective only if it is properly executed and specifies the record
holder of the shares to be withdrawn and the Certificate numbers shown
on the Certificates representing the shares to be withdrawn.
(7) Lexington and Buyer shall have the right to make rules, not
inconsistent with the terms of this Agreement, governing the form,
terms and conditions of the Election Statements, the validity and
effectiveness of Election Statements and the manner and extent to which
they are to be taken into account in making the determinations
prescribed by Section 2.1(k) hereof. In the event this Agreement is
terminated, the Exchange Agent shall promptly return any Certificates
received to the respective record holders.
(j) Allocations. The allocation of cash and/or Buyer Common Stock among
holders of outstanding shares of Lexington Common Stock shall be effected
as hereinafter provided:
(1) Except as otherwise provided in Sections 2.1(i)(2)(A), 2.1(j)(4)
and 2.1(j)(5), all of the shares of Lexington Common Stock held by
shareholders who elected to receive cash and Buyer Common Stock in the
proportions set forth in Section 2.1(a) or who did not elect in any
Effective Election Statement to receive all cash or all Buyer Common
Stock shall be converted into cash and Buyer Common Stock at the
conversion rate specified in Section 2.1(a) hereof;
(2) Except as otherwise provided in Sections 2.1(i)(2)(B) and
2.1(j)(5), all of the shares of Lexington Common Stock held by
shareholders who elected in an Effective Election Statement to receive
all Buyer Common Stock shall be converted into all Buyer Common Stock
on the terms and conditions set forth in Section 2.1(i);
(3) Subject to Section 2.1(j)(4) hereof, Lexington Common Stock held
by shareholders who elected in an Effective Election Statement to
receive all cash shall be converted into cash, on the terms and
conditions set forth in Section 2.1(i) hereof but only up to the
percentage specified below.
(4) If the aggregate amount of cash payable to holders of Lexington
Common Stock after giving effect to the foregoing provisions of this
Section 2.1(j), including cash payable to holders of Dissenting Shares
and cash payable due to fractional shares, pursuant to the Merger
exceeds one-third (or, if Buyer has made a determination to increase
the Cash Consideration pursuant to Section 2.1(b), such higher
percentage as shall be equal to the percentage of the Total
Consideration payable in cash, after giving effect to such
determination) (the "Specified Cash Percentage") of the Merger
Consideration plus the cash payable to holders of Dissenting Shares
(the "Total Consideration"), the cash otherwise payable to Lexington
stockholders who would otherwise receive any portion of the Merger
Consideration in cash shall be reduced pro rata so that the aggregate
amount of cash does not exceed the Specified Cash Percentage and such
Lexington stockholders shall receive Buyer Common Stock in lieu
thereof.
(5) If the aggregate amount of Buyer Common Stock issuable to
holders of Lexington Common Stock pursuant to the Merger after giving
effect to the foregoing provisions of this Section 2.1(j) exceeds two-
thirds (or, if Buyer has made a determination to increase the Cash
Consideration pursuant to Section 2.1(b), such lower percentage as
shall be equal to the percentage of the Total Consideration payable in
Buyer Common Stock, after giving effect to such determination) of the
Total Consideration (the "Specified Stock Percentage"), the Buyer
Common Stock otherwise issuable to Lexington stockholders who would
receive any portion of the Merger Consideration in Buyer Common Stock
shall be reduced pro rata so that the aggregate amount of Buyer Common
Stock does not exceed the Specified Stock Percentage and such Lexington
stockholders shall receive cash in lieu thereof.
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(6) If the foregoing election and allocation procedures are found to
be unlawful for federal regulatory purposes, this Section 2.2(j) shall
be amended to provide such other procedure for reduction of the number
of shares of Lexington Common Stock converted to cash and/or Buyer
Common Stock as may be agreed upon by Buyer and Lexington and as is
consistent with such regulatory purposes.
(k) Dissenters' Rights.
(1) Notwithstanding any provision of this Agreement to the contrary,
any shares of Lexington Common Stock held by a holder who has properly
asserted his right, if any, for appraisal of such shares in accordance
with the Delaware Law and who, as of the Effective Time, has not
effectively lost such right to appraisal (the "Dissenting Shares"),
shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.1 (a), but the holder thereof shall
only be entitled to such rights as are granted by the Delaware Law.
(2) Notwithstanding the provision of Section 2.1(k)(1), if any
holder of shares of Lexington Common Stock who asserts his rights, if
any, for appraisal or demands payment for such shares under the
Delaware Law shall effectively lose his right to appraisal, then, as of
the later of the Effective Time or the occurrence of such event, such
holder's shares of Lexington Common Stock shall automatically be
converted into and represent only the right to receive the Merger
Consideration as provided in Section 2.1(a), upon surrender of the
Certificates representing such shares.
(l) Adjustments. The Merger Consideration shall be appropriately
adjusted to reflect any stock split, reverse stock split, stock dividend,
recapitalization, exchange, subdivision, combination of, or other similar
change (including the exercise of any Buyer Rights under the Buyer Rights
Agreement) in Lexington Common Stock or Buyer Common Stock after the date
of this Agreement.
2.2 Exchange of Certificates.
(a) The transfer agent for Buyer Common Stock shall serve as exchange
agent hereunder (the "Exchange Agent"). Promptly after the Effective Time,
Buyer shall deposit in trust with the Exchange Agent cash and certificates
representing the aggregate Merger Consideration to be paid to holders of
Lexington Common Stock and to pay for fractional shares then known to Buyer
(such Common Stock and cash amounts being referred to as the "Exchange
Fund"). The Exchange Agent shall, under irrevocable instructions received
from Buyer, pay the amounts of cash provided for in this Article II out of
the Exchange Fund. Additional amounts of cash, if any, needed from time to
time by the Exchange Agent shall be provided by Buyer and shall become part
of the Exchange Fund. The Exchange Fund shall not be used for any other
purpose, except as provided in this Agreement, or as otherwise agreed to by
Buyer and Lexington before the Effective Time.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each record holder of Lexington Common Stock who, as of the
Effective Time was a holder of a Certificate, a letter of transmittal
(reasonably satisfactory in form and substance to Lexington and Buyer) and
instructions for its use in effecting the surrender of the Certificate for
payment therefor and conversion thereof. Delivery shall be effected, and
risk of loss and title to the Certificate shall pass, only upon proper
delivery of the Certificate to the Exchange Agent and the letter of
transmittal shall so reflect. Upon surrender to the Exchange Agent of a
Certificate, together with a letter of transmittal duly executed and
properly completed, the holder of the Certificate shall be entitled to
receive in exchange therefor cash and shares of Buyer Common Stock to which
that holder of Lexington Common Stock is entitled pursuant to the terms of
this Agreement (with the cash amount being rounded up or down to the
nearest $.01) and the Certificate so surrendered shall be marked
"Canceled." No interest will be paid or accrued on any Merger
Consideration.
(c) If any portion of the consideration to be received under this
Article II upon exchange of a Certificate is to be issued or paid to a
person other than the person in whose name the Certificate
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surrendered in exchange therefor is registered, it shall be a condition of
such payment that the Certificate so surrendered shall be properly endorsed
or otherwise in proper form for transfer and that the person requesting
such exchange shall pay in advance any transfer or other taxes required by
reason of a check representing the Merger Consideration, or establish to
the satisfaction of the Exchange Agent that such tax has been paid or that
no such tax is applicable. Buyer shall pay any transfer or other taxes
required by reason of the issuance of a certificate representing shares of
Buyer Common Stock if the certificate is issued in the name of the person
in whose name the certificate surrendered in exchange therefor is
registered; provided, however, that Buyer shall not pay any transfer or
other tax if payment of any such tax by Buyer otherwise would cause the
Merger to fail to qualify as a tax-free reorganization under the Code.
(d) From the Effective Time until surrender in accordance with this
Section 2.2, each Certificate (other than Certificates representing shares
held by Buyer, Merger Sub, or Lexington or any direct or indirect
subsidiary of Buyer or Lexington) shall be deemed, for all corporate
purposes other than the payment of dividends or other distributions, to
evidence only the right to receive the cash and/or Buyer Common Stock into
which such shares of Lexington Common Stock shall have been so converted
or, in the case of Dissenting Shares, to evidence only such rights as are
granted by the Delaware Law. After surrender, there shall be paid to the
person in whose name the Buyer Common Stock shall be issued any dividends
on Buyer Common Stock that shall have a record date and payment date on or
after the Effective Time and before surrender. All payments in respect of
shares of Lexington Common Stock that are made in accordance with the terms
hereof shall be deemed to have been made in full satisfaction of all rights
pertaining to those securities.
(e) In case of any lost, stolen, or destroyed Certificate, the holder
thereof may be required, as a condition precedent to the delivery to the
holder of the consideration described in Section 2.1, and in accordance
with Section 167 of the Delaware Law, to deliver to Buyer a bond in such
reasonable sum as Buyer may direct as indemnity against any claim that may
be made against the Exchange Agent, Buyer, or the Surviving Corporation
with respect to the Certificate alleged to have been lost, stolen, or
destroyed.
(f) After the Effective Time, there shall be no transfers on the books
of the Surviving Corporation of the shares of Lexington Common Stock that
were outstanding immediately before the Effective Time. If, after the
Effective Time, Certificates are presented to Surviving Corporation for
transfer, they shall be canceled and exchanged for the consideration
described in Section 2.1. After the Effective Time, the shares of Lexington
Common Stock shall be delisted from the Nasdaq National Market System.
(g) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Lexington for one year after the Effective Time shall be
returned to Buyer, upon demand, and any holder of Lexington Common Stock
who has not theretofore complied with this Section 2.2 shall thereafter
look only to Buyer for issuance of the Merger Consideration to which the
holder has become entitled under Section 2.1; provided, however, that
neither the Exchange Agent nor any party to this Agreement shall be liable
to a holder of shares of Lexington Common Stock for any amount required to
be paid to a public official or public entity under any applicable
abandoned-property, escheat, or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LEXINGTON
3.1 General. Lexington represents and warrants to Buyer and Merger Sub that
the statements contained in this Article III are true and correct, except as
set forth in the disclosure schedule delivered by Lexington to Buyer on the
date of this Agreement (the "Lexington Disclosure Schedule"). Notwithstanding
any other provision of this Agreement, each exception set forth in the
Lexington Disclosure Schedule shall be deemed to qualify each representation
and warranty set forth in this Agreement (i) that is specifically identified
(by cross-reference or otherwise) in the Lexington Disclosure Schedule as being
qualified by such exception, or (ii) with
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respect to which the relevance of such exception is apparent on the face of the
disclosure of such exception set forth in the Lexington Disclosure Schedule. As
used throughout this agreement with respect to any person, the term "Material
Adverse Effect" means any change or effect that, individually or when taken
together with all changes or effects that have occurred before the
determination of the occurrence of the Material Adverse Effect, has had or is
reasonably likely to have a material adverse effect on the business, financial
condition, or results of operations of the person and its subsidiaries taken as
a whole; provided, however, that Material Adverse Effect with respect to any
person shall not include any change in or effect upon the business, financial
condition, or results of operations of such person or any of its subsidiaries
directly or indirectly arising out of or attributable to (a) conditions,
events, or circumstances generally affecting the U.S. economy as a whole, (b)
conditions, events, or circumstances generally affecting the mutual fund
industry as a whole (including regulatory and legal), or (c) any decreases in
Lexington Mutual Fund Assets Under Management. It is further understood that
any decrease in the market price of shares of Lexington Common Stock or Buyer
Common Stock shall not be relevant to a determination of whether a Material
Adverse Effect has occurred.
3.2 Representations and Warranties.
(a) Organization, Standing, Qualification.
(1) Each of Lexington and its subsidiaries (which, for purposes of
this Article includes Troika Dialog Lexington Partners (BVI) Ltd.
("TDLPL")) is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its organization
and has the requisite power and authority to own, lease, and operate
its properties and assets and to carry on its business as it is now
being conducted. Each of Lexington and its subsidiaries is duly
qualified or licensed as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of the
properties owned, operated, or leased by it, or the nature of its
business, makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or
in good standing would not have a Material Adverse Effect on Lexington.
The Lexington Disclosure Schedule sets forth a list of all of
Lexington's subsidiaries and their state of incorporation; except as so
set forth and except for securities held solely for investment
purposes, Lexington does not directly or indirectly own any capital
stock of, or other equity interest in, any person. Copies of the
charter and bylaws (or similar organizational documents) of Lexington
and each subsidiary of Lexington have been made available to Buyer and
are complete and correct as of the date hereof.
(2) Each of Lexington Management Corporation and Lexington Market
Systems Research Advisors, Inc. ("MSR") is and has been duly registered
as an investment adviser under the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and under Applicable Law (as defined in
Section 4.2(f)). The Lexington Disclosure Schedule lists the
jurisdictions in which Lexington Management Corporation or MSR is
registered as an investment adviser. Each such registration is in full
force and effect. Other than the jurisdictions set forth in the
Lexington Disclosure Schedule for Lexington Management Corporation or
MSR, neither Lexington nor its subsidiaries is required to be
registered as an investment adviser in any jurisdiction.
(3) Lexington Funds Distributor, Inc. ("Lexington Distributor") is
and has been duly registered as a broker-dealer under the Securities
Exchange Act of 1934 and under other Applicable Law. The Lexington
Disclosure Schedule lists the jurisdictions in which Lexington
Distributor is registered as a broker-dealer. Each such registration is
in full force and effect. Other than the jurisdictions set forth in the
Lexington Disclosure Schedule, Lexington Distributor is not required to
be registered as a broker-dealer in any other jurisdiction. Lexington
Distributor is a member in good standing and has all licenses and
authorizations in self-regulatory or trade organizations or registered
clearing agencies, required to permit the operation of its business as
presently conducted, except where such failure would not have a
Material Adverse Effect on Lexington.
(4) TDLPL has all requisite licenses and other registrations
necessary for it to manage the assets of the Troika Dialog Lexington
Eurasia Fund.
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(b) Capitalization. The authorized capital stock of Lexington consists
of 15 million shares of Lexington Common Stock, of which, as of the close
of business on February 28, 2000, 4,505,038 shares were issued and
outstanding, and 5 million shares of preferred stock, $.01 par value, none
of which are outstanding. The authorized capital stock of MSR consists of
1,000 shares of common stock, $.01 par value. All of the issued and
outstanding shares of capital stock of Lexington and the capital stock or
other equity interests of each of its subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable, and were
not granted in violation of any statutory preemptive rights. There are no
outstanding subscriptions, options, warrants, calls, or other agreements or
commitments under which Lexington or any subsidiary is or may become
obligated to issue, sell, transfer, or otherwise dispose of, or purchase,
redeem, or otherwise acquire, any shares of capital stock of, or other
equity interests in, Lexington or any subsidiary, and there are no
outstanding securities convertible into or exchangeable for any such
capital stock or other equity interests, except for options to purchase up
to an aggregate of 437,100 shares of Lexington Common Stock, as of the
close of business on February 28, 2000 at an average exercise price of
$5.51 and as set forth in the Lexington Disclosure Schedule. There are no
stock appreciation rights, phantom stock rights, or, performance shares
outstanding issued by Lexington with respect to Lexington or any of its
subsidiaries. Lexington owns, directly or indirectly, all of the issued and
outstanding shares of each class of capital stock of each of its
subsidiaries which is wholly owned, and the number of shares of capital
stock or equity interests set forth on the Lexington Disclosure Schedule of
each subsidiary which is not wholly owned, in each case free and clear of
all liens, security interests, pledges, charges, and other encumbrances.
There are no agreements or understandings to which Lexington or any of its
subsidiaries is a party with respect to the capital stock of Lexington or
its subsidiaries.
(c) Authorization and Execution. Lexington has the corporate power and
authority to execute and deliver this Agreement and, subject to approval by
the stockholders of a majority of the outstanding shares of Lexington
Common Stock, to consummate the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement by Lexington have
been duly authorized by the Board of Directors of Lexington, and no further
corporate action of Lexington, other than the approval of its stockholders,
is necessary to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Lexington and, assuming
the accuracy of the representations and warranties of Buyer set forth in
Section 5.2(c), this Agreement constitutes the legal, valid, and binding
obligation of Lexington, enforceable against Lexington in accordance with
its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally, and subject to general
principles of equity.
