-----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, PYOCV273L7uLW33xPhqSnPCfivN/JxSxAWK4DUwHPFGr22fVmBtw3uPTJ6oD7IiH h4LifyBr53u6l7ygGtWydA== 0000950156-02-000036.txt : 20020414 0000950156-02-000036.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950156-02-000036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20011031 FILED AS OF DATE: 20020129 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EATON VANCE CORP CENTRAL INDEX KEY: 0000350797 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 042718215 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08100 FILM NUMBER: 02520094 BUSINESS ADDRESS: STREET 1: 255 STATE STREET CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6174828260 MAIL ADDRESS: STREET 1: 255 STATE STEET STREET 2: 11TH FLOOR CITY: BOSTON STATE: MA ZIP: 02109 10-K 1 d57482_10-k.txt EATON VANCE CORP. FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 2001 Commission File Number 1-8100 EATON VANCE CORP. (Exact name of registrant as specified in its charter) Maryland 04-2718215 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 255 State Street, Boston, Massachusetts 02109 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (617) 482-8260 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Non-Voting Common Stock ($0.0078125 par value) New York Stock Exchange - ---------------------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: Non-Voting Common Stock par value $0.0078125 per share ----------------------------------------------------------- Title of Class 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, and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Aggregate market value of Non-Voting Common Stock held by non-affiliates of the Registrant, based on the closing price of $35.55 on December 31, 2001 on the New York Stock Exchange was $1,941,336,027. Calculation of holdings by non-affiliates is based upon the assumption, for these purposes only, that executive officers, directors, and persons holding 5 percent or more of the registrant's Non-Voting Common Stock are affiliates. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the close of the latest practicable date. Class Outstanding at December 31, 2001 Non-Voting Common Stock, $0.0078125 par value 69,544,076 - --------------------------------------------- Common Stock, $0.0078125 par value 154,880 - --------------------------------------------- Portions of Registrant's Annual Report to Stockholders for the fiscal year ended October 31, 2001 (Exhibit 13.1 hereto) have been incorporated by reference into the following Parts of this report: Part I, Part II and Part IV. =============================================================================== 1 PART I THIS ITEM INCLUDES STATEMENTS THAT ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING OUR EXPECTATIONS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS FORM 10-K REGARDING OUR FINANCIAL POSITION, BUSINESS STRATEGY AND OTHER PLANS AND OBJECTIVES FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH WE BELIEVE THAT THE ASSUMPTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS WILL PROVE TO HAVE BEEN CORRECT OR THAT WE WILL TAKE ANY ACTIONS THAT MAY PRESENTLY BE PLANNED. CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM OUR EXPECTATIONS ARE DISCLOSED IN THE "COMPETITIVE CONDITIONS AND RISK FACTORS" SECTION OF THIS FORM 10-K. ALL SUBSEQUENT WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY SUCH FACTORS. ITEM 1. BUSINESS Eaton Vance Corp. (the "Company") has been in the investment management business for over seventy-five years, tracing its history to two Boston-based investment managers: Eaton & Howard, formed in 1924, and Vance, Sanders & Company, organized in 1934. The Company's principal business is creating, marketing and managing investment funds and providing investment management services to institutions and individuals. As of October 31, 2001, the Company managed $56.6 billion in portfolios with investment objectives ranging from high current income to maximum capital gain. The Company conducts its investment management business through two wholly-owned subsidiaries, Eaton Vance Management ("EVM") and Boston Management and Research ("BMR"), and two majority-owned subsidiaries, Atlanta Capital Management Company, LLC ("Atlanta Capital") and Fox Asset Management, LLC ("Fox Asset Management"). All four entities are registered with the Securities and Exchange Commission ("SEC") as investment advisers under the Investment Advisers Act of 1940, as amended (the "Advisers Act"). Eaton Vance Distributors, Inc. ("EVD"), a wholly-owned broker/dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act"), markets and sells the Eaton Vance Funds (the "Funds"). GENERAL DEVELOPMENT OF BUSINESS Over the past five years, the Company has expanded the range of investment management services and products it offers to meet the needs of high-net-worth investors. The Company has developed a position as the leading provider of equity funds that are managed with an objective of maximizing after-tax returns. Tax-managed investing addresses the roughly 50 percent of equity fund assets held by taxpaying investors outside of qualified retirement plans such as IRAs and 401(k)s. The Company introduced Eaton Vance Tax-Managed Growth Fund 1.1 in the spring of 1996. In fiscal 1997 and 1998, the Company added two new tax-managed funds, Eaton Vance Tax-Managed Emerging Growth Fund 1.1 and Eaton Vance Tax-Managed International Growth Fund, as companion products to its flagship large-cap growth fund. In fiscal 2000, the Company further expanded its tax-managed product line with the introduction of Eaton Vance Tax-Managed Value Fund, Eaton Vance Tax-Managed Capital Appreciation Fund and Eaton Vance Tax-Managed Young Shareholder Fund, each focusing on maximizing long-term after-tax returns. In fiscal 2001, Eaton Vance Tax-Managed Growth Fund 1.2 and Eaton Vance Tax Managed Emerging Growth Fund 1.2 were introduced, making use of an innovative structure to invest in the same portfolios as their respective predecessor funds while shielding new investors from potential tax liability for historical portfolio gains. The Company plans to introduce more tax-managed equity funds in fiscal 2002. In addition to its tax-managed equity funds, the Company offers a family of open-end and exchange-listed municipal bond funds that continue to be an important part of the Company's tax-managed product offering. The Company has also continued to offer, on a private basis, funds 2 ITEM 1. BUSINESS (CONTINUED) to meet the diversification and tax-managment needs of qualifying high net worth investors. The Company extended the scope of its high net worth investment products in fiscal 2000 to encompass "Comprehensive Wealth Management" - the management, on a multigenerational basis, of a family's investment, tax, and estate planning needs. In April 2000, the Company introduced The U.S. Charitable Gift Trust and its Pooled Income Funds, designed to address the distribution of wealth in a convenient, tax efficient manner. The U.S. Charitable Gift Trust is one of the first charities to use professional investment advisers to assist high net worth individuals with their philanthropic, estate and tax planning needs. The Pooled Income Funds, sponsored by the Trust, are similar to charitable remainder trusts, providing donors with income during their lifetimes and leaving the principal to the Gift Trust and designated charities upon their deaths. The Trust and its Pooled Income Funds encourage long-term philanthropy, while allowing individuals to avoid the high costs associated with setting up their own charitable foundations and charitable remainder trusts. The Company broadened its floating-rate bank loan product line in fiscal 2000 with the introduction of Eaton Vance Floating-Rate High Income Fund and Eaton Vance Floating Rate Fund, two bank loan funds offering investors daily liquidity in an open-end mutual fund format. In fiscal 2001, the Company expanded its investment management industry focus beyond mutual funds. The Company targeted two major potential growth areas: managing assets for institutions, including pension plans and endowments; and managing individual portfolios for higher-net-worth clients who want a more customized form of asset management than provided by mutual funds. In an effort to build a leadership position in the institutional and separately managed account business, the Company acquired 70 percent of Atlanta Capital and 80 percent of Fox Asset Management, two institutional investment management firms focusing, respectively, on growth and value investment styles. These strategic acquisitions, completed on September 30, 2001, complement the strengths of the Company and provide new opportunities to broaden the Company's mix of asset management disciplines, clients and distribution channels. Taking into account the Company's recent acquisitions, the Company provided investment advisory or administration services to 157 Funds, 1,193 separately managed individual and institutional accounts, and separately managed accounts in 21 broker/dealer programs on October 31, 2001. At that date, there were $46.1 billion of fund assets and $10.5 billion of separate account assets. The following table shows fund and the separate account assets for the dates indicated: 3 ITEM 1. BUSINESS (CONTINUED) FUND AND SEPARATELY MANAGED ACCOUNT ASSETS AT OCTOBER 31, ---------------------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------------- (in millions) Funds: Equities $25,200 $25,400 $18,000 $ 9,800 $ 5,200 Floating-Rate Income 9,600 10,100 10,000 6,200 3,900 Fixed Income 10,200 9,500 9,600 9,100 9,100 Money Market 1,100 1,000 500 800 700 ---------------------------------------------------- Total 46,100 46,000 38,100 25,900 18,900 ---------------------------------------------------- Separately Managed Accounts 10,500 3,200 2,800 2,500 2,400 ---------------------------------------------------- Total $56,600 $49,200 $40,900 $28,400 $21,300 ==================================================== Total equity assets under management (including Funds and separately managed accounts) comprised 57 percent of total assets under management on October 31, 2001 compared to 55 percent on October 31, 2000. Fixed income assets under management increased to 26 percent of total assets under management from 24 percent a year ago and floating-rate income assets decreased to 17 percent from 21 percent a year ago. The change in the composition of total assets under management is primarily due to the inclusion of Atlanta Capital and Fox Asset Management assets as a result of the September 30, 2001 acquisitions. INVESTMENT MANAGEMENT AND ADMINISTRATIVE ACTIVITIES Portfolio managers employed by the Company make investment decisions for all but five of the Eaton Vance Funds in accordance with each Fund's investment objectives and policies. Investment decisions for four international equity funds are made by Lloyd George Management ("LGM"), an independent investment management company based in Hong Kong in which the Company owns a 21 percent equity position. The portfolio managers of the Company and LGM jointly manage one of the Company's international equity funds. OrbiMed Advisors, Inc. ("OrbiMed"), an independent investment management company based in New York, makes investment decisions for Worldwide Health Sciences Portfolio. The Company's portfolio management staff has, on average, more than 18 years of experience in the securities industry. The Company's investment advisory agreements for management services with each of the Funds provide for fees ranging from 10 to 100 basis points of average net assets annually. For Funds that are registered under the Investment Company Act of 1940, as amended ("Registered Funds"), a majority of the independent trustees (i.e., those unaffiliated with the management company) of these Registered Funds must approve the investment advisory agreements annually. The Fund trustees generally may terminate these agreements upon 30 to 60 days notice without penalty. Registered Fund shareholders must approve any material amendments to the investment advisory agreements. Investment counselors employed by the Company make decisions for the separately managed accounts. The Company's investment counselors use the same sources of information as Fund portfolio managers, but tailor investment decisions to the needs of individual and institutional clients. The Company's investment advisory fee agreements for separately managed accounts provide for fees ranging from 20 to 100 basis points of average net assets annually. These agreements are generally terminable upon 30 to 60 days notice without penalty. 4 ITEM 1. BUSINESS (CONTINUED) The following table shows investment advisory and administration fees earned for the past five years ended October 31, 2001: INVESTMENT ADVISORY AND ADMINISTRATION FEES* YEAR ENDED OCTOBER 31, ---------------------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------------- (in thousands) Investment Advisory Fees - Funds $226,249 $204,926 $173,079 $127,234 $ 95,531 Separately Managed Accounts 14,700 12,436 11,169 11,295 9,503 Administration Fees - Funds ** 10,807 8,017 13,129 12,662 12,071 ---------------------------------------------------- Total $251,756 225,379 $197,377 $151,191 $117,105 ==================================================== * Excludes gold mining investment management fees and administration fees received from funds other than Eaton Vance Funds. The Company did not receive any management or administration fees from gold mining investments from 1998 through 2001. ** Administration fees decreased in fiscal 2000 primarily as a result of the change in fee structure associated with the implementation of Rule 12b-1 equivalent distribution plans by the bank loan interval funds on May 1, 1999. See discussion at Management's Discussion and Analysis of financial conditions and results of operations appearing on pages 18 to 26 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto) which is incorporated herein by reference. INVESTMENT ADVISORY AGREEMENTS AND DISTRIBUTION PLANS Beginning in 1993, the Company introduced the Master/Feeder structure for most of its Funds. Master/Feeder is a two-tiered arrangement in which Funds ("Feeder Funds") with substantially identical investment objectives pool their assets by investing in a common portfolio ("Master Fund"). Each Eaton Vance Master Fund (except funds managed by LGM or OrbiMed) has entered into an investment advisory agreement with either EVM or BMR. Although the specific terms of each such agreement vary, the basic terms of the agreements are similar. Pursuant to the agreements, either EVM or BMR, as applicable, provides overall investment management services to each of the Master Funds, subject to the supervision of each Fund's Board of Trustees in accordance with each Fund's fundamental investment objectives and policies. EVM also serves as administrator or manager under an Administration Service Agreement or Management Contract (each an "Agreement") to the Funds (including those managed by LGM and OrbiMed). Under such Agreements EVM is responsible for managing the business affairs of these Funds, subject to the supervision of each Fund's Board of Trustees. EVM's services include recordkeeping, preparing and filing documents required to comply with federal and state securities laws, supervising the activities of the Funds' custodian and transfer agent, providing assistance in connection with the Funds' shareholder meetings and other administrative services, including furnishing office space and office facilities, equipment and personnel that may be necessary for managing and administering the business affairs of the Funds. For the services provided under the Agreements, certain Funds pay EVM a monthly fee calculated at an annual rate of up to 0.35% of average daily gross assets. Each Agreement remains in full force and effect indefinitely, but only to the extent that the continuance of such Agreement is specifically approved at least annually by the Fund's Board of Trustees. 5 ITEM 1. BUSINESS (CONTINUED) In addition, certain Funds have adopted distribution plans, which, subject to applicable law, provide for compensation to the Company for the payment of applicable sales commissions to retail distribution firms and for distribution services through the payment of an ongoing distribution fee (i.e., a Rule 12b-1 fee). These distribution plans are implemented through distribution agreements between EVD and the Funds. Although the specific terms of each such agreement vary, the basic terms of the agreements are similar. Pursuant to the agreements, EVD acts as underwriter for the Fund and distributes shares of the Fund through unaffiliated dealers. Each distribution plan and agreement is initially approved and its subsequent continuance must be approved annually by the trustees of the respective Funds, including a majority of the independent trustees. Each Fund bears all expenses associated with its operation and the issuance and redemption or repurchase of its securities, except for the compensation of trustees and officers of the Fund who are employed by the Company. Under some circumstances, particularly in connection with the introduction of new funds, EVM or BMR may waive a portion of its fee and pay for some expenses of the Fund. EVM, BMR, Atlanta Capital and Fox Asset Management have entered into an investment advisory agreement for each separately managed account, which sets forth the account's investment objectives and fee schedule, and provides for management of assets in the account in accordance with the stated investment objectives. The Company's investment counselors may assist clients in formulating investment strategies. EVM has entered into an investment advisory and administrative agreement with The U.S. Charitable Gift Trust. In addition, The U.S. Charitable Gift Trust and its Pooled Income Funds has entered into distribution agreements with EVD that provide for reimbursement of the costs of fundraising and servicing donor accounts. EVD does not profit from the raising of contributions for the Gift Trust. MARKETING AND DISTRIBUTION OF FUND SHARES The Company markets and distributes continuously offered shares of Funds through EVD. EVD sells Fund shares through a retail network of national and regional broker/dealers, banks, insurance companies and financial planning firms. Although the firms in the Company's retail distribution network have each entered into selling agreements with the Company, such agreements (which generally are terminable by either party) do not legally obligate the firms to sell any specific amount of the Company's investment products. For the 2001, 2000 and 1999 calendar years, the five dealer firms responsible for the largest volume of Fund sales accounted for approximately 34 percent, 31 percent, and 28 percent, respectively, of the Company's Fund sales volume. EVD currently maintains a sales force of more than 53 external wholesalers and 53 internal wholesalers. External and internal wholesalers work closely with investment professionals in the retail distribution network to assist in selling shares of Funds. In 1997, the Company began offering its Funds to investors without charging sales commissions or other transaction fees, through fee-based registered investment advisors via various institutional programs both domestically and internationally. EVD currently sells its Registered Funds with up to five separate pricing structures: 1) front-end load commission (Class A); 2) spread-load commission (Class B); 3) level-load commission (Class C); 4) modified spread-load commission (Class D); and 5) institutional (no-load) (Class I). For Class A shares, the shareholder pays the broker's commission and EVD receives an underwriting commission of up to 75 basis points of the dollar value of the shares sold. EVD pays a service fee to authorized firms after one year not to exceed 25 basis points of average net assets and may also pay a Rule 12b-1 fee not to exceed 50 basis points of average daily net assets. 6 ITEM 1. BUSINESS (CONTINUED) For Class B and D shares, EVD pays a commission to the dealer at the time of sale and such payments are capitalized and amortized in the Company's financial statements over a four- to six-year period. The shareholder pays a contingent deferred sales charge to EVD if he or she redeems shares within a four-, five- or six-year period from the date of purchase. EVD uses its own funds (which may be borrowed) to pay such commissions. EVD recovers the dealer commissions paid on behalf of the shareholder through distribution plan payments limited to an annual rate of 75 basis points of the average net assets of the Fund or Class in accordance with a distribution plan adopted by the Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940. Like the investment advisory agreement, the distribution plan and related payments must be approved annually by a vote of the fund trustees, including a majority of the independent trustees. The SEC has taken the position that Rule 12b-1 would not permit a Fund to continue making compensation payments to EVD after termination of the plan and that any continuance of such payments may subject the Fund to legal action. These distribution plans are terminable at any time without notice or penalty. In addition, EVD pays a service fee to authorized firms after one year not to exceed 25 basis points of average net assets. For Class C shares, the shareholder pays no front-end commissions and no contingent deferred sales charges on redemptions after the first year. EVD pays a commission and the first year's service fees to the dealer at the time of sale. The Fund makes monthly distribution plan payments to EVD similar to those for Class B shares, equal to 75 basis points of average net assets of the Class. EVD pays a service fee to authorized firms after one year not to exceed 25 basis points of average net assets. Offering level-load Class C shares is consistent with the efforts of many broker/dealers to rely less on transaction fees and more on continuing fees for servicing assets. For Class I shares, a minimum investment of $250,000 or higher is required and the shareholder pays no sales charges. The introduction of institutional (Class I) shares has made a number of funds available to a broader group of financial intermediaries. From time to time the Company sponsors unregistered equity funds that are privately placed by EVD, as placement agent, and by various sub-agents to whom EVD and the subscribing shareholders make payments. The privately placed equity funds are managed by EVM and BMR. The Company also sponsors a family of Cayman Island domiciled offshore funds known as the Eaton Vance Medallion family of funds. The Medallion Funds are sold by certain dealer firms through EVD to non-U.S. persons, with commission structures similar to those of the Registered Funds offered in the U.S. The Company earns distribution, administration and advisory fees directly or indirectly from the Medallion Funds. Reference is made to Note 15 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. Annual Report to Shareholders for the fiscal year ended October 31, 2001 (which report is furnished as Exhibit 13.1 hereto) for a description of the major customers that provided over 10 percent of the total revenue of the Company. 7 ITEM 1. BUSINESS (CONTINUED) SIGNIFICANT ACCOUNTING CHANGE In October 1998, the Financial Accounting Standards Board (FASB) staff addressed the accounting for offering costs incurred in connection with the distribution of funds when the adviser does not receive both Rule 12b-1 fees and contingent deferred sales charges. In its announcement, the FASB staff concluded that such offering costs, including sales commissions paid, were to be considered start-up costs in accordance with American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." Accordingly, the FASB staff concluded offering costs should be expensed as incurred under the provisions of SOP 98-5. Prior to the FASB staff announcement, it had been the Company's policy to capitalize and amortize these costs over a period not to exceed five years. As a result, closed-end, interval and private fund sales commissions paid and capitalized prior to the Company's adoption of SOP 98-5 were expensed as a cumulative effect of a change in accounting principle, as described in APB Opinion No. 20, "Accounting Changes." The cumulative effect of the change in accounting principle upon adoption on November 1, 1998 was a charge to the Consolidated Statement of Income of $36.6 million, net of income taxes of $23.4 million. In April of 1999, the bank loan interval funds received the necessary approvals to implement Rule 12b-1 equivalent distribution plans. Beginning May 1, 1999, with the implementation of these plans, the Company resumed capitalizing and amortizing sales commissions paid to broker/dealers for sales of these funds effective May 1, 1999, the beginning of the third fiscal quarter of 1999. Closed-end and bank loan interval fund sales commissions expensed from November 1, 1998 to April 30, 1999 totaled $71.3 million. COMPETITIVE CONDITIONS AND RISK FACTORS From time to time, information provided by the Company or information included in its filings with the Securities and Exchange Commission ("SEC") (including this Annual Report on Form 10-K) may contain statements which are not historical facts, for this purpose referred to as "forward-looking statements." The Company's actual future results may differ significantly from those stated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the factors discussed below. The Company is subject to substantial competition in all aspects of its business. The Company's ability to market investment products is highly dependent on access to the various distribution systems of national and regional securities dealer firms, which generally offer competing internally and externally managed investment products. Although the Company has historically been successful in gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business. There are few barriers to entry by new investment management firms. The Company's funds and separately managed accounts compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free or tax advantaged investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the products offered, the investment performance of such products, quality of service, fees charged, the level and type of financial intermediary compensation, the manner in which such products are marketed and distributed and the services provided to investors. 8 ITEM 1. BUSINESS (CONTINUED) The Company derives almost all of its revenue from investment adviser and administration fees and distribution income received from the Eaton Vance funds, other pooled investment vehicles and separately managed accounts. As a result, the Company is dependent upon management contracts, administration contracts, underwriting contracts or service contracts under which these fees and income are paid. If any of these contracts are not renewed or are amended to reduce fees, the Company's financial results may be adversely affected. The major sources of revenue for the Company (i.e., investment adviser, administration, distribution and service fees) are calculated as percentages of assets under management. A decline in securities prices or an increase in fund redemptions generally would reduce fee income. Also, financial market declines or adverse changes in interest rates would generally negatively impact the level of the Company's assets under management and consequently its revenue and net income. If, as a result of inflation, expenses rise and assets under management decline, lower fee income and higher expenses would generally reduce or eliminate profits. If expenses rise and/or assets rise, bringing increased fees to offset the increased expenses, profits may not be affected by inflation. There is no predictable relationship between changes in financial assets under management and the rate of inflation. A recession could also adversely impact the Company's revenues if it led to a decreased demand for products, a higher redemption rate, or a decline in securities prices. Like other businesses, the Company's actual results could be affected by the loss of key managerial personnel through competition or retirement. REGULATION EVM, BMR, Atlanta Capital and Fox Asset Management are each registered with the SEC under the Advisers Act. The Advisers Act imposes numerous obligations on registered investment advisers, including fiduciary duties, recordkeeping requirements, operational requirements and disclosure obligations. Most Eaton Vance Funds are registered with the SEC under the Investment Company Act of 1940, as amended. Except for privately-offered Funds exempt from registration, each U.S. Fund is also required to make notice filings with all states where it is offered for sale. Virtually all aspects of the Company's investment management business are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to benefit shareholders of the Funds and investment counseling clients and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict the Company from carrying on its investment management business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions which may be imposed include the suspension of individual employees, limitations on EVM, BMR, Atlanta Capital or Fox Asset Management engaging in the investment management business for specified periods of time, the revocation of any such Company's registration as an investment adviser and other censures or fines. EVD is registered as a broker/dealer under the Securities Exchange Act of 1934 and is subject to regulation by the SEC, the National Association of Securities Dealers, Inc. ("NASD") and other federal and state agencies. EVD is subject to the SEC's net capital rule designed to enforce minimum standards regarding the general financial condition and liquidity of a broker/dealer. Under certain circumstances, this rule limits the ability of the Company to make withdrawals of capital and receive dividends from EVD. EVD's regulatory net capital has consistently exceeded such minimum net capital requirements in fiscal 2001. The securities industry is one of the most highly regulated in the United States, and failure to comply with related laws and regulations can result in the revocation of broker/dealer licenses, the imposition of censures or fines and the suspension or expulsion from the securities business of a firm, its officers or employees. The Company's officers, directors and employees may from time to time own securities that are held by one or more of the Funds. The Company's internal policies with respect to individual investments by investment professionals require prior clearance of most types of transactions and reporting of all securities transactions, and restrict certain transactions to avoid the possibility of conflicts of interest. 9 ITEM 1. BUSINESS (CONTINUED) EMPLOYEES On October 31, 2001, the Company and its subsidiaries had 562 full-time employees. On October 31, 2000, the comparable figure was 438. ITEM 2. PROPERTIES In November of 2000, Northeast Properties, LLC, a wholly-owned subsidiary of the Company, sold its last remaining property. For information with respect to this property, reference is made to Note 6 of the Notes to Consolidated Financial Statements contained in the Eaton Vance Corp. 2001 Annual Report to Shareholders (Exhibit 13.1 hereto), both of which are incorporated herein by reference. The Company conducts its principal operations through leased offices located in Boston, Massachusetts, Atlanta, Georgia and Little Silver, New Jersey. Management believes that the Company's facilities are adequate to serve its currently anticipated business needs. ITEM 3. LEGAL PROCEEDINGS On October 15, 2001, a consolidated complaint was filed in the United States District Court for the District of Massachusetts against Eaton Vance Classic Senior Floating-Rate Fund, Eaton Vance Prime Rate Reserves, Eaton Vance Institutional Senior Floating-Rate Fund, Eaton Vance Advisers Senior Floating-Rate Fund (collectively, the "Funds"), their trustees and certain officers of the Funds; EVM, the Funds' administrator; BMR, the Funds' investment adviser; and the Company, the parent of EVM and BMR. The complaint, framed as a class action, alleges that for the period between May 25, 1998 and March 5, 2001, the Funds' assets were incorrectly valued and certain matters were not properly disclosed, in violation of the federal securities laws. The complaint seeks unspecified damages. The Company and the other named defendants believe that the complaint is without merit and are vigorously contesting the lawsuit. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No items were submitted to a vote in the fourth quarter of fiscal 2001. 10 PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Voting Common Stock, $0.0078125 par value, is not publicly traded and is held by 11 Voting Trustees pursuant to the Voting Trust described in paragraph (A) of Item 12 hereof, which paragraph (A) is incorporated herein by reference. The Company's Non-Voting Common Stock, $0.0078125 par value, is traded on the New York Stock Exchange under the symbol EV. The approximate number of holders of record of the Company's Non-Voting Common Stock at October 31, 2001 was approximately 970. The additional information required to be disclosed in Item 5 is found on page 10 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), under the caption "Price and Dividend Information" and is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data appearing under the caption "Five Year Financial Summary" on page 17 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), is incorporated by reference. A reference is also made to the discussion of the significant accounting change on page 8 of Item 1 of this document. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis of financial condition and results of operations appearing on pages 18 through 25 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures about Market Risk appearing under the caption of "Market Risk" within Management's Discussion and Analysis of financial condition and results of operations appearing on page 25 through 26 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's consolidated financial statements and related notes thereto and the independent auditors' report appearing on pages 27 through 50 of the Company's 2001 Annual Report to Shareholders (furnished as Exhibit 13.1 hereto), are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 11 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the name, age and positions of each of the Company's directors and executive officers at January 16, 2002: NAME AGE POSITION ----------------------------------------------------------------------------- James B. Hawkes 60 Chairman of the Board, President and Chief Executive Officer John G.L. Cabot 67 Director Leo I. Higdon, Jr. 55 Director John M. Nelson 69 Director Vincent M. O'Reilly 63 Director Ralph Z. Sorenson 68 Director Thomas E. Faust Jr. 43 Director, Executive Vice President and Chief Investment Officer Jeffrey P. Beale 45 Vice President and Chief Administrative Officer Alan R. Dynner 61 Vice President, Secretary and Chief Legal Officer Laurie G. Hylton 35 Vice President and Chief Accounting Officer William M. Steul 59 Vice President, Treasurer and Chief Financial Officer Wharton P. Whitaker 57 Vice President and Chief Sales and Marketing Officer Eaton Vance Corp. was founded as a holding company by Eaton & Howard, Vance Sanders, Inc. in February 1981. Eaton & Howard, Vance Sanders, Inc. (renamed Eaton Vance Management, Inc. in June 1984 and reorganized as Eaton Vance Management in October 1990) was formed at the time of the acquisition of Eaton & Howard, Incorporated by Vance, Sanders & Company, Inc. on May 1, 1979. In this Item 10, the absence of a corporate name indicates that, depending on the dates involved, the executive held the indicated titles in a firm in the chain of Vance, Sanders & Company, Inc., Eaton & Howard, Vance Sanders Inc., or Eaton Vance Corp. In general, the following officers hold their positions for a period of one year or until their successors are duly chosen or elected. Mr. Hawkes was elected President and Chief Executive Officer in October 1996 and Chairman of the Board in October 1997. He was Executive Vice President of the Company from January 1990 to October 1996 and a Vice President of the Company from June 1975 to January 1990. He has been a Director since January 1982. Mr. Hawkes serves as Chairman of the Executive Committee and as a member of the Nominating and Governance Committees established by the Company's Board of Directors. He is also Chairman of the Company's Management Committee. Mr. Hawkes is an officer, trustee or director of all the registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. Mr. Cabot has served as a Director of the Company since March 1989. He is Chairman of the Nominating Committee and serves as a member of the Audit and Governance Committees established by the Company's Board of Directors. Mr. Cabot is also a Director of Cabot Corporation and Cabot Oil and Gas Corporation. Mr. Higdon has served as a Director of the Company since January 2000. He serves as a member of the Compensation, Option, and Governance Committees established by the Company's Board of Directors. Mr. Higdon has served as the President of the College of Charleston since September of 2001. Prior to joining the College of Charleston, he served as the President of Babson College and as Dean of Business Administration at the Darden Graduate School of Business Administration at the University of Virginia. Mr. Higdon is also a Director of Crompton Corporation and Newmont Mining. 12 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) Mr. Nelson has served as a Director of the Company since January 1998. He is Chairman of the Governance Committee and serves as a member of the Compensation, Option and Nominating Committees established by the Company's Board of Directors. Mr. Nelson is Chairman of Commonwealth National Bank and BNS Corporation. Mr. O'Reilly has served as a Director of the Company since April 1998. He is Chairman of the Audit Committee and serves as a member of the Executive, Nominating and Governance Committees established by the Company's Board of Directors. Mr. O'Reilly serves as a faculty member at the Carroll Graduate School of Management at Boston College. He was formerly a partner of Coopers and Lybrand. Mr. O'Reilly serves as a Director of the Neiman Marcus Group and Teradyne, Inc. Mr. Sorenson has served as a Director of the Company since March 1989. He is Chairman of both the Compensation and Option Committees and serves as a member of the Audit and Governance Committees established by the Company's Board of Directors. Mr. Sorenson also serves as a Director of Houghton Mifflin Company, Polaroid Corporation, Northern Trust Bank of Colorado, Exabyte Corp. and Whole Foods Market. Mr. Faust was elected a Director of the Company and Chief Investment Officer in January 2002 and has been the Executive Vice President since January 2000. He served as head of the Company's equity investment group from February 1995 to October 2001 and was a Vice President of the Company from December 1987 to January 2000. Mr. Faust serves as a member of the Executive and Governance Committees established by the Company's Board of Directors and as a member of the Company's Management Committee. Mr. Beale has been a Vice President of the Company since June 1998 and the Chief Administrative Officer of the Company since November 1999. Prior to joining the Company, he was a Senior Vice President of Putnam Investments from December 1997 to June 1998. Mr. Beale was a Vice President of the Company from May 1992 to December 1997. Mr. Beale is a member of the Company's Management Committee. Mr. Dynner has been Vice President and Chief Legal Officer of the Company since November 1996 and Secretary of the Company since January 2000. Prior to joining the Company, Mr. Dynner was a senior partner with the law firm of Kirkpatrick & Lockhart LLP in its New York and Washington, D.C. offices. Mr. Dynner is a member of the Company's Management Committee. He is an officer of all the registered investment companies for which Eaton Vance Management or Boston Management and Research acts as investment adviser. Ms. Hylton has been a Vice President of the Company since June 1994 and Chief Accounting Officer since October 1997. She was the Internal Auditor of the Company from June 1994 to October 1997. Mr. Steul has been Vice President, Treasurer and Chief Financial Officer of the Company since December 1994. Mr. Steul is a member of the Company's Management Committee. Mr. Whitaker has been Vice President and Chief Sales and Marketing Officer of the Company since January 2002, and has been the President, Eaton Vance Distributors, Inc., since November 1991. He was Executive Vice President and National Sales Director of Eaton Vance Distributors, Inc., from June 1987 to October 1991. Mr. Whitaker is a member of the Company's Management Committee. 13 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED) COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and Directors and persons who own more than ten percent of a registered class of the Company's equity securities to file forms reporting their affiliation with the Company and reports of ownership and changes in ownership of the Company's equity securities with the Securities and Exchange Commission and the New York Stock Exchange. These persons and entities are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the best of Company's knowledge, based solely on a review of the copies of such reports furnished to the Company, during fiscal 2001 all Section 16(a) filing requirements applicable to such individuals were complied with for fiscal 2001 except for a report covering one transaction filed late by Ralph Z. Sorenson. 14 ITEM 11. EXECUTIVE COMPENSATION (A) SUMMARY COMPENSATION TABLE The following table sets forth certain information concerning the compensation for each of the last three fiscal years of the Chief Executive Officer of the Company and the four other most highly compensated executive officers of the Company (hereafter referred to in this document as the "named executive officers").
