PURCHASE AGREEMENT
by and among
LEGG MASON, INC. CARNES CAPITAL CORPORATION PRIVATE CAPITAL MANAGEMENT, L.P. PCM-GP, INC. MCC-PCM, INC. MILES C. COLLIER BRUCE S. SHERMAN
AND
GREGG J. POWERS
Dated as of: May 29, 2001
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1 Definitions .......................................................1
ARTICLE II
PURCHASE AND SALE; CLOSING; RELATING MATTERS
Section 2.1 Purchase and Sale ................................................12 Section 2.2 Purchase Price ...................................................12 Section 2.3 Purchase Price Percentages .......................................13 Section 2.4 Payment Instructions .............................................14 Section 2.5 The Closing ......................................................14 Section 2.6 Further Assurances ...............................................14 Section 2.7 Transfer Taxes ...................................................14 Section 2.8 Substitution .....................................................15 Section 2.9 Deliveries and other Actions in connection with the Closing ......15 Section 2.10 Employment Agreements ...........................................15 Section 2.11 Section 338(h)(10) Election .....................................15 Section 2.12 Initial Payment Adjustment ......................................16 Section 2.13 Revenue Sharing Agreement .......................................16 Section 2.14 Escrow Agreement ................................................16 Section 2.15 Claw-Back .......................................................16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Section 3.1 Organization of the Companies and Related Matters; Capitalization.18 Section 3.2 Authority; No Violation; Consents ................................19 Section 3.3 Books and Records; Financial Statements; Liabilities .............20 Section 3.4 Compliance with Applicable Law ...................................21 Section 3.5 Ineligible Persons ...............................................22 Section 3.6 Assets Under Management ..........................................22 Section 3.7 Title ............................................................23 Section 3.8 Company Contracts ................................................23 Section 3.9 Technology and Intellectual Property .............................24
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Section 3.10 Legal Proceedings .............................................. 24 Section 3.11 Taxes and Tax Returns .......................................... 25 Section 3.12 Insurance ...................................................... 26 Section 3.13 Labor and Employment Matters ................................... 26 Section 3.14 Benefit Plan Obligations ....................................... 26 Section 3.15 No Broker ...................................................... 28 Section 3.16 Absence of Changes ............................................. 28 Section 3.17 Additional Representations Regarding the Funds ................. 28 Section 3.18 Aggregate Revenue Run Rate ..................................... 29 Section 3.19 Transactions with Affiliates ................................... 29 Section 3.20 Corporate Name ................................................. 29
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization ................................................... 30 Section 4.2 Authority; No Violation; Consents .............................. 30 Section 4.3 No Actions, Suits or Proceedings ............................... 31 Section 4.4 Ineligible Persons ............................................. 31 Section 4.5 Availability of Funds; Solvency ................................ 31 Section 4.6 Broker ......................................................... 32 Section 4.7 Keyman Insurance ............................................... 32
ARTICLE V
COVENANTS
Section 5.1 Conduct of Business ............................................ 32 Section 5.2 Advisory Contract Consents; The Funds .......................... 35 Section 5.3 Confidentiality and Announcements .............................. 36 Section 5.4 Expenses ....................................................... 36 Section 5.5 Covenants of Buyer ............................................. 36 Section 5.6 Access; Certain Communications ................................. 37 Section 5.7 Regulatory Matters; Third Party Consents ....................... 37 Section 5.8 Notification of Certain Matters ................................ 38 Section 5.9 No Solicitation ................................................ 38 Section 5.10 Delivery of Governmental Documents ............................ 38 Section 5.11 Tax Returns and Tax Information ............................... 38 Section 5.12 Employee Benefits Matters ..................................... 39 Section 5.13 Non-complete and Non-Solicitation ............................. 39 Section 5.14 Excess Net Worth Payable ...................................... 43
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Section 5.15 HSR ............................................................ 43 Section 5.16 Keyman Life Insurance. ......................................... 44 Section 5.17 Working Capital. ............................................... 44 Section 5.18 Pre-Closing Taxes............................................... 45 Section 5.19 ICMI. .......................................................... 45