(d) No Conflicts. Neither the execution and delivery of this Agreement
by Lexington, nor the consummation by Lexington of the transactions
contemplated hereby will:
(1) conflict with or result in a breach of the charter, bylaws, or
similar organizational documents, as currently in effect, of Lexington
or any of its subsidiaries;
(2) require any filing with, or consent or approval of, any
government, state, or political subdivision thereof, entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government, including the Securities and
Exchange Commission (the "SEC") and any other government authority,
agency, department, board, commission, or instrumentality of the United
States, any State of the United States, or any political subdivision
thereof, any court, tribunal, or arbitrator of competent jurisdiction,
or any governmental or nongovernmental self-regulatory organization,
agency, or authority (including the Nasdaq National Market and the
National Association of Securities Dealers, Inc. (the "NASD")) (each, a
"Governmental Authority") having jurisdiction over any of the
businesses or assets of Lexington or any of its subsidiaries, except
for (A) compliance with the requirements under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); (B) the
filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents reflecting the occurrence of the Merger
with the relevant authorities of the other states in which Lexington is
licensed or qualified to do business; (C) the consents, approvals,
filings, and notices required under the 1940 Act
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and the Advisers Act; (D) any consents, approvals, filings, or notices
required with the NASD or any industry self-regulatory organizations;
(E) the filing with the SEC of the Proxy Statement/Prospectus (as
defined in Section 5.2(e)) and compliance with any other applicable
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); and (F) such other filings, consents, or approvals the
failure of which to make or obtain would not reasonably be expected to
prevent consummation of the Merger or to have a Material Adverse Effect
on Lexington;
(3) subject to the exceptions contained in, and assuming compliance
with, clauses (A) through (F) of subsection (d)(2) above, violate any
Applicable Law applicable to Lexington or any of its subsidiaries; or
(4) result in a material breach of, or constitute a material default
or an event that, with the passage of time or the giving of notice, or
both, would constitute a material default, give rise to a right of
termination, cancellation, or acceleration, create any entitlement of
any third party to any material payment or benefit, require the consent
of any third party, or result in the creation of any material lien on
the assets of Lexington or any of its subsidiaries under, any Material
Contract (as defined in Section 3.2(j)).
(e) SEC Reports and Financial Statements.
(1) Since December 13, 1995, Lexington and its subsidiaries have
filed all material reports, registration statements, Forms ADV, Forms
BD and other filings, together with any material amendments required to
be made with respect thereto, that it has been required to file with
any relevant Governmental Authority under federal and state securities
laws, including the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act. All reports, registration statements, and
other filings (including all exhibits, notes, and schedules thereto and
all documents incorporated by reference therein) filed by Lexington or
its subsidiaries with the SEC on or after December 13, 1995, together
with any amendments thereto, are collectively referred to as the
"Lexington SEC Reports." As of: (A) with respect to all of the
Lexington SEC Reports other than registration statements filed under
the Securities Act, the respective dates of their filing with the SEC;
and (B) with respect to all registration statements filed under the
Securities Act, their respective effective dates, the Lexington SEC
Reports complied in all material respects with the rules and
regulations of the SEC and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein not
misleading. Since its inception in June 1998, TDLPL has filed all
reports, registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has been
required to file with any relevant Governmental Authority under U.S.
federal and state securities laws and under foreign law.
(2) The consolidated financial statements (including any related
notes or schedules) included in Lexington's 1998 Annual Report on Form
10-K, as filed with the SEC, were prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP"), except
as may be noted therein or in the notes or schedules thereto, and
fairly present in all material respects the consolidated financial
position of Lexington and its subsidiaries (except to the extent that
TDLPL is not consolidated) as of December 31, 1997 and 1998 and the
consolidated results of their operations and cash flows for each of the
three years in the three-year period ended December 31, 1998.
(3) The audited consolidated financial statements of Lexington and
its subsidiaries as of and for the year ended December 31, 1999 when
delivered will be consistent in all material respects with the
unaudited consolidated financial statements of Lexington and its
subsidiaries as of and for December 31, 1999 that were previously
delivered to Buyer.
(f) Proxy Statement. The information supplied by Lexington for inclusion
in the Proxy Statement (as defined in Section 5.2(e)), as of the date of
the Proxy Statement/Prospectus and as of the date of the meeting of
Lexington's stockholders to consider this Agreement and the Merger, will
not contain any
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untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(g) Absence of Certain Changes or Events. Except as disclosed in any
Lexington SEC Report, from December 31, 1998 to the date of this Agreement,
Lexington and its subsidiaries have conducted their respective businesses
and operations in the ordinary course consistent with past practices, and
neither Lexington nor any of its subsidiaries has:
(1) split, combined, or reclassified any shares of its capital stock
or made any other changes in its equity capital structure;
(2) purchased, redeemed, or otherwise acquired, directly or
indirectly, any shares of its equity securities or any options, rights,
or warrants to purchase equity securities or any securities convertible
into equity securities;
(3) declared or paid any dividends on or made any other
distributions (whether in cash, stock, or property) in respect of
shares of its capital stock, or split, combined, or reclassified any of
its capital stock, or issued or authorized the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of
capital stock of such entity;
(4) issued, delivered, or sold any shares of its capital stock or
securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating it to issue, any
such shares or other convertible securities (other than the grant of
options to employees in a manner consistent with past practices under
the Lexington Incentive Plan, and the issuance of shares upon the
exercise of such options);
(5) incurred, assumed, or guaranteed any indebtedness for money
borrowed, other than intercompany indebtedness, other than that
incurred under currently existing debt instruments;
(6) changed or modified in any material respect any existing
accounting method, principle, or practice, other than as required by
GAAP;
(7) suffered any business interruption, damage to or destruction of
its properties, or other incident, occurrence, or event (other than
changes in general industry, economic, or market conditions), which
would have a Material Adverse Effect on Lexington; or
(8) except for this Agreement, entered into any commitment to do any
of the foregoing.
(h) Tax Matters.
(1) Lexington and its subsidiaries have timely filed (or received
appropriate extensions for) all material federal, state, local, and
foreign tax returns ("Tax Returns") required to be filed by them with
respect to income, gross receipts, withholding, social security,
unemployment, payroll, franchise, excise, use, premium, and other taxes
of whatever kind ("Taxes"), and have paid all Taxes shown on those Tax
Returns to the extent they have become due. Lexington's Tax Returns are
accurate and complete in all material respects.
(2) No Tax Returns filed by Lexington or any of its subsidiaries are
the subject of pending audits. Neither Lexington nor any of its
subsidiaries has received, before the date of this Agreement, a notice
of deficiency or assessment of additional material Taxes that remains
unresolved. Neither Lexington nor any of its subsidiaries has extended
the period for assessment or payment of any Tax, which extension has
not since expired.
(3) Lexington and its subsidiaries have withheld and paid over to
the appropriate Governmental Authorities all Taxes required by law to
have been withheld and paid in connection with amounts paid or owing to
any employee, except for any such Taxes that are immaterial in amount.
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(4) Neither Lexington nor any of its subsidiaries has been a member
of an affiliated group (as defined in Section 1504 of the Code) filing
a consolidated federal income tax return for any tax year since January
1, 1992 other than a group the common parent of which was Lexington
(the "Lexington Consolidated Group").
(5) Neither Lexington nor any of its subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations.
(6) Lexington has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(7) Neither Lexington nor any of its subsidiaries is a party to any
Tax allocation or sharing agreement, except among members of the
Lexington Consolidated Group.
(8) Neither Lexington nor any of its subsidiaries is subject to a
Tax lien on any of its property or assets, except for current liens for
Taxes not yet due.
(9) Lexington has delivered or made available to Buyer true and
complete copies of all requested federal, state, local, and foreign
income tax returns with respect to Lexington and its subsidiaries.
(10) Neither Lexington nor any of its Subsidiaries has made any
payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payment that is not
deductible under Code Section 280G.
(11) The reserve for Taxes set forth on the financial statements of
Lexington contained in Lexington's most recent Annual Report on Form
10-K is adequate for the payment of all material Taxes through the date
thereof and no material Taxes have been incurred after December 31,
1998 that were not incurred in the ordinary course of business.
(12) The 1995 spin-off transaction involving Lexington resulted in
such federal tax consequences as are consistent with the statements as
to such matters set forth in the Information Statement dated November
30, 1995 relating thereto.
(i) Properties.
(1) Lexington owns no real property. The Lexington Disclosure
Schedule sets forth a true and complete list of all real property
leased by Lexington or any of its subsidiaries and the name of the
lessor, the date of the lease, and each amendment thereto and the
aggregate annual rental or other fee payable under the lease. All such
leases are enforceable in accordance with their respective terms, and
there is not, under any such lease, any existing material default or
event of default by Lexington (or event which with notice or lapse of
time, or both, would constitute a default and in respect of which
Lexington has not taken adequate steps to prevent the default from
occurring).
(2) Lexington has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its
tangible properties and assets, real, personal, and mixed, used in its
business, free and clear of any mortgages, liens, pledges, charges,
restrictions, encroachments, rights of third parties, or other
encumbrances of any kind, except for (A) liens for current Taxes not
yet due and payable, (B) inchoate mechanic's, warehousemen's,
materialmen's, or similar liens or rights arising in the ordinary
course of business, (C) liens, encumbrances, restrictions,
encroachments, and easements, all with respect to tangible properties
that were not incurred with the borrowing of money or the obtaining of
advances or credit and that do not materially detract the value of or
materially interfere with the present use of the property subject
thereto or effected thereby, or otherwise materially impair present
business operations at such properties, and (D) existing mortgages,
liens, and encumbrances disclosed in the Lexington SEC Reports.
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(j) Material Contracts. Except as disclosed in any Lexington SEC Report,
as of the date hereof, neither Lexington nor any of its subsidiaries is a
party to or bound by any written or oral contract:
(1) with respect to the employment of any directors, officers, or
employees, other than noncompetition and confidentiality agreements
with such persons and contracts terminable by Lexington upon no more
than 60 days' notice without penalty;
(2) that is a "material contract" (as is defined in Item 601(b)(10)
of Regulation S-K of the SEC) to be performed after the date of this
Agreement;
(3) that, after the Effective Time, will materially restrict the
conduct of any line of business by Lexington or its subsidiaries or
upon consummation of the Merger will materially restrict the ability of
the Surviving Corporation to engage in any line of business in which it
may lawfully engage;
(4) with a labor union (including any collective bargaining
agreement); or
(5) except as required by the Lexington Incentive Plan (including
any stock option plan, stock appreciation rights plan, restricted stock
plan, or stock purchase plan) and the Lexington Senior Management
Severance Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence
of any stockholder approval or the consummation of any of the
transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
All of the foregoing are collectively called "Material Contracts." To
the extent Material Contracts are evidenced by documents, true and complete
copies thereof have been delivered or made available to Buyer. The
Lexington Disclosure Schedule sets forth a true and complete description of
the material terms of each Material Contract that has not been reduced to
writing. Each Material Contract is in full force and effect. Neither
Lexington nor any of its subsidiaries nor, to the knowledge of Lexington,
any other party is in material breach of or in material default under any
of the Material Contracts.
(k) Intellectual Property. Lexington and its subsidiaries own or possess
adequate licenses or other valid rights to use (without the making of any
payment to others, other than licenses for commercially available software
and payments under agreements disclosed in the Lexington Disclosure
Schedule, or the obligation to grant rights to others in exchange) all of
the material patents, trademarks, trade names, service marks, domain names,
and copyrights, and all registrations and applications for any of the
foregoing (collectively, "Proprietary Rights") necessary to the conduct of
its business in the manner in which it is presently being conducted. As of
the date of this Agreement, neither Lexington nor any of its subsidiaries
has received any written notice that any Proprietary Rights have been
declared unenforceable or otherwise invalid by any court or Governmental
Authority. There is, to the knowledge of Lexington, no material existing
infringement, misuse, or misappropriation of any Proprietary Rights by
others. From December 13, 1995 to the date of this Agreement, neither
Lexington nor any of its subsidiaries has received any written notice
alleging that the operation of the business of Lexington or any of its
subsidiaries infringes in any material respect upon the intellectual
property rights of others. The consummation of the Merger and the other
transactions contemplated by this Agreement will not result in the loss by
Lexington of any rights to use computer and telecommunications software
including source and object code and documentation and any other media
(including manuals, journals, and reference books) that is material to the
operation of its business substantially as currently conducted.
(l) Litigation. No litigation, arbitration, or administrative proceeding
(1) is pending or, to the knowledge of Lexington, threatened against
Lexington or any of its subsidiaries as of the date of this Agreement that,
if decided adversely to Lexington or such subsidiary, would have a Material
Adverse Effect on Lexington, or (2) is pending or, to the knowledge of
Lexington, threatened against Lexington or any of its subsidiaries as of
the date of this Agreement that seeks to enjoin or otherwise challenges the
consummation of the transactions contemplated by this Agreement. As of the
date of this Agreement, neither Lexington nor any of its subsidiaries is
specifically identified as a party subject to any material
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restrictions or limitations under any injunction, writ, judgment, order, or
decree of any Governmental Authority.
(m) Permits; Compliance with Laws. Each of Lexington and its
subsidiaries has all material licenses, franchises, permits, and other
authorizations of Governmental Authorities necessary to conduct its
business, and neither Lexington nor any of its subsidiaries is in violation
of any such license, franchise, permit, or other authorization of a
Governmental Authority or any Applicable Law, except where such failure or
violation would not have a Material Adverse Effect on Lexington.
(n) No Brokers or Finders. Except for Putnam, Lovell, de Guardiola &
Thornton Inc., Lexington has not engaged any investment banker, broker, or
finder in connection with the transactions contemplated hereby.
(o) Retirement and Benefit Plans; Employees.
(1) Each employee pension benefit plan ("Pension Plan"), as defined
in Section 3 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), each employee welfare benefit plan ("Welfare Plan"),
as defined in Section 3 of ERISA, and each deferred compensation,
bonus, incentive, stock incentive, option, stock purchase, severance,
or other employee benefit plan, agreement, commitment, or arrangement
("Benefit Plan"), that is currently maintained by Lexington or any of
its ERISA Affiliates (as defined in clause (9) below) or to which
Lexington or any of its ERISA Affiliates currently contributes or is
under any current obligation to contribute (collectively, the
"Lexington Employee Plans" and individually, an "Lexington Employee
Plan") is listed in the Lexington Disclosure Schedule and, to the
extent any Lexington Employee Plan is evidenced by documents, insurance
policies, or manuals, true and complete copies thereof have been
delivered to Buyer, including copies of any trust agreement or other
funding contract with respect to any Lexington Employee Plan. In
addition, copies of the most recent determination letter issued by the
Internal Revenue Service with respect to each Pension Plan, copies of
the most recent actuarial report for each Pension Plan, where
applicable, and copies of the annual report (Form 5500 Series) required
to be filed with any Governmental Authority with respect to each
Pension Plan and each Welfare Plan, for the three most recent plan
years of such plan for which reports have been filed, have been
delivered to Buyer. In addition, copies of all material employee
communications (including summary plan descriptions and employee
manuals) with respect to each Lexington Employee Plan have been
delivered to Buyer.
(2) Each of Lexington and its ERISA Affiliates has made on a timely
basis all contributions or payments required to be made by it under the
terms of the Lexington Employee Plans, ERISA, the Code, or other
applicable laws.
(3) No Lexington Employee Plan has an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA). Each Lexington Employee Plan that is intended to be
qualified under Section 401(c) of the Code is the subject of a
currently effective favorable IRS determination letter as to such
Plan's qualification under Section 401(a) of the Code.
(4) Neither Lexington nor any of its ERISA Affiliates has
maintained, contributed to or otherwise had any obligation with respect
to any "multiemployer plan" (as defined in Section 3 of ERISA) within
the past six years.