LONG TERM COMPENSATION --------------------------- ANNUAL COMPENSATION AWARDS --------------------------- RESTRICTED SECURITIES NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER POSITION YEAR SALARY BONUS COMPENSATION(1) AWARD (2) OPTIONS COMPENSATION(3) - ---------------------------------------------------------------------------------------------------------------------------- ($) ($) ($) ($) (#) ($) - ---------------------------------------------------------------------------------------------------------------------------- James B. Hawkes President 2001 602,000 3,125,000 4,090 - 160,000 30,000 and Chief Executive 2000 450,000 2,500,000 4,345 - 100,000 30,000 Officer 1999 430,000 1,750,000 4,894 - 140,000 30,000 - ---------------------------------------------------------------------------------------------------------------------------- Thomas E. Faust Jr. 2001 407,000 2,812,500 38,348 - 125,000 30,000 Executive Vice President 2000 330,000 2,250,000 58,241 1,000,000 60,000 30,000 and Chief Investment 1999 315,000 1,535,000 51,941 - 80,000 30,000 Officer - ---------------------------------------------------------------------------------------------------------------------------- Alan R. Dynner 2001 280,000 610,000 7,174 - 30,000 30,000 Vice President and Chief 2000 272,000 435,000 8,347 - 30,000 30,000 Legal Officer 1999 265,000 350,000 9,414 - 40,000 30,000 - ---------------------------------------------------------------------------------------------------------------------------- William M. Steul 2001 280,000 610,000 6,203 - 30,000 30,000 Vice President and Chief 2000 275,000 435,000 6,952 - 30,000 30,000 Financial Officer 1999 270,000 350,000 9,399 - 40,000 30,000 - ---------------------------------------------------------------------------------------------------------------------------- Wharton P. Whitaker 2001 263,000 1,161,104 7,184 - 30,000 30,000 Vice President and Chief 2000 255,000 1,182,208 8,335 - 30,000 30,000 Sales and Marketing 1999 249,000 1,340,819 9,425 - 40,000 30,000 Officer - ---------------------------------------------------------------------------------------------------------------------------- (1) The amounts appearing under "Other Annual Compensation" represent the discount on the purchase of the Company's stock under the Company's Employee Stock Purchase Plan and Incentive Plan - Stock Alternative. (2) Mr. Faust had aggregate restricted stock holdings of 52,364 shares with a market value of $1,471,428 at October 31, 2001. Shares vest over five to seven years from the date of grant. The Company expects 34,909 shares to vest over the next three years. Dividends are paid on restricted stock awards. (3) The amounts appearing under "All Other Compensation" represent contributions by the Company to the Company's profit sharing plans, supplemental profit sharing and 401(k) Plans.
15 ITEM 11. EXECUTIVE COMPENSATION (CONTINUED) (B) OPTION GRANTS IN LAST FISCAL YEAR The following table summarizes stock option grants during 2001 to the named executive officers:
PERCENTAGE NUMBER OF OF TOTAL POTENTIAL REALIZABLE VALUE SECURITIES OPTIONS AT ASSUMED ANNUAL RATES OF UNDERLYING GRANTED TO EXERCISE STOCK PRICE APPRECIATION OPTIONS EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM(1) NAME GRANTED FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($) - --------------------------------------------------------------------------------------------------------------------- James B. Hawkes 155,924 7.8% $24.531 11/01/10 2,405,534 6,096,094 4,076 0.2% $26.984 11/01/05 17,626 51,046 Thomas E. Faust Jr. 120,924 6.0% $24.531 11/01/10 1,865,567 4,727,714 4,076 0.2% $26.984 11/01/05 17,626 51,046 Alan R. Dynner 25,924 1.3% $24.531 11/01/10 399,945 1,013,540 4,076 0.2% $26.984 11/01/05 17,626 51,046 William M. Steul 25,924 1.3% $24.531 11/01/10 399,945 1,013,540 4,076 0.2% $26.984 11/01/05 17,626 51,046 Wharton P. Whitaker 25,924 1.3% $24.531 11/01/10 399,945 1,013,540 4,076 0.2% $26.984 11/01/05 17,626 51,046 (1) Amounts calculated using 5 percent and 10 percent assumed annual rates of stock price appreciation represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. Actual gains, if any, on stock option exercises will depend on the future performance of the Company's stock and the dates on which the options are exercised.
16 ITEM 11. EXECUTIVE COMPENSATION (CONTINUED) (C) AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table summarizes stock options exercised during 2001 and stock options held as of October 31, 2001 by the named executive officers.
NUMBER OF SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED ACQUIRED ON VALUE UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT EXERCISE REALIZED FISCAL YEAR END FISCAL YEAR END (1) --------------------------------------------------------------------------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME (#) ($) (#) (#) ($) ($) - ----------------------------------------------------------------------------------------------------------------------- James B. Hawkes 15,000 344,859 1,013,285 326,715 22,051,290 2,868,108 Thomas E. Faust Jr. 76,504 1,771,607 190,781 229,715 3,758,003 1,895,068 Alan R. Dynner 165,098 3,966,978 110,992 93,910 2,317,106 1,051,239 William M. Steul 51,200 1,064,548 10,704 35,818 212,029 189,300 Wharton P. Whitaker - - 63,074 91,710 1,268,109 1,005,481 (1) Based on the fair market value of the Company's Non-Voting Common stock on October 31, 2001 ($28.10) as reported on the New York Stock Exchange, less the option exercise price.
(D) COMPENSATION OF DIRECTORS Directors not otherwise employed by the Company receive a retainer of $5,000 per quarter and $1,000 per meeting. During the fiscal year ended October 31, 2001, Leo Higdon and John M. Nelson, Jr. each received $25,000; John G.L. Cabot, Vincent M. O'Reilly and Ralph Z. Sorenson received $28,000, $26,000, and $29,000, respectively. In addition, each Director was granted options for 3,686 shares. (E) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Not applicable. 17 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (A) COMMON STOCK All outstanding shares of the Company's Voting Common Stock, $0.0078125 par value (which is the only class of the Company's stock having voting rights) are deposited in a Voting Trust, of which the Voting Trustees were (as of December 31, 2001), James B. Hawkes, Thomas E. Faust Jr., Alan R. Dynner, William M. Steul, Wharton P. Whitaker, Thomas J. Fetter, Duncan W. Richardson, Jeffery P. Beale, Scott H. Page, Payson F. Swaffield, and Michael W. Weilheimer. The Voting Trust was renewed for an additional three-year term until October 30, 2003. The Voting Trustees have unrestricted voting rights to elect the Company's directors. At December 31, 2001, the Company had outstanding 154,880 shares of Voting Common Stock. Inasmuch as the eleven Voting Trustees of the Voting Trust have unrestricted voting rights with respect to the Voting Common Stock (except that the Voting Trust Agreement provides that the Voting Trustees shall not vote such Stock in favor of the sale, mortgage or pledge of all or substantially all of the Company's assets or for any change in the capital structure or powers of the Company or in connection with a merger, consolidation, reorganization or dissolution of the Company or the termination of the Voting Trust or the addition of a Voting Trustee or of the removal of a Voting Trustee by the other Voting Trustees or the renewal of the term of the Voting Trust without the written consent of the holders of Voting Trust Receipts representing at least a majority of such Stock subject at the time to the Voting Trust Agreement), they may be deemed to be the beneficial owners of all of the Company's outstanding Voting Common Stock by virtue of Rule 13d-3(a)(1) under the Securities Exchange Act of 1934. The Voting Trust Agreement provides that the Voting Trustees shall act by a majority if there are six or more Voting Trustees; otherwise they shall act unanimously except as otherwise provided in the Voting Trust Agreement. The address of the Voting Trustees is 255 State Street, Boston, Massachusetts 02109. The following table sets forth the beneficial owners at December 31, 2001, of the Voting Trust Receipts issued under said Voting Trust Agreement, which Receipts cover the aggregate of 154,880 shares of the Voting Common Stock then outstanding: NUMBER OF SHARES OF VOTING COMMON STOCK TITLE OF CLASS NAME COVERED BY RECEIPTS % OF CLASS - -------------------------------------------------------------------------------- Voting Common Stock James B. Hawkes 37,120 24% Voting Common Stock Thomas E. Faust Jr. 27,906 18% Voting Common Stock Alan R. Dynner 18,558 12% Voting Common Stock William M. Steul 18,558 12% Voting Common Stock Wharton P. Whitaker 18,558 12% Voting Common Stock Thomas J. Fetter 7,746 5% Voting Common Stock Duncan W. Richardson 7,746 5% Voting Common Stock Jeffrey P. Beale 4,672 3% Voting Common Stock Scott H. Page 4,672 3% Voting Common Stock Payson F. Swaffield 4,672 3% Voting Common Stock Michael W. Weilheimer 4,672 3% 18 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) Messrs. Hawkes and Faust are officers and Directors of the Company and Voting Trustees of the Voting Trust; Messrs. Beale, Dynner, Steul and Whitaker are all officers of the Company and Voting Trustees of the Voting Trust; Messrs. Fetter, Richardson, Page, Swaffield and Weilheimer are officers of Eaton Vance Management and Voting Trustees of the Voting Trust. No transfer of any kind of the Voting Trust Receipts issued under the Voting Trust may be made at any time unless they have first been offered to the Company at book value. In the event of the death or termination of employment with the Company or a subsidiary of a holder of the Voting Trust Receipts, the shares represented by such Voting Trust Receipts must be offered to the Company at book value. Similar restrictions exist with respect to the Voting Common Stock, all shares of which are deposited and held of record in the Voting Trust. (B) NON-VOTING COMMON STOCK The Articles of Incorporation of the Company provide that its Non-Voting Common Stock, $0.0078125 par value, shall have no voting rights under any circumstances whatsoever. As of December 31, 2001, the officers and Directors of the Company, as a group, beneficially owned 5,541,709 shares of such Non-Voting Common Stock (including, as noted, unexercised options to purchase such stock and any shares held in the trust of the Stock Option Income Deferral Plan) or 7.86 percent of the 69,544,076 shares then outstanding plus 937,883 shares subject to options exercisable within 60 days based solely upon information furnished by the officers and Directors. The following table sets forth the beneficial ownership of the Company's Non-Voting Common Stock (including, as noted unexercised options to purchase such stock by (i) each person known by the Company to own beneficially more than 5 percent of the outstanding shares of Non-Voting Common Stock, (ii) each Director of the Company, and (iii) each of the named executive officers of the Company (as defined in Item 11, "Executive Compensation") as of December 31, 2001 (such investment power being sole unless otherwise indicated): AMOUNT OF BENEFICIAL PERCENTAGE TITLE OF CLASS BENEFICIAL OWNERS OWNERSHIP (A) OF CLASS (B) - -------------------------------------------------------------------------------- Non-Voting Common Stock Landon T. Clay 10,940,988 (d) 15.73 Non-Voting Common Stock James B. Hawkes 2,952,134 (c) (e) (g) 4.21 Non-Voting Common Stock Thomas E. Faust Jr. 909,514 (c) (g) 1.30 Non-Voting Common Stock Wharton P. Whitaker 703,692 (c) (g) 1.01 Non-Voting Common Stock William M. Steul 298,727 (c) (g) 0.43 Non-Voting Common Stock Alan R. Dynner 234,363 (c) 0.34 Non-Voting Common Stock John G.L. Cabot 220,223 (c) (f) 0.32 Non-Voting Common Stock Ralph Z. Sorenson 82,255 (c) 0.12 Non-Voting Common Stock John M. Nelson 21,735 (c) 0.03 Non-Voting Common Stock Vincent M. O'Reilly 9,594 (c) 0.01 Non-Voting Common Stock Leo I. Higdon 4,339 (c) 0.01 19 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) (a) Based solely upon information furnished by the individuals. (b) Based on 69,544,076 outstanding shares plus options exercisable within 60 days of 498,011 for Mr. Hawkes, 180,147 for Mr. Faust, 64,935 for Mr. Dynner, 54,435 for Mr. Whitaker, 32,835 for Mr. Steul, 13,735 for Mr. Nelson, 9,863 for Mr. Cabot, 9,863 for Mr. Sorenson, 8,376 for Mr. O'Reilly, and 2,339 for Mr. Higdon. (c) Includes shares subject to options exercisable within 60 days granted to, but not exercised by, each named executive officer above. (d) Includes 20,000 shares held by Mr. Clay's children, 8,360 shares held in the trust of a profit sharing retirement plan for employees of Flowers Antigua, of which the sole beneficiary is the spouse of Mr. Clay and 50,840 shares held in trust of a profit sharing retirement plan for employees of LTC Corp., 60 percent owned by Mr. Clay. (e) Includes 93,160 shares owned by Mr. Hawkes' spouse and 60,682 shares held by Mr. Hawkes' daughter. (f) Includes 32,000 shares held in a family limited partnership. (g) Includes shares held in the trust of the Stock Option Income Deferral Plan of 474,611 for Mr. Hawkes, 63,833 for Mr. Faust, 40,396 for Mr. Steul, and 30,506 for Mr. Whitaker. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (C) INDEBTEDNESS OF MANAGEMENT In 1998, the Company increased to $10,000,000 the amount in the Executive Loan Program, which is available for loans to key employees for the purpose of financing the exercise of stock options for shares of the Company's Non-Voting Common Stock. Such loans are written for a seven-year period, at varying fixed interest rates, and notes evidencing them require repayment in annual installments commencing with the third year in which the loan is outstanding. Loans outstanding under this program amounted to $2,641,074 at October 31, 2001. The following table sets forth the executive officers and Directors of the Company who were indebted to the Company under the foregoing loan programs at any time since November 1, 2000, in an aggregate amount in excess of $60,000: RATE OF INTEREST LARGEST AMOUNT OF LOANS CHARGED ON LOANS OUTSTANDING OUTSTANDING AS LOANS AS OF SINCE 11/1/2000 OF 12/31/2001 12/31/2001 - -------------------------------------------------------------------------------- James B. Hawkes $ 559,695 $ 413,852 4.83% - 7.61% (1) Alan Dynner $ 399,940 $ 399,940 4.96% Jeffrey P. Beale $ 86,016 $ 86,016 4.30% (1) 7.61% interest payable on $23,100 principal amount, 6.77% interest payable on $80,000 principal amount, 4.83% interest payable on $194,220 principal amount, 6.47% interest payable on $58,266 principal amount, and 6.32% interest payable on $58,266 principal amount. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (1) The following consolidated financial statements of Eaton Vance Corp. and independent auditors' report, included on pages 27 through 50 of the Annual Report, are incorporated by reference as a part of this Form 10-K: SEPARATE DOCUMENT EATON VANCE CORP. 2001 ANNUAL REPORT TO SHAREHOLDERS PAGE NUMBER - -------------------------------------------------------------------------------- Consolidated Statements of Income for each of the three years in the period ended October 31, 2001 27 Consolidated Balance Sheets as of October 31, 2001 and 2000 28-29 Consolidated Statements of Shareholders' Equity and Comprehensive Income for each of the three years in the period ended October 31, 2001 30-31 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 2001 32 Notes to Consolidated Financial Statements 33-49 Independent Auditors' Report 50 All other schedules have been omitted because they are not required, are not applicable or the information is otherwise shown in the consolidated financial statements or notes thereto. (2) The list of exhibits required by Item 601 of Regulation S-K is set forth in the Exhibit Index on pages 24 through 27 and is incorporated herein by reference. 21 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (CONTINUED) (B) REPORTS ON FORM 8-K The Company filed a Form 8-K with the SEC on July 26, 2001 regarding the agreement to acquire 80 percent of Fox Asset Management LLC. The Company filed a Form 8-K with the SEC on August 2, 2001 regarding the agreement to acquire 70 percent of Atlanta Capital Management Company, LLC. The Company filed a Form 8-K with the SEC on August 6, 2001 and August 7, 2001 regarding the issuance of Eaton Vance Management's zero-coupon exchangeable senior notes due in 2031. The Company filed a Form 8-K with the SEC on October 2, 2001 regarding the closing of the acquisitions of Atlanta Capital Management Company, LLC and Fox Asset Management LLC. The Company filed a Form 8-K/A with the SEC on October 19, 2001 regarding the closing of the acquisitions of Atlanta Capital Management Company, LLC and Fox Asset Management LLC and their related unit purchase agreements. 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Eaton Vance Corp. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EATON VANCE CORP. /s/ James B. Hawkes James B. Hawkes Chairman, Director and Principal Executive Officer January 29, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Eaton Vance Corp. and in the capacities and on the dates indicated: /s/ James B. Hawkes Chairman, Director and January 29, 2002 James B. Hawkes Principal Executive Officer /s/ William M. Steul Chief Financial Officer January 29, 2002 William M. Steul /s/ Laurie G. Hylton Chief Accounting Officer January 29, 2002 Laurie G. Hylton /s/ John G.L. Cabot Director January 29, 2002 John G.L. Cabot /s/ Thomas E. Faust Jr. Director January 29, 2002 Thomas E. Faust Jr. /s/ Leo I. Higdon Director January 29, 2002 Leo I. Higdon /s/ John M. Nelson Director January 29, 2002 John M. Nelson /s/ Vincent M. O'Reilly Director January 29, 2002 Vincent M. O'Reilly /s/ Ralph Z. Sorenson Director January 29, 2002 Ralph Z. Sorenson 23 EXHIBIT INDEX Each Exhibit is listed in this index according to the number assigned to it in the exhibit table set forth in Item 601 of Regulation S-K. The following Exhibits are filed as a part of this Report or incorporated herein by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934: EXHIBIT NO. DESCRIPTION 2.1 Copy of the Unit Purchase Agreement, dated as of July 25, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, and Fox Asset Management, Inc., a New Jersey corporation, and Messrs. J. Peter Skirkanich, James P. O'Mealia, George C. Pierdes, John R. Sampson and Phillip R. Sloan has been filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 2.2 Copy of Amendment No. 1 of the Unit Purchase Agreement, dated as of July 25, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, Saucon I, Inc., a New Jersey corporation formerly named Fox Asset Management, Inc., Saucon III, a Delaware limited liability company, Saucon IV, a Delaware limited liability company, and Messrs. J. Peter Skirkanich, James P. O'Mealia, George C. Pierdes, John R. Sampson and Phillip R. Sloan has been filed as Exhibit 2.2 to the Form 8-K A filed on October 19, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 2.3 Copy of the Unit Purchase Agreement, dated as of August 2, 2001, among Eaton Vance Acquisitions, a Massachusetts Business Trust, Atlanta Capital Management Company LLC, and each of Daniel W. Boone III, Gregory L. Coleman, Jerry D. Devore, William Hackney, III, Marilyn Robinson Irvin, Dallas L. Lundy, Walter F. Reames, Jr. and Christopher A. Reynolds has been filed as Exhibit 2.3 to the Form 8-K A filed on October 19, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 3.1 The Company's Amended Articles of Incorporation are filed as Exhibit 3.1 to the Company's registration statement on Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference. 3.2 The Company's By-Laws are filed as Exhibit 3.2 to the Company's registration statement of Form 8-B dated February 4, 1981, filed pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934 (S.E.C. File No. 1-8100) and are incorporated herein by reference. 3.3 Copy of the Company's Articles of Amendment effective at the close of business on November 22, 1983, has been filed as Exhibit 3.3 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1983, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 3.4 Copy of the Company's Articles of Amendment effective at the close of business on February 25, 1986 has been filed as Exhibit 3.4 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1986, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 24 EXHIBIT NO. DESCRIPTION 3.5 Copy of the Company's Articles of Amendment effective at the close of business on July 7, 1998 has been filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1998, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 3.6 Copy of the Company's Articles of Amendment effective at the close of business on October 11, 2000 has been filed as Exhibit 3.6 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 4.1 The rights of the holders of the Company's Common Stock, par value $0.0078125 per share, and Non-Voting Common Stock, par value $0.0078125 per share, are described in the Company's Amended Articles of Incorporation (particularly Articles Sixth, Seventh and Ninth thereof) and the Company's By-Laws (particularly Article II thereof). See Exhibits 3.1 through 3.6 above as incorporated herein by reference. 4.2 Copy of the Indenture between Eaton Vance Management and The Chase Manhattan Bank, as Trustee, dated as of August 13, 2001 has been filed as Exhibit 4.1 to the Form S-3 filed on November 9, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 9.1 Copy of the Voting Trust Agreement made as of October 30, 1997 has been filed as Exhibit 9.1 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.1 Copy of 1995 Executive Loan Program relating to financing or refinancing the exercise of options by key directors, officers, and employees adopted by the Company's Directors on October 12, 1995, has been filed as Exhibit 10.2 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1995, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.2 Copy of the Eaton Vance Corp. Supplemental Profit Sharing Plan adopted by the Company's Directors on October 9, 1996, has been filed as Exhibit 10.12 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1996, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.3 Copy of 1992 Stock Option Plan - Restatement No. 1 as adopted by the Eaton Vance Corp. Board of Directors on April 9, 1997, has been filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.4 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No. 2 as adopted by the Eaton Vance Corp. Board of Directors on April 9, 1997, has been filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.5 Copy of 1992 Stock Option Plan - Restatement No. 2 as adopted by the Eaton Vance Corp. Board of Directors on October 30, 1997 has been filed as Exhibit 10.15 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 25 EXHIBIT NO. DESCRIPTION 10.6 Copy of 1995 Stock Option Plan - Restatement No. 2 as adopted by the Eaton Vance Corp. Board of Directors on October 30, 1997 has been filed as Exhibit 10.16 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1997, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.7 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No. 3 as adopted by the Eaton Vance Corp. Board of Directors on July 7, 1998, has been filed as Exhibit 10.3 to the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1998, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.8 Copy of 1986 Employee Stock Purchase Plan - Restatement No. 7 adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998, has been filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 1998, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.9 Copy of 1998 Stock Option Plan as adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998 has been filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 1998 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.10 Copy of Eaton Vance Corp. Executive Performance-Based Compensation Plan as adopted by the Eaton Vance Corp. Board of Directors on July 9, 1998 has been filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 1998 (S.E.C. File No. 1-8100), and is incorporated herein by reference. 10.11 Copy of 1998 Executive Loan Program relating to financing or refinancing the exercise of options by key directors, officers, and employees adopted by the Eaton Vance Corp. Directors on October 15, 1998 has been filed as Exhibit 10.21 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1999 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.12 Copy of 1999 Restricted Stock Plan as adopted by the Eaton Vance Corp. Board of Directors on October 13, 1999 has been filed as Exhibit 10.21 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 1999 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.13 Copy of 1998 Stock Option Plan - Restatement No.1 as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been filed as Exhibit 10.13 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.14 Copy of 1986 Employee Stock Purchase Plan - Restatement No.8 as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been filed as Exhibit 10.14 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.15 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No.4 as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been filed as Exhibit 10.15 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 26 EXHIBIT NO. DESCRIPTION 10.16 Copy of Amendment No. 1 to the Eaton Vance Corp. Executive Performance-Based Compensation Plan as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been filed as Exhibit 10.16 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.17 Copy of the restated Eaton Vance Corp. Supplemental Profit Sharing Plan as adopted by the Eaton Vance Corp. Board of Directors on October 11, 2000 has been filed as Exhibit 10.17 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.18 Copy of 1998 Stock Option Plan - Restatement No. 2 as adopted by the Eaton Vance Corp. Board of Directors on November 1, 2000 has been filed as Exhibit 10.18 to the Annual Report on Form 10-K of the Company for the fiscal year ended October 31, 2000 (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.19 Copy of Stock Option Income Deferral Plan as adopted by the Eaton Vance Corp. Board of Directors on April 18, 2001 has been filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended April 30, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.20 Copy of 1986 Employee Stock Purchase Plan - Restatement No. 9 as adopted by the Eaton Vance Corp. Board of Directors on July 11, 2001 has been filed as Exhibit 10.19 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.21 Copy of 1992 Incentive Plan - Stock Alternative - Restatement No. 5 as adopted by the Eaton Vance Corp. Board of Directors on July 11, 2001 has been filed as Exhibit 10.19 to the Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended July 31, 2001, (S.E.C. File No. 1-8100) and is incorporated herein by reference. 10.22 Copy of 1998 Stock Option Plan - Restatement No. 3 as adopted by the Eaton Vance Corp. Board of Directors on December 12, 2001 (S.E.C. File No. 1-8100) (filed herewith). 10.23 Copy of the Credit Agreement, dated December 21, 2001, between Eaton Vance Management as borrower, Citicorp USA, Inc. as syndication agent and JP Morgan Chase Bank, as administrative agent (S.E.C. File No. 1-8100) (filed herewith). 13.1 Copy of the Company's Annual Report to Shareholders for the fiscal year ended October 31, 2001 (furnished herewith - such Annual Report, except for those portions thereof which are expressly incorporated by reference in this report on Form 10-K, is furnished solely for the information of the Securities and Exchange Commission and is not to be deemed "filed" as a part of this report on Form 10-K). 21.1 List of the Company's Subsidiaries as of October 31, 2001 (filed herewith). 23.1 Independent Auditors' Consent (filed herewith). 99.2 List of Eaton Vance Corp. Open Registration Statements (filed herewith). EX-10.22 3 ex10_22.txt COPY OF STOCK OPTION PLAN 27 EXHIBIT 10.22 As effective December 12, 2001 EATON VANCE CORP. 1998 STOCK OPTION PLAN RESTATEMENT NO. 3 1. Definitions. As used in this Eaton Vance Corp. 1998 Stock Option Plan the following terms shall have the following meaning: Board means the Company's Board of Directors. Code means the Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code shall be deemed to include successor provisions and regulations and other guidance issued thereunder. Committee means the Option Committee of the Board, or such other Board committee as may be appointed by the Board to administer the Plan pursuant to Section 5. The Committee shall consist solely of two or more Directors of the Company. Company means Eaton Vance Corp., a Maryland corporation, or any successor corporation. Director Option means a nonqualified stock option granted to a director pursuant to the formula plan set forth in Section 8. Exchange Act means the Securities Exchange Act of 1934, as amended from time to time. References to any provision of the Exchange Act shall be deemed to include successor provisions thereto and regulations and other guidance issued thereunder. Grant Date means the date on which an Option is granted. Incentive Option means an Option that satisfies the requirements of Section 422 of the Code. Market Value means the closing price on the New York Stock Exchange for the Shares for any date. Nonqualified Option means an Option other than an Incentive Option granted to an employee. Option means an option to purchase Shares granted under the Plan. Option Agreement means an agreement between the Company and an Optionee, setting forth the terms and conditions of an Option. Option Price means the price to be paid by an Optionee upon exercise of an Option. Optionee means a person eligible to receive an Option to whom an Option shall have been granted under the Plan. Plan means this 1998 Stock Option Plan, as amended or restated from time to time. Qualified Member means a member of the Committee who is a "non-employee director" within the meaning of Rule 16b-3(b)(3) and an "outside director" within the meaning of Treasury Regulation 1.162-27(e)(3) under Code Section 162(m). 28 Rule 16b-3 means Rule 16b-3, as from time to time in effect and applicable to the Plan and any Optionee, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act. Shares means shares of Non-Voting Common Stock of the Company or such other securities as may be substituted or resubstituted therefor pursuant to Section 4. Subsidiary means a subsidiary of the Company, as defined in Section 424(f) of the Code. 2. Purpose. The purpose of the Plan is to advance the interests of the Company by strengthening the ability of the Company and its Subsidiaries to attract, retain and motivate directors and employees by providing them with an opportunity to purchase Shares and thus participate in the ownership of the Company, including the opportunity to share in any appreciation in the value of such Shares. It is intended that the Plan will strengthen the mutuality of interest between such persons and the stockholders of the Company. Both Incentive Options and Nonqualified Options may be granted under the Plan. This Plan is the successor to the Company's 1995 Stock Option Plan - Restatement No. 2. 3. Effective Date. The Plan became effective on July 7, 1998, the date it was adopted by the Board and approved by the voting stockholders of the Company. This Restatement No. 3 became effective on December 12, 2001, the date it was adopted by the Board and approved by the voting stockholders of the Company. 4. Stock Subject to the Plan; Adjustments. (a) Shares Reserved. Subject to adjustment as hereinafter provided, the total number of Shares reserved for issuance in connection with Options under the Plan shall be 12,000,000. No Option may be granted if the number of shares to which such Option relates, when added to the number of Shares previously issued under the Plan, exceeds the number of shares reserved under this Section 4(a). Shares issued under the Plan shall be counted against this limit in the manner specified in Section 4(b). (b) Manner of Counting Shares. If any Shares subject to an Option are forfeited, canceled, exchanged, or surrendered or such Option is settled in cash or otherwise terminates without a distribution of Shares to the Participant, including (i) the number of Shares withheld in payment of any Option Price or tax obligation relating to the exercise of such Option and (ii) the number of Shares equal to the number surrendered in payment of any Option Price or tax obligation relating to the exercise of such Option, such number of Shares will again be available for Options under the Plan. The Committee may make determinations and adopt regulations for the counting of Shares relating to any Option to ensure appropriate counting, avoid double counting (in the case of substitute Options), and provide for adjustments in any case in which the number of Shares actually distributed differs from the number of Shares previously counted in connection with such Option. (c) Type of Shares Distributable. Any Shares delivered upon exercise of an Option may consist, in whole or in part, of authorized and unissued Shares or Shares reacquired by the Company through purchase in the open market or in private transactions. 29 (d) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, or other property) which is unusual and non-recurring, or any recapitalization, stock split, reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, or other similar corporate transaction or event affects the Shares such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Optionees under the Plan, then the Committee shall make such equitable changes or adjustments as it deems appropriate and, in such manner as it may deem equitable, adjust any or all of (i) the number and kind of Shares which may thereafter be issued in connection with Options, (ii) the number and kind of Shares issued or issuable in respect of outstanding Options or, if deemed appropriate, make provisions for payment of cash or other property with respect to any outstanding Option, (iii) the Option Price relating to any Option, and (iv) the number and kind of Shares set forth in Section 7(d) as the per-person limitation for any three calendar years; provided, however, in each case that, with respect to Incentive Options, such adjustment shall be made in accordance with Section 424 of the Code, unless the Committee determines otherwise. In addition, the Committee is authorized to make adjustments in the terms and conditions of, and any criteria and performance objectives or goals included in, Options in recognition of unusual or non-recurring events (including events described in the preceding sentence, as well as acquisitions and dispositions of assets or all or part of businesses) affecting the Company or any Subsidiary or any business unit, or the financial statements thereof, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations, or business conditions or in view of the Committee's assessment of the business strategy of the Company, a Subsidiary, or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of an Optionee, and any other circumstances deemed relevant; provided that, unless otherwise determined by the Committee, no such adjustment shall be made if and to the extent that such adjustment would cause Options granted to employees who are "covered employees" within the meaning of Code Section 162(m) to fail to qualify as "performance-based compensation" under Code Section 162(m) and regulations thereunder. 5. Administration. (a) Authority of the Committee. The Plan shall be administered by the Committee. The Committee shall have full and final authority and discretion to take the following actions, in each case subject to and consistent with the provisions of the Plan: (i) to select employees to whom Options may be granted; (ii) to determine the type and number of Options to be granted to employees, the number of Shares to which such an Option may relate, the terms and conditions of any Option granted to an employee under the Plan (including the Option Price, any restriction or condition, any schedule for lapse of restrictions or conditions relating to transferability or forfeiture, exercisability, or settlement of such an Option, and waivers or accelerations thereof, and waivers of performance conditions relating to such an option, based in each case on such considerations as the Committee shall determine), and all other matters to be determined in connection with any Option granted to an employee; (iii) to determine whether, to what extent, and under what circumstances an Option may be settled, or the Option Price may be paid, in cash, Shares or other property, or an Option may be canceled, forfeited, exchanged, or surrendered; (iv) to determine whether, to what extent, and under what circumstances cash, Shares or other property payable with respect to an Option will be deferred either automatically, at the election of the Committee, or at the election of the Optionee, and whether to create trusts and deposit Shares or other property therein; 30 (v) to prescribe the form of each Option Agreement, which need not be identical for each Optionee; (vi) to adopt, amend, suspend, waive, and rescind such rules and regulations and appoint such agents as the Committee may deem necessary or advisable to administer the Plan; (vii) to correct any defect or supply any omission or reconcile any inconsistency in the Plan and to construe and interpret the Plan and any Option, rules and regulations, Option Agreement, or other agreement or instrument hereunder; and (viii) to make all other decisions and determinations as may be required under the terms of the Plan or as the Committee may deem necessary or advisable for the administration of the Plan. In its administration of the Plan, the Committee shall not take any action which would result in a transaction involving a Director Option failing to be exempt under Rule 16b-3(d). Other provisions of the Plan notwithstanding, the Board may perform any function of the Committee under the Plan, including for the purpose of ensuring that transactions under the Plan by Optionees who are then subject to Section 16 of the Exchange Act in respect of the Company are exempt under Rule 16b-3. In any case in which the Board is performing a function of the Committee under the Plan, each reference to the Committee herein shall be deemed to refer to the Board, except where the context otherwise requires. (b) Manner of Exercise of Committee Authority. At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Option to be granted to an employee who is then subject to Section 16 of the Exchange Act in respect of the Company, or relating to an Option intended to constitute "qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder, may be taken either (i) by a subcommittee composed solely of two or more Qualified Members, or (ii) by the Committee but with each such member who is a not Qualified Member abstaining or recusing himself or herself from such action, provided that, upon such abstention or recusal, the Committee remains composed solely of two or more Qualified Members. Such action, authorized by such a subcommittee or by the Committee upon the abstention or recusal of such non-Qualified Member(s), shall be the action of the Committee for purposes of the Plan. Any action of the Committee with respect to the Plan shall be final, conclusive, and binding on all persons, including the Company, Subsidiaries, Optionees, any person claiming any rights under the Plan from or through any Optionee, and stockholders of the Company. The express grant of any specific power to the Committee, and the taking of any action by the Committee, shall not be construed as limiting any power or authority of the Committee. The Committee may delegate to officers or managers of the Company or any Subsidiary the authority, subject to such terms as the Committee shall determine, to perform administrative functions and such other functions as the Committee may determine, to the extent permitted under applicable law and, with respect to any Optionee who is then subject to Section 16 of the Exchange Act in respect of the Company, to the extent performance of such function will not result in a subsequent transaction failing to be exempt under Rule 16b-3(d). (c) Limitation of Liability. Each member of the Committee shall be entitled in good faith to rely or act upon any report or other information furnished to him or her by any officer or other employee of the Company or any Subsidiary, the Company's independent certified public accountants, or other professional retained by the Company to assist in the administration of the Plan. No member of the Committee, nor any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action, determination, or interpretation. 