-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fdmr/9Zsm+GxoTuULm/S7qGeIUBkcLNfCaVdqKxdQL0vzjQKKS9SNhrURmVdJCD4 tw/Z3UosHRjUNS7GHP5qQg== 0001072613-03-001409.txt : 20030814 0001072613-03-001409.hdr.sgml : 20030814 20030814154429 ACCESSION NUMBER: 0001072613-03-001409 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GABELLI ASSET MANAGEMENT INC CENTRAL INDEX KEY: 0001060349 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 134007862 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14761 FILM NUMBER: 03847439 BUSINESS ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE STATE: NY ZIP: 10580 BUSINESS PHONE: 9149213700 MAIL ADDRESS: STREET 1: ONE CORPORATE CENTER CITY: RYE STATE: NY ZIP: 10580 FORMER COMPANY: FORMER CONFORMED NAME: ALPHA G INC DATE OF NAME CHANGE: 19980423 10-Q 1 form10-q_12120.txt FORM 10-Q FOR PERIOD ENDED JUNE 30, 2003 ================================================================================ SECURITIES & EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 ------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File No. 1-106 GABELLI ASSET MANAGEMENT INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) New York 13-4007862 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Corporate Center, Rye, New York 10580 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (914)921-3700 - -------------------------------------------------------------------------------- Registrant's telephone number, including area code Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock, as of the latest practical date. Class Outstanding at July 31, 2003 ----- ------------------------------ Class A Common Stock, .001 par value 6,895,542 Class B Common Stock, .001 par value 23,150,000 1 INDEX ----- GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Operations: - Three months ended June 30, 2003 and 2002 - Six months ended June 30, 2003 and 2002 Condensed Consolidated Statements of Financial Condition: - June 30, 2003 - June 30, 2002 - December 31, 2002 (Audited) Condensed Consolidated Statements of Cash Flows: - Three months ended June 30, 2003 and 2002 - Six months ended June 30, 2003 and 2002 Notes to Condensed Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Including Quantitative and Qualitative Disclosures about Market Risk) Item 4. Controls and Procedures PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURES 2 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data) THREE MONTHS ENDED JUNE 30, ------------------------ 2003 2002 ---------- ---------- REVENUES Investment advisory and incentive fees .......... $ 40,759 $ 48,356 Commission revenue .............................. 2,771 3,682 Distribution fees and other income .............. 4,426 5,364 ---------- ---------- Total revenues ............................... 47,956 57,402 EXPENSES Compensation and related costs .................. 20,874 22,291 Management fee .................................. 2,097 2,483 Other operating expenses ........................ 8,580 8,242 ---------- ---------- Total expenses ............................... 31,551 33,016 Operating income .................................. 16,405 24,386 OTHER INCOME (EXPENSE) Net gain (loss) from investments ................ 4,711 (636) Interest and dividend income .................... 1,368 1,780 Interest expense ................................ (3,605) (3,186) ---------- ---------- Total other income (expense), net ............ 2,474 (2,042) ---------- ---------- Income before income taxes and minority interest .. 18,879 22,344 Income tax provision ............................ 7,099 8,401 Minority interest ............................... 223 2 ---------- ---------- Net income .................................... $ 11,557 $ 13,941 ========== ========== Net income per share: Basic ........................................... $ 0.38 $ 0.46 ========== ========== Diluted ......................................... $ 0.38 $ 0.46 ========== ========== Weighted average shares outstanding: Basic ........................................... 30,025 30,222 ========== ========== Diluted ......................................... 30,139 32,327 ========== ========== See accompanying notes. 3 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data) SIX MONTHS ENDED JUNE 30, ------------------------ 2003 2002 ---------- ---------- REVENUES Investment advisory and incentive fees .......... $ 80,260 $ 97,216 Commission revenue .............................. 5,191 7,613 Distribution fees and other income .............. 8,558 10,605 ---------- ---------- Total revenues ............................... 94,009 115,434 EXPENSES Compensation and related costs .................. 41,399 44,721 Management fee .................................. 3,766 5,231 Other operating expenses ........................ 16,099 15,727 ---------- ---------- Total expenses ............................... 61,264 65,679 Operating income .................................. 32,745 49,755 OTHER INCOME (EXPENSE) Net gain from investments ....................... 5,145 78 Interest and dividend income .................... 2,624 3,159 Interest expense ................................ (6,616) (5,914) ---------- ---------- Total other income (expense), net ............ 1,153 (2,677) ---------- ---------- Income before income taxes and minority interest .. 33,898 47,078 Income tax provision ............................ 12,746 17,701 Minority interest ............................... 268 47 ---------- ---------- Net income .................................... $ 20,884 $ 29,330 ========== ========== Net income per share: Basic ........................................... $ 0.70 $ 0.97 ========== ========== Diluted ......................................... $ 0.69 $ 0.97 ========== ========== Weighted average shares outstanding: Basic ........................................... 29,972 30,083 ========== ========== Diluted ......................................... 30,082 32,246 ========== ========== See accompanying notes. 4 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (In thousands)
June 30, June 30, December 31, 2003 2002 2002 ---------- ---------- ---------- (Unaudited) ASSETS Cash and cash equivalents ......................... $ 404,849 $ 395,928 $ 311,430 Investments in securities ......................... 190,083 53,803 175,466 Investments in partnerships and affiliates ........ 57,022 60,093 47,932 Receivable from brokers ........................... 456 101 4,919 Investment advisory fees receivable ............... 13,845 15,294 15,603 Income tax receivable ............................. -- 3,252 -- Other assets ...................................... 29,245 28,170 27,381 ---------- ---------- ---------- Total assets ................................. $ 695,500 $ 556,641 $ 582,731 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Payable to brokers ................................ $ 6,195 $ 5,331 $ 17,138 Income taxes payable .............................. 7,077 335 9,196 Compensation payable .............................. 21,403 29,026 18,459 Capital lease obligation .......................... 3,249 3,464 3,433 Securities sold, not yet purchased ................ 742 -- 5,022 Accrued expenses and other liabilities ............ 17,624 16,126 15,583 ---------- ---------- ---------- Total operating liabilities .................. 56,290 54,282 68,831 5.5% Senior notes ................................. 100,000 -- -- 6% Convertible note ............................... 100,000 100,000 100,000 Mandatory convertible securities .................. 84,163 87,513 84,545 ---------- ---------- ---------- Total liabilities ............................ 340,453 241,795 253,376 Minority interest ................................. 7,830 7,385 7,562 Stockholders' equity .............................. 347,217 307,461 321,793 ---------- ---------- ---------- Total liabilities and stockholders' equity ........ $ 695,500 $ 556,641 $ 582,731 ========== ========== ==========
See accompanying notes. 5 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------------------------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- OPERATING ACTIVITIES Net income ........................................... $ 11,557 $ 13,941 $ 20,884 $ 29,330 Adjustments to reconcile net income to net cash provided by (used in)operating activities: Equity in losses from partnerships and affiliates ........................................ (2,089) (79) (2,644) (345) Depreciation and amortization ........................ 243 216 485 428 Stock-based compensation expense ..................... 422 -- 637 -- Deferred income taxes ................................ -- -- -- 18,661 Tax benefit from exercise of stock options ........... 144 269 764 4,082 Minority interest in net income of consolidated subsidiaries ...................................... 223 2 268 47 Market value of donated securities ................... -- 412 -- 412 Realized gains on available for sale securities ...... (14) (58) (14) (40) (Increase) decrease in operating assets: Investments in securities ......................... (29,993) 2,048 (12,690) 1,887 Investment advisory fees receivable ............... 555 3,257 1,758 (643) Receivables from affiliates ....................... (1,503) (613) (1,058) 766 Other receivables ................................. (235) 738 (422) 258 Receivable from brokers ........................... 2,218 1,922 4,462 (65) Income tax receivable ............................. -- 7,627 -- (3,252) Other assets ...................................... (683) (388) (868) (4,153) Increase (decrease) in operating liabilities: Payable to brokers ................................ (320) 2,631 (10,943) (3,223) Income taxes payable .............................. (1,669) (536) (2,392) (4,377) Compensation payable .............................. 763 2,612 2,863 7,858 Accrued expenses and other liabilities ............ 3,390 (77) 1,858 (1,782) Securities sold, not yet purchased ................ (2,091) -- (4,280) -- ---------- ---------- ---------- ---------- Total adjustments .................................... (30,639) 19,983 (22,216) 16,519 ---------- ---------- ---------- ---------- Net cash provided by (used in)operating activities ... (19,082) 33,924 (1,332) 45,849 ---------- ---------- ---------- ---------- INVESTING ACTIVITIES Purchases of available for sale securities ........... (1,000) (456) (1,204) (558) Proceeds from sales of available for sale securities .......................................... 100 500 100 602 Distributions from partnerships and affiliates ....... 2,500 1,487 9,849 12,458 Investments in partnerships and affiliates ........... (5,139) (128) (16,294) (6,368) ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities .. (3,539) 1,403 (7,549) 6,134 ---------- ---------- ---------- ---------- FINANCING ACTIVITIES Purchase of minority stockholders' interest .......... -- -- -- (273) Issuance of mandatory convertible securities ......... -- -- -- 87,952 Issuance of Senior notes ............................. 100,000 -- 100,000 -- Repayment of note payable ............................ -- -- -- (50,000) Proceeds from exercise of stock options .............. 372 1,166 2,877 9,063 Purchase of mandatory convertible securities ......... -- (2,422) (373) (2,422) Purchase of treasury stock ........................... -- (2,228) (204) (5,822) ---------- ---------- ---------- ---------- Net cash provided by (used in)financing activities ... 100,372 (3,484) 102,300 38,498 ---------- ---------- ---------- ---------- Net increase in cash and cash equivalents ............ 77,751 31,843 93,419 90,481 Cash and cash equivalents at beginning of period ..... 327,098 364,085 311,430 305,447 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period ........... $ 404,849 $ 395,928 $ 404,849 $ 395,928 ========== ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY Net present value of forward purchase contract ....... $ -- $ 2,353 $ -- $ 2,353 ========== ========== ========== ==========
See accompanying notes. 6 GABELLI ASSET MANAGEMENT INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2003 (UNAUDITED) A. BASIS OF PRESENTATION The unaudited interim Condensed Consolidated Financial Statements of Gabelli Asset Management Inc. (the "Company") included herein have been prepared in conformity with accounting principles generally accepted in the United States for interim financial information and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of the Company for the interim periods presented and are not necessarily indicative of a full year's results. In preparing the unaudited interim condensed consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. These financial statements should be read in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, from which the accompanying Condensed Consolidated Statement of Financial Condition was derived. Certain items previously reported have been reclassified to conform to the current year's financial statement presentation. B. INVESTMENT IN SECURITIES Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and classified as trading securities. Available-for sale investments are stated at fair value, with any unrealized gains or losses, net of deferred taxes, reported as a component of stockholders' equity. At June 30, 2003 and 2002 the market value of investments available-for-sale was $7.9 million and $6.1 million, respectively. This loss in market value, net of taxes, of $184,000 and $321,000 has been included in stockholders' equity for June 30, 2003 and 2002, respectively. Proceeds from sales of investments available-for-sale were approximately $0.1 million for the six month period ended June 30, 2003. Gross gains on the sale of investments available for sale amounted to $14,000; there were no gross losses on the sale of investments available for sale. Proceeds from sales of investments available-for-sale were approximately $0.6 million for the six month period ended June 30, 2002. Gross gains on the sale of investments available for sale amounted to $58,000; gross losses on the sale of investments available for sale amounted to $19,000. 7 C. EARNINGS PER SHARE The computations of basic and diluted net income per share are as follows:
Three Months Ended Six Months Ended June 30, June 30, (in thousands, except per share amounts) 2003 2002 2003 2002 -------- -------- -------- -------- Basic: Net income $ 11,557 $ 13,941 $ 20,884 $ 29,330 ======== ======== ======== ======== Average shares outstanding 30,025 30,222 29,972 30,083 ======== ======== ======== ======== Basic net income per share $ 0.38 $ 0.46 $ 0.70 $ 0.97 ======== ======== ======== ======== Diluted: Net income $ 11,557 $ 13,941 $ 20,884 $ 29,330 Add interest expense on convertible note, net of management fee and taxes -- 913 -- 1,825 -------- -------- -------- -------- Total $ 11,557 $ 14,854 $ 20,884 $ 31,155 ======== ======== ======== ======== Average shares outstanding 30,025 30,222 29,972 30,083 Dilutive stock options 114 218 110 276 Assumed conversion of convertible note -- 1,887 -- 1,887 -------- -------- -------- -------- Total 30,139 32,327 30,082 32,246 ======== ======== ======== ======== Diluted net income per share $ 0.38 $ 0.46 $ 0.69 $ 0.97 ======== ======== ======== ========
