EXCHANGE AGREEMENT

EXCHANGE AGREEMENT

by and among

THE INVESTORS AND MANAGEMENT STOCKHOLDERS

NAMED ON SCHEDULE A HERETO

and

HIGHBURY FINANCIAL INC.

August 10, 2009

 

 

TABLE OF CONTENTS

 

TABLE OF CONTENTS

(Cont’d.)

 

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.  THE SECURITIES PURCHASED HEREUNDER ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND RESALE UNDER AN INVESTOR RIGHTS AGREEMENT, AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND OTHER APPLICABLE LAWS PURSUANT TO REGISTRATION OR EXEMPTION FROM REGISTRATION REQUIREMENTS THEREUNDER AND UNDER SUCH AGREEMENT.

EXCHANGE AGREEMENT

This Exchange Agreement (the “ Agreement ”) is made as of this 10th day of August, 2009 by and among the persons named as Investors set forth on Schedule A hereto (each an “ Investor ”, and, collectively, the “ Investors ”), the persons named as Management Stockholders set forth on Schedule A hereto, and Highbury Financial Inc., a Delaware corporation (the “ Company ”), with reference to the following background.

RECITALS

WHEREAS, the Investors own 350 Series B LLC Units of Aston Asset Management LLC, a Delaware limited liability company (“ Aston ”), which constitutes all of the issued and outstanding Series B LLC Units of Aston; and

WHEREAS, pursuant to the terms of this Agreement, the Investors wish to exchange their respective Series B LLC Units (the “ Exchange ”) for shares of Series B Preferred Stock (as defined below), having the rights and preferences set forth in the form of Certificate of Designation of Series B Convertible Preferred Stock of Highbury Financial Inc. attached hereto as Exhibit A (the “ Certificate of Designation ”);

AGREEMENT

NOW, THEREFORE, in consideration of the premises and of the mutual agreements hereinafter contained, the parties hereby agree as follows, with the obligations of each Investor and Management Stockholder being several and not joint:

ARTICLE I

DEFINITIONS

Section 1.01.    Definitions .  As used in this Agreement, the following terms have the following meanings:

“ Advisers Act ” shall mean the Investment Advisers Act of 1940, as it may be amended from time to time, and any successor to such act.

“ Affiliate ” shall mean, with respect to any Person (herein the “ first party ”), any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such first party. The term “ control ” as used herein (including the terms “ controlled by ” and “ under common control with ”) means the possession, directly or indirectly, of the power to (a) vote twenty-five percent (25%) or more of the outstanding voting securities of such Person, or (b) otherwise direct the management or policies of such Person by contract or otherwise (other than solely as a director of a corporation (or similar entity) that has five (5) or more directors). For the purposes of this Agreement, the Company shall not be deemed to be an Affiliate of Aston.

“ Agreement ” means this Exchange Agreement, as amended from time to time.

“ Asserted Liability ” shall have the meaning set forth in Section 7.11(a).

“ Aston ” shall have the meaning set forth in the recitals.

“ Board ” means the Board of Directors of the Company.

“ Certificate of Designation ” shall have the meaning set forth in the recitals

“ Claims ” shall have the meaning set forth in Section 7.11.

“ Claims Notice ” shall have the meaning set forth in Section 7.11(a).

“ Client ” shall mean all Past Clients, Present Clients and Potential Clients, subject to the following general rules: (i) with respect to each Client, the term shall also include any Persons which are known to the Investor or Management Stockholder to be Affiliates of such Client, directors, officers or employees of such Client or any such Affiliates thereof, or Persons who are known to the Investor or Management Stockholder to be members of the Immediate Family of any of the foregoing Persons or Affiliates of any of them and (ii) with respect to any Client that is a Fund, the term shall also include any investor or participant in such Fund and any Person that has participated in the distribution or sale of such Fund.

“ Closing ” shall have the meaning set forth in Section 2.05

“ Closing Date ” shall have the meaning set forth in Section 2.05.

“ Common Stock ” means the common stock of the Company, $0.0001 par value per share.

“ Company ” shall have the meaning set forth in the preamble.

“ Contractual Obligation ” shall have the meaning set forth in Section 4.06.

“ Controlled Affiliate ” shall mean, with respect to a Person, any Affiliate of such Person under its “ control ,” as the term “ control ” is defined in the definition of Affiliate.