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Mutual Condition ................................................ 45 Section 6.2 Conditions to Buyer's Obligations ............................... 45 Section 6.3 Conditions to the Sellers' Obligations .......................... 47
ARTICLE VII
INDEMNIFICATION
Section 7.1 Obligations of the Sellers ...................................... 48 Section 7.2 Obligations of Buyer ............................................ 49 Section 7.3 Procedure ....................................................... 49 Section 7.4 Notice of Non-Third Party Claims ................................ 51 Section 7.5 Handling of Claims .............................................. 51 Section 7.6 Survival of Indemnity ........................................... 51 Section 7.7 Limitation on Indemnification ................................... 52 Section 7.8 Indemnity Payments and Interest ................................. 52
ARTICLE VIII
TERMINATION/SURVIVAL
Section 8.1 Termination ..................................................... 53 Section 8.2 Effect of Termination ........................................... 54 Section 8.3 Survival of Representations and Warranties and Covenants ........ 54
ARTICLE IX
MISCELLANEOUS
Section 9.1 Disputes ........................................................ 55 Section 9.2 Representatives ................................................. 56 Section 9.3 Exclusive Remedy ................................................ 56
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Section 9.4 Amendments; Waiver ............................................ 56 Section 9.5 Entire Agreement .............................................. 56 Section 9.6 Interpretation ................................................ 57 Section 9.7 Severability .................................................. 57 Section 9.8 Notices ....................................................... 57 Section 9.9 Binding Effect; Persons Benefitting; No Assignment ............ 59 Section 9.10 Counterparts .................................................. 59 Section 9.11 Governing Law ................................................. 59 Section 9.12 Jurisdiction; Waiver of Jury Trial and Certain Damages ........ 59
ANNEX I Equity Interests Being Sold and Purchased ANNEX II Purchase Price Percentages ANNEX III Form of Employment Agreement ANNEX IV Purchase Price Attributable to CCC ANNEX V Form of Revenue Sharing Agreement ANNEX VI Form of Escrow Agreement
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of May 29, 2001 (this "Agreement"), by and among Legg Mason, Inc., a Maryland corporation (the "Buyer"), Carnes Capital Corporation, a Florida corporation ("CCC"), Private Capital Management, L.P., a Delaware limited partnership ("PCM"), PCM-GP, Inc., a Florida corporation ("PCMGP"), MCC-PCM, Inc., a Florida corporation ("MCC"), Miles C. Collier, an individual, Bruce S. Sherman, an individual, and Gregg J. Powers, an individual.
RECITALS:
WHEREAS, the Sellers together hold all of the partner interests and capital stock of PCM and CCC, respectively; and
WHEREAS, the Sellers desire to sell to Buyer and Buyer desires to purchase from the Sellers all of the partner interests and capital stock of PCM and CCC, respectively, representing 100% of the Equity Interests in PCM and CCC;
NOW, THEREFORE, in consideration of and premised upon the various representations, warranties, covenants and other agreements and undertakings of the parties contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. (a) For all purposes in this Agreement, the ----------- following terms shall have the respective meanings set forth in this Section 1.1 (such definitions to be equally applicable to both the singular and plural forms of the terms herein defined):
"Advisers Act" means the United States Investment Advisers Act of 1940, as amended, and all rules and regulations of the SEC thereunder.
"Affiliate" means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.
"Aggregate Adjusted Assets Under Management" means, on any date, the sum of the Adjusted Assets Under Management at such date for all accounts managed by any of the Companies.
"Aggregate Revenue Run Rate" means, on any date, the sum of the Revenue Run Rate at such date for all accounts managed by any of the Companies.
"Applicable Law" means any statute, law, ordinance, rule, public administrative interpretation, regulation, order, writ, injunction, directive, judgment, decree or other requirement of any Governmental Authority applicable, as the case may be, to Buyer, the Companies, the Sellers or any of their respective properties, assets, officers, directors, members, partners, employees or duly authorized agents, as the context may require.
"Assets" means, with respect to any Person, all of the assets of such Person including, but not limited to, the Company Contracts (in the case of the Companies), Furniture, Fixtures and Equipment, Intellectual Property, Leased Properties, Records, Software and Technology Systems of such Person.
"Business Day" means any day other than a Saturday, a Sunday or a day on which banks in the City of New York or the city of Miami, Florida are generally closed for regular banking business.