For the three and six months ended June 30, 2003 the assumed conversion of the convertible note would not be dilutive and, accordingly, has not been used in the computations of the weighted average diluted shares. D. STOCKHOLDERS' EQUITY STOCK AWARD AND INCENTIVE PLAN On February 18, 2003 the Board of Directors approved stock option awards totaling 633,000 shares under the Company's Stock Award and Incentive Plan at an exercise price to be equal to the closing market price on the date of grant. Of these options 561,000 were granted on February 18 at an exercise price of $28.95 per share and 72,000 were granted on May 13, 2003 at an exercise price of $29.00 per share. These options will vest 75% after three years and 100% after four years from the date of grant and expire after ten years. The Company adopted SFAS 123, "Accounting for Stock-Based Compensation" ("SFAS 123") as of January 1, 2003 in accordance with SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS 148") and will use the Prospective method for transition. Under SFAS 123 the Company records compensation expense equal to the fair value of the options on the date of grant based on the Black-Scholes option pricing model. This model utilizes a number of assumptions in arriving at its results, including an estimate of the life of the option, the risk-free interest rate at the date of grant and the volatility of the underlying common stock. The weighted average fair value of the options granted on the date of grant and the assumptions used were as follows: Weighted average fair value of Options granted: $10.98 Assumptions made: Expected volatility 38% Risk-free interest rate 3.04% Expected life 5 years Dividend yield 0% 8 D. STOCKHOLDERS' EQUITY (CONTINUED) The expected life reflects an estimate of the length of time the employees are expected to hold the options, including the vesting period, and is based, in part, on actual experience with other grants. The dividend yield reflects the assumption that no payout will be made in the foreseeable future. In the second quarter of 2003 we recognized $422,000 in compensation expense and expect total stock-based compensation expense for 2003 to total $1.5 million. Proceeds from the exercise of 166,767 and 517,944 stock options were $2,877,000 and $9,063,000 for the six months ended June 30, 2003 and 2002, respectively, resulting in a tax benefit to the Company of $764,000 and $4,082,000 for the six months ended June 30, 2003 and 2002, respectively. STOCK REPURCHASE PROGRAM In March 1999 the Board of Directors established the Stock Repurchase Program through which the Company is authorized to repurchase shares of its Class A Common Stock from time to time in the open market. During the first quarter of 2003, the Company repurchased 7,417 shares at an average cost of $27.75 per share. Since the inception of the program the Company has repurchased 1,127,843 shares at an average cost of $25.23 per share. At June 30, 2003 the total amount available to repurchase shares under the program was $14.2 million. Since May 2002 the Board of Directors has also approved the repurchase of up to 700,000 shares of the Company's mandatory convertible securities from time to time in the open market. During the first quarter of 2003, the Company repurchased 15,300 shares at an average investment of $19.02 per share bringing the total shares repurchased to 233,500 at a total investment of $5.1 million. No shares were repurchased in the open market during the three month period ended June 30, 2003. A gain attributable to the debt component of the mandatory convertible securities totaling $87,000 has been included in other income (expense) for the six months ended June 30, 2003. E. SUBSEQUENT EVENTS On June 5, 2003, the Company commenced a tender offer to purchase up to 800,000 shares of its outstanding Class A common stock under a modified "Dutch Auction." The price offered was in the range of $28.00 to $31.75 per share, which reflected the price of Gabelli's shares on the New York Stock Exchange shortly before the announcement of the offer. On July 7, 2003, one hundred and five shares were properly tendered and accepted for purchase by the Company at a purchase price of $31.75 per share. On June 19, 2003, the Company announced that Robert S. Zuccaro resigned as Chief Financial Officer of the Company to pursue another professional opportunity. The Company has not yet named a new Chief Financial Officer. On July 9, 2003 the Company announced that it had agreed with Cascade Investment LLC to modify the terms of the $100 million convertible note previously issued in August 2001 to Cascade by the Company. The parties have agreed to lower the interest rate from 6% to 5%, reduce the conversion price by $1 per share to $52 per share of the Company's Class A Common Stock and extend Cascade's put option for an additional year to August 2004. In each case the changes become effective in August 2003. As a result of these modifications the Company's calculation of diluted EPS will change slightly. The shares that would be issued if converted changes to 1,923,000 from 1,887,000 while the interest that is added back for the calculation would be reduced from $1,500,000 per quarter to $1,250,000 per quarter less management fee and taxes. 9 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Gabelli Asset Management Inc. (the "Company") is a widely recognized provider of investment advisory and brokerage services to mutual fund, institutional and high net worth investors in the United States and internationally. We generally manage assets on a discretionary basis and invest in a wide variety of U.S. and international securities through various investment styles. The Company's revenues are largely based on the level of assets under management in its business as well as the level of fees associated with its various investment products. Growth in revenues generally depends on good investment performance and the ability to attract additional investors while maintaining current fee levels. The Company's largest source of revenues is investment advisory fees which are based on the amount of assets under management in its Mutual Funds, Separate Accounts and Alternative Investment Partnerships. Revenues derived from the equity oriented portfolios generally have higher management fee rates than fixed income portfolios. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included in Item 1 to this report. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002 Consolidated Results - Three Months Ended June 30: (Unaudited; in thousands, except per share data) 2003 2002 -------- -------- Revenues $ 47,956 $ 57,402 Expenses 31,551 33,016 -------- -------- Operating income 16,405 24,386 Investment income, net 6,079 1,144 Interest expense (3,605) (3,186) -------- -------- Total other income (expense), net 2,474 (2,042) -------- -------- Income before taxes and minority interest 18,879 22,344 Income tax provision 7,099 8,401 Minority interest 223 2 -------- -------- Net income $ 11,557 $ 13,941 ======== ======== Net income per share: Basic $ 0.38 $ 0.46 ======== ======== Diluted $ 0.38 $ 0.46 ======== ======== Reconciliation of Operating income to Adjusted EBITDA: Operating income $ 16,405 $ 24,386 Depreciation and amortization 243 216 Investment income, net 6,079 1,144 -------- -------- Adjusted EBITDA(a) $ 22,727 $ 25,746 -------- -------- (a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and minority interest. Adjusted EBITDA is a Non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance. We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of investing and financing activities as a tool for determining the private market value of an enterprise. 10 Total revenues were $48.0 million in the second quarter of 2003 down $9.4 million or 16.5% from total revenues of $57.4 million reported in the second quarter of 2002. Investment advisory and incentive fees, which comprise 85.0% of total revenues, were $40.8 million in the second quarter of 2003, $7.6 million or 15.7% lower than the $48.4 million reported in the second quarter of 2002. The decrease in investment advisory and incentive fees was principally the result of lower levels of assets under management in our GAMCO institutional and high net worth business and in our open-end equity mutual funds. GAMCO fees, which are generally billed based on asset levels at the beginning of a quarter, declined $7.4 million or 34.6% in the 2003 quarter as compared to the second quarter of 2002. Revenues from open-end equity mutual funds decreased $3.5 million or 16.6% from the prior year as average assets under management in open-end equity funds declined to $6.8 billion, 16.1% below the prior year's second quarter average of $8.2 billion. At June 30, 2003 assets in open-end equity funds were $7.1 billion, 3.2% lower than the prior year second quarter end balance of $7.4 billion. Revenues from our alternative investment products were 83.0% higher at $3.3 million resulting from both increased management and performance fees. Commissions were $2.8 million in the second quarter of 2003, down 24.7% from $3.7 million in the same period a year earlier largely due to a decrease in overall trading volume. Revenues from distribution of mutual funds and other income were $4.4 million in the second quarter of 2003 versus $5.4 million in the second quarter of 2002. The decrease in distribution fees results from the decline in average assets managed in open-end equity mutual funds, which generate distribution revenues under 12b-1 compensation plans. Total expenses were $31.6 million in the second quarter of 2003, a 4.4% decrease from total expenses of $33.0 million reported in the second quarter of 2002. Compensation and related costs, which are largely variable, were $20.9 million, 6.4% lower than the same period a year earlier. The decrease in compensation was due to lower variable incentive compensation. Salaries, which are not variable in nature, increased by $0.7 million as we have added to our research, sales and marketing staffs as planned since the second quarter of 2002. Management fee expense, which is totally variable and based on pretax income, was 15.5% lower at $2.1 million in the second quarter of 2003 versus $2.5 million in the second quarter of 2002. Other operating expenses were higher by $0.4 million, a 4.1% increase to $8.6 million in the second quarter of 2003 from the prior year second quarter of $8.2 million as higher costs from new product initiatives, insurance premiums, reimbursing clients for trading costs or losses, benefit programs, and our most recent acquisitions (Woodland Partners and Grove) were partially offset by lower mutual fund administration and distribution costs and brokerage clearing costs. Investment income was $6.1 million in the second quarter of 2003 higher by $5.0 million, or 431.4% from $1.1 million reported in the second quarter of 2002 as the rising equity markets resulted in increased earnings from our proprietary investment accounts. Interest expense increased $0.4 million to $3.6 million in the second quarter of 2003 from $3.2 million in the comparable prior year quarter largely as a result of the Company's issuance of $100 million of ten-year 5.5% non-callable senior notes due May 15, 2013 during the second quarter of 2003. The estimated effective tax rate for the second quarter of 2003 and the second quarter of 2002 was approximately 37.6%. Minority interest was higher by $0.2 million over the prior year quarter. 11 SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002 Consolidated Results - Six Months Ended June 30: (Unaudited; in thousands, except per share data) 2003 2002 -------- -------- Revenues $ 94,009 $115,434 Expenses 61,264 65,679 -------- -------- Operating income 32,745 49,755 Investment income, net 7,769 3,237 Interest expense (6,616) (5,914) -------- -------- Total other income (expense), net 1,153 (2,677) -------- -------- Income before taxes and minority interest 33,898 47,078 Income tax provision 12,746 17,701 Minority interest 268 47 -------- -------- Net income $ 20,884 $ 29,330 ======== ======== Net income per share: Basic $ 0.70 $ 0.97 ======== ======== Diluted $ 0.69 $ 0.97 ======== ======== Reconciliation of Operating income to Adjusted EBITDA: Operating income $ 32,745 $ 49,755 Depreciation and amortization 485 428 Investment income, net 7,769 3,237 -------- -------- Adjusted EBITDA(a) $ 40,999 $ 53,420 -------- -------- (b) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and minority interest. Adjusted EBITDA is a Non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance. We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of investing and financing activities as a tool for determining the private market value of an enterprise. Total revenues were $94.0 million in the first half of 2003 down $21.4 million or 18.6% from total revenues of $115.4 million reported in the first half of 2002. Investment advisory and incentive fees, which comprise 85.4% of total revenues, were $80.3 million in the first half of 2003, $16.9 million or 17.4% lower than the $97.2 million reported in the first half of 2002. The decrease in investment advisory and incentive fees was principally the result of lower levels of assets under management in our GAMCO institutional and high net worth business and in our open-end equity mutual funds. GAMCO fees, which are generally billed based on asset levels at the beginning of a quarter, declined $11.2 million or 26.2% in the first half of 2003 as compared to the first half of 2002. Revenues from open-end equity mutual funds decreased $8.5 million or 20.1% from the prior year as average assets under management in open-end equity funds declined to $6.6 billion, 19.7% below the prior year's first half average of $8.2 billion. At June 30, 2003 assets in open-end equity funds were $7.1 billion, 3.2% lower than the prior year first half end balance of $7.4 billion. Revenues from our alternative investment products were 49.1% higher at $5.4 million resulting from both increased management and performance fees. Commissions were $5.2 million in the first half of 2003, down 31.8% from $7.6 million in the same period a year earlier largely due to a decrease in overall trading volume. Revenues from distribution of mutual funds and other income were $8.6 million in the first half of 2003 versus $10.6 million in the first half of 2002. The decrease in distribution fees results from the decline in average assets managed in open-end equity mutual funds, which generate distribution revenues under 12b-1 compensation plans. 12 Total expenses were $61.3 million in the first half of 2003, a 6.7% decrease from total expenses of $65.7 million reported in the first half of 2002. Compensation and related costs, which are largely variable, were $41.4 million, 7.4% lower than the same period a year earlier. The decrease in compensation was due to lower variable incentive compensation. Salaries, which are not variable in nature, increased by $1.7 million as we have added to our research, sales and marketing staffs as planned since the second quarter of 2002. Management fee expense, which is totally variable and based on pretax income, was 28.0% lower at $3.8 million in the first half of 2003 versus $5.2 million in the first half of 2002. Other operating expenses were higher by $0.4 million, a 2.4% increase over $15.7 million in the first half of 2003 from the prior year first half as higher costs from new product initiatives, insurance premiums, reimbursing clients for trading costs or losses, benefit programs, and our most recent acquisitions (Woodland Partners and Grove) were partially offset by lower mutual fund administration and distribution costs and brokerage costs. Investment income was $7.8 million in the first half of 2003 higher by $4.6 million, or 140.0% from $3.2 million reported in the first half of 2002 as a combination of lower interest rates and the declining equity markets resulted in lower proprietary investment earnings. Interest expense increased $0.7 million to $6.6 million in the first half of 2003 from $5.9 million in the comparable prior year quarter largely as a result of the Company's issuance of $100 million of ten-year 5.5% non-callable senior notes in May. The estimated effective tax rate for the first half of 2003 and the first half of 2002 was approximately 37.6%. Minority interest was higher by $0.2 million over the prior first half of the year. LIQUIDITY AND CAPITAL RESOURCES The Company's assets are primarily liquid, consisting mainly of cash, short term investments, securities held for investment purposes and investments in partnerships in which the Company is a general or limited partner. Investments in partnerships are generally illiquid, however, the underlying investments in such partnerships are generally liquid and the valuations of the investment partnerships reflect this underlying liquidity. Summary cash flow data is as follows:
Six Months Ended June 30, 2003 2002 -------- -------- (in thousands) Cash flows provided by (used in): Operating activities $ (1,332) $ 45,849 Investing activities (7,549) 6,134 Financing activities 102,300 38,498 -------- -------- Increase 93,419 90,481 Cash and cash equivalents at beginning of period 311,430 305,447 -------- -------- Cash and cash equivalents at end of period $404,849 $395,928 ======== ========
Cash requirements and liquidity needs have historically been met through cash generated by operating activities and through the Company's borrowing capacity. The Company has received investment grade ratings from both Moody's Investors Services and Standard & Poor's Rating Services. These investment grade ratings expand our ability to attract both public and private capital. At June 30, 2003, the Company had total cash and cash equivalents of $404.8 million, an increase of $8.9 million from June 30, 2002. The Company has established a collateral account, consisting of cash and cash equivalents totaling $102.5 million, to secure a letter of credit issued in favor of the holder of the $100 million convertible note. The letter of credit was extended and expires on August 14, 2004, which coincides with the date of a put option the note holder may exercise. Cash and cash equivalents held in the collateral account are restricted from other uses until the date of expiration. Total debt at June 30, 2003 was $284.2 million, consisting of a $100 million convertible note, $100 million of ten-year 5.5% non-callable senior notes due May 15, 2013 and $84.2 million in mandatory convertible securities. The mandatory convertible securities consist of two components, a forward exchange contract to purchase shares of Class A common stock in February 2005 and an equivalent amount of senior notes due in February 2007. At the time of the mandatory exercise of the forward contract and purchase of common stock in February 2005 the Company will receive additional proceeds equal to the amount required to repay the senior notes in 2007. The interest rate on the senior notes will be reset in November 2004 and will be based upon the rates for treasury bills maturing on or about February 2007. 13 Cash used in operating activities was $1.3 million in the first half of 2003 principally resulting from an increase in investments in securities of $12.7 million and a $10.9 million reduction in payable to brokers partially offset by $20.9 million in net income. Cash provided by operating activities was $45.8 million in the first half of 2002 principally resulting from $29.3 million in net income and offset by changes in other assets and liabilities. Cash used by investing activities, related to investments in and distributions from partnerships and affiliates, was $7.5 million in the first half of 2003. Cash provided by investing activities, related to investments in and distributions from partnerships and affiliates, was $6.1 million in the first half of 2002. Cash provided by financing activities in the first half of 2003 was $102.3 million. The increase in cash primarily results from the $100 million issuance of ten-year, 5.5% non-callable and non-convertible senior notes and $2.9 million received from the exercise of non-qualified stock options that further generated cash tax savings of $0.8 million. Other significant financing activities which used cash included $0.6 million to repurchase shares of our Class A Common Stock and mandatory convertible securities under the Company's respective Stock Repurchase Programs. Cash provided by financing activities in the first half of 2002 was $38.5 million. The increase in cash results from the issuance of $90 million of mandatory convertible debt securities before offering expenses and $9.1 million from the exercise of stock options less the repayment of a $50 million note payable and $5.8 million used to repurchase 152,805 shares of our Class A Common Stock under the Company's Stock Repurchase Program. The exercise of non-qualified stock options and the repayment of the note payable during the first half of 2002 generated cash tax savings of $4.1 million and $19.8 million, respectively, which has been included in income tax receivable. On May 8, 2003 the Company sold $100 million of ten-year, 5.5% non-callable and non-convertible senior notes. The net proceeds to the Company was $99.2 million and is being used for general corporate purposes. The notes were issued under a $400 million shelf registration statement filed in December 2001. There remains $120 million available under the shelf registration statement. Based upon the Company's current level of operations and its anticipated growth, the Company expects that its current cash balances plus cash flows from operating activities and its borrowing capacity will be sufficient to finance its working capital needs for the foreseeable future. The Company has no material commitments for capital expenditures. Gabelli & Company, Inc., a subsidiary of the Company, is registered with the Securities and Exchange Commission as a broker-dealer and is a member of the National Association of Securities Dealers. As such, it is subject to the minimum net capital requirements promulgated by the Commission. Gabelli & Company's net capital has historically exceeded these minimum requirements. Gabelli & Company computes its net capital under the alternative method permitted by the Commission, which requires minimum net capital of $250,000. At June 30, 2003, Gabelli & Company had net capital, as defined, of approximately $12.0 million, exceeding the regulatory requirement by approximately $11.7 million. Regulatory net capital requirements increase when Gabelli & Company is involved in underwriting activities. 14 MARKET RISK The Company is subject to potential losses from certain market risks as a result of absolute and relative price movements in financial instruments due to changes in interest rates, equity prices and other factors. The Company's exposure to market risk is directly related to its role as financial intermediary, advisor and general partner for assets under management in its mutual funds, institutional and separate accounts business, alternative investment products and its proprietary investment activities. At June 30, 2003, the Company's primary market risk exposure was to changes in equity prices and interest rates. With respect to the Company's proprietary investment activities included in investments in securities of $190.1 million at June 30, 2003 were investments in Treasury Bills and Notes of $104.7 million, in mutual funds, largely invested in equity products, of $69.6 million, a selection of common and preferred stocks totaling $13.0 million and other investments of approximately $2.8 million. Investments in mutual funds generally lower market risk through the diversification of financial instruments within their portfolio. In addition, the Company may alter its investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management. Of the approximately $13.0 million invested in common and preferred stocks at June 30, 2003, $2.1 million is invested in risk arbitrage opportunities in connection with mergers, consolidations, acquisitions, tender offers or other similar transactions. Investments in partnerships and affiliates totaled $57.0 million at June 30, 2003 and consisted principally of partnerships which invest in risk arbitrage opportunities. These transactions generally involve announced deals with agreed upon terms and conditions, including pricing, which typically involve less market risk than common stocks held in a trading portfolio. The principal risk associated with risk arbitrage transactions is the inability of the companies involved to complete the transaction. The Company's exposure to interest rate risk results, principally, from its investment of excess cash in U.S. Government obligations. These investments are primarily short term in nature and the carrying value of these investments generally approximates market value. The Company's revenues are largely driven by the market value of its assets under management and are therefore exposed to fluctuations in market prices. Investment advisory fees for mutual funds are based on average daily asset values. Management fees earned on institutional and high-net-worth separate accounts, for any given quarter, are generally determined based on asset values on the last day of the preceding quarter. Any significant increases or decreases in market value of institutional and high-net-worth separate accounts assets managed which occur on the last day of the quarter will generally result in a relative increase or decrease in revenues for the following quarter. RECENT ACCOUNTING DEVELOPMENTS In December 2002, the FASB issued SFAS 148 which provides alternative methods of transition to SFAS 123 and also amends its disclosure provisions. The Company elected to begin expensing options using the fair value recognition provisions of SFAS 123 effective January 1, 2003 using the Prospective method of transition. Under the Prospective transition method there are no changes to previously issued financial statements and only options granted subsequent to January 1, 2003 are expensed. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others" ("FIN 45"), which provides accounting and disclosure requirements for certain guarantees. The Company indemnifies its clearing broker for losses it may sustain from the customer accounts introduced by the Company's broker dealer subsidiaries. In accordance with New York Stock Exchange rules, customer balances are typically collateralized by customer securities or supported by other recourse provisions. In addition, the Company further limits margin balances to a maximum of 25% versus 50% permitted under exchange regulations. At June 30, 2003 the total amount of customer balances subject to indemnification (i.e. margin debits) was immaterial. 15 In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"), which provides new criteria for determining whether or not consolidation accounting is required. This interpretation focuses on financial interests that indicate control despite the absence of clear control through voting interest. It concludes that a company's exposure (variable interest) to the economic risks and rewards from the variable interest entity's assets and activities are the best evidence of control. If the company holds the largest variable interest it could be considered the primary beneficiary. As the primary beneficiary it would be required to include the variable interest entity's assets, liabilities and results of operations in its own financial statements. This interpretation is effective for variable interest entities created after January 31, 2003; otherwise it is applicable for the first interim or annual reporting period after June 15, 2003. The Interpretation will require consolidation of certain of the investment in partnerships and affiliates' assets and liabilities and results of operations with minority interest recorded for the ownership share applicable to other investors. The difference between consolidation and the equity method would impact detailed line items reported within the consolidated financial statements but not overall consolidated net income or stockholders' equity. Where consolidation is not required additional disclosures may be required. We anticipate consolidating investments in partnerships and affiliates in the 10-Q for the quarterly period ended September 30, 2003. Financial information pertaining to the investments in partnerships and affiliates as of June 30, 2003 is as follows: JUNE 30, 2003 ------------- As reported Adjustment Pro Forma Total assets.................. $ 695,500 $ 494,527 $1,190,027 Total liabilities............. 340,453 136,811 477,264 Minority interest payable..... 7,830 357,716 365,546 Total other income, net....... 1,153 15,598 16,751 Total expenses................ 61,264 3,895 65,159 Minority interest expense..... 268 11,703 11,971 ITEM 4. CONTROLS AND PROCEDURES Management, including the Chief Executive Officer and the Chief Financial Officer (who left the Company in the 3rd quarter), have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and the Chief Financial Officer completed their evaluation. 16 FORWARD-LOOKING INFORMATION Our disclosure and analysis in this report contain some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our Form 10-K and other public filings. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements. 17 PART II: OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Stockholders of Gabelli Asset Management Inc. was held in Greenwich, Connecticut on May 13, 2003. At that meeting, the stockholders considered and acted upon the following matter: THE ELECTION OF DIRECTORS. The stockholders elected the following individuals to serve as directors until the 2004 annual meeting of stockholders and until their respective successors are duly elected and qualified. All the directors were elected with more than 99% of the total votes cast. Raymond C. Avansino, Jr. John C. Ferrara Mario J. Gabelli Paul B. Guenther Eamon M. Kelly Karl Otto Pohl ITEM 6. (a) Exhibits 4.1 First Amendment to the Note Purchase Agreement, dated as of July 1, 2003. 4.2 Convertible Promissory Note, dated August 14, 2001. 4.3 Senior Note, dated May 15, 2003. 31.1 Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification by Controller Pursuant to Rule 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Controller pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. The Company filed the following Current Reports on Form 8-K during the three months ended June 30, 2003. 