“ Current Aston LLC Agreement ” shall mean that certain Second Amended and Restated Limited Liability Company Agreement of Aston dated January 7, 2008.

“ Financial Statements ” shall have the meaning set forth in Section 5.07(b).

“ Exchange ” shall have the meaning set forth in the recitals.

“ Fund ” shall mean any Mutual Fund or other commingled fund for which Aston provides Investment Services.

“ Governmental Authority ” shall have the meaning set forth in Section 4.05.

“ Immediate Family ” shall mean, with respect to any natural person, (a) such person’s spouse, parents, grandparents, children, grandchildren and siblings, (b) such person’s former spouse(s) and current spouses of such person’s children, grandchildren and siblings and (c) estates, trusts, partnerships and other entities of which substantially all of the interests are held directly or indirectly by the foregoing.

“ Intellectual Property ” shall have the meaning specified in Section 2.07(d) hereof.

“ Investment Services ” shall mean any services which involve (a) the management, administration, solicitation or distribution of an investment account, Mutual Fund or other commingled fund (or portions thereof or a group of investment accounts, Mutual Funds or other commingled funds) for compensation, (b) the giving of advice with respect to the investment and/or reinvestment of assets or funds (or any group of assets or funds) for compensation, or (c) otherwise acting as an “investment adviser” within the meaning of the Advisers Act.

“ Investor(s) ” shall have the meaning set forth in the preamble.

“ Investor Rights Agreement ” shall mean that certain Investor Rights Agreement of even date herewith among the Company, the Investors and Management Stockholders in the form attached hereto as Exhibit B .

“ Management Agreement ” shall mean that certain Management Agreement of even date herewith between Aston, the Company and the Management Stockholders in the form attached hereto as Exhibit C .

“ Management Committee ” shall have the meaning specified in the Management Agreement.

“ Management Stockholder(s) ” shall mean (a) in the case of any Investor which is a natural person, such Investor, and (b) in the case of any Investor which is not a natural person, that certain employee of Aston (or one of its Controlled Affiliates) who is the owner of the issued and outstanding capital stock of, or other equity interests in, such Investor and is listed as such on Schedule A hereto (including any such employee after such employee has transferred any of its, his or her interest in such Investor to a Permitted Transferee (as such term is defined in the Investor Rights Agreement)).

“ Mutual Fund ” shall mean a registered investment company (or series of registered investment companies).

“ Past Client ” shall mean at any particular time, any Person who at any point prior to such time had been engaged to distribute or sell any Fund, an advisee or investment advisory customer of, or otherwise a recipient of Investment Services from, Aston, a Controlled Affiliate of Aston, a Predecessor Business or any such predecessor, or any shareholder, partner, member, director or officer of any such Person (in each case whether directly or through one or more intermediaries, e.g., a wrap sponsor, or through investment in a Fund), but at such time is not an advisee or investment advisory customer or client of, or recipient of Investment Services from, Aston or any of its Controlled Affiliates (directly or indirectly).

“ Person ” means any individual, partnership (limited or general), corporation, limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or other entity.

“ Potential Client ” shall mean, at any particular time, any Person or any shareholder, partner, member, director, officer, employee, agent or consultant (or Persons acting in any similar capacity) of any such Person to whom Aston, a Controlled Affiliate of Aston or the Predecessor Business has, within two (2) years prior to such time, offered (whether by means of a personal meeting, telephone call, letter, written proposal or otherwise) to serve as investment adviser or otherwise provide Investment Services or solicited to invest in, or participated in the distribution or sale of, any Fund, but who is not at such time an advisee or investment advisory customer of, or otherwise a recipient of Investment Services from, Aston, any of its Controlled Affiliates (directly or indirectly) or any investor in, or participant in the distribution or sale of, any Fund. The preceding sentence is meant to exclude (i) advertising, if any, through mass media in which the offer, if any, is available to the general public, such as magazines, newspapers and sponsorships of public events and (ii) “cold calls” and mass-mailing form letters, in each case to the extent not directed towards any particular Person and not resulting in an indication of interest or a request for further information.

“ Predecessor Business ” shall mean the business of the parties to the Purchase Agreement immediately prior to the Closing (as such term is defined in the Purchase Agreement).