"Buyer Material Adverse Effect" means a material adverse effect on the business, results of operations or financial condition of Buyer or the businesses conducted by Buyer, taken as a whole, excluding effects attributable to (a) a deterioration in the United States securities markets, (b) declines in economic activity generally in the United States, Europe or Asia or (c) changes in the U.S. asset management industry, retail brokerage industry and financial private client services industry generally that do not affect Buyer in a manner significantly different than other companies in the U.S. asset management industry, retail brokerage industry and financial private client services industry.
"Claw-Back Amount" means the lesser of $300,000,000.00 or the amount of the Second Earnout Payment.
"Claw-Back Payment" means any amount paid to Buyer pursuant to the provisions of Section 2.15 of this Agreement.
"Closing" means the completion of the transactions contemplated by Section 2.1 of this Agreement.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended.
"CFSI" means Collier Financial Services Inc.
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"Collier Seller" means each or any one of MCC, PCMGP or Miles C. Collier individually, as the context may require, and "Collier Sellers" means any two or more of them collectively, as the context may require.
"Companies" means (a) prior to the Closing, PCM, CCC, PVEP, CFSI (but only in respect of its being the general partner of The Collier Fund, Ltd.), SPSM, MCC (but only in respect of its being the general partner of Private Value Fund, L.P. and Private Value Fund II, L.P.), PCLG and ICMI and (b) after the Closing, (i) PCM Holdings, PCM, CCC and ICMI; (ii) Buyer or any Affiliate of Buyer (A) with respect to or for which Bruce S. Sherman or Gregg J. Powers serves as an officer, director, employee, adviser or agent or otherwise participates in providing investment advisory services, (B) which acts as the manager, general partner, special limited partner, investment adviser or in a similar capacity of any investment fund, however organized, with respect to which Bruce S. Sherman or Gregg J. Powers participates or participated in the solicitation of new accounts or investors or the organization, management, marketing, promotion or investment activities, (C) which pays any compensation to Bruce S. Sherman or Gregg J. Powers, or (D) the revenues or income of which is used in calculating any compensation payable to Bruce S. Sherman or Gregg J. Powers; and (iii) any other entity that becomes treated as a Company for purposes of the Revenue Sharing Agreement.
"Company" means each or any one of the Companies individually, as the context may require.
"Company Contract" means any investment advisory agreements or limited partnership agreements to which any of the Companies is a party and any agreement for the provision of brokerage services to which CCC is a party and any lease, license or other agreement relating to the use by PCM or CCC of any of their respective properties or assets including, without limitation, any Furniture, Fixtures and Equipment, Intellectual Property, Software and Technology Systems, or relating to the conduct of the businesses conducted by PCM and CCC as of the date of this Agreement, together with all amendments and supplements thereto, and all rights and interests of any of the Companies arising thereunder or in connection therewith.
"DOJ" means the Antitrust Division of the United States Department of Justice.
"Earnout Payments" means the First Earnout Payment and the Second Earnout Payment.
"Encumbrance" means any lien, pledge, security interest, claim, charge, easement, limitation, commitment, encroachment, restriction or encumbrance of any kind or nature whatsoever.
"Equity Interests" means: (a) capital stock, partner interests, member interests, beneficial interests or any other equity or ownership interests in any Person; (b) any securities or other instruments convertible into or exchangeable for, or whose value is determined by
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reference to, any such interests, regardless of whether any of the foregoing are exercisable or "out-of-the-money" at any time prior to the Closing Date; or (c) any other rights, warrants, options or binding commitments of any character to acquire or dispose of any of the foregoing, regardless of whether any of the foregoing are exercisable or "out-of-the-money" at any time prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations of the Department of Labor thereunder.
"Escrow Account" has the meaning given in the Escrow Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and all rules and regulations of the SEC thereunder.
"FTC" means the United States Federal Trade Commission.
"Fund" means each or any one of The Collier Fund, Ltd., a Florida limited partnership, The Entrepreneurial Value Fund, L.P., a Delaware limited partnership, Private Value Fund, L.P., a Delaware limited partnership, and Private Value Fund II, L.P., a Delaware limited partnership individually, as the context may require, and "Funds" means any two or more of them collectively, as the context may require.