1. Current Report on Form 8-K dated May 6,2003 containing the press release disclosing the Company's operating results for the first quarter ended March 31, 2003. 2. Current Report on Form 8-K/A dated May 8, 2003 to correct and supersede the Current Report on Form 8K filed on May 6, 2003. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GABELLI ASSET MANAGEMENT INC. ----------------------------- (Registrant) AUGUST 14, 2003 /s/ Mario J. Gabelli ---------------- ----------------------------- Date Mario J. Gabelli Chief Executive Officer 18 EX-4.1 3 exhibit4-1_12120.txt 1ST AMENDMENT TO NOTE PURCHASE AGREEMENT EXHIBIT 4.1 ----------- EXECUTION COPY FIRST AMENDMENT TO THE NOTE PURCHASE AGREEMENT FIRST AMENDMENT, dated as of July 1, 2003 (the "First Amendment"), to the Note Purchase Agreement, dated as of August 10, 2001 (the "Note Purchase Agreement"), by and among Cascade Investment LLC, a Washington limited liability company ("Buyer"), Gabelli Asset Management Inc., a New York corporation ("Seller"), Mario J. Gabelli ("Gabelli"), Gabelli Group Capital Partners, Inc., a New York corporation ("Gabelli Group") and Rye Holdings, Inc., a New York corporation ("Rye Holdings") and Rye Capital Partners, Inc. (collectively with Gabelli, the Gabelli Group and Rye Holdings, the "Gabelli Stockholders" ). All capitalized terms used but not defined herein which are defined in the Note Purchase Agreement (or in the Note, as defined therein) shall have the meanings assigned to such terms in such agreement. RECITALS A. The parties hereto desire to amend the Note Purchase Agreement and the Note in the manner set forth below. B. Except as amended below, the Note Purchase Agreement, Registration Rights Agreement and the Note (collectively, the "Transaction Documents") shall remain in full force and effect as they were prior to this First Amendment. NOW, THEREFORE, in consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party, the parties hereto agree as follows: 1. Amendment of the Note. The parties hereto hereby amend the Note so that from and after August 14, 2003 until Maturity, (i) the interest rate shall be 5.00% per annum, (ii) the Conversion Price will decrease by $1.00 from what it was immediately prior to the execution and delivery of this First Amendment and (iii) the Exercise Date shall become August 14, 2004 (collectively, the "Note Amendments"). Concurrently with the execution and delivery of this First Amendment, the Seller is delivering to Buyer, in exchange for the duly executed original Note, a duly executed amended Note in the form of Exhibit A here, which is identical to the original Note in all respects except that it gives effect to the Note Amendments. The parties agree that the amended Note is a replacement of the original Note and evidences the same debt, and is entitled to the same benefits as, the original Note except to the extent otherwise provided by the Note Amendments. The parties also agree that neither this First Amendment nor the amended Note shall affect any rights or obligations under the Note Purchase Agreement or Note with respect to any periods, acts, omissions or circumstances which occurred prior to the date of this First Amendment. From and after the execution and delivery of this First Amendment, all references in the Transaction Documents to the Note shall be deemed to be references to the Note as amended by the Note Amendments. 2. Letter of Credit. Concurrently with the execution and delivery of this First Amendment, the Seller is delivering to Buyer an amendment to the Letter of Credit duly executed by the Letter of Credit Issuer which (i) extends the expiration date of the Letter of Credit until August 22, 2004 and (ii) decreases the Letter of Credit amount so that the aggregate amount available thereunder shall not exceed $102,500,000.00 (the "Letter of Credit Amendments"). From and after the execution and delivery of this First Amendment, all references in the Transaction Documents to the Letter of Credit shall be deemed to be references to the Letter of Credit as amended by the Letter of Credit Amendments. 3. References to Agreement. From and after the execution and delivery of this First Amendment, all references in the Transaction Documents to the Agreement shall be deemed to be references to the Agreement as amended by this First Amendment. 4. Amendment to Registration Rights Agreement. To the extent provided herein, this First Amendment shall be an amendment of the Registration Rights Agreement. 5. Miscellaneous. Sections 2.1.1, 2.1.4, 2.1.5, and 6 of the Note Purchase Agreement are incorporated herein by reference, MUTANDIS MUTANDI, with all references therein to any of the Transaction Documents being changed to refer solely to this First Amendment. (THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK) 2 SIGNATURE PAGE - FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first mentioned above. SELLER: BUYER: GABELLI ASSET MANAGEMENT INC. CASCADE INVESTMENT LLC BY: BY: -------------------------------- -------------------------------- GABELLI STOCKHOLDERS: - ----------------------------------- MARIO J. GABELLI GABELLI GROUP CAPITAL PARTNERS, INC. BY: -------------------------------- RYE HOLDINGS, INC. BY: -------------------------------- RYE CAPITAL PARTNERS, INC. BY: -------------------------------- 3 EXHIBIT A FORM OF CONVERTIBLE PROMISSORY NOTE 4 EX-4.2 4 exhibit4-2_12120.txt CONVERTIBLE PROMISSORY NOTE EXHIBIT 4.2 ----------- EXECUTION COPY NEITHER THIS NOTE NOR THE SHARES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND EXCEPT FOR ANY TRANSFERS SPECIFICALLY AUTHORIZED UNDER THE TERMS OF THIS NOTE, NEITHER THIS NOTE NOR SUCH SHARES MAY BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT REGISTRATION THEREOF UNDER THE ACT OR COMPLIANCE WITH RULE 144 OR RULE 144A PROMULGATED UNDER THE ACT, OR UNLESS GABELLI ASSET MANAGEMENT INC. HAS RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO GABELLI ASSET MANAGEMENT INC., THAT SUCH REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS NOTE OR ANY INTEREST HEREIN IS ALSO SUBJECT TO RESTRICTIONS UNDER THE TERMS HEREOF. CONVERTIBLE PROMISSORY NOTE --------------------------- $100,000,000.00 Dated: August 14, 2001 Rye, New York FOR VALUE RECEIVED, the undersigned, Gabelli Asset Management Inc., a New York corporation. ("GABELLI"), promises to pay to the order of CASCADE INVESTMENT LLC, a Washington limited liability company ("CASCADE"), or its permitted registered assigns or at such other place or places as the Holder (as defined below) may designate in writing, on August 14, 2011, the principal sum of ONE HUNDRED MILLION and NO/100 DOLLARS ($100,000,000) minus the principal amount converted or sold pursuant to the Put Option (as defined below) or the Change of Control Put Option (as defined below) (such amount, as of any determination date, the "UNPAID PRINCIPAL AMOUNT") on or before August 14, 2011, and to pay interest thereon from and including August 14, 2001 (the "ISSUE DATE") or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, semi-annually on February 14 and August 14 in each year, commencing February 14, 2002, and at Maturity (each, an "INTEREST PAYMENT DATE") at the rate of (i) 6.5% per annum for the period from and including the Issue Date to but excluding August 14, 2002, (ii) 6.0% per annum for the period from and including August 14, 2002 to but excluding August 14, 2003, and (iii) 5.0% per annum for the period from and including August 14, 2003 to but excluding August 14, 2011, until the principal hereof is paid or made available for payment; PROVIDED, HOWEVER, that (i) upon the occurrence and during the continuance of an Event of Default (as defined below) this Note and (ii) any principal and any such installment of interest which is overdue, in each case shall bear interest at the rate of 15% per annum (or, if less, the maximum interest rate permitted by the laws of the State of Washington). The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name this Note is registered at the close of business on the day immediately prior to such Interest Payment Date (whether or not a Business Day). Payment of the principal of and interest on this Note will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Any payments in respect of this Note shall first be applied to Enforcement Costs (as defined below), then to interest and then to principal. If it is ever determined that any rate of interest payable in respect of this Note exceeds the maximum rate (if any) prescribed by applicable law, then any portion of interest payments representing any amounts in excess of said maximum shall be applied as provided in the preceding sentence. As used herein, "MATURITY" means the date on which the principal of this Note becomes due and payable as provided herein, whether at its stated maturity, by declaration of acceleration or otherwise and "HOLDER" means, at any time, the person in whose name this Note is registered in the Note Register (as defined below). This Convertible Promissory Note ("NOTE") was issued by Gabelli pursuant to that certain Note Purchase Agreement, dated as of August 10, 2001, which has been amended by the First Amendment thereto, dated as of July 1, 2003, (as so amended, the "PURCHASE AGREEMENT"), among Gabelli, Cascade and the Gabelli Stockholders. Capitalized terms not otherwise defined in this Note shall have the meaning set forth in the Purchase Agreement, which definitions are incorporated herein. NO REDEMPTION OR PREPAYMENT - --------------------------- Gabelli agrees and acknowledges that the conversion feature of this Note during the term of the Note is a valuable right and that the Holder would not have purchased this Note without assurances that the Note would not be called or prepaid by Gabelli. Accordingly, Gabelli acknowledges and agrees that it shall not be entitled to and will not, without the consent of the Holder, make any prepayments of principal on this Note other than pursuant to an acceleration of this Note or Forced Conversion (as hereinafter defined), in each case as provided below. EVENTS OF DEFAULT - ----------------- "EVENT OF DEFAULT", wherever used with respect to this Note, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgement, decree or order of any court or any order, rule or regulation of any Governmental Authority): (a) Payment Default. Gabelli shall fail to pay or cause to be paid all or any portion of the principal of or interest on this Note when it becomes due and payable, and, in the event of failure to pay interest on the Note, such failure continues for 10 days and time for payment has not been extended or deferred by the Holder; or (b) Letter of Credit Default. The Letter of Credit Issuer shall fail to honor a conforming draw under the Letter of Credit or Gabelli shall breach its obligations with respect to the Letter of Credit contained in Section 4.3 of the Purchase Agreement, and such failure continues for 5 days and time for payment has not been extended or deferred by the Holder; or 2 (c) Put Option Default. Gabelli shall fail to pay or cause to be paid all or any portion of the Put Consideration when it becomes due and payable, and such failure continues for 5 days and time for payment has not been extended or deferred by the Holder; or (d) Change of Control Put Option Default. Gabelli shall fail to pay or cause to be paid all or any portion of the Change of Control Put Consideration when it becomes due and payable; or (e) Breach of Representation or Warranty. Any representation or warranty made by Gabelli in the Purchase Agreement shall prove to have been untrue or misleading when made in any respect that is material and adverse to the value of the Holder's investment in the Note or the Conversion Shares; PROVIDED, HOWEVER, that this shall constitute an Event of Default only if Cascade or one of its Affiliates (as defined below) is the Holder and if the Holder accelerates this Note as provided below during the period in which any such representation and warranty survives as provided in the Purchase Agreement; or (f) Breach of Other Covenants or Failure of any Condition. Gabelli shall fail to perform, keep or observe any agreement or covenant contained in this Note or the Purchase Agreement that is not covered by clauses (a) through (e) above, and any such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to Gabelli by the Holder; PROVIDED, HOWEVER, that if any such failure is not susceptible to cure within 30 days and Gabelli commences to cure such failure within said 30-day period, then no Event of Default shall be deemed to have occurred if Gabelli diligently prosecutes said cure thereafter to completion and cures said failure by the sixtieth (60th) day after the date of said notice; or (g) Cross Defaults (Payment and Other). Gabelli or any of its Subsidiaries that are at the time significant subsidiaries of Gabelli within the meaning of Rule 1-02(w) of Regulation S-X promulgated by the SEC as of the date of this Note (each, a "SIGNIFICANT SUBSIDIARY") shall be in default under indebtedness for borrowed money with an aggregate principal amount of twenty five million dollars ($25,000,000) or more to any person or persons and such default (i) shall constitute a failure to make any payment of or with respect to such indebtedness or (ii) permits the holder thereof to accelerate the payment of such indebtedness or otherwise causes such indebtedness to become due and payable prior to its stated maturity. Notwithstanding the foregoing, there shall not be an Event of Default under this section (g) until expiration of, without cure, any period for cure contained in any other agreement regarding such indebtedness; or (h) Judgments. A final judgment or final order (not covered by insurance, treating deductibles, self-insurance and retentions as not so covered) for the payment of money in excess of $25.0 million in the aggregate for all such judgments and orders is entered by a court or courts of competent jurisdiction against Gabelli or any of its Significant Subsidiaries and shall not be paid or discharged, and there shall be a period of 60 consecutive days after the final judgment or order that causes such aggregate amount to exceed $25.0 million during which a stay of enforcement of such final judgment or order is not in effect; or 3 (i) Involuntary Bankruptcy Events. The entry by a court having jurisdiction in the premises of a decree or order (A) for relief in respect of Gabelli, any of its Significant Subsidiaries or, prior to the expiration or return to Gabelli of the Letter of Credit, the Letter of Credit Issuer (if a substitute Letter of Credit is not delivered by Gabelli to the Holder within 60 days of such decree or order) (each, a "SUBJECT ENTITY") in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or (B) adjudging any Subject Entity bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of any Subject Entity under any applicable Federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of any Subject Entity or of any substantial part of any property of any Subject Entity, or ordering the winding up or liquidation of the affairs of any Subject Entity, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (j) Voluntary Bankruptcy Events. Any Subject Entity commences a voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated as bankrupt or insolvent, or the consent by any Subject Entity to the entry of a decree or order for relief in respect of it in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by any Subject Entity of a petition or answer or consent seeking reorganization or relief under any applicable Federal or state law, or the consent by any Subject Entity to the filing of such a petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of such Subject Entity or of any substantial part of such Subject Entity's property, or the making by any Subject Entity of an assignment for the benefit of creditors, or the admission by any Subject Entity in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by any Subject Entity in furtherance of any such action. If an Event of Default (other than an Event of Default specified in clause (i) or (j) above with respect to Gabelli) occurs and is continuing, the Holder may declare the principal amount of this Note and all accrued and unpaid interest hereon to be immediately due and payable. If an Event of Default specified in clause (i) or (j) above occurs with respect to Gabelli, the principal amount of the Note and all accrued and unpaid interest hereon shall automatically become and be immediately due and payable without any declaration or other act on the part of the Holder or any other Person. 