“ Present Client ” shall mean, at any particular time, any Person who is at such time an advisee or investment advisory customer of, or otherwise a recipient of Investment Services from, Aston, any of its Controlled Affiliates (directly or indirectly) or any investor in, or participant in the distribution or sale of, any Fund.

“ Prohibited Competition Activity ” shall mean any of the following activities:

(a)           directly or indirectly, whether as owner, part owner, member, director, officer, trustee, employee, agent or consultant for or on behalf of any Person other than Aston or any Controlled Affiliate of Aston: (i) diverting or taking away any funds or investors from any Fund; (ii) soliciting or otherwise inducing or attempting to cause any Person to divert or take away any assets or funds invested in such Funds; or (iii) soliciting or otherwise inducing or attempting to cause any subadviser, distributor or seller of the Funds to terminate or reduce its services on behalf of the Funds; and

(b)           directly or indirectly, whether as owner, part owner, partner, member, director, officer, trustee, employee, agent or consultant for or on behalf of any Person other than Aston or any Controlled Affiliate of Aston, performing any Investment Services.

“ Promissory Note ” shall mean a promissory note issued by the Corporation in substantially the form attached hereto as Exhibit D .

“ Purchase Agreement ” shall mean that certain Asset Purchase Agreement, dated as of April 20, 2006, by and among ABN AMRO Asset Management Holdings, Inc., ABN AMRO Investment Fund Services, Inc., ABN AMRO Asset Management, Inc., Montag & Caldwell, Inc., Tamro Capital Partners LLC, Veredus Asset Management LLC, River Road Asset Management LLC and Aston.

“ Requirement of Law ” shall have the meaning set forth in Section 4.06.

“ SEC ” shall mean the Securities and Exchange Commission, and any successor Governmental Authority thereto.

“ SEC Reports ” shall have the meaning set forth in Section 5.07(a).

“ Securities Act ” means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated thereunder by the SEC from time to time.

“ Securities Exchange Act ” means the Securities Exchange Act of 1934, as amended.

“ Series B LLC Unit ” means the Series B limited liability company interests of Aston.

“ Series B Preferred Stock ” means the Series B Convertible Preferred Stock of the Company, $0.0001 par value per share.

“ Transaction Documents ” shall mean this Agreement, the Investor Rights Agreement and the Management Agreement.

ARTICLE II

EXCHANGE

Section 2.01.           Exchange of Series B LLC Units for Series B Preferred Stock by Management Stockholders .  On the terms and subject to the conditions of this Agreement, at the Closing, the Company hereby agrees to issue to each of the Investors such numbers of shares of Series B Preferred Stock listed next to the name of such Investor on Schedule A hereto (based on an exchange ratio of 2.85714 shares of Series B Preferred Stock to one Series B LLC Unit) in exchange for all of the Series B LLC Units held by such Investor.  At the Closing, each of the Investors shall deliver to the Company assignments duly executed by such Investor representing the respective number of Series B LLC Units held by such Investor, in exchange for the number of shares of Series B Preferred Stock as provided in this Section 2.01.

Section 2.02.          Certificate of Designation .  Immediately prior to the Closing, the Company shall file the Certificate of Designation with the Secretary of State of the State of Delaware.

Section 2.03.          Management Agreement .  The Company shall, and shall cause Aston to, and the Management Stockholders shall, execute and deliver the Management Agreement, which shall automatically become effective upon the consummation of the Closing.

Section 2.04.          Investor Rights Agreement .  The Company, the Management Stockholders, and the Investors shall execute and deliver the Investor Rights Agreement, which shall automatically become effective upon the consummation of the Closing.

Section 2.05.          Closing .  The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place on the date hereof (the “ Closing Date ”) at the offices of Bingham McCutchen LLP, 399 Park Avenue, New York, New York.  Upon consummation of the Closing, the Company will own 100% of the outstanding Series B LLC Units of Aston.

Section 2.06.          Amended and Restated Aston LLC Agreement .  Immediately following the Closing, the Company shall execute the Third Amended and Restated Limited Liability Company Agreement of Aston in the form attached hereto as Exhibit E .

Section 2.07.          Restrictions on Competition, Non-Solicitation and Non-Disclosure by Management Stockholders .