(5) To the best of Lexington's knowledge, each Lexington Employee
Plan (and any related trust or other funding instrument) is being
administered in all material respects in compliance with its terms, and
in both form and operation, is in compliance in all material respects
with the applicable provisions of ERISA, the Code, and other laws and
regulations (other than adoption of any plan amendments for which the
deadline has not yet expired), and all reports required to be filed
with any Governmental Authority with respect to each Pension Plan and
each Welfare Plan required to be listed on the Lexington Disclosure
Schedule have in all material respects been timely filed.
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(6) There is no litigation, arbitration, or administrative
proceeding pending or, to the knowledge of Lexington, threatened
against Lexington or any of its ERISA Affiliates or, to the knowledge
of Lexington, any plan fiduciary by the Internal Revenue Service, the
U.S. Department of Labor, the PBGC, or any participant or beneficiary
with respect to any Lexington Employee Plan. To the best of Lexington's
knowledge, neither Lexington nor any of its ERISA Affiliates nor, to
the knowledge of Lexington, any plan fiduciary of any Pension Plan or
Welfare Plan required to be listed on the Disclosure Schedule has
engaged in any transaction in violation of Section 406(a) or (b) of
ERISA for which an exemption does not exist under Section 408 of ERISA
or any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which an exemption does not exist under Section
4975(c)(2) or 4975(d) of the Code, or is subject to any material excise
tax or penalty imposed by the Code or ERISA with respect to any
Lexington Employee Plan.
(7) Lexington or its ERISA Affiliates have the right to terminate or
amend any Lexington Employee Plan (including any group health plan
covering retirees or other former employees) or discontinue
contributions to any Lexington Employee Plan without incurring any
liability other than a benefit liability accrued under such plan
immediately before termination, amendment, or discontinuance of
contributions.
(8) No Lexington Employee Plan is maintained outside the United
States.
(9) For purposes of this Section 3.2(o), the term "ERISA Affiliate"
means any entity which is under "common control" with Lexington (within
the meaning of Section 4001(b) of ERISA).
(10) Neither the execution and delivery of this Agreement nor the
consummation of the Merger will by itself (A) result in any payment
(including severance, unemployment compensation, excess parachute
payment (within the meaning of Section 280G of the Code), forgiveness
of indebtedness, or otherwise) becoming due to any director or any
employee of Lexington or any ERISA Affiliate from Lexington or any
ERISA Affiliate under any Lexington Employee Plans or otherwise, (B)
increase any benefits otherwise payable under any Lexington Employee
Plan, or (C) result in any acceleration of the time of payment or
vesting of any such benefits.
(p) Environmental Matters.
(1) For purposes of this Section 3.2(p):
(A) "Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 32 U.S.C. (S) 9601 et
seq., the Resource Conservation and Recovery Act, 32 U.S.C. (S) 6901
et seq., the Federal Water Pollution Control Act, 33 U.S.C. (S) 1201
et seq., the Clean Water Act, 33 U.S.C. (S) 1321 et seq., the Clean
Air Act, 32 U.S.C. (S) 7301 et seq., and any other federal, state,
local or other governmental statute, regulation, law or ordinance
dealing with the protection of human health, natural resources, or
the environment; and
(B) "Hazardous Substance" means any pollutant, contaminant,
hazardous substance or waste, solid waste, petroleum or any fraction
thereof, or any other chemical, substance, or material listed or
identified in or regulated by any Environmental Law.
(2) No Hazardous Substances have been spilled, discharged, leaked,
emitted, injected, disposed of, dumped, or released by Lexington or any
of its subsidiaries or, to the knowledge of Lexington, any other person
on, beneath, above, or into the environment surrounding any of the real
property currently or formerly leased by Lexington or any of its
subsidiaries in such a way as to create any unpaid liability of
Lexington or any of its subsidiaries under any applicable Environmental
Law, that would have a Material Adverse Effect on Lexington.
(q) Labor Matters. Lexington has no knowledge, as of the date of this
Agreement, of any activities or proceedings of any labor union to organize
any of its or its subsidiaries' employees.
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(r) Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of Lexington Common Stock is the only vote of the
holders of any class or series of capital stock of Lexington necessary to
approve this Agreement and the Merger.
(s) Anti-Takeover Provisions. No restrictive provision of any "fair
price," "moratorium," "control share acquisition," "interested
stockholder," or other anti-takeover statute or regulation or any
restrictive effect of any applicable anti-takeover provision in Lexington's
Certificate of Incorporation or Bylaws is, or at the Effective Time will
be, applicable to the Merger or the other transactions contemplated hereby.
(t) Insurance Coverage. Lexington and its subsidiaries have in effect
insurance coverage with reputable insurers or are self-insured, which in
respect of amounts, premiums, types, and risks insured, constitutes
reasonably adequate coverage against all risks customarily insured by
companies and their subsidiaries comparable in size and industry to
Lexington and its subsidiaries. All of the insurance policies and bonds of
Lexington and its subsidiaries are listed in the Lexington Disclosure
Schedule. Each such insurance policy or bond in full force and effect and
none of Lexington or any of its subsidiaries has received notice or any
other indication from any insurer or agent of any intent to cancel any such
insurance policy or bond.
(u) Management Agreements. The Lexington Disclosure Schedule sets forth
a true and complete list of each of the portfolio management agreements and
investment advisory or management agreements (collectively, the "Management
Agreements") related to Lexington's (or a subsidiary's) rendering
investment advisory services to any client other than a U.S.-registered
investment company for which Lexington or a subsidiary serves as investment
adviser (but not sub-adviser), distributor or sponsor (but including
investment companies for which Lexington or a subsidiary serves solely as a
sub-adviser and including the Troika Dialog Lexington Eurasia Fund)
("Private Accounts"). Each such Management Agreement is currently in full
force and effect and has been performed by Lexington (or its subsidiaries)
in accordance with all Applicable Laws. No material default or condition or
event that, after notice or lapse of time or both, would constitute a
material default on the part of Lexington or any of its subsidiaries or, to
the knowledge of Lexington, on the part of the other parties to such
Management Agreements, exists under any of those agreements, and each
Private Account has, during the term of the pertinent Management Agreement,
been managed in all material respects consistent with the investment goals
and restrictions specified in the Management Agreement.
(v) Voting Agreements. The Board of Directors of Lexington has approved
a voting agreement (a "Voting Agreement"), in substantially the form of
Exhibit A, which voting agreement shall be executed by the parties set
forth on Schedule 3.2(v).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES RELATING TO THE LEXINGTON FUNDS
4.1 General. Lexington represents and warrants to Buyer and Merger Sub that
the statements contained in this Article IV are true and correct, except as set
forth in the Lexington Disclosure Schedule.
4.2 Representations and Warranties.
(a) No Prohibitions. To the knowledge of Lexington, neither Lexington or
any of its subsidiaries nor any person associated (as such term is
construed under Section 3(18) of the Exchange Act or Section 202(a)(17) of
the Advisers Act) with those companies has committed any act (1) enumerated
in, or that may subject it to the provisions of, Section 15(b)(4) of the
Exchange Act, Section 203(e) of the Advisers Act or Rule 206(4)-4(b)
promulgated thereunder, or Section 9 of the 1940 Act, or (2) that would
result in a "yes" answer to any question contained in Item 22 of Form U-4
(Uniform Application for Securities Industry Registration or Transfer) or
the equivalent item of any successor form or of any non-uniform state form,
to the extent that such act would result in a Material Adverse Effect on
Lexington.
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(b) Organization of the Funds. Each of the Lexington Funds (sometimes
collectively referred to as the "Lexington Fund Family") is a registered
investment company (a "Registrant"), or a series of a Registrant, organized
as a Maryland corporation, or a Massachusetts business trust, or a New York
grantor trust, duly formed and validly existing, and with respect to
Lexington Funds that are Maryland corporations and Massachusetts business
trusts, in good standing under the law of its jurisdiction of organization.
The Lexington Disclosure Schedule sets forth a true, complete, and correct
list, as of the date hereof, of each of the Registrants and any series
thereof, and whether any of Lexington, Lexington Management Corporation, or
any other subsidiary of Lexington acts as investment adviser, broker-
dealer, or sponsor for the Registrant. Each Lexington Fund for which any
affiliate of Lexington will act in such capacities after the Effective Time
is so indicated in the Lexington Disclosure Schedule. Each Lexington Fund
has the requisite power and authority to carry on its business as it is now
being conducted.
(c) Capitalization of the Lexington Funds. All issued and outstanding
shares of common stock and shares or units of beneficial interest of each
Lexington Fund (collectively, "Fund Shares") are, and at the Effective Time
will be, and all of the authorized but unissued Fund Shares of each
Lexington Fund will be, when issued for the consideration described in the
current registration statement relating to that Lexington Fund, duly and
legally issued and outstanding, fully paid, and non-assessable (or in the
case of a Massachusetts business trust, non-assessable by the Lexington
Fund). All of the issued and outstanding Fund Shares will, at the Effective
Time, be held of record by the persons and in the names and amounts set
forth in the records of State Street Bank and Trust Company, Inc., the
transfer agent of the Lexington Funds. No Lexington Fund has outstanding
any options, warrants, or other rights to subscribe for or purchase any of
its shares, nor is there outstanding any security convertible into Fund
Shares.
(d) Financial Statements of the Lexington Funds. Lexington has furnished
to Buyer true and complete copies of the audited statements of assets and
liabilities (including the notes thereto) of each Lexington Fund as of the
two most recent fiscal/calendar years, the related audited statements of
operations and changes in net assets for the three most recent
fiscal/calendar years, and the related audited schedules of portfolio
investments for the two most recent fiscal/calendar years. Lexington also
has furnished to Buyer true and complete copies of the unaudited statement
of assets and liabilities (including the notes thereto) of each Lexington
Fund as of the most recent semi-annual period (June 30, 1999 for the
Lexington Funds using a calendar year), and the related unaudited
statements of operations and changes in net assets for such semiannual
period.
(e) Accuracy of Financial Statements. The audited and unaudited
financial statements of each Lexington Fund referred to in Section 4.2(d)
present in all material respects the financial position and results of
operations of the Lexington Fund at the dates and for the periods to which
they relate and have been prepared in accordance with GAAP subject, in the
case of the unaudited financial statements, to normal year-end audit
adjustments and the absence of footnotes. The audited financial statements
of each Lexington Fund have been certified by that Lexington Fund's
independent accounting firm.
(f) Compliance With Applicable Law. Each Lexington Fund is an open-end
management investment company or a unit investment trust registered under
the 1940 Act. Each Lexington Fund is in compliance, and at all times since
a Lexington subsidiary has served as investment adviser or sponsor has been
in compliance, in all material respects with each federal or state statute,
law, ordinance, rule, administrative interpretation, regulation, order,
writ, injunction, directive, judgment, decree, policy, guideline, or other
requirement (including those of the Nasdaq National Market or the NASD)
promulgated by a Governmental Authority (collectively, "Applicable Law")
applicable to any Lexington Fund, except, in each case, for any failure to
so comply that would have a Material Adverse Effect on the applicable
Lexington Fund. The shares of each Lexington Fund are registered in each
jurisdiction in the United States where such registration is required due
to the offer or sale of such shares in the jurisdiction, and those
registrations have not been revoked, withdrawn, or suspended in any way.
The sale of shares in each Lexington Fund is currently authorized in each
of the United States and the District of Columbia. Lexington has furnished
to Buyer copies of each Registrant's current post-effective amendment to
its registration statement as most recently filed with the SEC together
with copies of each Registrant's
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charter, bylaws, and trust instruments, as the case may be. The current
prospectus and related registration statement, including the current
statement of additional information, for each of the Registrants (copies of
which have been delivered to Buyer) conform in all material respects to the
applicable requirements of the Securities Act, the 1940 Act, and the rules
and regulations of the SEC thereunder, as well as the applicable
requirements of the various state securities laws, and do not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(g) No Conflicts. Neither the execution and delivery of this Agreement
by Lexington, nor the consummation by Lexington of the transactions
contemplated hereby will:
(1) conflict with or result in a breach of the charter, bylaws, or
similar organizational documents, as currently in effect, of any of the
Registrants;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the businesses
or assets of any of the Registrants, except for the consents,
approvals, filings, and notices required under the 1940 Act;
(3) violate any statute, law, ordinance, rule, or regulation
applicable to a Registrant or any injunction, judgment, order, writ, or
decree to which a Registrant has been specifically identified as
subject that would have a Material Adverse Effect on such Lexington
Fund; or
(4) result in a breach of, or constitute a default or an event that,
with the passage of time or the giving of notice, or both, would
constitute a default, give rise to a right of termination,
cancellation, or acceleration, create any entitlement of any third
party to any material payment or benefit, require the consent of any
third party, or result in the creation of any lien on the assets of a
Registrant under, any contract of the type referred to in Section
4.2(l) other than contracts subject to Section 12(b) or Section 15 of
the 1940 Act, except such breaches, defaults, terminations,
cancellations, accelerations, entitlements, absences of consents, or
liens that would not have a Material Adverse Effect on such Lexington
Fund.
(h) Adherence to Investment Policies and Restrictions. Investments held
by each of the Lexington Funds that are open-end management investment
companies are, and for so long as each Lexington Fund has been advised by a
Lexington subsidiary have been, consistent with the investment policies and
restrictions applicable to the applicable Lexington Fund. Investments held
by each of the Lexington Funds that are unit investment trusts are, for so
long as a Lexington subsidiary has served as sponsor to the unit trust,
consistent with the prospectus, as amended, for the unit trust. The value
of each Lexington Fund's net assets is determined using portfolio-valuation
methods that comply in all material respects with the 1940 Act.
(i) Litigation. There are no legal or governmental actions or
proceedings pending or, to the knowledge of Lexington, threatened against
any of the Lexington Funds; nor, to the knowledge of Lexington, are there
any legal or governmental investigations pending or threatened against any
of the Lexington Funds; nor is there any judgment, decree, injunction,
rule, order (or, to the knowledge of Lexington, any investigation) of any
Governmental Authority outstanding against any of the Lexington Funds.
Neither the SEC, the NASD, nor any other regulatory agency has identified
any material issue in any deficiency letter or other similar inquiry
relating to a Lexington Fund or its operations, nor is there any unresolved
violation, criticism, or exception by any such regulatory agency or
authority therewith that would in any such case have a Material Adverse
Effect on any such Lexington Fund.
(j) Required Reports. For so long as a Lexington subsidiary has served
as investment adviser, each of the Lexington Funds has filed all material
prospectuses, annual information forms, financial statements, other forms,
reports, sales literature, and advertising, and any other material
documents required to be filed with applicable Governmental Authorities,
and any material amendments thereto (the "Reports"). The Reports have been
prepared in accordance with the requirements of Applicable Law in all
material respects.
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(k) Taxes. Each Lexington Fund that is registered as an open-end
management investment company has elected to qualify and, for all taxable
years that a Lexington subsidiary served as investment adviser and with
respect to which the applicable statute of limitations (including any
extensions) has not expired ("open taxable years"), has continuously
qualified to be treated as a "regulated investment company" under
Subchapter M of the Code and has continuously been eligible to compute, and
has for each such taxable year computed, its federal income tax under
Section 852 of the Code and has no earnings and profits accumulated in any
taxable year. Each Lexington Fund that is a registered unit investment
trust is, and has been for all taxable years that a Lexington subsidiary
has served as a sponsor, a "trust" (as defined in Treas. Reg. 301.7701-4)
that is subject to subpart E of part I of subchapter J of chapter 1 of
subtitle A of the Code. At the Effective Time, all federal, state, local
and foreign tax returns with respect to Taxes for any taxable period for
which the applicable statute of limitations (including any extensions) has
not expired and during which a Lexington subsidiary has served as
investment adviser that were or are required to be filed on or before such
date by or on behalf of a Lexington Fund ("Fund Tax Returns") were or shall
have been timely filed and were or shall be complete and correct, and all
federal and other Taxes, including interest, penalties, and additions to
tax, shown or required to be shown as due on such returns, shall have been
paid or provided for. No such Fund Tax Return or other filing is currently
under audit, no assessment has been asserted with respect to such Fund Tax
Returns or other filings, and no requests for waivers of the time to make
any such assessment are pending. None of the Lexington Funds is delinquent
in the payment of any material Tax, assessment, or governmental charge.