4 CONVERSION RIGHTS - ----------------- The Holder shall have the right to convert this Note as provided in Exhibit A hereto, which Exhibit shall be incorporated by reference herein. If the Closing Price (as hereinafter defined) of the Common Stock is at least 125%, 150%, 175% or 200%, as the case may be, of the Conversion Price (as hereinafter defined) on each Trading Day (as hereinafter defined) during any period of 20 consecutive Trading Days (each, a "QUALIFIED TRADING PERIOD") occurring within any six month period beginning on the Exercise Date (as hereinafter defined) or any six month anniversary thereof and ending on the next six month anniversary of the Exercise Date (each, a "SIX MONTH PERIOD"), then on any date on or after the tenth Business Day following the last trading day of any such Qualified Trading Period during such Six Month Period (each a "CONVERSION DATE") Gabelli may convert any portion of the Unpaid Principal Amount which, together with the aggregate principal amount of this Note that has been converted by the Holder on or prior to such Conversion Date or by Gabelli pursuant to this provision with respect to such Six Month Period, does not exceed the Maximum Conversion Amount (as defined below) with respect to such Six Month Period, into fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest full share of Common Stock) at the Conversion Price in effect on the applicable Conversion Date by delivering written notice to that effect to the Holder on or prior to such Conversion Date; PROVIDED, HOWEVER, that notwithstanding the foregoing to the extent that any prior conversions by the Holder prevented Gabelli from converting the full Maximum Conversion Amount with respect to any Six Month Period and Gabelli caused the conversion of all of the Unpaid Principal Amount that it was permitted to convert with respect to such Six Month Period, then to such extent such prior conversions by the Holder shall not be taken into account in calculating the Unpaid Principal Amount that Gabelli is entitled to convert in any subsequent Six Month Period pursuant to the foregoing provisions. After any conversion pursuant to the foregoing, the Holder shall have the right and option (the "SHARE PUT OPTION"), but not the obligation, exercisable by delivering a written notice (the "SHARE PUT NOTICE") to Gabelli no later than the tenth day after the Conversion Date, to cause Gabelli to purchase up to 50% of the Conversion Shares issued in such conversion (the "FORCED CONVERSION SHARES") for a purchase price per share in cash equal to the average of the Closing Prices for the five Trading Days immediately following the date on which the Share Put Notice is delivered to Gabelli (the "SHARE PUT CONSIDERATION"). The closing of any Share Put Option will be held at 10:00 A.M. at the principal executive offices of the Holder on the ninth Trading Day immediately following the date on which the Share Put Notice is delivered to Gabelli, or at such other time and place upon which the Holder and Gabelli shall agree. At such closing, Gabelli shall pay the Share Put Consideration to the Holder in cash by wire transfer of immediately available funds against the delivery to Gabelli of a certificate representing the Forced Conversion Shares with respect to which the Share Put Option has been exercised, duly endorsed to Gabelli or in blank, and concurrently with such delivery Gabelli shall, or shall cause the applicable transfer agent for such shares to, duly execute and deliver to the Holder a new share certificate representing the number of Forced Conversion Shares with respect to which the Share Put Option has not been exercised. The "MAXIMUM CONVERSION AMOUNT" means, with respect to any Six Month Period, (i) $25 million, if the Closing Price during each of the 20 consecutive Trading Days during the first Qualified Trading Period in such Six Month Period with respect to which Gabelli has effected a conversion pursuant to the foregoing provisions (the "QUALIFIED TRADING PRICE") is at least 125% but less than 150% of the Conversion Price, (ii) $50 million, if the Qualified Trading Price is at least 150% but less than 175% of the Conversion Price, (iii) $75 million, if the Qualified Trading Price is at least 175% but less than 200% of the Conversion Price, or (iv) $100 million, if the Qualified Trading Price is at least 200% of the Conversion Price. 5 Except as otherwise provided above, any conversion pursuant to the foregoing clauses (each, a "FORCED CONVERSION") shall be made in accordance with the provisions of Exhibit A. If Gabelli effects a Forced Conversion, then on such Conversion Date the Holder shall surrender the Note at the principal executive offices of Gabelli (which, if Gabelli shall so require, shall be duly endorsed to Gabelli or in blank, or be accompanied by proper instruments of transfer to Gabelli or in blank), accompanied by irrevocable written notice to Gabelli specifying the name or names (with address or addresses) in which a certificate or certificates evidencing the full number of shares of Common Stock issuable upon such conversion are to be issued and Gabelli shall deliver such certificate or certificates registered in the name(s) and in the denominations set forth in such instructions, together with a cash adjustment in respect of any fraction of a share of Common Stock and, if less than all of the Unpaid Principal Amount is being converted, a new Note of like tenor with an Unpaid Principal Amount equal to the portion not being converted. Any such conversion shall be deemed to have been made as of the applicable Conversion Date, and the person or persons entitled to receive the Common Stock deliverable upon conversion of this Note shall be treated for all purposes as the record holder or holders of such Common Stock on such date. PUT OPTION - ---------- The Holder shall have the right and option, but not the obligation, to cause Gabelli to purchase all or any portion of the Unpaid Principal Amount of this Note (the "PUT OPTION") on August 14, 2004 (the "EXERCISE DATE") for a purchase price in cash equal to 100% of the principal amount of the Note to be purchased plus accrued and unpaid interest thereon to but excluding the Exercise Date (the "PUT CONSIDERATION"). The Put Consideration shall be payable to the Holder by wire transfer of immediately available funds on the Exercise Date against the delivery to Gabelli of this Note duly endorsed to it or in blank; PROVIDED, HOWEVER, that if only a portion of the principal amount of this Note is being purchased, then concurrently with such delivery Gabelli shall duly execute and deliver to the Holder a new Note of the same tenor as this Note but with a principal amount equal to the principal amount of this Note not being purchased. In order to exercise the Put Option, the Holder must deliver a written notice of its election to exercise to Gabelli at least 30 days prior to the Exercise Date. The closing of any exercise of the Put Option will be held at 10:00 A.M. at the principal executive offices of the Holder on the Exercise Date, or at such other time and place upon which the Holder and Gabelli shall agree. CHANGE OF CONTROL PUT OPTION - ---------------------------- If a Change of Control or a Key Executive Change occurs at any time, the Holder shall have the right and option, but not the obligation, to cause Gabelli to purchase on the Change of Control Exercise Date (as defined below) all or any portion of the Unpaid Principal Amount of this Note (the "CHANGE OF CONTROL PUT Option") for a purchase price in cash equal to 101% of the principal amount of the Note to be purchased plus accrued and unpaid interest thereon to but excluding the Change of Control Exercise Date (the "CHANGE OF CONTROL PUT CONSIDERATION"). The Put Consideration shall be payable to the Holder by wire transfer of immediately available funds on the Change of Control Exercise Date against the delivery to Gabelli of this Note duly endorsed to it or in blank; PROVIDED, HOWEVER, that if only a portion of the principal amount of 6 this Note is being purchased, then concurrently with such delivery Gabelli shall duly execute and deliver to the Holder a new Note of the same tenor as this Note but with a principal amount equal to the principal amount of this Note not being purchased. Gabelli shall give the Holder prompt written notice if a Change of Control or a Key Executive Change occurs (a "NOTICE"). In order to exercise the Change of Control Put Option with respect to any Change of Control or Key Executive Change, the Holder must deliver a written notice of its election to exercise to Gabelli within 30 days after it has received the Notice relating thereto and the closing of any exercise of the Change of Control Put Option will be held at 10:00 A.M. at the principal executive offices of the Holder on the 30th day after Gabelli receives such written notice, or at such other time and place upon which the Holder and Gabelli shall agree (the "CHANGE OF CONTROL EXERCISE DATE"). "CHANGE OF CONTROL" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or more related transactions, of all or substantially all of the properties and assets of Gabelli and its Subsidiaries, taken as a whole, to any Person or group (as such term is defined for purposes of Rule 13d-5 under the 1934 Act or any successor rule), (ii) the adoption of a plan relating to the liquidation or dissolution of Gabelli, (iii) the consummation of any transaction or other event (including, without limitation, any merger or consolidation) the result of which is that any "person" (as defined above), other than Mario J. Gabelli and the Gabelli Entities (considered as a single Person solely for this purpose), becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the 1934 Act), directly or indirectly, of more than 40% of the total voting power of all the then outstanding shares of Voting Stock of Gabelli or any Person with which Gabelli consolidates or into which Gabelli merges, and more of the total voting power of all such shares than is beneficially owned at such time by Mario J. Gabelli and the Gabelli Entities (considered as a single Person solely for this purpose), or (iv) the first day on which a majority of the members of the Board of Directors of Gabelli are not Continuing Directors. "CONTINUING DIRECTORS" means, as of any date of determination, any member of the Board of Directors of Gabelli who (i) was a member of such Board of Directors on the Issue Date or (ii) was nominated for election or elected to such Board of Directors with the approval, recommendation or endorsement of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "KEY EXECUTIVE CHANGE" shall be deemed to have occurred at any time that (for any reason) Mario J. Gabelli ceases to provide the predominant executive leadership to Gabelli and its Subsidiaries, taken as a whole. LIMITATION ON FUNDED INDEBTEDNESS - --------------------------------- Prior to the Exercise Date, as such date may be extended, Gabelli shall not, and shall not permit any of its consolidated Subsidiaries, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee, otherwise become liable for, or suffer to exist, any Funded Indebtedness (other than Indebtedness to Gabelli or one of its wholly owned Subsidiaries and other than the Note) in excess of $200,000,000 outstanding at any time. 7 "FUNDED INDEBTEDNESS" means, with respect to any Person at any date of determination, any Indebtedness of such Person that by its terms matures more than one year after the date in question or which is renewable or extendible at the option of such Person for a period ending one year or more after the date in question. "INDEBTEDNESS" means, with respect to any Person at any date of determination (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (c) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), but excluding obligations with respect to the Letter of Credit, other letters of credit securing any Indebtedness and letters of credit entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement); (d) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than one year after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except trade payables; (e) all guaranties, endorsements, assumptions and other contingent obligations in respect of, or to purchase or otherwise acquire, Indebtedness of other Persons; (f) all Indebtedness of other Persons secured by a Lien on the property or assets of such Person; and (g) all lease obligations that are required to be capitalized on the balance sheet of such person in accordance with GAAP. The amount of Indebtedness of any Person as of any determination date shall be the outstanding balance on such date in the case of unconditional obligations and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided that: (1) the amount outstanding at any time of any Indebtedness issued at a price less than its principal or face amount at maturity shall be the amount of the liability in respect thereof determined in accordance with GAAP; and (2) the amount of Indebtedness secured by a Lien on any asset of a Person shall be the lesser of (i) the fair market value of such asset as of the determination date and (ii) the amount of such Indebtedness. 