(a)           Each Investor and Management Stockholder agrees, for the benefit of the Company and Aston, that such Investor or Management Stockholder (as the case may be) shall not, while employed by Aston or any of its Affiliates, and for that number of years following termination of such employment set forth opposite such Investor’s or Management Stockholder’s name on Schedule A hereto engage in any Prohibited Competition Activity.

(b)           In addition to, and not in limitation of, the provisions of Section 2.07(a) hereto, each Investor and the related Management Stockholder agrees, for the benefit of the Company and Aston, that such Investor or Management Stockholder (as the case may be) shall not, during the period beginning on the date hereof, and until the date which is that number of years following termination of such employment set forth opposite such Investor’s or Management Stockholder’s name on Schedule A hereto of such Management Stockholder’s employment with Aston and all of its Affiliates, without the express written consent of the Company and the Management Committee (as such term is defined in the Management Agreement), directly or indirectly, whether as owner, part-owner, shareholder, partner, member, director, officer, trustee, employee, agent or consultant, or in any other capacity, on behalf of itself or any firm, corporation or other business organization other than Aston and its Controlled Affiliates:

For purposes of this Section 2.07(b), the term “ Past Client ” shall be limited to those Past Clients who were recipients of Investment Services, directly or indirectly (including through investment in any Fund), from Aston and/or their respective Controlled Affiliates at the date of termination of the Management Stockholder’s employment at any time during the two (2) years immediately preceding the date of such termination.

Notwithstanding the provisions of Section 2.07(a) and 2.07(b), any Management Stockholder or Investor may (i) make passive personal investments in an enterprise (whether or not competitive with the Company or Aston) the shares or other equity interests of which are publicly traded, provided his holding therein together with any holdings of his Affiliates and members of his Immediate Family, are less than five percent (5%) of the outstanding shares or comparable interests in such entity; and (ii) serve as a trustee of a registered investment company; provided, further, that notwithstanding the provisions of Section 2.07(a) and 2.07(b), Stuart Bilton may continue to serve as a director and member of the investment committee of the Board of Directors of Baldwin & Lyons, Inc.

(c)           Each Investor and Management Stockholder agrees that any and all presently existing investment advisory businesses of Aston and its Controlled Affiliates and all businesses developed by Aston, any of its Controlled Affiliates, and the Predecessor Business, including by such Management Stockholder or any other employee of Aston or any of its Controlled Affiliates, the Predecessor Business or any predecessor thereto (whether or not in such person’s individual capacity), including without limitation, all investment methodologies, all investment advisory contracts, fees and fee schedules, commissions, records, data, Client lists, agreements, trade secrets, and any other incident of any business developed by Aston, its Controlled Affiliates, the Predecessor Business or any predecessor thereto, or earned or carried on by the Management Stockholder for Aston, any of its Controlled Affiliates, the Predecessor Business or any predecessor thereto, and all trade names, service marks and logos under which Aston or its Affiliates (or any predecessor thereto) do or have done business, and any combinations or variations thereof and all related logos, are and shall be the exclusive property of Aston or such Controlled Affiliate thereof, as applicable, for its or their sole use, and (where applicable) shall be payable directly to Aston or such Controlled Affiliate. In addition, each Management Stockholder acknowledges and agrees that the investment performance of the accounts managed by Aston or any Controlled Affiliate thereof was attributable to the efforts of the team of professionals of Aston, such Controlled Affiliate thereof, such Predecessor Business or such predecessor thereto, and not to the efforts of any single individual or subset of such team of professionals, and that, therefore, the performance records of the accounts managed by Aston or any of its Controlled Affiliates (or any predecessor to any of them), including without limitation, the Funds, are and shall be the exclusive property of Aston or such Controlled Affiliate, as applicable (and not of any other Person or Persons).

(d)           Each Investor and Management Stockholder acknowledges that, in the course of performing services under the Management Agreement and otherwise, such Investor or Management Stockholder (as applicable) has had, and will from time to time have, access to information of a confidential or proprietary nature, including without limitation, all confidential or proprietary investment methodologies, trade secrets, proprietary or confidential plans, Client identities and information, Client lists, service providers, business operations or techniques, records and data (“ Intellectual Property ”) owned or used in the course of business by Aston, its Controlled Affiliates or any of the parties to the Purchase Agreement. Each Investor and Management Stockholder agrees always to keep secret and not ever publish, divulge, furnish, use or make accessible to any