31 6. Duration of the Plan. This Plan shall terminate ten years from the original effective date hereof, unless terminated earlier pursuant to Section 12, and no Options may be granted thereafter. 7. Options for Employees. (a) Eligible Employees. Options may be granted to those employees of the Company or of any of its Subsidiaries as are selected by the Committee. (b) Restrictions on Incentive Options. Incentive Options shall be subject to the following restrictions: (i) Limitation on Number of Shares. To the extent that the aggregate Market Value on the Grant Date of the Shares with respect to which an Option that would otherwise constitute an Incentive Option (when aggregated, if appropriate, with incentive stock options granted before the Option under this Plan or any other plan maintained by the Company or any Subsidiary of the Company) is exercisable for the first time by the Optionee during any calendar year exceeds $100,000, the Option shall be treated as a Nonqualified Option. (ii) 10% Stockholder. If any Optionee to whom an Incentive Option is granted is on the Grant Date the owner of stock (as determined under Section 424(d) of the Code) possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, then the following special provisions shall be applicable to that Incentive Option: (A) The Option Price per Share shall not be less than 110% of the Market Value on the Grant Date; and (B) The Incentive Option shall expire not more than five years after the Grant Date. (c) Price. Subject to the conditions on certain Incentive Options in Section 7(b), the Option Price per Share payable upon the exercise of each Incentive Option shall be not less than 100% of the Market Value on the Grant Date. The Option Price per Share of stock payable upon exercise of each Nonqualified Option shall be determined by the Committee, provided that the Option Price shall not be less than 100% of the Market Value on the Grant Date. (d) Limitation on Number of Shares to be Granted to Each Optionee. Each Option Agreement shall specify the number of Shares to which it pertains. No Optionee may receive, during any three calendar year period, Options to purchase more than 3,600,000 Shares. If any Option granted to an employee is canceled, the canceled Option continues to be counted against the maximum number of Shares for which Options may be granted to that employee under the Plan. If, after grant of an Option to an employee, the Option Price is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option, and in such case both the Option that is deemed to be canceled and the Option that is deemed to be granted reduce the maximum number of Shares for which Options may be granted to that employee under the Plan. The preceding two sentences apply only to calculating the maximum number of Shares available to an Optionee during any three calendar year periods, and shall not apply to or affect the manner of counting Shares pursuant to Section 4(b). (e) Exercise of Options. Subject to the terms and conditions set forth in the Option Agreement, each Option shall be exercisable for the full amount or for any part thereof and at such intervals or in such installments as the Committee may determine at the time it grants the Option; provided, however, that no Option shall be exercisable with respect to any Shares later than ten years after the Grant Date. 32 8. Formula Plan; Options for Directors. Upon first election to the Board of Directors of the Company of a person who was not, within twelve months preceding election, either an officer of employee of the Company or any Subsidiary, such person shall be granted a Director Option to purchase 6,000 Shares. On the third Friday of December in each year, each director who is not an employee of the Company and its Subsidiaries shall receive a Director Option to purchase 6,000 Shares. In the event that on any Grant Date there is not a sufficient number of Shares available to implement fully the preceding sentences, then each such director shall receive a pro rata portion of the Director Option contemplated by the preceding sentences. The Option Price for each Director Option shall be the Market Value on the Grant Date or, in the event there is no Market Value available on the Grant Date, on the date next following the Grant Date for which a Market Value is available. Each Director Option shall become exercisable in four equal installments upon each of the first four anniversaries of the Grant Date. No Director Option shall be exercisable later than ten years after the Grant Date. It is intended that each Director Option automatically granted pursuant to this Section 8 shall be made pursuant to a formula plan as defined in Release No. 34-37260 of the Securities and Exchange Commission (adopting restated Rule 16b-3). 9. Terms and Conditions Applicable to All Options. (a) Non-Transferability. Except as otherwise expressly provided in an Option Agreement, no Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution, and each Option shall be exercisable during the Optionee's lifetime only by him or her. (b) Notice of Exercise and Payment. An Option shall be exercisable only by delivery of a written notice to the Company's Treasurer or any other officer of the Company designated by the Committee to accept such notices on its behalf, specifying the number of Shares for which it is exercised. If the Shares are not at that time effectively registered under the Securities Act of 1933, as amended, the Optionee shall include with such notice a letter, in form and substance satisfactory to the Company, confirming that the Shares are being purchased for the Optionee's own account for investment and not with a view to distribution. Payment shall be made in full at the time the Option is exercised. Payment shall be made by (i) cash or check, (ii) delivery and assignment to the Company of already-owned Shares having a Market Value as of the date of exercise equal to the exercise price, (iii) if approved by the Committee, delivery of the Optionee's promissory note for the exercise price, or (iv) any combination of (i), (ii) or (iii) above. (c) No Rights to Options; No Stockholder Rights. No employee shall have any claim to be granted an Option under the Plan, and there is no obligation for uniformity of treatment of employees. No Option shall confer upon the Optionee any rights as a stockholder or any claim to dividends paid with respect to any Shares to which the Option relates unless and until such Shares are duly issued to him or her in accordance with the terms of the Option. (d) Cancellation and Rescission of Options. The Committee may provide in any Option Agreement that, in the event an Optionee violates a term of the Option Agreement or other agreement with or policy of the Company or a Subsidiary, takes or omits to take actions that are deemed to be in competition with the Company or its Subsidiaries, an unauthorized solicitation of customers, suppliers, or employees of the Company or its Subsidiaries, or an unauthorized disclosure or misuse of proprietary or confidential information of the Company or its Subsidiaries, or takes or omits to take any other action as may be specified in the Option Agreement, the Optionee shall be subject to forfeiture of such Option or portion, if any, of the Option as may then remain outstanding and also to forfeiture of any amounts of cash, Shares or other property received by the Optionee upon exercise or settlement of such Option or in connection with such Option during such period (as the Committee may provide in the Option Agreement) prior to the occurrence which gives rise to the forfeiture. 33 (e) Options to Optionees Outside the United States. The Committee may modify the terms of any Option under the Plan granted to an Optionee who is, at the time of grant or during the term of the Option, resident or primarily employed outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Option shall conform to laws, regulations, and customs of the country in which the Optionee is then resident or primarily employed, or so that the value and other benefits of the Option to the Optionee, as affected by foreign tax laws and other restrictions applicable as a result of the Optionee's residence or employment abroad, shall be comparable to the value of such an Option to an Optionee who is resident or primarily employed in the United States. An Option may be modified under this Section 9(f) in a manner that is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation. 10. Termination of Options. Each Option shall terminate and may no longer be exercised if the Optionee ceases to perform services for the Company or a Subsidiary, in accordance with the following provisions: (i) if the Optionee's services shall have been terminated by resignation or other voluntary action, or if such services shall have been terminated involuntarily for cause, all of the Optionee's Options shall terminate and may no longer be exercised; (ii) if the Optionee's services shall have been terminated for any reason other than cause, resignation or other voluntary action before his or her eligibility to retire, and before his or her disability or death, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that the Options were exercisable on the date of termination of service; (iii) if the Optionee's service shall have been terminated because of disability within the meaning of Section 22(e)(3) of the Code, he or she may at any time within a period of fifteen (15) months after such termination of service exercise his or her Options to the extent that such Options were exercisable on the date of termination of service; and (iv) if the Optionee dies at a time when he or she might have exercised an Option, then his or her estate, personal representative or beneficiary to whom it has been transferred pursuant to Section 9(a) hereof may at any time within a period of fifteen (15) months after the Optionee's death exercise the Option to the extent the Optionee might have exercised it at the time of death; provided, however, that the Committee may, at its sole discretion, provide specifically in an Option Agreement for such other period of time (shorter or longer than as set forth above) during which an Optionee may exercise an Option after termination of the Optionee's services as the Committee may approve, subject to the overriding limitation that no Option may be exercised to any extent by anyone after the date of expiration of the Option. 11. Withholding Taxes; Delivery of Shares. The Company's obligation to deliver Shares upon exercise of an Option shall be subject to the Optionee's satisfaction of all applicable federal, state and local income and employment tax withholding obligations. The Optionee may satisfy the obligations by electing (a) to make a cash payment to the Company, or (b) to have the Company withhold Shares with a value equal to the amount required to be withheld, or (c) to deliver to the Company already-owned Shares with a value equal to the amount required to be withheld. The value of Shares to be withheld or delivered shall be based on the Market Value on the date the amount of tax to be withheld is to be determined. The Optionee's election to have Shares withheld for this purpose will be subject to the following restrictions: (1) the election must be made prior to the date the amount of tax is to be determined, (2) the election must be irrevocable, and (3) the election will be subject to the disapproval of the Committee. 34 12. Termination or Amendment of Plan. The Board may at any time terminate the Plan or make such changes in or additions to the Plan as it deems advisable without further action on the part of the shareholders of the Company, provided: (a) that no such termination or amendment shall adversely affect or impair any then outstanding Option without the consent of the Optionee holding that Option; and (b) that any such amendment which: (i) increases the maximum number of Shares subject to this Plan, or (ii) changes the class of persons eligible to participate in this Plan, or (iii) materially increases the benefits accruing to participants under this Plan, shall be subject to approval by the voting stockholders of the Company within one year from the effective date of such amendment and shall be null and void if such approval is not obtained. 13. Change of Control - Automatic Vesting of Options. Notwithstanding anything to the contrary herein, the Board or the Committee shall include in the Option Agreement for each unvested Option granted under this Plan the following provision, and such inclusion may be effected by incorporating this provision by reference to this Section 13: This Option shall be immediately exercisable and the Optionee shall become eligible to purchase any and all shares covered by each Option at any time or from time to time after the occurrence of a Change of Control of the Company. A "Change of Control" shall mean: (a) The acquisition, other than from the Company, by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding non-voting common stock of the Company (the "Non-Voting Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Company Voting Securities"); provided, that any acquisition by (x) the Company or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (y) any Person that is eligible, pursuant to Rule 13d-1(b) under the Exchange Act, to file a statement on Schedule 13G with respect to its beneficial ownership of Company Voting Securities, whether or not such Person shall have filed a statement on Schedule 13G, unless such Person shall have filed a statement on Schedule 13D with respect to beneficial ownership of 25% or more of the Company Voting Securities, shall not constitute a Change of Control; and provided, further, that the provisions of this subsection (a) shall apply whether or not the Company Voting Securities or the Non-Voting Stock is registered or required to be registered under the Exchange Act; or 35 (b) Individuals who, as of the date hereof, constitute the Company's Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, that any individual becoming a director of the Company ("Director") subsequent to the date of the Option whose election or nomination for election by the Company's shareholders was approved by at least a majority of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company (as such terms are used in Rule 14a-11 of the Regulation 14A promulgated under the Exchange Act); or (c) Approval by the shareholders of the Company of a reorganization, merger or consolidation (a "Business Combination"), in each case with respect to which all or substantially all of the individuals and entities who were the respective beneficial owners of the Non-Voting Stock and of the Company Voting Securities immediately prior to such Business Combination will not, following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from the Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the Non-Voting Stock and Company Voting Securities, as the case may be; or (d) Approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company, or (ii) a sale or other disposition of all or substantially all of the assets of the Company, or (iii) a sale or disposition of Eaton Vance Management (or any successor thereto) or of all or substantially all of the assets of Eaton Vance Management (or any successor thereto), or (iv) an assignment by any direct or indirect investment adviser subsidiary of the Company of investment advisory agreements pertaining to more than 50% of the aggregate assets under management of all such subsidiaries of the Company, in the case of (ii), (iii) or (iv) other than to a corporation or other entity with respect to which, following such sale or disposition or assignment, more than 60% of, respectively, the outstanding non-voting stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then owned beneficially, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the Non-Voting Stock and Company Voting Securities immediately prior to such sale, disposition or assignment in substantially the same proportion as their ownership of the Non-Voting Stock and Company Voting Securities, as the case may be, immediately prior to such sale, disposition or assignment. Notwithstanding the foregoing, the following events shall not cause, or be deemed to cause, and shall not constitute, or be deemed to constitute, a Change of Control: (1) The acquisition, holding or disposition of Company Voting Securities deposited under the Voting Trust Agreement dated as of October 30, 1997, as amended, or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees thereunder, or the acquisition, holding or disposition of Company Voting Securities deposited under any subsequent replacement voting trust agreement or of the voting trust receipts issued therefor, or any change in the persons who are voting trustees under any such subsequent replacement voting trust agreement; provided, that any such acquisition, disposition or change shall have resulted solely by reason of the death, incapacity, retirement, resignation, election or replacement of one or more voting trustees. 36 (2) Any termination or expiration of a voting trust agreement under which Company Voting Securities have been deposited or the withdrawal therefrom of any Company Voting Securities deposited thereunder, if all Company Voting Securities and/or the voting trust receipts issued therefor continue to be held thereafter by the same persons in the same amounts, or if contemporaneously there shall be a Business Combination or change in the capitalization of the Company as described in clause (3) below. (3) A Business Combination or change in the capitalization of the Company pursuant to which the holders of the Non-Voting Stock of the Company become holders of voting securities of the Company or of the corporation or other entity resulting from such Business Combination, in substantially the same proportion as their ownership of Non-Voting Stock immediately prior to such Business Combination or change in capitalization. 14. General Provisions. (a) Compliance with Legal and Exchange Requirements. The Plan, the granting and exercising of Options thereunder, and the other obligations of the Company under the Plan and any Option Agreement, shall be subject to all applicable federal and state laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required. The Company, in its discretion, may postpone the issuance or delivery of Shares under any Option until completion of such stock exchange listing or registration or qualification of such Shares or other required action under any state, federal or foreign law, rule or regulation as the Company may consider appropriate, and may require any Optionee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. (b) Compliance with Section 162(m) and Rule 16b-3. If any provision of the Plan or any Option Agreement relating to a "covered employee" or a person subject to Section 16 of the Exchange Act does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder or Rule 16b-3, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements. (c) No Right to Continued Employment. Neither the Plan nor any action taken thereunder shall be construed as giving any employee the right to be retained in the employ of the Company or any of its Subsidiaries, nor shall it interfere in any way with the right of the Company or any of its Subsidiaries to terminate any employee's employment at any time. (d) Taxes. The Company or any Subsidiary is authorized to withhold from any payment relating to an Option under the Plan, or any distribution of Shares, or any payroll or other payment to an Optionee, amounts of withholding and other taxes due in connection with any transaction involving an Option, and to take such other action as the Committee may deem advisable to enable the Company and Optionees to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Option or exercise thereof. This authority shall include authority to withhold or receive Shares or other property and to make cash payments in respect thereof in satisfaction of an Optionee's tax obligations. (e) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the voting stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including the granting of stock options and other awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. (f) Governing Law. The validity, construction, and effect of the Plan, any rules and regulations relating to the Plan, and any Option Agreement shall be determined in accordance with the laws of the Commonwealth of Massachusetts, without giving effect to principles of conflicts of laws, and applicable federal law. EX-10.23 4 ex10_23.txt COPY OF CREDIT AGREEMENT 37 EXHIBIT 10.23 EATON VANCE CORP. =============================================================================== CREDIT AGREEMENT dated as of December 21, 2001 among EATON VANCE MANAGEMENT, as Borrower The Lenders Party Hereto, CITICORP USA, INC., as Syndication Agent, CREDIT SUISSE FIRST BOSTON CAYMAN ISLANDS BRANCH, FLEET NATIONAL BANK and UBS AG, STAMFORD BRANCH, as Documentation Agents and JPMORGAN CHASE BANK, as Administrative Agent $170,000,000 REVOLVING CREDIT FACILITY =============================================================================== J.P. MORGAN SECURITIES INC., as Lead Arranger and Sole Bookrunner 38 TABLE OF CONTENTS PAGE ARTICLE I Definitions................................................ 1 SECTION 1.01. Defined Terms.......................................... 1 SECTION 1.02. Classification of Loans and Borrowings................. 14 SECTION 1.03. Terms Generally........................................ 14 SECTION 1.04. Accounting Terms; GAAP................................. 14 ARTICLE II The Credits................................................ 15 SECTION 2.01. Commitments............................................ 15 SECTION 2.02. Loans and Borrowings................................... 15 SECTION 2.03. Requests for Borrowings................................ 15 SECTION 2.04. Funding of Borrowings.................................. 16 SECTION 2.05. Interest Elections..................................... 17 SECTION 2.06. Termination and Reduction of Commitments............... 18 SECTION 2.07. Repayment of Loans; Evidence of Debt................... 18 SECTION 2.08. Prepayment of Loans.................................... 19 SECTION 2.09. Fees .................................................. 19 SECTION 2.10. Interest............................................... 20 SECTION 2.11. Alternate Rate of Interest............................. 21 SECTION 2.12. Increased Costs........................................ 21 SECTION 2.13. Break Funding Payments................................. 22 SECTION 2.14. Taxes ................................................. 23 SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs............................................... 24 SECTION 2.16. Mitigation Obligations; Replacement of Lenders......... 25 SECTION 2.17. New Lenders; Commitment Increases...................... 26 ARTICLE III Representations and Warranties............................. 26 SECTION 3.01. Organization; Powers................................... 27 SECTION 3.02. Authorization; Enforceability.......................... 27 SECTION 3.03. Governmental Approvals; No Conflicts................... 27 SECTION 3.04. Financial Condition; No Material Adverse Effect........ 27 SECTION 3.05. Properties............................................. 27 SECTION 3.06. Litigation and Environmental Matters................... 28 SECTION 3.07. Compliance with Laws and Agreements.................... 28 SECTION 3.08. Investment and Holding Company Status.................. 28 SECTION 3.09. Taxes ................................................. 29 SECTION 3.10. ERISA ................................................. 29 SECTION 3.11. Disclosure............................................. 29 SECTION 3.12. No Default............................................. 29 SECTION 3.13. Subsidiaries........................................... 30 SECTION 3.14. Federal Regulations.................................... 30 SECTION 3.15. No Burdensome Restrictions............................. 30 ARTICLE IV Conditions................................................. 30 SECTION 4.01. Effective Date......................................... 30 SECTION 4.02. Each Credit Event...................................... 31 ARTICLE V Affirmative Covenants...................................... 32 SECTION 5.01. Financial Statements and Other Information............. 32 SECTION 5.02. Notices of Material Events............................. 33 SECTION 5.03. Existence; Conduct of Business......................... 34 SECTION 5.04. Payment of Obligations................................. 34 SECTION 5.05. Maintenance of Properties; Insurance................... 34 SECTION 5.06. Books and Records; Inspection Rights................... 34 SECTION 5.07. Compliance with Laws................................... 34 SECTION 5.08. Use of Proceeds........................................ 34 SECTION 5.09. Environmental Laws..................................... 35 39 ARTICLE VI Negative Covenants......................................... 35 SECTION 6.01. Financial Condition Covenants.......................... 35 SECTION 6.02. Indebtedness........................................... 35 SECTION 6.03. Liens ................................................. 36 SECTION 6.04. Fundamental Changes.................................... 37 SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements....................... 37 SECTION 6.06. Restricted Payments.................................... 39 SECTION 6.07. Transactions with Affiliates........................... 39 SECTION 6.08. Changes in Fiscal Periods.............................. 39 SECTION 6.09. Limitation on Sale of Assets........................... 39 ARTICLE VII Events of Default.......................................... 39 ARTICLE VIII The Administrative Agent................................... 41 ARTICLE IX Miscellaneous.............................................. 43 SECTION 9.01. Notices................................................ 43 SECTION 9.02. Waivers; Amendments.................................... 44 SECTION 9.03. Expenses; Indemnity; Damage Waiver..................... 44 SECTION 9.04. Successors and Assigns................................. 46 SECTION 9.05. Survival............................................... 48 SECTION 9.06. Counterparts; Integration; Effectiveness............... 48 SECTION 9.07. Severability........................................... 48 SECTION 9.08. Right of Setoff........................................ 48 SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process................................................ 49 SECTION 9.10. WAIVER OF JURY TRIAL................................... 49 SECTION 9.11. Headings............................................... 50 SECTION 9.12. Confidentiality........................................ 50 SECTION 9.13. Interest Rate Limitation............................... 50 ANNEXES Annex A -- Pricing Grid SCHEDULES: Schedule 2.01 -- Commitments Schedule 3.06 -- Disclosed Matters Schedule 3.13 -- Subsidiaries Schedule 6.02 -- Existing Indebtedness Schedule 6.03 -- Existing Liens EXHIBITS: Exhibit A -- Form of Assignment and Acceptance Exhibit B -- Form of Borrowing Request Exhibit C -- Form of Interest Election Request Exhibit D -- Form of Opinion of Borrower's Counsel 40 CREDIT AGREEMENT dated as of December 21, 2001, among EATON VANCE MANAGEMENT (the "Borrower"), the LENDERS party hereto, CITICORP USA, INC., as Syndication Agent, CREDIT SUISSE FIRST BOSTON CAYMAN ISLANDS BRANCH, FLEET NATIONAL BANK and UBS AG, STAMFORD BRANCH, as Documentation Agents and JPMORGAN CHASE BANK, as Administrative Agent. W I T N E S S E T H : - - - - - - - - - - The parties hereto agree as follows: ARTICLE I Definitions SECTION 1.01. Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Administrative Agent" means JP Morgan Chase Bank, in its capacity as administrative agent for the Lenders hereunder. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified; provided, however, that the Borrower shall not be deemed an Affiliate of any Subsidiary and no Subsidiary shall be deemed an Affiliate of Borrower. "Aggregate Revenue Base" means the sum of Revenue Bases for all Eaton Vance Funds and for all other assets managed by the Borrower or any Subsidiary of the Borrower for other entities. "Agreement" means this Credit Agreement, as amended, supplemented or otherwise modified from time to time. "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (b) the Prime Rate in effect on such day. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Percentage" means, with respect to any Lender, the percentage of the total Commitments represented by such Lender's Commitment. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any permitted assignments. "Applicable Margin" means, for any day, with respect to any ABR Loan or Eurodollar Loan, the applicable percentage determined pursuant to the Pricing Grid attached hereto as Annex A. 41 "Applicable Utilization Fee Rate" means, for any day, the applicable rate per annum determined pursuant to the Pricing Grid attached hereto as Annex A. "Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity that administers or manages a Lender. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent and the Borrower. "Availability Period" means the period from and including the Effective Date to but excluding the Termination Date. "B Shares" has the meaning assigned to such term in the definition of "Distribution Fees" in this Section 1.01. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Borrower" means Eaton Vance Management, a Massachusetts business trust. "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) of shares representing more than 51% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Borrower; or (b) the acquisition of direct or indirect Control of the Borrower by any Person or group; but excluding from any of the foregoing the Borrower, Eaton Vance Corp. or any subsidiary of Eaton Vance Corp. whether now existing or hereafter created. 42 "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority as evidenced in writing by any publication of such Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Closing Date" means the date on which the conditions precedent set forth in Section 4.01 shall have been satisfied or waived in accordance with Section 9.02, which date is December 21, 2001. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans hereunder, expressed as an amount representing the maximum aggregate outstanding principal amount of such Lender's Loans hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.06, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.17. The initial amount of each Lender's Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable, and the initial aggregate amount of the Commitments of the Lenders (as set forth on Schedule 2.01) is $170,000,000. "Commitment Utilization Percentage" means on any day the percentage equivalent of a fraction (a) the numerator of which is the sum of the aggregate outstanding principal amount of Loans and (b) the denominator of which is the aggregate amount of the Commitments (or, on any day after termination of the Commitments, the aggregate amount of the Commitments in effect immediately preceding such termination). "Confidential Information Memorandum" means the Confidential Information Memorandum dated October 2001 and furnished to the Lenders. "Consolidated Cash Flow" means, for any period of four consecutive fiscal quarters, the average of (i) Consolidated EBITDA for the last fiscal quarter in such period multiplied by four and (ii) the aggregate sum of Consolidated EBITDA for such period. 43 "Consolidated EBITDA" means, for any period, Consolidated Net Income for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, and (e) any extraordinary, unusual or non-recurring non-cash expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, non-cash losses on sales of assets outside of the ordinary course of business). For the purposes of calculating Consolidated EBITDA for any period of four consecutive fiscal quarters (each, a "Reference Period") pursuant to any determination of the Consolidated Leverage Ratio, (i) if at any time during such Reference Period the Borrower or any Subsidiary shall have made any Material Disposition, the Consolidated EBITDA for such Reference Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) attributable to the property that is the subject of such Material Disposition for such Reference Period or increased by an amount equal to the Consolidated EBITDA (if negative) attributable thereto for such Reference Period and (ii) if during such Reference Period the Borrower or any Subsidiary shall have made a Material Acquisition, Consolidated EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto as if such Material Acquisition occurred on the first day of such Reference Period. As used in this definition, "Material Acquisition" means any acquisition of property or series of related acquisitions of property that (a) constitutes assets comprising all or substantially all of an operating unit of a business or constitutes all or substantially all of the common stock of a Person and (b) involves the payment of cash consideration by the Borrower and its Subsidiaries in excess of $5,000,000; and "Material Disposition" means any Disposition of property or series of related Dispositions of property that yields gross cash proceeds to the Borrower or any of its Subsidiaries in excess of $5,000,000. "Consolidated Funded Debt" means, at any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (a) Consolidated Cash Flow for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense" means, for any period, interest expense (including that attributable to Capital Lease Obligations) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Hedging Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Leverage Ratio" means, as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Funded Debt on such day to (b) Consolidated Cash Flow for such period. "Consolidated Net Income" means, for any period, the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation or Requirement of Law applicable to such Subsidiary. 44 "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any material agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 3.06. "Distribution Fees" means all fees payable pursuant to a plan contemplated by Rule 12b-1 under the Investment Company Act of 1940, as amended, in connection with the distribution of shares pursuant to such plan of Eaton Vance Funds that are open-end funds (any such shares, "B Shares"). "dollars" or "$" refers to lawful money of the United States of America. "Eaton Vance Fund" means any closed-end or open-end or other mutual fund or any collateralized debt obligation sponsored by the Borrower or any of its Subsidiaries or any fund for which the Borrower or any of its Subsidiaries provides investment advisory, management, administrative, underwriting or similar services. "Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02). "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. 45 "ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans (other than a Plan that is a defined contribution plan) or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Adjusted LIBO Rate. "Event of Default" has the meaning assigned to such term in Article VII. "Excess Utilization Day" means each day on which the Commitment Utilization Percentage exceeds the applicable percentage set forth in Section 2.09(b). "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower under Section 2.16(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.14(e), except to the extent that such Foreign Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 2.14(a). "Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans at such time. "Facility Fee Rate" has the meaning set forth in Annex A. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Borrower. 46 "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "Fund" means any Person that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "GAAP" means generally accepted accounting principles in the United States of America. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body (including self-regulatory body), court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including, in any event, the Securities and Exchange Commission and any applicable state securities commission or similar body. "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding accounts payable incurred in the ordinary course of business that are not more than 90 days past due), (f) all Indebtedness of others secured by any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and (k) for purposes of Article VII(f) and (g) only, net liabilities of such Person under Hedging Agreements. 47 "Indemnified Taxes" means Taxes other than Excluded Taxes. "Interest Election Request" means a request by the Borrower to convert or continue a Borrowing in accordance with Section 2.05. "Interest Payment Date" means (a) with respect to any ABR Loan, the last day of each March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration, after the first day of such Interest Period. "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three, six or (if available to all Lenders) twelve months thereafter, as the Borrower may elect, and; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) any Interest Period pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period, and (iii) any Interest Period that would otherwise extend beyond the Termination Date shall end on the Termination Date or such date of final payment, as the case may be. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" means the Persons listed on Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment and Acceptance, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Telerate Screen (or on any successor or substitute page of such Screen, or any successor to or substitute for such Screen, providing rate quotations comparable to those currently provided on such page of such Screen, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loans" means the loans made by the Lenders to the Borrower pursuant to this Agreement. 48 "Management Contract" means an agreement, written or oral, pursuant to which the Borrower or any Subsidiary of the Borrower provides (i) investment advisory, management or administrative services to an Eaton Vance Fund or (ii) investment advisory or management services to any Person, including, without limitation, unregistered investment companies and personal or corporate investment accounts. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, property, operating results, or condition, financial or otherwise, of the Borrower and its Subsidiaries taken as a whole, or (b) the validity or enforceability of this Agreement or the rights or remedies of the Administrative Agent or the Lenders hereunder. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrower and its Subsidiaries in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Borrower or any Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that the Borrower or such Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Asset Value" means, at any date of determination and with respect to any investment company or account manager, the "current net asset" value (as defined in Rule 2a-4 under the Investment Company Act of 1940), in the aggregate, of all outstanding redeemable securities issued by such investment company at such date. "New Lender" has the meaning set forth in Section 2.17(a). "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Permitted Acquisition" means an acquisition of a Person, or the assets of a Person or a line of business of a Person (whether by the merger, consolidation or acquisition of Capital Stock or other equity interests, assets or any combination thereof) in the same or a related line of business as the Borrower, provided that after giving effect to such acquisition (a) no Default or Event of Default shall have occurred and be continuing, (b) the Borrower shall be in compliance, on a pro forma basis, as of the end of the most recent fiscal quarter of the Borrower with the provisions of Section 6.01, and (c) in the case of an acquisition involving aggregate consideration comprised of cash and any assumed liabilities on the closing date of such acquisition equal to $50,000,000 or more, at least three Business Days prior to the date of such acquisition, the Borrower shall have furnished to the Administrative Agent and the Lenders a compliance certificate to the effect of clauses (a) and (b) showing in reasonable detail the calculations supporting the determination of compliance, on such a pro forma basis, with such provisions. "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; 49 (b) Carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 60 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; and (f) judgment Liens in respect of judgments rendered against the Borrower, any Subsidiary of the Borrower or any combination thereof (i) that represent wholly insured Indebtedness, or partially insured or wholly uninsured Indebtedness so long as the aggregate uninsured Indebtedness do not exceed $10,000,000; or (ii) that are not in effect for more than 75 days; or (iii) that attach to an immaterial portion of the assets of the applicable Person; or (iv) that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Permitted Liens" has the meaning set forth in Section 6.03. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, borrower, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pricing Grid" means the Pricing Grid attached hereto as Annex A. "Prime Rate" means the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Register" has the meaning set forth in Section 9.04. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means Lenders having Exposures and unused Commitments representing at least 51% of the sum of the total Exposures and unused Commitments at such time. 50 "Requirement of Law" means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Restricted Payment" means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any shares of any class of Capital Stock of the Borrower or any Subsidiary, or (ii) any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, for (a) the purchase, redemption, retirement, acquisition, cancellation or termination of any shares of the Borrower's Capital Stock or (b) any option, warrant or other right to acquire any shares of the Borrower's Capital Stock. "Revenue Base" means the sum of (A) the product of (i) with respect to each Eaton Vance Fund, the Net Asset Value of the Eaton Vance Fund on the date of calculation and with respect to assets managed for other entities, the market value or Net Asset Value of such assets on the date of calculation and (ii) the rate provided for in the applicable Management Contract for determining the annual fee required for such advisory, management or administrative services on such date and (B) Distribution Fees for such Eaton Vance Fund. "S&P" means Standard & Poor's, a division of the McGraw Hill Companies. "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board or other Governmental Authority to which the Administrative Agent is subject with respect to the Adjusted LIBO Rate. Such reserve percentages shall include those imposed pursuant to Regulation D of the Board. Eurodollar Loans shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of the Borrower except that no open-end or closed-end or other type of fund that has been seeded with a cash investment by the Borrower or any Subsidiary, the Capital Stock in which is intended to be syndicated as such in a private or public offering, shall be deemed to be a "Subsidiary" hereunder. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Termination Date" means December 21, 2004 or such earlier date as the Commitments shall terminate pursuant to the terms hereof (or, if such day is not a Business Day, the next preceding Business Day). 51 "Transactions" means the execution, delivery and performance by the Borrower of this Agreement, the borrowing of Loans and the use of the proceeds thereof. "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "Zero-Coupon Notes" means the Borrower's $314,000,000 aggregate principal amount at maturity zero-coupon exchangeable senior Liquid Yield Option Notes due 2031 issued pursuant to that certain Purchase Agreement dated August 7, 2001, as amended or modified from time to time. SECTION 1.02. Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar Borrowing"). SECTION 1.03. Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.04. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. 52 ARTICLE II The Credits SECTION 2.01. Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Exposure exceeding such Lender's Commitment or (b) the sum of the total Exposures exceed the total Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans. SECTION 2.02. Loans and Borrowings. (a) Each Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.11, each Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000; provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Commitments. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of ten (10) Eurodollar Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Termination Date. SECTION 2.03. Requests for Borrowings. To request a Borrowing, the Borrower shall notify the Administrative Agent of such request by telephone prior to 10:00 a.m., New York City time (a) three Business Days before the date of the proposed Borrowing in the case of a Eurodollar Borrowing or (b) one Business Day before the date of the proposed Borrowing in the case of an ABR Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request signed by the Chief Accounting Officer (or any successor position thereof), the Treasurer or the Chief Financial Officer, in the form of Exhibit B attached hereto or such other form as may be approved by the Administrative Agent, which Borrowing Request shall be signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and 53 (v) the location and number of the Borrower's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04. If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04. Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 12:00 noon, New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to an account of the Borrower maintained with the Administrative Agent in New York City and designated by the Borrower in the Borrowing Request. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.05. Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in the form of Exhibit C attached hereto or such other form as may be approved by the Administrative Agent, which Interest Election Request shall be signed by the Borrower. (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: 54 (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be continued as a Eurodollar Borrowing with an Interest Period of one month. Notwithstanding any contrary provision hereof, (a) if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto, and (b) no Loan may be converted into or continued as a Eurodollar Borrowing after the date that is one month prior to the Termination Date. SECTION 2.06. Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Termination Date. (b) The Borrower may at any time terminate, or from time to time reduce, the Commitments; provided that (i) each reduction of the Commitments shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the sum of the Exposures would exceed the total Commitments. (c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments shall be permanent. Each reduction of the Commitments shall be made ratably among the Lenders in accordance with their respective Commitments. 55 SECTION 2.07. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Termination Date (or such earlier date on which the Loans become due and payable pursuant to Article VII). (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement. (e) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns). SECTION 2.08. Prepayment of Loans. (a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with paragraph (b) of this Section. (b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.06, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.06. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.10. 56 SECTION 2.09. Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the Facility Fee Rate on the daily amount of the Commitment of such Lender (whether used or unused), during the period from and including the Closing Date to but excluding the date on which such Commitment terminates; provided that, if such Lender continues to have any outstanding Loans after its Commitment terminates, then such facility fee shall continue to accrue on the daily amount of such Lender's outstanding Loans from and including the date on which its Commitment terminates to but excluding the date on which such Lender ceases to have any outstanding Loans. Accrued facility fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any facility fees accruing after the date on which the Commitments terminate shall be payable on demand. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a utilization fee equal to the Applicable Utilization Fee Rate per annum for each day on which the Commitment Utilization Percentage exceeds 50%, which fee shall accrue on the daily amount of such Lender's outstanding Loans for each Excess Utilization Day during the period from and including the day on which the Commitment Utilization Percentage exceeds 50% to but excluding the day on which the Commitment Utilization Percentage no longer exceeds 50%. Accrued utilization fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitments terminate, commencing on the first such date to occur after the date hereof; provided that any utilization fees accruing after the date on which the Commitments terminate shall be payable on demand. All utilization fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility and utilization fees, to the Lenders. Fees paid shall not be refundable under any circumstances. SECTION 2.10. Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the rate applicable to ABR Loans as provided above. 57 (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to paragraph (c) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Commitments. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such determination shall be presumptively correct. SECTION 2.11. Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be presumptively correct) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Borrower and the Lenders, which notice shall state the circumstances giving rise to such notice, by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. SECTION 2.12. Increased Costs. (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Lender or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. 58 (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made hereunder, to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts, together with a full explanation of the increased costs, the Change in Law giving rise thereto and the calculation of such amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and further stating that such Lender is requiring corresponding payments from other similarly situated borrowers generally, shall be delivered to the Borrower and shall be presumptively correct. The Borrower shall pay such Lender the amount so due on any such certificate within 10 Business Days after receipt thereof and a full description and calculation of such amount or amounts. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.13. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is permitted to be revocable under Section 2.08(b) and is revoked in accordance herewith) or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 2.16, then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event; provided that any such event is not attributable to the failure of any Lender to fund a Loan. In the case of a Eurodollar Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the Adjusted LIBO Rate (in the case of a Eurodollar Loan) for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for dollar deposits from other banks in the eurodollar market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts, together with a full explanation of the losses, costs, and expenses incurred, the events giving rise thereto and the calculation of such amount or amounts that such Lender is entitled to receive pursuant to this Section, shall be delivered to the Borrower and shall be presumptively correct. The Borrower shall pay such Lender the amount so due on any such certificate within 10 Business Days after receipt thereof. 59 SECTION 2.14. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Borrower shall indemnify the Administrative Agent and each Lender within 10 Business Days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be presumptively correct. To the extent the Administrative Agent or any Lender receives a refund or credit on account of any Indemnified Tax or Other Tax reimbursed by the Borrower or as a result of contesting any Indemnified Tax or Other Tax pursuant to this Section, the Administrative Agent or such Lender, as the case may be, shall promptly pay over the amount of such refund or credit to the Borrower. (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. 60 SECTION 2.15. Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or under Section 2.12, 2.13 or 2.14, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent, c/o The Loan and Agency Services Group at the address set forth in Section 9.01, except that payments pursuant to Sections 2.12, 2.13, 2.14 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. 61 (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.04(b) or 2.15(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.16. Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender defaults in its obligation to fund Loans hereunder, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply. SECTION 2.17. New Lenders; Commitment Increases. (a) With the consent of the Borrower and the Administrative Agent (which, in the case of the Administrative Agent, shall not be unreasonably withheld), (i) one or more additional banks or other financial institutions or other institutional investor may become a party to this Agreement by executing a supplement hereto, in form and substance satisfactory to such bank, financial institution or institutional investor, the Borrower and the Administrative Agent, whereupon such bank, financial institution or institutional investor (a "New Lender") shall become a Lender for all purposes hereof and to the same extent as if originally a party hereto and shall be bound by and entitled to the benefits of this Agreement, and Schedule 2.01 hereto shall be deemed to be amended to add the name, address and Commitment of such New Lender and (ii) any Lender may increase the amount of its Commitment by executing a supplement hereto, in form and substance satisfactory to such Lender, the Borrower and the Administrative Agent, whereupon such Lender shall be bound by and entitled to the benefits of this Agreement with respect to the full amount of its Commitment as so increased, and Schedule 2.01 hereto shall be deemed to be amended to reflect such increase in the Commitment of such Lender. In no event may the aggregate Commitments be increased above $200,000,000 pursuant to any supplement described in this Section 2.17(a). 62 (b) If on the date upon which a bank or other financial institution or institutional investor becomes a New Lender or upon which a Lender's Commitment is changed pursuant to Section 2.17(a), any Loans are then outstanding, the Administrative Agent will consult with the Borrower with the objective of minimizing the costs to the Borrower, and may (A) require that the Borrower prepay and reborrow any outstanding Loans in connection therewith if it determines such action to be desirable to facilitate administration under this Agreement in such amount and with such Interest Period such that, after giving effect thereto, the quotient of (x) the Loan of such Lender of each Type and, in the case of Eurodollar Loans, with each Interest Period and (y) such Lender's Commitment is equal to the corresponding comparable quotient of each other Lender and (B) with the consent of such Lender permit the Borrower to select an initial Interest Period with respect to the initial Loans made by such Lender having a duration other than one, two, three, or six months if the Administrative Agent determines such action to be desirable to facilitate administration of the Loans under this Agreement. Any Eurodollar Borrowing borrowed pursuant to the preceding sentence shall bear interest at a rate equal to the respective interest rates then applicable to the Eurodollar Loans of the other Lenders or such other rate as may be agreed upon by the Borrower and such Lender. ARTICLE III Representations and Warranties The Borrower represents and warrants to the Lenders that: SECTION 3.01. Organization; Powers. Each of the Borrower and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions are within the Borrower's powers and have been duly authorized by all necessary actions by the trustees thereof. This Agreement has been duly executed and delivered by the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03. Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made or will have been obtained or made by the Closing Date and are in full force and effect, (b) will not violate in any material respect any applicable law or regulation, (c) will not violate the charter, by-laws or other organizational documents of the Borrower or any of its Subsidiaries or any order of any Governmental Authority, (d) will not violate or result in a default under any material indenture, agreement or other instrument binding upon the Borrower or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Subsidiaries, and (e) will not result in the creation or imposition of any material Lien on any asset of the Borrower or any of its Subsidiaries. 63 SECTION 3.04. Financial Condition; No Material Adverse Effect. (a) The Borrower has heretofore furnished to the Lenders its consolidated balance sheet and statements of income, beneficial interests and cash flows (i) as of and for the fiscal years ended 1998, 1999 and 2000, reported on by Deloitte & Touche LLP, independent public accountants, and (ii) as of and for the fiscal quarters and the portion of the fiscal year ended January 31, 2001, April 30, 2001 and July 31, 2001, certified by its principal accounting officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. The Borrower and its Subsidiaries do not have any material Guarantees, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. (b) Since October 31, 2000, there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect. SECTION 3.05. Properties. (a) Each of the Borrower and its Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for any defects in title that do not interfere with its ability to conduct business as now conducted or to use such properties for their intended purposes and none of such property is subject to any Lien except as permitted by Section 6.03. (b) Each of the Borrower and its Subsidiaries owns, or is licensed to use, all material trademarks, tradenames, copyrights, patents and other intellectual property necessary for the conduct of their respective businesses as now conducted, subject to such limitations on the use thereof, or the rights to use same, that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.06. Litigation and Environmental Matters. (a) Except for the Disclosed Matters, there are no actions, suits or proceedings, or, to the knowledge of the Borrower, investigations, by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that relate specifically to this Agreement or the Transactions. (b) Except with respect to any matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, to the Borrower's knowledge neither the Borrower nor any of its Subsidiaries (i) has failed to comply in any material respect with any Environmental Law or to obtain, maintain or comply with any material permit, license or other approval required under any Environmental Law, (ii) has become subject to any material Environmental Liability, (iii) has received notice of any claim with respect to any material Environmental Liability or (iv) knows of any basis for any material Environmental Liability. (c) Since the Effective Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments (including any material investment advisory or management agreements) binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 64 SECTION 3.08. Investment and Holding Company Status. (a) Neither the Borrower nor any of its Subsidiaries is (i) an "investment company", or a borrower "controlled" by an "investment company", each as defined in, or subject to regulation under, the Investment Company Act of 1940, or (ii) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. Except for net capital and other requirements imposed on registered broker-dealers, neither the Borrower nor any of its Subsidiaries is subject to any regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. (b) The Borrower and each Subsidiary of the Borrower which is engaged in investment advisory or investment management activities is, and at all times will be, duly registered as an investment adviser as and to the extent required under the Investment Advisers Act of 1940, as amended; and each Subsidiary of the Borrower which is engaged in broker-dealer business is, and at all times will be, duly registered as a broker-dealer as and to the extent required under the Securities Exchange Act of 1934, as amended, and, as and to the extent required, is, and at all times will be, a member in good standing of the National Association of Securities Dealers, Inc. SECTION 3.09. Taxes. Each of the Borrower and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed or has requested extensions thereof and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. SECTION 3.10. ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $5,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $10,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11. Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. No Default. As of the Effective Date, neither the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 65 SECTION 3.13. Subsidiaries. Schedule 3.13 sets forth the name and jurisdiction of incorporation or organization of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by the Borrower. As of the Effective Date there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options or restricted stock granted to employees or directors and directors' qualifying shares) of any nature relating to any Capital Stock of the Borrower or any Subsidiary. SECTION 3.14. Federal Regulations. No part of the proceeds of any Loans will be used for "buying" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect in any manner that violates the provisions of the Regulations of the Board or for any other purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U. No more than 25% of the consolidated assets of the Borrower and its Subsidiaries (excluding treasury shares) consist of "margin stock" under Regulation U as now and from time to time hereafter in effect. SECTION 3.15. No Burdensome Restrictions. No Requirement of Law or Contractual Obligation of the Borrower could reasonably be expected to have a Material Adverse Effect. ARTICLE IV Conditions SECTION 4.01. Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02): (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Administrative Agent shall have received a favorable written opinion (addressed to the Administrative Agent and the Lenders and dated the Effective Date) of a senior legal officer or special counsel of the Borrower, substantially in the form of Exhibit D, and covering such other matters relating to the Borrower, this Agreement or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsel to deliver such opinion. (c) The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Borrower, this Agreement or the Transactions, all in form and substance satisfactory to the Administrative Agent and its counsel. (d) The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of the Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Administrative Agent shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder. 66 (f) All governmental and third party approvals necessary in connection with the continuing operations of the Borrower and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the financing contemplated hereby. (g) The Lenders shall have received (i) audited consolidated financial statements of the Borrower for the 1998, 1999 and 2000 fiscal years and (ii) unaudited interim consolidated financial statements of the Borrower for each quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower, as reflected in the financial statements or projections contained in the Confidential Information Memorandum. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date in writing, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 12:00 noon, New York City time, on December 21, 2001 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 4.02. Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing (including, without limitation, its initial Loan) is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrower set forth in this Agreement shall be true and correct in all material respects on and as of the date of such Borrowing; except for any representation and warranty made as of an earlier date, which representation and warranty shall be true in all material respects on such earlier date. (b) At the time of and immediately after giving effect to such Borrowing, no Default shall have occurred and be continuing. Each Borrowing and any increase of the aggregate Commitments pursuant to Section 2.17 shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 5.01. Financial Statements and Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) within 90 days after the end of each fiscal year of the Borrower, the audited consolidated balance sheet of the Borrower and its Subsidiaries and the related audited consolidated statements of income, of beneficial interests and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Deloitte & Touche L.L.P. or other independent certified public accountants of nationally recognized standing; 67 (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its Subsidiaries, and the related unaudited consolidated statements of income, beneficial interests and cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by an officer of the Borrower as being fairly stated in all material respects (subject to normal year-end audit adjustments); (c) after the end of each fiscal quarter of the Borrower, (A) a schedule of the Net Asset Value of the investment companies and accounts managed by the Borrower and its Subsidiaries on the last day of such fiscal quarter and (B) a schedule showing the calculation of the Aggregate Revenue Base as of the end of such fiscal quarter of the Borrower, and an analysis of changes from the preceding calendar quarter or in such other form as may be reasonably satisfactory to the Administrative Agent; (d) concurrently with any delivery of statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrower (i) certifying as to whether an Event of Default has occurred and, if an Event of Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.01 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; and (e) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the terms of this Agreement, as the Administrative Agent or any Lender may reasonably request. SECTION 5.02. Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Event of Default; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $5,000,000; (d) either (i) any suspension or termination of the registration of the Borrower as an investment adviser under the Investment Advisers Act of 1940, as amended or (ii) where such suspension, termination, cancellation or expiration could reasonably be determined to have a Material Adverse Effect, any suspension or termination of the registration of any Subsidiary as an investment adviser under the Investment Advisers Act of 1940, as amended, or any cancellation or expiration without renewal of any material investment advisory agreement or similar contract to which the Borrower or any Subsidiary is a party; and (e) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 68 Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. The Borrower will, and will cause each of its Subsidiaries to, (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.04, and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. SECTION 5.04. Payment of Obligations. The Borrower will, and will cause each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05. Maintenance of Properties; Insurance. The Borrower will, and will cause each of its Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. The Borrower will, and will cause each of its Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its Financial Officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07. Compliance with Laws. The Borrower will, and will cause each of its Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property and maintain all registrations and memberships with any Governmental Authority, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds. The proceeds of the Loans will be used to finance the working capital needs of the Borrower and its Subsidiaries and for general corporate purposes, including but not limited (i) to repurchase a portion of the Zero-Coupon Notes and (ii) to consummate Permitted Acquisitions. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. 69 SECTION 5.09. Environmental Laws. The Borrower will, and will cause each of its Subsidiaries to, (a) comply in all material respects with all applicable Environmental Laws, and obtain and comply in all material respects with and maintain any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, and (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws, except in each case to the extent that non-compliance therewith could not reasonably be expected to result in a Material Adverse Effect. ARTICLE VI Negative Covenants Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with the Lenders that: SECTION 6.01. Financial Condition Covenants. (a) Consolidated Leverage Ratio. The Borrower shall not permit the Consolidated Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter to equal or exceed the ratio of 2.50:1.00. (b) Consolidated Interest Coverage Ratio. The Borrower shall not permit the Consolidated Interest Coverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter to equal or exceed the ratio of 5.00:1.00. SECTION 6.02. Indebtedness. The Borrower will not permit any Subsidiary to create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness existing on the date hereof and set forth in Schedule 6.02; (b) (i) Indebtedness of any Subsidiary to the Borrower or any other Subsidiary and (ii) Indebtedness of the Borrower to any Subsidiary; (c) (i) Guarantees by any Subsidiary of Indebtedness of the Borrower or any other Subsidiary and (ii) Guarantees by the Borrower of any Subsidiary Indebtedness; (d) Indebtedness of the Borrower or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (d) shall not exceed $25,000,000 at any time outstanding; (e) Indebtedness of any Person that becomes a Subsidiary after the date hereof; provided that such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary; (f) Indebtedness of any Subsidiary as an account party in respect of trade letters of credit; (g) Guarantees by the Borrower and any Subsidiary of operating and capital leases permitted hereunder; 70 (h) Guarantees by the Borrower or any Subsidiary of indemnification obligations and price adjustments in connection with Permitted Acquisitions or acquisitions of Capital Stock or other assets otherwise permitted hereunder; and (i) other unsecured Indebtedness in an aggregate principal amount not exceeding $50,000,000 at any time outstanding. SECTION 6.03. Liens. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except (Liens described below, "Permitted Liens"): (a) Permitted Encumbrances; (b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date hereof and set forth in Schedule 6.03; provided that (i) such Lien shall not apply to any other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof; (c) any Lien existing on any property or asset prior to the acquisition thereof by the Borrower or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Borrower or any Subsidiary and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be; and (d) Liens on real or personal property, plant and equipment acquired, leased, constructed or improved by the Borrower or any Subsidiary; provided that (i) such security interests secure Indebtedness permitted by clause (d) of Section 6.02, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or improving such property, plant and equipment and (iv) such security interests shall not apply to any other property or assets of the Borrower or any Subsidiary. 71 SECTION 6.04. Fundamental Changes. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the Capital Stock of any of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing (i) any other Person, including a Subsidiary, may merge into the Borrower in a transaction in which the Borrower is the surviving Person, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise dispose of its assets to the Borrower or to another Subsidiary, (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such liquidation or dissolution is in the best interests of the Borrower and which could not reasonably be expected to have a Material Adverse Effect, and (v) the Borrower may merge into or consolidate with another Person in a transaction in which such other Person is the surviving entity if such other Person is organized and validly existing under the laws of the United States or any State thereof and by operation of law or otherwise assumes all obligations of the Borrower hereunder and such assumption is evidenced by an opinion of counsel to such other Person satisfactory in form and substance to the Administrative Agent in its reasonable discretion; provided that any such merger involving a Person that is not a wholly owned Subsidiary immediately prior to such merger shall not be permitted unless also permitted by Section 6.05. (b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any material extent in any business other than businesses of the type conducted by the Borrower and its Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.05. Investments, Loans, Advances, Guarantees and Acquisitions; Hedging Agreements. (a) The Borrower will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any Capital Stock, evidences of Indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (i) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (ii) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, an investment-grade credit rating from S&P or from Moody's; (iii) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $1,000,000,000; (iv) investments in any fixed and variable income funds (which fund may be an Eaton Vance Fund) in accordance with the ordinary course of business of the Borrower and in a manner consistent with the past practice of the Borrower; 72 (v) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (i) above and entered into with a financial institution satisfying the criteria described in clause (iii) above; (vi) investments by the Borrower existing on the date hereof and made after the Effective Date in the Capital Stock of its Subsidiaries and investments by any Subsidiary in another Subsidiary; (vii) loans or advances made by the Borrower to any Subsidiary and made by any Subsidiary to the Borrower or any other Subsidiary; (viii) Guarantees constituting Indebtedness permitted by Section 6.02; (ix) Permitted Acquisitions; (x) loans and advances to directors, officers and employees of the Borrower and the Subsidiaries made in connection with the 1998 Executive Loan Program; (xi) investments in newly created funds, structured products or other investments advised or managed by the Borrower and its Subsidiaries in the ordinary course of business of the Borrower and in a manner consistent with the past practice of the Borrower, in an aggregate amount (based upon the book value on the books of the Borrower and its Subsidiaries) of not more than $100,000,000; and (xii) loans or advances by the Borrower or any Subsidiary to any Affiliate of the Borrower in an aggregate principal amount not exceeding $85,000,000 at any time outstanding. (xiii) other investments, loans, advances or guarantees in an aggregate principal amount not exceeding $25,000,000 at any time outstanding; (b) The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 6.06. Restricted Payments. The Borrower will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except the Borrower or any of its Subsidiaries may declare and pay dividends or other distributions of any kind (whether in cash, securities or other property) with respect to its Capital Stock provided that, in the case of any such declaration or payment by the Borrower, no Default or Event of Default has occurred or is continuing or would result therefrom. SECTION 6.07. Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Borrower and its Subsidiaries not involving any other Affiliate and (c) any transaction expressly permitted by Sections 6.04, 6.05(a)(x), 6.05(a)(xii) and 6.06. SECTION 6.08. Changes in Fiscal Periods. The Borrower will not permit the fiscal year of the Borrower to end on a day other than the last Business Day closest to October 31 or change the Borrower's method of determining fiscal quarters. 73 SECTION 6.09. Limitation on Sale of Assets. The Borrower will not, and will not permit any of its Subsidiaries to, dispose of any of its property or business (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) dispositions permitted by Section 6.04; (b) transactions permitted by Sections 6.05; (c) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any wholly-owned Subsidiary; and (d) any sale, transfer or lease or other disposition by the Borrower or any Subsidiary in the ordinary course of business. ARTICLE VII Events of Default If any of the following events ("Events of Default") shall occur: (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five Business Days; (c) any representation or warranty made or, pursuant to Section 4.02 deemed made, by or on behalf of the Borrower or any Subsidiary in or in connection with this Agreement or any amendment or modification hereof, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof, shall prove to have been materially incorrect when made or deemed made; (d) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to the Borrower's existence) or the last sentence of 5.08 or in Article VI; (e) the Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Administrative Agent (given at the request of any Lender) to the Borrower; (f) the Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest) in respect of any Material Indebtedness, when and as the same shall become due and payable; (g) any event or condition occurs that results in the acceleration of any Material Indebtedness prior to its scheduled maturity; provided that this clause (g) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness; 74 (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) the Borrower or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (k) one or more uninsured judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect; or (m) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in case of any event with respect to the Borrower described in clause (h) or (i) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. 