"Furniture, Fixtures and Equipment" means all furniture, fixtures and equipment located at any Operating Site.
"GAAP" means, with respect to any Person, generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared or any act requiring the application of GAAP was performed.
"Governmental Authority" means any nation, state, territory, province, county, city or other unit or subdivision thereof or any entity, authority, agency, department, board, commission, instrumentality, court or other judicial body authorized on behalf of any of the foregoing to exercise legislative, judicial, regulatory or administrative functions and any governmental or non-governmental self-regulatory organization of which any of the Companies was or is a member or to whose regulations any of the Companies was or is subject.
"Governmental Documents" means all reports and registration statements filed, or required to be filed, by law, by contract or otherwise, by an entity pursuant to the authority of any Governmental Authority.
"Gross Revenues" shall mean all revenues of the Companies, from whatever source derived, calculated on an accrual basis, in accordance with GAAP consistently applied, other than items of revenue or gain that are unusual in nature, infrequent in occurrence and
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significant in amount such as judgments, arbitration awards, insurance proceeds and gain on sale of operating assets and other than interest or dividend income, or realized or unrealized gain, on working capital and investments; provided, however, that to the extent more than 20% of the amount of Gross Revenues is attributable to Performance Fees, the amount of Performance Fees in excess of 20% which would otherwise constitute Gross Revenues shall be excluded from Gross Revenues for purposes of Section 2.2(b), Section 2.2(c) and Section 2.15. In the event that after the Closing and prior to any date as of which Gross Revenues of the Companies are to be measured for purposes of Section 2.2(b), Section 2.2(c) or Section 2.15, any of the Companies sells, transfers or assigns to any Person assets that are directly responsible for the generation of Gross Revenues or interests in the Company holding such assets without the consent of the Representatives in such a manner that the revenues generated by such assets are no longer attributable, directly or indirectly, to services provided by any of the Companies, a dollar amount equal to the net revenues generated by such assets during the twelve complete calendar months prior to the month in which such sale, transfer or assignment occurred shall be included thereafter in the calculation of Gross Revenues for all purposes under Section 2.2(b), Section 2.2(c) and Section 2.15 and under the Revenue Sharing Agreement (less any amounts of such revenues already included within the calculation of Gross Revenues for the year in which such sale, transfer or assignment occurs); provided, however, that the foregoing shall not apply to the sale, transfer or - -------- ------- assignment of assets to the extent the revenues from such assets constitute brokerage commissions and any such sale, transfer or assignment is undertaken at the request or order of a Governmental Authority or at the unsolicited request of the customer.
"HSR" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
"Immediate Family" means, with respect to any individual, (a) such individual's spouse (including former spouses), parents, siblings and children (in each case, whether by blood, marriage or adoption), (b) any spouse (including former spouses), parent, sibling, child or grandchild of any Person specified in clause (a) above (in each case, whether by blood, marriage or adoption) and (c) any estate, trust, partnership, limited liability company or other entity or legal relationship of which a majority of the Equity Interests at all times in question are, directly or indirectly, held by or for the benefit of one or more of the Persons described above and/or such individual.
"Indemnified Party" means a Person entitled to the benefits of indemnification hereunder.
"Indemnifying Party" means a Person obligated to provide indemnification hereunder.
"ICMI" means Institutional Capital Management, Inc., a New York corporation.
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"Intellectual Property" means all domestic and foreign copyrights, patents, proprietary models, processes, formulas and databases, client lists, service marks, Software, know-how, trade names, trademarks and trade secrets, in each case whether or not subject to statutory registration or protection, and all registrations or applications for registration of any of the foregoing.
"Investment Company Act" means the Investment Company Act of 1940, as amended, and all rules and regulations of the SEC thereunder.
"Lease" means any real estate lease or sublease, with respect to any Leased Property.
"Leased Properties" means all leasehold interests of any of the Companies in real property.
"LIBOR" means, with respect to any month, the London interbank offered rate for deposits in the currency in which the fund is denominated having a maturity of three months, which appears on Telerate Page 3750 as of 11:00 a.m., London time on the first London business day of each month. "Telerate Page 3750" means the display page so designated on the Dow Jones Telerate Service (or such other page as may replace that page on that service for the purpose of displaying comparable rates or prices).
"Loss" means any and all monetary claims, losses, liabilities, costs, penalties, fines and expenses (including reasonable attorneys', accountants', consultants' and experts' fees and expenses), damages, monetary obligations to third parties, expenditures, monetary judgments or awards payable or due to any other party that are imposed upon or otherwise incurred or suffered by the relevant Person.
"Management Seller" means each or any one of Bruce S. Sherman or Gregg J. Powers individually, as the context may require, and "Management Sellers" means both of them.
"NASD" means NASD Regulation, Inc., a subsidiary of the National Association of Securities Dealers, Inc.
"Operating Sites" means all offices at which any of the Companies conducts the businesses currently conducted by the Companies at any time relevant hereunder.
"Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice.
"Partners" means the partners (both limited and general) of PCM.
"PCLG" means PCLG, Inc., a Delaware corporation.
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"PCM Holdings" means PCM Holdings, Inc., a Maryland corporation and a Wholly Owned Subsidiary of Buyer.
"Performance Fee" shall mean any performance fee, carried interest, special profits interest or other performance based compensation payable to any of the Companies with respect to any account managed by any of the Companies.
"Permitted Encumbrances" means all Encumbrances which are:
(1) Encumbrances set forth on Schedule 1.1(b);
(2) statutory liens for Taxes or assessments that are not yet due or payable;
(3) liens of landlords and liens of carriers, warehousemen, mechanics and materialmen and other like liens arising in the Ordinary Course of Business for sums not yet due and payable; or
(4) other Encumbrances which individually or in the aggregate do not exceed $100,000 and do not materially detract from the value of or materially impair the existing use of the assets affected by such Encumbrances.
"Person" means any individual, corporation, company, limited liability company, partnership (limited or general), joint venture, association, trust or other entity.
"Purchase Price" means the sum of the Initial Payment, the First Earnout Payment and the Second Earnout Payment.
"PVEP" means Private Value Equity Partners L.P.
"Records" means all records and original documents in the possession of any referenced Person or Persons which pertain to or have been or are utilized by such Person or Persons to administer, reflect, monitor, evidence or record information respecting the business or conduct of such Person or Persons including, without limitation, (a) all such records maintained on electronic or magnetic media and (b) in the case of the Companies, all such records and original documents respecting the Company Contracts as may be necessary to comply with any Applicable Law, including, without limitation, any and all records and original documents kept in accordance with, or filed pursuant to, any Securities Laws.
"Revenue Run Rate" means, with respect to each account managed by any of the Companies (excluding, at the election of Bruce S. Sherman, any account opened after April 30, 2001 and prior to the date of this Agreement) on any date, the sum of (a) the annualized investment advisory fees for such account determined by multiplying the Adjusted Assets Under Management for such account at such date by the applicable annual base fee rate of PCM for
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such account at such date plus (b) the annualized performance compensation for such account in connection with the management of which any of the Companies is entitled to a Performance Fee determined by multiplying the Adjusted Assets Under Management for such account at such date by the applicable Performance Fee rate for such account at such date. For purposes of this definition, the "applicable annual base fee rate" for each account shall not include the effect of any performance-based adjustment to fees or any extraordinary revenue items, and shall be reduced to take account of any then-applicable fee waiver, expense reimbursement or rebate to any Person in connection with such account and the "applicable Performance Fee rate" for each relevant account shall be the percentage derived by dividing the aggregate performance-based compensation payable in respect of such account during the twelve month period prior to such date by the average amount of assets under management (and not the gains, if any, thereon) in such account in respect of which such performance-based compensation was payable. The calculation of the Revenue Run-Rate as of any given date after the date of this Agreement shall be made using the same methodology used in connection with the calculation of the Revenue Run-Rate as of the fifth Business Day prior to the date of this Agreement as set forth on Schedule 3.18.
For purposes of this definition, "Adjusted Assets Under Management" means, at any particular date, the amount in U.S. dollars of assets under management by any of the Companies in that account as of the close of business on the fifth Business Day prior to the date of the Agreement (based on the fair market value of assets calculated as of the f ...
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