8 INFORMATION OBLIGATIONS Gabelli will deliver to the Holder (without duplication): (a) as soon as available and in any event within 90 days after the end of each fiscal year of Gabelli, a consolidated balance sheet of Gabelli and its Subsidiaries as of the end of such fiscal year and the related statements of operations and cash flow for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by a report thereon of an independent public accountant of nationally recognized standing; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of Gabelli, a consolidated balance sheet of Gabelli and its Subsidiaries as of the end of such quarter and the related statements of operations and cash flow for such quarter and for the portion of Gabelli's fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of Gabelli's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, consistency and, except for the absence of footnotes, generally accepted accounting principles by the chief financial officer or the chief accounting officer of Gabelli; (c) promptly upon the furnishing thereof to the security holders of Gabelli or any of its Subsidiaries generally, copies of all financial statements, reports, proxy statements and any other information or reports so furnished; (d) as soon as available, all filings of Gabelli pursuant to the 1933 Act and the 1934 Act (other than Schedules 13D and 13G, Forms 13F and Forms 3, 4 and 5), if any, with the Securities and Exchange Commission; and (e) within five days after any officer of Gabelli obtains knowledge of any Event of Default or any event which, with notice or lapse of time or both, would constitute an Event of Default (a "Default"), if such Event of Default or Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of Gabelli setting forth the details thereof and the action which Gabelli is taking or proposes to take with respect thereto. Notwithstanding the foregoing, if Gabelli is then subject to the reporting requirements under Section 13 or 15(d) of the 1934 Act or any successor statute, (i) the delivery to the Holder of Gabelli's Annual Report on Form 10-K or any successor form for the relevant fiscal year within the time periods provided for in clause (a) shall satisfy the requirements of such clause and (ii) the delivery to the Holder of Gabelli's Quarterly Report on Form 10-Q or any successor form for the relevant fiscal quarter within the time periods provided for in clause (b) shall satisfy the requirements of such clause. CONSOLIDATION, MERGER AND SALE OF ASSETS - ---------------------------------------- Gabelli will not consolidate or merge with or into (whether or not Gabelli is the surviving corporation), or directly and/or indirectly through its Subsidiaries sell, assign, transfer, lease, convey or otherwise dispose of 9 all or substantially all of the properties and assets of Gabelli and its Subsidiaries taken as a whole in one or more related transactions, to any other Person unless: (a) the Person formed by or surviving any such consolidation or merger (if other than Gabelli) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (the "SUCCESSOR COMPANY") is a corporation, partnership, limited liability company or other similar business entity organized and validly existing under the laws of the United States, any state thereof or the District of Columbia; (b) the Successor Company assumes all the obligations of Gabelli under the Notes and the Purchase Agreement pursuant an agreement in form and substance reasonably satisfactory to the Holder; and (c) immediately after such transaction no Event of Default or event which, with notice or lapse of time or both, would constitute an Event of Default exists. Upon any consolidation of Gabelli with, or merger of Gabelli into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of Gabelli and its Subsidiaries taken as a whole in one or more related transactions in accordance with this paragraph, the Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, Gabelli under this Note and the Purchase Agreement with the same effect as if such Successor Company had been named as Gabelli herein, and thereafter, except in the case of a lease, Gabelli shall be relieved of all obligations and covenants under this Note and the Purchase Agreement. TRANSFER AND RELATED PROVISIONS The Holder shall not offer, sell, contract to sell or otherwise dispose of this Note without the prior written consent of Gabelli; PROVIDED, HOWEVER, that the Holder shall be permitted to transfer the Note (i) to any of its Affiliates and (ii) to any other Person (A) in connection with a transfer of substantially all of the investments of the original Holder, (B) if the Holder is legally precluded from holding this Note and (C) during the continuance of an Event of Default, PROVIDED, that such transferee agrees to be bound by the terms contained herein. "AFFILIATE" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any specified Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. Gabelli shall keep at its principal office a register (the "REGISTER") in which shall be entered the name and address of the registered holder of this Note and particulars of this Note and of all permitted transfers of this Note. Upon surrender for registration of a permitted transfer of this Note to Gabelli, Gabelli shall execute and deliver, in the name of the designated transferee or transferees, one or more new Notes, of any denominations of $1,000,000 and multiples thereof 10 and like aggregate principal amount. Notwithstanding the foregoing, Gabelli shall not be required to register the transfer of or exchange this Note unless it has been duly endorsed. All Notes issued upon any registration of transfer or exchange of this Note shall be the valid obligations of Gabelli, evidencing the same debt, and entitled to the same benefits, as this Note. No service charge shall be made for any registration of transfer or exchange of this Note, but Gabelli may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Prior to due presentment of this Note for registration of a permitted transfer, Gabelli and its agents may treat the Person in whose name it is registered as the owner of this Note for all purposes whatsoever, whether or not it is overdue and neither Gabelli nor any of its agents shall be affected by notice to the contrary. REPLACEMENT OF NOTE - ------------------- If this Note has been mutilated and is surrendered to Gabelli, Gabelli shall execute and deliver in exchange a new Note of the same principal amount and bearing a number not then outstanding. If the Holder shall deliver to Gabelli (i) evidence reasonably satisfactory to Gabelli that this Note has been destroyed, lost or stolen and (ii) such security or indemnity as may be required by Gabelli to hold it and its agents harmless, then, in the absence of notice that this Note has been acquired by a bona fide purchaser, Gabelli shall execute and deliver, in lieu of this Note, a new Note of a like principal amount and bearing a number not then outstanding. The provisions of this paragraph are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. MISCELLANEOUS - ------------- Gabelli waives presentment for payment, demand, notice of nonpayment, notice of protest and protest of this Note, and all notices in connection with the delivery, acceptance, or dishonor of this Note. Gabelli agrees that (a) if for any reason any amount due hereunder is paid by cashier's, certified teller's check or other check, there shall be no discharge of Gabelli's obligation until said check be finally paid by the issuer thereof; and (b) the provisions of RCW 62A.3-311 shall not entitle Gabelli to any accord and satisfaction of any now or hereafter existing claim in dispute between the Holder and Gabelli (or any of their respective successors and assigns), all of which provisions and rights are hereby waived. The Holder shall not by any act or omission be deemed to waive any of its rights or remedies under this Note or the Purchase Agreement unless such waiver shall be in writing and signed by the Holder, and then only to the extent specifically set forth therein. No right or remedy herein conferred upon or reserved to the Holder is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any 11 right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. This Note may not be amended other than with the written consent of the Holder and Gabelli. Upon demand therefor, Gabelli agrees to pay to the Holder all costs and fees arising out of enforcing this Note, whether incurred in any court action, arbitration, or mediation, on appeal, in any bankruptcy (or state receivership or other insolvency or similar proceedings or circumstances), in any forfeiture, and for any post-judgment collection services (collectively, "ENFORCEMENT COSTS"). GABELLI AND, BY ITS ACCEPTANCE OF THIS NOTE, THE HOLDER AGREE THAT, SUBJECT TO THE SPECIFIC TERMS HEREOF AND TO THE EXTENT THAT WASHINGTON LAW APPLIES, THE PROVISIONS OF ARTICLE 3 OF THE UNIFORM COMMERCIAL CODE OF WASHINGTON PERTAINING TO INSTRUMENTS SHALL BE APPLIED TO THIS NOTE, EVEN IF THIS NOTE IS NOT DEEMED TO BE AN "INSTRUMENT" OR A "NEGOTIABLE INSTRUMENT" THEREUNDER. If this Note will at any time become subject to the Trust Indenture Act of 1939, Gabelli will make appropriate revisions hereto and will enter into an indenture with an appropriate trustee so as to comply fully with such act. Except as noted below, this Note shall be governed by and construed in accordance with the laws of the State of Washington. In any court proceeding, Gabelli agrees to submit to the jurisdiction of the federal court selected by the Holder, and venue of any action concerning this Note shall be in King County, Washington state. In the event that the federal court selected by the Holder shall not have jurisdiction, Gabelli agrees to submit to the jurisdiction of the Washington state court in King County selected by the Holder. Gabelli hereby irrevocably waives to the fullest extent permitted by law any objection which it may now or hereafter have to the laying of such venue and any claim that any such forum is an inconvenient forum. Nothing in this Section shall impair the right of the Holder to bring any action or proceeding against Gabelli or its property in the courts of any other county or jurisdiction and Gabelli irrevocably submits to the nonexclusive jurisdiction of the appropriate courts (as selected by the Holder) of the jurisdiction in which Gabelli is organized or any place where any property or any office of Gabelli is located. In the event Holder transfers or assigns this Note to a person not one of its Affiliates, then this Note shall be governed by and construed in accordance with the laws of the State of New York and the consent to jurisdiction in the State of Washington stated above is hereby revoked. 12 NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, and intending to be legally bound, the undersigned has duly executed and delivered this Note as of the date first written above. GABELLI ASSET MANAGEMENT INC., a New York Corporation By: ------------------------------ Its: ----------------------------- 13 EXHIBIT A --------- CONVERSION RIGHTS 1. RIGHT OF CONVERSION. At the option of the Holder, this Note or any portion of the principal amount hereof which is $1,000,000 or an integral multiple thereof, may be converted at the principal amount hereof, or such portion hereof, into fully paid and nonassessable shares of the Common Stock (calculated as to each conversion to the nearest 1/100 of a share of Common Stock) at the Conversion Price (as hereinafter defined) in effect at the time of conversion, or into such additional or other securities, cash or property and at such other rates as required in accordance with the provisions set forth herein. Such conversion right shall expire at the close of business on August 14, 2011. 2. CONVERSION PROCEDURES. In order to exercise the conversion right, the Holder shall surrender this Note at the principal executive offices of Gabelli (which, if Gabelli shall so require, shall be duly endorsed to Gabelli or in blank, or be accompanied by proper instruments of transfer to Gabelli or in blank), accompanied by irrevocable written notice to Gabelli to the effect that the Holder elects so to convert this Note or, if less than the entire principal amount hereof is to be converted, the portion hereof to be converted (which notice shall specify the name or names (with address or addresses) in which a certificate or certificates evidencing the shares of Common Stock to be issued upon such conversion are to be issued). Except as otherwise expressly set forth herein, no payment or adjustment shall be made upon any conversion of the Note on account of any interest accrued on this Note or on account of any dividends accrued on the shares of Common Stock issued upon such conversion. Gabelli shall, as soon as practicable after the surrender of this Note at the office referred to above and compliance with the other conditions herein contained, deliver at such office, to the person or persons entitled thereto (as specified in the applicable written notice of conversion), a certificate or certificates evidencing the number of full shares of Common Stock to which such person or persons shall be entitled as aforesaid, together with a cash adjustment in respect of any fraction of a share of Common Stock as hereinafter provided. Such conversion shall be deemed to have been made as of the date of such surrender of this Note (or, if later, the date of compliance with such other conditions), and the person or persons entitled to receive the Common Stock deliverable upon conversion of this Note shall be treated for all purposes as the record holder or holders of such Common Stock on such date. If this Note is to be converted in part only, upon such conversion Gabelli shall execute deliver to the Holder, at the expense of Gabelli, a new Note or Notes of like tenor in denominations of $1,000,000 and any integral multiple thereof and with an aggregate principal amount equal to the unconverted portion of the principal amount of this Note. 3. NO FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon conversion of this Note. Instead of any fractional share of Common Stock that would otherwise be issuable to the Holder upon conversion of this Note (or any specified portion hereof), Gabelli shall pay a cash adjustment in respect of such fractional share in an amount equal to the same fraction of the Closing Price (as hereinafter defined) on the day of conversion. 