(l) Contracts. The Lexington Disclosure Schedule lists all material
contracts, including all agreements and arrangements for the distribution
of shares, to which a Lexington Fund is a party or by which a Lexington
Fund or its property is bound, other than contracts for the purchase or
sale of portfolio securities entered into in the ordinary course of
business. Each contract subject to Section 12(b) or 15 of the 1940 Act has
been duly approved at all times in compliance in all material respects with
Section 12(b) or 15 of the 1940 Act and all other Applicable Laws. Each
such contract is currently in full force and effect and has been performed
by the relevant entity in accordance with the 1940 Act and all other
Applicable Laws. No material default or condition or event that, after
notice or lapse of time or both, would constitute a material default on the
part of Lexington or any of its subsidiaries or, to the knowledge of
Lexington, on the part of the other parties to such advisory and sub-
advisory agreements, exists under any of those material contracts. Any
agreements between Lexington or any of its subsidiaries and the Lexington
Funds that are open-end management investment companies for the provision
of administrative services, including accounting and shareholder services,
are valid and enforceable, and the amounts paid to Lexington and/or its
subsidiaries under the agreements have been properly determined in
accordance with the terms of the agreements. Copies of all such material
contracts have been delivered or made available for inspection by Buyer and
are true and complete.
(m) No Material Adverse Changes. Since December 31, 1998 no Material
Adverse Effect has occurred with respect to any Lexington Fund or the
status of any Lexington Fund as a regulated investment company under the
Code.
(n) Books. The books and records of each Lexington Fund reflecting,
among other things, the investment transactions undertaken on behalf of
each Lexington Fund, the purchase and sale of shares of that Lexington Fund
by its holders of common stock or shares or units of beneficial interests
(collectively, "Fund Stockholders"), the number of issued and outstanding
Lexington Fund shares owned by each Fund Stockholder, and the state or
other jurisdiction in which those shares were offered and sold, are, to the
knowledge of Lexington, complete and accurate in all material respects.
(o) Absence of Undisclosed Liabilities. Each Lexington Fund has, to the
knowledge of Lexington, no material debts, obligations, or liabilities,
whether due or to become due, absolute, contingent, or otherwise, that are
required to be reflected in that Lexington Fund's financial statements in
accordance with GAAP that are not so reflected except for debts,
obligations, or liabilities incurred in the ordinary course of business
since the date of the Lexington Fund's most recent audited or unaudited
financial statements or that would not be material to the applicable
Lexington Fund.
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(p) No Pending Transaction. No Lexington Fund is a party to or bound by
any agreement, undertaking, or commitment (1) to merge or consolidate with,
or acquire all or substantially all of the property and assets of, any
other person, (2) to sell, lease, or exchange all or substantially all of
its property and assets to any other person, or (3) to enter into any
investment advisory agreement or distribution agreement.
(q) Proxy Statements. All proxy statements to be prepared for use by the
Lexington Funds in connection with the transactions contemplated by this
Agreement will, with respect to information provided by Lexington, any of
its subsidiaries, or a Lexington Fund, not contain any untrue statement of
a material fact, or omit to state any material fact required to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(r) Code of Ethics. Lexington Management Corporation, MSR and each of
the Lexington Funds have adopted a formal code of ethics and a written
policy regarding personal trading. Such codes and policies comply in all
materials respects with Section 17(j) of the 1940 Act, Rule 17j-1
thereunder, and Section 204A of the Advisers Act, as the case may be. To
the knowledge of Lexington, for so long as a Lexington Fund has been
advised or sponsored by a Lexington subsidiary, there has been no violation
of its code of ethics and personal trading policy that would be material to
any of the Lexington Funds.
(s) No Disqualification. To the knowledge of Lexington, no person
"associated" (as defined under the Advisers Act) with Lexington Management
Corporation or MSR has, for a period of five years before the date hereof,
been convicted of any crime or is or has been subject to any
disqualification that would be a basis for denial, suspension, or
revocation of registration of an investment adviser under Section 203(e) of
the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under
Section 15 of the Exchange Act. To the knowledge of Lexington, no
"affiliated person" (as defined under the 1940 Act) of Lexington Management
Corporation or MSR has during a period of five years before the date hereof
been convicted of any crime or is or has been subject to any
disqualification that would be a basis for disqualification as an
investment adviser for any investment company under Section 9(a) of the
1940 Act, and there is no basis for, or proceeding or investigation that is
reasonably likely to become the basis for, any such disqualification,
denial, suspension, or revocation.
(t) Insurance. Each Registrant has in full force and effect such
insurance as is required by the 1940 Act and each Registrant that is
registered as an open-end management investment company has directors' and
officers' and errors and omissions insurance policies issued in amounts
reasonably believed to be adequate and appropriate by the Registrant's
Board. No Registrant is in default under any such insurance policy.
Complete and correct copies of all insurance policies of the Registrants
have been made available to Buyer. All premiums that are due and payable
under such policies have been paid.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER AND MERGER SUB
5.1 General. Buyer and Merger Sub jointly and severally represent and
warrant to Lexington that the statements contained in this Article V are true
and correct, except as set forth in the disclosure schedule delivered by Buyer
to Lexington on or before the date of this Agreement (the "Buyer Disclosure
Schedule"). Notwithstanding any other provision of this Agreement, each
exception set forth in the Buyer Disclosure Schedule shall be deemed to qualify
each representation and warranty set forth in this Agreement (i) that is
specifically identified (by cross-reference or otherwise) in the Buyer
Disclosure Schedule as being qualified by such exception, or (ii) with respect
to which the relevance of such exception is apparent on the face of the
disclosure of such exception set forth in the Buyer Disclosure Schedule.
5.2 Representations and Warranties.
(a) Organization, Standing, Qualification. Each of Buyer and Merger Sub
is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware and has the
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requisite power and authority to own, lease, and operate its properties and
assets and to carry on its business as it is now being conducted. Each of
Buyer and Merger Sub is duly qualified or licensed as a foreign entity to
do business, and is in good standing, in each jurisdiction where the
character of the properties owned, operated, or leased by it, or the nature
of its business, makes such qualification or licensing necessary, except
for those jurisdictions where the failure to be so qualified or licensed or
in good standing would not have a Material Adverse Effect on Buyer. Copies
of the certificate of incorporation and bylaws of Buyer and Merger Sub have
been made available to Lexington and are complete and correct as of the
date hereof.
(b) Capitalization. The authorized capital stock of Buyer consists of
200 million shares of Buyer Common Stock, of which, as of the close of
business on February 25, 2000, 88,344,229 shares were issued and
outstanding, and seven million shares of preferred stock, none of which are
outstanding. As of February 25, 2000, Buyer has reserved for issuance six
million shares of Series A Junior Participating Preferred Stock issuable
under the Amended and Restated Rights Agreement, dated as of February 11,
1999, between Buyer and Norwest Bank Minnesota, National Association (the
"Buyer Rights Agreement"). Under the Buyer Rights Agreement, each
outstanding share of Buyer Common Stock has attached to it certain rights
("Buyer Right"), including rights to purchase, under certain circumstances,
one-twentieth of a share of Series A Junior Participating Preferred Stock
of Buyer for $100, subject to adjustment. The authorized capital stock of
Merger Sub consists of 5,166,667 shares of common stock and 1,750 shares of
preferred stock, all of which are outstanding and held by Buyer. All of the
issued and outstanding shares of Buyer Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable, and were
not granted in violation of any statutory preemptive rights. There are no
outstanding subscriptions, options, warrants, calls, or other agreements or
commitments under which Buyer is or may become obligated to issue, sell,
transfer, or otherwise dispose of or purchase, redeem, or otherwise
acquire, any shares of capital stock of, or other equity interests in,
Buyer and there are no outstanding securities issued by Buyer convertible
into or exchangeable for any Buyer Common Stock, except for options to
purchase up to an aggregate of 8,229,385 shares of Buyer Common Stock, as
of February 25, 2000. There are no stock appreciation rights, phantom stock
rights, or performance shares outstanding with respect to Buyer. Buyer
owns, directly or indirectly, all of the issued and outstanding shares of
each class of capital stock of each of its subsidiaries, free and clear of
all liens, security interests, pledges, charges, and other encumbrances.
(c) Authorization and Execution. Each of Buyer and Merger Sub has the
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery,
and performance of this Agreement by Buyer and Merger Sub have been duly
authorized by the Boards of Directors of Buyer and Merger Sub, and no
further corporate action of either Buyer or Merger Sub is necessary to
consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Buyer and Merger Sub and, assuming the
accuracy of the representations and warranties of Lexington set forth in
Section 3.2(c), this Agreement constitutes the legal, valid, and binding
obligation of Buyer and Merger Sub, enforceable against them in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally, and subject to general
principles of equity.
(d) No Conflicts. Neither the execution and delivery of this Agreement
by Buyer and Merger Sub, nor the consummation by them of the transactions
contemplated hereby will:
(1) conflict with or result in a breach of the certificate of
incorporation or bylaws, as currently in effect, of Buyer or Merger
Sub;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the businesses
or assets of Buyer, Merger Sub, or any of their subsidiaries, except
for (A) compliance with the filing requirements under the HSR Act; (B)
the filing of the Certificate of Merger with the Delaware Secretary of
State and appropriate documents reflecting the
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occurrence of the Merger with the relevant authorities of other states
in which Buyer or Merger Sub is licensed or qualified to do business;
(C) the consents, approvals, filings, and notices required under the
1940 Act and the Advisers Act; (D) any consents, approvals, filings, or
notices required with the NASD or any industry self-regulatory
organizations; and (E) the filing of the Proxy Statement/ Prospectus
and any other compliance with the applicable requirements of the
Exchange Act; (F) such filings and approvals as are required to be made
or obtained under the securities or "blue sky" laws of various states;
and (G) such other filings, consents or, approvals the failure to make
or obtain would not reasonably be expected to prevent consummation of
the Merger or have a Material Adverse Effect on Buyer;
(3) subject to the exceptions of and assuming compliance with
clauses (A) through (G) of subsection (d)(2) above, violate any
Applicable Law applicable to Buyer or Merger Sub; or
(4) result in a material breach of, or constitute a material default
or an event that, with the passage of time or the giving of notice, or
both, would constitute a material default, give rise to a right of
termination, cancellation, or acceleration, create any entitlement of
any third party to any material payment or benefit or require the
consent of any third party under, any contract that is a "material
contract" (as is defined in Item 601(b)(10) of Regulation S-K of the
SEC) to be performed after the date of this Agreement.
(e) Proxy Statement. The information supplied by Buyer and Merger Sub
for inclusion in (a) the Registration Statement on Form S-4 to be filed
under the Securities Act with the SEC by Buyer in connection with the
Merger for the purpose of registering the shares of Buyer Common Stock to
be issued in connection with the Merger and the resale thereof by persons
who may be deemed to be underwriters under Rule 145 of the Securities Act
(the "Registration Statement") or (b) the proxy statement to be distributed
in connection with Lexington's meeting of stockholders to vote upon this
Agreement and the transactions contemplated hereby (the "Proxy Statement"
and, together with the prospectus included in the Registration Statement,
the "Proxy Statement/Prospectus") will, in the case of the Proxy Statement,
as of the date of the Proxy Statement and as of the date of the meeting of
Lexington's stockholders to consider this Agreement and the Merger, or, in
the case of the Registration Statement, as amended or supplemented, at the
time it becomes effective and at the time of such meeting of the
stockholders of Lexington, not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will, as of its effective date, comply as to form in
all material respects with all applicable laws, including the provisions of
the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by Buyer or
Merger Sub with respect to information supplied by Lexington for inclusion
therein. Buyer is qualified to use Form S-3 under the Securities Act.
(f) SEC Reports and Financial Statements.
(1) Since December 31, 1995, Buyer has filed all reports,
registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has been
required to file with the SEC under the Securities Act and Exchange
Act. All reports, registration statements, and other filings (including
all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) filed by Buyer with the SEC on or after January
1, 1996, together with any amendments thereto are collectively referred
to as the "Buyer SEC Reports." As of: (A) with respect to all of the
Buyer SEC Reports other than registration statements filed under the
Securities Act, the respective dates of their filing with the SEC; and
(B) with respect to all registration statements filed under the
Securities Act, their respective effective dates, the Buyer SEC Reports
complied in all material respects with the rules and regulations of the
SEC and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
made the statements made therein not misleading.
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(2) The consolidated financial statements (including any related
notes or schedules) included in Buyer's 1998 Annual Report on Form 10-
K, as filed with the SEC, were prepared in accordance with GAAP (except
as may be noted therein or in the notes or schedules thereto) and
fairly present in all material respects the consolidated financial
position of Buyer and its subsidiaries as of December 31, 1997 and 1998
and the consolidated results of their operations and cash flows for
each of the three years in the three-year period ended December 31,
1998.
(g) Litigation. No litigation, arbitration, or administrative proceeding
is (i) pending or, to the knowledge of Buyer, threatened against Buyer, its
subsidiaries or Merger Sub as of the date of this Agreement that, if
decided adversely to Buyer, its subsidiaries or Merger Sub, would have a
Material Adverse Effect on Buyer, or (ii) pending or, to the knowledge of
Buyer, threatened against Buyer, its subsidiaries, or Merger Sub as of the
date of this Agreement that seeks to enjoin or otherwise challenges the
consummation of the transactions contemplated by this Agreement. As of the
date of this Agreement, neither Buyer, its subsidiaries, nor Merger Sub is
specifically identified as a party subject to any material restrictions or
limitations under any injunction, writ, judgment, order, or decree of any
Governmental Authority that seeks to enjoin or otherwise challenges or
affects the ability of the Buyer to consummate the transactions
contemplated by this Agreement.
(h) Absence of Certain Changes or Events. Except as disclosed in the
Buyer SEC Reports, from December 31, 1998 to the date of this Agreement,
Buyer and its subsidiaries have conducted their respective businesses and
operations in the ordinary course consistent with past practices.
(i) No Material Adverse Effect. From December 31, 1998 to the date of
this Agreement, there has been no business interruption, damage to or
destruction of its properties, or other incident, occurrence, or event
(other than changes in general industry, economic, or market conditions),
which would have a Material Adverse Effect on Buyer.
(j) Permits; Compliance with Laws. Each of Buyer and Merger Sub has all
material licenses, franchises, permits, and other authorizations of
Governmental Authorities necessary to conduct its business, and neither
Buyer nor Merger Sub is in violation of any such license, franchise,
permit, or other authorization of a Governmental Authority, or any statute,
law, ordinance, rule, or regulation applicable to it or any of its
properties, except where such failure would not have a Material Adverse
Effect on Buyer.
(k) No Brokers or Finders. Neither Buyer nor Merger Sub has engaged any
investment banker, broker, or finder in connection with the transactions
contemplated hereby.
(l) No Disqualification. To the knowledge of Buyer, no person
"associated" (as defined under the Advisers Act) with Merger Sub has, for a
period of five years before the date hereof, been convicted of any crime or
is or has been subject to any disqualification that would be a basis for
denial, suspension, or revocation of registration of an investment adviser
under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or
of a broker-dealer under Section 15 of the Exchange Act. To the knowledge
of Buyer, no "affiliated person" (as defined under the 1940 Act) of Merger
Sub has during a period of five years before the date hereof been convicted
of any crime or is or has been subject to any disqualification that would
be a basis for disqualification as an investment adviser for any investment
company under Section 9(a) of the 1940 Act, and there is no basis for, or
proceeding or investigation that is reasonably likely to become the basis
for, any such disqualification, denial, suspension, or revocation.