75 ARTICLE VIII The Administrative Agent Except as provided below, each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The bank serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent hereunder. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made by any other Person in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered by any other Person hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness (other than its own due execution) or genuineness of this Agreement or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing reasonably believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. 76 The Administrative Agent may perform any and all its duties and exercise its rights and powers through Related Parties of the Administrative Agent. The exculpatory provisions of the preceding paragraphs shall apply to the Related Parties of the Administrative Agent, and shall apply to their activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. ARTICLE IX Miscellaneous SECTION 9.01. Notices. Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to the Borrower, to it at Eaton Vance Management, The Eaton Vance Building, 225 State Street, Boston, MA, 02109, Attention: Mr. William M. Steul, Chief Financial Officer (Telecopy No. (617) 426-2487); with a copy to the Chief Legal Officer of the Borrower and to Nixon Peabody LLP at 101 Federal Street, Boston, MA 02110, Attention: Craig D. Mills. (b) if to the Administrative Agent, to JPMorgan Chase Bank, c/o The Loan and Agency Services Group, 1 Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Christine Grippo (Telecopy No. (212) 552-7490), with a copy to JP Morgan Chase Bank, 270 Park Avenue, New York, New York 10017, Attention of Roger Parker (Telecopy No. (212) 270-0412); and (c) if to any other Lender, to it at its address (or telecopy number) set forth in its Administrative Questionnaire. Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 77 SECTION 9.02. Waivers; Amendments. (a) No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.15(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. SECTION 9.03. Expenses; Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable, documented out-of-pocket expenses incurred by the Administrative Agent and its Affiliates in amounts previously agreed to in writing and the reasonable fees, charges and disbursements of counsel for the Administrative Agent, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made, including in connection with any workout, restructuring or negotiations in respect thereof. 78 (b) The Borrower shall indemnify the Administrative Agent and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities, costs and related expenses, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that (a) such losses, claims, damages, liabilities, costs or related expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (b) any such losses, damages, liabilities, costs, or related expenses solely arise out of any successful claim made by the Borrower or any Subsidiary against any such Indemnitee. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. (e) All amounts due under this Section shall be payable not later than 30 days after written demand therefor accompanied by documentation reasonably describing the basis for such amounts. SECTION 9.04. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. 79 (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Borrower and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (the obligation to pay such fee to be shared equally by the assignor and assignee), and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Borrower otherwise required under this paragraph shall not be required if an Event of Default under clause (h) or (i) of Article VII has occurred and is continuing. Upon acceptance and recording pursuant to paragraph (d) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (e) of this Section. (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. 80 (e) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (f) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. (f) A Participant shall not be entitled to receive any greater payment under Section 2.12 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender. (g) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation (i) any such pledge or assignment to a Federal Reserve Bank, and (ii) in the case of any Lender that is a Fund, any pledge or assignment of all or any portion of such Lender's rights under this Agreement to any holders of obligations owed, or securities issued, by such Lender as security for such obligations or securities, or to any trustee for, or any other representative of such holders and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such assignee for such Lender as a party hereto. SECTION 9.05. Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.13, 2.14 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. 81 SECTION 9.06. Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.07. Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.08. Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender to or for the credit or the account of the Borrower against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.09. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement shall be construed in accordance with and governed by the law of the State of New York. (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement against the Borrower or its properties in the courts of any jurisdiction. 82 (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 9.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 9.12. Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process after written notice of same is given to Borrower if written notice is permitted, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section, (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower or (iii) to the National Association of Insurance Commissioners or any other similar organization or nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with rating issued with respect to such Lender. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower; provided that, in the case of information received from the Borrower after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 83 SECTION 9.13. Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. 84 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. EATON VANCE MANAGEMENT By: ------------------------------- Name: Title: JPMORGAN CHASE BANK, individually and as Administrative Agent, By: ------------------------------- Name: Title: 85 CITICORP USA, INC., individually and as Syndication Agent By: ------------------------------- Name: Title: 86 CREDIT SUISSE FIRST BOSTON CAYMAN ISLANDS BRANCH, individually and as Documentation Agent By: ------------------------------- Name: Title: 87 FLEET NATIONAL BANK, individually and as Documentation Agent By: ------------------------------- Name: Title: 88 UBS AG, STAMFORD BRANCH, individually and as Documentation Agent By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: 89 MERRILL LYNCH BANK USA By: ------------------------------- Name: Title: 90 Annex A PRICING GRID Level 1 Level 2 Level 3 Level 4 ------- ------- ------- ------- S&P Rating: higher than BBB+ BBB+ BBB lower than BBB Moody's Rating: higher than Baa1 Baa1 Baa2 lower than Baa2 ABR Loans' 0% 0% 0% 0% Applicable Margin Eurodollar Loans' 0.400% 0.500% 0.600% 0.950% Applicable Margin Facility Fee Rate 0.100% 0.125% 0.150% 0.175% Utilization Fee(1) 0.125% 0.125% 0.250% 0.250% For purposes of determining the Applicable Margins or the Facility Fee Rates, (i) in the event of a "split rating" (i.e., if the Moody's Rating applicable to the Borrower at any time appears in the chart above in a different column from that in which the S&P Rating then applicable to the Borrower appears), the Applicable Margins and the Facility Fee Rates will be based on the column which includes the higher rating (unless the higher rating is more than one rating level higher than the lower rating, in which case the pricing shall be that applicable to the rating level which is one rating level lower than the higher rating level), (ii) if Moody's or S&P shall not have in effect a rating (other than because such rating agency shall no longer be in the business of rating corporate debt obligations), then such rating agency will be deemed to have established a rating one rating level lower than the rating of either Moody's or S&P, as the case may be, that remains in effect and (iii) the Applicable Margins and the Facility Fee Rates shall be subject to adjustment (upwards or downwards, as appropriate), effective as of the date on which S&P or Moody's announces a rating change which results in a change in the Applicable Margins and the Facility Fee Rates. - ----------- (1) Utilization Fee for each level is only applicable if the aggregate outstanding principal amount of all Loans under the Facility exceeds 50% of the total commitments under the Facility. 91 SCHEDULE 2.01 COMMITMENTS Lender Commitment JPMorgan Chase Bank $ 30,000,000 Citicorp USA, Inc. $ 30,000,000 Credit Suisse First Boston Cayman Islands Branch $ 30,000,000 Fleet National Bank $ 30,000,000 UBS AG, Stamford Branch $ 30,000,000 Merrill Lynch Bank USA $ 20,000,000 Total $170,000,000 92 DISCLOSED MATTERS Existing Litigation 1. On May 25, 2001, a complaint was filed in the United Stated District court for the District of Massachusetts by two shareholders of one account of EV Classic Senior Floating-Rate Fund (the "Fund") against such Fund, its trustees and certain of its officers, Eaton Vance Management, the Fund's administrator, Boston Management and Research ("BMR"), the Fund's investment adviser, and Eaton Vance Corp., the parent of Eaton Vance Management and BMR. The complaint, framed as a class action, alleges that for the period between March 30, 1998 and March 2, 2001, the Fund's assets were incorrectly valued and certain matters were not properly disclosed, in violation of the federal securities laws. The complaint seeks unspecified damages. On July 19, 2001, another shareholder of the Fund filed a virtually identical complaint in the same court. Eaton Vance Corp. and the other named defendants believe that the complaints are without merit and will vigorously contest the lawsuits. 93 SCHEDULE 3.13 SUBSIDIARIES
PERCENTAGE JURISDICTION OF OWNER OF EQUITY OWNERSHIP INTEREST/ SUBSIDIARIES ORGANIZATION INTERESTS IN SUBSIDIARY CLASS OF INTERESTS - ------------ ------------ ----------------------- ------------------ Eaton Vance Distributors, Inc. Massachusetts Eaton Vance Management 100%/Common Stock Eaton Vance Acquisitions Massachusetts Eaton Vance Management 100%/Beneficial Interests (Business Trust) Boston Management and Research (Business Trust) Massachusetts Eaton Vance Management 100%/Beneficial Interests Atlanta Capital Management Delaware Eaton Vance Acquisitions 70%/Membership Interests Company, LLC Fox Asset Management Company, LLC Delaware Eaton Vance Acquisitions 80%/Membership Interests Minven LLC Delaware Eaton Vance Management 100%/Membership Interests Spring Lane Associates, Inc. Massachusetts Eaton Vance Management 100%/Common Stock Northeast Properties, LLC Delaware Eaton Vance Management 100%/Membership Interests NP Management, Inc. Massachusetts Northeast Properties, LLC 100%/Common Stock FOREIGN SUBSIDIARIES - -------------------- Eaton Vance Advisor (Ireland) Limited Ireland Eaton Vance Management 100%/Equity Interests Eaton Vance Management (International) United Kingdom Eaton Vance Management 100%/Equity Interests Limited
94 SCHEDULE 6.02 EXISTING INDEBTEDNESS 1. $314,000,000 aggregate principal amount at maturity zero-coupon exchangeable senior Liquid Yield Option Notes due 2031 issued pursuant to that certain Purchase Agreement dated August 7, 2001, as amended or modified from time to time. 2. $50,000,000 aggregate principal amount of 6.22% Senior Notes due 2004 issued pursuant to that certain Note Purchase Agreement dated as of March 1, 1994 95 SCHEDULE 6.03 EXISTING LIENS None. 96 EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement, dated as of December 21, 2001 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among Eaton Vance Management (the "Borrower"), the Lenders party thereto and JP Morgan Chase Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Assignor identified on Schedule l hereto (the "Assignor") and the Assignee identified on Schedule l hereto (the "Assignee") agree as follows: i. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to those credit facilities contained in the Credit Agreement as are set forth on Schedule 1 hereto (individually, an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on Schedule 1 hereto. ii. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Subsidiaries or any other obligor or the performance or observance by the Borrower, any of its Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches any promissory notes held by it evidencing the Assigned Facilities and (i) requests that the Administrative Agent, upon request by the Assignee, exchange the attached promissory notes for a new promissory note or notes payable to the Assignee and (ii) if the Assignor has retained any interest in the Assigned Facility, requests that the Administrative Agent exchange the attached promissory notes for a new promissory note or notes payable to the Assignor, in each case in amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 97 iii. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements delivered pursuant to subsection 3.04 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to subsection 2.14(e) of the Credit Agreement. iv. The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). v. Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. vi. From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. vii. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. 98 Schedule 1 to Assignment and Acceptance Name of Assignor: --------------------------- Name of Assignee: --------------------------- Effective Date of Assignment: --------------------------- Credit Principal Facility Assigned Amount Assigned Commitment Percentage Assigned(1) - ----------------- --------------- ------------------------------- $ --------- --.----------% [Name of Assignee] [Name of Assignor] By: By: --------------------- -------------------------- Title: Title Accepted: Consented To: JPMORGAN CHASE BANK, EATON VANCE MANAGEMENT(2) as Administrative Agent By: By: --------------------- -------------------------- Title: Title: - ------------- (1) Calculate the Commitment Percentage that is assigned to at least 15 decimal places and show as a percentage of the aggregate commitments of all Lenders. (2) The Borrower's consent may not be required pursuant to subsection 9.04 of the Credit Agreement. 99 EXHIBIT B FORM OF BORROWING REQUEST JPMorgan Chase Bank, as Administrative Agent Loan and Agency Services One Chase Manhattan Plaza New York, New York 10081 Attention: Christine Grippo [Date] Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of December 21, 2001 (as amended and in effect on the date hereof, the "Credit Agreement"), among the undersigned, as Borrower, the Lenders named therein, and JPMorgan Chase Bank, as Administrative Agent. Terms defined in the Credit Agreement are used herein with the same meanings. This notice constitutes a Borrowing Request and the Borrower hereby requests a Borrowing under the Credit Agreement, and in that connection the Borrower specifies the following information with respect to the Borrowing requested hereby: (A) Aggregate amount of requested Borrowing:(1) ------------- (B) Date of the requested Borrowing:(2) (C) Type of Borrowing:(3) (D) Interest Period:(4) (E) Location and number of Borrower's account at Administrative Agent to which proceeds of Borrowing are to be disbursed: (F) The Borrower hereby represents and warrants to the Administrative Agent and the Lenders that the proceeds of the requested Borrowing will be used in a manner consistent with the terms of the Credit Agreement. The Borrower hereby represents and warrants that the conditions specified in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement have been satisfied in all respects. Very truly yours, By: ------------------------------ Name: Title: - ----------- (1) Amount inserted to be no greater than the aggregate Commitments of the Lenders less the aggregate Unused Commitments of the Lenders as of such date. Such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of five (5) Eurodollar Borrowings outstanding at any time. (2) Must be a Business Date. (3) Please specify either Eurodollar Borrowing or ABR Borrowing. If this part is left blank, the request will be treated as a request for an ABR Borrowing. (4) Only applicable for Eurodollar Borrowings. Must be a period contemplated by the definition of the term "Interest Period". If no Interest Period is specified, then the Borrower will be deemed to have selected an Interest Period of one month. 100 EXHIBIT C FORM OF INTEREST ELECTION REQUEST JPMorgan Chase Bank, as Administrative Agent Loan and Agency Services One Chase Manhattan Plaza New York, New York 10081 Attention: Christine Grippo [Date] Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of December 21, 2001 (as amended and in effect on the date hereof, the "Credit Agreement"), among the undersigned, as Borrower, the Lenders named therein, and JPMorgan Chase Bank, as Administrative Agent. Terms defined in the Credit Agreement are used herein with the same meanings. This notice constitutes an Interest Election Request under the Credit Agreement, and the Borrower hereby requests that the Borrowings referred to herein be of the Type and, if applicable, Interest Period set forth herein, and in that connection the Borrower specifies the following information with respect to the Borrowing designated herein: (A) Borrowing to which this Interest Election Request applies: (1) (B) Effective date of this Interest Election Request:(2) (C) Type of Borrowing after the effective date of this Interest Election Request: (3) (D) Interest Period:(4) The Borrower hereby represents and warrants that the conditions specified in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement have been satisfied in all respects. Very truly yours, By: ------------------------------ Name: Title: - -------------- (1) If different options are being elected with respect to different portions thereof, please specify the portions thereof to be allocated to each resulting Borrowing. (2) Must be a Business Date. (3) Please specify either Eurodollar Borrowing or ABR Borrowing. If this part is left blank, the request will be treated as a request for an ABR Borrowing. If different options are being elected with respect to different portions of a Borrowing, please specify the Type of Borrowing for each resulting Borrowing. (4) Only applicable for Eurodollar Borrowings. Must be a period contemplated by the definition of the term "Interest Period". If no Interest Period is specified, then the Borrower will be deemed to have selected an Interest Period of one month. If different options are being elected with respect to different portions of a Borrowing, please specify the Interest Period for each resulting Borrowing. 101 EXHIBIT D FORM OF OPINION OF COUNSEL OF THE BORROWER EX-13.1 5 ex13_1.txt COPY OF COMPANY'S ANNUAL REPORT 102 EATON VANCE CORP. 2001 ANNUAL REPORT [Graphic Omitted] 103 Eaton Vance Corp. Eaton Vance Corp., with a long history as a respected adviser of mutual funds, has today assumed a leading role in the investment industry as a Comprehensive Wealth Manager, offering a complete line of products for creating and growing wealth, protecting and preserving wealth and, ultimately, for distributing wealth, all with an emphasis on tax efficiency. The Company was formed by the 1979 merger of two Boston-based investment firms: Eaton & Howard, founded in 1924, and Vance, Sanders & Company, founded in 1934. About the Cover In the center of the mosaic floor is Eaton Vance's corporate logo, which serves as a dramatic focal point, both of the floor and of the photograph. Just as creating any work of art requires vision, so too does creating and operating a highly successful company. In this year's special section, Crafting the Mosaic, read about Eaton Vance's strategic initiatives, past and present, as the Company positions itself for success in the 21st century. [Graphic Omitted] 104 [Graphic Omitted] To the families, friends and colleagues of those who died on September 11th, we extend our deepest sympathy. To the courageous rescuers who sacrificed or risked their lives, we offer our gratitude and admiration. To the women and men of our armed services, we offer our prayers for a speedy conclusion to their mission and a safe return to our shores. 105 FINANCIAL HIGHLIGHTS (in billions of dollars) 2001 2000 - ------------------------------------------------------------------------------- Assets Under Management $56.6 $49.2 Long-Term Fund Net Inflows 6.1 5.3 (in millions of dollars) - ------------------------------------------------------------------------------- Revenue $486.4 $429.6 Net Income 116.0 116.1 Shareholders' Equity 301.1 255.0 (in dollars) - ------------------------------------------------------------------------------- Per Common Share Net Income Basic $ 1.69 $ 1.65 Diluted 1.60 1.58 Shareholders' Equity 4.39 3.67 Dividends 0.25 0.20 Assets Under Management (in billions) 1995 - 2001 CAGR: 23% 1995 16.0 1996 17.3 1997 21.3 1998 28.4 1999 40.9 2000 49.2 2001 56.6 Dividends per share 10 YEAR CAGR: 21% 1992 0.0500 1993 0.0600 1994 0.0800 1995 0.0800 1996 0.0900 1997 0.1100 1998 0.1300 1999 0.1600 2000 0.2000 2001 0.2500 1 106 TO SHAREHOLDERS [Photo of James B. Hawkes] James B. Hawkes [callout] In fiscal 2001, Eaton Vance outperformed most of the mutual fund industry in terms of asset growth, market share gains, earnings progress and stock price performance. I am pleased to report that fiscal 2001 was highly successful for Eaton Vance Corp. While the environment for financial services companies was particularly challenging during the year, Eaton Vance continued to outperform most of the mutual fund industry in terms of asset growth, market share gains, earnings progress and stock price performance. Additionally, Eaton Vance accomplished an important strategic goal on September 30 by acquiring Atlanta Capital Management Company, LLC, and Fox Asset Management, LLC, which together added $7.9 billion to assets under management. These acquisitions strengthen the Company in important ways and create new opportunities for growth, as described more fully in Crafting the Mosaic later in this report. In August, to provide funding for the pending acquisitions and for future strategic initiatives, Eaton Vance raised approximately $200 million on very favorable terms by issuing 30-year zero-coupon exchangeable notes with a yield to maturity of 1.5 percent. It was a busy year, with a great deal accomplished. [callout] On September 30, Eaton Vance accomplished an important strategic goal by acquiring Atlanta Capital and Fox Asset Management, two leading institutional investment managers. EATON VANCE PERFORMS WELL IN A DIFFICULT ENVIRONMENT After almost 10 years of generally favorable economic conditions and rising equity markets, stock prices reversed course in March of 2000. The downward trend in equity markets continued throughout Eaton Vance's current fiscal year ended October 31, with the S&P 500 declining 25 percent and the NASDAQ Composite Index down 50 percent. As a result, the mutual fund industry experienced reduced demand overall, particularly for equity funds, and many industry participants experienced markedly lower sales and net redemptions. Eaton Vance performed very well in this difficult environment. Excluding the assets under management of Atlanta Capital and Fox Asset Management, Eaton Vance's overall assets declined only 2 percent, and equity assets declined only 3 percent. Counter to industry trends, long-term fund net inflows increased by 15 percent to $6.1 billion in fiscal 2001 from $5.3 billion the previous year. Strong fiscal 2001 equity net inflows of $5.1 billion offset most of the $5.9 billion in equity asset 2 107 [callout] Counter to industry trends, Eaton Vance's long-term fund net inflows increased by 15 percent in fiscal 2001, to $6.1 billion from $5.3 billion the prior year. depreciation caused by market declines. Fixed-income funds and bank-loan funds experienced positive net inflows as well. Including the assets acquired on September 30, assets under management increased by 15 percent to $56.6 billion. Sales of Eaton Vance mutual funds were aided during the year by outstanding relative investment performance, a well-balanced product line and a leadership position in a number of key asset classes. Our strategic decisions of recent years established Eaton Vance as a leader in sophisticated wealth-management products for higher-net-worth investors and contributed to the Company's strong performance this fiscal year. Our family of products for Comprehensive Wealth Management is one of the broadest in the investment management industry and provides financial advisers, including independents and those with the major broker/dealers, attractive investment opportunities for their clients under all market conditions. [callout] Including the assets of Atlanta Capital and Fox Asset Management, acquired on September 30, assets under management increased by 15 percent to $56.6 billion in fiscal 2001. Relative Prices 14 Publicly Traded Asset EV S&P 500 Managers 11/1/1994 0 0 0 12/1/1994 5.6604 1.2299 2.8542 1/1/1995 7.5472 3.6875 -0.7619 2/1/1995 14.1512 7.428 7.4016 3/1/1995 19.8115 10.3639 11.1514 4/1/1995 19.3395 13.4497 12.2791 5/1/1995 24.5283 17.5693 17.1559 6/1/1995 21.6983 20.071 18.0559 7/1/1995 16.9811 23.8864 22.4675 8/1/1995 44.3398 23.8467 28.245 9/1/1995 45.283 28.8126 33.5581 10/1/1995 37.7359 28.1712 31.1148 11/1/1995 27.1871 33.4325 36.3543 12/1/1995 24.9751 35.7601 31.1907 1/1/1996 41.5647 40.1882 37.7497 2/1/1996 49.3066 41.1603 43.4559 3/1/1996 43.7767 42.2778 40.9644 4/1/1996 34.9289 44.1888 39.5952 5/1/1996 44.8827 47.484 42.4677 6/1/1996 60.3663 47.8168 47.7444 7/1/1996 59.2603 41.0545 43.7336 8/1/1996 69.7671 43.7083 49.2082 9/1/1996 71.979 51.5021 58.5533 10/1/1996 93.5455 55.452 68.2793 11/1/1996 90.2276 66.8584 73.8079 12/1/1996 110.6881 63.2701 82.2309 1/1/1997 99.0754 73.2813 86.8944 2/1/1997 95.7575 74.3084 99.8938 3/1/1997 95.7575 66.8805 81.7482 4/1/1997 95.7575 76.6272 100.0421 5/1/1997 117.877 86.9735 109.4975 6/1/1997 146.0837 95.098 128.4286 7/1/1997 175.3876 110.3397 152.602 8/1/1997 153.2682 98.2565 140.9939 9/1/1997 216.3087 108.7946 186.139 10/1/1997 219.6266 101.5958 180.4942 11/1/1997 209.1199 110.5843 154.8062 12/1/1997 234.0043 113.8972 166.5327 1/1/1998 225.1565 116.0682 171.2895 2/1/1998 267.7365 131.2901 200.1777 3/1/1998 326.3532 142.842 193.294 4/1/1998 333.542 145.0462 202.1843 5/1/1998 297.5978 140.4329 163.73 6/1/1998 309.7636 149.9151 172.5255 7/1/1998 291.515 147.0123 159.5929 8/1/1998 251.6999 110.9987 104.9466 9/1/1998 308.1046 124.1641 107.3273 10/1/1998 295.9389 142.1632 133.9842 11/1/1998 330.2241 156.4813 151.0022 12/1/1998 269.3955 170.9405 132.2117 1/1/1999 264.9716 182.0516 140.7789 2/1/1999 248.382 172.9463 115.5612 3/1/1999 256.1238 183.535 122.0833 4/1/1999 303.6807 194.2935 144.8375 5/1/1999 441.9275 186.9448 164.8183 6/1/1999 509.3919 202.5656 172.2402 7/1/1999 516.0278 192.8696 163.7164 8/1/1999 439.7155 191.0379 137.6182 9/1/1999 466.259 182.7283 130.0312 10/1/1999 504.968 200.41 125.0876 11/1/1999 535.9353 206.1363 135.9055 12/1/1999 572.4325 223.8445 146.0385 1/1/2000 624.4133 207.3596 158.7617 2/1/2000 633.2611 201.1792 154.1741 3/1/2000 659.8045 230.3092 189.1926 4/1/2000 648.7447 220.1371 192.9812 5/1/2000 669.7582 213.1213 189.8497 6/1/2000 718.4211 220.6154 208.3019 7/1/2000 816.8529 215.3761 227.2727 8/1/2000 757.1302 234.5192 253.9537 9/1/2000 802.4752 216.6281 259.3349 10/1/2000 781.4617 215.0609 269.8354 11/1/2000 709.5733 189.8345 220.664 12/1/2000 1041.366 191.0093 267.5676 1/1/2001 975.892 201.0889 274.3876 2/1/2001 982.6163 173.3011 240.1054 3/1/2001 998.8962 155.7539 213.4196 4/1/2001 1043.135 175.3995 243.5316 5/1/2001 1169.128 176.8013 265.3269 6/1/2001 1131.613 169.8803 262.641 7/1/2001 1108.255 166.973 261.2507 8/1/2001 1071.448 149.8578 253.7125 9/1/2001 1009.514 129.4386 213.2239 10/1/2001 894.4922 133.5912 206.8969 11/1/2001 1042.427 151.1517 239.6359 12/1/2001 1065.786 152.3309 240.3137 3 108 STRATEGIC ACQUISITIONS PROVIDE ENHANCED GROWTH OPPORTUNITIES Eaton Vance's strategic focus in recent years has been its mutual funds - strengthening and broadening our product line, improving investment performance, and developing a leadership position as an asset manager in a number of key asset classes, both income and equity. In particular, our family of Mutual Funds for People Who Pay Taxes has established Eaton Vance as the leader in tax-managed funds. While we seek to continue to grow our mutual fund assets at a rate faster than the fund industry overall, using our strengths to gain market share, we now aim to develop new growth opportunities by extending Eaton Vance's asset management franchise into new segments of the industry. We intend to leverage our relationships with financial advisers and broker/dealers (developed over many years in our role as a mutual fund sponsor) into new markets where there are complementary distribution opportunities. [callout] Our goals: To continue to grow our mutual funds assets at a rate faster than the mutual fund industry; To develop new growth opportunities by extending our franchise into new segments of the asset management industry. In pursuit of this goal, we plan to expand our operations in two major markets: the management of assets of large institutions (such as college endowments and employee retirement funds) and the management of individual portfolios for higher-net-worth individuals who desire a more customized form of asset management than is available through mutual funds. The acquisitions of Atlanta Capital and Fox Asset Management provide a solid foundation for success in both areas. Each company manages assets both for institutions and individuals in a separate account format. Both have strong investment management teams that have achieved outstanding performance in their respective disciplines of growth and value investing. We welcome our new colleagues to the Eaton Vance family and are pleased to list each of them, with all of our other employees, on the back of this report. 4 109 EATON VANCE IS WELL-POSITIONED FOR FUTURE LEADERSHIP In spite of the current weak economic environment and the challenges faced by our country in its War against Terrorism, I have great confidence that Eaton Vance will continue to distinguish itself as a leader in the asset management industry. The success we have developed in recent years in mutual funds, enhanced by the new opportunities opened to us by our strategic acquisitions, provides a strong foundation for future growth. Unquestionably, the real power of Eaton Vance comes from our dedicated and capable employees whose initiative and energy are the sources of our success. [callout] Unquestionably, the real power of Eaton Vance comes from our dedicated and capable employees. Two years ago Eaton Vance expanded its stock option program to include all employees with a minimum tenure of one year. This year we are pleased that the employees who have joined us from Atlanta Capital and Fox Asset Management will participate in this important incentive program. The entire Eaton Vance team will now benefit from the future growth of the Company and shares a common goal of increasing value for all shareholders. I have no doubt that we shall succeed handsomely. Sincerely, /s/ James B. Hawkes James B. Hawkes 5 110 CRAFTING THE MOSAIC Eaton Vance has transformed its business dramatically in recent years. Not only has it introduced a host of innovative mutual funds and expanded its team of portfolio managers and research analysts, it has developed several creative private equity funds, diversified its investment management services beyond mutual funds, and delivered improved investment performance to its clients. The result has been a significant increase in market share and outstanding returns for Eaton Vance shareholders. The Company's success is the fruit of a long-term strategy to position Eaton Vance for continued growth in several investment management markets, with a balanced, diversified line of investment products. Crafting this strategy has been somewhat like crafting a mosaic in that it takes skill, experience and vision to assemble the many diverse pieces into a coherent pattern for the future. IDENTIFYING AND EXPANDING THE CORE MARKET Eaton Vance has never tried to provide investment products for every kind of investor. Instead, its strategy has been to select target markets carefully and to pursue those markets with creativity and efficiency. Just over five years ago, in the midst of one of the great equity bull markets of the last century, only 24 percent of the Company's assets under management were equities. Over the previous eight years, Eaton Vance had developed into a significant manager of municipal bond funds, but with rising interest rates in 1994 and a robust domestic economy, investors had shifted their interest to stock funds. The Company had grown its assets under management at a respectable 14 percent annual rate, but had lost market share as the domestic mutual fund industry grew at 25 percent. Although Eaton Vance was still a meaningful participant in the mutual fund industry, it was time for a change. To increase its market share in the rapidly growing mutual fund industry, the Company had to create stock funds that would attract the attention of investors in an already over-crowded marketplace. With its municipal bond funds and floating-rate bank loan funds, Eaton Vance already had a product base that was appealing to higher-net-worth investors -- investors sought by most fund companies because they invest larger amounts for longer time periods than the average mutual fund investor. While about half of the industry's equity fund assets are invested through tax-deferred retirement vehicles, such as IRAs and 401(k) plans, the other half represents assets of investors who are significantly impacted by taxes. Mutual funds must make annual distributions to their shareholders of net investment income and net gains from the sale of portfolio securities during the year, and these distributions are subject to ordinary income taxes or capital gain taxes. Eaton Vance saw an opportunity to develop a family of equity funds actively managed to minimize the impact of taxes on fund investment returns. Higher-net-worth investors have the resources to invest in mutual funds beyond their retirement plans, and thus care very much about this tax effect. These investors became the core target market for the Company. 6 111 TAX-MANAGED EQUITY FUNDS SPUR GROWTH In March of 1996, Eaton Vance introduced Eaton Vance Tax-Managed Growth Fund, one of the first equity mutual funds managed specifically for superior after-tax returns. Beginning in 1997, the Company expanded its family of tax-managed funds - -- sold under the banner Mutual Funds for People Who Pay Taxes -- to include a broad range of investment strategies, including emerging growth, value, and international investing. The Company also created a related series of innovative privately placed equity funds for qualified affluent investors, and it hired the portfolio managers, research analysts and sales staff to capture its share of the fund market that invests outside of tax-deferred retirement plans. These efforts paid off. Today, Eaton Vance has the largest family of mutual funds actively managed for superior after-tax returns. At the end of fiscal 2001, assets under management in the Company's tax-managed equity funds totaled $21.5 billion, and total managed equity assets had grown to 57 percent of total assets under management, rising from 24 percent at the end of fiscal 1996. Unlike investors in most equity funds, shareholders of the Eaton Vance tax-managed funds have earned essentially all of their investment returns free of the burden of annual tax payments; they will pay taxes only when they sell their fund shares. The Company has become the acknowledged innovator and leader in tax-managed investing, with the broadest family of tax-managed equity funds and tax-free municipal bond funds, all aimed at higher-net-worth investors who care about the impact of taxes on their investment returns. Assets in these funds currently exceed $28 billion giving Eaton Vance the top ranking in actively managed tax-efficient funds. PROVIDING COMPREHENSIVE WEALTH MANAGEMENT From its beginning in 1924, Eaton Vance has provided tax-sensitive, professional investment management to wealthy individuals, families and trusts. The Company realized that the enormous wealth created by the bull market of the 1990s substantially increased the number of affluent families in need of investment products suitable for managing their wealth in a comprehensive manner. The Eaton Vance tax-managed equity funds and municipal bond funds provided much, but not all, of the solution. Eaton Vance's concept of Comprehensive Wealth Management addresses the three major stages of a family's investment requirements: creating and growing wealth, protecting and preserving wealth and, ultimately, distributing that wealth. Eaton Vance's tax-managed equity funds, municipal bond funds and its many other investment products target the first two stages. To assist investors and their advisers in the tax-efficient distribution of accumulated wealth, in the spring of 2000 Eaton Vance introduced The U.S. Charitable Gift Trust(TM), a tax-exempt public charity approved under the Internal Revenue Code. The Trust provides a way to serve the burgeoning breadth, wealth and generosity of private philanthropy in the United States. As a donor-advised fund, the Trust accepts charitable gifts of cash or appreciated securities from donors, 7 112 providing them an immediate income tax deduction, reducing the size of their taxable estate and creating both a family tradition of giving and a legacy that lives long after them. Donors may periodically -- perhaps over the course of years -- request that the Trust contribute to other charities of their choice. Using the Trust, donors thus have many of the advantages of a private foundation for charitable giving, while avoiding the expensive legal, accounting and administrative costs of a foundation. The U.S. Charitable Gift Trust also offers pooled income funds, which provide donors monthly income for life and the satisfaction of leaving a continuing charitable legacy. Because the Trust can sell appreciated securities and diversify its investments without incurring capital gains tax, a gift of appreciated securities to a pooled income fund can provide more current income to the donor than other approaches to reinvesting assets for income. The assets in the donor advised and pooled income funds, until distributed, are professionally managed by Eaton Vance. Eaton Vance today offers the industry's most complete line of products for creating, growing, protecting, preserving and distributing wealth in a tax-efficient manner. The Company's tax-exempt municipal bond funds, its tax-managed equity mutual funds, the funds it manages for The U.S. Charitable Gift Trust and the separate accounts it manages for taxable clients are all pieces of the mosaic of high-quality investment services offered to affluent investors. BEYOND MUTUAL FUNDS In fiscal 2001, Eaton Vance had largely achieved its goal of transforming its mutual fund product line to appeal to the needs of tax-sensitive, higher-net-worth investors. The Company gained market share, rising to 22nd in long-term fund assets under management from 37th in 1997. Eaton Vance is recognized as a leader in municipal bond funds, tax-managed equity mutual funds, privately offered equity funds for affluent investors, floating-rate income funds, high-yield bond funds, and donor-advised and pooled income funds for charitable giving. The breadth and diversification of these products enable the Company to offer investment opportunities to investors regardless of what is happening in the financial markets. It was time for new challenges in different markets. Accordingly, Eaton Vance turned its attention beyond mutual funds to developing new growth opportunities in other segments of the asset management business. The Company targeted two major potential growth areas: managing assets for institutions, including pension plans and endowments; and managing individual portfolios for higher-net-worth clients who want a more customized form of asset management than provided by mutual funds. Eaton Vance studied these markets during the last two years and became convinced that the special requirements needed to penetrate these markets effectively could best be met by strategic acquisitions of companies already successful in these areas. 