14 4. RESERVATION OF SHARES; ETC. Gabelli shall at all times reserve and keep available, free from preemptive rights out of its authorized but unissued Common Stock, solely for the purpose of effecting the conversion of this Note, the full number of shares of Common Stock that would then be deliverable upon the conversion of all of the principal amount of this Note and any other outstanding Notes. If any shares of Common Stock required to be reserved for purposes of conversion of this Note require registration with or approval of any governmental authority under any Federal or State law before such shares may be issued or freely transferred upon conversion, Gabelli will in good faith and as expeditiously as possible endeavor to cause such shares to be duly registered or approved as the case may be. If the Common Stock is quoted on the New York Stock Exchange or any other U.S. national securities exchange, Gabelli will, if permitted by the rules of such exchange, list and keep listed on such exchange, upon official notice of issuance, all shares of Common Stock issuable upon conversion of this Note and any other outstanding Notes. Notwithstanding the foregoing, the reference to free transferability in the first sentence of this paragraph and the reference to listing in the second sentence of this paragraph shall apply only when this Note shall have become freely transferable under the federal securities laws. 5. PRIOR NOTICE OF CERTAIN EVENTS. If Gabelli shall authorize any transaction that would require an adjustment to the Conversion Price (other than a transaction referred to in clauses (a) or (c) of Section 6 below) or there shall be a voluntary or involuntary dissolution, liquidation or winding up of Gabelli, then Gabelli shall notify the Holder, at least 20 days (or, in the case of a transaction referred to in clauses (b), (d) or (e) of Section 6 below, 10 days) prior to the applicable record, expiration or consummation date hereinafter specified, a notice stating (i) the record date fixed for the determination of holders of Common Stock entitled to the applicable issuance, dividend or distribution or (ii) the date of expiration of the applicable tender or exchange offer, as the case may be. 6. ADJUSTMENT OF CONVERSION PRICE. (a) In case Gabelli shall pay or make a dividend or other distribution on any class of Capital Stock of Gabelli payable in Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (For the purposes of determining adjustments to the Conversion Price as set forth herein, shares of Common Stock held in the treasury of Gabelli, and distributions or issuances in respect thereof, shall be disregarded.) (b) In case Gabelli shall issue rights or warrants to all or substantially all holders of its Common Stock entitling them, for a period of not more than 45 days, to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as hereinafter 15 defined) on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for termination of such subscription or purchase period shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock actually purchased upon exercise of such rights or warrants would have purchased at such Current Market Price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock actually purchased upon exercise of such rights or warrants, such reduction to become effective immediately after the opening of business on the day following the date fixed for such termination. (c) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case Gabelli shall, by dividend or otherwise, distribute to all or substantially all holders of its Common Stock evidences of indebtedness, shares of capital stock of any class or series, other securities, cash or assets (other than Stapled Securities (as hereinafter defined), Common Stock, rights or warrants referred to in clause (b) of this Section 6 or a dividend or distribution payable exclusively in cash), the Conversion Price in effect immediately prior to the close of business on the date fixed for the payment of such distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the Current Market Price on the date fixed for such payment less the then fair market value (as determined in good faith by the Board of Directors of Gabelli (the "BOARD OF DIRECTORS"), whose good faith determination shall be conclusive and described in a resolution of the Board of Directors) of the portion of such evidences of indebtedness, shares of capital stock, other securities, cash and assets distributed per share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for such payment. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph by reference to the actual or when-issued trading market for any securities comprising such distribution, in doing so it must consider the prices in such market over the same period used in computing the Current Market Price for such purposes. (e) In case Gabelli shall, by dividend or otherwise, make a distribution to all or substantially all holders of its Common Stock payable exclusively in cash in an aggregate amount that, when combined with the aggregate amount paid in respect of all other distributions to all or substantially all holders of its Common Stock paid exclusively in cash within the 12 months preceding the date fixed for the payment of such distribution to the extent such amount has not already been applied in a prior adjustment pursuant to this paragraph, exceeds 10% of the product 16 of the Current Market Price on the date fixed for such payment times the number of shares of Common Stock on which such distribution is paid, the Conversion Price in effect immediately prior to the close of business on the date fixed for such payment shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the Current Market Price on the date fixed for such payment less the Per Share Distribution Amount (as hereinafter defined) paid in such distribution and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for such payment. (f) In case Gabelli or any of its Subsidiaries shall consummate a tender or exchange offer for all or any portion of the Common Stock, the Conversion Price in effect immediately prior to the close of business on the date of expiration of such tender or exchange offer shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the Current Market Price on such date of expiration less the Per Share Premium Amount (as hereinafter defined) paid in such tender or exchange offer and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following such date of expiration. (g) In case Gabelli shall, by dividend or otherwise, make a distribution referred to in paragraph (d) or (e) above, the Holder converting this Note (or any portion of the principal amount hereof) subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution shall also be entitled to receive, for each share of Common Stock into which this Note (or portion of the principal amount being converted), the portion of the evidences of indebtedness, shares of capital stock, other securities, cash and assets so distributed applicable to one share of Common Stock; PROVIDED, HOWEVER, that, at the election of Gabelli (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all holders so converting, Gabelli may, in lieu of distributing to such holder any portion or all of such evidences of indebtedness, shares of capital stock, other securities, cash and assets to which such holder is entitled as set forth above, (i) pay such holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose good faith determination shall be conclusive and described in a resolution of the Board of Directors) or (ii) distribute to such holder a due bill therefor, provided that such due bill (A) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (B) requires payment or delivery of such evidences of indebtedness, shares of capital stock, other securities, cash or assets no later than the date of payment thereof to holders of shares of Common Stock receiving such distribution. (h) Gabelli may make such reductions in the Conversion Price, in addition to those required by the foregoing paragraphs, as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. In addition, Gabelli from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty days, the reduction is irrevocable during the period, and the Board of Directors of Gabelli shall have made a determination that such reduction would be in the best interest of Gabelli, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, Gabelli shall provide written notice to the Holder of this Note and the holders of any other outstanding Notes of the reduction at least fifteen days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. 17 (i) Gabelli may not engage in any transaction if, as a result thereof, the Conversion Price would be reduced to below the par value per share of the Common Stock. (j) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment. (k) Whenever the Conversion Price is adjusted as herein provided, Gabelli shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Treasurer of Gabelli setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall be given by Gabelli to the Holder of this Note and the holders of any other outstanding Notes. 7. STAPLED SECURITIES. (a) Prior to a Separation Event (as hereinafter defined) with respect to any Stapled Securities, such Stapled Securities will be deemed, for purposes of the adjustments contemplated hereby, to comprise part of the shares of Common Stock to which such Stapled Securities appertain, and as a result, distributions in respect of such Stapled Securities will be deemed, for such purposes, to be distributions in respect of such shares. (b) If the Holder converts this Note (or any portion of the principal amount hereof) after a Separation Event with respect to any Stapled Securities, it shall be entitled to receive upon such conversion, in addition to the shares of Common Stock issuable upon such conversion, the same rights to which the Holder would have been entitled under the Stapled Securities that would have appertained to such shares of Common Stock if the Holder had effected such conversion before such Separation Event. 8. CONSOLIDATIONS, MERGERS OR SALES OF ASSETS. In the event of any consolidation of Gabelli with, or merger of Gabelli into, any other Person, any merger of another Person into Gabelli (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of the Common Stock) or any sale or transfer of all or substantially all of the assets Gabelli, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall enter into a written agreement with the Holder, in form and substance reasonably acceptable to the Holder, providing that the Holder shall have the right thereafter, during the period in which this Note shall be convertible, to convert this Note (or portion of the principal amount hereof) only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which this Note (or portion thereof) might have been converted immediately prior to such consolidation, merger, sale or transfer, assuming the Holder (i) is not a Person with which Gabelli consolidated or into which Gabelli merged or which merged into Gabelli or to which such sale or transfer was made, as the case may be, (a "CONSTITUENT PERSON") or an Affiliate of a Constituent Person and (ii) failed to 18 exercise his or her rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer; PROVIDED, HOWEVER, that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock held immediately prior to such consolidation, merger, sale or transfer by Persons other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised (each, a "NON-ELECTING SHARE"), then for purposes of this Section 8 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares. Such written agreement shall provide for adjustments which, for events subsequent to the effective date of such agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Exhibit A. The provisions of this Section 8 shall similarly apply to successive consolidations, mergers, sales or transfers. If the conversion rights of the Holder of this Note shall be adjusted pursuant to this Section 8, then Gabelli shall cause to be given to the Holder and any other holders of outstanding Notes, within 5 days after consummation of the transaction triggering such adjustment, a notice describing such adjustment in appropriate detail. 9. TAXES. Gabelli shall pay any and all stock transfer, documentary stamp and other taxes that may be payable in respect of any issuance or delivery of shares of Common Stock or other securities issued or delivered on conversion of this Note. Gabelli shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Common Stock or other securities in a name other than to the Holder, and shall not be required to make any such issuance or delivery unless and until the person otherwise entitled to such issuance or delivery has paid to Gabelli the amount of any such tax or has established, to the satisfaction of Gabelli, that such tax has been paid or is not payable. 10. CERTAIN DEFINITIONS. The following definitions shall apply to terms used in this Exhibit A: "CLOSING PRICE" of any common stock on any day means the last reported per share sale price, regular way, of the common stock on such day, or, in case no such sale takes place on such day, the average of the reported closing per share bid and asked prices, regular way, of the common stock on such day, in each case on the New York Stock Exchange or, if the common stock is not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange or quotation system on which the common stock is listed or admitted to trading or quoted, or, if the common stock is not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing per share bid and asked prices of the common stock on such day in the over-the-counter market as reported by a generally accepted national quotation service or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of Gabelli for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors (whose good faith determination shall be conclusive and described in a resolution of the Board of Directors). "COMMON STOCK" shall mean the Class A Common Stock, par value $0.001 per share, of Gabelli or, subject to Section 8, any shares of any class or classes resulting from any reclassifications thereof and which have no preference in respect of dividends or of amounts 19 payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of Gabelli and which are not subject to redemption by Gabelli; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from such reclassification bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERSION PRICE" initially means $53.00, subject to adjustment from time to time as set forth herein; PROVIDED, HOWEVER, that without limiting the foregoing the Conversion Price shall decrease by $1.00 as of August 14, 2003. "CURRENT MARKET PRICE" on any date in question means, with respect to any adjustment in conversion rights as set forth herein, the average of the daily Closing Prices for the Common Stock for the five consecutive Trading Days selected by the Board of Directors commencing not more than 20 Trading Days before, and ending not later than, the earlier of the date in question and the day before the Ex Date with respect to the transaction requiring such adjustment; provided, however, that (i) if any other transaction occurs requiring a prior adjustment to the Conversion Price and the Ex Date for such other transaction falls after the first of the five consecutive Trading Days so selected by the Board of Directors, the Closing Price for each such Trading Day falling prior to the Ex Date for such other transaction shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other transaction and (ii) if any other transaction occurs requiring a subsequent adjustment to the Conversion Price and the Ex Date for such other transaction falls on or before the last of the five consecutive Trading Days so selected by the Board of Directors, the Closing Price for each such Trading Day falling on or after the Ex Date for such other transaction shall be adjusted by dividing such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other transaction. "EX DATE" means (i) when used with respect to any dividend, distribution or issuance, the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price is obtained without the right to receive such dividend, distribution or issuance, (ii) when used with respect to any subdivision or combination of shares of Common Stock, the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, (iii) when used with respect to any tender or exchange offer, the first date on which the Common Stock trades regular way on such exchange or in such market after such tender or exchange offer expires and (iv) when used with respect to any other transaction, the date of consummation of such transaction. "PER SHARE DISTRIBUTION AMOUNT" means, with respect to any distribution, (i) the cash paid in such distribution divided by (ii) the number of shares of Common Stock on which such distribution is paid. "PER SHARE PREMIUM AMOUNT" means, with respect to any tender or exchange offer, (i) the Premium Amount paid as part of such tender or exchange offer divided by (ii) the Post-Tender Offer Number of Common Shares. 