ARTICLE VI
COVENANTS RELATING TO THE LEXINGTON FUNDS
6.1 Requisite Approvals Concerning the Lexington Funds. With respect to each
Lexington Fund, and pursuant to the provisions of Section 15 of the 1940 Act,
Section 12 of the 1940 Act and Rule 12b-1 thereunder, and each Registrant's
charter, bylaws, and/or trust instruments, each of Lexington and its
subsidiaries, Buyer, and Merger Sub will use its respective reasonable best
efforts in good faith to obtain (and
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cooperate with one another in obtaining), as promptly as practicable, the
approval of the Registrant's Board of Directors, if the Registrant is a
corporation, or Board of Trustees, if the Registrant is a business trust (as
used in this Agreement, the term "Board," when used with respect to a
Registrant, means the Board of Directors or the Board of Trustees, as the case
may be) of each Registrant in the Lexington Fund Family and of the
stockholders, as required by Section 15 or, to the extent necessary, Rule 12b-
1, of new investment advisory, sub-advisory, administrative, and distribution
agreements and agreements related to plans for each Lexington Fund identical in
all respects to those in effect immediately before the Effective Time which
will be effective immediately after the Effective Time, except for any changes
approved by Buyer and approved by the applicable Board. With respect to each
Lexington Fund that is registered as a unit investment trust, each of Lexington
and its subsidiaries, Buyer and Merger Sub will use its respective reasonable
best efforts in good faith to assign to a person designated by Buyer any
agreement under which Lexington or a subsidiary serve as sponsor, or for Buyer
or such designated person to replace Lexington or its subsidiary as such
sponsor, and to obtain the consent of the trustee of the unit trust to such
action.
6.2 Termination of Existing Advisory, Sub-Advisory, and Distribution
Arrangements. Each of Lexington and its subsidiaries and Buyer and Merger Sub
shall use its respective reasonable best efforts to cause the Board of each
Registrant to take, and Lexington and its subsidiaries will take, all necessary
and appropriate actions to provide written notice of termination in connection
with the change in control and resulting assignment, as of the Effective Time,
pursuant to the requirements of each existing advisory, sub-advisory,
administrative, and distribution agreement applicable to each such Fund, each
such termination to be effective as of the Effective Time, except for any
changes approved by Buyer and approved by the applicable Board.
6.3 Information Regarding the Lexington Funds. With respect to each
Registrant, Buyer shall provide as promptly as practicable to the Board of each
Registrant, with copies to Lexington, all information as the Board shall
reasonably request, in accordance with its responsibilities under Sections 15
of the 1940 Act, to evaluate the terms of the proposed advisory and any sub-
advisory agreements relating to the Lexington Funds. Further, with respect to
each Registrant, Buyer also shall provide to the respective Board, with copies
to Lexington, all information requested to approve the terms of the
distribution agreement and to permit preparation of proxy materials or
prospectuses, as the case may be, to be sent to the stockholders of each
Registrant for the special meeting of stockholders referred in Section 7.6(b).
6.4 Access to Information Regarding the Lexington Funds. Upon reasonable
notice, Lexington shall (and shall cause its subsidiaries and the Lexington
Funds to) afford to the officers, employees, accountants, counsel, and other
representatives of Buyer, reasonable access, during normal business hours, to
all its properties, books, contracts, commitments, and records and will cause
its, its subsidiaries', and the Lexington Funds' employees, counsel, financial
advisers, and auditors to cooperate with Buyer and its representatives in its
investigation of the business of the Lexington Funds. Lexington shall (and
shall cause its subsidiaries and the Lexington Funds to) furnish promptly to
Buyer a copy of each report, schedule, registration statement, and other
document filed or received by it during such period under the requirements of
securities laws and all other information concerning its business, properties,
and personnel as Buyer or its representatives may reasonably request. Buyer's
investigations shall be conducted in a manner as not to unreasonably interfere
with the operations of the Lexington Funds, and Buyer will take reasonable
precautions to protect the confidentiality of any information of the Lexington
Funds disclosed to such persons during the investigation. No information or
knowledge obtained in any investigation under this Section 6.4 shall be deemed
to modify a representation or warranty contained in this Agreement or the
conditions to the obligation of Buyer to consummate the Merger.
6.5 The Registrants' Registration Statements. Lexington and Buyer will
cooperate with each other and each will endeavor in good faith to cause each
Registrant to file a revised prospectus or a post-effective amendment to that
Registrant's registration statement on Form N-1A or S-6, which revised
prospectus or amendment shall reflect changes as necessary in that Registrant's
affairs as a consequence of the transactions contemplated by this Agreement,
and shall cooperate with one another in causing each Registrant to make any
other filing necessary to satisfy disclosure requirements to enable the public
distribution of the shares of beneficial interest of that Registrant to
continue unabated after the Closing.
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6.6 Operations of the Lexington Funds. Lexington shall, or shall cause its
applicable subsidiaries to, (a) inform Buyer weekly of purchases and sales
transactions of each Lexington Fund and provide weekly summaries of portfolio
positions (no earlier than five business days from those transactions); (b)
supply to Buyer unaudited financial statements of each Lexington Fund monthly;
(c) otherwise conduct its activities as investment adviser to each Lexington
Fund in the ordinary course of business consistent with past practice; and (d)
provide Buyer with weekly sales and redemption reports.
6.7 Undertakings Related to Section 15(f) of the 1940 Act. Buyer and
Lexington agree that neither of them nor any of their affiliates has any
express or implied understanding or arrangement that would impose an "unfair
burden" (as defined in Section 15(f)(2)(B) of the 1940 Act) on any of the
Lexington Funds or would in any way interfere with Lexington's reliance on
Section 15(f) of the 1940 Act as a result of the transactions contemplated by
this Agreement. The parties agree to use their respective reasonable best
efforts to comply and to cause the respective Boards to comply with the
provisions of Section 15(f) of the 1940 Act. Compliance with Section 15(f)
shall include the following requirements for the minimum time periods specified
in that section:
(a) for a period of three years after the Effective Time, at least 75%
of the members of the Board of each Registrant involved, or any successor
Board by reorganization or otherwise, shall not be "interested persons" (as
defined in the 1940 Act) of the predecessor or new investment adviser or
sub-adviser;
(b) for a period of two years after the Effective Time, no unfair burden
shall be imposed on a Lexington Fund (or any successor thereto by any
reorganization or otherwise) or its stockholders; provided that it is
understood that any payments or amounts received by Lexington or its
affiliates in connection with the transaction contemplated hereunder and as
specified hereunder shall not be deemed to violate Buyer's and its
affiliates' compliance with the unfair-burden provisions of Section 15(f);
and
(c) all vacancies on the Board of each Lexington Fund (other than
vacancies created by the death, disqualification, or resignation of any
Board member interested in Buyer, Lexington, or any of its affiliates or
otherwise to be filled by such a person) shall be filled by a person who is
not an interested person of the predecessor or new investment advisor and
who has been selected and proposed for election by a majority of the Board
members who are not interested persons of the predecessor or new investment
advisor.
6.8 Continued Qualification. Lexington shall use its reasonable best efforts
to ensure that no Registrant takes any action that (a) would prevent any
Lexington Fund from qualifying as a "regulated investment company" under
Section 851 of the Code or (b) would be inconsistent with each Lexington Fund's
prospectus and other offering, advertising, and marketing materials.
ARTICLE VII
COVENANTS RELATING TO THE PARTIES
7.1 Business Operations of Lexington. Lexington agrees as to itself and its
subsidiaries (except to the extent that Buyer otherwise consents (not to be
unreasonably withheld or delayed) in writing or as contemplated by this
Agreement), to carry on its business in the usual and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due subject to good faith disputes over those debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, to keep
available the services of its present officers and key employees and preserve
its material relationships with clients, customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, and
generally to preserve its goodwill and ongoing businesses. Except as expressly
stated in this Agreement, Lexington may not (and may not permit any of its
subsidiaries to), without the prior written consent of Buyer (not to be
unreasonably withheld or delayed):
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(a) accelerate, amend, or change the period of exercisability of
options, performance shares, or restricted stock granted under any stock
plan or authorize cash payments in exchange for any awards granted under
any of those plans, except as required by the terms of those plans or any
related agreements or other arrangements in effect as of the date hereof,
(b) transfer or license to any person or entity or otherwise extend,
amend, or modify any of its Proprietary Rights;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock, or property) in respect of shares of its capital
stock, or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of, or in
substitution for shares of capital stock, or purchase, redeem, or otherwise
acquire, or propose to purchase, redeem, or otherwise acquire, directly or
indirectly, any shares of its capital stock or any options, rights, or
warrants to purchase any capital stock or any securities convertible into
or exchangeable for capital stock;
(d) issue, deliver, or sell or authorize or propose the issuance,
delivery, or sale of any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants, or options to acquire, or other agreements or commitments of any
character obligating it to issue, any such shares or other convertible
securities (other than the grant of options to employees in a manner
consistent with past practices and under the Lexington Incentive Plan, and
the issuance of shares upon the exercise of options that were either
outstanding as of the date hereof or were granted after the date hereof in
compliance with this Section 7.1(d));
(e) acquire (whether by merger, consolidation, acquisition of stock or
assets, or otherwise) any corporation, partnership, or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets that are material, individually or in the aggregate, to the
business of Lexington and its subsidiaries, taken as a whole, other than
the joint venture described on Schedule 7.1(e);
(f) sell, lease, license, or otherwise dispose of any of its properties
or assets that are material, individually or in the aggregate, to the
business of Lexington and its subsidiaries, taken as a whole;
(g) (1) other than as described on Schedule 7.1(g), increase the
compensation or benefits payable or to become payable to its directors,
officers, or employees, except for increases for non-executive-level
employees in the ordinary course of business; (2) enter into any employment
or severance agreements with any person; (3) grant any severance or
termination pay to, except under agreements or policies disclosed in the
Lexington Disclosure Schedule, or enter into any employment or severance
agreement with, any employee, except severance agreements in accordance
with the policies disclosed in the Lexington Disclosure Schedule; (4) enter
into any collective bargaining agreement; (5) establish or, except as
required by applicable law, amend any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance, or other plan, trust,
fund, policy, or arrangement for the benefit of any directors, officers,
employees, or consultants; or (6) establish any new executive-officer
employee position;
(h) (1) revalue any of its assets, other than revaluations that are
required in accordance with GAAP or in the ordinary course of business; or
(2) change or modify in any material respect any existing accounting
method, principle, or practice, other than as required by GAAP;
(i) incur any indebtedness for borrowed money or guarantee or assume any
such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any debt securities of Lexington or any of its
subsidiaries or guarantee any debt securities of others, or voluntary
prepay any outstanding indebtedness (provided that this Section 7.1(i) does
not preclude intercompany indebtedness, guaranties, or assumptions);
(j) amend or propose to amend its charter, bylaws, or similar
organizational documents;
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(k) make any capital expenditure or commitment other than as described
on Schedule 7.1(k) or for which it is not contractually bound at the date
hereof, except for capital expenditures and commitments not to exceed
$300,000 in total;
(l) enter into any new Material Contract (other than in the ordinary
course of business), or modify in any respect materially adverse to
Lexington or any of its subsidiaries any existing Material Contract;
(m) other than as described on Schedule 7.1(m), engage in the business
of selling any products or services materially different from existing
products and services, or enter into new lines of business;
(n) enter into, terminate, or amend (1) any agreement under which it
agrees to indemnify any party on behalf of its business or under which it
agrees to refrain from competing with any party with respect to its
business or (2) any investment advisory, sub-advisory, management,
distribution, marketing, custody, or other service agreements relating to
the Lexington Funds, except for selling agreements; or
(o) agree to take any of the actions described in subsections (a)
through (n) above, or take or agree to take any action that is reasonably
likely to make any of Lexington's representations or warranties contained
in this Agreement untrue or incorrect in any material respect as of the
Effective Time.
7.2 Cooperation. Subject to compliance with applicable law, from the date
hereof until the Effective Time, Buyer, Merger Sub, and Lexington shall confer
on a regular and frequent basis with one or more representatives of the other
parties to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other parties and their
counsel with copies of all filings made by the party with any Governmental
Authority in connection with this Agreement, the Merger, and the transactions
contemplated hereby.
7.3 Access to Information. Upon reasonable notice, Lexington shall (and
shall cause its subsidiaries to) afford to the officers, employees,
accountants, counsel, and other representatives of Buyer, reasonable access,
during normal business hours, to all its properties, books, contracts,
commitments, and records and will instruct its, and its subsidiaries',
employees, counsel, financial advisers, and auditors to cooperate with Buyer
and its representatives in its investigation of the business of Lexington and
its subsidiaries. Lexington shall (and shall cause its subsidiaries to) furnish
promptly to Buyer (a) a copy of each report, schedule, registration statement,
and other document filed or received by it during such period under the
requirements of securities laws and (b) all other information concerning its
business, properties, and personnel as Buyer or its representatives may
reasonably request. Buyer's investigations shall be conducted in a manner as
not to unreasonably interfere with the operations of Lexington and its
subsidiaries, and Buyer will take reasonable precautions to protect the
confidentiality of any information of Lexington and its subsidiaries disclosed
to such persons during the investigation. No information or knowledge obtained
in any investigation under this Section 7.3 shall be deemed to modify a
representation or warranty contained in this Agreement or the conditions to the
obligation of Buyer to consummate the Merger.
7.4 No Solicitation.
(a) Lexington may not, directly or indirectly, through any officer,
director, employee, representative, or agent of Lexington or any of its
subsidiaries:
(1) seek, encourage, initiate, or solicit any inquiries, proposals,
or offers from any person or group to acquire any shares of capital
stock (including by way of a tender offer, but nothing shall prohibit
customary calls with analysts consistent with past practice in respect
of Lexington results) of it, any of its subsidiaries, or any of the
Lexington Funds, to merge or consolidate with it, any of its
subsidiaries, or any Lexington Fund, or to otherwise acquire any
significant portion of the assets of it, any of its subsidiaries, or
the Lexington Funds, or similar transaction involving Lexington, any of
its subsidiaries, or the Lexington Funds, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries,
proposals, or offers being an "Acquisition Proposal");
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(2) engage in negotiations or discussions concerning an Acquisition
Proposal with any person or group or disclose or provide any non-public
information relating to the business of Lexington, any of its
subsidiaries, or any Lexington Fund, or afford access to the
properties, books, or records of Lexington, any of its subsidiaries, or
any Lexington Fund to any person or group that the party has reason to
believe may be considering an Acquisition Proposal; or
(3) agree to, approve, or recommend any Acquisition Proposal.
(b) Any violation of the restrictions set forth in Section 7.4(a) by any
director or officer of Lexington or any of its subsidiaries or any of
Lexington or its subsidiaries' financial advisers, attorneys, accountants,
or other representatives, acting on behalf of Lexington or its
subsidiaries, shall be deemed a violation of Section 7.4(a) by Lexington.
(c) Nothing contained in Section 7.4(a), however, prevents Lexington
from (1) authorizing any of its officers, financial advisers, attorneys,
accountants, or other representatives to furnish non-public information or
access to, or to enter into discussions or negotiations with, any person in
connection with a bona fide Acquisition Proposal by such person that has
not been solicited after the date hereof, or recommending to its
stockholders a bona fide written Acquisition Proposal that has not been
solicited after the date hereof, if, and only to the extent that, (A) the
Board of Directors of Lexington determines in good faith that such action
is necessary for it to comply with its fiduciary duties to stockholders
under Delaware law, (B) before furnishing such non-public information to,
or entering into discussions or negotiations with, such person, the Board
of Directors receives from such person an executed confidentiality
agreement on terms no less favorable to Lexington than those contained in
the Confidentiality Agreement discussed in Section 7.14, (C) the Board of
Directors determines in good faith that such Acquisition Proposal is
reasonably likely to lead to a Superior Proposal (as defined in Section
7.4(d)), and (D) the Acquisition Proposal did not result from a breach of
Section 7.4(a), or (2) complying with Rule 14e-2 or Rule 14d-9 promulgated
under the Exchange Act with regard to an Acquisition Proposal; provided,
however, that the foregoing clause (2) shall not alter the covenants of
Lexington set forth in clause (3) of Section 7.4(a).
(d) For purposes of this Agreement, "Superior Proposal" means an
Acquisition Proposal that the Board of Directors of Lexington determines in
its good faith judgment to be more favorable to its stockholders than the
Merger and for which financing, to the extent required, is committed or, in
the good faith judgment of the Board of Directors, is reasonably capable of
being obtained by the third party.
(e) Lexington shall immediately cease and cause to be terminated any
activities, discussions, or negotiations, existing on the date hereof, with
any person with respect to any Acquisition Proposal, and will promptly
request that each such person return or destroy all confidential
information previously produced to that person by Lexington or its
subsidiaries.