8 113 STRATEGIC ACQUISITIONS ADD TO THE MOSAIC On September 30, 2001, after an exhaustive search, Eaton Vance acquired 70 percent of Atlanta Capital Management Company, LLC, based in Atlanta, Georgia, and 80 percent of Fox Asset Management, LLC, based in Little Silver, New Jersey. These acquisitions added $6.1 billion and $1.8 billion, respectively, to Eaton Vance's assets under management. Atlanta Capital and Fox Asset Management have become subsidiaries of Eaton Vance, functioning as distinct business units in their present locations under their own names and their current managements. Atlanta Capital and Fox Asset Management are leading investment management firms focusing, respectively, on growth and value investing. They complement the strengths of Eaton Vance and provide new opportunities to broaden the Company's mix of asset management disciplines, clients and distribution channels. Both firms are established institutional investment managers and managers of investor portfolios through broker/dealer separately managed account programs -- the two markets that Eaton Vance has targeted. Both firms have excellent investment performance records and growing market share. Eaton Vance intends to accelerate this growth by devoting substantially greater marketing resources to these businesses than Atlanta Capital and Fox Asset Management could provide on their own. COMPLETING THE MOSAIC A company's strategy, unlike a mosaic, is never completely finished. Successful companies grow, adapt and transform themselves to meet the opportunities and needs of changing markets. Nevertheless, the strategic mosaic, at some point, is complete enough to provide a meaningful focus and direction for the company's business. In that sense, Eaton Vance's mosaic is, for today, largely complete. The Company is a leading provider of Comprehensive Wealth Management for higher-net-worth investors and their professional investment advisers. Its leadership positions in the mutual fund marketplace are a foundation for continued growth, and the strengths of its newly acquired investment management subsidiaries enhance opportunities to build future leadership positions as managers of separate accounts for institutions and higher-net-worth individuals. Eaton Vance's management will continue to craft its strategic mosaic to strengthen the Company and create long-term value for its shareholders. 9 114 STOCK PRICE HISTORY Eaton Vance Corp. stock trades on the New York Stock Exchange under the symbol "EV." High Low Dividend Price Price Per Share - ------------------------------------------------------------------------------- Quarter Ended January 31, 2000 $ 22.50 $ 16.81 $ 0.0475 April 30, 2000 22.22 18.56 0.0475 July 31, 2000 25.91 19.97 0.0475 October 31, 2000 27.44 21.44 0.0600 Quarter Ended January 31, 2001 $ 32.94 $ 22.00 $ 0.0600 April 30, 2001 33.99 26.50 0.0600 July 31, 2001 39.22 31.00 0.0600 October 31, 2001 34.90 27.67 0.0725 Quarterly High And Low Stock Prices Adjusted for two-for-one stock splits November 11, 1992, May 15, 1997, August 14, 1998, November 13, 2000 and November 10, 1995 spin-off of Investors Financial Services Corp. HIGH LOW Jan-89 1.191337 1.022996 Apr-89 1.437374 1.191337 Jul-89 1.256083 1.13954 Oct-89 1.450323 1.13954 Jan-90 1.463272 1.372627 Apr-90 1.450323 1.13954 Jul-90 1.191337 1.100692 Oct-90 1.13954 0.789908 Jan-91 0.932351 0.757535 Apr-91 1.398526 0.9453 Jul-91 1.307881 1.010046 Oct-91 1.50212 1.191337 Jan-92 1.942397 1.424424 Apr-92 1.981245 1.657512 Jul-92 1.825853 1.618664 Oct-92 2.460369 1.709309 Jan-93 3.988388 2.123687 Apr-93 3.884794 3.004241 Jul-93 3.755301 3.185531 Oct-93 4.273273 3.548112 Jan-94 3.936591 3.159632 Apr-94 3.884794 3.030139 Jul-94 3.185531 2.745254 Oct-94 3.548112 2.64166 Jan-95 3.340923 2.538065 Apr-95 3.39272 2.926545 Jul-95 3.535162 3.107835 Oct-95 4.066084 3.237328 Jan-96 4.03125 2.978342 Apr-96 4.34375 3.8125 Jul-96 5.03125 3.75 Oct-96 5.578125 4.5625 Jan-97 6.21875 5.21875 Apr-97 6.09375 5.21875 Jul-97 7.78125 5.5 Oct-97 9.453125 6.625 Jan-98 9.59375 7.875 Apr-98 12.54688 9.015625 Jul-98 12.40625 10.875 Oct-98 11.6875 8.8125 Jan-99 12.46875 9.625 Apr-99 12 9.34375 Jul-99 20 11.4375 Oct-99 17.8125 13.6875 Jan-00 22.5 16.8125 Apr-00 22.21875 18.5625 Jul-00 25.90625 19.96875 Oct-00 27.4375 21.4375 Jan-01 32.9375 22 Apr-01 33.99 26.5 Jul-01 39.22 31 Oct-01 34.9 27.67 10 115 FISCAL 2001 HIGHLIGHTS o Eaton Vance's stock price per share appreciated 13 percent in fiscal 2001, from $24.91 at October 31, 2000 to $28.10 at October 31, 2001. During the period, the S&P 500 Index declined 25 percent and the NASDAQ Composite Index declined 50 percent. o Assets under management increased 15 percent to $56.6 billion from $49.2 billion. o Effective September 30, 2001, Eaton Vance acquired Atlanta Capital Management Company, LLC, and Fox Asset Management, LLC, adding $7.9 billion in assets under management. o Eaton Vance increased its dividend by 21 percent to an effective annual rate of $0.29 per share. The Company has increased its dividend in each of the past 21 years. o Counter to the industry's trend, sales and other flows into long-term funds increased to $12.0 billion compared to $11.6 billion in fiscal 2000. Net flows into long-term funds increased by 15 percent, to $6.1 billion from $5.3 billion. Because of this strong performance, total assets under management, excluding assets acquired, declined only 2 percent, and equity assets declined only 3 percent. o The Company's newly offered open-end floating-rate bank loan funds attracted $1.1 billion in new investments. o At the end of the fiscal year, equity assets under management represented 57 percent of total assets under management; fixed-income assets were 26 percent and floating-rate assets 17 percent. o Over $30 billion of the Company's assets under management, 54 percent of the total, is contained in tax-managed equity funds, municipal bond funds and taxable separate accounts, all managed for superior after-tax returns. o According to Strategic Insight, in September Eaton Vance ranked 22nd by long-term mutual fund assets under management out of approximately 600 asset management firms in the fund industry. The Company has gained market share steadily over the last four years, rising from 37th in 1997. o New flows into the Company's privately offered equity funds totaled $3.4 billion. o As of December 31, 2001, the performance of the Company's flagship Tax-Managed Growth Fund beat that of the S&P 500, both before and after taxes, ranking it in the top 20 percent of comparable funds for the trailing one-, three-, five- and 10-year periods. 11 116 REVIEW OF FISCAL 2001 ASSETS UNDER MANAGEMENT INCREASED 15 PERCENT TO $56.6 BILLION; NEW SUBSIDIARIES ACQUIRED Eaton Vance significantly broadened and strengthened its position in the asset management industry in fiscal 2001 with the acquisition of two outstanding investment management firms, Atlanta Capital Management Company, LLC, and Fox Asset Management, LLC. Including the acquisitions, assets under management increased 15 percent, to $56.6 billion from $49.2 billion. Asset growth resulted from net inflows of $5.9 billion and assets acquired of $7.9 billion, offset by market depreciation of $6.4 billion. Excluding assets acquired, the Company's assets under management declined two percent from the end of fiscal 2000 to $48.3 billion, primarily due to equity market price declines. In spite of equity market declines of 25 percent, as measured by the S&P 500 Index, and 50 percent, as measured by the NASDAQ Composite Index, fund sales and other inflows net of redemptions largely offset lower equity prices. Equity Assets (in billions) Amount 1996 4.2 1997 6.4 1998 11.0 1999 19.5 2000 27.0 2001 32.0 THE COMPANY'S MIX OF ASSETS UNDER MANAGEMENT IS BROADLY DIVERSIFIED Eaton Vance's business is broadly diversified. Of total assets under management at fiscal year end, 57 percent ($32.2 billion) were equities, 26 percent ($14.7 billion) were fixed-income assets and 17 percent ($9.7 billion) were floating-rate income assets. In terms of the Company's asset management products and services, mutual fund and other commingled assets totaled $46.1 billion, separately managed institutional client assets totaled $8.5 billion and separate accounts of higher-net-worth individual clients totaled $2.0 billion. The Company's mutual funds and funds for charitable giving are distributed through third-party sales channels, while the bulk of the institutional and higher-net-worth client services are marketed directly, often on the basis of independent referrals. ASSETS UNDER MANAGEMENT 1996 $17.3 Billion Equity 24% Floating-Rate Income 16% Fixed Income 60% 2001 $56.6 Billion Equity 57% Floating-Rate Income 17% Fixed Income 26% 12 117 EATON VANCE EQUITY STRATEGIES ARE POPULAR WITH INVESTORS Tax-managed equity investing proved attractive to investors, even in the face of the continuing weakness of the equity market. Tax-managed investing can improve long-term, after-tax returns by minimizing the impact of taxes on the long-term accumulation of wealth. For example, none of Eaton Vance's retail tax-managed equity funds made capital gains distributions in either 2000 or 2001. This performance stands in contrast to many competitor equity funds that paid out sizeable taxable distributions to their shareholders, even as shareholders experienced negative returns. Tax-managed equity fund assets totaled $21.5 billion at the end of fiscal 2001, down 4 percent from $22.5 billion at the end of fiscal 2000, as positive net asset flows largely offset lower equity prices. The Company's flagship Tax-Managed Growth Fund, which invests primarily in large-capitalization companies and has the objective of investing for long-term, after-tax returns, continued to deliver superior performance. As of December 2001, the Fund had delivered returns, both before and after taxes, that exceeded the performance of the S&P 500 and ranked in the top 20 percent of comparable funds for each of the trailing one-, three-, five- and 10-year periods. Tax-managed investing addresses the roughly 50 percent of investors who invest in mutual funds outside of qualified retirement plans, such as IRAs and 401(k)s. Investors who are not investing through tax-qualified plans increasingly embrace the goal of maximizing after-tax returns. The Eaton Vance family of tax-managed equity funds is managed to meet the needs of these sophisticated higher-net-worth investors. With $21.5 billion in tax-managed equity fund assets and $6.9 billion in municipal bond fund assets under management, Eaton Vance is the undisputed leader in tax-managed investing. Beyond publicly and privately offered funds, Eaton Vance manages $2.2 billion in separate accounts for taxable individual and institutional clients seeking superior after-tax returns. In total, Eaton Vance manages more than $30 billion under tax-efficient mandates, or 54 percent of the Company's total assets under management. Shareholder Returns 5-Year 10-Year Average Average Return Return - ------------------------------------------------------- Eaton Vance Corp. 40.27% 34.46% S&P 500 Stock Index 10.04% 12.74% S&P 400 Midcap Index 14.57% 12.70% Source: Bloomberg The above returns are calculated on an October to October basis. 13 118 OPEN-END FLOATING-RATE BANK LOAN FUNDS ARE A MAJOR SUCCESS Fiscal 2001 was challenging for investors in credit-sensitive securities. The weakening economy increased the difficulty some companies faced in meeting their financial obligations, leading to an increase in bank loan default rates. In addition, market prices for many non-defaulted loans fell, reflecting heightened credit market concerns. Nevertheless, the newly launched Eaton Vance Floating-Rate Fund and Eaton Vance Floating-Rate High Income Fund grew to a combined total of $1.5 billion of net assets from $0.2 billion during the fiscal year. The positive total return performance of these funds for the period confirmed the attractiveness of floating-rate assets during times of financial market turmoil. Eaton Vance manages $9.7 billion of floating-rate assets in publicly and privately offered funds, separately managed institutional accounts and collateralized debt obligation portfolios. Floating-rate bank loans exhibit minimal risk of loss from rising interest rates because the interest paid by the borrower resets every 40 to 60 days according to the prevailing level of short-term interest rates. Furthermore, bank loans are senior and secured in the event of the borrower's defaulting on its obligations. In the weakening economy of the last 18 months, these assets have been susceptible to realized and unrealized losses of principal value due to the difficult business environment. The value of shares of floating-rate funds fluctuates and may decline. However, floating-rate assets are excellent income investments for a strengthening economy, when rising interest rates flow through to holders of bank loans, while fixed-rate bonds generally lose value. Eaton Vance has managed floating-rate assets since 1989 and is the leading manager of this asset class. MUNICIPAL BOND PORTFOLIOS GREW AS INVESTORS ADJUSTED ASSET ALLOCATION As equity markets were buffeted by economic uncertainty, many higher-net-worth investors and their advisers became reacquainted with the attractive characteristics of actively managed municipal bond portfolios, which provide tax-exempt income. Eaton Vance offers the broadest array of municipal bond funds in the industry and also manages separate accounts directly for individual investors through broker/dealer-sponsored asset management programs. Eaton Vance managed approximately $7 billion of municipal bond assets at the end of October 2001, an increase of five percent over the previous year. Municipal bond management remains an important part of the Company's tax-managed product offering for higher-net-worth investors and their advisers. 14 119 TAXABLE FIXED-INCOME ASSETS GREW Assets under management in taxable fixed-income funds grew 10 percent to $3.2 billion in spite of declines in the value of high-yield bond assets. Two broad categories of investors were attracted to the Company's taxable bond funds during the fiscal year. Risk-tolerant investors, drawn by the substantial incremental yield over Treasury securities, continued to purchase the Company's high-yield bond funds, particularly Eaton Vance Income Fund of Boston. More conservative investors substantially increased purchases of Eaton Vance Government Obligations Fund, attracted by its consistent long-term performance. According to Lipper Inc., at the end of September 2001, the performance of Government Obligations Fund Class A shares ranked it among the top 20 percent of Short-Intermediate U.S. Government Funds for the trailing 12 months and trailing 10 years and among the top third of such funds for the trailing three- and five-year periods. A successfully managed, broad product line is a source of strength to Eaton Vance, as demonstrated by the Company's success in raising assets in two such dramatically different fixed-income funds. Eaton Vance also added institutional pension plan clients during the year in both investment-grade and high-yield bond accounts. DISTRIBUTION OF MUTUAL FUNDS AND MANAGED ACCOUNT SERVICES The strength of the Company's distribution capabilities was evident in fiscal 2001. Long-term fund inflows totaled $12 billion, up four percent, and net inflows (after redemptions) reached $6.1 billion, up 15 percent from fiscal 2000. Eaton Vance distributes its mutual funds, managed accounts, donor-advised funds and pooled-income funds through professional third-party financial advisers, including national and regional broker/dealers, independent fee-based registered investment advisers and other licensed financial consultants. The Company supports these distributors with a team of nearly 100 regional and Boston-based representatives who are dedicated to meeting the needs of the Company's distributors and investment clients. Specialized sales and marketing teams provide the increasingly sophisticated information required for distributing privately placed funds, retirement products and charitable giving vehicles and for understanding the managed account services of Atlanta Capital, Fox Asset Management and Eaton Vance Management. Broad Distribution Mutual Fund Sales By Distribution Channel Independent Broker/Dealers 28% Regional Broker/Dealers 10% National and International Broker/Dealers 38% Banks 10% RIAs/Alternative Distribution 6% Insurance 8% 15 120 OUTLOOK FOR CONTINUED GROWTH The beginning of 2002 is a time of uncertainty for the worldwide economy and for the nation's financial markets. The United States finds itself at war. The terrorist attacks on American civilians within our borders on September 11 have shown the nation and our government that we must adjust how we defend ourselves and maintain our security. The performance of the financial markets inevitably has a tremendous bearing on the near-term success of Eaton Vance. Nevertheless, the Company is optimistic because it is financially strong and positioned for superior growth in the asset management industry -- an industry that is vital to the important life-long financial needs of savers and investors, both in the United States and abroad. Eaton Vance intends to capitalize on its investment market leadership positions. It intends to build on the strength of its distribution relationships and its reputation as a valuable distribution partner, to take advantage of the investment skills of Atlanta Capital and Fox Asset Management as it moves to become a major participant in the managed account business and to broaden its role as a Comprehensive Wealth Manager for higher-net-worth investors. Eaton Vance is well positioned to address the needs of affluent investors and their advisers throughout all stages of their financial lives: creating and growing wealth, protecting and preserving wealth and distributing that wealth, all in the most tax-advantageous way possible. 16 121
FIVE YEAR FINANCIAL SUMMARY Years Ended October 31, (in thousands, except per share figures) 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- Income Statement Data REVENUE: Investment adviser and administration fees $252,332 $226,344 $198,644 $152,481 $117,540 Distribution and underwriter fees 149,614 156,316 118,676 76,171 70,957 Service fees 82,868 43,517 27,760 15,176 6,319 Other income 1,558 3,389 3,870 6,159 6,094 - ------------------------------------------------------------------------------------------------------------- Total revenue 486,372 429,566 348,950 249,987 200,910 - ------------------------------------------------------------------------------------------------------------- EXPENSES: Compensation of officers and employees 91,428 77,178 68,535 58,343 48,155 Amortization of deferred sales commissions 74,344 82,809 63,991 64,570 54,464 Sales commission expense -- -- 71,282 29,965 -- Service fee expense 72,939 41,182 26,997 15,387 8,244 Other expenses 56,768 45,733 40,241 33,070 26,142 - ------------------------------------------------------------------------------------------------------------- Total expenses 295,479 246,902 271,046 201,335 137,005 - ------------------------------------------------------------------------------------------------------------- Operating income 190,893 182,664 77,904 48,652 63,905 OTHER INCOME (EXPENSE): Interest income 6,765 5,668 3,631 5,609 3,571 Interest expense (2,209) (2,016) (2,960) (3,818) (3,951) Gain (loss) on sale of investments (2,649) 226 7,325 2,126 3,561 Equity in net income of affiliates 967 637 10 105 384 Impairment loss on other investments (15,101) -- -- (2,636) -- - ------------------------------------------------------------------------------------------------------------- Income before minority interest, income taxes and cumulative effect of change in accounting principle 178,666 187,179 85,910 50,038 67,470 Minority interest (177) -- -- -- -- - ------------------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 178,489 187,179 85,910 50,038 67,470 Income taxes 62,469 71,128 33,505 19,515 27,236 - ------------------------------------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 116,020 116,051 52,405 30,523 40,234 Cumulative effect of change in accounting principle, net of income taxes -- -- (36,607) -- -- - ------------------------------------------------------------------------------------------------------------- Net income $116,020 $116,051 $ 15,798 $ 30,523 $ 40,234 - ------------------------------------------------------------------------------------------------------------- Earnings per share before cumulative effect of change in accounting principle: Basic $ 1.69 $ 1.65 $ 0.73 $ 0.42 $ 0.54 - ------------------------------------------------------------------------------------------------------------- Diluted $ 1.60 $ 1.58 $ 0.70 $ 0.40 $ 0.52 - ------------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 1.69 $ 1.65 $ 0.22 $ 0.42 $ 0.54 - ------------------------------------------------------------------------------------------------------------- Diluted $ 1.60 $ 1.58 $ 0.21 $ 0.40 $ 0.52 - ------------------------------------------------------------------------------------------------------------- Dividends declared, per share $ 0.25 $ 0.20 $ 0.16 $ 0.13 $ 0.10 - ------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 68,750 70,390 71,598 72,580 74,636 - ------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding assuming dilution 72,316 73,222 74,494 75,514 77,396 - ------------------------------------------------------------------------------------------------------------- Balance Sheet Data Total assets $675,301 $432,989 $358,229 $380,260 $387,375 Long-term debt $215,488 $ 21,429 $ 28,571 $ 35,714 $ 50,964 Shareholders' equity $301,126 $254,950 $194,268 $211,809 $226,280 Shareholders' equity per share $ 4.39 $ 3.67 $ 2.76 $ 2.97 $ 3.06
17 122 MANAGEMENT'S DISCUSSION AND ANALYSIS General The Company's principal business is creating, marketing and managing mutual funds and providing investment management and counseling services to institutions and individuals. The Company distributes its funds through third-party broker/dealers, independent financial institutions and investment advisers. The Company's revenue is primarily derived from investment adviser, administration, distribution and service fees received from the Eaton Vance funds and adviser fees received from separately managed accounts. Generally, these fees are based on the net asset value of the investment portfolios managed by the Company and fluctuate with changes in the total value of the assets under management. The Company's major expenses are the amortization of deferred sales commissions and other marketing costs, employee compensation, occupancy costs and service fees. Results of Operations Fiscal Year 2001 Compared to Fiscal Year 2000 Eaton Vance Corp. reported earnings of $116.0 million or $1.60 per diluted share in fiscal 2001 compared to $116.1 million or $1.58 per diluted share in 2000. Fiscal 2001 results reflect a $0.14 per share impairment loss and $0.02 per share loss on the sale of investments. ASSET HIGHLIGHTS Assets under management of $56.6 billion on October 31, 2001 were 15 percent higher than the $49.2 billion reported a year earlier. Long-term fund assets were stable at $45.0 billion on October 31, 2001 as strong net inflows throughout the year of $6.1 billion were offset by equity and bank loan price declines of $6.4 billion. Despite difficult market conditions, the Company experienced positive net inflows in all asset classes. Separate account assets increased to $10.5 billion on October 31, 2001 from $3.2 billion on October 31, 2000, primarily as a result of the acquisitions of Atlanta Capital and Fox Asset Management. The acquisitions of Atlanta Capital and Fox Asset Management on September 30, 2001 increased total assets under management by $7.9 billion, $7.2 billion in separate accounts and $0.7 billion in long-term fund assets. ASSET FLOWS Twelve Months Ended October 31, 2001 2000 - ------------------------------------------------------------------- (in billions) Long-term fund assets - beginning $45.0 $37.6 Sales/Inflows 12.0 11.6 Redemptions/Outflows (6.0) (6.3) Exchanges (0.3) (0.2) Atlanta Capital and Fox Asset Management fund assets acquired 0.7 -- Appreciation (depreciation) (6.4) 2.3 - ------------------------------------------------------------------- Long-term fund assets - ending $45.0 $45.0 - ------------------------------------------------------------------- Money market fund assets - ending 1.1 1.0 - ------------------------------------------------------------------- Separate accounts - ending 10.5* 3.2 - ------------------------------------------------------------------- Total assets under management - ending $56.6 $49.2 - ------------------------------------------------------------------- * Includes $7.6 billion of Atlanta Capital and Fox Asset Management separate account assets. Equity assets under management comprised 57 percent of total assets under management 18 123 on October 31, 2001 as compared to 55 percent on October 31, 2000. Fixed-income assets under management increased to 26 percent of total assets under management from 24 percent a year ago and floating-rate income assets decreased to 17 percent from 21 percent a year ago. The change in the composition of total assets under management is primarily due to the inclusion of the Atlanta Capital and Fox Asset Management assets as a result of the September 30, 2001 acquisitions. ASSETS UNDER MANAGEMENT BY INVESTMENT OBJECTIVE October 31, 2001 2000 - ----------------------------------------------------- (in billions) Equity $32.2 $27.0 Fixed income 14.7 12.0 Floating-rate income 9.7 10.2 - ----------------------------------------------------- Total $56.6 $49.2 - ----------------------------------------------------- REVENUE The Company reported record revenue of $486.4 million in fiscal 2001 compared to $429.6 million in fiscal 2000, an increase of 13 percent. Investment adviser and administration fees increased by 11 percent to $252.3 million in fiscal 2001 from $226.3 million in fiscal 2000 as a result of the growth in average assets under management year over year. Distribution and underwriting fees decreased by four percent to $149.6 million in fiscal 2001 from $156.3 million a year earlier as a result of a modest decline in spread-load commission assets under management year over year. Service fees increased by $39.4 million to $82.9 million in fiscal 2001 from $43.5 million a year earlier primarily due to a structural change in Rule 12b-1 service fee plans for funds sponsored by the Company. Service fees received from the funds and paid to broker/dealers are now included in both the Company's revenue and expenses; previously some of these fees were paid directly to the broker/ dealers by the funds. EXPENSES Compensation expense increased 18 percent in fiscal 2001, primarily due to increases in the number of employees and base salaries, as well as an increase in incentive costs associated with strong gross sales. Amortization of deferred sales commissions decreased 10 percent to $74.3 million in fiscal 2001 from $82.8 million in fiscal 2000, primarily due to the adjustment of the amortization period of certain deferred sales commission assets in fiscal 2000 in order to better match amortization expense with projected distribution fee income. This adjustment in fiscal 2000 resulted in an increase in amortization expense of $20.0 million. Service fee expense increased by $31.7 million to $72.9 million in fiscal 2001 from $41.2 million in fiscal 2000 as a result of the structural change in service fee plans. Other expenses increased 24 percent in fiscal 2001, reflecting increased marketing and technology-related expenses. OTHER INCOME AND EXPENSE Interest income increased 19 percent to $6.8 million in fiscal 2001 from $5.7 million in fiscal 2000 primarily due to higher average cash and investment balances in fiscal 2001 compared to fiscal 2000. The increase in interest income also reflects interest received related to the Company's minority interest in three collateralized debt obligations managed by the Company. 19 124 In fiscal 2001, the Company recognized a $15.1 million impairment loss related to its investment in the three collateralized debt obligations referenced above. The impairment was largely the result of higher than forecasted default rates in the high yield bond market. Net realized losses of $2.6 million in fiscal 2001 include a $2.6 million loss on the liquidation of two investments in sponsored mutual funds and a $0.3 million loss on the sale of the Company's last remaining real estate property. INCOME TAXES The Company reduced its effective tax rate to 35 percent during fiscal 2001 from 38 percent at October 31, 2000 as a result of the phasing in of mutual fund industry state tax incentives. The Company expects to continue to benefit from these state tax incentives. Results of Operations Fiscal Year 2000 Compared to Fiscal Year 1999 Eaton Vance Corp. reported record earnings of $116.1 million or $1.58 per diluted share in fiscal 2000 compared to $52.4 million or $0.70 per diluted share in 1999. Fiscal 1999 results reflect earnings before the cumulative effect of a change in accounting principle recorded in the first quarter of fiscal 1999. ASSET HIGHLIGHTS Assets under management of $49.2 billion on October 31, 2000 were 20 percent higher than the $40.9 billion reported a year earlier as a result of positive net fund inflows and market appreciation. Net fund sales were $3.2 billion in fiscal 2000 compared to $9.0 billion in fiscal 1999. As a result of equity market appreciation, four successful closings of a privately offered equity fund, and strong retail sales of the Company's tax-managed funds, equity assets increased to 55 percent of total assets under management on October 31, 2000 from 44 percent on October 31, 1999. Fixed-income assets decreased to 24 percent of total assets under management on October 31, 2000 from 31 percent on October 31, 1999, and floating-rate income assets decreased to 21 percent of total assets under management from 25 percent a year earlier. Separately managed accounts represented seven percent of total assets under management at both October 31, 2000 and 1999. REVENUE The Company reported revenue of $429.6 million in fiscal 2000 compared to $349.0 million in fiscal 1999, an increase of 23 percent. Investment adviser and administration fees increased by 14 percent to $226.3 million in fiscal 2000 from $198.6 million in fiscal 1999, and distribution and underwriting fees increased by 32 percent to $156.3 million in fiscal 2000 from $118.7 million in fiscal 1999. The increases noted in both investment adviser and administration fees and distribution fees can be primarily attributed to the 20 percent growth in assets under management. Service fees increased 56 percent to $43.5 million in fiscal 2000 from $27.8 million in fiscal 1999 due to the increase in the number of funds with service plans in place and the increase in average assets under management. 20 125 Investment adviser and administration fees grew at a slower rate than assets under management due to a change in the fee structure of the Company's bank loan interval funds in 1999. Effective May 1, 1999, the Company's bank loan interval funds received shareholder approval and a Securities and Exchange Commission (SEC) exemptive order permitting them to implement Rule 12b-1 equivalent distribution plans. At the time these plans were adopted and implemented, the investment adviser fee rates on these funds were reduced. Distribution income grew at a faster rate than assets under management, reflecting the implementation of the 12b-1 equivalent plans on the Company's bank loan interval funds. EXPENSES The fiscal 1999 implementation of the Rule 12b-1 equivalent plans for the Company's bank loan interval funds also had an impact on operating expenses. Prior to the implementation of these plans, sales commissions paid to brokers for the distribution of bank loan interval funds were expensed as incurred. For the first six months of fiscal 1999, these commissions totaled $71.3 million. With the implementation of the Rule 12b-1 equivalent plans, the Company began to capitalize and amortize these sales commissions effective May 1, 1999 in accordance with its stated accounting policy. The nine percent decrease in total operating expenses year over year reflects the decrease in sales commission expense, partially offset by increases in compensation, amortization of deferred sales commissions and other expenses in fiscal 2000. Compensation expense increased 13 percent in fiscal 2000, primarily due to increases in the number of employees, base salaries and incentive costs. Amortization of deferred sales commissions increased by 29 percent to $82.8 million in fiscal 2000 from $64.0 million in fiscal 1999, primarily due to adjustments of amortization periods of certain deferred sales commission assets in order to better match amortization expense with projected distribution fee income. These adjustments resulted in an increase in amortization expense of $20.0 million in fiscal 2000. Service fee expense increased 56 percent to $43.5 million in fiscal 2000 from $27.8 million in fiscal 1999, primarily due to the increase in the number of funds with service plans in place and the increase in average assets under management. Other expenses increased 14 percent in fiscal 2000, reflecting increases in promotion and other marketing expenses, occupancy costs and technology-related expenses. OTHER INCOME AND EXPENSE Interest income increased 58 percent to $5.7 million in fiscal 2000 from $3.6 million in fiscal 1999. The increase in interest income primarily reflects interest earned on the favorable settlement of a state income tax claim relating to tax years 1990, 1991 and 1992. The decrease in net realized gains relates to the sale of several real estate properties in fiscal 1999. No real estate sales took place in fiscal 2000. The Company lowered its effective tax rate to 38 percent for fiscal 2000 from 39 percent for the previous year as a result of the phasing in of favorable state tax incentives. 21 126 Liquidity and Capital Resources Cash, cash equivalents and short-term investments aggregated $210.7 million at October 31, 2001, an increase of $108.2 million from October 31, 2000. OPERATING CASH FLOWS The Company generated $140.3 million of cash from operations in fiscal 2001 compared to $73.9 million in fiscal 2000. Included in cash flows from operations are the payment of capitalized sales commissions primarily associated with the distribution of the Company's spread-load and level-load commission funds. These payments continue to be a significant use of cash and totaled $129.5 million in both fiscal 2001 and fiscal 2000. Effective January 1, 2001, capitalized sales commission payments became deductible for tax purposes over their estimated useful lives. Commission payments made prior to January 1, 2001 were deducted for tax purposes at the time of payment. Although this change in the timing of the deduction of commission payments has had the effect of increasing current income tax payments and reducing deferred income taxes, it has not and will not have an impact on the Company's effective tax rate. INVESTING CASH FLOWS In fiscal 2001, the Company made two strategic acquisitions to expand the Company's managed account and institutional business. On September 30, 2001 the Company acquired 70 percent of Atlanta Capital for an aggregate initial payment of $75.0 million, including cash of $60.0 million and Eaton Vance Corp. non-voting common stock valued at $15.0 million. Atlanta Capital's principals will continue to hold 30 percent of the equity of Atlanta Capital through December 31, 2004. Beginning in calendar 2005, Atlanta Capital's principals will have the right to sell and the Company will have the right to purchase the remaining 30 percent of Atlanta Capital over a five-year period. The price for acquiring the remaining 30 percent of Atlanta Capital will be based on a multiple of earnings before taxes (a measure that is intended to approximate fair market value) in those years. On September 30, 2001 the Company also acquired 80 percent of Fox Asset Management for an aggregate initial payment of $32.0 million, including cash of $22.4 million and Eaton Vance Corp. non-voting common stock valued at $9.6 million. Additional payments in 2005 and 2006 of up to $30.0 million are contingent upon achieving certain financial performance criteria. Fox Asset Management's principals will continue to hold 20 percent of the equity of Fox Asset Management through December 31, 2007. Beginning in calendar 2008, Fox Asset Management's principals will have the right to sell and the Company will have the right to purchase the remaining 20 percent of Fox Asset Management over a four-year period. The price for acquiring the remaining 20 percent of Fox Asset Management will be based on a multiple of earnings before interest and taxes (a measure that is intended to approximate fair market value) in those years. Consistent with its plan to withdraw from activities not related to the management of financial assets for others, the Company sold its last remaining real estate property in fiscal 2001 resulting in proceeds of $1.2 million. 22 127 FINANCING CASH FLOWS In August 2001, Eaton Vance Management (EVM), the Company's primary operating subsidiary, issued $314 million of zero-coupon exchangeable senior notes due August 13, 2031, resulting in gross proceeds of approximately $200.6 million. Net proceeds were approximately $195.5 million after payment of debt issuance costs. The exchangeable notes were issued in a private placement to qualified institutional buyers at an initial offering price of $638.70 per $1,000 principal amount at maturity, reflecting a 1.5% yield to maturity. Upon certain events, each note is exchangeable into 14.3657 shares of the Company's non-voting common stock, subject to adjustment. EVM may redeem the exchangeable notes for cash on or after August 13, 2006 at their accreted value. At the option of holders, EVM may be required to repurchase the exchangeable notes at their accreted value on the first, third and fifth anniversaries of the issue date, and at five year intervals thereafter until maturity. Such repurchases can be paid in cash, shares of the Company's non-voting common stock or a combination of both. Approximately $85.0 million of the net proceeds were used to finance the acquisitions of Atlanta Capital and Fox Asset Management and related acquisition costs; an additional $52.2 million was used to repurchase 1.5 million shares of the Company's non-voting common stock at the time the notes were issued. The Company canceled its $50 million senior unsecured revolving credit facility effective August 13, 2001, prior to the private placement of its zero-coupon exchangeable senior notes. In December 2001, the Company executed a revolving credit facility with several banks. This facility, which expires December 2004, provides that the Company may borrow up to $170 million at market rates of interest that may vary depending on level of usage of the facility and the Company's credit ratings. The agreement contains financial covenants with respect to leverage and interest coverage and requires the Company to pay an annual commitment fee on any unused portion. The primary purpose of the credit facility is to provide the Company with additional liquidity in the event that holders of the zero-coupon exchangeable notes exercise their puts on either the first or third anniversary dates and to provide general working capital availability. The Company repurchased a total of 2.8 million shares of its non-voting common stock for $88.1 million in fiscal 2001 under its authorized repurchase program and increased its dividend in the fourth quarter of fiscal 2001 by 21 percent to an effective annual rate of $0.29. The Company anticipates that cash flows from operations and available credit arrangements will be sufficient to meet the Company's foreseeable cash requirements and provide the Company with the financial resources to take advantage of strategic growth opportunities. Accounting Changes In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations entered into after June 30, 2001 to be accounted for using the purchase method of accounting. 