20 "POST-TENDER OFFER NUMBER OF COMMON SHARES" means, with respect to any tender or exchange offer, the number of shares of Common Stock outstanding at the close of business on the date of expiration of such tender or exchange offer (before giving effect to the acquisition of shares of Common Stock pursuant thereto) minus the number of shares of Common Stock acquired pursuant thereto. "PREMIUM AMOUNT" means, with respect to any tender or exchange offer, (i) the Tender Consideration paid in such tender or exchange offer minus (ii) the product of the Current Market Price on the date of expiration of such tender or exchange offer and the number of shares of Common Stock acquired pursuant to such tender or exchange offer. "SEPARATION EVENT" has the meaning set forth in the definition of the term "Stapled Securities" below. "STAPLED SECURITIES" means securities issued under any plan or agreement providing in substance that, until such securities are redeemed or the rights thereunder are otherwise terminated or a specified event occurs (a "SEPARATION EVENT"), (i) a specified number of such securities will appertain to each share of Common Stock then issued or to be issued in the future (including shares issued upon conversion of this Note) and (ii) each such security will be evidenced or represented by the certificate representing the share of Common Stock to which it appertains and will automatically trade with such share. "TENDER CONSIDERATION" means, with respect to any tender or exchange offer, the aggregate of the cash plus the fair market value (as determined in good faith by the Board of Directors, whose good faith determination shall be conclusive and described in a resolution of the Board of Directors) of all non-cash consideration paid in respect of such tender or exchange offer. "TRADING DAY" means a day on which securities are traded on the national securities exchange or quotation system or in the over-the-counter market used to determine Closing Prices for the Common Stock. 21 EX-4.3 5 exhibit4-3_12120.txt FACE OF NOTE EXHIBIT 4.3 ----------- FACE OF NOTE If the registered owner of this Note (as indicated below) is The Depository Trust Company, a New York corporation (the "Depositary"), or a nominee of the Depositary, this Note is a Global Security and the following legends apply: Unless this certificate is presented by an authorized representative of The Depositary to the Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of the Depositary), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. Registered No. CUSIP No. 2 36239Y AB 8 Principal Amount $100,000,000 GABELLI ASSET MANAGEMENT INC. 5.50% SENIOR NOTES DUE MAY 15, 2013 ORIGINAL ISSUE DATE: May 15, 2003 INTEREST RATE: 5.50% STATED MATURITY: May 15, 2013 INTEREST PAYMENT DATES: May 15 and November 15 OTHER PROVISIONS: 2 GABELLI ASSET MANAGEMENT INC., a New York corporation (the "Issuer" or the "Company," which terms include any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS ($100,000,000) at the Stated Maturity specified above (except to the extent repaid prior to Stated Maturity), and to pay interest thereon at the Interest Rate per annum specified above, until the principal hereof is paid or duly made available for payment. As used herein, "Business Day" means, unless otherwise specified above, any day other than a Saturday or a Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law, regulation or executive order to close in The City of New York. The Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. All terms used and not defined in this Note shall have the meanings assigned to them in the Indenture. Interest payments for this Note shall be computed and paid on the basis of a 360-day year of twelve 30-day months. The Company will pay interest on each Interest Payment Date specified above, commencing on the first Interest Payment Date next succeeding the Original Issue Date specified above to, but excluding Stated Maturity (the date of each such Stated Maturity and the date on which principal or an installment of principal is due and payable by declaration of acceleration pursuant to the Indenture, being referred to hereinafter as a "Maturity" with respect to principal payable on such date). The "Regular Record Date" with respect to any Interest Payment Date shall be the first calendar day (whether or not a Business Day) of the month of such Interest Payment Date. Interest on this Note will accrue from and including the most recent Interest Payment Date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from and including the Original Issue Date specified above, to but excluding such Interest Payment Date or Maturity, as the case may be. If the Maturity or an Interest Payment Date for this Note falls on a day which is not a Business Day, the related payment of principal, premium, if any, or interest will be made on the next succeeding Business Day with the same force and effect as if made on such Maturity or Interest Payment Date, as the case may be, and no additional interest shall accrue on the amount so payable during the period from and after such Maturity or Interest Payment Date, as the case may be. The interest so payable and punctually paid or duly provided for on any Interest Payment Date will, 3 as provided in the Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such Interest Payment Date. Any such interest which is payable, but not punctually paid or duly provided for on any Interest Payment Date (herein called "Defaulted Interest"), shall forthwith cease to be payable to the registered holder on such Regular Record Date, and may either be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a special record date for the payment of such Defaulted Interest to be fixed by the Trustee (the "Special Record Date"), notice whereof shall be given to the Holder of this Note not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Interest payable at Maturity will be payable to the Person to whom the principal hereof shall be payable. Notwithstanding anything else contained herein, if this Note is a Global Security as specified on the face hereof and is held in book-entry form through the facilities of the Depositary, payments on this Note will be made to the Depositary or its nominee in accordance with the arrangements then in effect between the Trustee and the Depositary. Subject to the immediately preceding paragraph, payment of the principal of, premium, if any, and interest on this Note at Maturity will be made in immediately available funds upon presentation of this Note at the Office or Agency of the Company maintained by the Company for such purpose in the Borough of Manhattan, The City of New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payment of interest on this Note (other than at Maturity) will be made at the Office or Agency of the Company maintained by the Company for such purpose in the Borough of Manhattan, The City and State of New York or, at the option of the Company, may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register at the close of business on the Regular Record Date immediately preceding the applicable Interest Payment Date. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee (as defined below) for this Note under the Indenture, or its successor thereunder, by the manual signature of one of its authorized officers, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. 4 This Note is one of a duly authorized series of Securities (herein called the "Notes") of the Company issued and to be issued under an Indenture dated as of February 6, 2002, as amended by the First Supplemental Indenture thereto dated as of February 6, 2002 (as so amended and as the same may be further amended from time to time, the "Indenture"), between the Company and the Trustee, to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the holders of the Notes and the terms upon which the Notes are to be authenticated and delivered. The Bank of New York shall act as Trustee with respect to the Notes (herein called the "Trustee", which term includes any successor Trustee with respect to the Notes under the Indenture). The terms of individual Notes may vary with respect to interest rates or interest rate formulas, issue dates, maturity, redemption, repayment, currency of payment and otherwise. The Notes are issuable only in registered form without coupons, in denominations of $1,000 and integral multiples of $1,000thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes denominated as authorized, as requested by the holder surrendering the same. If this Note is a Global Security, this Note is exchangeable for certificated Notes only under the circumstances set forth in the Indenture. This Note is not subject to any sinking fund and is not redeemable or repayable prior to Stated Maturity. The Indenture contains provisions for defeasance at any time of the entire indebtedness of this Note upon compliance with certain conditions set forth in the Indenture. If an Event of Default with respect to the Notes shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. As provided in and subject to the provisions of the Indenture, the holder of this Note shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless: (i) such holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Notes, specifying such Event of Default; (ii) the holders of not less than 25% in principal amount of the 5 Notes at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee; (iii) such holder or holders shall have offered to the Trustee such reasonable indemnity as it may require against th costs, expenses and liabilities to be incurred therein or thereby; (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute such any such action, suit or proceeding and (v) during such 60 day period, the holders of a majority in principal amount of the Notes do not give the Trustee a direction inconsistent with the request. The foregoing shall not apply to any suit instituted by the Holder of this Note for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Note at the time, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the Security Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company in The City and State of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the holder of the Note or by its attorney duly authorized in writing, and thereupon one or more new Notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith, other than certain exchanges pursuant to the Indenture. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee, any Paying Agent and any Security Registrar may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse for any claim based hereon or otherwise in respect hereof, and no recourse under or upon any obligation, covenant or agreement of the Company in the 6 Indenture, or in any Note, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any predecessor or successor corporation, either directly or through the Company or any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. 7 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed, manually or in facsimile, and an imprint or facsimile of its corporate seal to be imprinted hereon. GABELLI ASSET MANAGEMENT INC. By:____________________________ Name: Title: Attest: By:____________________________ Name: Title: [Senior Note] CERTIFICATE OF AUTHENTICATION This is one of the Notes of the series designated herein referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By:____________________________ Authorized Officer Dated: ASSIGNMENT/TRANSFER FORM FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s), assign(s) and transfer(s) unto (insert Taxpayer Identification No.) - --------------------------------------------------------------------- - --------------------------------------------------------------------- (Please print or typewrite name and address including postal zip code of assignee) the within Note and all rights thereunder, hereby irrevocably constituting and appointing _____________________________ attorney to transfer said Note on the books of the Company with full power of substitution in he premises. Dated:_____________ ________________________ NOTICE: The signature of the registered Holder to this assignment must correspond with the name as written upon the face of the within instrument in every particular, without alteration or enlargement or any change whatsoever. ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM: as tenants in common UNIF GIFT MIN ACT: ___________ Custodian ___________ (Cust) (Minor) Under Uniform Gifts to Minors Act _________________________________ (State) TEN ENT: as tenants by the entireties JT TEN: as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used though not in the above list. EX-31.1 6 exhibit31-1_12120.txt CERTIFICATION OF C.E.O. PURSUANT TO SECTION 302 EXHIBIT 31.1 ------------ CERTIFICATIONS I, Mario J. Gabelli, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gabelli Asset Management Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. By: /s/ Mario J. Gabelli ---------------------------- MARIO J. GABELLI Chief Executive Officer Date: August 14, 2003 EX-31.2 7 exhibit31-2_12120.txt CERTIFICATION OF CONTROLLER TO SECTION 302 EXHIBIT 31.2 ------------ CERTIFICATIONS I, Kieran D. Caterina, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gabelli Asset Management Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. By: /s/ Kieran D. Caterina ------------------------------- KIERAN D. CATERINA Controller Date: August 14, 2003 EX-32.1 8 exhibit32-1_12120.txt CERTIFICATION OF C.E.O. TO SECTION 906 EXHIBIT 32.1 ------------ CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Gabelli Asset Management Inc. for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Mario J. Gabelli, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mario J. Gabelli - ----------------------------- Name: Mario J. Gabelli Title: Chief Executive Officer Date: August 14, 2003 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. EX-32.2 9 exhibit32-2_12120.txt CERTIFICATION OF CONTROLLER TO SECTION 906 EXHIBIT 32.2 ------------ CERTIFICATION OF CONTROLLER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Gabelli Asset Management Inc. for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Kieran D. Caterina, as Controller of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kieran D. Caterina - --------------------------- Name: Kieran D. Caterina Title: Controller Date: August 14, 2003 This certification accompanies the Report pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of ss.18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----