(f) Lexington shall immediately notify Buyer upon receipt by it or its
advisers of any Acquisition Proposal or any request for non-public
information in connection with an Acquisition Proposal or for access to the
properties, books, or records thereof by any person that informs Lexington
that it is considering making, or has made, an Acquisition Proposal. Such
notice shall be made orally and in writing and shall indicate in reasonable
detail the terms and conditions of the proposal, inquiry, or contact, but
need not disclose the identity of the person making the Acquisition
Proposal or the request. If Buyer is notified by Lexington of a Superior
Proposal, then Buyer shall have five business days to make a counter
proposal; provided, however, that neither the submission nor the failure to
submit such a counter proposal shall affect Buyer's right to be paid a
termination fee under Section 10.3.
7.5 Proxy Statement; Board Recommendation. As promptly as practicable after
the execution hereof, Buyer and Lexington shall jointly prepare the Proxy
Statement, and Buyer shall prepare and file with the SEC as soon as practicable
after the execution hereof the Registration Statement, in which the Proxy
Statement will be included. Buyer shall use its best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
after such filing. If at any time any event shall occur which should be set
forth in an amendment of or supplement to the Registration Statement, Buyer
shall prepare and file with the SEC such
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amendment or supplement as soon thereafter as is reasonably practicable. The
Proxy Statement shall include the recommendation of the Board of Directors of
Lexington in favor of this Agreement and the Merger; provided that the Board of
Directors of Lexington may withdraw such recommendation if it determines that
there exists a Superior Proposal and its Board of Directors determines that the
withdrawal of the recommendation is necessary for the Board of Directors to
comply with its fiduciary duties under the Delaware law.
7.6 Stockholders' Meetings of Lexington and the Lexington Funds; Consents
for Private Accounts.
(a) Lexington shall call a meeting of its stockholders to be held as
promptly as practicable for the purpose of voting upon the approval of this
Agreement and the Merger. The meeting of Lexington's stockholders shall be
held to vote on this Agreement and the Merger regardless of whether the
Board of Directors of Lexington determines at any time after the date
hereof that this Agreement and the Merger are no longer advisable and
recommends that the stockholders vote against this Agreement and the
Merger. Subject to Section 7.5, Lexington shall use its reasonable best
efforts to solicit from its stockholders proxies in favor of approval of
this Agreement and the Merger.
(b) Lexington will use and will cause its subsidiaries to use their
reasonable best efforts to obtain, as promptly as reasonably practicable,
the agreement of the Board of each Registrant to call a special meeting of
stockholders to be held as promptly as reasonably practicable for the
purpose of voting upon the approval of the advisory agreements to the
extent consistent with its fiduciary duties under the 1940 Act, to
recommend that shareholders approve such proposed advisory agreements.
(c) With respect to each Private Account, Lexington and its
subsidiaries, with the assistance of Buyer and Merger Sub, will each use
its reasonable best efforts in good faith to obtain (and cooperate with one
another in obtaining), as promptly as practicable, any consent required of
each other party or of other required persons under any Management
Agreement to the assignment of such Management Agreements before the
Closing, including written consent where required under a Management
Agreement.
7.7 Legal Conditions to Merger. Each of Buyer, Merger Sub, and Lexington
shall take all reasonable actions necessary to comply promptly with all legal
requirements that may be imposed on it with respect to the Merger (including
furnishing all information required under the HSR Act and in connection with
approvals of or filings with any other Governmental Authorities) and will
promptly cooperate with and furnish information to each other in connection
with any such requirements imposed upon any of them or any of their
subsidiaries in connection with the Merger. Each of Buyer and Lexington shall,
and shall cause its subsidiaries to, take all reasonable actions necessary to
obtain (and will cooperate with each other in obtaining) any consent,
authorization, order, or approval of, or any exemption by, any Governmental
Authority or other public third party, required to be obtained or made by
Buyer, Lexington, or any of their subsidiaries in connection with the Merger or
the taking of any action contemplated thereby or by this Agreement. Nothing in
this Section 7.7, however, shall require Buyer or any of its subsidiaries, in
connection with the receipt of any regulatory approval, to agree (a) to sell,
discontinue, or limit, before or after the Effective Time, any assets,
businesses, or interest in any assets or businesses of it or any of its
affiliates, or (b) to any conditions relating to, or changes or restriction in,
the operations of any such assets or businesses that is reasonably likely to
materially and adversely impact the economic or business benefits to Buyer and
Merger Sub of transactions contemplated hereby.
7.8 Stock Plans and Options.
(a) At the Effective Time, the Lexington Options shall be assumed by
Buyer. Each Lexington Option so assumed by Buyer under this Agreement shall
continue to have, and be subject to, substantially the same terms and
conditions as were applicable under the Lexington Incentive Plan and the
documents governing such Lexington Option immediately before the Effective
Time, except that (i) such Lexington Option will vest and become
immediately exercisable to the extent set forth in the Lexington Incentive
Plan and the documents governing such Lexington Option and (ii) each
Lexington Option will be
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exercisable for that number of whole shares of Buyer Common Stock equal to
the product of the number of shares of Lexington Common Stock that were
issuable upon exercise of the option immediately before the Effective Time
multiplied by the Option Ratio (as defined in Section 7.8(d)) and rounded
down to the nearest whole number of shares of Buyer Common Stock, and the
per-share exercise price for the shares of Buyer Common Stock issuable upon
exercise of such assumed Lexington Option will be equal to the quotient
determined by dividing the exercise price per share of Lexington Common
Stock at which the option was exercisable immediately before the Effective
Time by the Option Ratio, rounded up to the nearest whole cent. It is the
intention of the parties that the Lexington Options so assumed by Buyer
qualify following the Effective Time as "incentive stock options," as
defined in Section 422 of the Code, to the extent such options qualified as
incentive stock options immediately before the Effective Time.
(b) At the Effective Time, each share of Lexington Restricted Stock as
to which restrictions have not lapsed pursuant to the terms of the
Lexington Incentive Plan and the documents governing the Lexington
Restricted Stock shall continue to have, and be subject to, substantially
the same terms and conditions as were applicable under the Lexington
Incentive Plan and the documents governing such shares of Lexington
Restricted Stock immediately before the Effective Time, except that there
shall be substituted for the shares of Lexington Common Stock a number of
shares of Buyer Common Stock equal to the product obtained by multiplying
the number of shares of Lexington Restricted Stock by the Option Ratio, and
rounding the result to the nearest whole number of shares of Buyer Common
Stock. The resulting number will equal the number of shares of Buyer
Restricted Stock, so that each share of Buyer Restricted Stock will
represent the right to receive one share of Buyer Common Stock.
(c) Buyer shall take all corporate actions necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of all Lexington Options and the vesting of all Lexington
Restricted Stock assumed in accordance with this Section 7.8. As soon as
practicable after the Effective Time, Buyer shall file a registration
statement on Form S-8 (or other applicable form) with respect to the shares
of Buyer Common Stock subject to those options and restricted stock and
shall use its best efforts to maintain the effectiveness of the
registration statement for so long as those options and shares of
restricted stock remain outstanding.
(d) For purposes of this Agreement, the "Option Ratio" shall equal the
quotient obtained by dividing (i) the Merger Consideration by (ii) the
Buyer's Average Share Price.
7.9 Consents. Lexington shall use all reasonable efforts to obtain all
necessary third-party consents, waivers, and approvals under any of Lexington's
material agreements, contracts, licenses, or leases to consummate the Merger
and the transactions contemplated thereby.
7.10 Tax-Free Reorganization. Buyer and Lexington shall each use all
reasonable best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code
(a "Reorganization"), including any mutually agreeable re-allocation of the
Merger Consideration between the Share Consideration and the Cash Consideration
that is reasonably necessary to obtain such treatment. To the extent permitted
under applicable tax laws, the Merger shall be reported as a Reorganization in
all federal, state and local Tax Returns filed after the Effective Time. If
Buyer exercises its right to pay additional cash pursuant to the last sentence
of Section 2.1(b) and solely as a result thereof Lexington and Buyer, based on
the advice of tax counsel reasonably believe that the Merger will not be
treated as a Reorganization, the Merger Consideration shall be increased by
$3.5 million.
7.11 NYSE Listing. Buyer shall cause the shares of Buyer Common Stock to be
issued in the Merger to be approved for listing on the NYSE, subject to
official notice of issuance, before the Closing Date.
7.12 Payment of Transaction Expenses. Prior to the Closing Date, Lexington
shall pay all of its fees and expenses incurred in, or arising from, the
preparation and negotiation of this Agreement and the combination of the
parties through consummation of the Merger and other transactions contemplated
hereby, including
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termination of employment agreements, change-of-control and severance payments
and fees and expenses of legal counsel, accountants, and financial advisers.
7.13 Additional Agreements; Reasonable Efforts. Subject to the terms hereof,
including Section 7.5, each of the parties shall use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper, or advisable under Applicable Law to
consummate and make effective the transactions contemplated by this Agreement.
7.14 Confidentiality Agreement. The Confidentiality Agreement between Buyer
and Lexington dated January 24, 2000 shall remain in full force and effect
until the Effective Time. Until the Effective Time, the parties shall comply
with the terms of the Confidentiality Agreement.
7.15 Amendment to Rights Agreement. Prior to the date hereof, the Board of
Directors of Lexington has authorized an amendment to the Rights Agreement
dated as of December 13, 1995 between Lexington and First Chicago Trust Company
of New York (the "Lexington Rights Agreement") to provide that (a) Buyer will
not become an "Acquiring Person" as a result of the consummation of the Merger
or the execution of the Voting Agreement and related proxies, (b) no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the
Lexington Rights Agreement) will occur as a result of the consummation of the
Merger or the execution of the Voting Agreement and related proxies, and (c)
all outstanding rights issued and outstanding under the Lexington Rights
Agreement will expire immediately before the Effective Time.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to the Parties' Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger are subject to the
satisfaction before the Closing of the following conditions, any of which may
be waived, to the extent legally allowed, in writing, by mutual written consent
of the parties:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved by the requisite vote of the stockholders of Lexington, as
required by the Delaware Law and by any applicable provisions of
Lexington's Certificate of Incorporation and Bylaws. The proposals to be
acted upon at the special meetings of stockholders of the Lexington Funds
discussed in Section 7.6(b) shall have received affirmative votes
sufficient for their adoption by (i) Lexington Funds holding 90% of the net
assets held by all Lexington Funds as reflected on the Revised Schedule
2.1(c) and (ii) all Lexington Funds except those Lexington Funds set forth
on Schedule 8.1(a). The consents required under Section 7.6(c), if any,
shall have been obtained from Private Accounts of institutional clients
holding 90% of the net assets held by all such Private Accounts and from
Private Accounts of all other clients holding 80% of the net assets held by
all such Private Accounts, in each case as reflected on the Revised
Schedule 2.1(c).
(b) HSR Act. The waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or
been terminated.
(c) Approvals. There shall have been obtained all permits, consents, and
approvals of all Governmental Authorities of the type referred to in
clauses (A), (B), (D), (E), and (F) of Section 3.2(d)(2).
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall have been
issued, nor shall any proceeding brought by a Governmental Authority
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation, or order enacted, entered,
enforced, or deemed applicable to the Merger which makes the consummation
of the Merger illegal.
(e) The shares of Buyer Common Stock issuable in the Merger shall have
been authorized for listing on the NYSE upon official notice of issuance.
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(f) The Registration Statement shall have become effective in accordance
with the provisions of the Securities Act, and no stop order suspending
such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any
state regulatory authorities.
8.2 Additional Conditions to the Obligations of Buyer and Merger Sub. The
obligations of Buyer and Merger Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing by Buyer and Merger Sub:
(a) Representations and Warranties. The representations and warranties
of Lexington contained in Articles III and IV hereof shall be true and
correct in all material respects (provided that solely for the purposes of
this Section 8.2(a), the term "in all material respects" shall not be
deemed to further qualify any representation or warranty that by its terms
is qualified by any materiality qualification) as of the date hereof and
immediately before the Effective Time, with the same force and effect as if
made as of the Effective Time, except that the accuracy of representations
and warranties that by their terms speak as of the date of this Agreement
or some other date will be determined as of that date.
(b) Performance of Obligations of Lexington. Lexington shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or before the Closing Date.
(c) No Material Adverse Change. Since the date hereof, no Material
Adverse Effect with respect to Lexington or any of the Lexington Funds
shall have occurred.
(d) Officers' Certificate. Buyer shall have received a certificate
signed on behalf of Lexington by the Chief Executive and Chief Financial
Officers of Lexington confirming the satisfaction of subsections (a), (b),
and (c) of this Section 8.2.
(e) Legal Opinions. Buyer shall have received an opinion of Ballard
Spahr Andrews & Ingersoll, LLP and Kramer Levin Naftallis and Frankel (or
such other outside legal counsel selected by Lexington or the Registrants
and reasonably acceptable to Buyer), each, special legal counsel to
Lexington and/or the Lexington Funds, dated the Closing Date reasonably
acceptable in form and substance to Buyer.
(f) Dissenters' Rights. The number of Dissenting Shares shall not equal
more than 5% of the total of the outstanding shares of Lexington Common
Stock.
(g) Certain Consents. Lexington shall have obtained in writing all
consents, waivers, or approvals, necessary to provide that consummation of
the Merger does not constitute a default under, or effect or give rise to a
right of termination of, each of the Material Contracts identified by an
asterisk in Part 3.2(d)(4) of the Lexington Disclosure Schedule.
(h) Comfort Letter. Buyer shall have received "comfort" letters in
customary form and substance reasonably satisfactory to Buyer from KPMG
LLP, certified public accountants for Lexington, dated the date of the
Proxy Statement, the effective date of the Registration Statement, and the
Closing Date (or such other dates reasonably acceptable to Buyer) with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues, and per-share
amounts of net income.
(i) Lexington Assets Under Management. The Adjustment Percentage shall
be no less than 55%.
(j) Closing Date Balance Sheet. Lexington shall have delivered to Buyer
an unaudited pro forma balance sheet, dated the Closing Date, which shall
present a positive book value for Lexington.
(k) 1999 Financials. Lexington shall have delivered to Buyer its audited
consolidated financial statements (including any related notes or
schedules) as of and for the one-year period ended December 31, 1999.
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(l) Spin-off Tax Opinion. Lexington shall have delivered to Buyer an
accurate copy of the opinion of Davis Polk & Wardwell regarding the tax-
free status of the 1995 Lexington spin-off transaction.
8.3 Additional Conditions to the Obligation of Lexington. The obligation of
Lexington to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived in writing by Lexington:
(a) Representations and Warranties. The representations and warranties
of Buyer and Merger Sub contained in Article V hereof shall be true and
correct in all material respects (provided that solely for the purposes of
this Section 8.3(a), the term "in all material respects" shall not be
deemed to further qualify any representation or warranty that by its terms
is qualified by any materiality qualification) as of the date hereof, and
immediately before the Effective Time, with the same force and effect as if
made as of the Effective Time, except that the accuracy of representations
and warranties that by their terms speak as of the date of this Agreement
or some other date will be determined as of that date.
(b) Performance of Obligations of Buyer and Merger Sub. Buyer and Merger
Sub shall have performed in all material respects all obligations required
to be performed by them under this Agreement at or before the Closing Date.
(c) Officers' Certificate. Lexington shall have received a certificate
signed on behalf of Buyer by a Senior Vice President of Buyer, and on
behalf of Merger Sub by the President or any Vice President of Merger Sub,
confirming the satisfaction of subsections (a) and (b) of this Section 8.3.
(d) Legal Opinion. Lexington shall have received an opinion of Faegre &
Benson LLP, legal counsel to Buyer, dated the Closing Date reasonably
acceptable in form and substance to Lexington.