23 128 Specifically identifiable intangible assets acquired, other than goodwill, will be amortized over their estimated useful economic lives. Under SFAS No. 142, goodwill and intangible assets with indefinite lives will no longer be amortized, but will be reviewed at least annually for impairment. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the provisions of SFAS No. 142. The Company has adopted the provisions of SFAS No. 141 and SFAS No. 142 for its two acquisitions completed September 30, 2001 (see Note 3 to the Consolidated Financial Statements). Management intends to adopt the provisions of SFAS No. 142 for intangibles and equity investments purchased prior to July 1, 2001 effective November 1, 2001. The adoption of this standard as it relates to intangibles and equity investments purchased prior to July 1, 2001 will not have a material impact on the results of operations or consolidated financial position of the Company. Certain Factors That May Affect Future Results From time to time, information provided by the Company or information included in its filings with the Securities and Exchange Commission may contain statements which are not historical facts, for this purpose referred to as "forward-looking statements." The Company's actual future results may differ significantly from those stated in any forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the factors discussed below. The Company is subject to substantial competition in all aspects of its business. The Company's ability to market investment products is highly dependent on access to the various distribution systems of national and regional securities dealer firms, which generally offer competing investment products both internally and externally managed. Although the Company has historically been successful at gaining access to these channels, there can be no assurance that it will continue to do so. The inability to have such access could have a material adverse effect on the Company's business. There are few barriers to entry by new investment management firms. The Company's funds compete against an ever increasing number of investment products sold to the public by investment dealers, banks, insurance companies and others that sell tax-free or tax advantaged investments, taxable income funds, equity funds and other investment products. Many institutions competing with the Company have greater resources than the Company. The Company competes with other providers of investment products on the basis of the products offered, the investment performance of such products, quality of service, fees charged, the level and type of financial intermediary compensation, the manner in which such products are marketed and distributed, and the services provided to investors. The Company derives almost all of its revenue from investment adviser and administration fees and distribution income received from the Eaton Vance funds, other pooled investment vehicles and separately managed accounts. As a result, the Company is dependent upon management contracts, administration contracts, 24 129 underwriting contracts or service contracts under which these fees and income are paid. If any of these contracts is not renewed or is amended to reduce fees, the Company's financial results may be adversely affected. The major sources of revenue for the Company (i.e., investment adviser and administration fees and distribution fees) are calculated as percentages of assets under management. A decline in securities prices or an increase in fund redemptions generally would reduce fee income. Also, financial market declines or adverse changes in interest rates could negatively impact the level of the Company's assets under management and consequently, its revenue and net income. If, as a result of inflation, expenses rise and assets under management decline, lower fee income and higher expenses would generally reduce or eliminate profits. If expenses rise and assets rise, bringing increased fees to offset the increased expenses, profits may not be affected by inflation. There is no predictable relationship between changes in financial assets under management and the rate of inflation. A recession could also adversely impact the Company's revenues if it led to a decreased demand for products, a higher redemption rate, or a decline in securities prices. Like other businesses, the Company's actual results could be affected by the loss of key managerial personnel through competition or retirement. Market Risk The Company is routinely subjected to different types of risk, including market risk. Market risk is the risk that the Company will incur losses due to adverse changes in equity prices, interest rates, credit quality, or currency exchange rates. The Company's primary exposure to equity price risk arises from its investments in sponsored equity mutual funds. Equity price risk as it relates to these investments represents the potential future loss of value that would result from a decline in the fair values of the mutual fund shares. The Company's investments in sponsored equity mutual funds totaled $11.8 million at October 31, 2001 and are carried at fair value on the Company's balance sheet. The Company's primary exposure to interest rate risk arises from its investment in floating-rate income mutual funds sponsored by the Company. The negative effect on the Company's pre-tax interest income of a 50 basis point decline in interest rates would be approximately $0.3 million based on floating rate investments of $51.7 million as of October 31, 2001. A 50 basis point decline in interest rates is a hypothetical scenario used to demonstrate potential risk and does not represent management's view of future market changes. The Company is not exposed to interest rate risk in its debt instruments as all of the Company's debt instruments carry fixed interest rates. 25 130 The Company's primary exposure to credit risk arises from its investment in several collateralized debt obligations that are included in "Other investments" in the Company's Consolidated Balance Sheets. In periods of rising default rates and declining recovery rates, the carrying value of the Company's investments in these securities may be adversely affected by unfavorable changes in cash flow estimates and higher expected returns. The Company's investments in collateralized debt obligations totaled $12.8 million at October 31, 2001. The Company's primary exposure to foreign currency risk arises from an investment that is denominated in European Currency Units (Euros). Throughout fiscal 2001, the Company utilized foreign currency exchange contracts to hedge this investment. The Company disposed of the majority of this investment in the fourth quarter of fiscal 2001 and had no open foreign currency exchange contracts at October 31, 2001. The Company does not enter into foreign currency transactions for speculative purposes. In evaluating market risk, it is also important to note that a significant portion of the Company's revenue is based on the market value of assets under management. As noted in "Certain Factors That May Affect Future Results," declines of financial market values will therefore negatively impact revenue and net income. 26 131 CONSOLIDATED STATEMENTS OF INCOME Years Ended October 31, (in thousands, except per share figures) 2001 2000 1999 - ------------------------------------------------------------------------------- REVENUE: Investment adviser and administration fees $252,332 $226,344 $198,644 Distribution and underwriter fees 149,614 156,316 118,676 Service fees 82,868 43,517 27,760 Other income 1,558 3,389 3,870 - ------------------------------------------------------------------------------- Total revenue 486,372 429,566 348,950 - ------------------------------------------------------------------------------- EXPENSES: Compensation of officers and employees 91,428 77,178 68,535 Amortization of deferred sales commissions 74,344 82,809 63,991 Sales commission expense (Note 4) -- -- 71,282 Service fee expense 72,939 41,182 26,997 Other expenses 56,768 45,733 40,241 - ------------------------------------------------------------------------------- Total expenses 295,479 246,902 271,046 - ------------------------------------------------------------------------------- Operating income 190,893 182,664 77,904 OTHER INCOME (EXPENSE): Interest income 6,765 5,668 3,631 Interest expense (2,209) (2,016) (2,960) Gain (loss) on sale of investments (2,649) 226 7,325 Equity in net income of affiliates 967 637 10 Impairment loss on other investments (15,101) -- -- - ------------------------------------------------------------------------------- Income before minority interest, income taxes and cumulative effect of change in accounting principle 178,666 187,179 85,910 Minority interest (177) -- -- - ------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting principle 178,489 187,179 85,910 Income taxes 62,469 71,128 33,505 - ------------------------------------------------------------------------------- Income before cumulative effect of change in accounting principle 116,020 116,051 52,405 Cumulative effect of change in accounting principle, net of income taxes -- -- (36,607) - ------------------------------------------------------------------------------- Net income $116,020 $116,051 $ 15,798 - ------------------------------------------------------------------------------- Earnings per share before cumulative effect of change in accounting principle: - ------------------------------------------------------------------------------- Basic $ 1.69 $ 1.65 $ 0.73 - ------------------------------------------------------------------------------- Diluted $ 1.60 $ 1.58 $ 0.70 - ------------------------------------------------------------------------------- Cumulative effect of change in accounting principle, per share: Basic $ -- $ -- $ (0.51) - ------------------------------------------------------------------------------- Diluted $ -- $ -- $ (0.49) - ------------------------------------------------------------------------------- Earnings per share: - ------------------------------------------------------------------------------- Basic $ 1.69 $ 1.65 $ 0.22 - ------------------------------------------------------------------------------- Diluted $ 1.60 $ 1.58 $ 0.21 - ------------------------------------------------------------------------------- 27 See notes to consolidated financial statements. 132 CONSOLIDATED BALANCE SHEETS October 31, (in thousands) 2001 2000 - ------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $115,681 $ 60,479 Short-term investments 95,028 42,000 Investment adviser fees and other receivables 22,559 9,576 Other current assets 4,212 8,187 - ------------------------------------------------------------------------------- Total current assets 237,480 120,242 - ------------------------------------------------------------------------------- OTHER ASSETS: Investments: Investment in affiliates 6,995 7,492 Investment companies 15,565 22,568 Other investments 14,144 23,119 Other receivables 5,829 5,832 Deferred sales commissions 266,738 238,956 Other deferred assets 5,131 175 Equipment and leasehold improvements, net of accumulated depreciation and amortization of $8,956 and $5,060, respectively 14,938 13,161 Goodwill 69,212 -- Intangible assets, net of accumulated amortization of $871 and $556, respectively 39,269 1,444 - ------------------------------------------------------------------------------- Total other assets 437,821 312,747 - ------------------------------------------------------------------------------- Total assets $675,301 $432,989 - ------------------------------------------------------------------------------- See notes to consolidated financial statements. 28 133 October 31, (in thousands, except share figures) 2001 2000 - ------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accrued compensation $ 38,358 $ 29,050 Accounts payable and accrued expenses 20,879 14,621 Dividend payable 4,955 4,164 Current portion of long-term debt 7,143 7,143 Other current liabilities 12,509 6,815 - ------------------------------------------------------------------------------- Total current liabilities 83,844 61,793 - ------------------------------------------------------------------------------- LONG-TERM LIABILITIES: 6.22% senior notes due 2004 14,286 21,429 1.5% zero-coupon exchangeable senior notes due 2031 201,202 -- Deferred income taxes 73,878 94,817 - ------------------------------------------------------------------------------- Total long-term liabilities 289,366 116,246 - ------------------------------------------------------------------------------- Total liabilities 373,210 178,039 - ------------------------------------------------------------------------------- Minority interest 965 -- - ------------------------------------------------------------------------------- Commitments and contingencies -- -- SHAREHOLDERS' EQUITY: Common stock, par value $0.0078125 per share: Authorized, 640,000 shares Issued and outstanding, 154,880 shares 1 1 Non-voting common stock, par value $0.0078125 per share: Authorized, 95,360,000 shares Issued and outstanding, 68,462,051 and 69,388,814 shares, respectively 535 542 Accumulated other comprehensive income 4,898 5,193 Notes receivable from stock option exercises (2,641) (2,485) Deferred compensation (3,200) (4,000) Retained earnings 301,533 255,699 - ------------------------------------------------------------------------------- Total shareholders' equity 301,126 254,950 - ------------------------------------------------------------------------------- Total liabilities and shareholders' equity $675,301 $432,989 - ------------------------------------------------------------------------------- See notes to consolidated financial statements. 29 134 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Non-voting Additional Common Common Paid-In (in thousands) Shares Stock Stock Capital - --------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1998 71,332 $ 1 $556 $ -- Net income -- -- -- -- Dividends declared ($0.16 per share) -- -- -- -- Issuance of non-voting common stock: On exercise of stock options 1,436 -- 11 5,249 Under employee stock purchase plan 102 -- 1 1,036 Under employee incentive plan 158 -- 1 1,728 Tax benefit of stock option exercises -- -- -- 1,009 Repurchase of non-voting common stock (2,508) -- (19) (9,022) Unrealized holding gain on marketable securities, net of tax -- -- -- -- Principal repayments -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 1999 70,520 1 550 -- Net income -- -- -- -- Dividends declared ($0.20 per share) -- -- -- -- Issuance of non-voting common stock: On exercise of stock options 898 -- 7 4,899 Under employee stock purchase plan 87 -- 1 1,077 Under employee incentive plan 111 -- 1 1,784 Under restricted stock plan 291 -- 2 5,000 Tax benefit of stock option exercises -- -- -- 562 Repurchase of non-voting common stock (2,363) -- (19) (13,322) Unrealized holding gain on marketable securities, net of tax -- -- -- -- Principal repayments -- -- -- -- Compensation expense related to restricted stock issuance -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 2000 69,544 1 542 -- Net income -- -- -- -- Dividends declared ($0.25 per share) -- -- -- -- Issuance of non-voting common stock: On exercise of stock options 918 -- 7 5,184 Under employee stock purchase plan 59 -- 1 1,219 Under employee incentive plan 97 -- 1 2,345 Under restricted stock plan 12 -- -- 300 For acquisitions 801 -- 6 24,593 Tax benefit of stock option exercises -- -- -- 1,611 Repurchase of non-voting common stock (2,814) -- (22) (35,252) Unrealized holding loss on marketable securities, net of tax -- -- -- -- Principal repayments -- -- -- -- Compensation expense related to restricted stock issuance -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------- Balance, October 31, 2001 68,617 $ 1 $535 $ -- - --------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
30 135
Notes Accumulated Receivable Other from Stock Total Other Comprehensive Option Deferred Retained Shareholders' Comprehensive Income Excercises Compensation Earnings Equity Income - ---------------------------------------------------------------------------------------------------------------------------------- $1,120 $(2,957) $ -- $213,089 $211,809 -- -- -- 15,798 15,798 $ 15,798 -- -- -- (11,456) (11,456) -- (1,534) -- -- 3,726 -- -- -- -- 1,037 -- -- -- -- 1,729 -- -- -- -- 1,009 -- -- -- (25,523) (34,564) 2,920 -- -- -- 2,920 2,920 -- 2,260 -- -- 2,260 -------- $ 18,718 -------- - ---------------------------------------------------------------------------------------------------------------------------------- 4,040 (2,231) -- 191,908 194,268 -- -- -- 116,051 116,051 $116,051 -- -- -- (14,226) (14,226) -- (677) -- -- 4,229 -- -- -- -- 1,078 -- -- -- -- 1,785 -- -- (5,000) -- 2 -- -- -- -- 562 -- -- -- (38,034) (51,375) 1,153 -- -- -- 1,153 1,153 -- 423 -- -- 423 -- -- 1,000 -- 1,000 -------- $117,204 -------- - ---------------------------------------------------------------------------------------------------------------------------------- 5,193 (2,485) (4,000) 255,699 254,950 -- -- -- 116,020 116,020 $116,020 -- -- -- (17,361) (17,361) -- (995) -- -- 4,196 -- -- -- -- 1,220 -- -- -- -- 2,346 -- -- (300) -- -- -- -- -- -- 24,599 -- -- -- -- 1,611 -- -- -- (52,825) (88,099) (295) -- -- -- (295) (295) -- 839 -- -- 839 -- -- 1,100 -- 1,100 -------- $115,725 -------- - ---------------------------------------------------------------------------------------------------------------------------------- $ 4,898 $ (2,641) $(3,200) $301,533 $ 301,126 - ----------------------------------------------------------------------------------------------------------------------------------
31 136 CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31, (in thousands) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year $ 60,479 $ 77,395 $ 54,386 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 116,020 116,051 15,798 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle, net of tax -- -- 36,607 Impairment loss on other investments 15,101 -- -- (Gain) loss on sale of investments 2,844 (1,839) (7,325) Equity in net income of affiliates (967) (637) (10) Dividend received from affiliate 1,688 552 368 Minority interest 177 -- -- Interest on long-term debt 650 -- -- Deferred income taxes (20,785) 7,482 26,580 Compensation related to restricted stock issuance 1,100 1,000 -- Depreciation and other amortization 2,602 2,134 1,675 Amortization of deferred sales commissions 74,344 82,809 63,991 Payment of capitalized sales commissions (129,465) (129,458) (147,291) Capitalized sales charges received 27,340 26,719 17,488 Proceeds from sale of trading investments 40,900 45,613 -- Purchase of trading investments (1,333) (84,903) -- Changes in other assets and liabilities, net of acquisitions 10,072 8,354 14,185 - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 140,288 73,877 22,066 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to equipment and leasehold improvements (2,862) (2,670) (11,823) Net (increase) decrease in notes and receivables from affiliates (154) (250) 735 Proceeds from sale of real estate 1,196 -- 25,170 Acquisitions of subsidiaries, net of cash acquired (81,361) -- -- Investment in affiliate -- (172) -- Proceeds from sale of available-for-sale investments 38,053 22,013 49,991 Purchase of available-for-sale investments (132,317) (45,549) (10,673) - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) investing activities (177,445) (26,628) 53,400 - ------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of short-term debt -- -- 12,000 Proceeds from issuance of long-term debt 200,552 -- -- Long-term debt issuance costs (5,069) -- -- Repayment of debt (7,143) (7,142) (27,138) Proceeds from issuance of non-voting common stock 8,756 7,771 8,025 Repurchase of non-voting common stock (88,099) (51,375) (34,564) Dividends paid (16,638) (13,419) (10,780) - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 92,359 (64,165) (52,457) - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 55,202 (16,916) 23,009 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $ 115,681 $ 60,479 $ 77,395 - ------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 1,606 $ 2,068 $ 3,014 - ------------------------------------------------------------------------------------------------------------- Income taxes paid $ 76,453 $ 65,245 $ 5,477 - ------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
32 137 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies BUSINESS AND ORGANIZATION Eaton Vance Corp. and subsidiaries (the Company) provide investment advisory and distribution services to mutual funds and investment management services to private counsel clients, private funds and separately managed accounts. Revenue is largely dependent on the total value and composition of assets under management, which include domestic and international equity, domestic and international debt, real estate and bank loan portfolios. Accordingly, fluctuations in financial markets and in the composition of assets under management impact revenue and the results of operations. SEGMENT INFORMATION Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," establishes disclosure requirements relating to operating segments in annual and interim financial statements. Management has assessed the requirements of SFAS No. 131 and determined that the Company operates in one business segment, namely as an investment advisor managing both domestic and international portfolios. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Eaton Vance Corp. and all of its majority owned subsidiaries. The equity method of accounting is used for investments in affiliates in which the Company's ownership ranges from 20 to 50 percent. The Company provides for minority interests in less than 100 percent owned consolidated companies on its balance sheet. All material intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist principally of short-term, highly liquid investments with maturities of three months or less and are recorded at cost, which is equivalent to market value. INVESTMENTS Management determines the appropriate classification of its investments at the time of purchase. Investments classified as available-for-sale are carried at their estimated fair value. Net unrealized holding gains or losses on these investments are reported net of income taxes as a separate component of "Accumulated other comprehensive income" in the Consolidated Balance Sheets. The cost of investments sold is based on the average cost method. Realized gains or losses are reflected as a component of "Gain (loss) on sale of investments." Investments classified as trading securities are carried at their estimated fair value. Net unrealized holding gains or losses on these investments, as well as realized gains or losses, are reflected as a component of "Other income." Such gains and losses are computed using the average cost assumption. Investments in investment companies held in connection with the Company's activities as principal underwriter are recorded at market value. Realized and unrealized gains and losses are reflected in "Other income." Investments in collateralized debt obligations are classified as available-for-sale and recorded in "Other investments." The excess of future cash flows over the initial investment at the date of purchase is recognized as interest income over the life of the investment using the effective yield method. 33 138 The Company reviews cash flow estimates throughout the life of each collateralized debt obligation to determine if an impairment charge is required to be taken through current earnings. If the updated estimate of future cash flows (taking into account both timing and amounts) is less than the last revised estimate, an impairment loss is recognized based on the excess of the carrying amount of the investment over its fair value. Certain other investments are carried at the lower of cost or management's estimate of net realizable value owing primarily to restrictions relative to resale of the investments. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided principally by the straight-line method over the estimated useful lives of the related assets, which range from three to 20 years, or over the terms of the related leases, if shorter. DEFERRED SALES COMMISSIONS Sales commissions paid to brokers and dealers in connection with the sale of shares of open-end and bank loan interval funds are capitalized and amortized over various periods, none of which exceeds six years. Distribution plan payments received from these funds are recorded in income as earned. Contingent deferred sales charges and early withdrawal charges received by the Company from redeeming shareholders of open-end and bank loan interval funds, respectively, reduce unamortized deferred sales commissions first, with any remaining amount recorded in income. From November 1, 1998 to April 30, 1999, sales commissions paid to brokers and dealers in connection with the sale of bank loan interval funds were expensed as incurred. Subsequent to April 30, 1999, and pursuant to the implementation of new distribution plans, these payments are being capitalized and amortized over one to five years (see Note 4). The Company periodically reviews the amoritzation period for deferred sales commission assets as events or changes in circumstances indicate that the carrying amount of deferred sales commission assets may not be recoverable over their amortization period. In fiscal 2000, the Company adjusted the amortization period of certain deferred sales commission assets in order to better match amortization expense with projected distribution fee income. This adjustment resulted in an increase in amortization expense of $20.0 million in fiscal 2000. There was no such adjustment recorded in fiscal 2001. Sales commissions paid to brokers and dealers in connection with the sale of shares of traditional closed-end funds are expensed as incurred. 34 139 GOODWILL AND OTHER INTANGIBLES Identifiable intangibles generally represent the cost of management contracts acquired. For intangibles acquired prior to June 30, 2001, amortization is provided on a straight-line basis over a period not to exceed 20 years. Any identifiable intangibles acquired after June 30, 2001 are amortized over their useful economic lives. The Company periodically reviews identifiable intangibles for impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. As a result of these periodic reviews, there have been no adjustments to the carrying value of identifiable intangibles in fiscal 2001 or 2000. Goodwill represents the excess of the cost of the Company's investment in the net assets of acquired companies over the fair value of the underlying identifiable net assets at the dates of acquisition. Goodwill is not amortized but will be tested annually for impairment since it arose in acquisitions subsequent to June 30, 2001. REVENUE RECOGNITION Investment advisory, administration, distribution and service fees are accrued as earned. Sales of shares of investment companies in connection with the Company's activities as principal underwriter are accounted for on a settlement date basis, which approximates trade date basis, with the related commission income and expense recorded on a trade date basis. INCOME TAXES Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the Company's assets and liabilities. Such deferred taxes relate principally to capitalized sales commissions paid to brokers and dealers. Prior to January 1, 2001 these commissions were currently deducted for tax purposes. Effective January 1, 2001, sales commissions are deducted for income tax purposes over their estimated useful lives rather than at the time of payment. EARNINGS PER SHARE Basic earnings per share exclude the dilutive effect of outstanding stock options and are computed by dividing net income by the weighted average common shares outstanding of 68.8 million, 70.4 million and 71.6 million in 2001, 2000 and 1999, respectively. Diluted earnings per share reflect the potential dilution that could occur if all outstanding in-the-money stock options were exercised. Diluted earnings per share are computed by increasing the denominator of the basic earnings per share calculation by potentially dilutive common shares of 3.5 million, 2.8 million, and 2.9 million in 2001, 2000 and 1999, respectively. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation awarded to employees in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Pro forma net income and earnings per share information has been presented in Note 9 as required under SFAS No. 123, "Accounting for Stock-Based Compensation," as if the SFAS No. 123 methodology had been applied to employee awards. 35 140 DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency exchange contracts for the sole purpose of hedging certain investments denominated in foreign currencies. As a matter of policy, the Company does not engage in currency speculation. COMPREHENSIVE INCOME Total comprehensive income is reported in the Consolidated Statements of Shareholders' Equity and Comprehensive Income and includes net income and net unrealized holding gains and losses on investments classified as available-for-sale, net of income taxes. ACCOUNTING ESTIMATES The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in such estimates may affect amounts reported in future periods. DEBT ISSUANCE COSTS Deferred debt issuance costs are amortized over the related term of the debt and are included in "Other deferred assets" on the accompanying Consolidated Balance Sheets. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 2. Accounting Developments In June of 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement, effective for the Company's fiscal year beginning November 1, 2000, established accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or a liability measured at its fair value. The adoption of this standard did not have a material impact on the results of operations or consolidated financial position of the Company. In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business combinations entered into after June 30, 2001 to be accounted for using the purchase method of accounting. Under SFAS No. 142, goodwill and identifiable intangible assets with indefinite lives will no longer be amortized, but will be reviewed at least annually for impairment. Identifiable intangible assets with discrete useful lives will be amortized over their useful lives. Goodwill and intangible assets acquired after June 30, 2001 will be subject immediately to the provisions of SFAS No. 142. The Company has adopted the provisions of SFAS No. 141 for its two acquisitions completed September 30, 2001 (see Note 3). Management intends to adopt the provisions of SFAS No. 142 for intangibles and equity investments purchased prior to July 1, 2001 effective November 1, 2001. The adoption of this standard as it relates to intangibles and equity investments purchased prior to 36 141 July 1, 2001 will not have a material impact on the results of operations or consolidated financial position of the Company. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121. SFAS No. 144 is effective for the Company's fiscal year beginning November 1, 2002. Management is currently assessing the impact SFAS No. 144 will have upon adoption. 3. Acquisitions In fiscal 2001, the Company acquired a majority interest in two institutional investment management firms in a strategic effort to expand the Company's managed account and institutional business. On September 30, 2001 the Company acquired 70 percent of Atlanta Capital Management Company, LLC, for an aggregate initial payment of $75.0 million, including cash of $60.0 million and Eaton Vance Corp. non-voting common stock valued at $15.0 million. The value of the 479,359 shares of non-voting common stock issued in conjunction with the acquisition was determined based on the average market price of the Company's non-voting common stock over the 20-day period prior to September 30, 2001. Atlanta Capital's principals will continue to hold 30 percent of the equity of Atlanta Capital through December 31, 2004. Beginning in calendar 2005, Atlanta Capital's principals will have the right to sell and the Company will have the right to purchase the remaining 30 percent of Atlanta Capital over a five-year period. The price for acquiring the remaining 30 percent of Atlanta Capital will be based on a multiple of earnings before taxes (a measure that is intended to approximate fair market value) in those years. On September 30, 2001, the Company also acquired 80 percent of Fox Asset Management, LLC, for an aggregate initial payment of $32.0 million, including cash of $22.4 million and Eaton Vance Corp. non-voting common stock valued at $9.6 million. The value of the 321,544 shares of non-voting common stock issued in conjunction with the acquisition was determined based on the average market price of the Company's non-voting common stock over the 10-day period prior to September 30, 2001. Additional payments to Fox Asset Management shareholders in 2005 and 2006 of up to $30.0 million are contingent upon achieving certain financial performance criteria. Fox Asset Management's principals will continue to hold 20 percent of the equity of Fox Asset Management through December 31, 2007. Beginning in calendar 2008, Fox Asset Management's principals will have the right to sell and the Company will have the right to purchase the remaining 20 percent of Fox Asset Management over a four-year period. The price for acquiring the remaining 20 percent of Fox Asset Management will be based on a multiple of earnings before interest and taxes (a measure that is intended to approximate fair market value) in those years. The acquisitions of Atlanta Capital and Fox Asset Management were accounted for using the purchase method of accounting and, accordingly, the excess of purchase price, 37 142 including all relevant acquisition costs, over the fair value of the net assets acquired resulted in goodwill of $50.3 million and $18.9 million, respectively. The total amount of goodwill acquired will be deductible for tax purposes and will be tested for impairment annually. Net assets acquired included $24.6 million and $13.4 million of other intangible assets for Atlanta Capital and Fox Asset Mangement respectively, which consisted exclusively of advisory contracts. These assets are being amortized on a straight-line basis over their estimated useful lives of approximately 19 years. The total amount of intangible assets acquired will be deductible for tax purposes. The operating results of Atlanta Capital and Fox Asset Management have been included in the accompanying Consolidated Statements of Income from September 30, 2001, the date of acquisition. Pro forma combined results of operations for the acquisitions assuming the acquisitions had occurred at the beginning of the Company's fiscal year have not been presented because the accompanying Consolidated Financial Statements of Income would not have been materially different. 4. Significant Accounting Changes In October 1998, the Financial Accounting Standards Board (FASB) staff addressed the accounting for offering costs incurred in connection with the distribution of funds when the adviser does not receive both Rule 12b-1 fees and contingent deferred sales charges. In its announcement, the FASB staff concluded that such offering costs, including sales commissions paid, were to be considered start-up costs in accordance with American Institute of Certified Public Accountants Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." Accordingly, the FASB staff concluded offering costs should be expensed as incurred under the provisions of SOP 98-5. Prior to the FASB staff announcement, it had been the Company's policy to capitalize and amortize these costs over a period not to exceed five years. Closed-end, interval and private fund sales commissions paid and capitalized prior to the Company's adoption of SOP 98-5 were expensed as a cumulative effect of a change in accounting principle, as described in APB Opinion No. 20, "Accounting Changes." The cumulative effect of the change in accounting principle upon adoption on November 1, 1998 was a charge to the Consolidated Statements of Income of $36.6 million, net of income taxes of $23.4 million. In April of 1999, the bank loan interval funds received shareholder approval and a Securities and Exchange Commission (SEC) exemptive order permitting them, beginning May 1, 1999, to implement Rule 12b-1 equivalent distribution plans. With the implementation of these distribution plans, the Company resumed capitalizing and amortizing sales commissions paid to broker/dealers for sales of its bank loan interval funds effective May 1, 1999, the beginning of the third fiscal quarter of 1999. Closed-end and bank loan interval fund sales commissions expensed from November 1, 1998 to April 30, 1999 totaled $71.3 million. 38 143 5. Investment in Affiliates The Company has a 21 percent equity interest in Lloyd George Management (BVI) Limited (LGM), an independent investment management company based in Hong Kong that manages or co-manages several emerging market mutual funds sponsored by the Company. The Company's investment in LGM was $6.7 million and $7.5 million at October 31, 2001 and 2000, respectively. At October 31, 2001, the Company's investment exceeded its share of the underlying net assets of LGM by $4.9 million. This excess is being amortized over a 20-year period. Upon the adoption of SFAS No. 142 on November 1, 2001, this excess will no longer be amortized, but will be reviewed annually for impairment. 6. Real Estate Investments In November 2000, the Company, through a wholly owned subsidiary, sold a warehouse in Springfield, Massachusetts. The Company recognized a pre-tax loss of $0.3 million based on an aggregate carrying value of $1.5 million at the time of sale. The loss is reported as a component of "Gain (loss) on sale of investments" in the Company's Consolidated Statement of Income. At October 31, 2000, this investment was classified as an "Other current asset" on the Company's Consolidated Balance Sheet. In fiscal 1999, the Company, through a wholly owned subsidiary, sold a shopping center and office building in Troy, New York. The purchaser agreed to acquire the property for fifty thousand dollars and the related indebtedness. A wholly owned subsidiary of the Company will remain as a guarantor on the related indebtedness until such time as certain net operating income and debt service requirements on the property are met. The Company recognized a pre-tax loss of $1.6 million based on an aggregate carrying value of $3.6 million at the time of sale. The loss is reported as a component of "Gain (loss) on sale of investments" in the Company's Consolidated Statements of Income. Also in fiscal 1999, the Company, through a wholly owned subsidiary, sold a warehouse in Colonie, New York and two office buildings in Boston, Massachusetts. The Company recognized pretax gains of $1.3 million and $12.4 million on the sales, respectively. 7. Long-term Debt ZERO-COUPON EXCHANGEABLE SENIOR NOTES On August 13, 2001, the Company's operating subsidiary, Eaton Vance Management (EVM), issued zero-coupon exchangeable senior notes at a principal amount of $314.0 million due August 13, 2031, resulting in gross proceeds of approximately $200.6 million. The net proceeds of the offering were approximately $195.5 million after payment of debt issuance costs. The exchangeable notes were issued in a private placement to qualified institutional buyers at an initial offering price of $638.70 per $1,000 principal amount at maturity. The discounted price reflects a yield to maturity of 1.5% per year. Upon certain events, each note is exchangeable into 14.3657 shares of the Company's non-voting common stock, subject to adjustment. EVM may redeem the exchangeable notes for cash on or after August 13, 2006 39 144 at their accreted value. At the option of holders, EVM may be required to repurchase the exchangeable notes at their accreted value on various dates beginning on the first, third and fifth anniversaries of the issue date, and at five year intervals thereafter until maturity. Such repurchases can be paid in cash, shares of the Company's non-voting common stock or a combination of both. Approximately $85.0 million of the net proceeds were used to finance the acquisitions of Atlanta Capital and Fox Asset Management and related acquisitions costs; an additional $52.2 million was used to repurchase shares of the Company's non-voting common stock. 6.22% SENIOR NOTE The Company has a 6.22% senior note due March 2004 with a remaining balance of $21.4 million at October 31, 2001. Principal payments on the note are due in equal annual installments of approximately $7.1 million. The note may be prepaid in part or in full at any time. Certain covenants in the senior note purchase agreement require specific levels of cash flow and net income and others restrict additional investment and indebtedness. REVOLVING CREDIT FACILITY The Company canceled its $50.0 million senior unsecured revolving credit facility effective August 13, 2001, prior to the closing of EVM's private placement of its zero-coupon exchangeable senior notes. 8. Lease Commitments The Company leases certain office space and equipment under noncancelable operating leases. Rent expense under these leases in 2001, 2000 and 1999 amounted to $4.6 million, $4.5 million, and $2.4 million, respectively. Future minimum lease commitments are as follows: Year Ending October 31 Amount - ---------------------------------------------------------------- (in thousands) 2002 $ 4,706 2003 4,965 2004 5,282 2005 5,137 2006 4,955 2007-- thereafter 12,372 - ---------------------------------------------------------------- Total $37,417 - ---------------------------------------------------------------- 9. Stock Plans STOCK OPTION PLAN The Company has a Stock Option Plan (the 1998 Plan) administered by the Option Committee of the Board of Directors under which stock options may be granted to employees of the Company. No stock options may be granted under the plan with an exercise price of less than the fair market value of the stock at the time the stock option is granted. The options expire five to 10 years from the date of grant and vest over a five-year period as stipulated in each grant. The 1998 Plan contains provisions, which, in the event of a change in control of the Company, may accelerate the vesting of awards. A total of 7.2 million shares have been reserved for issuance under the 1998 Plan. Through October 31, 2001, 4.7 million shares have been issued pursuant to this plan. 40 145 Stock option transactions under the 1998 Plan and predecessor plans are summarized as follows:
2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ---------------------------------------------------------------------------------------------------------------------- (share figures in thousands) Balance, beginning of period 5,395 $10.04 5,130 $ 7.52 5,212 $ 5.39 Granted 2,009 25.44 1,239 17.40 1,412 11.50 Exercised (917) 5.66 (898) 5.46 (1,436) 3.66 Forfeited/Expired (34) 18.14 (76) 13.60 (58) 8.51 - ---------------------------------------------------------------------------------------------------------------------- Balance, end of period 6,453 $15.42 5,395 $10.04 5,130 $ 7.52 - ----------------------------------------------------------------------------------------------------------------------
The weighted average grant date fair value of options granted during the years ended October 31, 2001, 2000 and 1999 were $25.44, $17.40 and $11.50 per share, respectively. Outstanding options to purchase shares of non-voting common stock issued under the 1998 Plan and predecessor plans are summarized as follows:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Shares Weighted Shares Remaining Average Exercisable Average Outstanding as Contractual Exercise as of Exercise Range of Exercise Prices of 10/31/01 Life (Years) Price 10/31/01 Price - ------------------------------------------------------------------------------------------------------------- (share figures in thousands) $5.22 - $5.74 1,184 0.1 $ 5.25 1,184 $ 5.25 $8.92 - $9.81 820 1.0 8.95 735 8.92 $10.06 - $12.62 1,265 4.9 11.45 532 11.43 $17.19 - $18.91 1,140 7.9 17.22 223 17.22 $21.16 - $21.53 47 8.2 21.51 9 21.50 $24.03 - $24.53 1,647 9.0 24.53 18 24.51 $26.98 - $27.13 39 6.4 27.05 -- -- $30.00 - $33.16 311 9.9 30.08 -- -- - ------------------------------------------------------------------------------------------------------------- 6,453 5.4 $15.42 2,701 $ 8.64 - -------------------------------------------------------------------------------------------------------------
In November 2001, the Company granted options for the purchase of an additional 1.8 million shares under the 1998 Plan at prices ranging from $28.67 to $31.54. 41 146 The measurement principles in APB Opinion No. 25 have resulted in no compensation cost being recognized in the consolidated financial statements for the Company's stock option, stock purchase and stock alternative plans in any year presented. Had compensation cost for the Company's stock-based compensation plans been determined consistent with the fair value method as described in SFAS No. 123, the Company's net income and earnings per share for the years ended October 31, 2001, 2000 and 1999 would have been reduced to the following pro forma amounts: 2001 2000 1999 - ----------------------------------------------------------- (net income figures in thousands) Net income: As reported $116,020 $116,051 $15,798 Pro forma $110,218 $113,202 $13,627 Earnings per Share: As reported: Basic $ 1.69 $ 1.65 $ 0.22 Diluted $ 1.60 $ 1.58 $ 0.21 Pro forma: Basic $ 1.60 $ 1.61 $ 0.19 Diluted $ 1.52 $ 1.55 $ 0.18 The fair value of each option grant included in the pro forma net income shown above is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in fiscal 2001, 2000 and 1999: 2001 2000 1999 - ----------------------------------------------------------- Dividend yield 1.03% 0.96% 1.11% Volatility 33% 29% 31% Risk-free Interest rate 4.7% 5.9% 6.4% Expected life of Options 10 years 10 years 8 years For purposes of pro forma disclosure, the estimated fair value of each option grant is amortized to expense ratably over the option-vesting period. These pro forma amounts may not be indicative of the future benefit, if any, to be received by the option holder. The pro forma information reflected on the previous page may not be representative of the amounts to be expected in future years because the fair value method of accounting described in SFAS No. 123 is not applicable to options granted in fiscal years prior to 1996. RESTRICTED STOCK PLAN The Company has a Restricted Stock Plan administered by the Compensation Committee of the Board of Directors under which restricted stock may be granted to key employees. Restricted shares granted under the plan are subject to restrictions on transferability and carry the risk of forfeiture, based in each case on such considerations as the Compensation Committee shall determine. Unless the Compensation Committee determines otherwise, restricted stock that is still subject to restrictions shall be forfeited upon termination of employment. Restrictions on shares granted lapse in three to seven years from date of grant. A total of 1,000,000 shares has been reserved under the plan. 42 147 A total of 12,228 and 290,910 shares was issued pursuant to the plan at a weighted average grant date fair value of $24.53 and $17.19 per share, respectively, in fiscal 2001 and 2000. Because these shares are contingently forfeitable, compensation expense is recorded over the forfeiture period. The Company recorded compensation expense of $1.1 million and $1.0 million for the years ended October 31, 2001 and 2000, respectively, relating to those shares and shares granted in previous years. EMPLOYEE STOCK PURCHASE PLAN A total of 4.5 million shares of the Company's non-voting common stock has been reserved for issuance under the Employee Stock Purchase Plan. The plan qualifies under Section 423 of the United States Internal Revenue Code and permits eligible full-time employees to direct up to 15 percent of their salaries to a maximum of $12,500 toward the purchase of Eaton Vance Corp. non-voting common stock at the lower of 90 percent of the market price of the non-voting common stock at the beginning or at the end of each six-month offering period. Through October 31, 2001, 3.2 million shares have been issued pursuant to this plan. No compensation expense has been recorded for the discounted purchase price because such plan qualifies under Section 423. INCENTIVE PLAN-STOCK ALTERNATIVE A total of 2.4 million shares of the Company's non-voting common stock has been reserved for issuance under the Incentive Plan-Stock Alternative, a plan that qualifies under Section 423 of the United States Internal Revenue Code. The plan permits employees and officers to direct up to half of their monthly and annual incentive bonuses toward the purchase of non-voting common stock at 90 percent of the average market price of the stock for the five days subsequent to the end of the six-month offering period. Through October 31, 2001, 1.2 million shares have been issued pursuant to this plan. No compensation expense has been recorded for the discounted purchase price because such plan qualifies under Section 423. STOCK OPTION INCOME DEFERRAL PLAN Effective April 19, 2001, the Company established an unfunded, non-qualified Stock Option Income Deferral Plan. The Plan is intended to permit key employees to defer tax recognition of income on exercise of non-qualified stock options previously granted by the Company. As of October 31, 2001, no options have been exercised and placed in trust with the Company. EXECUTIVE LOAN PROGRAM The Company has established an Executive Loan Program under which a maximum of $10.0 million is available for loans to key employees for purposes of financing the exercise of stock options for shares of the Company's non-voting common stock. Such loans are written for a seven-year period, at varying fixed interest rates (currently ranging from 4.8 percent to 8.0 percent), are payable in annual installments commencing with the third year in which the loan is outstanding, and are collateralized by the stock issued upon exercise of the option. Loans outstanding under this program amounted to $2.6 million and $2.5 million at October 31, 2001 and 2000, respectively. 43 148 10. Employee Benefit Plans PROFIT SHARING RETIREMENT PLANS The Company has two profit sharing retirement plans for the benefit of substantially all employees whereby up to 15 percent of eligible compensation of participants may be contributed. The Company has contributed $4.0 million, $4.3 million and $3.7 million, the maximum amounts permitted under the plans, for the years ended October 31, 2001, 2000 and 1999, respectively. SAVINGS PLAN AND TRUST The Company has a Savings Plan and Trust that is qualified under Section 401 of the Internal Revenue Code. All full-time employees who have met certain age and length of service requirements are eligible to participate in the plan. This plan allows participating employees to contribute up to eight percent of their gross salary on a pretax basis to the plan. The Company then matches each participant's contribution on a dollar-for-dollar basis up to a maximum of $1,040. The Company's expense under the plan was $0.3 million for each of the years ended October 31, 2001, 2000 and 1999. SUPPLEMENTAL PROFIT SHARING PLAN The Company has an unfunded, non-qualified Supplemental Profit Sharing Plan whereby key employees of the Company may receive profit sharing contributions in excess of the amounts allowed under the profit sharing retirement plans. No employee may receive combined contributions in excess of $30,000 to the Profit Sharing Retirement Plan and the Supplemental Profit Sharing Plan. The Company's expense under the plan for each of the years ended October 31, 2001, 2000 and 1999 was $2,000, $176,000 and $148,000, respectively. 11. Common Stock Repurchases On October 17, 2001, the Company's Board of Directors authorized the purchase by the Company of up to 4.0 million shares of the Company's non-voting common stock. Through October 31, 2001, 45,000 shares have been acquired under this authorization. An additional 2,769,000 shares were purchased in fiscal 2001 under a previous authorization. Shares repurchased by the Company are constructively retired. 12. Income Taxes The provision for income taxes (before the cumulative effect of a change in accounting principle) for the years ended October 31, 2001, 2000 and 1999 consists of the following: 2001 2000 1999 - --------------------------------------------------------- (in thousands) Current: Federal $ 78,179 $55,954 $ 6,321 State 5,075 7,692 604 Deferred: Federal (16,484) 6,546 23,209 State (4,301) 936 3,371 - --------------------------------------------------------- Total $ 62,469 $71,128 $33,505 - --------------------------------------------------------- Deferred income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts and tax bases of the Company's assets and liabilities. The significant components of deferred income taxes are as follows: 44 149 2001 2000 - --------------------------------------------------------------------- (in thousands) Deferred tax assets: Tax benefit of stock option awards $ 1,010 $ 269 Deferred rent 716 490 Differences between book and tax bases of investments 5,761 683 Other 1,058 1,077 - --------------------------------------------------------------------- Total $ 8,545 $ 2,519 - --------------------------------------------------------------------- Deferred tax liabilities: Deferred sales commissions $76,923 $91,943 Differences between book and tax bases of property 678 939 Unrealized net holding gains on investments 2,806 3,044 Other 877 1,096 - --------------------------------------------------------------------- Total $81,284 $97,022 - --------------------------------------------------------------------- Net deferred tax liability $72,739 $94,503 - --------------------------------------------------------------------- Deferred tax assets and liabilities are reflected on the Company's Consolidated Balance Sheets at October 31, 2001 and 2000 as follows: 2001 2000 - ---------------------------------------------------------------------- (in thousands) Net current deferred tax asset $ 1,139 $ 314 Net non-current deferred tax liability 73,878 94,817 - ---------------------------------------------------------------------- Net deferred tax liability $72,739 $94,503 - ---------------------------------------------------------------------- The Company's effective tax rate was 35 percent, 38 percent and 39 percent in fiscal 2001, 2000 and 1999, respectively. In 2001 there is no difference between the statutory Federal tax rate and the effective tax rate primarily due to the phasing in of mutual fund industry state tax incentives. In 2000 and 1999, the difference between the statutory federal tax rate and the effective tax rate is due primarily to state income taxes. In addition, the exercise of non-qualified stock options resulted in a reduction of taxes payable of approximately $1.6 million and $0.6 million for the years ended October 31, 2001 and 2000. Such benefit has been reflected in shareholders' equity. The Massachusetts Department of Revenue (MDOR) has examined the tax returns for the Company and its subsidiaries for the fiscal years 1993 through 1995. In connection with this examination, the MDOR has assessed additional taxes and interest of $5.8 million. In the opinion of management, after consultation with outside tax and legal counsel, there is significant merit to the positions claimed on the tax returns as filed and the Company intends to vigorously contest the assessment. However, Massachusetts general laws required the Company to pay the assessment in advance. At October 31, 2001 and 2000, the payment has been recorded in "Other receivables" on the Company's Consolidated Balance Sheets. 13. Financial Instruments The estimated fair values of the Company's financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. The fair value amounts discussed below are not necessarily indicative of either the amounts the Company would realize upon disposition of these instruments or the Company's intent or ability to dispose of these assets. 45 150 CASH AND CASH EQUIVALENTS The estimated fair value of cash and cash equivalents approximates their carrying value due to their short-term maturities. SHORT-TERM INVESTMENTS AND INVESTMENT IN INVESTMENT COMPANIES "Short-term investments" and "Investment in investment companies" primarily consist of available-for-sale and trading securities recorded at current market prices. The estimated fair value of these securities approximates their carrying value. OTHER INVESTMENTS Included in "Other investments" at October 31, 2001 are the Company's minority equity investments in three structured products (collateralized debt obligations) that are managed by the Company. The carrying value of $12.8 million and $21.8 million at October 31, 2001 and 2000, respectively, for these securities is their estimated fair value. In fiscal 2001, the Company recognized a pre-tax impairment loss of $15.1 million related to these investments. The impairment loss resulted from higher than forecasted default rates in the high yield bond market and the effects of the higher default rates on the value of the Company's equity investments in its collateralized debt obligations. Also included in "Other investments" are certain investments carried at cost, amounting to $0.9 million at both October 31, 2001 and 2000. Management believes that the fair value of these investments approximates their carrying value. The remaining securities in "Other investments" primarily consist of available-for-sale securities. The carrying value of $0.5 million and $0.4 million at October 31, 2001 and 2000, respectively, for these securities is their estimated fair value. FOREIGN CURRENCY CONTRACT On November 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 requires the Company to recognize all derivatives on the balance sheet at fair value. The Company utilized a foreign currency exchange contract as a fair value hedge of the foreign currency exchange risk resulting from an investment denominated in European Currency Units (Euros). The gain or loss on the derivative instrument (including the ineffective portion of the hedge) as well as any offsetting gain or loss on the hedged item attributable to the hedged risk is recognized currently in earnings in the same accounting period. Prior to the adoption of SFAS No. 133, the foreign currency exchange contract that hedged the Euro-denominated investment was carried at fair value with the unrealized gain or loss associated with the contract reported as a component of Accumulated Other Comprehensive Income in shareholders' equity, consistent with the reporting of the unrealized gain or loss on the related investment. Accordingly, there was no cumulative effect of adjustment upon adoption of SFAS No. 133 on November 1, 2000. 46 151 At October 31, 2001, the Company did not have any open forward exchange contracts. NOTES RECEIVABLE AND OTHER RECEIVABLES The estimated fair value of receivables included in "Other receivables" and "Notes receivable from stock option exercises" on the Company's Consolidated Balance Sheet has been calculated by discounting expected future cash flows using management's estimates of current market interest rates for such notes and receivables. The estimated fair value of these notes and receivables approximates their carrying value. ZERO-COUPON EXCHANGEABLE SENIOR NOTES The estimated fair value of the Company's zero-coupon exchangeable senior notes at October 31, 2001 is $195.6 million, based on discounted future cash flows using a market interest rate available for debt with similar terms. 6.22% SENIOR NOTE The estimated fair value of the Company's 6.22% senior note at October 31, 2001 and 2000 is $22.5 million and $27.7 million, respectively, based on discounted future cash flows using a market interest rate available for debt with similar terms and remaining maturity. UNREALIZED SECURITIES HOLDING GAINS AND LOSSES The Company has classified as available-for-sale investments in sponsored mutual funds included as "Short-term investments," "Investments in investment companies," and "Other investments" on the Company's Consolidated Balance Sheet. Gross unrealized gains and gross unrealized losses have been excluded from earnings and reported in accumulated other comprehensive income as a separate component of shareholders' equity, net of deferred taxes. 2001 2000 - ----------------------------------------------------------------- (in thousands) Investments in sponsored mutual funds $122,781 $45,988 Gross unrealized gains $ 8,290 $ 9,292 Gross unrealized losses $ 690 $ 1,879 Gross unrealized losses related to securities classified as trading were immaterial for the years-ended October 31, 2001 and 2000. 14. Regulatory Requirements Eaton Vance Distributors, Inc., a wholly owned subsidiary of the Company and principal underwriter of the Eaton Vance Funds, is subject to the Securities and Exchange Commission uniform net capital rule (Rule 15c3-1) which requires the maintenance of minimum net capital. For purposes of this rule, the subsidiary had net capital of $46.4 million, which exceeds its minimum net capital requirement of $0.8 million at October 31, 2001. The ratio of aggregate indebtedness to net capital at October 31, 2001 was .27-to-1. 47 152 15. Related Party Transactions Investment advisory, administration, and distribution income earned from investment companies sponsored by the Company were $470.0 million, $412.8 million and $332.6 million in 2001, 2000 and 1999, respectively. The portfolios and related funds that provided over 10 percent of the total revenue of the Company are as follows:
2001 2000 1999 - ------------------------------------------------------------------------------------------------------------- (dollar figures in thousands) Tax-Managed Growth Portfolio and related funds: Investment adviser and administration fees, underwriting commissions, distribution plan payments, contingent deferred sales charges and service fees $178,587 $149,545 $96,625 Percent of revenue 36.7% 34.8% 27.7% Senior Debt Portfolio and related funds: Investment adviser and administration fees, distribution fees, early withdrawal charges and service fees $ 93,181 $118,929 $99,544 Percent of revenue 19.2% 27.7% 28.5%
Investments in sponsored mutual funds that are classified as "Cash and cash equivalents," "Short-term investments" and "Investment in investment companies" in the accompanying consolidated financial statements aggregate approximately $187.2 million and $83.3 million at October 31, 2001 and 2000, respectively. Dividend and interest income earned on these investments aggregated approximately $1.9 million, $3.4 million and $3.1 million in 2001, 2000 and 1999, respectively. The Company recognized net gains (losses) of approximately ($2.6) million, $1.8 million and ($1.0) million in 2001, 2000 and 1999, respectively, resulting from the disposition of sponsored mutual fund investments. 48 153 16. Comparative Quarterly Financial Information (Unaudited)
2001 - ------------------------------------------------------------------------------------------------------------- First Second Third Fourth Full Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------- (in thousands, except per share figures) Total revenue $120,108 $115,470 $124,655 $126,139 $486,372 Operating income $ 47,310 $ 44,701 $ 47,389 $ 51,493 $190,893 Net income $ 32,040 $ 20,802 $ 31,654 $ 31,524 $116,020 Earnings per share: Basic $ 0.46 $ 0.30 $ 0.46 $ 0.46 $ 1.69 Diluted $ 0.44 $ 0.29 $ 0.44 $ 0.44 $ 1.60 2000 - ------------------------------------------------------------------------------------------------------------- First Second Third Fourth Full Quarter Quarter Quarter Quarter Quarter Year - ------------------------------------------------------------------------------------------------------------- (in thousands, except per share figures) Total revenue $102,248 $104,831 $107,983 $114,504 $429,566 Operating income $ 45,244 $ 45,071 $ 44,025 $ 48,324 $182,664 Net income $ 28,339 $ 29,447 $ 27,728 $ 30,537 $116,051 Earnings per share: Basic $ 0.40 $ 0.41 $ 0.39 $ 0.44 $ 1.65 Diluted $ 0.38 $ 0.39 $ 0.37 $ 0.42 $ 1.58
17. Subsequent Event In December 2001, the Company executed a revolving credit facility with several banks. This facility, which expires December 2004, provides that the Company may borrow up to $170 million at market rates of interest that may vary depending on level of usage of the facility and the Company's credit ratings. The agreement contains financial covenants with respect to leverage and interest coverage and requires the Company to pay an annual commitment fee on any unused portion. 49 154 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Eaton Vance Corp.: We have audited the accompanying consolidated balance sheets of Eaton Vance Corp. and its subsidiaries as of October 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended October 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Eaton Vance Corp. and its subsidiaries as of October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2001 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 4 to the financial statements, the Financial Accounting Standards Board staff addressed the accounting for offering costs incurred in connection with the distribution of closed-end funds in 1998. As a result, in 1999 the Company changed its method of accounting for such costs. DELOITTE & TOUCHE LLP Boston, Massachusetts November 21, 2001 (December 21, 2001 as to Note 17) 50 155 EATON VANCE CORP. Directors Officers JOHN G.L. CABOT JAMES B. HAWKES Chairman, President, THOMAS E. FAUST, JR. and Chief Executive Officer JAMES B. HAWKES THOMAS E. FAUST, JR. Executive Vice President LEO I. HIGDON, JR. and Chief Investment Officer JOHN M. NELSON JEFFREY P. BEALE Vice President VINCENT M. O'REILLY and Chief Administrative Officer RALPH Z. SORENSON ALAN R. DYNNER Vice President, Secretary and Chief Legal Officer LAURIE G. HYLTON Vice President and Chief Accounting Officer WILLIAM M. STEUL Vice President, Treasurer and Chief Financial Officer WHARTON P. WHITAKER Vice President and Chief Sales and Marketing Officer 51 156 INVESTOR INFORMATION Eaton Vance Corp. and Form 10-K Transfer Agent and Registrar Eaton Vance Corp. has filed an Annual EquiServe Trust Company, N.A. is the Report on Form 10-K with the Transfer Agent and Registrar for the Securities and Exchange Commission for Company's common stock and maintains the 2001 fiscal year. For a copy of shareholder accounting records. The that Report, which is available free Transfer Agent should be contacted on of charge to shareholders of Eaton questions of change in address, name Vance Corp. upon request, or other or ownership, lost certificates and information regarding the Company, consolidation of accounts. When please contact: corresponding with the Transfer Agent, shareholders should state the exact William M. Steul, name(s) in which the stock is Chief Financial Officer registered and the certificate number, Eaton Vance Corp. as well as pertinent account The Eaton Vance Building information. Please contact: 255 State Street Boston, MA 02109 EquiServe Trust Company, N.A. (617) 482-8260 Post Office Box 43010 Providence, RI 02940 (800) 733-5001 www.equiserve.com Auditors Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 (617) 437-2000 Eaton Vance Corp. The Eaton Vance Building 255 State Street Boston, MA 02109 www.eatonvance.com 52 157 Design: Robert Farrell Associates, Inc. 158 Eaton Vance Corp. Elsie A. Flaherty Violet Apalakian Dorothy Moskovis Elizabeth S. Boveroux Janet E. Sanders Catherine M. Harvey Linda A. Davidson Anne M. Morrison Dianne Sillers Patricia M. Shea Julia Balas Jean M. Plante James B. Hawkes Charles A. Brown Jean F. McGoey Constance T. Wagner Kenneth A. Johnston Patricia M. Procopio Linda C. Hanson Stuart B. Strong A. Walker Martin Patricia A. Andersen Nora B. Bernazzani Wayne R. Saulnier Mark A. Carlson Robert A. Chisholm Linda S. Pingiaro Paula D. Bucciero William J. Austin Anne M. Morgan Theresa S. Thorley Daniel C. Cataldo Jenilde A. Mastrangelo Valeria A. Long Mark S. Venezia Jean C. Elkins Barbara E. Wagner Jane A. Nussbaum Linda A. Doherty Thomas E. Faust Jennifer J. Kirk Cynthia J. Clemson Susan S. Kiewra Thomas J. Fetter Lauren T. Mannone James L. O'Connor Carolyn A. McMakin Anne M. Gallagher Margaret M. Redmond Wharton Whitaker Stephanie H. Brady Duncan W. Richardson Thomas M. Metzold Mary D. Maestranzi Jill D. Lyons James F. Foley Veth S. Huorn Amarilis DaSilva Mary V. Little R. D. McMahon Louise E. Kelley Diane Brissette David Stokkink William H. Ahern Teresa A. Jones Rosemary Leavitt Scott H. Page Lynn W. Ostberg Garfield S. Cover Michael A. Foster Marie Y. Blaise Christian V. Volf Alice L. Sullivan Kathleen McManus George D. Owen James A. Thebado Lynne M. Hetu David M. Thill Payson F. Swaffield Cornelius J. Sullivan Michael M. Weilheimer William M. Gillen Robert B. Macintosh Karen M. Zemotel Gary R. Mikula Katherine L. Colletti Joanne E. Powers Gregory C. Heller Mark J. Whitehouse Kelley Creedon Barbara Campbell Hugh J. Gilmartin Christopher R. Berg Paul F. Jones Amy B. Ursillo Bonnie B. Ramage Perry D. Hooker Deborah A. Zammuto John W. Gibson Raymond P. Cox Jeffrey P. Beale Gregory P. Parker Hadi C. Mezher Delores A. Wood Timothy P. Roach Peter D. Stokinger Julie A. Neviera Richard Finelli Morgan C. Mohrman Kara M. Lawler Donna M. D'Addario Paul F. Allwood Albert F. Barbaro Mark D. Nelson Linda D. Newkirk A. J. Murphy Deanna R. Berry Jane A. Rudnick Walter W. Shulits Leighton Young Kevin C. Schrader Geoffrey G. Marshall Robert H. Bortnick Cecilia J. O'Keefe Barclay Tittmann David B. Rubin Louann Penzo-O'Neill Laurie L. Bisio Joanne M. Shea Elizabeth Kenyon Maureen Gemma Anne Strapp David A. Michaud John M. Trotsky John P. Pumphrey Christine M. Johnston David C. Olivieri Kate B. Waugh Laurie G. Hylton Jae Lu Maynard Brandon William M. Steul William D. Burt Stanley B. Weiland Kathleen Fryer Jonathan G. Isaac Kathleen M. Costello Christopher S. Kitcher Thomas H. Luster Thomas P. Luka James J. Godfrey James Naughton Dana Robinson Charles K. Butler Thomas J. Weyl Carolyn G. Brown Dawn E. Filliatreault Enrique M. Pineda Stefan Thielen Dorothy Bouchard Cynthia M. Beckhusen Mary K. Kreider Maria Reyes Denis J. Hill Marie T. Preston Olympia K. Wheeler William R. Cross Christopher Gaylord Frances Rogell Walter A. Row Dana L. Christensen David McDonald Elizabeth Prall Sean Jost Gretchen Bergstresser Debra S. Wekstein Juliana Riley Edward E. Smiley Alan R. Dynner John Macejka Joseph K. Nelson Marie Y. Charles Brian Dunkley Derek Devine Leanne Parziale Mark D. Burkhard Peter F. Crowley Brian T. King Andrew O. Ogren Craig P. Russ Jerome A. Vainisi James C. Queen Thomas P. Huggins Bree Barletto Michelle Alexander Roseann Sulano Yana Shteyn Michael Botthof Heather Dimella Robert A. O'Neil James C. Bacon Vincent M. Cottone Lisa B. Hill Lorri W. Wheeler Deborah Trachtenberg Martha Locke Tracy A. Lewis John Redding Keith R. Burke Paul M. O'Neil Duke Laflamme Glenn D. Hoff Kristin S. Anagnost Kok W. Chee Sotiria Kourtelidis Tiffany C. Towle Daniel Anaya William J. Delahunty Rex A. Goulding Armin J. Lang Linda B. Carter Scott M. Burg John D. Crowley Michael R. McGurn Heather L. Toce Michael A. Kinahan Daniel J. Ethier Karyn P. Harris Kevin S. Dyer William D. Barton Thomas C. Chester Maria Cappellano Steven J. O'Brien Noah J. Coons Roman Gold Adam Weigold Daniel M. Puopolo Shannon E. McHugh Simon C. Mooney Craig R. Brandon Kirsten Ulich Kerry A. Smith Aaron J. Hodgdon Keith J. Hogan Sandra L. Letourneau Timothy V. Hovey Timothy M. McGee A. S. Jones Scott W. Firth Catherine Gerardi Catherine M. Dinan Scott J. Brady Robin D. Healey David J. Zimmerman Andrew N. Sveen Linda A. Grasso Eric F. Caplinger Elizabeth A. Mashrick Sara E. Chanda Simone N. Santiago Christine Durden Kenneth C. Kindberg Daniele M. Faylo Scott W. Nelson Jean-Claude Gruet Mark B. Paster Judith A. Saryan Raad Siraj Carolee H. Bongiovi Dennis R. Hart Henry M. Kozowyk Thomas J. Cronin Lewis R. Piantedosi Matthew T. Raynor Edward A. Ciancarelli Mary Arutyunyan Margaret E. Pier Jeanene E. Foster Amanda R. Madison Christopher R. Harvey Kiersten Christensen Gabriel Grossman Michael A. Morin Neal B. Pearlman Brendon P. Cooper Nathan W. Long Geoffry V. Dailey Gregory P. Walsh Ann L. Sunderland Jeremiah P. Casey Todd P. Larson James Sarantopoulos Clyde F. Wertz Bruce R. Lewis Donald D. McCaughey Effie Kalantzis Lilly P. Scher Robert J. Toner Erica L. Reardon Matthew R. Hargrave John W. Vaughan James T. Rush Michael R. Mach Patrick E. Bass David Asdourian Allyson J. Allen Maura A. O'Brien Keith R. Jurczynski Chia-Hung Hsiu Gregory A. Piaseckyj Arieh Coll Jeffrey R. Hesselbein Zhan Yu Courtney H. Murray Tina U. Holmes Marisol Rodriguez Andrew K. Cavanagh Ira G. Baron Jebb G. Tether Cheryl A. Mesropian Coolysha Innocent John F. Dolan Kenneth M. Hughes Timothy P. McEwen William R. Squadroni Adam K. Ferrante Robert R. Curtis Tyler P. Blackwell Bernard G. Sandford Lisa Corsini Ben Moreno Alison J. Galgay Brandon J. Curran Thomas L. Grilli Kathleen T. Tully Philip Pace Russell E. Curtis Linda K. Nishi Lauren B. Kiernan Guy Beaudoin Jane Queenan Jean-Paul Clark Shawn J. Vallee Jennifer M. Krechel Aaron A. Berman Michael A. Allison John D. Gill Phillip P. Parziale Celeste C. Terrell John C. Meadows Robert F. Cuccias Robert L. Hammond Peter C. Jones Elizabeth A. McNamara Michael J. Meli Paul A. Stone John W. Hartley Deborah A. Chlebek Samuel C. Scholz Kimberly Meaney Gregory S. Newman Stephen C. Concannon Christine E. Fitzpatrick Craig Castriano David J. Erwin Sara P. Anderson Nicholas J. Campbell David P. Martin Christine M. Bogossian Megan E. Kiely Andrew B. Wetzel Aamer Khan Andrew W. McClelland Michael D. Nappi Brian D. Yearing Ryan P. Cannon Catherine C. McDermott Tracy J. Alter Susan M. Tillinghast Phyllis E. Mastin Philip W. Restifo Douglas H. Brindle Nicholas M. Kazas Janelle L. Wizda Lisa K. Sullivan William A. Andrews Lawrence M. Sinsimer Stephen N. Soltys Kerry B. LePage Paul D. Venditti David H. Leahy III Michael Busby Kevin J. McAuliffe Kristin L. Heitmann Michael P. Sullivan Sadia A. Girault Amy N. Rubino Randall J. Skarda Alex L. Wong Damaris Rodriquez Joshua S. Fiore Pierre-Andre H. Mayer Kerri A. Valeri Elaine Pereira Laurie A. Garlington Jeffrey M. Kagan James R. Ouellette Erica L. Rivers Kenneth D. Robertson James Antoine Steven G. Leveille Robert A. Schlegel Vincenzo Falbo Kimberly J. Bedard Julie A. Ford Michael D. Nardone Ami S. Dion Kevin A. Sullivan Jolene E. Devlin Patrick J. Cosgrove Brendan M. Daly Douglas R. Rogers Jeffrey M. Ketron Andrew M. Gullotti James K. McCuddy Joseph F. Lucier Jason C. Karmelek Michael P. Devlin Melissa E. Haskell Deterra Stephanie M. Jacquard Lidia Sheykina Michael J. Costello Katharine A. Sommer Leon R. Thomas Christopher J. Buckley Jordan K. Haims Victor V. Geyyer Celeste A. Nickas Robert R. Centa Kevin M. Beauchamp Robert C. Mazza Stephen A. Lyons Daniel L. Grover Kyle G. Dussault Scott M. Duberg Martin R. Baker Matthew R. Masciarelli Susan M. Harrison D. B. Deans Glenn D. Vivian Elizabeth Burkhardt Randall A. Clark Gregory J. Murphy Steven J. Widder Kerry S. Doherty Jonathan M. Zadrozny Bradford M. Otis Christina E. Robinson Jason M. Auten Michelle A. Baran Carl D. Carlson Kenneth T. Evans Mark G. Littlewood Michael D. McLean Charles C. Pascal Kimberly M. Cortese Radylynn M. Mejia Adrian S. Dalton Christina B. Asaro Jaime L. Viola James M. Wall Charles H. Womack Paul J. Rose Samuel A. Morris Atlanta Capital Management Company, LLC Dallas L. Lundy Daniel W. Boone Walter F. Reames Deborah H. Bishop Marilyn Robinson Irvin Mary K. McTague Gregory L. Coleman Jerry D. DeVore Lara S. Ratcliff Margaret W. Taylor James A. Womack William R. Hackney Bethany R. Glover R. Kelly Williams Miles R. Hoffman Gillian A. Moore Christopher A. Reynolds Thomas J. Ullman L. Suzanne Marger Melissa L. Davis Mara Fulford Janette E. Andrews Charles B. Reed Jennifer L. Owen Joseph M. Roman Amanda A. Smith Robert R. Walton William O. Bell Elizabeth T. Williams Angela S. LaJesse Paul J. Marshall Jasmin L. Crable Adeline Kim C. Burney Dawkins Meghan A. Dacey Michelle Breig Fox Asset Management, LLC J. Peter Skirkanich Linda L. Barberi Rebecca W. Olson Sandra M. Seibert Cherie L. Weisse George C. Pierides Stuart E. Briskey Donald A. Grella John W. Feaster Kimberly A. Hing Danette M. Kearns Cheryl A. Cowan Norah C. Castillo Lynn M. Ciecwicz Maria Ida Zito Caroline R. Benjamin Julie A. Crolius John R. Sampson James P. O'Mealia Mary J. Sauer Sherri A. Peterpaul Gregory R. Greene Philip R. Sloan Colette M. Jacobsen Douglas P. Edler Tanvir Ahmed Vicki Dowbnia Janet Schnappauf Peter D. Hartman James P. Kaffen Greg S. Whitehead Christopher J. Marlin Meridith L. McCarthy Constance Barrella Sheri A. Datre David R. Kling 0441-AR-02 EX-21.1 6 ex21_1.txt LIST OF COMPANY'S SUBSIDIARIES 159 EXHIBIT 21.1 LIST OF SUBSIDIARIES AS OF OCTOBER 31, 2001*
STATE OR JURISDICTION OF NAME UNDER WHICH INCORPORATION OR SUBSIDIARY DOES ORGANIZATION BUSINESS FIRST TIER SUBSIDIARY OF EATON VANCE CORP.: Eaton Vance Business Trust Massachusetts Same CERTAIN SUBSIDIARIES OF EATON VANCE BUSINESS TRUST: Eaton Vance Management Massachusetts Same CERTAIN SUBSIDIARIES OF EATON VANCE MANAGEMENT: Eaton Vance Distributors, Inc. Massachusetts Same Boston Management and Research Massachusetts Same Eaton Vance Acquisitions Massachusetts Same CERTAIN SUBSIDIARIES OF EATON VANCE ACQUISITIONS: Atlanta Capital Management Company, LLC Delaware Same Fox Asset Management LLC Delaware Same * The names of certain subsidiaries have been omitted in this list inasmuch as the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the Company's fiscal year ended October 31, 2001.
EX-23.1 7 ex23_1.txt INDEPENDENT AUDITOR'S CONSENT 160 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT To the Board of Directors and Shareholders of Eaton Vance Corp.: We consent to the incorporation by reference in the Registration Statements listed at Exhibit 99.2 on Forms S-8 and S-3 of Eaton Vance Corp. (the "Company") of our report dated November 21, 2001 (December 21, 2001 as to Note 17) (the report on the consolidated financial statements expressing an unqualified opinion and including an explanatory paragraph relating to changes in the method of accounting for offering costs incurred in connection with the distribution of closed-end funds) incorporated by reference in the Annual Report on Form 10-K of the Company for the year ended October 31, 2001. DELOITTE & TOUCHE LLP Boston, Massachusetts January 29, 2002 EX-99.2 8 ex99_2.txt LIST OF EV CORP. OPEN REGISTRATION STATEMENTS 161 EXHIBIT 99.2 EATON VANCE CORP. OPEN REGISTRATION STATEMENTS REGISTRATION STATEMENT FILING DATE FILING NUMBER ---------------------- ----------- ------------- Form S-3 November 9, 2001 333-73080 Form S-8 November 13, 2000 333-49744 Form S-8 June 26, 2000 333-40112 Form S-8 April 28, 2000 333-35940 Form S-8 October 29, 1999 333-89921 Form S-8 August 13, 1999 333-85137 Form S-8 August 26, 1998 333-62259 Form S-8 September 3, 1998 333-62801 Form S-8 September 9, 1998 333-63077 Form S-8 December 19, 1997 333-42813 Form S-3 June 28, 1995 33-60649 Form S-8 June 27, 1995 33-60617 Form S-8 December 1, 1994 33-56701 Form S-8 June 8, 1994 33-54035 Form S-8 March 8, 1994 33-52559 Form S-8 April 23, 1992 33-47405 Form S-8 April 23, 1992 33-47403 Form S-8 April 23, 1992 33-47402 Form S-8 April 23, 1992 33-47401 Form S-3 February 13, 1992 33-45685 Form S-8 September 16, 1991 33-42667 Form S-8 October 11, 1989 33-31382 Form S-8 April 10, 1987 33-13217 -----END PRIVACY-ENHANCED MESSAGE-----