(e) Tax Opinion. Lexington shall have received from Ballard Spahr
Andrews & Ingersoll, LLP an opinion substantially to the effect that, on
the basis of facts, representations and assumptions referenced in such
opinion that are reasonably consistent with the state of facts existing at
the Effective Time, the Merger will be treated for United States federal
income tax purposes as a reorganization within the meaning of Sections
368(a)(1)(A) and 368 (a)(2)(D) of the Code, and that no gain or loss should
be required to be recognized by a shareholder of Lexington to the extent
such shareholder receives Buyer Common Stock in exchange for shares of
Lexington Common Stock. In rendering such opinion, counsel may request and
rely upon representations contained in certificates of officers of
Lexington, Buyer and Merger Sub and the parties shall use their reasonable
best efforts to make available such truthful certificates.
(f) Comfort Letter. Lexington shall have received "comfort" letters in
customary form and substance reasonably satisfactory to Lexington from
Deloitte & Touche LLP, certified public accountants for Buyer and Merger
Sub, dated the date of the Proxy Statement, the effective date of the
Registration Statement and the Closing Date (or such other dates reasonably
acceptable to Lexington) with respect to certain financial statements and
other financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income.
(g) Employment Agreements. Merger Sub shall have executed employment
agreements with terms set forth on Exhibit B-1 and B-2 and such other terms
as agreed by the parties thereto with each of Richard Hisey (Exhibit B-1),
Alfredo Viegas, Mustafa Zaidi, and Dennis Jamison (for all but Mr. Hisey,
Exhibit B-2).
ARTICLE IX
CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME
9.1 Employee Matters.
(a) From and after the Effective Time, the employee pension benefit
plans, as defined in Section 3(2) of ERISA, and welfare and other benefit
plans, programs, and arrangements in effect and sponsored by
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Lexington and/or all or any of its subsidiaries as of the Effective Time
shall, subject to applicable law, the terms of this Agreement, and the
terms of such plans, programs, and arrangements, remain in effect with
respect to those individuals who are employees of Lexington and its
subsidiaries until such time as the Surviving Corporation shall adopt new
employee benefit plans and arrangements with respect to employees of the
Surviving Corporation and its subsidiaries; provided, however, that for
employees on Lexington's or its subsidiaries' payroll as of the Closing
Date, such benefit plans and arrangements shall (1) contain no waiting
period or pre-existing condition exclusions and (2) not be less favorable,
in the aggregate, than the benefit plans and arrangements provided to
similarly situated employees of Buyer. Buyer shall be responsible for
perpetuating the group health plan continuation coverages pursuant to
Section 4980B of the Code and Sections 601 through 609 of ERISA for all
employees of Lexington as of the Closing Date and their eligible
dependents.
(b) From and after the Effective Time, for purposes of determining
eligibility, vesting, any length of service requirements, waiting periods,
or benefits based on length of service, and entitlement to vacation and
severance benefits for employees employed by Lexington or any of its
subsidiaries immediately before the Effective Time under any compensation,
severance, welfare, pension, benefit, or savings plan of the Surviving
Corporation or any of its affiliates in which such employees of Lexington
and its subsidiaries were, or could reasonably expect to become, eligible
to participate, service with Lexington or any of its subsidiaries shall be
credited as if such service had been rendered to the Surviving Corporation
or such affiliate; provided, however, that such service credit shall not
operate to duplicate any benefit or the funding thereof.
9.2 Indemnification. All rights to indemnification, expense advancement, and
exculpation existing in favor of any present or former director, officer,
employee, or agent of Lexington or any of its subsidiaries as provided in the
charter, bylaws, or similar organizational documents of Lexington or any of its
subsidiaries or by law as in effect on the date hereof shall survive the Merger
and continue in full force and effect without amendment thereto for a period of
at least six years after the Effective Time (or, if any relevant claim is
asserted or made within that six-year period, until final disposition of the
claim) with respect to matters occurring at or before the Effective Time, and
no action taken during that period shall be deemed to diminish the obligations
set forth in this Section 9.2. Further, the Surviving Corporation, by virtue of
the Merger and without further action, shall assume as of the Effective Time
all indemnification agreements of Lexington in effect as of the date hereof.
Buyer hereby guarantees the performance of the covenants set forth in this
Section 9.2. The provisions of this Section 9.2 are intended for the benefit
of, and shall be enforceable by, directors, officers, and others entitled to
indemnification hereunder and their respective heirs and personal
representatives.
9.3 Directors and Officers Liability Insurance. For a period of at least six
years after the Effective Time, Buyer shall maintain in effect either (a)
policies of directors' and officers' liability insurance providing at least the
same coverage and amounts and containing terms and conditions that are no less
advantageous in any material respect to the insured parties under such policies
maintained by Lexington as of the date hereof with respect to claims arising
from facts or events that occurred at or before the Effective Time (including
consummation of the transactions contemplated by this Agreement), or (b) a run-
off (that is, a "tail") policy or endorsement with respect to the current
policy of directors' and officers' liability insurance covering claims asserted
within six years after the Effective Time arising from facts or events that
occurred at or before the Effective Time (including consummation of the
transactions contemplated by this Agreement); and such policies or endorsements
shall name as insureds thereunder all present and former directors and officers
of Lexington or any of its subsidiaries.
9.4 Tax-Free Reorganization Covenants.
(a) Following the Merger, the Surviving Corporation will, and Buyer will
cause the Surviving Corporation to, continue the historic business of
Lexington or use a significant portion of Lexington's business assets in a
business.
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(b) Following the Merger, the Surviving Corporation will not issue, and
Buyer will not cause the Surviving Corporation to issue, additional shares
of stock of the Surviving Corporation that would result in Buyer losing
"control" (within the meaning of Section 368(c) of the Code) of the
Surviving Corporation.
(c) Buyer has no plan or intention to reacquire any of its Common Stock
issued in the Merger.
(d) Buyer has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with and into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation or to cause the Surviving Corporation to sell or otherwise
dispose of any of the assets of Lexington acquired in the Merger, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
ARTICLE X
TERMINATION
10.1 Generally. This Agreement may be terminated at any time before the
Effective Time, whether before or after approval by the stockholders of
Lexington:
(a) by mutual written consent of Buyer, Merger Sub, and Lexington;
(b) by Buyer and Merger Sub or by Lexington if the transactions
contemplated hereby have not been consummated on or before December 31,
2000 (which date may be extended by mutual agreement of Buyer, Merger Sub,
and Lexington), provided that such failure is not due to the failure of the
party seeking to terminate this Agreement to comply in all material
respects with its obligations under this Agreement;
(c) by Buyer and Merger Sub, if (1) any of the conditions set forth in
Sections 8.1 or 8.2 shall become impossible to fulfill other than for
reasons within the control of Buyer or Merger Sub, and such conditions
shall not have been waived under Article VIII, or (2) the stockholders of
Lexington fail to approve this Agreement and the Merger by the vote
required by the Delaware Law and Lexington's Certificate of Incorporation
and Bylaws at the first stockholders' meeting called for that purpose,
including any adjournments thereof;
(d) by Lexington, if (1) any of the conditions set forth in Sections 8.1
or 8.3 shall become impossible to fulfill other than for reasons within the
control of Lexington, and such conditions shall not have been waived under
Article VIII, or (2) the stockholders of Lexington fail to approve this
Agreement and the Merger by the vote required by the Delaware Law and
Lexington's Certificate of Incorporation and Bylaws at the first
stockholders' meeting called for that purpose, including any adjournments
thereof;
(e) by Buyer and Merger Sub, if the Lexington Board of Directors
withdraws or adversely modifies its recommendation to its stockholders of
this Agreement and the Merger;
(f) by Buyer and Merger Sub, if Lexington shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to Lexington of such failure or, (2) breached
a representation or warranty contained in Article III or IV hereof, and
such breach cannot be or has not been cured within 30 days of the giving of
written notice to Lexington of such breach, and the condition set forth in
Section 8.2(a) cannot be satisfied;
(g) by Lexington, if Buyer or Merger Sub shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to Buyer of such failure or, (2) breached a
representation or warranty contained in Article V hereof, and such breach
cannot be or has not been cured within 30 days of the giving of written
notice to Buyer of such breach, and the condition set forth in Section
8.3(a) cannot be satisfied.
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10.2 Procedure and Effect of Termination. Upon termination of this Agreement
by Lexington or by Buyer and Merger Sub under Section 10.1, written notice
thereof shall forthwith be given to the other parties and this Agreement shall
terminate and the Merger shall be abandoned without further action by any of
the parties. If this Agreement is terminated as provided herein, no party shall
have any liability or further obligation to any other party to this Agreement,
except as provided in Section 10.3 or to the extent the termination is the
direct result of a willful and material breach by the party of a
representation, warranty, or covenant contained in this Agreement.
10.3 Expenses; Termination Fee.
(a) All expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the
party incurring the expenses.
(b) If this Agreement is terminated by Buyer under Sections 10.1(c)(2)
or (f), or by Lexington under Section 10.1(d)(2);
(1) then Lexington shall, within five business days of termination,
pay to Buyer an amount, not to exceed $450,000, equal to all reasonable
out-of-pocket expenses (including fees and costs of attorneys and
accountants) incurred by Buyer or Merger Sub in connection with the
transactions contemplated by this Agreement; and
(2) if, on or before the date that is one year after the date of
termination, a Third-Party Transaction (as defined in subsection (e)
below) is consummated, then Lexington shall, within five business days
after the consummation of such Third-Party Transaction, pay to Buyer an
additional $1.8 million.
(c) If this Agreement is terminated by Buyer under Section 10.1(e),
(3) then Lexington shall, within five business days of termination,
pay to Buyer $1.125 million; and
(4) if, on or before the date that is one year after the date of
termination, a Third-Party Transaction is consummated, then Lexington
shall, within five business days after the consummation of such Third-
Party Transaction, pay to Buyer an additional $1 million.
(d) If this Agreement is terminated by Lexington under Section 10.1(g),
then Buyer shall, within five business days of termination, pay to
Lexington an amount, not to exceed $450,000, equal to all reasonable out-
of-pocket expenses (including fees and costs of attorneys and accountants)
incurred by Lexington in connection with the transactions contemplated by
this Agreement.
(e) As used in Sections 10.3(b) and (c), "Third-Party Transaction" means
the occurrence of any of the following events: (1) the acquisition of
Lexington by merger, consolidation, statutory share exchange, or other
business combination transaction by any person other than Buyer, Merger
Sub, or any affiliate thereof (a "Third Party"), in which the holders of
shares of Lexington Common Stock do not, immediately after the transaction,
directly or indirectly own more than 50% of the voting power of the capital
stock of Lexington or the surviving corporation in substantially the same
proportion as before the transaction; (2) the acquisition by any Third
Party of 50% or more (in book value or market value) of the total assets of
Lexington and its subsidiaries, taken as a whole; or (3) the acquisition by
a Third Party of 50% or more of the outstanding shares of Lexington Common
Stock, whether by tender offer, exchange offer, or otherwise.
(f) This Section 10.3 shall survive termination of this Agreement for
any reason for a period of 13 months thereafter.
A-43
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Termination of Representations and Warranties. The representations and
warranties set forth in this Agreement (including those set forth in the
Lexington Disclosure Schedule and the Buyer Disclosure Schedule) or in any
certificate furnished under this Agreement shall not survive the Effective
Time. The covenant of Buyer and Surviving Corporation contained in Section 9.4
shall survive until the fifth anniversary of the Effective Time. This Section
11.1 shall not limit any other covenant or agreement of the parties that, by
its terms contemplates performance after the Effective Time.
11.2 Amendment and Modification. To the extent permitted by applicable law,
this Agreement may be amended, modified, or supplemented only by written
agreement of the parties at any time before the Effective Time with respect to
any of the terms contained herein, except that after the special meeting of
Lexington's stockholders to approve this Agreement and the Merger, the amount
and form of the consideration payable in the Merger may not be altered without
the approval of the stockholders of Lexington.
11.3 Waiver of Compliance; Consents. Any failure of a party to comply with
any obligation, covenant, agreement, or condition herein, to the extent legally
allowed, may be waived in writing by the other, but any such waiver or failure
to insist upon strict compliance with the obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, the consent shall be given in
writing in a manner consistent with the requirements for a waiver of compliance
as set forth in this Section 11.3.
11.4 Press Releases and Public Announcements. No party may issue any press
release or make any public announcement relating to the subject matter hereof
without the prior written approval of the other parties, which may not be
unreasonably withheld; provided, however, that each party may make any public
disclosure it believes in good faith is required by applicable law, SEC
regulations, or any listing or trading agreement concerning its publicly traded
securities (in which case the disclosing party will use its reasonable best
efforts to consult with and advise the other parties regarding the form and
content of the disclosure before making the disclosure).
11.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, effective when
delivered, or if delivered by express delivery service or facsimile, effective
when delivered, or if mailed by registered or certified mail (return receipt
requested), effective three business days after mailing, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to Buyer:
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, MN 55401
Attn: General Counsel
Facsimile: (612) 342-3160
With a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Thomas G. Morgan
Facsimile: (612) 336-3026
A-44
If to Merger Sub:
Pilgrim Holdings Corporation
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Attn: Robert W. Stallings
Facsimile: (602) 417-8301
If to Lexington:
Lexington Global Asset Manager, Inc.
Park 80 West
Plaza Two
Saddle Brook, NJ 07663
Attn: Robert M. DeMichele
With a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attn: William H. Rheiner, Esquire
11.6 Assignment. This Agreement and all of its provisions shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned or delegated by any
party without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person except the parties any rights or
remedies hereunder.
11.7 Interpretation. As used in this Agreement, unless otherwise defined
herein:
(a) "including" means "including without limitation";
(b) "person" means an individual, a partnership, a limited liability
company, a joint venture, a corporation, a trust, an incorporated
organization, or a government or any department or agency thereof;
(c) "affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act;
(d) "business day" means any day other than a Saturday, Sunday, or a day
that is a statutory holiday under the laws of the United States or the
States of Minnesota or New Jersey;
(e) all dollar amounts are expressed in United States funds;
(f) "to the knowledge of a party" or any similar phrase means the actual
knowledge of one or more of the executive officers of the party; and
(g) "subsidiary" of any specified corporation means, unless otherwise
provided herein, any corporation of which the outstanding securities having
ordinary voting power to elect a majority of the board of directors are
directly or indirectly owned by the corporation, including MSR with respect
to Lexington.
11.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to choice-of-law principles.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
A-45
11.10 Headings; Internal References. The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties, and shall not affect the interpretation
hereof.
11.11 Entire Agreement. This Agreement, including the schedules and exhibits
hereto, the Lexington Disclosure Schedule, the Buyer Disclosure Schedule, and
the Confidentiality Agreement, embody the entire agreement and understanding of
the parties in respect of the subject matter contained herein and supersede all
prior agreements and understandings among the parties with respect to that
subject matter. There are no restrictions, promises, representations,
warranties (express or implied), covenants, or undertakings of the parties,
other than those expressly set forth or referred to in this Agreement.
11.12 Severability. If any provision hereof is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of the
provisions hereof shall continue in full force and effect and will in no way be
affected or invalidated.
11.13 Equitable Remedies. The parties agree that money damages or other
remedy at law would not be a sufficient or adequate remedy for any breach or
violation of, or default under, this Agreement by them and that in addition to
all other remedies available to them, each of them shall be entitled, to the
fullest extent permitted by law, to an injunction restraining such breach,
violation, or default or threatened breach, violation, or default and to any
other equitable relief, including specific performance, without bond or other
security being required.
In witness whereof, Buyer, Merger Sub and Lexington have caused this
Agreement to be signed by their respective officers thereunto duly authorized
as of the date first written above.
RELIASTAR FINANCIAL CORP.
By: /s/ Richard R. Crowl
___________________________________
Title: Senior Vice President
_________________________________
PILGRIM HOLDINGS CORPORATION
By: /s/ Robert W. Stallings
___________________________________
Title: Chief Executive Officer
_________________________________
LEXINGTON GLOBAL ASSET MANAGERS,
INC.
By: /s/ Robert M. DeMichele
___________________________________
Title: President and Chief
Executive Officer
_________________________________
A-46
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This First Amendment (this "Amendment") is dated as of February 28, 2000 and
is made to the Agreement and Plan of Merger, dated as of February 28, 2000 (the
"Original Agreement"), among ReliaStar Financial Corp., a Delaware corporation
("Buyer"), Pilgrim Holdings Corporation, a Delaware corporation ("Merger Sub"),
and Lexington Global Asset Managers, Inc., a Delaware corporation
("Lexington").
The parties hereby amend the Original Agreement as follows:
1. Voting Agreements. The Original Agreement is hereby amended by adding a
new Section 8.2(m) thereto, to read in its entirety as follows:
(m) Voting Agreements. (1) Prior to 5:00 p.m. Eastern Time on March 6,
2000, Voting Agreements executed by stockholders holding, in the aggregate,
at least 35% of the outstanding shares of Lexington Common Stock shall have
been delivered to Buyer; and (2) prior to 5:00 p.m. Eastern Time on March
20, 2000, Voting Agreements executed by stockholders holding not less than
95% of the shares of Lexington Common Stock owned by all stockholders
listed on Schedule 3.2(v) shall have been delivered to Buyer.
2. Termination. The Original Agreement is hereby amended by adding a new
Section 10.1(h) thereto, to read in its entirety as follows:
(h) by Buyer and Merger Sub, if the delivery of the Voting Agreements
required by either clause (1) or (2) of Section 8.2(m) shall have failed to
occur prior to the time specified for such delivery in such clause of that
Section.
3. Defined Terms. All capitalized terms used but not defined in this
Amendment have the meanings given them in the Original Agreement. All
references in the Original Agreement to "this Agreement" mean the Original
Agreement as amended by this Amendment.
4. Continuing Effect. Except as modified by this Amendment, the Original
Agreement remains in full force and effect, without change.
In Witness Whereof, the parties have caused this Amendment to be signed by
their respective officers thereunto duly authorized as of the date first
written above.
RELIASTAR FINANCIAL CORP.
/s/ Richard R. Crowl
By: _________________________________
Senior Vice President
Its ________________________________
PILGRIM HOLDINGS CORPORATION
/s/ Robert W. Stallings
By:__________________________________
Chief Executive Officer
Its: ________________________________
LEXINGTON GLOBAL ASSET MANAGERS,
INC.
/s/ Robert M. DeMichele
By:__________________________________
President and Chief Executive
Officer
Its: ________________________________
A-47
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Second Amendment (this "Amendment") is dated as of May 11, 2000 and is
made to the Agreement and Plan of Merger, dated as of February 28, 2000 (the
"Original Agreement"), among ReliaStar Financial Corp., a Delaware corporation
("Buyer"), Pilgrim Capital Corporation (formerly Pilgrim Holdings
Corporation), a Delaware corporation ("Pilgrim"), and Lexington Global Asset
Managers, Inc., a Delaware corporation ("Lexington"), as first amended on
February 28, 2000.
The parties hereby amend the Original Agreement as follows:
1. Parties to the Agreement. The Original Agreement is hereby amended to
add Pilgrim Lexington Acquisition Corp., a newly formed Delaware corporation
and wholly owned subsidiary of Pilgrim ("Pilgrim Lexington Acquisition
Corp."), as a party to the Original Agreement. All references to "Merger Sub"
in this Amendment and in the Original Agreement shall be deemed to references
to Pilgrim Lexington Acquisition Corp. and not to Pilgrim. Pilgrim shall
remain a party to the Original Agreement.
2. Recitals.
(a) The fourth recital of the Original Agreement is hereby amended and
restated in its entirety as follows:
The strategic combination of Merger Sub and Lexington shall be effected
by the terms of this Agreement through a transaction in which Merger Sub
will merge with and into Lexington (the "Merger").
(b) The sixth recital of the Original Agreement is hereby deleted in its
entirety.
3. The Merger. Section 1.3(a) of the Original Agreement is hereby amended
and restated in its entirety as follows:
(a) At the Effective Time, in accordance with this Agreement and the
Delaware Law, (1) Merger Sub shall be merged with and into Lexington, (2)
the separate corporate existence of Merger Sub shall cease, and (3)
Lexington shall be the surviving corporation and shall continue to be
governed by the Delaware Law (Lexington is sometimes referred to in this
Agreement as the "Surviving Corporation").
4. Representations and Warranties.
(a) Section 5.2(b) of the Original Agreement is hereby amended and
restated in its entirety as follows:
(b) Capitalization. The authorized capital stock of Buyer consists of
200 million shares of Buyer Common Stock, of which, as of the close of
business on April 28, 2000, 89,632,632 shares were issued and outstanding,
and seven million shares of preferred stock, none of which are outstanding.
As of April 28, 2000, Buyer has reserved for issuance six million shares of
Series A Junior Participating Preferred Stock issuable under the Amended
and Restated Rights Agreement, dated as of February 11, 1999, between Buyer
and Norwest Bank Minnesota, National Association, as amended on April 30,
2000 (the "Buyer Rights Agreement"). Under the Buyer Rights Agreement, each
outstanding share of Buyer Common Stock has attached to it certain rights
("Buyer Right"), including rights to purchase, under certain circumstances,
one-twentieth of a share of Series A Junior Participating Preferred Stock
of Buyer for $100, subject to adjustment. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, $.001 par value per
share, all of which are outstanding and held by Pilgrim. All of the issued
and outstanding shares of Buyer Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, and were not granted in
violation of any statutory preemptive rights. There are no outstanding
subscriptions, options, warrants, calls, or other agreements or commitments
under which Buyer is or may become obligated to issue, sell, transfer, or
otherwise dispose of or purchase,
A-48
redeem, or otherwise acquire, any shares of capital stock of, or other
equity interests in, Buyer and there are no outstanding securities issued
by Buyer convertible into or exchangeable for any Buyer Common Stock,
except for (1) options to purchase up to an aggregate of 8,429,530 shares
of Buyer Common Stock, as of April 28, 2000 and (2) 8,873,630 shares of
Buyer Common Stock reserved for issuance under the Stock Option Agreement,
dated as of April 30, 2000, between Buyer and ING America Insurance
Holdings, Inc. There are no stock appreciation rights, phantom stock
rights, or performance shares outstanding with respect to Buyer. Buyer
owns, directly or indirectly, all of the issued and outstanding shares of
each class of capital stock of each of its subsidiaries, free and clear of
all liens, security interests, pledges, charges, and other encumbrances.
(b) Section 5.2 of the Original Agreement is hereby amended by adding
the following subsection (m) thereto:
(m) Interim Operations of Merger Sub. Merger Sub was formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities, and has
conducted its operations only as contemplated by this Agreement.
5. Covenants. Section 7.10 of the Original Agreement is hereby amended and
restated in its entirety as follows:
7.10 [Reserved]
6. Conditions. Section 8.3(e) of the Original Agreement is hereby amended
and restated in its entirety as follows:
(e) [Reserved]
7. Conduct After the Effective Time. Section 9.4 of the Original Agreement
is hereby deleted in its entirety.
8. Miscellaneous. Section 11.1 of the Original Agreement is hereby amended
and restated in its entirety as follows:
11.1 Termination of Representations and Warranties. The representations
and warranties set forth in this Agreement (including those set forth in
the Lexington Disclosure Schedule and the Buyer Disclosure Schedule) or in
any certificate furnished under this Agreement shall not survive the
Effective Time. This Section 11.1 shall not limit any covenant or agreement
of the parties that, by its terms contemplates performance after the
Effective Time.
9. Defined Terms. All capitalized terms used but not defined in this
Amendment have the meanings given them in the Original Agreement. All
references in the Original Agreement to "this Agreement" mean the Original
Agreement as amended by the First Amendment thereto and by this Amendment.
10. Continuing Effect. Except as modified by this Amendment, the Original
Agreement, as previously amended, remains in full force and effect, without
change.
11. Termination of this Amendment. This Amendment shall terminate and be of
no further effect if, at any time before the closing of the Merger, (a) the
Merger Agreement, dated as of April 30, 2000, among ING Groep N.V., ING
America Insurance Holdings, Inc., SHP Acquisition Corp., and ReliaStar
Financial Corp., is terminated or (b) any of the parties to such merger
agreement publicly announces its intention not to effectuate the merger
contemplated thereby. If this Amendment is so terminated, the Original
Agreement, as amended by the First Amendment thereto, shall remain in full
force and effect, without change due to this Amendment.
A-49
In Witness Whereof, the parties have caused this Amendment to be signed by
their respective officers thereunto duly authorized as of the date first
written above.
RELIASTAR FINANCIAL CORP.
/s/ Richard R. Crowl
By:__________________________________
Senior Vice President
Its: ________________________________
PILGRIM LEXINGTON ACQUISITION CORP.
/s/ Richard R. Crowl
By:__________________________________
Vice President
Its: ________________________________
PILGRIM CAPITAL CORPORATION
/s/ James M. Hennessy
By:__________________________________
Executive Vice President
Its: ________________________________
LEXINGTON GLOBAL ASSET MANAGERS,
INC.
/s/ Robert M. DeMichele
By:__________________________________
President and Chief Executive
Officer
Its: ________________________________
A-50
EXHIBIT B
Putnam, Lovell, de Guardiola & Thornton, Inc.
Board of Directors
Lexington Global Asset Managers, Inc.
Park 80 West
Plaza Two
Saddle Brook, NJ 07663
February 28, 2000
Gentlemen:
We understand that Lexington Global Asset Managers, Inc., a Delaware
corporation (the "Company"), Reliastar Financial Corporation, a Delaware
corporation ("Buyer"), and Pilgrim Holdings, Inc., a Delaware corporation and a
wholly-owned subsidiary of Buyer ("Holding"), have entered into an Agreement
and Plan of Merger dated February 28, 2000 (the "Transaction Agreement"),
pursuant to which, among other things, the Company will be merged with and into
Holding (the "Merger") and each issued and outstanding share of the common
stock of the Company, $.01 par value per share, will be converted into the
right to receive (1) 0.231 shares of the common stock of Buyer, $.01 par value
per share (the "Share Consideration"), and (2) cash in the amount of $3.31 (the
"Cash Consideration" and, together with the Share Consideration, the "Merger
Consideration"). In certain circumstances, the Merger Consideration is subject
to adjustment as provided in the Transaction Agreement.
You have asked for our opinion as to whether the Merger Consideration to be
paid by Buyer in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
In connection with rendering our opinion, we have, among other things:
I. reviewed certain publicly available historical audited and unaudited
financial statements and other information regarding the Company and
Buyer;
II. reviewed pro forma historical financial statements, operating data and
other information regarding the Company and its subsidiaries prepared by
the management of the Company;
III. reviewed certain internal financial analyses and projections of the
Company and its subsidiaries prepared by the management of the Company;
IV. reviewed certain other information furnished to us by the Company for
purposes of our analyses;
V. compared the results of operations of the Company with those of certain
public and private companies that we deemed to be reasonably comparable to
the Company;
VI. compared the proposed financial terms of the Merger with the financial
terms of certain other recent transactions that we deemed to be relevant;
VII. reviewed a draft dated February 27, 2000 of the Transaction Agreement;
VIII. conducted discussions with members of the management of the Company and
Buyer to discuss the foregoing, as well as other matters we believe
relevant to our inquiry; and
IX. performed such other analyses and examinations and considered such other
factors as we have deemed appropriate.
B-1
Board of Directors
Lexington Global Asset Managers, Inc.
February 28, 2000
In preparing our opinion, we have, with your consent, also assumed and relied,
without independent verification, upon the accuracy and completeness of the
financial and other information supplied or otherwise made available to us from
public sources or by the Company and Buyer and have not independently verified
such information. We have neither obtained nor performed any independent
valuation or appraisal of the assets or liabilities of the Company or the
investment management business of Buyer. With respect to the financial
projections and forecasts of the Company provided to us by the Company we have
assumed that such financial projections and forecasts have been reasonably
prepared and reflect the best currently available estimates and good faith
judgments of the senior management of the Company as to the future competitive,
operating and regulatory environments and related financial performance of the
Company and that such forecasts will be realized in the amounts and at the
times contemplated thereby. We have not undertaken any independent analysis to
verify the reasonableness of the assumptions underlying such forecasts. Our
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information and agreements (or drafts thereof) made
available to us as of, the date hereof.
Putnam, Lovell, de Guardiola & Thornton, Inc. is an investment banking firm
focused primarily on the investment management industry and is continually
engaged in the valuation of investment management businesses and their
securities in connection with mergers and acquisitions, distributions of
securities and similar activities. We have acted as financial advisor to the
Board of Directors of the Company in connection with the Merger and will
receive a fee from the Company for our services, a portion of which is
contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement,
including, without limitation, any liabilities arising out of the rendering of
this opinion. As you may be aware, Putnam, Lovell, de Guardiola & Thornton and
its principals have in the past provided financial advisory services to Buyer
and its subsidiary, Holding, and have received customary fees in consideration
for rendering such services. Roberto de Guardiola and/or his immediate family
owns 10,000 shares of the common stock of the Company and 7,500 shares of
Buyer.
Based upon and subject to the foregoing, it is our opinion on the date hereof
that the Merger Consideration to be paid by Buyer in the Merger is fair, from a
financial point of view, to the stockholders of the Company.
Our advisory services and the opinion expressed herein are provided for the use
of the Board of Directors of the Company in its evaluation of the proposed
Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. This opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not be used for any
other purpose, or reproduced, disclosed publicly, referred to or communicated
by you in any manner at any time, in whole or in part, without our prior
written consent.
Very truly yours,
PUTNAM, LOVELL, DE GUARDIOLA & THORNTON, INC.
By: /s/ Roberto de Guardiola
-------------------------
Roberto de Guardiola
Managing Director
B-2
EXHIBIT C
DELAWARE GENERAL CORPORATION LAW
(S) 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
C-1
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to shares for which
appraisal rights are available pursuant to subsections (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and
that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include
in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to
all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may, and
if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the
merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to
appraisal rights of the effective date of the merger or consolidation
or (ii) the surviving or resulting corporation shall send such a second
notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than
20 days following the second of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall,
in the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in
advance, a record date that shall not be more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or
after the effective date
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of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder
who has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the forgoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or
to receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of his demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the effective date of
the merger or consolidation as provided in subsection (e) of this section
or thereafter with the written approval of the corporation, then the right
of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be
dismissed as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
C-4
LEXINGTON GLOBAL ASSET MANAGERS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 2000
The undersigned stockholder(s) of Lexington Global Asset Managers, Inc., a
Delaware corporation ("Lexington"), revoking all previous proxies, hereby
appoint(s) Stuart Smith Richardson, L. Richardson Preyer and Lunsford
Richardson, Jr., and each or any of them (the "Proxies"), the true and lawful
agents and attorneys-in-fact for the undersigned, with power of substitution,
to attend and to vote the stock owned by or registered in the name of the
undersigned, as instructed below, at the Special Meeting of Stockholders of
Lexington to be held at the offices of Lexington at Park 80 West, Plaza Two,
Saddle Brook, New Jersey 07663, on , 2000 at [9:30 a.m.], Eastern
time, and any and all adjournments or postponements thereof. The Proxies are
authorized and directed to vote as indicated with respect to the following
matter:
To approve and adopt an agreement and plan of merger dated as of February
28, 2000, among Lexington, ReliaStar Financial Corp., a Delaware corporation,
Pilgrim Capital Corporation, a Delaware corporation and wholly owned subsidiary
of ReliaStar, and Pilgrim Lexington Acquisition Corp., a Delaware corporation
and wholly owned subsidiary of Pilgrim, and the merger contemplated thereby,
all as described and subject to the terms and conditions set forth in the
accompanying proxy statement/prospectus.
FOR [_] AGAINST [_] ABSTAIN [_]
(Please sign and date on reverse side)
This proxy is solicited on behalf of the Board of Directors. UNLESS
OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR" APPROVAL OF THE MERGER.
This Proxy also delegates discretionary authority to vote with respect to any
other business which may properly come before the Special Meeting of
Stockholders.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND THE PROXY STATEMENT.
NOTE: Please sign this Proxy exactly as the name(s) appears hereon. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Proxies executed in the name of a corporation
should be signed on behalf of the corporation by a duly authorized officer.
Where shares are owned in the name of two or more persons, all such persons
should sign this Proxy.
Dated: ____________________________ , 2000
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Signature of Stockholder
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Signature of Stockholder
PLEASE SIGN, DATE AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE.